US & World Daily Markets Financial Briefing 05-05-2009

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Uncertainty May Dampen Market Mood Ahead of Stress Test Results, Jobs Report

In the past few minutes, the major averages have edged up off their lows for the session, but they continue to post notable losses. The Dow is currently down 30.43 at 8,396.31, the Nasdaq is down 22.34 at 1,741.22 and the S&P 500 is down 7.12 at 900.12.

The major U.S. index futures are pointing to a modestly lower opening on Tuesday. Even as the markets fondly cherish hopes of a recovery, there have been apprehensions in the minds of traders as well. The apprehensions are likely to loom large, as the markets prepare themselves to receive the results of the bank stress results and the monthly non-farm employment report. The results of the ISM’s services sector survey is likely to play a key role in determining the market direction in today’s session.

U.S. stocks opened Monday’s session higher and rose sharply on some encouraging economic readings. While buying momentum waned following the steep advance in early trading, the major averages showed a steady uptrend before closing with exceptional gains.

The Dow Industrials ended the session up 214.33 points or 2.61% at 8,427, marking its highest level since January 13th, 2009. Meanwhile, the S&P 500 Index, which is a broader gauge, climbed 29.72 points or 3.39% to 907, moving to its highest level since January 9th, 2009. The technology-weighted Nasdaq Composite Index closed up 44.36 points or 2.58% at a fresh 6-month high of 1,764.

Twenty-seven of the thirty Dow components ended the session higher, with only Microsoft (MSFT) and Chevron (CVX) bucking the uptrend with modest losses. General Motors (GM) ended unchanged. Bank of America (BAC) rose 19.31%, American Express (AXP) rallied 12.31%, Alcoa (AA) gained 6.91% and Citigroup (C) advanced 7.74%.

Among the sector indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index jumped 5.35% and 14.69%, respectively. The Dow Jones Transportation Average climbed 6.79%, confirming the Dow Industrials’ upward move, and the Amex Airline Index gained 7.64%. Housing stocks reacted to a positive housing market report, as reflected by a 7.49% surge by the Philadelphia Housing Sector Index.

In the resource space, the Philadelphia Oil Service Index rallied 5.54%, while the Amex Oil Index was up a more modest 3%. The Amex Gold Bugs Index jumped 6.47%. Among technology indexes, the Philadelphia Semiconductor Index advanced 5.47% and the Amex Disk Drive Index rose 4.04%.

With recent economic readings cementing hopes for a recovery, analysts advise asset allocation out of defensive sectors such as health care and consumer staples and into early cyclical sectors such as materials, financials, technology, consumer discretionary and industrial stocks.

On the economic front, the National Association of Realtors reported that the pending home sales index for March rose 3.2% month-over-month, with the gains more pronounced in the high foreclosure areas of the South and the West. At the same time, the Northeast and the Midwest showed declines.

Meanwhile, the Commerce Department said construction spending edged up 0.3% month-over-month in March, marking the first increase in six months. The gain came amid a 1.1% increase in public construction, while private construction spending eased 0.1%. In the private construction category, spending on single-family home construction slumped 8.6% and multi-family home construction spending dropped 1.1%. Meanwhile, private non-residential construction spending rose 2.7% compared to the previous month. March’s unexpected gain could lead the government to revise up its first quarter advance GDP estimate.

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Bay Street Stocks Move Slightly To The Downside

Toronto's main index is slightly lower in early trading on Tuesday, but remains near the six-month closing high from the previous session. Mining and energy stocks are giving back some of the recent gains to lead the decline.

The S&P/TSX Composite Index has slipped 36.78 points or 0.37% to 9,833.59. The index finished at its highest level since November 5 on Monday.

Mining stocks are down 3.45%, surrendering some of the recently-seen sharp advance. Inmet has dropped 6%, First Quantum is off 4% and Teck Cominco has slipped 2.2%.

Energy stocks are down 2.8% as crude oil has moved off of a five-month high. Canadian Natural Resources is down 3.4%, Canadian Oil Sands has fallen 3% and Suncor has dropped 2.9%.

EnCana has lost 2.2% as the company announced that it has completed public offering US$500 million notes with a coupon rate of 6.50% due May 15, 2019. The company intends to use offering net proceeds to repay portion of its existing bank and commercial paper indebtedness.
 
In corporate news, Magna International has slipped 2.5% after North America's largest auto parts maker announced that it could buy a minority stake in Opel, the European unit of ailing automaker General Motors Corp. and one of Magna's customers in Europe. The offer would rival that of Italy's Fiat SpA.

WestJet has added 7.4% after the company announced April traffic results with a load factor of 81.2%. Revenue passenger miles or RPM increased 5.5% year over year and capacity, measured in available seat miles or ASMs, grew 7.2% over the same period.

Loblaw Companies Ltd. is up 6.6% after the company announced that its first quarter net earnings increased to C$109 million, compared to C$63 million a year ago.

Across the border, Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday that the decline in the economy may be slowing and the housing market has shown signs of bottoming. However, the Fed chief warned that the labor market remains a possible source of concern.

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The major European markets are trading on a mixed note on Tuesday, with the French CAC 40 Index and the German DAX Index showing modest losses of 0.31% and 0.56%, respectively, while the U.K. FTSE 100 Index, which opened following Monday’s holiday, seems to be playing a catch up to the rally witnessed in the rest of the markets yesterday. The FTSE 100 Index is currently up 2.50%.

In corporate news, UBS confirmed its preliminary results, reporting a first quarter net loss attributable to UBS shareholders of 1.98 billion Swiss francs compared to a loss of 11.62 billion Swiss francs last year. The company’s loss per share was 0.57 Swiss francs, wider than the loss of 5.27 Swiss francs in the year-ago period. The company noted that the losses were due to risk positions in businesses now exited or in the process of being exited by the investment bank.

Alcatel-Lucent said its first quarter revenues declined 6.9% year-over-year to 3.598 billion euros. The company reported a net loss per share of 402 million euros, wider than the 181 million euro-loss reported last year. The company reiterated its full year 2009 guidance of seeing break-even results at an adjusted operating income level.

U.S. Economic Reports

Federal Reserve Chairman Ben Bernanke is due to testify before the Joint Economic Committee in Washington on the economic outlook at 10 AM ET.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 AM ET. The non-manufacturing index is likely to show a reading of 42.2 for April.

In March, economic activity contracted at a slightly faster pace than in the previous month. The non-manufacturing index fell to 40.8 in March from 41.6 in February, signaling the sixth consecutive month of contraction. However, the production index rose 3.9 points to 44.1. While the new orders index fell 1.9 points to 38.8, the backlog of orders index climbed 4.5 points to 41. Employment conditions worsened further, with the employment index falling 5 points to 32.3.

Minneapolis Federal Reserve Bank President Gary Stern is expected to speak to the Business Law Institute in Minneapolis at 1:15 PM ET. San Francisco Federal Reserve Bank President Janet Yellen is due to speak on the financial turmoil at the Hass Business School at the University of California, Berkeley at 7 PM ET.

Earnings

Constellation Energy (CEG) said its first quarter adjusted earnings were 74 cents per share compared to 95 cents per share in the year-ago period. Analysts estimated earnings of 70 cents per share for the quarter. The company reaffirmed its 2009 earnings guidance of $2.90-$3.20 per share and 2010 earnings guidance of $3.05-$3.45 per share.

Archer-Daniels-Midland (ADM) reported that its third quarter earnings fell to 1 cent per share from 80 cents per share in the year-ago period. The recent quarter’s results included charges amounting to 36 cents per share. Net sales and other operating income fell 21% to $14.84 billion. The consensus estimates called for earnings of 49 cents per share on revenues of $16.94 billion.

Kraft Foods’ (KFT) first quarter earnings rose to 45 cents per share from 39 cents per share last year, even as revenues declined 6.5% to $9.4 billion. The Street had estimated earnings of 40 cents per share on revenues of $9.67 billion.

CVS Caremark (CVS) announced first quarter results that showed a profit of 50 cents per share compared to 51 cents per share in the year-ago period. On an adjusted basis, the company’s earnings were 55 cents per share, exceeding the consensus estimate by a penny. Revenues declined 12% to $21.33 billion, missing the mean analysts’ estimate of $23.64 billion.

Automated Data Processing’s (ADP) third quarter revenues fell 2% to $2.37 billion, but its earnings per share from continuing operations rose to 80 cents from 77 cents per share last year. The consensus estimates had called for earnings of 80 cents per share on revenue of $2.39 billion. The company said it continues to anticipate revenue growth of 1%-2% for 2009 and earnings growth to be at the low-end of its 10%-14% target.

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The markets across the Asia-Pacific region extended their rally on Tuesday, boosted by the buoyant close on Wall Street overnight amid fairly encouraging economic data. However, the gains were modest due to profit taking after the previous day's big rally. Investors also expressed caution ahead of the release of the U.S. bank stress test results on Thursday. Additionally, lower U.S. stock index futures and oil prices checked large gains.

Financial markets in Japan, South Korea and Thailand were closed for national holidays. Japan's market will remain closed on Wednesday as well.

The Australian market shed some of its early gains to close modestly higher, helped by strong gains by resource stocks. The benchmark S&P/ASX200 index closed at 3,890, up 7 points or 0.19% and the broader All Ordinaries index rose 16 points or 0.42% to 3,862.

Big miner BHP Billiton rose 1.95%, its rival Rio Tinto soared 5.47% and Iluka Resources advanced 3.24%. Gold miners also moved up, tracking a firm spot price of gold in Sydney. Newcrest Mining rose 3.28%, Newmont mining gained 3.74% and Lihir Gold edged up 0.34%.

Media stocks closed mostly lower. APN News & Media fell 1.05% after it downgraded earnings guidance for calendar 2009. Fairfax tumbled 5.22% and Seven Network declined 2.26%, but News Corp surged up 6.18%.

Westpac Banking closed flat ahead of its interim 2009 results announcement on Wednesday. National Australia Bank rose 0.23% and investment bank Macquarie Bank rallied 3.70%, but ANZ slipped 0.42% and Commonwealth Bank declined 1.04%.

Energy stocks closed mixed even as crude oil gained $1.27 a barrel in New York trading overnight. While Woodside Petroleum jumped 4.05%, Oil Search moved down 1.13% and Santos slipped 1.05%.

In economic news, the Reserve Bank of Australia left its key interest rate unchanged as expected at a 49-year low. At its meeting, the board decided to leave the cash rate unchanged at 3% after cutting it by a quarter point on April 7. The central bank has slashed the cash rate by 125 basis points since December 2008 and the official cash rate now stands at its lowest level in 49 years.

The Chinese market rose modestly to end at a nearly nine-month high amid reports that new Yuan-denominated loans in April would fall to 600 billion Yuan from a record high of 1.89 trillion Yuan in the previous month. The benchmark Shanghai Composite Index, which tracks both A and B shares, rose 7 points or 0.29% to 2,567, the highest closing since August 8.

The Hong Kong market ended modestly higher after a three-day rally, with the benchmark Hang Seng index ending at 16,430, up 49 points or 0.30% after hitting a six-and-half-month high of 16,581 in early trading.

Index heavyweights HSBC Holdings and China Mobile ended up 1.85% and 0.90%, respectively. Bank of East Asia rallied over 6%, while Hang Seng Bank also showed gains. On the other hand, mainland-related financial stocks were mostly lower. Resource, utility and property stocks showed mixed sentiment.

The Indian market finished modestly lower on Tuesday, as investors took some profits after a strong rally in the previous session. Trading remained extremely volatile on alternate bouts of buying and selling. While the BSE Sensex closed almost flat at 12,131, down 4 points or 0.03%, the S&P CNX Nifty rose 8 points or 0.22% to 3,662.

However, the broader market showed significant strength, with the small-cap and the mid-cap indexes on the BSE rising nearly 2% each. The market breadth also remained fairly positive, with advancers outnumbering decliners by 1621 to 919. Sector wise, while defensive FMCG and IT stocks bore the brunt of the selling, the realty index jumped 8.63%, the metal index rallied 3.50% and the banking index advanced 2.36%. Select stocks in the capital goods, power and consumer durable sectors also ended firm.

Among the other markets in the region, Singapore's STI Straits Times index was up 1.72% and Taiwan's TWII Weighed index closed up 0.78%.

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Gold Rises Again On Weaker Dollar

Gold continued its upward move on Tuesday morning, adding to yesterday's gains. The metal's hedge appeal was boosted as the dollar fell again versus higher-yielding counterparts.

June-dated gold rose to $915.80 per ounce, up $13.60 for the session. The weaker dollar has helped the precious metal add more than $25 already this week.

Risk continued to enter markets around the world, giving higher-yielding currencies a boost versus the lower-yielding buck. The greenback slipped again versus the euro and tested yesterday's monthly low and reached a multi-month low against the sterling.

On the economic front, Fed speak will take center stage. Federal Reserve Chairman Ben Bernanke is scheduled to testify on the economic outlook before the Joint Economic Committee in Washington at 10 a.m. ET.
 
Also today, Minneapolis Federal Reserve Bank President Gary Stern will speak to the Business Law Institute in Minneapolis at 1:15 p.m. and San Francisco Federal Reserve Bank President Janet Yellen will speak on the financial turmoil at the Hass Business School at the University of California-Berkeley at 7 p.m.

On the data front, the Institute of Supply and Management's non-manufacturing data will be released at 10 a.m. ET. The ISM is expected to show a reading of 42.0 for the month of April, compared to a 40.8 in March.

The price of gold gained $14 on Monday and topped the $900 an ounce mark again. The metal's hedge appeal was boosted by a weaker dollar as traders turned to higher-yielding currencies

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Vulcan Materials could see weakness after it reported that its first quarter loss from continuing operations was 29 cents per share compared to a profit of 13 cents per share last year. Net sales fell to $567.90 million from $771.76 million last year. Analysts expected a loss of 7 cents per share on revenues of $690.39 million.

Post Properties may gain ground after it reported funds from operations for the first quarter, including a gain of 5 cents per share, of 38 cents per share compared to 31 cents per share last year, which included a charge of 14 cents per share. Revenues from continuing operations dipped marginally to $69.18 million. The consensus estimates called for funds from operations of 26 cents per share on revenues of $6.13 million.

St. Mary Land & Exploration could be in focus after it reported a first quarter loss of 1 cent per share on an adjusted basis compared to a profit of $1.14 per share last year. Total operating revenues and other income fell to $199.22 million from $362.10 million last year. Analysts, on average, expected a profit of 14 cents per share on revenues of $195.98 million.

Pier 1 Imports is expected to see some strength after it said it received notice from NYSE Regulation that the company has regained compliance with the minimum share price requirement for the NYSE continued listing standards.

United Airlines may move to the upside after it reported that its load factor was 79.9 in April, up 1.4 percentage point from last year. Traffic fell 8.7% year-over-year, while capacity also fell by the same magnitude. Meanwhile, American Airlines reported a 1.2 percentage point increase in the load factor for April to 81.3%.

Chesapeake Energy could see weakness after it reported a profit of 46 cents per share in the first quarter compared to a profit of $1.09 per share last year. Revenues climbed 25% to $2 billion.

MGM Mirage rallied in Monday’s after hours session after it reported a first quarter profit of 38 cents per share, including a gain of 44 cents per share. Net revenues fell 20% to $1.5 billion. The Street had estimated a loss of 7 cents per share on revenues of $1.58 billion. Analysts’ estimates typically exclude one-time items.

HealthSouth could advance in reaction to its announcement that its first quarter net operating revenues rose to $475.1 million from $464.2 million in the year-ago period. On an adjusted basis, the company reported income from continuing operations of 39 cents per share compared to 18 cents per share last year. Analysts estimated earnings of 22 cents per share on revenues of $479.45 million. The company raised its fiscal year 2009 earnings guidance to the higher end of its previous guidance range of 85-90 cents per share, while analysts estimate earnings of 87 cents per share.

D.R. Horton may recede after it reported that its second quarter loss narrowed to 34 cents per share from $4.14 per share last year. The recent quarter’s results included a pre-tax charge of $48.1 million, smaller than the $834.1 million it recorded a year-earlier. Homebuilding revenues declined sharply to $775.3 million. The consensus estimates had called for a loss of 30 cents per share on revenues of $815 million.

Intel is expected to be in focus after it said it would invest in ASM International through the purchase of 4% of its common shares on about 54 million outstanding shares.

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