US & World Daily Markets Financial Briefing 06-05-2010

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Stocks Mostly Lower In Mid-Morning Trading

Stocks are mostly lower in mid-morning trading on Thursday, as lingering concerns regarding the Greek debt crisis have stymied reaction to continued indications of a recovery on the U.S. economic front. The major averages are below the flat line, seeing choppy movement after two days of steep losses.

In news regarding Greece, European Central Bank President Jean-Claude Trichet said that the central bank would accept Greek government bonds as collateral for loans regardless of their rating. Trichet also reiterated that a default within the euro zone "is, for me, out of the question."

The ECB chief also said that the option of purchasing euro zone government bonds in the secondary market was not discussed.

Back in the U.S., the Labor Department released a report showing that initial jobless claims in the week ended May 1st edged down to 444,000 from the previous week's revised figure of 451,000. Economists had expected jobless claims to slip to 440,000 from the 448,000 originally reported for the previous week.

In earnings news today, Cigna Corp. (CI) reported first quarter net income of $1.02 per share, beating expectations for $0.90 per share for the quarter. Total revenues for the quarter rose to $5.21 billion, up from $4.77 billion in the prior year quarter and above the consensus estimate of $4.92 billion.

Sara Lee Corp. (SLE) reported that its third-quarter net loss attributable to the company was $0.49 per share. On an adjusted basis, the firm earned $0.29 per share in the third quarter, topping forecasts that called for earnings of $0.22 per share. Net sales for the quarter were $2.58 billion, short of the $2.71 billion forecast for the quarter.

After the closing bell on Wednesday, life insurer Prudential Financial, Inc. (PRU) reported a first quarter profit, helped by higher revenues as a result of improved premiums. In addition, the company's adjusted operating earnings came in above analysts' expectations, as did revenues.

The major averages have moved to the downside in recent dealing and are near their session lows. The Dow is down 45.80 points or 0.4 percent at 10,822.32, the Nasdaq is down 9.12 points or 0.4 percent at 2,393.17 and the S&P 500 is down 4.71 points or 0.4 percent at 1,161.16.

Sector News

Despite the weakness in the broader markets, health insurance stocks are seeing firm buying interest, resulting a 2.4 percent gain by the Morgan Stanley Healthcare Payor Index. The upward move is lifting the index further off Tuesday's two-month closing low.

Gold stocks are also moving higher on the day, reflecting today's flight to safety play. The NYSE Arca Gold Bugs Index is up by 1.6 percent, moving back towards April's more than three-month closing high. The strength in the sector comes as gold for June delivery is up $9.50 to $1,184.50 an ounce.

Meanwhile, airline, networking, utilities and banking stocks are seeing significant weakness, weighing on the major averages. Notably, the NYSE Arca Airline Index is down by 1.2 percent, sinking for a third straight session.

Stocks Driven By Analyst Comments

Johnson Controls (JCI) is on the rise after being upgraded at Deutsche Bank from Hold to Buy. The stock has gained 2 percent, bouncing off of the two-month closing low set in the previous session.

Actuant (ATU) is also moving higher after analysts at Wells Fargo upgraded the stock to Outperform from Market Perform. Shares are currently up by 1.6 percent, recovering from a three-week closing low set yesterday.

On the other hand, Centerpoint Energy (CNP) is moving lower after being downgraded at Jefferies from Buy to Hold based on valuation. The stock is down by 0.8 percent, although it remains rangebound near the more-than one-year highs set in January.

TSX Likely Poised For A Lackluster Open Amid Weak Energy Prices

Bay Street stocks are likely poised for a lackluster opening Thursday amid a lack of positive triggers. Lingering worries over the euro zone debt situation may prevent bargain hunting after recent sell-offs trimmed nearly 3% from the main index.

Meanwhile, mixed flow of earnings reports from major Canadian companies will lead to stock specific action.

On Wednesday, the S&P/TSX Composite Index lost 155.73 points or 1.29% to 11,875.13, taking its cumulative losses in the past three sessions to 2.77%.

The price of crude oil continued to slip amid euro zone worries and profit taking. Crude for June delivery was down $0.68 to $79.29 a barrel.

Meanwhile, the price off gold recovered from a two-day slump, gaining $4.20 to $1,179.20 an ounce. In corporate news, financial services company Sun Life Financial swung to profit in first-quarter, reporting net income of C$0.72 per share compared to a loss per share of C$0.38 in the first quarter of 2009. The company announced a quarterly dividend of C$0.36 per common share. Sun Life maintained its outlook for adjusted earnings from operations in a range of C$1.4 billion-C$1.7 billion.

Airlines operator Air Canada said its first-quarter loss narrowed to C$0.31 per share, compared to C$4.00 last year.

Pharmaceutical company Biovail Corp. reported first quarter net cash earnings of $0.55 per share, up from $0.42 per share a year ago. Excluding a $6.0-million legal settlement, cash earnings per share were $0.59 in this quarter , compared with $0.46 as similarly adjusted in the prior-year period, representing a 27% increase. Analysts were expecting the company to report earnings per share of $0.27 for the quarter.

Wireless communications services provider BCE Inc. reported improved first-quarter net earnings of $0.79 per share, compared to $0.48 per share for the same period last year. The company declared a quarterly dividend of $0.435 per common share.

Wireless mobile data services provider DDS Wireless International reported narrower first-quarter net loss of C$0.04 per share, compared to net loss of C$0.08 per share last year. The company maintained its revenue guidance issued in March for revenues of C$40 million - C$41 million for the year ending December 31, 2010 which translates to year-over-year growth of 12% - 15%.

Telecommunications industry services provider DS Uniphase reported a narrower third quarter net loss of $0.05 per share, compared to a net loss of $0.47 per share in the year ago quarter. Analysts were expecting the company to report net earnings of $0.09 per share. For the next quarter, the company expects non-GAAP net revenue to be in the range of $385 million to $410 million, higher than consensus estimates for revenues of $358.01 million.

Automotive equipments supplier Magna International turned to profit in first-quarter, reporting net income $1.97 per share, compared to a loss of $1.79 in the prior year quarter. Analysts were expecting the company to report net income of $0.80 per share this quarter. The company declared a dividend of $0.18 per share.

Self storage facilities operator Public Storage Canadian Properties reported first quarter net income of C$0.14 per unit, compared to C$0.17 per unit in the year-ago quarter. However, Funds from operation for the quarter rose to C$0.30 per unit from C$0.29 per unit in the same quarter last year.

Quartz miner Black Bull Resources announce the appointment of Joseph MacDonald as interim chief executive officer effective May 4, 2010.

In economic news, Statistics Canada said building permits increased 12.2% in March to $6.30 billion, after declining in the past four months.

From the U.S., the Labor Department said initial jobless claims fell by 7,000 to 444,000 in the week ended May 1, in line with economists' expectations.

The Labor Department also said that labor productivity increased by 3.6% in the first quarter compared to a revised 6.3% increase in the previous quarter. The pace of growth exceeded economists' estimates for a 2.4% increase. Additionally, the report showed that unit labor costs fell by 1.6% in the quarter following a 5.6% decrease in the fourth quarter. Economists had been expecting a more modest 0.5% drop.

Elsewhere, the European Central Bank left its key interest rate unchanged at a record low of 1%, in line with economists' expectations.

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Asian Markets Plunge On Greece Crisis

The markets across Asia open for trading plunged for the third day in succession Thursday on increasing concerns about the debt concerns in Greece  and contagion effect of the same in other countries in the region. Large scale protests by people in Greece against austerity measures, resulting in 3 deaths due to violence, speculation that Portugal might also face downgrades and sharp decline in commodity prices dragged the markets sharply lower. The market in Japan, which reopened after three days of Golden week holidays, declined the most on crisis in Europe.

In Japan, the benchmark Nikkei 225 Index dropped 361.71 points, or 3.27%, to 10,696, while the broader Topix index of all First Section issues was down 30.32 points, or 3.07%, to 957.

On the economic front, a statement released by Japan Automobile Dealers Association revealed that auto sales in the country, excluding mini vehicles, increased 33.5% in April compared to the same period of last year. As per the statement, automobile sales totaled 222,095 units during the month. For the January to April period, auto sales climbed 35.9% compared to the same period of the previous year. Auto sales totaled 1,198,640 units. In a separate report, the Japan Mini Vehicle Association said the mini vehicle sales increased 10.8% year-on-year in April.

Separately, a statement released by Markit Economics revealed that the Japan Nomura services purchasing managers' index stood at a seasonally adjusted 50.2 in April, up from 49.3 in the previous month. A reading above 50 indicates expansion, while one below suggests contraction. This marks the first month-on-month increase in services output since December 2007. The level of new work placed at Japanese service providers rose in April, albeit modestly, thereby ending a 27-month period of decline.

Real estate stocks declined the most. Mitsui Fudosan plunged 6.52%, Sumitomo Realty & Development slumped 4.59%, Mitsubishi Estate Co., lost 4.28%, Tokyu Land Corp. fell 4.69% and Heiwa Real Estate declined 5.39%.

Shipping related stocks also ended sharply lower. Mitsui OSK Lines slumped 6.21%, Kawasaki Kishen Kaisa plunged 6.70% and Nippon Yusen declined 6.19%.

Securities also ended in negative territory. Nomura Holdings declined 4.71%, Daiwa Securities Group slumped 5.92%, Matsui Securities fell 3.67% and Mizuho Securities fell 3.41%.

Large banks also ended weaker. Sumitomo Mitsui Financial declined 4.33%, Mizuho Financial lost 4.40%, Mitsubishi UFJ Financial fell 4.45% and Resona Holdings was down by 3.92%.

In Australia, the benchmark S&P/ASX200 Index plunged 100.80 points, or 2.16% to close at 4,573, while the All-Ordinaries Index ended at 4,599, representing a loss of 93.40 points, or 1.99%.

On economic front, data released by the Australian Bureau of Statistics revealed that trade deficit in the country widened in March, as rise in imports outstripped the rise in exports. According to the data, the trade deficit stood at a seasonally adjusted A$2.08 billion in March compared to a revised A$1.70 billion deficit in the previous month. This marks the third straight month in which Australia's trade deficit has expanded.

In a separate report, the Statistics Bureau revealed that retail sales value in Australia increased a seasonally adjusted 0.3% in March compared to February to A$19.92 billion. That is lower than analyst forecasts for a 0.7% increase and follows a revised 1.2% fall in February.

Light sweet crude oil futures for June delivery ended at $80.06 a barrel in electronic trading, up $0.15 per barrel from previous close at $79.97 a barrel in New York on Wednesday.

Banks plunged amid speculation that the Australian Government might consider imposing some sort of tax on banks. ANZ Bank plunged 6.89%, Commonwealth Bank of Australia lost 3.04%, investment banking company Macquarie Group shed 2.42%, National Australia Bank fell 3.44% and Westpac Banking Corp. declined 4.16%.

Mining and metal stocks also ended in negative territory. BHP Billiton declined 2.94%, Rio Tinto slumped 3.94%, Fortescue Metals slipped 2.32%, Iluka Resources edged down 0.23%, Mincor Resources fell 4.09%, Murchison Metals plunged 7.38% and Oz Minerals declined 3.27%. However, Gindalbie Metals bucked the trend and surged up 9.13%.

Gold stocks ended in positive territory on higher bullion prices. Lihir Gold gained 2.93% and Newcrest Mining rose 2.11%.

Mixed trading was witnessed among oil stocks. Woodside Petroleum fell 1.50%, ROC Oil Co. plunged 5.06%, Oil Search shed 0.52% and Origin Energy declined 2.52%. However, Santos Ltd bucked the trend and ended in positive territory with a gain of 0.77%.

In Hong Kong, the benchmark Hang Sang Index continued to slide lower and ended the trading session with a loss of 194.13 points, or 0.96%, at 20,133, following weakness across the other markets in the region, including Japan which opened for trading after 3 days of holidays, on increasing concerns about the debt crisis in Greece and other countries in the region. Weak closing on Wall Street in the previous session amid news of 3 deaths in riots across Greece cities also dampened market sentiment. However, the markets limited the losses in late trading session as European markets snapped their losses and turned positive. Sharp decline in mainland China also impacted market sentiment.

Negative global cues on lingering European debt worries and concerns that the fallout from the crisis could hinder foreign fund inflows continued to weigh on Indian market Thursday. Telecom, capital goods, metal and IT stocks were the worst hit, while defensive healthcare and public sector undertakings edged higher. The benchmark 30-share Sensex average ended down 100 points or 0.59% to close at 16,987, while the 50-share Nifty fell 34 points or 0.66% to close at 5,091.

Among the other major markets open for trading, China's Shanghai Composite Index plunged 117.457 points, or 4.11%, to close at 2,740, Indonesia's Jakarta Composite declined 35.62 points or 1.25% to close at 2,811, Singapore's Strait Times Index fell 20.66 points, or 0.72%, to close at 2,840, and Taiwan's Weighted Index ended in negative territory with a sharp loss of 117.42 points, or 1.53%, at 7,579.

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The major European markets are trading mixed on Thursday following the steep sell-off in the previous two sessions. The French CAC 40 Index and the German DAX Index are advancing 0.47% and 0.58%, respectively, while the U.K.’s FTSE 100 Index is receding 0.30%.

In corporate news, telecommunication equipment maker Alcatel Lucent (ALU) reported a first quarter loss of 515 million euros compared to a loss of 402 million euros in the same period last year. However, the company’s adjusted operating loss narrowed to 195 million euros from the year-ago’s 254 million euros. Revenues declined 9.8% year-over-year to 3.25 billion euros.

French bank BNP Paribas reported a first quarter profit of 2.28 billion euros, up from 1.56 billion euros last year. Revenues rose 22% year-over-year to 11.53 billion euros.

Meanwhile, in key Main Street events, the European Central Bank left its key interest rate unchanged at a record low of 1% for the twelfth straight month. The decision was in line with economists' expectations. The central bank also retained its interest rate on the marginal lending facility at 1.75% and kept the rate on the deposit facility at 0.25%.

The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

The German Federal Ministry of Economics and Technology reported that factory goods orders rose 5% month-over-month in February, faster than the 1.4% growth expected by economists. On a year-over-year basis, factory goods orders surged up 26.1% compared to the 21% growth expected by economists.

A report released by Markit Economists showed that the service sector in the U.K. continued to expand in April, although at a slower rate than in the previous month. The headline Markit/CIPS business activity index came in at 55.3 in April compared to 56.5 in March, with service sector activity growing for a twelfth successive month. Economists had forecast a reading of 57.

U.S. Economic Reports

In a somewhat positive sign for the labor market, the Labor Department released a report showing another modest decrease in first-time claims for unemployment benefits in the week ended May 1st.

The report showed that initial jobless claims edged down to 444,000 from the previous week's revised figure of 451,000. Economists had expected jobless claims to slip to 440,000 from the 448,000 originally reported for the previous week

Labor productivity saw continued growth in the first quarter, according to a report released by the Labor Department, with the pace of productivity growth exceeding economist estimates amid a notable increase in output.

The Labor Department said that productivity increased by 3.6 percent in the first quarter compared to a revised 6.3 percent increase in the fourth quarter. The pace of growth exceeded the estimates of economists, who had expected a 2.4 percent increase.

Additionally, the report showed that unit labor costs fell by 1.6 percent in the first quarter following a 5.6 percent decrease in the fourth quarter. Economists had been expecting a more modest 0.5 percent drop.

In the fourth quarter, non-farm productivity rose at a 6.9% sequential rate, upwardly revised from the 6.2% growth estimated earlier. Economists had expected the reading to be revised up to 6.5%.

The productivity growth was helped by a 7.6% increase in output, but partly offset by the 0.6% increase in hours worked. Meanwhile, unit labor costs fell at a downwardly revised rate of 5.9%.

Federal Reserve Chairman Ben Bernanke is scheduled to speak to the Chicago Federal Reserve Bank 46th Annual Conference on Bank Structure at 9:30 AM ET.

Earnings

Cigna (CI) reported that its first quarter earnings rose to $1.02 per share from 76 cents per share in the year-ago period. On an adjusted basis, the company reported income from operations of $1.01 per share. Total revenues rose to $5.21 billion from the year-ago’s $4.77 billion. Analysts estimated earnings of 90 cents per share on revenues of $4.92 billion. The company also said it continues to expect full year adjusted income from operations of $3.75-$4.15 per share, while analysts estimate earnings of $4.30 per share.

Sara Lee Corp. (SLE) said its third quarter adjusted earnings rose to 29 cents per share from 22 cents per share in the year-ago period. Net sales remained flat at $2.6 billion. The consensus estimates called for earnings of 21 cents per share on revenues of $2.71 billion. The company raised its 2010 adjusted earnings guidance to $1.06-$1.10 per share. Analysts estimate earnings of $1.05 per share.

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Furniture Brands (FBN) is likely to see some buying interest after it reported that its first quarter net sales rose 12.9% to $322.4 million. The company reported a profit of 7 cents per share compared to a loss of 9 cents per share last year. Analysts estimated a loss of 7 cents per share on revenues of $298.21 million.

Protective Life (PL) could be in focus after it reported first quarter operating income of 78 cents per share, lower than 86 cents per share in the year-ago period. Analysts estimated earnings of 60 cents per share for the quarter.

Meanwhile, peer Prudential (PRU) reported that its first quarter after-tax adjusted operating income rose to $1.49 per share from $1.03 per share last year. Total revenues eased to $7.36 billion from the year-ago’s $7.97 billion. The consensus estimates called for earnings of $1.31 per share on revenues of $7.05 billion.

Brightpoint (CELL) is expected to see some buying interest after it reported that its first quarter revenues rose 15% to $795.3 million. On an adjusted basis, the company’s non-GAAP earnings were 15 cents per share compared to 6 cents per share last year. Analysts estimated earnings of 9 cents per share on revenues of $785.33 million.

Freddie Mac (FRE) receded in Wednesday’s after hours session after it reported a loss of $8 billion for its first quarter, with the loss before the payment of a $1.3 billion dividend on the senior preferred stock owned by the Treasury at $6.7 billion. The company also requested $10.6 billion in additional funding from the government.

BMC Software (BMC) may see weakness after it reported that its fourth quarter revenues rose 3% to $491 million. On a non-GAAP basis, the company reported earnings of 65 cents per share, up 2% year-over-year. Analysts estimated earnings of 70 cents per share on revenues of $508.73 million. For the full year 2011, the company expects non-GAAP earnings of $2.84-$2.94 per share, while analysts estimate earnings of $2.69 per share.

ON Semiconductor (ONNN) is likely to move to the upside after it reported that its first quarter revenues rose 11% to $550.2 million. The company reported non-GAAP earnings of 19 cents per share for the quarter. The consensus estimates called for earnings of 17 cents per share on revenues of $520.87 million. For 2010, the company expects revenues of $565-$580 million, while analysts estimate revenues of $520.87 million.

Symantec (SYMC) may see some buying interest after it reported fourth quarter non-GAAP earnings of 40 cents per share on revenues of $1.535 billion. Analysts estimated earnings of 37 cents per share on revenues of $1.52 billion. For the first quarter, the company expects revenues of $1.48 billion to $1.50 billion and non-GAAP earnings of 35-36 cents per share. The Street estimates revenues of $1.49 billion and earnings of 36 cents per share for the quarter.

JDS Uniphase (JDSU) fell sharply in Wednesday’s after hours session after reporting third quarter net revenues of $332.3 million, higher than $279.1 million last year, but lower than the $340.72 million consensus estimate. The company reported a net loss of 5 cents per share compared to a loss of 47 cents per share last year. On an adjusted basis, the company reported earnings of 10 cents per share, exceeding the mean analysts’ estimate of 9 cents per share. For the fourth quarter, the company expects net revenues of $385 million to $410 million.

CBS Corp. (CBS) is expected to see some activity after it reported that its first quarter revenues rose 12% to $3.53 billion. The company reported adjusted earnings of 5 cents per share compared to a loss of 5 cents per share last year. Analysts estimated earnings of 5 cents per share on revenues of $3.45 billion.

ADC Telecommunications (ADCT) rose in Wednesday’s after hours session after it reported second quarter net income from continuing operations of 10 cents per share on 7% revenue growth to $274 million. Analysts estimated earnings of 6 cents per share on revenues of $273 million.

Among retailers, Zumeiz (ZUMZ) reported that its comparable store sales rose 2.1% in April compared to a 13.8% decline in the year-ago period. Teen apparel retailer Hot Topic (HOTT) said its April same store sales fell 12.5% compared to a 3.1% increase in the year-ago period. The company narrowed its first quarter guidance to a loss of 3-4 cents per share compared to its earlier estimate for a loss of 2-5 cents per share, while the Street estimates a loss of 4 cents per share.

Fred’s (FRED) reported same store sales growth of 0.6% for April, smaller than the 5% increase in the year-ago period. The company reported sales of $471.7 million for the first quarter, ahead of the $466.41 million consensus estimate.

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