US & World Daily Markets Financial Briefing 08-04-2009

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Stocks Give Back Some Ground Following Initial Strength

After showing a strong initial upward move, stocks have given back some ground over the course of the first hour of trading on Wednesday. The major averages have pulled back well off their best levels of the day, with the Dow moving back near the unchanged line.

The early strength in the markets came as traders reacted positively news that Pulte Homes (PHM) has agreed to acquire rival Centex Corp. (CTX) in a stock-for-stock deal. The deal is valued at $1.3 billion and will create the nation's largest homebuilding company.

Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on Pulte's closing price on Tuesday, the deal values Centex at $10.50 per share, a 38 percent premium to Centex's closing price.

Additionally, while Bed Bath & Beyond (BBBY) said its fourth quarter profit declined from last year, hurt by worsening economic conditions, the home furnishings retailer's earnings exceeded analysts' expectations as well as its own estimates.

Dow component Alcoa (AA) reported a $497 million net loss for the first quarter, hurt by the impact of the economic downturn on its core industrial and commercial markets as well as an historic decline in aluminum prices.

On the economic front, wholesale inventories fell by much more than economists had been expecting in the month of February, according to a report released by the Commerce Department on Wednesday, although the report also showed an increase in wholesale sales.
 
The report showed that wholesale inventories fell 1.5 percent in February following a revised decrease of 0.9 percent in January. Economists had expected inventories to fall by 0.6 percent compared to the 0.7 percent decrease originally reported for the previous month.

In other economic news, the Mortgage Bankers Association revealed that its index of mortgage application volume rose 4.7 percent on a seasonally adjusted basis for the week of April 3rd, following a 3 percent rise in the previous week.

The major averages are currently all in positive territory, although the Dow and the S&P 500 are posting only modest gains. The Dow is currently up 6.37 at 7,795.93, the Nasdaq is up 9.54 at 1,571.15 and the S&P 500 is up 0.86 at 816.41.

Sector News

While most of the major sectors moved higher in early trading, the major sector indices are now turning in a mixed performance. Retail stocks are holding onto strong gains, contributing to a 2.4 percent gain by the S&P Retail Index.

Within the retail sector, Bed Bath & Beyond is showing one of the strongest gains, rising 20.2 percent following the release of its quarterly results. With the advance, the stock has reached its best intraday level in over six months.

Networking, computer hardware, and airline stocks also continue to perform well on the day. The Amex Networking Index is up 2.2 percent, while the Amex Computer Hardware Index and Amex Airline Index are both up 1.7 percent.

At the other end of the spectrum, healthcare, banking and brokerage are taking some abuse. The Morgan Stanley Healthcare Provider Index is suffering a loss of 2.6 percent, while the Kbw Bank Index and the Amex Securities Broker/Dealer Index are down 1.3 percent and 1.2 percent, respectively.

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Bay Street Stocks Move Slightly Lower Again

Canadian stocks are moving slightly lower on Wednesday morning as traders mull the first batch of reports from earnings season. Toronto's main index is down for a fourth straight session.

The S&P/TSX Composite Index has dropped 16.38 points or 0.18% to move at 8,808.37. The index has been trending lower since reaching its highest level in nearly three months last week.

Energy stocks are down about 0.4% as crude oil has pared most of its daily losses following the Energy Information Administration's weekly inventory report. Light sweet crude is down 25 cents at $48.90 after earlier hitting as low as $47.37. Encana is down about 1.5%.

In corporate news, Nortel Networks Corp. has soared more than 30% amid reports in the Wall Street Journal the bankrupt network solutions company has received an offer from Nokia Siemens Networks to buy key assets. Both companies have declined to comment on the report.

Corus Entertainment fell 1.3% after it said its second-quarter net income amounted to C$29.0 million or C$0.36 per share, compared to C$35.4 million or C$0.41 per share in the year-ago quarter.
 
Shaw Communications is up 0.5% after the company reported second-quarter net income of C$156.23 million or C$0.36 per share, compared to C$298.85 million or C$0.69 per share last year.

Open Text Corp. is up 0.5% after the company said it acquired Toronto-based Vizible Corporation, a privately held maker of digital media interface solutions.

Forzani Group Ltd. has added 4.2% after the company announced a decline in fourth quarter net earnings to C$24.17 million, or C$0.79 per share, from C$28.7 million, or C$0.85 per share in the prior year. The company noted that Athletes World stores added C$0.2 million or C$0.01 per share to consolidated net earnings.

Tuesday after the bell, Alcoa reported a $497 million net loss for the first quarter, hurt by the impact of the economic downturn on its core industrial and commercial markets as well as an historic decline in aluminum prices. The company's quarterly loss per share also came in worse than what analysts had predicted.

On the economic front, data released by Canada Mortgage and Housing Corporation revealed the seasonally adjusted annual rate of Canadian housing starts increased to 154,700 units in March from 136,100 units in February.

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The major European markets are trading on a mixed note on Wednesday, with the French CAC 40 Index and the German DAX Index moving up 0.56% and 0.49%, respectively. Meanwhile, the U.K.’s FTSE 100 Index is declining 0.11%.

On the economic front, the U.K.’s National Institute for Economics and Social Research said the U.K. economy contracted by 1.5% in the first quarter following a 1.6% contraction in the fourth quarter of 2008. The institute said the current downturn is similar to the one witnessed in the summer of 1979.

Meanwhile, the Nationwide Building Society released the results of its consumer confidence survey, showing that the U.K.’s consumer confidence fell 2 points to 41 in March, which matched the series low hit in January.

A report released by the Bank of France showed that the French business sentiment indicator for the industrial sector rose to 73 in March from 71 in February, while the business sentiment indicator for the services sector fell to 76 in March following a reading of 78 for February.

In Germany, the German trade surplus declined to 8.7 billion euros in February from 17.1 billion euros in the year-ago period, according to a report released by the German Federal Statistical Office. Upon calendar and seasonal adjustment, the trade surplus was 8.9 billion euros. The current account balance showed a surplus of 5.6 billion euros.

Earnings

Constellation Brands (STZ) said its fourth quarter net sales fell to $735.1 million from $884.4 million in the year-ago period. The company reported a loss of $1.88 per class A share compared to a loss of $3.91 per class A share in the year-ago period. On an adjusted basis, the company reported earnings of 21 cents per share, below the 22 cents per share consensus estimate. For 2010, the company expects earnings of $1.60-$1.70 per share on an organic basis compared to the $1.65 per share consensus estimate.

Family Dollar’s (FDO) second quarter net income rose 33.3% to 60 cents per share from 45 cents per share last year. Sales climbed 8.7% to $1.992 billion. Analysts estimated earnings of 60 cents per share on revenues of $1.98 billion. For 2009, the company expects earnings of $1.90-$2 per share on sales growth of 5%-7%. The consensus estimates call for earnings of $1.90 per share on revenue growth of 5.4% for the year.

Stocks in Focus

Alcoa could see some weakness after it reported a first quarter loss of 61 cents per share compared to a profit of 37 cents per share last year. On an adjusted basis, the company reported a loss of 59 cents per share. The consensus estimates had called for a loss of 56 cents per share. Revenues were down 44% to $4.15 billion, exceeding the $4.08 billion consensus estimate.

Bed Bath & Beyond (BBBY) could see some buying interest after it reported fourth quarter earnings of 55 cents per share, which exceeded the consensus estimate of 44 cents per share despite declining from 66 cents per share last year. Sales fell about 0.5% to $1.92 billion, in line with the consensus estimate.

Juniper Networks (JNPR) traded higher in Wednesday’s after hour session despite reducing its first quarter revenue guidance to $760 million to $765 million from its earlier guidance of $800 million to $830 million. However, citing a bigger than expected reduction in expenses, the company raised the low end of its adjusted earnings guidance to 16 cents per share from 15 cents per share previously, while maintaining the high end at 17 cents per share. Analysts, on average, estimate earnings of 17 cents per share on revenues of $794.3 million.

Micron Technology (MU) may see weakness after it announced that it would offer common stock and convertible senior notes for total aggregate gross proceeds of about $450 million. The company will offer 55.3 million common shares in an underwritten registered public offering and $200 million aggregate principal amount of convertible senior notes due October 15, 2013.

Mosaic (MOS) could be in focus after it reported third quarter earnings of 13 cents per share, significantly lower than $1.17 per share in the year-ago period. Revenues were down to $1.38 billion from $2.15 billion last year. The Street had estimated earnings of 24 cents per share on revenues of $1.89 billion.

F5 Networks (FFIV) may also move in reaction to its announcement that it expects adjusted earnings of 37-38 cents per share for its second quarter compared to its earlier estimate of 36-38 cents per share. The company expects revenues of $154.1 million, lower than its earlier estimate of $157 million to $164 million. The consensus estimates call for earnings of 36 cents per share on revenues of $157.2 million.

Pulte Homes and Centex may react to their announcement that they have agreed to combine the companies in a stock merger for $3.1 billion, including $1.8 billion of net debt.

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The major markets across Asia-Pacific region ended lower on Wednesday, taking cues from Wall Street where the major indices declined for the second consecutive day on increasing concerns that weaker earnings for the quarter ended March may thwart hopes of an earlier-than-expected global economic recovery.

The benchmark Nikkei 225 Index declined 2.7% or 237.84 points to close at 8,595, and the broader Topix index of all First Section Issues fell 17.34 points, or 2.1%, to 815.

On the economic front, preliminary data released by the Ministry of Finance revealed that current account surplus for February slumped 55.6% to 1.117 trillion yen from the same period last year. The trade balance was 202.1 billion yen, down 80.4% year-over-year as imports fell a record 44.9% and exports plummeted 50.4%. Analysts had expected a trade surplus of 142 billion yen following the 844.4 billion yen deficit in January.

Among the major exporters, Canon lost 5.48%, Sony fell 4.96% and Sharp ended down 6.12%. Trading houses also ended weak. Mitsubishi Corp. slipped 1.77%, Sumitomo Corp. shed 2.92% and Itochu lost 3.40%.

Oil stocks declined on lower crude oil prices. Inpex declined 3.43%, Showa Shell lost 2.31%, and Nippon Oil fell 2.83%. Among automakers, Honda Motor dropped 1.96% and Isuzu Motors slumped 11.27%. However, Toyota Motor added 0.27%.

In the financial space, Mitsubishi UFJ dropped 3.75%, Sumitomo Mitsui lost 3.92% and Resona Holdings slipped 1.57%. Brokerage Nomura Holdings fell 1.38%. Mizuho Financial remained unchanged.

In Sydney, the benchmark S&P/ASX 200 index declined 86.8 points or 2.34% at to close at 3619, and the broader All Ordinaries Index lost 81 points, or 2.22% at to 3,567.

On the economic front, the Westpac/Melbourne Institute's survey of consumer sentiment for April showed that Australian consumer confidence surged up 8.3% to 92.7 points in April.

Mining stocks declined following weaker quarterly results from Alcoa. BHP Billiton fell 2.81%, Alumina lost 6.35% and Rio Tinto edged down 0.70%. Among energy stocks, Woodside declined 3.39%, Oil Search lost 1.88%, and Santos fell 2.71%. On the other hand, Gold-related stocks advanced on higher gold prices. Lihir Gold advanced 2.72%, Newcrest Mining gained 1.25%, and Sino Gold edged up 1.36%.

Financial stocks ended lower. Commonwealth Bank of Australia declined 3.99%, ANZ Banking Group lost 4.12%, and National Australia Bank fell 4.42%. Westpac slipped 1.43%, and investment bank Macquarie Group ended lower by 5.90%.

In Hong Kong, the benchmark Hang Seng Index dropped 3.04% or 454.11 points to close at 14,475. Bank stocks were the major losers. HSBC Holdings lost 5.57%, Hang Seng Bank slipped 1.61%, Bank of Communications fell 4.59%, Bank of China edged down 1.10% and Bank of East Asia lost 2.56%.

Among property stocks, Henderson Land dropped 2.79%, Wharf Holdings edged down 0.24%, SHK Properties fell 2.63%, New World Development declined 4.22% and Sino Land lost 2.52%. Resource stocks also slipped. Aluminum Corporation of China, or CHALCO, lost 4.55%, CNOOC fell 4.14% and PetroChina declined 3.79%.

In Seoul, the benchmark KOSPI Index dropped 2.93% or 38.03 points to 1,262, as investors preferred to take profits following a recent rally. Financials led the declines. KB Financial Group lost 4.59%, Shinhan Financial fell 4.50% and Woori Finance shed 5.76%.

Technology stocks also ended weaker. Hynix Semiconductor lost 2.10%, LG Electronics fell 1.96%, and LG Display declined 3.63%. Market heavyweight Samsung Electronics dropped 4.62%. Shipbuilders, oil and auto stocks also showed weakness.

Among the other major markets in the region, China's Shanghai Composite Index slipped 3.76% or 91.79 points to 2,347, Indonesia's Jakarta Composite Index lost 21.53 points or 1.44% to 1,469, Singapore's Strait Times Index declined 1.02% or 18.43 points to 1,784, and Taiwan's Weighted Index ended lower at 5,443, down 2.39% or 133.29 points.

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Gold Prices Move Slightly Higher

Gold prices moved mildly higher on Wednesday morning as traders continue to express concerns about the outlook for the impending earnings reporting season, boosting the metal's hedge appeal.

June gold climbed to $888.10, up $4.80 on the session. The metal is looking to post a gain for the second straight session after three straight declines.

The dollar saw choppy dealing versus other major currencies Wednesday morning in New York. The greenback hit a weekly-high against the euro before turning lower. The buck was little-changed against the sterling and down versus the yen.
 
On the economic front, the Commerce Department is due to release its wholesale inventories report at 10 a.m. ET. Economists expect wholesale inventories at the end of February to show a 0.6 percent decline.

Additionally, the Federal Reserve will release the minutes of the latest policy-setting meeting at 2 pm ET.

After the close of trading on Tuesday, Alcoa (AA) reported a $497 million net loss for the first quarter, hurt by the impact of the economic downturn on its core industrial and commercial markets as well as an historic decline in aluminum prices. Alcoa is viewed as the unofficial opener of earnings season.

Crude oil futures are slipping $1.16 to $47.99 a barrel after the commodity fell $1.90 to $49.15 a barrel in Tuesday’s session. The commodity rally that we witnessed for much of March was built on the back of a surge in the global equity market and the resultant risk appetite, and the weakness in the value of the dollar. Additionally, improving economic outlook also propped up prices. Although the price of oil may drop off in the near term, strict adherence to OPEC production cuts should push oil higher towards $70-a-barrel mark by the fourth quarter of 2009.

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