US & World Daily Markets Financial Briefing 08-01-2010

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Stocks Turn Mixed In Mid-Morning Trading

Stocks have pared some of their earlier losses and are mixed in mid-morning trading on Friday. Stocks slipped at the open following the release of a disappointing jobs report for December, but the early selling pressure has abated and stocks have ticked up lately.

The major averages are on opposite sides of the unchanged mark for yet another session, struggling to find consistent direction.

Initial weakness in the markets came on the heels of a report from the Labor Department, which showed that non-farm payrolls declined by 85,000 in December, a sharper drop than economists had anticipated.

Some silver lining came as results for November were revised higher, with the latest statistics now showing a gain in jobs for the month of 4,000, compared to an initial decline of 11,000.

The report also showed that the unemployment rate for December came in at 10.0 percent, unchanged from the previous month.

Also on the economic front today, the Commerce Department revealed that wholesale inventories jumped 1.5 percent in November, following a 0.2 percent drop in the previous month. The figure came as a surprise to economists, who had expected a mild decline.

The data also showed that wholesale sales rose by 3.3 percent, far higher than economists had predicted.

The markets may now be focusing on a series of speeches from Federal Reserve officials, as they reveal their latest economic outlook.

Boston Fed President Eric Rosengren is speaking at the Connecticut Business and Industry Association's annual economic summit, while Atlanta Fed President Dennis Lockhart and Richmond Fed President Jeffrey Lacker will be speaking at separate functions this afternoon.

In earnings news, Apollo Group Inc. (APOL) reported a first-quarter net income which edged out analyst expectations, while revenues also beat forecasts. Further, Lawson Software Inc. (LWSN) met consensus estimates on the bottom line, with sales surpassing projections.

The major averages have all seen choppy movement in recent dealing, remaining little changed on the day. The Dow is down by 34.09 points to 10,572.56, the S&P 500 is down by 2.27 points to 1,139.42, while the Nasdaq is up by 1.67 points to 2,301.20.

Sector News

Transportation stocks are some of the morning’s best performers, with railroad stocks leading the way in the sector. The Dow Jones Railroads Index is up by 1.9 percent, offsetting recent losses.

Steel stocks are also notably higher, with the NYSE Arca Steel Index posting a gain of 1 percent. The index is being helped by shares of AK Steel Holding Corp. (AKS), which is up by 6.4 percent, climbing to a fifteen-month intraday high.

On the downside, health insurance stocks are moving lower, with the Morgan Stanley Healthcare Payor Index falling by 1.1 percent. With the drop, the index is pulling off of the nineteen-month closing high posted on Thursday.

Tobacco, telecommunication and natural gas stocks are also moving lower, limiting the markets.

Bay Street Poised For Slack Opening

Toronto stocks may open on a weak note Friday, in an indication that the previous session's losses may be extended. On Thursday, the Canadian market snapped a five-day rally built on the back of an uptrend in oil and commodity prices. The U.S. futures also point to a flat opening.

Oil and commodity prices were on a slippery path in the past couple of session, putting pressure on the resource heavy Bay Street. The price of crude oil eased for the second session today, after running up to a new 15-month high on Wednesday. Oil now trades at $82.40, down $0.26. The price of bullion is also losing shine and is lingering at $1,123, down $10.

Meanwhile, the Canadian dollar eased for the second day against its U.S. counterpart after Statistics Canada reported that employment fell in December.

In corporate news, DragonWave Inc. said it turned to profit in third-quarter reporting C$0.37 per share compared to a loss of C$0.01 in the prior year period.

Software maker Coral Corp. said it will reduce it global workforce by about 20%.
 
Rare Element Resources said it had bought the rare-earth-element exploration property from Altius Resources in exchange of 200,000 shares and a 2% royalty.

Aastra Technologies Ltd. announced the appointment of David Williams as Interim Chair of the Governance and Nominating Committee to fill the vacancy created by the unexpected death of Donald Watt on December 23, 2009.

In economic news, Statistics Canada reported today that employment unexpectedly fell by 2,600 in December. Jobs in transportation and warehousing companies and public employment fell by 45,500, while healthcare jobs rose 35,300. The unemployment rate was unchanged at 8.5%.

The Ivey Purchasing Managers' Index released Thursday, revealed that Canadian business and government spending surprisingly declined in December. The index fell to 48.4 in December from 55.9 in November. The Canadian economy had edged up 0.4% in Q32009, snapping a recession in the previous three quarters.

From across the border, the U.S Labor Department said today that employers cut 85,000 jobs in December, while economists had expected job losses to taper off to near zero.

Commodity, Currency Markets

Crude oil futures are trading down $0.47 at $82.19 a barrel after declining $0.52 to $82.66 a barrel on Thursday. Gold futures, which fell $2.80 to $1,133.70 an ounce, are currently moving up $3.10 to $1,136.80 an ounce.

On the currency front, the U.S. dollar is trading at 92.51 yen compared to the 92.32 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is currently valued at $1.4379.

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Indian Market Ends Lower; Realty Stocks Shine

Friday, the Indian market ended in the red for a second straight day, as lackluster global cues prevented traders from taking fresh long positions ahead of a critical U.S jobs report due later in the day.

Traders were cautiously optimistic on the jobs report as currency markets continued to flip-flop around amid speculation about possible rate hikes in the U.S. The other Asian markets, however, closed firm on Friday, with a positive close on Wall Street overnight lifting sentiment to some extent.

The benchmark Sensex moved in a range 17,658- 17,509 before finishing at 17,540, down 75 points or 0.43% and the Nifty fell 18 points or 0.35% to 5,245.

However, the broader market continued to witness buying activity, with the BSE mid-cap and the small-cap indexes closing in positive territory. The market breadth on the BSE was fairly positive, as gainers outnumbered decliners by 1724 to 1174.

IT stocks underperformed for a second day in a row on concerns a stronger rupee may hurt revenues of IT companies. Bellwether Infosys fell 2.41% ahead of its earnings announcement early next week, TCS eased 2% and Wipro declined 1.25%.

Telecom stocks such as Bharti Airtel (down 1.22% ), Reliance Communication (down 1.50% ) and Idea Cellular (down 0.33% ) declined after a quarterly report released by telecom regulator TRAI for the July-September period showed a continued deceleration in the minutes of usage and the average revenue per subscriber for GSM operators.
 
Metal stocks also ended down due to weaker commodity prices and consumer goods stocks declined on profit taking following recent gains.

Bucking the cautious undertone, high-beta realty stocks rallied on a brokerage upgrade. DLF rose 4.26%, Indiabulls Real Estate gained 3.55% and Unitech added 2.91%.

Public sector stocks rose amid reports the finance ministry is in talks with other ministries to sell stakes in about 60 state-run firms. Defensive healthcare, power and capital goods stocks also witnessed selective buying.

NTPC gained 1.18% on reports it will open its follow-on public offering on February 3. Ipca Laboratories advanced 3.42% after proposing a stock-split. Ranbaxy Laboratories added 1.69% on news it will now be able to market a copy of a blockbuster heartburn drug Nexium from May 2014 along with Israeli generics drugs maker Teva.

Market heavyweight Reliance Industries ended down 0.29% on reports it has raised the offer price to buy a stake in bankrupt chemical maker Lyondell Basell Industries.

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The European averages have moved lower following the release of the U.S. jobs report. The French CAC 40 Index and the German DAX Index are moving down 0.17% and 0.67%, respectively, while the U.K.’s FTSE 100 Index is receding 0.47%. Eurostat reported that the euro area’s jobless rate rose to 10% in November from 9.9% in October, with the latest reading representing the highest rate since August 1998.

Meanwhile, the statistical agency in a separate report confirmed its third quarter quarter-over-quarter GDP growth estimate at 0.4%. However, the year-over-year decline was revised upwards to represent a 4% decline versus the 4.1% drop estimated earlier.

U.S. Economic Reports

The Labor Department reported that the U.S. economy lost 85,000 jobs in December, worse than expectations for almost no job losses. The unemployment rate based on the household survey remained unchanged at 10%, in line with expectations.

Most sectors, barring the education & health services sector and professional and business services sector, lost jobs. While the goods producing sector lost 81,000 jobs, the service providing sectors lost 4,000 jobs.

In the goods producing sector, 53,000 construction jobs were lost and 27,000 manufacturing jobs were lost. Average hourly earnings rose $0.03 or 0.16% to $18.80.

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of November to show a 0.3% decline.

Wholesale inventories at the end of October were up 0.3% compared to the 0.5% decline expected by economists. The increase was supported by a 1.5% increase in inventories of non-durable goods, while durable goods inventories acted as a drag, dropping 0.4%. At the same time, business sales rose 1.2%, leaving the inventory-to-sales ratio at 1.16 compared to 1.17 in September.

Richmond Federal Reserve Bank President Jeffrey Lacker is due to speak to the Maryland Bankers Association "First Friday" Economic Outlook Forum in Baltimore at 1:35 PM ET.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for November is likely to show a decline of $5 billion.

Consumer credit outstanding fell by $3.5 billion to $2.483 trillion yen in October. September's decline was revised to a drop of $8.8 billion from the $14.8 billion decline estimated initially. Revolving credit slipped by $7 billion, while non-revolving credit rose by $3.4 billion. The continued drop in consumer credit outstanding reflects tighter lending standards, consumers' desire to pay down debt and the moderate pace of consumer spending.

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Lawson Software (LWSN) could be in focus after it reported that its second quarter revenues fell to $184.4 million from $206.4 million in the year-ago period. On a non-GAAP basis, earnings fell to 9 cents per share from 10 cents per share in the same period last year.

Analysts estimated earnings of 9 cents per share on revenues of $176.21 million. The company guided third quarter revenues to $174 million to $178 million and non-GAAP earnings of 7-9 cents per share. The consensus estimates call for earnings of 10 cents per share on revenues of $174.88 million. Separately, the company announced that it intends to acquire private-held Healthvision Solutions for $160 million.

Apollo Group (APOL) is likely to see some activity after it reported that its first quarter consolidated net revenues rose 30.8% to $1.27 billion. Net income attributable to Apollo Group rose to $1.54 per share from $1.12 per share in the year-ago period. On an adjusted basis, net income attributable to Apollo Group was $1.47 per share, higher than the year-ago’s $1.12. The consensus estimates call for earnings of $1.46 per share on revenues of $1.23 billion.

Hartford Financial Services (HIG) is likely to see some activity after it announced that its board has appointed Liam McGee as the President of the company in addition to his roles as Chairman and CEO.

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