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

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Stocks Regain Some Ground After Seeing Initial Sell-Off

Stocks have recovered from a steep drop at the open and are down by moderate margins in mid-morning trading on Wednesday, as some upbeat economic data stateside has moderated the pullback that came amid concerns regarding civil unrest in Greece. The major averages remain in negative territory but are well off of their worst levels of the day.

Initial losses came as riots in Greece over the country's plan to undertake austerity measures prompted concerns in the markets. The measures are being put into place in exchange for $146 billion in bailout funds from the European Union and the International Monetary Fund.

On the economic front in the U.S., the Institute for Supply Management released data showing that activity in the service sector expanded for the fourth consecutive month in April, although the index of activity in the sector unexpectedly came in unchanged compared to the previous month.

The non-manufacturing index saw a reading of 55.4 in April, unchanged from March. While a reading above 50 indicates continued growth in the service sector, economists had been expecting the index to increase to a reading of 56.1.

Earlier, payroll processor Automatic Data Processing reported that private sector employment saw a modest increase in the month of April, with upward revisions also resulting in job growth in each of the two previous months.

ADP said non-farm private employment increased by 32,000 jobs in April following an upwardly revised increase of 19,000 jobs in the previous month. Economists had expected employment to increase by about 30,000 jobs compared to the loss of 23,000 jobs originally reported for March.

In earnings news this morning, homebuilder PulteGroup Inc.'s first-quarter net loss narrowed significantly to $0.03 per share from a loss of $2.02 per share a year earlier. On average, analysts had projected the firm to lose $0.22 per share for the quarter.

PulteGroup said its quarterly revenues increased 75 percent to $1.02 billion but still fell short of the $1.18 billion estimated for the period.

Devon Energy Corp. saw a first quarter profit in comparison to a heavy loss in the same period last year, as revenues grew above analyst forecasts.

After the markets closed for trading in the previous session, News Corp. reported third quarter net income that beat estimates, although its revenues fell short of the marks set on Wall Street.

The major averages have seen some downside recently, pulling back off of their recovery highs. The Dow is down 40.59 points or 0.4 percent at 10,886.18, the Nasdaq is down 21.18 points or 0.9 percent at 2,403.07 and the S&P 500 is down 6.55 points or 0.6 percent at 1,167.05.

Sector News

Biotechnology stocks are some of the morning's worst performers, dragging the NYSE Arca Biotechnology Index down by 5.8 percent. Earlier in the session, the index fell to a two-month intraday low.

InterMune is leading the way lower in the sector after the FDA delayed approval of its lung disease drug Esbriet. Shares of InterMune have fallen by 76.3 percent to a sixteen and a half month intraday low.

Oil and gold stocks are also seeing notable weakness, with the NYSE Arca Oil Index down by 2.2 percent and the NYSE Arca Gold Bugs Index falling by 1.8 percent. The weakness in the sectors comes amid a decline in the price of their respective commodities .

Oil for June delivery is down by $2.73 to $80.01 a barrel and gold for June delivery is down by $5.40 to $1,163.80.

Housing, commercial real estate and railroad stocks also remain markedly lower. Meanwhile, strength is visible among health insurance stocks, lifting the Morgan Stanley Healthcare Payor Index up by 0.7 percent.

Stocks Driven By Analyst Comments

Alvarion is seeing considerable weakness after Morgan Joseph downgraded the stock from Buy to Hold. Shares have dipped by 3.9 percent, setting an eleven-month intraday low.

Intel is also moving lower following a downgrade by analysts at ThinkEquity from Buy to Hold. The stock has lost 1.2 percent, sinking to a six-week intraday low.

On the other hand, Wright Express is up 1.5 percent after being upgraded at Goldman Sachs to Buy from Neutral. With the upward move, the stock is bouncing off of a three-week closing low set in the previous session.

TSX Likely Poised To Open Lower Amid Falling Commodities, Debt Issues

Bay Street stocks are likely poised for a lower open Wednesday amid falling commodities prices. Also, speculation that Greece bailout may have to be extended to a few other nations in the region may weigh on the sentiment, dragging stocks further down.

However, value buying at lower levels might lend support to stocks. Traders will also react to earnings reports by major Canadian companies, including Agrium and Dundee Precious Metals.

On Tuesday, the S&P/TSX Composite Index plummeted 165.65 points or 1.36% to 12,030.86, recording its biggest loss since February.

The price of crude oil continued to plummet for a second session, dipping $1.61 to $81.13 a barrel, after shedding over 3% in the previous session.

Meanwhile, the price of gold was trading almost flat at $1,170 an ounce, after having risen to a 5-month high of $1,192 intraday in the previous session.

In corporate news, agricultural product company Agrium Inc. said its first-quarter net loss narrowed significantly to $0.04 per share from $0.38 per share a year ago. However excluding the two special items, net earnings were $0.41 per share for the quarter. Analysts were expecting the company to record earnings per share of $0.33 for the quarter.

Insurance services provider Intact Financial swung to profit in first-quarter, recording net income of $1.01 per share compared with a loss of $0.30 per share in the prior year period. The company declared a quarterly dividend of $0.34 per share.

Crude oil and natural gas firm Talisman Energy reported lower first quarter net income of C$0.22 per share, compared to C$0.45 per share in the same quarter a year earlier.

Petroleum and natural gas focused trust Penn West Energy Trust swing to profit in first-quarter, reporting net income of C$0.18 per unit compared with a net loss of C$0.25 per unit in the prior year period.

Crude oil and natural gas distributor Enbridge Inc. reported lower first-quarter net earnings of C$0.92 per share, compared to C$1.53 per share in the prior year period. The company declared quarterly dividends of $ 0.425 per common share.

International mining company Dundee Precious Metals reported a significantly wider net loss of $48.3 million in its first quarter, compared to a net loss of $4.9 million in the year-ago period. The company added the net loss includes net impairment provisions of $50.6 million related to the proposed Bulgarian metals processing facility in Chelopech.

Gold producer Kinross Gold reported improved first-quarter net income of $0.16 per share, compared to net income of $0.11 per share in the same quarter last year. Analysts were expecting the company to post net income of $0.16 per share for the quarter.

Meanwhile, Red Back Mining said it will sell 24 million shares to Kinross for C$25 each in a private placement. On Tuesday, RBI stock closed at C$24.46 a share.

Gold producer Yamana Gold increases its dividend to an annualized $0.06 per share, or $0.015 per share per quarter, representing a 50% increase over the prior annualized dividend of $0.04 per share. Yesterday, the company 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.

Specialty pharmaceutical company Labopharm Inc. reported wider first-quarter net loss of C$8.26 million compared to C$7.97 million in the previous year. However, net loss per share for the quarter was C$0.13, narrower than C$0.14per share last year.

Non-alcoholic beverage company Cott Corp. said its first-quarter net income declined to $0.14 per share from $0.28 per share last year. Analysts were expecting the company to report $0.12 per share for the quarter.

Manufacturer of flight-critical parts Northstar Aerospace said is subsidiary Northstar Aerospace (Canada), Inc. received a purchase contract from The Boeing Company for $53 million, spread over three years.

Music distribution company Fluid Music Canada said it would purchase all of the issued and outstanding shares and debt of Mood Media Group SA in consideration for EUR 160 million or about $206 million.

Television broadcast industry services provider Miranda Technologies slipped into the red in first-quarter, reporting net loss of C$0.07 per share compared with a profit of C$0.05 in the prior year period.

In economic news from the U.S., the Automatic Data Processing, Inc. said non-farm private employment increased by 32,000 jobs in April following an upwardly revised increase of 19,000 jobs in the previous month. Economists were expecting employment to increase by about 30,000 jobs compared to the loss of 23,000 jobs originally reported for March.

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The markets across Asia open for trading declined sharply on Wednesday taking cues from the Wall Street where the major averages declined sharply amid apprehensions about the rescue package sanctioned to Greece to overcome its debt crisis, triggering large scale sell-off in the markets and sharp decline in the Euro against the dollar and other currencies. Positive economic data in Wall Street with regard to factory orders and pending sales failed to arrest the sell-off. The market in Japan is closed for a public holiday. Sharp drop in commodity prices on uncertainty in Europe led the stocks across the region down during the session.

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

In Australia, the benchmark S&P/ASX200 Index declined 63.10 points, or 1.33% to close at 4,674, while the All-Ordinaries Index ended at 4,692, representing a loss of 61.30 points, or 1.29%.

On economic front, a statement released by the Australian Federal Chamber of Automotive Industries revealed that sales of news cars in the country increased 27.3% year-on-year in April. As per the statement, a total of 81,401 new vehicles were sold during the month, marking the second highest sales during April on record.

Separately, the Australian Bureau of Statistics revealed that the number of new dwellings approved for construction in the country increased in March 2010 by a seasonally adjusted 15.3% from February. In non-seasonally adjusted terms, the increase during March was 1.5%. n trend terms, which further smooth the seasonally adjusted data, dwelling approvals rose for the 14th straight month, the report revealed.

Banking stocks ended weaker. ANZ Bank fell 2.23%, Commonwealth Bank of Australia lost 2.42%, investment banking company Macquarie Group shed 1.94%, National Australia Bank declined 3.36% and Westpac Banking Corp. plunged 4.17%.

Oil related stocks declined on sharp drop in crude oil prices in the international market. Woodside Petroleum lost 1.19%, ROC Oil Co, declined 2.47%, and Oil Search fell 2.47%. However, Santos managed to end in positive territory with a gain of 0.36% and Origin Energy advanced 0.51%.

Gold stocks also ended in negative territory. Lihir Gold fell 1.06% and Newcrest Mining lost 1.01%.

Mixed trading was witnessed among retailers. David Jones declined 1.72%, Harvey Norman fell 2.33%, JB Hi-Fi Ltd shed 1.28%, Myer Holdings slipped 1.82% and Reject Shop was down by 2.06%. However, Wesfarmers gained 1.72% and Woolworths advanced 0.55%.

Mixed trading was witnessed among resource stocks as traders went bargain hunting after two days of heavy losses. BHP Billiton added 0.39%, Fortescue Metals surged up 6.16%, Murchison Metals rose 2.96%, and Rio Tinto gained 1.82%. However, Gindalbie Metals plunged 5.56%, Iluka Resources shed 1.37%, Mineral Resource fell 1.22% and Oz Minerals edged down 0.47%.

In Hong Kong, the benchmark Hang Sang Index plunged sharply by 435.51 points, or 2.10%, and closed at 20,328, taking cues from other markets in the region as well as weak cues from Wall Street where the major indices witnessed a smart fall on debt concerns in Europe despite IMF/Eu's assurance to extend assistance to Greece. The Euro declined sharply against the US dollar. As many as 40 of the 42 components in the index declined sharply with banks, china related stocks taking the lead.

The Indian market extended its two-day loss on Wednesday on European debt fears. However, the benchmark indexes closed off the day's lows, helped by short covering and a little bit of bargain hunting in stocks like Bharti Airtel, Wipro, Maruti Suzuki, Mahindra & Mahindra, TCS, Infosys and Hindalco Industries. While the Sensex finished 49 points or 0.29% lower at 17,088, the 50-share Nifty ended down 24 points or 0.46% at 5,125.

Among the other major markets open for trading, China's Shanghai Composite Index managed to end in positive territory with a gain of 21.87 points, or 0.77%, at 2,857. However, Indonesia's Jakarta Composite plunged 112.78 points or 3.81% to close at 2,846, Singapore's Strait Times Index fell 40.87 points, or 1.41%, to close at 2,860, and Taiwan's Weighted Index ended in negative territory with a sharp loss of 233.87 points, or 2.95%, at 7,697.

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The major European markets are extending their losses and are trading moderately lower on Wednesday amid the continuing turmoil in the sovereign debt market. The German DAX Index and the U.K. FTSE 100 Index are down 0.72% and 1.07%, respectively, while the French CAC 40 Index is down 1.26%.

In corporate news, French banking giant Societe Generale reported first quarter net income of 1.06 billion euros compared to a net loss of 278 million euros last year. The rebound was helped by a strong performance by its investment banking business. The bank also said its exposure to Greek sovereign debt stood at 3 billion euros.

U.K. retailer Next reported that its first quarter sales rose 4.1%, while it said it remains cautious on trading for the rest of the year.

On the economic front, the British Retail Consortium said shop prices in April were 2% higher than a year ago, an acceleration from the 1.2% growth seen in March. Food price inflation picked up to 2% from a three-year low of 1.2%, while non-food inflation increased to 2% from 1.3%.

The European Commission today upwardly revised its 2010 GDP growth forecast for the euro area to 0.9% from its earlier estimate of 0.7% growth. In its spring forecast, the European Commission said an economic recovery is underway in the European Union, although it is set to be a gradual one. Moreover, the speed of the recovery is forecast to increasingly vary across EU countries.

Meanwhile, Eurostat reported that the euro area’s retail sales were unchanged in March compared to the previous month, stalling the declines seen in the previous two months. Economists expected a 0.1% monthly increase.

U.S. Economic Reports

Private sector employment saw a modest increase in the month of April, according to a report released by payroll processor ADP, with upward revisions also resulting in job growth in each of the two previous months.

ADP said non-farm private employment increased by 32,000 jobs in April following an upwardly revised increase of 19,000 jobs in the previous month. Economists had expected employment to increase by about 30,000 jobs compared to the loss of 23,000 jobs originally reported for March.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is expected to show a reading of 56.1 for April.

Conditions in the non-manufacturing sector improved at a faster rate in March. Fourteen of the eighteen sectors surveyed reported growth. The non-manufacturing index rose about 2.4 points to 55.4 in March, while economists had expected a more modest improvement to 54.

Among the sub-indexes, the business activity index rose 5.2 points to 60 and the new orders index gained 7.3 points to 62.3. The order backlog index climbed about 10 points. Despite rising by 1.2 points, the employment index remained slightly below the '50' cut off mark.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended April 30th at 10:30 AM ET.

In the week ended April 23rd, crude oil stockpiles increased by 1.9 million barrels to 357.8 million barrels. Crude oil inventories remained above the upper limit of the average range.

Distillate inventories rose by 2.9 million barrels, remaining above the upper boundary of the average range. However, gasoline stockpiles fell by 1.2 million barrels, but they remained above the upper limit of the average range. Refinery capacity utilization averaged 86.2% over the four weeks ended April 23rd compared to 84.7% in the previous week.

Boston Federal Reserve Bank President Eric Rosengren is due to speak to the Money Marketeers of New York University at 7 PM ET.

Earnings

Garmin (GRMN) reported that its first quarter revenues fell 1% to $437 million. The company reported pro forma earnings of 38 cents per share, higher than 25 cents per share last year. Analysts estimated earnings of 42 cents per share on revenues of $484.47 million.

PulteGroup (PHM) reported a first quarter loss of 3 cents per share compared to a loss of $2.02 per share last year. Consolidated revenues rose 75% to $1 billion. Analysts estimated a loss of 22 cents per share on revenues of $1.18 billion.

WellCare (WCG) reported first quarter net income of 15 cents per share compared to 89 cents per share last year. On an adjusted basis, the company reported earnings of 17 cents per share compared to 29 cents per share in the year-ago period. Analysts estimated earnings of 14 cents per share on revenues of $1.38 billion. For the full year, the company expects adjusted net income of $2-$2.20 per share, an upward revision to its earlier guidance of $1.90-$2.15 per share, while the Street estimates earnings of $2.18 per share.

Time Warner (TWX) said its first quarter adjusted earnings rose 61% to 61 cents per share as revenues climbed 5% to $6.3 billion. Analysts estimated earnings of 48 cents per share on revenues of $6.29 billion. The company updated its 2010 adjusted income per share from continuing operations growth guidance to be at least in the mid-teens.

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InterMune may come under selling pressure after it said the FDA has issued a complete response letter on its NDA for Esbriet for the treatment of patients with idiopathic pulmonary fibrosis to reduce decline in lung function. A complete response letter is issued by the FDA when the review of an application is completed, but there are one or more reasons that preclude the approval of the NDA.

UTStarcom tumbled in Tuesday’s after hours session after it announced the resignation of its CFO Kenneth Luk due to personal reasons. The company noted that Luk would leave the company after the filing of its quarterly report on Form 10-Q for the quarterly period ended March 31, 2010. Additionally, the company announced the appointment of Edmond Cheng as senior vice president and CFO.

Pioneer Natural Resources could see weakness after it reported first quarter earnings of $2.08 per share compared to a loss of 13 cents per share last year. Excluding non-cash unrealized gains on derivatives and one-time gains totaling 20 cents per share, the company reported earnings of 48 cents per share. Revenues and other income totaled $817.43 million, up from $477.88 million last year. Analysts estimated earnings of 43 cents per share on revenues of $507.64 million.

Myogen tumbled in Tuesday’s after hours session in reaction to its earnings and revenue miss. The company reported third quarter revenues of $90.8 million, up 5% year-over-year. The company reported earnings of 33 cents per share compared to 25 cents per share last year. The year-ago results included a loss from discontinued operations of 13 cents per share. The results missed the consensus estimates, which called for earnings of 39 cents per share on revenues of $97.84 million. For the full year, the company expects earnings of $1.30-$1.35 per share and revenues of $360 million to $365 million. Analysts estimate earnings of $1.50 per share on revenues of $381.52 million.

Sonus Networks may be in focus after it reported that its first quarter revenues fell to $62.4 million from the year-ago’s $68.7 million. The company reported a loss of $0.1 million compared to a net loss of $16.2 million in the year-ago period, while on a per share basis, the company reported break-even results compared to a loss of 6 cents per share last year. Analysts expected a loss of 1 cents per share on revenues of $51.82 million.

XL Capital could gain ground after it reported first quarter operating earnings of 44 cents per share compared to the consensus estimate of 19 cents per share, although lower than 57 cents per share last year.

Chesapeake Energy is also expected to see some buying interest after it reported first quarter adjusted earnings of 82 cents per share compared to 46 cents per share last year. Total revenues rose to $2.80 billion from $2.0 billion in the year-ago period. Analysts estimated earnings of 70 cents per share on revenues of $2.37 billion.

Integrated Device Technology is likely to see some activity after it reported that its fourth quarter revenues rose to $138 million from $107.4 million last year. On a non-GAAP basis, the company reported earnings of 9 cents per share compared to a loss of 3 cents per share last year. The consensus estimates called for earnings of 8 cents per share on revenues of $136.22 million.

News Corp. could also be in focus after it reported that its third quarter revenues rose 19% to $8.8 billion. The company reported earnings of 32 cents per share compared to $1.04 per share in the year-ago period. The year-ago results included a net gain of $1.2 billion on the partial sale of the company’s stake in NDS and a $1.2 billion non-cash tax benefit.

Unum Group may move in reaction to its announcement that its first quarter earnings rose to 69 cents per share from 50 cents per share last year. On an adjusted basis, the company reported earnings of 67 cents per share. Revenues climbed 5% year-over-year to $2.45 billion. Analysts estimated earnings of 66 cents per share on revenues of $2.52 billion. The company reaffirmed its full year earnings per share growth outlook of 4%-6%.

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