US & World Daily Markets Financial Briefing 04-02-2010

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Stocks Posting Steep Losses In Mid-Morning Trading

Stocks are showing substantial weakness in mid-morning trading on Thursday, as concerns over the battered labor market and overseas credit have generated significant selling pressure in the face of positive earnings and recovering retail sales. The major averages are all firmly in negative territory, offsetting the gains posted early in the week.

The weakness among stocks has come as the Labor Department released a report showing that initial jobless claims for the week ended January 30th unexpectedly edged up to 480,000 from the previous week's revised figure of 472,000. Economists had been expecting jobless claims to fall to 455,000 from the 470,000 originally reported for the previous week.

Peter Boockvar, equity strategist for Miller Tabak, said, "Ahead of tomorrow's Payroll figure, the claims data has lost a bit of its recent momentum and reflects a private sector that still remains very reluctant to add workers."

Meanwhile, the Commerce Department recently reported that orders for manufactured goods increased by 1.0 percent in December following a matching increase in November. Economists had been expecting factory orders to increase by 0.5 percent compared to the 1.1 percent increase originally reported for the previous month.

The condition of overseas credit markets are also a significant overhang on market sentiment today, with continued debt problems faced by Greece, Spain and Portugal contributing to the selling pressure.

Back in the U.S., retailers' January sales largely came in better than expected, with Saks (SKS) reporting comparable store sales that rose 7.0 percent, while Kohl's (KSS) sales were up by 6.5 percent and American Eagle (AEO) reported a pick of 10 percent. On the downside, J. C. Penney (JCP) saw a decrease of 4.6 percent and Dillard's (DDS) saw a drop of 5 percent.

In earnings news, Cisco (CSCO) reported adjusted second quarter income of $0.40 per share, topping estimates that called for earnings of $0.35 per share. Revenues were also able to best estimates, coming in at $9.8 billion compared to the expected $9.41 billion for the period.

Food giant Sara Lee Corp. (SLE) reported that its second-quarter net earnings came in at $0.53 per share, compared to a loss of $0.02 per share in the same quarter last year. On an adjusted basis, the company earned $0.36 per share in the period and quarterly revenues came in at $2.86 billion. Analysts had expected the firm to earn $0.23 per share on revenues of $3.12 billion.

After the close of trading in the previous session, restaurant chain operator Yum! Brands, Inc. (YUM) said that its third quarter profit rose 6 percent from last year, helped by strong profit growth in China and the U.S. The company's quarterly earnings also breezed past Street expectations, while revenues fell short.

Automotive giant, Toyota Motor Corp. (TM), which has recently been troubled by recall woes, reported a profit for the third quarter, helped by higher sales and lower costs. During the quarter, the company reported improved operating income in all regions. Looking ahead, the company raised its forecast for fiscal 2010, citing increased sales volume and mix, as well as overall cost reduction efforts.

The major averages have slowed their decline in recent decline but remain near their lows of the session. The Dow is currently 181.00 at 10,089.55, the Nasdaq is down 39.92 at 2,150.99 and the S&P 500 is down 21.42 at 1,075.86.

Sector News

Gold stocks are some of the morning's worst performers, as reflected by the 4.6 percent slide by the NYSE Arca Gold Bugs Index. With the decline, the index sank to a five-month intraday low in earlier trading.

Gold Fields Ltd. (GFI) is one of the worst performers in the sector, falling by 8 percent to a seven month intraday low.

The decline by gold stocks comes along with a drop in the price of the precious metal, which is currently down by $27.90 to $1,084.10 an ounce. The European credit concerns have led to some strength in the value of the U.S. dollar, which in turn has pushed the price of gold sharply lower.

Steel, semiconductor, airline, and electronic storage stocks are also moving sharply lower along with many others and have nearly offset all of the gains posted earlier in the week.

Stocks Driven By Analyst Comments

Delta Air Lines (DAL) is moving lower after being downgraded by JP Morgan from Overweight to Neutral. The stock is down by 5.7 percent, falling to a one-month intraday low.

Investment Tech (ITG) is also on the downside following a downgrade at Keefe Bruyette from Outperform to Market Perform. The price target on the stock was also lowered from $26 to $19. Shares are currently down by 5.2 percent, sinking to its lowest intraday price in two months.

On the other hand, Total System (TSS) is on the rise after an upgrade at Barclays Capital from Underweight to Equal Weight. The stock is up by 0.8 percent, continuing to move off of Friday's six-month closing low.

TSX Ends Choppy Session Marginally Lower

Toronto's main index closed marginally lower Wednesday, following notable back-to-back gains early this week. Recovery in energy and technology stocks helped narrow the losses.

The S&P/TSX Composite Index ended lower by 17.88 points or 0.16% to 11,390.46, still over 2.5% higher than the two-month low reached on Friday.

The Information Technology Index gained 0.20%, with Research In Motion Ltd. rising 3.52%.

Major financial stocks closed in the negative territory, with Canadian Imperial Bank losing 0.79% and Royal Bank of Canada easing 0.59%, while CI Financial Corp. was up 0.23%.

The Energy Index was up 0.21%, with Cenovus Energy Inc. adding 1.53% and Encana Corp. gaining 0.18%. Imperial Oil Ltd lost 1.39%, after the Calgary-based oil refiner reported Tuesday a worse-than-expected decline in fourth quarter profit.

Oil prices settled lower after choppy trading, as traders weighed a resurgent US Dollar and data showing a bigger-than-expected weekly rise in crude inventories against encouraging economic releases that buoyed expectations for improved demand.

March Crude oil retreated after touching $78 levels, and settled $0.25 lower at $76.98 per barrel in the New York Mercantile Exchange.

North American Energy Partners Inc. which had reported early this week a profit for the third-quarter compared to a loss last year, rose 8.07 %.
 
Among gold stocks, Barrick Gold Corp. was off 0.65%, while Kinross Gold Corp. gained 1.21%.The price of gold in the spot market was off US$5.5 to US$1109 per troy ounce.

The base metals sector was the top loser for the day, with its index shedding 3.79%.

Vancouver-based Quadra Mining Ltd. which said its first quarter copper production may be lower than forecast as a result of rain storms, surrendered 8.09%.

Zarlink Semiconductor, which along with Freescale Semiconductor introduced a reference design Wednesday targetted at supporting high bandwidth Smartphone services, was up 4.84%.

From the south of the border, data released by Automatic Data Processing, Inc. on Wednesday revealed the US non-farm private employment fell by 22,000 jobs in January, which was less than economists' expectation for a decrease of 30,000 jobs.

Institute for Supply Management's service sector index rose to 50.5 in January from a downwardly revised 49.8 in December. A reading above 50 indicates growth in the sector.

Commodity, Currency Markets

Crude oil futures are trading down $0.88 to $76.10 a barrel after moving down $0.45 to $76.98 a barrel in the previous session. On Wednesday, the price of oil was weighed down by a bearish oil inventory data showing a 2.3 million barrel increase in crude oil stockpiles to 329 million barrels in the week ended January 29th. Crude oil stockpiles remained above the upper limit of the average range.

Gasoline inventories decreased by 1.3 million barrels but remained above the upper limit of the average range. Distillate inventories also dropped, falling by 1 million barrels. Inventories of distillate fuel were above the upper boundary of the average range. Refinery capacity utilization averaged 79% over the four-weeks ended January 29th compared to 79.5% in the previous week.

Gold futures are trading at $1,104.20 an ounce, down $7.80 from the $1,112 an ounce at the New York’s session close on Wednesday. In the previous session, the precious metal fell $6.

Among currencies, the U.S. dollar is trading at 90.51 yen compared to the 90.9795 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is currently valued at $1.3834.

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Asian Markets Slip On Concerns About Economic Recovery

The markets across Asia ended in negative territory on Thursday as concerns about sustaining global economic recovery resurfaced yet again following the weaker closing on Wall Street in the previous session. Caution ahead of key economic data including interest rate decisions from the Bank of England and the European Central Bank today and jobs report from the U.S. tomorrow also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index declined 48.35 points, or 0.46% to 10,356. while the broader Topix index of all First Section issues lost 4.59 points, or 0.50%, to 911.

On the economic front, Seiji Nakamura, one of the members of Bank of Japan policy board, said that the central bank will maintain accommodative monetary policy conditions, but , at the same time, would not rule out any policy options in responding to future economic situations.

Toyota Motor negatively impacted market sentiment amid growing concerns about the associated problems in recall of vehicles. The stock plunged 3.96% on relatively higher volumes, dragging down the overall market index.

Mixed trading was witnessed among other automakers. Honda Motor gained 2.55% after reporting better than expected earnings and also providing positive full-year outlook. Nissan Motor advanced 1.06%. However, Suzuki Motor declined 1.57%, Isuzu Motors lost 2.57% and Mazda Motor shed 1.21%. Mitsubishi Motor remained unchanged at previous close.
 
Banking stocks also ended mixed. While Resona Holdings managed to end in positive territory with a gain of 1.26%, Sumitomo Mitsui Financial declined 2.05%, Mizuho Financial lost 1.69% and Mitsubishi UFJ Financial fell 2.59%.

Securities stocks also ended in negative territory. Nomura Holdings declined 2.77%, Mizuho Securities shed 1.44%, Matsui Securities fell 1.30% and Daiwa Securities Group plunged 3.06%.

Iron & Steel related stocks also ended weaker on lower commodity prices. Kobe Steel plunged 4.09%, JFE Holdings edged down 0.15%, Nippon Steel fell 2.10% and Sumitomo Metal Industries slumped 3.46%.

Among the gainers, real estate stocks ended in positive territory. Tokyu Land Corp. added 1.19%, Sumitomo Realty Development gained 2.48%, Mitsui Fudosan advanced 1.18%, and Mitsubishi Estate rose 2.10%.

In Australia, the benchmark S&P/ASX 200 Index slipped 26.30 points, or 0.57% to close at 4,622, while the All-Ordinaries Index ended at 4,644, representing a loss of 29.10 points, or 0.62%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that retail sales in the country unexpectedly declined for the first time in five months in December. The report noted that retail sales were down a seasonally adjusted 0.7% month-on-month in December, following a 1.5% rise in the previous month. Analysts expected the retail sales to rise 0.2% for the month.

In a separate report, the Statistics Bureau revealed that building approvals in the country rose a seasonally adjusted 2.2% month-over-month in December, compared to the previous month, coming in at 14,869. Economists expected a flat reading for the month, following a 5.9% rise in the previous month. On an annual basis, building approvals surged up 53.3% during the month, compared to 33.3% increase in the previous month, and also surpassed economists' expectation for a 38.2% increase.

Retail stocks dragged the markets lower following unexpected drop in retail sales for December. David Jones plunged 4.06%, Harvey Norman shed 1.59%, and JB Hi-Fi lost 3.70%. However, Wesfarmers managed to end in positive territory with a gain of 0.92% and so did Woolworths, adding 0.51%.

Banking stocks also ended in negative territory on concerns economic growth might derail, justifying the RBA's decision to hold interest rates in the recent meeting. ANZ Bank lost 1.61%, Commonwealth Bank of Australia shed 0.86%, National Australia Bank edged down 0.12% and Westpac Banking declined 1.45%.
 
Mining and metal stocks also ended weak following drop in commodity prices in the international market. BHP Billiton declined 1.23%, Rio Tinto fell 2.61%, Fortescue Metals plunged 4.22%, Gindalbie Metals back-pedaled 2.56%, Mincor Resources lost 4.79%, Murchison Metals slipped 0.89% and Oz Minerals slumped 5.45%.

Gold stocks also ended in negative territory on lower bullion prices in the gold market. Lihir Gold slipped 0.35% and Newcrest Mining declined 1.48%.

Mixed trading was witnessed among oil stocks. Woodside Petroleum declined 0.92% and Oil Search shed 0.91%. However, Santos surged up 4.01% and Origin Energy advanced 1.49%.

In Hong Kong, the Hang Seng Index erased most of its gains in the previous session and ended in negative territory with a loss of 380.44 points, or 1.84% at 20,342, amid increasing concerns about sustaining the global economic recovery. Weak closing on Wall Street in the previous session, abruptly ending the 2-day rally, despite better than expected ADP private employment report and non-manufacturing index, raised fresh concerns about sustaining the economic recovery. As many as 37 of the 42 components in the index ended in negative territory as traders booked profit and moved to sidelines ahead of key jobs data from the US on Friday.

In South Korea, the KOSPI Index managed to end in positive territory with a marginal gain of 1.40 points, or 0.09% at 1,616, as selling by foreign institutional investors on concerns about global economic recovery was offset by gains in automotive stocks which gained on speculation Korean automakers might profit from the present recall crisis faced by Toyota Motor. Weak closing on Wall Street in the previous session despite better-than-expected economic data and weak trading across other markets in the region impacted market sentiment.

Profit booking after a rally in the previous session dragged the Indian market sharply lower on Thursday. Weakness in global markets along with rising inflationary pressures also weighed on the market. India's annual food inflation rose by 17.56% in the week ended January 23, up from 17.40% in the previous week, data released on Thursday showed. The inflation figures strengthened the case for rate hikes and more fiscal steps in the forthcoming budget. The benchmark Sensex fell to a low of 16,189 before finishing at 16,225, down 271 points or 1.64% and the Nifty dropped 86 points or 1.75% to 4,845.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index slipped 11.33 points, or 0.43% to close at 2,593, Taiwan's Weighted Index edged down 5.94 points, or 0.08% to close at 7,542, Strait Times Index in Singapore declined 19.86 points, or 0.72%, to close at 2,745 and China's Shanghai Composite Index shed 8.53 points, or 0.28%, to close at 2995.

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The major European averages are also receding on Thursday, with the major averages in the region turning lower after showing some strength in early trading. The French CAC Index and the German DAX Index are moving down 1.15% and 0.90%, respectively, while the U.K.’s FTSE 100 Index is declining 0.96%.

In economic news, a housing survey done by Lloyds Banking Group’s Halifax division showed that house prices in the U.K. rose 0.6% month-over-month in January following a 0.8% increase in the previous month. Economists had estimated a 0.7% increase for the month. Annually, house prices climbed 3.6%, with the increase matching economists’ expectations.

Among the duo of central bank decisions from the region, the Bank of England announced an unchanged stance in terms of its monetary policy following the end of its 2-day Monetary Policy Committee meeting. The previous change in Rate was a 0.5% percentage point reduction announced in March 2009. While maintaining the stock of asset purchases financed by the issuance of central bank reserves at 200 billion pounds, the central bank said the decision would help to keep inflation on track to meet its 2% inflation target over the medium term.

The European Central Bank also opted to leave interest rates unchanged at a record of 1% at its February meeting. The rate has been held at this level since May 2009. The decision was widely expected, with the region’s inflation staying below the central bank’s target of 2%.

U.S. Economic Reports

First time claims for unemployment benefits unexpectedly showed a modest increase in the week ended January 30th, according to a report released by the Labor Department, with the data likely to raise some concerns about the upcoming monthly employment report.

The report showed that initial jobless claims edged up to 480,000 from the previous week's revised figure of 472,000. Economists had been expecting jobless claims to fall to 455,000 from the 470,000 originally reported for the previous week.

First time claims for unemployment benefits showed a modest decrease in the week ended January 23rd, although economists had been expecting a more substantial decrease.

The report showed that initial jobless claims slipped to 470,000 from the previous week's revised figure of 478,000. Economists had been expecting jobless claims to fall to 450,000 from the 482,000 originally reported for the previous week.

A separate report released by the Labor Department showed that fourth quarter non-farm productivity rose at a 6.2% sequential rate in the fourth quarter. Economists had expected a 6.5% increase in non-farm productivity.

The productivity growth was helped by a 7.2% increase in output, partly offset by the 1% increase in hours worked. The hours worked increased for the first time since the second quarter of 2007. Meanwhile, unit labor costs fell 4.4%.

The Commerce Department is due to release its report on factory goods orders for December at 10 AM ET. Orders for manufactured goods are likely to have increased 0.5% in the month.

Durable goods orders, which make up the bulk of factory goods orders, showed a 0.3% month-over-month increase in December compared to expectations for a 2% increase. Excluding transportation, durable goods orders climbed 0.9%, beating forecasts for a 0.4% increase. Non-defense capital goods orders, excluding aircraft orders, increased 1.3%, suggesting that business investment in equipments may see strength in the first quarter. Machinery orders and orders for primary metals showed strong growth.

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Cisco Systems (CSCO) is likely to be in the spotlight after it reported that its second quarter earnings rose to 32 cents per share compared to 26 cents per share in the year-ago period. The company’s adjusted earnings of 40 cents per share exceeded the 35 cents per share consensus estimate. Revenues rose 8% year-over-year to $9.8 billion. For the third quarter, the company expects sales to rise 23%-26% year-over-year, while analysts estimate revenue growth of 16.3%.

Regency Centers (REG) lost close to 5% in Wednesday’s after hours session after it reported that its fourth quarter recurring funds from operations fell to 63 cents per share from 90 cents per share last year. Reported funds from operations also fell, slipping to 71 cents per share from the year-ago’s 72 cents per share. The consensus estimates had called for funds from operations of 65 cents per share.

Steel Dynamics (STLD) also receded sharply in after hours trading despite reporting a profit of 12 cents per share for its fourth quarter compared to a loss of 45 cents per share last year. Net sales fell 3% to $1.2 billion. Analysts estimated a profit of 17 cents per share on revenues of $1.08 billion.

Aeropostale (ARO) could react to its announcement of a 3-for-2 stock split, which will be effected in the form of a stock dividend. The stock split will entitle all shareholders on record as of February 24th to receive one additional share for every 2 shares held on that date.

CB Richard Ellis (CBG) is likely to see some activity after it reported fourth quarter adjusted earnings of 28 cents per share on revenues of $1.30 billion. Analysts estimated earnings of 18 cents per share on revenues of $1.16 billion.

Standard Pacific (SPF) could see some activity after it said its fourth quarter homebuilding revenues fell 10% to $339.8 million but still exceeded the $288.54 million consensus estimate. The company reported earnings of $82.7 million or 31 cents per share compared to a loss of $1.65 per share in the year-ago period. Excluding one-time items, the company’s profit for the recent quarter was $4 million.

Yum Brands (YUM) could see weakness after it reported fourth quarter adjusted earnings of 50 cents per share, higher than 46 cents per share last year. Total revenues fell 1% to $3.37 billion. The consensus estimates called for earnings of 48 cents per share on revenues of $3.34 billion.

THQ, Inc. (THQI) is likely to see some activity after it reported third quarter net sales of $356.7 million, down from $357.3 million last year. The company’s non-GAAP earnings were 35 cents per share compared to a net loss of 14 cents per share in the year-ago period. Analysts estimated a profit of 42 cents per share on revenues of $356.80 million. The company reaffirmed its 2010 guidance of seeing higher net sales growth on a non-GAAP basis and reporting profitability.

Broadcom (BRCM) may react to its announcement that it swung to a profit of 11 cents per share in its fourth quarter compared to a loss of 32 cents per share last year. Both periods included charges. Revenues rose 19% to $1.34 billion, ahead of the $1.32 billion consensus estimate.

Novellus (NVLS) is likely to see some activity after it reported fourth quarter net sales of $244.2 million, up 38.1% year-over-year. The company reported a net profit of 36 cents per share compared to a loss of 4 cents per share last year. On an adjusted basis, the company reported a profit of 39 cents per share, higher than 21 cents per share in the year-ago period. Analysts estimated earnings of 34 cents per share on revenues of $250.70 million.

Among `retailers, Fred’s (FRED) receded in Wednesday’s after hours session after it reported a 2% decline in comparable store sales in January compared to a 1.2% drop in the year-ago period. Hot Topic (HOTT) reported a 13.1% tumble in same store sales for January, reversing the 6% growth last year. Zumeiz (ZUMZ) same store sales for January climbed 1.8%, slower than the 14.8% jump last year.

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