US & World Daily Markets Financial Briefing 08-06-2010

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Stocks Turn Mostly Negative In Mid-Morning Trading

Stocks are mostly on the downside in mid-morning trading on Tuesday, as worries pertaining to the euro-zone and the U.S. labor market are largely outweighing a calming economic forecast by U.S. Federal Reserve Chairman Ben Bernanke.

In economic news, Fed Chief Bernanke said late on Monday that the U.S. recovery is likely to proceed at a moderate pace but is unlikely to bring down the unemployment rate quickly.

"My best guess is we'll have a continued recovery, but it won't feel terrific," he was quoted as saying in an interview with ABC News journalist Sam Donaldson at the Woodrow Wilson Center.

Despite the news, uncertainty regarding the financial climate in Europe and last week's disappointing jobs report from the U.S. have raised questions over the strength of the global economic recovery, weighing down the markets.

On the corporate front, McDonald's Corp. (MCD) announced global comparable sales growth of 4.8 percent in May. The company also noted that U.S. business momentum continued, with May comparable sales increasing 3.4 percent.

Women's apparel retailer Talbots Inc. (TLB) reported a narrower year-over-year loss for the first quarter, despite merger-related costs, boosted by margin expansion and sales growth.

The company also provided second quarter earnings guidance in line with estimates, while it forecast full year earnings above expectations.

The major averages are currently all in negative territory, with the Nasdaq underperforming its counterparts by a wide margin. While the Nasdaq is down 17.25 points or 0.8 percent at 2,156.65, the Dow is down 9.22 points or 0.1 percent at 9,807.27 and the S&P 500 is down 1.62 points or 0.2 percent at 1,048.85.

Sector News

Oil service stocks are some of the day's worst performers, with the Philadelphia Housing Sector Index sliding by 1.6 percent. With the decline, the index fell to its lowest intraday level in eleven months earlier.

Semiconductor, electronic storage, networking and trucking stocks are also under pressure, while gains by gold and banking stocks are helping to offset some of the day's losses. The NYSE Arca Gold Bugs Index is up by 2.5 percent, as the price of gold is up by $2.50 to $1,243.30 an ounce.

Stocks Driven By Analyst Comments

SunTrust Banks (STI) is notably higher after being upgraded by Stifel Nicolaus from Sell to Hold. Shares are currently up by 1.1 percent, bouncing off of yesterday's three-month closing low.

Meanwhile Diamond Offshore (DO) is moving lower following a downgrade by FBR Capital Markets from Perform to Underperform. The broker also lowered its target on the stock from $97 to $54. The stock has dropped by 5.7 percent, slipping to a fifteen-month intraday low.

Tellabs (TLAB) is also under pressure after being downgraded by analysts at Morgan Stanley to an Equal-weight rating. The stock is down by 4.1 percent, retreating to a four-month intraday low.

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Toronto Stocks Poised For A Mixed Open Tuesday

Bay Street stocks may open mixed Tuesday amid concerns over the global economic growth and positive cues from the commodities markets.

Traders will react to mixed clues on the strength in the recovery of global economy. Yesterday, Fed Chairman Ben Bernanke said that the economy will gain traction and will not fall back into a 'double dip' recession. Meanwhile, Fitch Ratings today warned that U.K's fiscal challenge is 'formidable', sending European stocks lower.

On Monday, the S&P/TSX Composite Index shed 64.87 points or 0.56% to 11,504.74 amid lingering worries over the euro zone debt situation.

The price of crude oil edged up $0.35 to $71.79 a barrel Tuesday morning ahead of weekly inventories data from the API.

The price of gold was hovering near its all-time high, with gold for August adding $4.2 to $1,245.0 an ounce as risk aversion resurfaced amid concerns over global economic growth.

In corporate news, construction and infrastructure company Aecon Group said its infrastructure division has partnered with Peter Kiewit Sons Co., for a C$1.7 billion design build contract awarded by Ontario Power Generation. Aecon holds a 20% interest in the construction joint venture, which is expected to be completed in 2015.

Oil and gas explorer Advantage Oil & Gas announced the dispositions of non-core natural gas weighted assets located in South Eastern Alberta for gross cash proceeds of C$67 million.

Gold producer Goldcorp has been asked to shut its Marlin mine in Guatemala, which accounts for about 11% of its total production, by the Inter-American Commission on Human Rights pending an investigation, the Globe and Mail reported.

Gold producer Newmont Mining said that its subsidiary, Newmont Mining Corporation of Canada Ltd., has acquired 2 million shares of Eurasian Minerals Inc. by way of private placement at a price of C$2.20 per share for C$4.4 million.

Mining company Chariot Resources said it has obtained necessary approvals for the proposed acquisition by China Sci-Tech Holdings Ltd. The latter will acquire all of the issued and outstanding common shares of Chariot at a price of C$0.67 in cash per common share. On Monday, the stock closed at C$0.66.

Information technology company MKS Inc. reported improved fourth-quarter net income of $0.83 per share, compared to $0.20 per share in the prior year period. The company has declared a quarterly cash dividend of $0.175 per share, up 17% from the previous quarter.

U.S. retailer Casey's General Stores advised its shareholders to reject a $1.9 billion or $36 per share hostile takeover bid from convenience stores operator Alimentation Couche-Tard.

Steel piping and tubing company PM Lakeside Steel slipped to loss, reporting full year 2010 net loss of C$13.10 million, compared to net income of C$206.93 million for the year ended March 31, 2009.

In economic news, Canada Mortgage and Housing Corporation said the seasonally adjusted annual rate of housing starts was 189,100 units in May, down from a revised 201,800 units in April. Economist were expecting housing starts to rise to 206,000.

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Asian Markets Advance Cautiously On Bargain Hunting

Most markets across Asia ended in positive territory with marginal gains Tuesday on bargain hunting at lower levels despite a weak closing on Wall Street in the previous session. Positive comments from Fed Chairman Ben Bernanke that the US economy is growing at a steady pace lifted market sentiment. Excluding the markets in India, Singapore and Taiwan, all the other markets in the region ended in positive territory with marginal gains.

In Japan, the benchmark Nikkei 225 Index rose 17.14 points, or 0.18%, to 9,538, while the broader Topix index of all First Section issues was down 0.88 point, or 0.10%, to 858.

On the economic front, a report released by the Ministry of Finance in Japan revealed that the country's current account surplus increased in April from the previous year mainly due to a larger surplus in the trade gap. As per the report, the current account surplus surged 88% year-on-year to JPY 1.24 trillion from JPY 660.6 billion in the previous year. The surplus, however, came in slightly below economists' expectations for a JPY 1.30 trillion surplus and was well below March's surplus of JPY 2.53 trillion.

A trade surplus of JPY 859.1 billion was recorded in April compared to the JPY 167.1 billion surplus a year ago. This was driven by growth in exports outpacing that of imports. Exports surged 42.7% annually to JPY 5.58 trillion, while imports grew 26.1% to JPY 4.72 trillion.


The surplus in the goods & services account stood at JPY 433.6 billion, in contrast to the JPY 260.9 billion deficit in the previous year. At the same time, the deficit in the current transfers account narrowed slightly to JPY 137.6 billion from JPY 138.4 billion in the previous year.

In a separate report, the Cabinet Office revealed that the country's leading index dropped for the first time since February 2009 in April. As per the report, the index fell to 101.7 in April from 101.9 in March. The expected reading for April was 102.5. The coincident index, at the same time, rose to 101.6 in April. Economists were expecting the reading to rise to 102.5 from March's 100.5. The lagging index dipped to 82.6 from 84.8 in March.

Communication related stocks ended in positive territory. NTT Data Corp. climbed 4.22%, NTT DoCoMo edged up 0.30%, Sky Perfect JSAT Holdings gained 1.27%, Softbank Corp. climbed 2.28% and Nippon Telegraph and Telephone advanced 0.83%.

Exporters and machinery stocks also ended higher on weaker local currency against the Euro and the Dollar. Fanuc Ltd rose 2.58%, TDK Corp. advanced 1.38%, Tokyo Electron added 0.76% and Canon Inc. edged up 0.44%

In Australia, the benchmark S&P/ASX200 Index advanced 55.30 points, or 1.28% and closed at 4,381, while the All-Ordinaries Index ended at 4,401, representing a gain of 50.50 points, or 1.16%.

On the economic front, a statement released by the National Australia Bank revealed that business confidence index in the country unexpectedly slumped 8 points in May to a reading of 5. The fall means the sentiment indicator has fallen below its long-term average of 7. A reading above zero indicates pessimists are outnumbered by optimists.

Banking stocks ended in positive territory. ANZ Bank gained 1.32%, Commonwealth Bank of Australia rose 1.34%, National Australia Bank climbed 2.04% and Westpac Banking was up 1.85%. Investment banking company Macquarie Group advanced 0.94%.

Resource stocks also ended higher. BHP Billiton gained 1.31%, Fortescue Metals advanced 1.03%, Gindalbie Metals rose 1.48%, Iluka Resources climbed 3.27%, Macarthur Coal edged up 0.09%, Mineral Resource was up 3.04%, Oz Minerals increased 1.99% and Rio Tinto was higher by 1.83%.


Gold stocks also ended in positive territory on higher bullion prices. Lihir Gold gained 1.75% while Newcrest Mining surged up 2.91%.

Oil stocks also ended in positive territory. Woodside Petroleum added 0.77%, Santos surged up 3.29%, ROC Oil Co. advanced 1.49%, Oil Search gained 2.93% and Origin Energy rose 2.39%.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a gain of 109.33 points, or 0.56%, and closed at 19,487, as traders went bargain hunting at lower levels after steep drop in the previous trading session. Notwithstanding the weak cues from Wall Street, stocks ended in positive territory taking cues from other markets in the region, following positive comments about the US economy by Fed Chairman Ben Bernanke.

Heightened risk aversion amid lingering worries over the eurozone debt situation and fears of a global double-dip recession weighed on the Indian market for a second consecutive session on Tuesday. After a flat opening, the benchmark 30-share Sensex rose as much as 115 points by the mid-session, tracking positive Asian cues. However, with European stocks and the U.S stock futures reversing their initial gains, the Sensex also joined the global selling spree and plunged to a low of 16,561 before finishing 164 points or 0.98% lower at 16,617, and the 50-share Nifty also lost about 47 points or 0.93% to close at 4,987.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 2.22 points, or 0.09% at 2,514, and Indonesia's Jakarta Composite Index added 29.75 points, or 1.08% to close at 2,780. However, Singapore's Strait Times Index ended in negative territory with a loss of 5.27 points, or 0.19% at 2,747, and Taiwan's Weighted Index shed 5.84 points or 0.08% to close at 7,152.

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The major European markets are moving to the downside, with the French CAC 40 Index and the German DAX Index declining 0.97% and 0.62%, respectively, while the U.K.’s FTSE 100 Index is receding 0.50%.

Reflecting the nervous sentiment among banks in the aftermath of the sovereign debt crisis, euro zone banks deposited 350.9 billion euros in the European Central Bank’s overnight deposit facility rather than lending to each other at higher interest rates.

Meanwhile, in a bid to calm markets, the finance ministers of the European Union are discussing to approve arrangements to set up a special purpose vehicle to raise up to 440 billion euros to lend to nations having the euro as the common currency in case of emergency. Germany on its part approved budgetary cuts to bring about fiscal discipline domestically.

At the same time, rating agency Fitch spread more panic in the market by suggesting that U.K. is lagging behind the other European countries in announcing its deficit reduction plans.

On the economic front, the French Customs Office announced that the French trade deficit narrowed to 4.25 billion euros in April compared to a revised deficit of 4.41 billion euros in April. Economists had expected a deficit of 4.1 billion euros. Separately, the Bank of France retained its economic growth outlook for the second quarter.

The economy is projected to grow 0.5% in the second quarter. Meanwhile, the latest monthly survey of Bank of France showed that business sentiment weakened slightly to 101 in May from 102 in April.

A report released by the German Federal Ministry of Economics and Technology showed that German industrial production rose a better than expected 0.7% month-over-month in April, but slower than the 4.3% increase in the previous month. On a year-over-year basis, industrial output was up 13.3%, exceeding expectations for a 12.4% increase.

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FuelCell (FCEL) may be in focus after it announced that its second quarter revenues fell to $16.6 million from the year-ago’s $22.9 million. The company reported a net loss of 20 cents per share compared to a loss of 29 cents per share last year. Analysts estimated a loss of 16 cents per share on revenues of $21.86 million.

Apple (AAPL) is expected to see some activity after it released its latest Web browser named Safari version 5. The company noted that the new browser is available for Apple Macintosh and Microsoft Windows machines and has improved tools for web developers.

Newmont Mining (NEM) could react to its announcement that its wholly owned subsidiary Newmont Mining Corp. of Canada has acquired 2 million shares of Eurasian Minerals by way of private placement at a price of C$2.20 per share for aggregate gross proceeds of C$4.4 million. Newmont now owns 10.18% of the outstanding shares of Eurasian Minerals.

UAL Corp. (UAUA) is also likely to be in the spotlight after its subsidiary United Airlines announced that its load factor rose 3.3 percentage points year-over-year to 83.3%, with traffic and capacity increasing 7.5% and 3.3%, respectively.

Emulex (ELX) may see some activity after it announced an agreement to buy privately held fabless semiconductor company ServerEngines for $78 million in cash and 8 million shares of Emulex stock to be issued at closing, representing an additional $81 million of consideration. Emulex will also assume $25 million in debt.

C&D Technologies (CHP) could move in reaction to its announcement that its first quarter loss narrowed to 21 cents per share from a loss of 37 cents per share last year. Revenues rose 15% year-over-year to $84.7 million. The consensus estimates had called for a loss of 10 cents per share.

Qualcomm (QCOM) is likely to see some activity after it revealed that it has made a strategic investment in Anteryon, a manufacturer of wafer-based miniature optical module production for mobile phone cameras and laser projection. The investment was reported to have made as part of Qualcomm’s European investment fund. The companies did not disclose the financial terms of the deal.

Biogen Idec (BIIB) could also be in focus after it said that its board is in the final stages of selecting a CEO and expects to announce the appointment in the coming weeks. The company affirmed that its CEO James Mullen will retire on June 8th and added that board Chairman William Young will serve as interim CEO.

Pep Boys (PBY) did not react significantly in Monday’s after hours session after it reported first quarter revenues of $510 million, up 2.7% year-over-year, but below the consensus estimate of $518 million. The company’s earnings rose to 23 cents per share from 21 cents per share last year, coming in line with expectations.

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