US & World Daily Markets Financial Briefing 06-08-2009

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Stocks May Latch onto Positive Global Cues Even as Uncertainty Weighs

The major U.S. index futures are pointing to a higher opening on Thursday, with the equity markets likely to get an early lift from positive cues from the rest of the Asian markets. That said, sentiment is likely to extremely cautious, as some traders may be driven to profit taking by trepidation ahead of Friday’s non-farm payroll report.

A Labor Department report released today relayed a mixed message, with the weekly first time claims declining, while continuing claims rose. Additionally, the Bank of England’s decision to increase the size of its asset purchase program may stir anxiety on fears that the end of the downturn may take a long time.

U.S. stocks turned in a negative performance on Wednesday amid the release of a couple of disappointing economic reports, which provided a good reason for traders to take profit following the recent rally. Volume of trading on the NYSE was at 7.24 billion, higher than Tuesday’s 5.71 billion.

The major averages opened lower and came under further selling pressure, as traders digested the results of the services sector survey and a private sector jobs report. After showing choppiness thereafter, the averages snapped back some of their losses in the afternoon, ending the session well off their lows. While the Dow Industrials closed down 39.22 points or 0.42% at 9,281 and the S&P 500 Index fell 2.93 points or 0.29% to 1,003, the Nasdaq Composite Index ended at 1,993, representing a drop of 18.26 points or 0.91%.

Twenty of the thirty Dow components ended the session lower, with Procter-Gamble (PG) (down 2.79%), Caterpillar (CAT) (down 2.61%) and AT&T (T) (down 2.06%) leading the slide. On the other hand, Bank of America (BAC) (up 6.52%), American Express (AXP) (up 5.75%), JP Morgan Chase (JPM) (up 3.90%) and Alcoa (AA) (up 3.67%) advanced notably.

Among the sector indexes, the NYSE Arca Biotechnology Index fell 1.83%, while the Dow Jones Transportation Average and the Dow Jones Utility Average both lost close to 1%. The Philadelphia Semiconductor Index and the NYSE Arca Software Index receded 1.1% each and the NYSE Arca Internet Index fell 0.91%. However, the NYSE Arca Airline Index rallied 4.07% and the KBW Bank Index rose 3.54%. The Philadelphia Housing Sector Index gained 1.43%.

On the economic front, the Institute for Supply Management’s services sector survey showed that its non-manufacturing index fell to 46.4 in July from 47 in June. The business activity index declined 4 points to 42 and the new orders index moved down 0.5 points to 48.6, while the prices paid and the employment index dropped 1.9 points and 12.4 points, respectively.

The Commerce Department’s factory goods orders report showed a 0.4% month-over-month increase in June, with non-durable goods orders rising 2.7%, while durable goods orders were revised to show a 2.2% decline compared to the 2.5% decline estimated earlier.

Although the third quarter is widely expected to show positive growth, aided by monetary and fiscal stimulus, the initial recovery is most likely to be choppy. Economists expect further deleveraging by U.S. consumers to restrain growth. Additionally, higher gasoline prices are likely to drain discretionary spending, offsetting gains from income tax cuts. The soft recovery anticipated rules out a move towards an early exit strategy.

Going by past practice, we can be rest assured that the Fed will not raise rates before unemployment peaks. The possibility of the unemployment rate topping 10% in 2010 may keep an interest rate increase at bay at least till the middle of next year. However, dark skies aren’t likely to clear in the near future. Bank lending may continue to be restrained by souring U.S. commercial real estate loans and rising credit card defaults.

If considered against this backdrop, markets are currently at a crucial juncture currently. The heady gains make the averages vulnerable to a melt down, as the economic picture doesn’t offer confidence that a sustainable recovery is in the works. In the recent market revival, the Nasdaq Composite has been the leading the other two major averages. The index may find difficulty breaking above a resistance around 2,017, which looks like a convergence of a long-standing down trending line and a horizontal resistance level.

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Bay Street Stocks Look To Continue Winning Ways

Canadian stocks will look to hold recent gains on Thursday after soaring to an eight-month high. Markets in Europe saw notable strength, which could provide a boost on Bay Street.

There's also plenty of corporate news to digest. Iamgold Corp. announced that its second quarter net earnings were US$44.1m or US$0.12 per share, compared to US$33.2m or US$0.11 per share for the prior year period.

Canam Group Inc. said its second-quarter net earnings plummeted to C$5.22m or C$0.12 per share from C$12.05m or C$0.25 per share in the prior year period.

Canaccord Capital Inc.'s first-quarter net income dipped to C$9.11m or C$0.16 per share from C$16.46m or C$0.31 per share in the prior year.
 
Crude oil prices slipped 13 cents to $71.84 per barrel after extending sharp gains yesterday. Copper also fell 2.55 cents to $2.7865 a pound, while gold gained $7.30 to $973.60.

Across the border, a Labor Department report showed that initial jobless claims fell to 550,000 from the previous week's revised figure of 588,000. Economists had been expecting jobless claims to edge down to 580,000 from the 584,000 originally reported for the previous week.

On Wednesday, the S&P/TSX Composite Index rose 28.83 points or 0.26% to settle at 11,046.93. With the rise, the market extended its best finish since early October.

Gold Prices Climb Above $970

Gold prices edged higher on Thursday morning, erasing yesterday's minimal losses and extending a two-month high. The metal received a spark from a better-than-expected jobs report in the U.S., which could boost inflation possibilities.

August stamped gold rose to $972.10 per ounce, up $5.80 for the session. The metal touched as high as $974.10 in the opening hour of trading.

In economic news, a Labor Department report showed that initial jobless claims fell to 550,000 from the previous week's revised figure of 588,000. Economists had been expecting jobless claims to edge down to 580,000 from the 584,000 originally reported for the previous week.

Traders anxiously awaited the Labor Department's employment status report, which is expected at 8:30 a.m. ET on Friday.
 
The dollar remain in a tight trading range near 1.4400 against the euro, remaining near a 7 1/2 month low, after the European Central Bank left interest rates unchanged. The buck rebounded away from a multi-month low against the British pound after the Bank of England decided to hold its key interest rate at a historic low and to raise the size of quantitative easing measures by GBP 50 billion to GBP 175 billion.

In other metal trading, silver rose 11.5 cents to $14.875 per ounce and copper fell 4.45 cents to $2.7675 per pound. Meanwhile, crude oil slipped 52 cents to $71.45.

Yesterday, gold dropped $964.20 per ounce, down $3.30. Prices had jumped more than $10 in the previous session as the dollar fell to long-term lows.

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Asian Markets Edge Higher On Recovery Hopes

The markets across Asia ended in the positive territory on increasing hopes that the worst for the global economy is over. Australian stock market rose on stable employment report and Japan's Nikkei gained on bargain hunting at lower levels. Hong Kong's Hang Seng advanced on higher commodity prices. However, the markets in China, Singapore and India ended in the negative territory on late selling.

In Japan, the benchmark Nikkei 225 Index ended the session at 10,388, up 135.56 points, or 1.32%, while the broader Topix index of all first section stocks gained 7.93 points, or 0.84%, to close at 958.

On the economic front, a preliminary report released by the Cabinet Office revealed that the country's leading index increased to 79.8 in June from 76.9 in the preceding month. Economists expected the index to be 79.7. The leading index has now increased for the fourth consecutive month in June.

Automakers led the gains. Toyota Motor gained 3.77%, Honda Motor rose 3.67%, Suzuki Motor advanced 2.67%, Hino Motors surged up 8.36%, Nissan Motor Co. increased 3.08% and Isuzu Motors soared 6.75%.

Mining stocks also ended higher following rise in commodity prices in the International market. Sumitomo Metal Mining gained 3.39%, Sumitomo Electric Industries rose 2.65%, and Toho Zinc surged up 5.67%.

Retail stocks also ended in positive territory. Fast Retailing rose 1.23%, Seven & I Holdings added 0.67% and Aeon Co. gained 1.40%.
 
Trading companies also advanced on bargain hunting. Toyoto Tsusho gained 3.25%, Mitsui & Co rose 2.91%, Sumitomo Corp advanced 2.60% and Mitsubishi Corp edged up 0.21%.

Shipping stocks also ended mixed. While Kawasaki Kisen added 1.32%, Nippon Yusen fell 1.45% and Mitsui OSK Lines lost 1.36%.

Mixed trading was also witnessed among the banks. Sumitomo Mitsui Financial lost 1.23% and Resona Holdings slipped 0.74%. Mizuho Financial remained unchanged from previous close, and Mitsubishi UFJ Financial advanced 1.34%.

In Australia, the benchmark S&P/ASX200 Index rose 61.80 points, or 1.45%, to 4,326, and the All-Ordinaries Index ended with a gain of 1.38% or 58.80 points, at 4,331.

On the economic front, the Australian Bureau of Statistics revealed that job rate in the country remained unchanged in July compared with June. The jobless rate for the population aged 15 years and over stood at a seasonally adjusted 5.8% in July, unchanged from the previous month. Economists expected the rate to climb to 6%. A year ago in July, the jobless rate was only 4.3%.

The surprise steady unemployment rate raised speculation that the Reserve Bank of Australia might have to raise the interest rates as early as next month from its present rate of 3.00%.

Banks and commodity stocks led the rally. Commodity prices rose in the international market on Wednesday in increasing confidence of a pick-up in demand amid recovery prospects.

Alumina Ltd, a partner of U.S aluminum producer, Alcoa, reported a narrower than expected underlying loss for the first half ended 30 June. The stock price surged up 9.89%.

In the mining space, BHP Billiton gained 1.68%, Rio Tinto advanced 1.86%, Fortescue Metals surged up 4.36%, Mincor Resources rose 3.27% and Minara Resources soared 10.48%.

Banks also ended higher on expectations of interest rate hike and re-rating of the sector by analysts. ANZ Bank advanced 1.25%, Commonwealth Bank of Australia gained 2.69%, National Australia Bank added 1.26% and Westpac Banking rose 3.90%.

Mixed trading was witnessed among energy stocks. Woodside Petroleum added 0.46%, Santos advanced 0.41% and Origin Energy rose 0.97%. However, Oil Search bucked the trend and slipped 0.90%.

Gold stocks ended in negative territory. Lihir Gold slipped 2.15%, Newcrest Mining lost 1.05% and Sino Gold shed 2.01%.
 
In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 404.77 points or 1.97% at 20,899, led by telecom and resource stocks, after having paused for profit taking in the earlier session, on increasing confidence about global economic recovery.

Resource related stocks led the gains. Aluminum Corp. of China, or CHALCO, gained 1.32%, PetroChina advanced 2.98% and CNOOC rose 3.58%.

Telecommunication stocks also surged higher. China Unicom surged up 7.87% and China Mobile soared 7.46%.Mixed trading was witnessed among the property and banking stocks.

In South Korea, the benchmark KOSPI Index gained 5.57 points, or 0.36% to close at 1,565. Buying interest in financial stocks on strong earnings helped the index finish above the unchanged line amid choppy trading as investors preferred to move to sidelines ahead of key economic data.

Late selling in auto stocks saw Indian markets further drifting deep into negative territory, having opened weak on global cues. The BSE Sensex finished the session at at 15,514, down 389.80 points or 2.45% from its previous close, and the S&P CNX Nifty lost 109.65 points or 2.31% to close at 4,586.

Among the other major markets in the region, China's Shanghai Composite Index lost 72.17 points, or 2.11% to close at 3,356 and Singapore's Strait Times Index shed 5.33 points, or 0.20% to close at 2,602. However, Indonesia's Jakarta Composite Index ended in positive territory with a gain of 42.91points, or 1.85% at 2,360, and Taiwan's Weighted Index added 20.41 points, or 0.30% to close at 6,869.

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The major European averages are trading higher on Thursday after two sessions of gains. While the French CAC 40 Index and the German DAX Index are rising 1.30% and 1.15%, respectively, the U.K.’s FTSE 100 Index is moving up 1.72%. Earnings are once again catalyzing an upward move despite the overbought level of the markets.

Unilever (UN) said its June quarter profit declined to 758 million euros from 909 million euros last year. Sales were up 0.8% to 10.46 billion euros. Sales growth, excluding the impact of currency effects and acquisitions, was 4.1%.

In corporate news, Deutsche Telekom reported that its second quarter earnings rose to 521 million euros from 394 million euros in the year-ago period. Revenues were up 7.4% to 16.24 billion euros. The company also confirmed its forecast for 2009.

French utility Veolia Environment said its first half revenues edged down 0.8% to 17.43 billion euros at current exchange rates. Net income attributable to equity holders of the parent was 220 million euros, lower than 501 million euros in the year-ago period. The recent quarter’s results include one-time write downs amounting to 100 million euros. The company maintained its 2009 objectives.

In the U.K., the Bank of England announced its monetary policy decision following its August meeting. The central bank held interest rates unchanged at 0.5%- a decision widely expected by economists. However, in an unexpected development, the central bank opted to raise the size of its asset repurchase program by 50 billion pounds to 175 billion pounds, citing the still-fragile economic conditions.

Meanwhile, the European Central Bank said it has decided to maintain its interest rates on the main refinancing operations, marginal lending facility and deposit facility at 1%, 1.75% and 0.25%, respectively. The central bank has lowered its interest rates in incremental steps from 4.25% in October 2008.

U.S. Economic Reports

On the economic front, first-time claims for unemployment benefits showed a much bigger than expected decrease in the week ended August 1st, according to a report released by the Labor Department, with the data likely to offset some of the recent concerns about the outlook for the labor market.

The report showed that initial jobless claims fell to 550,000 from the previous week's revised figure of 588,000. Economists had been expecting jobless claims to edge down to 580,000 from the 584,000 originally reported for the previous week. However, the continuing claims for the week ended July 25th rose 69,000 to 6.31 million.

Earnings

Brinker International  said its fourth quarter adjusted earnings rose to 52 cents per share from 42 cents per share last year. Revenues fell to $829.37 million from $1.07 billion in the year-ago period. Analysts estimated earnings of 49 cents per share on revenues of $853.31 million. For 2010, the company expects first quarter earnings of 12-14 cents per share, while it expects 2010 adjusted earnings to decline 10%-20% year-over-year.

El Paso  reported second quarter adjusted earnings of 25 cents per share compared with 39 cents per share in the year-ago period. Revenues fell to $973 million from the year-ago’s $1.15 billion. Analysts estimated earnings of 21 cents per share.

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Cisco Systems is likely to be in the spotlight after it reported that its fourth quarter earnings fell to 19 cents per share from 33 cents per share in the year-ago period. On an adjusted basis, the company’s earning were 31 cents per share. Sales declined 18% to $8.5 billion. The consensus estimates had called for earnings of 29 cents per share on revenues of $8.5 billion. The company expects first quarter sales to dip 15%-17% and gross margin to decline to 64% from 65.3% in the previous quarter.

Murphy Oil may also see some activity after it said its second quarter earnings fell to 83 cents per share from $3.22 per share last year. The recent quarter’s results included a charge of 13 cents per share and a gain of 7 cents per share compared to a gain of 35 cents per share last year. Revenues fell to $4.56 billion from the year-ago’s $8.34 billion. The consensus estimates called for earnings of 65 cents per share. The company expects third quarter earnings of 80 cents to $1 per share compared to the consensus estimate of 91 cents per share.

Insurers Prudential and Allstate are also likely to move in reaction to their results. Prudential reported an adjusted second quarter profit of $1.88 per share, lower than $1.96 per share in the year-ago period. The company lowered its 2009 earnings estimate to $5-$5.20 per share from its earlier estimate of $5.25-$5.65 per share. Allstate’s second quarter operating earnings declined to 55 cents per share from $1.24 per share last year despite revenues rising 15% to $8.49 billion, ahead of the mean analysts’ estimate of $8.20 billion.

Among retailers, Hot Topic could be in focus after it reported an 8.5% drop in same store sales for July. For the second quarter, the company reported a 5.3% year-over-year decline in sales to $157.9 million compared to the $158.33 million consensus estimate. Zumeiz’ (ZUMZ) comparable store sales dipped 16.8% in July. Wholesaler Costco reported a 7% decline in same store sales.

Airline operator AMR Corp. is likely to be in focus after it said its regional air carrier American Eagle reported a 3.2 percentage point increase in July load factor compared with the year-ago period. Meanwhile, American Airlines, another of its subsidiaries, reported a 1.4 percentage point year-over-year increase in its load factor for July to 87.3%, as capacity fell 8% and traffic declined 6.4%.

99 Cents Only is likely to react to its announcement that its first quarter net income was 14 cents per share compared to a loss per share of 2 cents per share last year. Net sales rose 8.9% to $332.1 million. Analysts estimated earnings of 8 cents per share on revenues of $329.19 million. The company expects second quarter earnings to be half of that in the first quarter, while it said its first quarter pre-tax earnings margins of 4.5% could be sustained in 2010. Analysts estimate earnings of 6 cents per share for the second quarter. Separately, the company said its board has voted to cancel its previously announced plan to exit the Texas market.

Oshkosh Corp. could give back some ground after it announced that it would offer 13 million shares in an underwritten public offering. The company said it intends to use the proceeds to repay a portion of the term loan borrowings under its credit agreement. Another company that could be in focus over a common stock offering is Kulicke & Soffa, which said it has commenced an underwritten public offering of up to 7 million shares.

Career Education is likely to move in reaction to its announcement that its second quarter profits declined to 7 cents per share from 14 cents per share last year. Stripping off charges, the company said its operating income was $40.7 million. Revenues rose 6% to $440.7 million. Analysts estimated earnings of 19 cents per share on revenues of $418.8 million. Separately, the company announced that it has acquired the rights to the Le Cordon Bleu brand of cooking schools in the U.S. and Canada for $135 million in cash, future performance-based payments and 3 million in Career Education stock.

RR Donnelley could see some strength after it said it has been awarded a multi-year $190 million contract by Macmillan to produce trade, college and academic books. Flir Systems (FLIR) may also gain ground after it announced that it has received a $7.2 million U.S. Government Foreign Military Sale order for the Indian Air Force. The order includes the supply of the company’s infrared multi-senor surveillance system, training and related services. The company said deliveries are expected to be completed by 2011.

Baxter could move to the upside after it said it has completed production of its first commercial batch of A/H1NI pandemic swine flu vaccine in late July. The company said it has been in talks with the national health authorities over the distribution of the vaccine, branded CELVAPAN.

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