US & World Daily Markets Financial Briefing 08-07-2009

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Stocks May Attempt to Come to Terms With Slow and Drawn Out Recovery

The major U.S. index futures are pointing to a mixed opening on Wednesday. The consolidation phase that followed the rally that began in early March faces the risk of being violated to the downside, as the major averages are trading closer to the lower bound of the range. With no clear evidence about the economy’s course, traders are torn between conflicting emotions, the pullback in the commodity space and the strengthening of low-yielding risk havens like the dollar and the yen should increase pessimism about a recovery.

U.S. stocks opened modestly lower and declined steadily throughout Tuesday’s session, as anxiety over earnings and the economic projects dragged the major averages lower. The Dow Industrials ended down 161.27 points or 1.94% at 8,164, the Nasdaq Composite Index declined 41.23 points or 2.31% to 1,746 and the S&P 500 Index fell 17.69 points or 1.97% to end at 881.

Twenty-five of the thirty Dow components ended the session lower, while one was unchanged and the remaining four stocks advanced. Industrial stocks DuPont, Caterpillar and General Electric ended down 5.09%, 4.45% and 4.09%, respectively. American Express (down 3.78%), 3M Co. (down 3.15%) and Boeing (BA) (down 3.75%) were among the other notable decliners. However, Alcoa rose 1.62% ahead of its earnings.

Among the sectors indexes, the Dow Jones U.S. Basic Materials ended down 2.63% and the NYSE Arca Oil Index and the Philadelphia Oil Service Index fell 2.02% and 3.14%, respectively. The Dow Jones Transportation Average ended down 3.24% compared to a 2.11% decline by the Dow Jones Utility Average. The NYSE Arca Biotechnology Index, and the S&P Retail Index were off about 2% each, while the Philadelphia Housing Sector Index closed down 4.44%.

The Philadelphia Semiconductor Index, the NYSE Arca Computer Hardware Index, the NYSE Arca Disk Drive Index and the NYSE Arca Software Index receded about 2.50% each. The NYSE Arca Networking Index and the NYSE Arca Internet Index ended down over 3% each.

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Bay Street Stocks Could Extend Recent Slide

Toronto stocks may see further weakness on Wednesday morning as commodities could again drag resource stocks to the downside. The market fell to a two-week low in the previous session.

Crude oil has dropped another 94 cents to $61.99 per barrel on the NYMEX. Investors await the Energy Department's weekly inventory report at 10:30 a.m. ET.

Baytex Energy Trust announced that it has agreed to acquire predominantly heavy oil assets located in the Kerrobert and Coleville areas of southwest Saskatchewan, plus certain natural gas assets located in the Ferrier area of west central Alberta. The deal is worth about $93 million.

In the metal market, gold has lost $11.10 to $918.00 per ounce, silver is down 25.5 cents to $12.965 an ounce and copper has dropped 1.85 cents to $2.207 per pound.

Teck Resources Ltd. said it closed the previously announced US$245 million sale of its 40% interest in the Pogo gold mine in Alaska to affiliates of Sumitomo Metal Mining Co. and Sumitomo Corp.
 
In other corporate news, Research in Motion has been initiated at Buy at Calyon Securities USA.

The world's most powerful leaders are preparing for a review of the state of the global economy as they gather for a G8 summit in central Italy. The major issues that would be addressed at the three-day summit will include global economic recovery.

There is no major economic news due tomorrow in Canada today, leaving traders to peek ahead to Thursday's housing starts data. Across the border, earnings season unofficially gets started after the closing bell with Alcoa's second-quarter report.

On Tuesday, the S&P/TSX Composite Index fell 183.08 points or 1.82% to close at 9,844.35. The market saw notable weakness in the final 90 minutes of trading to take out the daily lows.

Currency, Commodity Futures

Crude oil futures are moving down $0.84 to $62.09 a barrel after receding $1.12 to $62.93 a barrel in Tuesday’s session. Gold futures are declining $11.90 to $917.20 an ounce. In the previous session, the precious metal edged down $0.20 to $929.10 an ounce.

Among currencies, the U.S. dollar is trading at 94.159 yen compared to the 94.8952 yen it fetched at the close of New York trading on Tuesday. The dollar is currently valued at $1.3891 versus the euro.

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The major Asian markets ended mostly lower on Wednesday, with the decline spearheaded by the Japanese market following the release of a string of negative economic readings and the strengthening of the local currency.

Japan’s Nikkei 225 average opened lower and declined steadily throughout the session, with the key index closing down 227.04 points or 2.35% at 9,421, marking the sixth straight session of declines. The index settled at its lowest level since May 26th. The index suffered due to the general weak economic outlook and the appreciation of the yen, which generated selling pressure among exporters.

According to a release from the Cabinet Office, Japanese core machinery orders fell a seasonally adjusted 3% month-over-month to 668.2 billion yen in May, its third straight monthly decline and the lowest figure since comparable data became available in April 1984. Orders by the manufacturing industry grew 5.4%, while those by non-manufacturers slid 6.9%. On a year-on-year basis, core machinery orders, which exclude those for ships and from electric power companies, tumbled 38.3%.

Meanwhile, a separate report showed that the country's current account surplus plunged 34.3% year-on-year to 1.302 trillion yen in May. The surplus declined for the 15th consecutive month, with a sharp decline in exports of auto, semiconductor and electronics parts contributing to the sharp drop.

The Australian All Ordinaries Index opened unchanged and moved sharply lower in early trading. Thereafter, the index recouped its losses over the course of trading to close down 1.80 points or 0.05% at 3,766. Material and oil stocks came under selling pressure, while bank stocks revealed mixed sentiment.

Hong Kong’s Hang Seng Index languished below the unchanged line for the better part of the session before closing off the lows of the session at 17,721, representing a decline of 141.20 points or 0.79%.

Thirty-two of the forty-two index components ended the session lower, with New World Development, China Mercantile Holding and Bank of China Hong Kong leading the slide. Index heavyweights HSBC Holdings and China Mobile also lost about 1% each. On the other hand, China Unicom and China Resources moved up more than 5% each.

Continued irrational pessimism over the Union Budget, weak global cues on worries on an economic recovery and a cautious undertone ahead of the upcoming earnings season dragged the Indian market down by another 3% on Wednesday. The benchmark BSE Sensex opened lower at 14,040 and hit a low of 13,702 before finishing at 13,769, down 401 points or 2.83% from its previous close.

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The major European markets are trading on a mixed note, with French CAC 40 Index receding 0.74% and the U.K.’s FTSE 100 Index moving down 0.31%, while the German DAX Index is rising 0.19%.

On the economic front, the British Retail Consortium said the British BRC-Nielsen shop price index rose 0.7% year-over-year in June, slower than the 1.3% increase in the previous month. The marked the third consecutive month of decline in shop price inflation. On a monthly basis, the shop price index increased 0.2% in June, compared to the 0.5% growth in the preceding month.

A German government report showed that German industrial production rose 3.7% month-on-month in May following a revised 2.6% decline in April. The increase exceeded the forecast for a 0.5% rise.

U.S. Economic Reports

Earlier in the day, the Mortgage Bankers Association said its purchase applications index, which measures applications at mortgage lenders, rose 10.9% on a seasonally adjusted basis in the week ended July 3rd.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 1st at 10:30 AM ET.

The EIA said last week that crude oil stockpiles declined by 3.7 million barrels to 350.2 million barrels in the week ended June 26th. Inventories of crude oil remained above the upper end of the average range.

Gasoline inventories rose by 2.3 million barrels and were in the lower half of the average range, while distillate stockpiles climbed by 2.9 million barrels and were above the upper boundary of the average range. Refinery capacity utilization averaged 86.4% in the week ended June 26th compared to 86.3% in the previous week, although it is off significantly from 89.4% in the year-ago period.

There has been a pick up in the demand environment, with gasoline demand averaging 9.2 million barrels per day over the four-week period ended June 26th, up 0.9% from the same period last year. Distillate fuel demand was still week, falling 9.4% in the same period.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for May is likely to show a decline of $8.8 billion.

In April, consumer credit declined at an annual rate of 7.5%, with revolving credit, which is linked to credit card loans, sliding by 11%. Meanwhile, non-revolving credit was down by a more modest 5.25%.

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Amgen is likely see buying interest after it said that a late-stage trial evaluating its bone drug cancer drug Denosumab showed that it is more effective in reducing or delaying serious bone complications in patients with advanced breast cancer than Novartis’ Zometa.

Motorola may be in focus after it said it has sold its fiber-to-the-node product line to Communications Test Design, with the sale declared effective July 2nd. The companies did not disclose the financial terms of the deal.

Arena Pharma may see weakness after it announced a public offering from a shelf registration it had earlier filed with the SEC. Amlyin, Eli Lilly and Alkermes are expected to be in focus after they said their type 2 diabetes drug candidate Exenatide has been accepted for review by the FDA.

WebSense could come under selling pressure after it said it expects second quarter adjusted earnings of 30-32 cents per share on adjusted revenues of $83.9 million to $84.2 million. The consensus estimates call for earnings of 30 cents per share on revenues of $84.6 million. The company attributed the tempered outlook to the effect of the global economic downturn, with the weakness concentrated in renewing Web filtering customers, especially outside the U.S.

Ruby Tuesday may react to its announcement that its second quarter earnings rose to 28 cents per share from 27 cents per share, and also exceeded the consensus estimate of 19 cents per share. Despite declining 7%, revenues of $371.3 million were above the mean analysts’ estimate of $304 million. For 2010, the company expects earnings of 50-60 cents per share compared to the 55-cent per share consensus estimate.

Earnings

Family Dollar Stores said its third quarter net income rose to 62 cents per share from 46 cents per share in the year-ago period. Sales were up 8.3% to $1.84 billion. Analysts expected earnings of 59 cents per share on revenues of $1.84 billion. For the fourth quarter, the company expects net sales growth of 2%-4% and earnings of 39-43 cents per share. The company forecast full year earnings of $2.03-$2.07 per share. The consensus estimates call for earnings of 39 cents per share for the fourth quarter and $2 per share for the full year.

Pepsi Bottling Group’s second quarter net income was 96 cents per share compared to 78 cents per share last year. The company’s core earnings were 78 cents per share, above the mean analysts’ estimate of 73 cents per share. Net revenues fell to $3.27 billion from last year’s $3.52, exceeding the $3.45 billion consensus estimate. The company confirmed that it would report full year earnings towards the high-end of its earlier guidance of $2.30-$2.40 per share.

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