US & World Daily Markets Financial Briefing 04-05-2010

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Stocks Sharply Lower As European Debt Concerns Overshadow Upbeat Data

Stocks are posting steep losses in mid-morning trading on Tuesday, as concerns about Greek debt contagion is overpowering upbeat data on pending home sales and factory orders. The major averages have moved sharply lower, offsetting the strong gains seen on Monday.

Anxiety about the potential spread of financial woes throughout the European Union continue to weigh on the markets, even after Greece was granted $146 billion in aid from the EU and the International Monetary Fund.

Meanwhile, on the economic front in the U.S., the National Association of Realtors released a report affirming that a surge of home sales is unfolding for the spring home buying season.

NAR said its pending home sales index rose by 5.3 percent in March following an upwardly revised 8.3 percent increase in February. Economists had expected the index to increase by 5.0 percent compared to the 8.2 percent growth originally reported for the previous month.

The Commerce Department also said that orders for manufactured goods unexpectedly showed a notable increase in the month of March, with a jump in orders for non-durable goods more than offsetting a modest decrease in orders for durable goods.

New orders for manufactured goods increased by 1.3 percent in March, matching the upwardly revised increase seen in the previous month. Economists had expected orders to edge down by 0.2 percent compared to the 0.6 percent increase originally reported for February.

In earnings news, Merck & Co. (MRK) reported adjusted first-quarter net income of $0.83 per share, up from $0.74 per share reported in the same period last year. On average, analysts expected the company to report a profit of $0.75 per share for the quarter.

Merck said its sales for the quarter rose to $11.42 billion compared to $5.38 billion last year and came in above estimates for revenue of $11.18 billion.

Fellow drug maker Pfizer Inc. (PFE) said its adjusted first-quarter net income rose to $0.60 per share, 6 cents higher than comparable results last year and above Wall Street projections for $0.53 per share for the quarter.

The company reported revenues for the quarter that increased 54 percent to $16.75 billion and also topped expectations of $16.58 billion.

Meanwhile, Tenet Healthcare Corp.'s (THC) first-quarter net income fell to $0.17 per share from the $0.37 per share reported in the same period a year ago but still higher than forecasts of $0.07 per share. Net revenues came in at $2.34 billion, roughly in line with estimates.

After the markets closed for trading in the previous session, oil exploration and production company Anadarko Petroleum Corp. (APC) said that it swung to a first quarter profit, as revenue surged due to higher crude oil prices. The firm's results breezed past analyst estimates.

The major averages have shown a notable move to the downside in recent trading, falling to new lows for the session. The Dow is down 192.79 points or 1.7 percent at 10,959.04, the Nasdaq is down 62.63 points or 2.5 percent at 2,436.11 and the S&P 500 is down 22.91 points or 1.9 percent at 1,179.35.

Sector News

Semiconductor stocks are some of the morning's worst performers, with the Philadelphia Semiconductor Index posting a loss of 4.1 percent. The retreat has dragged the index down to a one-month intraday low.

STMicroelectronics (STM) is one of the leading decliners in the sector, falling by 6.9 percent to a two-month intraday low.

Housing and airline stocks are also moving notably lower, with the Philadelphia Housing Sector Index and the NYSE Arca Airline Index both slipping by 3.8 percent, although they remain near recent highs.

Steel, networking, electronic storage and oil stocks are also posting significant losses, reflecting the day's broad-based selling pressure.

Stocks Driven By Analyst Comments

Great Plains Energy (GXP) is under pressure after being downgraded at Keybanc from Buy to Hold based on valuation. The stock has lost 1.9 percent, pulling back off of yesterday's three and a half month closing high.

Kaydon (KDN) is also moving lower following a downgrade by analysts at Keybanc, who lowered their rating from Buy to Hold. Shares are currently down by 2.7 percent, falling from the nineteen-month closing high set yesterday.

On the other hand, Hospira (HSP) is on the rise after analysts at Goldman Sachs upgraded the stock to Buy from Neutral. Shares are up by 3.6 percent, bouncing off of a two month low set in the previous session.

Early Signals Point To A Mixed Open For TSX Tuesday

Canadian stocks are likely poised for a flat open Tuesday amid mixed cues from the commodities prices. Also speculation that the $146 billion aid package for Greece will not suffice the debt crisis in the country may weigh on sentiment.

On Monday, the S&P/TSX Composite Index eased 14.18 points or 0.12% to 12,196.51, snapping its 2-day winning streak.

The price of oil was down ahead of weekly inventories data from the U.S. Crude oil for June delivery was down $1.52 to $84.67 a barrel, after advancing to over $87 intraday in the previous session.

Meanwhile, the price of gold rose for a sixth straight session, adding $3.40 to $1,186.10 an ounce as traders bet bullion as a safe haven buying amid a volatile currency market.

Mining stocks may extend losses after Australia proposed new regulations Monday to levy 40% tax on resource companies effective 2012.

Gold stocks may be in play amid continued upsurge in the price of gold and merger deals announced by gold firms.

In M&A space, gold mining company Lihir Gold announced that Newcrest Mining increased its offer price by 6.4% to acquire all its share for A$9.5 billion.

Gold firm Agnico-Eagle Mines announced that it has entered in to definitive deal to buy precious metals explorer Comaplex Minerals.

Gold producer Yamana Gold reported lower net income of $0.11 per share compared to $0.12 per share last year, despite a 62% growth in revenues. The company attributed this to lower foreign exchange gains as well as unrealized losses on derivatives. Analysts expected the company to earn $0.11 per share for the quarter.

Integrated energy company Suncor Energy swung to profit in first-quarter, reporting net earnings of C$0.46 per share compared with a net loss of C$0.20 per share in the prior year period.

Uranium producer Cameco Corp. reported improved first-quarter net earnings at C$0.36 per share, up from C$0.22 per share in the first quarter of 2009. The company announced a quarterly dividend of C$0.07 per share.

Financial news and information provider Thomson Reuters reported lower first-quarter net earnings of $0.15 per share, compared to $0.23 in the year ago quarter. On an adjusted basis, earnings from continuing operations declined to $0.36 per share, from $0.40 per share in the year ago quarter. Analysts were expecting the company to report adjusted net earnings of $0.32 per share.

Airlines operator WestJet Airline reported that its first quarter net earnings descended to C$0.10 per share, from C$0.29 per share last year. The company said its load factor was 81.7%, compared to 80.4% in the previous year and Revenue Passenger Miles grew 9.7% to 3.840 billions from 3.502 billions in the same quarter a year earlier.

Food and drug distributor Loblaw Companies reported higher first-quarter net earnings of C$0.49 per share, compared to C$0.40 per share last year. The company expects to invest approximately $1.0 billion in capital expenditures in 2010.

Wood products company Stella-Jones reported first quarter net earnings of C$0.46 per share, down from C$0.61 per share last year.

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Asian Markets Extend Losses For Second Day

The markets across Asia open for trading ended in negative territory Tuesday on concerns that China's tightening policy and Australia's measure to levy tax on mining companies might impact the economic development in the region. The market in Japan is closed for a public holiday. The positive closing on Wall Street in the previous session could not enthuse the market participants as traders preferred to offload shares and move to sidelines awaiting further cues, including economic condition in Europe and the impact of oil slick.

In Japan, the market is closed for a public holiday.

In Australia, the benchmark S&P/ASX200 Index plunged 48.40 points, or 1.01% to close at 4,737, while the All-Ordinaries Index ended at 4,753, representing a loss of 53.80 points, or 1.12%.

On economic front, The Reserve Bank of Australia decided to hike its key interest rate by 25 basis points. As expected, the central bank raised the cash rate to 4.5%, effective May 5, 2010. The central bank had hiked the rate in March and April by 25 basis points. "The Board expects that, as a result of today's decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago," Governor Glenn Stevens said in a statement.

Resource stocks ended sharply lower dragging down the market indices. BHP Billiton declined 2.38%, Fortescue Metals slumped 7.52%, Gindalbie Metals shed 5.26%, Macarthur Coal slipped 2.71%, Murchison Metals plunged 6.85% Mincor Resources was down 6.99%, Mineral Resources lost 7.20%, Rio Tinto fell 2.81% and Oz Minerals decreased 4.02%.

Oil stocks also ended in negative territory. Woodside Petroleum shed 0.72%, Santos lost 2.58%, ROC Oil Co. plunged 5.81% and Origin Energy fell 3.53%. However, Oil Search Ltd bucked the trend and ended in positive territory with a gain of 3.16%.

Gold mining company, Lihir Gold announced it has agreed to be acquired by rival gold producer Newcrest Mining Ltd. in a cash and stock sweetened deal valued at about A$9.5 billion. Following the news, the stock price of Lihir Gold surged up 3.27% on huge volumes. Shares of Newcrest Mining, on the other hand, plunged 4.27%.

The Reserve Bank of Australia, as expected, increased the benchmark interest rates by 25 basis points, to 4.5%. Traders, having already discounted the rate hike, did not react much to the decision. Banks ended in negative territory. ANZ Bank slipped 0.32%, Commonwealth Bank of Australia fell 1.05%, National Australia Bank shed 0.68% and Westpac Banking Group lost 0.83%. Investment banking company Macquarie Group was down by 1.35%.

In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a modest loss of 48.31 points, or 0.23%, and closed at 20,763. Traders pared much of the early gains following lower futures in European and US market amid concerns about oil slick in Mexico, uncertainty over debt crisis in Europe, the impact of mining tax in Australia and China's tightening of monetary measures. China related stocks and commodity stocks led the declines as traders preferred to adopt a wait-and-watch attitude from the sidelines.

The Indian market gave up early gains and ended considerably lower for a second straight session on Tuesday amid persistent weakness in the global markets. The broader market also corrected significantly after showing some resilience earlier in the session. The 30-share Sensex average, which was up nearly 80 points in the opening session, reversed its direction before finishing at an eight-week low of 17,137, down about 250 points or 1.43%, while the 50-share Nifty ended at 5,148, down 74 points or 1.42%.

Among the other major markets open for trading, China's Shanghai Composite Index declined 35.33 points, or 1.23%, to close at 2,835, Indonesia's Jakarta Composite slipped 1.88 points or 0.06% to close at 2,959, Singapore's Strait Times Index fell 43.04 points, or 1.46%, to close at 2,901, and Taiwan's Weighted Index ended in negative territory with a loss of 21.40 points, or 0.27%, at 7,931.

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The major European markets are declining sharply on Tuesday, as fiscal concerns and potential costs associated with the rectification of the oil spill in the U.S. Gulf of Mexico weighed on BP, a heavily weighted stock in the FTSE 100 Index.

The French CAC 40 Index is moving down 1.76% and the German DAX Index is receding 1.31%, while the U.K.’s FTSE 100 Index is declining 1.45%.

In corporate news, UBS (UBS) reported a first quarter net income of 2.2 billion Swiss francs compared to a loss of 1.98 billion Swiss francs in the year-ago period. German footwear maker Adidas reported first quarter net income of 168 million euros compared to 5 million euros last year, as sales rose 4% to 2.7 billion euros.

On the economic front, Eurostat reported that the euro area’s producer price index rose 0.9% month-over-month in March following a 0.4% drop in the previous month. Economists had expected a steeper increase of 1%. On a monthly basis, producer prices rose 0.6%, slower than the 0.8% increase expected by economists.

The Markit/CIPS’ manufacturing purchasing managers’ index for the U.K. rose to a 15-1/2 year high of 58 in April from 57.3 in March. Economists had expected a reading of 57.5.

Meanwhile, the German Federal Statistical Office reported that retail sales in Germany fell 2.4% month-over-month in March, reversing the 1.1% increase in February. Economists had expected retail sales to have remained unchanged.

U.S. Economic Reports

The Commerce Department is due to release its report on factory goods orders for March at 10 AM ET. Orders for manufactured goods are likely to have declined 0.2% in the month.

Last week, the Commerce Department released a report on durable goods orders for March, showing a 1.3% decrease in orders for goods designed to last more than 3 years, which account for the bulk of factory goods orders. The weakness was mainly due to softness in transportation orders, which fell 12.9%. Most categories showed strength. In February, factory goods orders climbed 0.6% following a 2.5% increase in January.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to show an increase of 5% for March.

Earnings

Merck (MRK) reported first quarter non-GAAP earnings of 83 cents per share on sales of $11.4 billion. Analysts estimated earnings of 75 cents per share on revenues of $11.18 billion. The company reaffirmed its guidance for high single-digit non-GAAP earnings per share compounded annual growth from 2009 to 2013. For 2010, the company expects non-GAAP earnings of $3.27-$3.41 per share, while analysts estimate earnings of $3.40 per share.

Pfizer (PFE) said its first quarter adjusted earnings rose to 60 cents compared to 54 cents per share last year. The consensus estimates called for earnings of 53 cents per share on revenues of $16.58 billion. Revenues climbed 54% to $16.75 billion. For 2010, the company expects adjusted earnings of $2.10-$2.20 per share on revenues of $67 billion to $69 billion. The Street estimates earnings of $2.18 per share on revenues of $68.06 billion.

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Avis Budget (CAR), which was recently in focus due to its interest in Dollar Thrifty (DTG) and is waging a takeover battle with Hertz (HTZ), could react to its announcement that its revenues declined 3% year-over-year to $1.2 billion in the first quarter. The company’s loss narrowed to 13 cents per share from 48 cents per share last year. Analysts expected a loss of 26 cents per share on revenues of $1.16 billion. The company said it expects volume trends to improve on a year-over-year basis, while it expects year-over-year pricing comparisons to become more challenging.

EOG Resources (EOG) saw some weakness in Monday’s after hours session after it reported first quarter net income of 46 cents per share, lower than 63 cents per share in the year-ago quarter. On an adjusted basis, the company’s non-GAAP earnings were 53 cents per share. Net operating revenues rose to $1.37 billion from the year-ago’s $1.16 billion. Analysts estimated earnings of 51 cents per share on revenues of $1.22 billion.

Beazer Homes (BZH) may also show weakness after it said it would offer 12.5 million shares of its common stock, 3 million tangible equity units and $300 million worth of senior unsecured notes. The company also reported second quarter income from continuing operations of 10 cents per share compared to a loss from continuing operations of $2.81 per share last year. Total revenues rose to $198.2 million from the year-ago’s $186.6 million. The consensus estimates called for a loss of 62 cents per share on revenues of $191.44 million.

McKesson (MCK) rose in Monday’s after hours trading after it reported fourth quarter revenues of $26.6 million, up from $26.2 billion last year. The company’s earnings rose to $1.26 per share from $1.01 per share in the year-ago period, when earnings were impacted by 22 cents per share in charges. Analysts estimated earnings of $1.29 per share on revenues of $27.41 billion. The company expects earnings of $4.72-$4.92 per share for fiscal year 2011.

Powerwave (PWAV) fell sharply in Monday’s after hours session after it reported that its first quarter net sales fell to $114.5 million from $149.7 million in the year-ago quarter. On an adjusted basis, the company reported earnings of 5 cents per share. Analysts expected revenues of $134.26 million.

Chesapeake Energy (CHK) is also likely to be in focus after it said its first quarter daily production fell 1% quarter-over-quarter to 2.568 billion cubic feet of natural gas equivalents per day. On a year-over-year basis, production rose 9%.

Pitney Bowes (PBI) could see some activity after it reported that its first quarter earnings declined to 38 cents per share from 50 cents per share last year. The recent quarter’s results included 17 cents per share in charges. On an adjusted basis, the company’s earnings were 55 cents per share. Revenues fell 2% to $1.3 billion. Analysts estimated earnings of 54 cents per share on revenues of $1.38 billion. The company reaffirmed its 2010 adjusted earnings guidance of $2.30-$2.50 per share and expects revenue growth in the range of flat to 2%. The Street estimates earnings of $2.40 per share on 1% revenue growth.

NutriSystem (NTRI) may gain ground after it reported first quarter revenues of $158.8 million compared to $161.8 million in the year-ago quarter. The company’s earnings declined to 15 cents per share from 29 cents per share last year. The consensus estimates called for earnings of 12 cents per share on revenues of $155.50 million.

Principal Financial Group (PFG) could also be in focus after it reported that its first quarter net income rose to 59 cents per share from 43 cents per share last year. Operating earnings climbed to 79 cents per share from the year-ago’s 63 cents per share. Analysts estimated earnings of 68 cents per share for the quarter.

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