US & World Daily Markets Financial Briefing 08-07-2010

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The major U.S. index futures are pointing to a higher opening on Thursday, with the weekly jobless report released earlier in the day likely to offer support to the buying momentum witnessed in the past two sessions. Jobless claims declined by much more than expected in the recent reporting week, offering some confidence about the slow and steady recovery seen in the labor market. Additionally, an upbeat assessment of the global economic conditions by the International Monetary Fund may aid sentiment. That said, the continuing uncertainty prevent any meaningful gains.

The International Monetary Fund raised its 2010 growth estimate for the global economy, with the upward revision reflecting stronger activity during the first half of the year. The world economy is now forecast to expand 4.6%, faster than the 4.2% increase projected in April. If achieved, this would represent the fastest rate of global growth since 2007. Growth in 2011 is seen at 4.3%, which is unchanged from the IMF’s previous estimate. At the same time, the lender warned that downside risks to global growth have been heightened amid renewed financial market turmoil.

Stocks rebounded from oversold territory on Wednesday, as traders cheered an optimistic assessment of retail sales growth and a positive pre-announcement from State Street. After opening the session on a nervous note following the lackadaisical lead from the rest of the global markets, the major averages advanced steadily throughout the session to close notably higher.

The Dow Industrials ended the session up 274.66 points or 2.82% at 10,018, with the average climbing back above the psychological resistance of 10,000. While the Nasdaq Composite Index closed 65.59 points or 3.13% higher at 2,160, the S&P 500 Index added 32.21 points or 3.13% before closing at 1,060.

All thirty of the Dow components closed the session higher, with JP Morgan Chase (up 5.01%), Cisco Systems (up 5.34%), Hewlett-Packard (up 4.15%), General Electric (up 4.65%), Disney (up 4.48%), Bank of America (up 4.62%) and American Express (up 4.95%) advancing strongly in the session.

Among the sector indexes, the NYSE Arca Airline Index rallied 5.65%, the Dow Jones U.S. Basic Materials Average gained 4.54%, the KBW Bank Index surged up 5.63% and the Philadelphia Oil Service Sector Index jumped 4.59%. In the technology space, the Philadelphia Semiconductor Index advanced 5.05%, the NYSE Arca Disk Drive Index rose 4.88%, the NYSE Arca Computer Hardware Index ended up 4.97% and the NYSE Arca Networking Index added 4.46%

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Toronto stocks accelerated gains in late afternoon trade Wednesday, pushing the main index up nearly 200 points at the close, as investors picked up battered stocks following the recent slump.

Energy stocks were the main drivers, benefiting from a sharp rise in oil prices. The sector was in spotlight throughout the session following French oil giant Total SA's proposed acquisition of UTS Energy.

The S&P/TSX Composite Index added 197.10 points or 1.76% at 11,397.27 in its second successive triple-digit gain.

The benchmark index has recovered 2.75% in the past two sessions, after closing at an eight-month low of 11,092 on Monday.

The Energy Index rose 2.84%, with Suncor Energy (SU.TO) up 4.07%.

UTS Energy surged 63.03%. Total SA agreed to acquire the Calgary-based oil sands developer through a subsidiary, for C$1.5 billion.

August crude oil settled up $2.09 at $74.07 a barrel on the New York Mercantile Exchange.

The Energy Information Administration re-affirmed its forecast for world oil demand growth by about 1.5 million barrels a day in 2010 and 2011, and upwardly revised its estimates for oil consumption in 2009.

All the sectoral indices ended firmly in positive terrain, making the advance broad-based.

In the base metal sector, Teck Resources  advanced 6.22% and Inmet Mining rose 4.88%.

Goldcorp gained 1.17% and Iamgold added 3.57% as the price of bullion rebounded from a six-week low.

August gold settled up $3.80 to $1198.90 a troy ounce, after trading as low as $1185.

Among other major gainers, TD Bank gathered 1.34%, BlackBerry maker Research In Motion added 3.01% and engineering firm SNC-Lavalin Group  rose 3.57%.

MTY Food Group rose 5.52%. The quick-service food chain reported a second quarter profit of C$3.8 million, up 31% from the year-ago period. The Montreal-based company's revenues grew 51% to C$17.3 million, benefiting from stronger initial franchise fees and royalties generated by newly opened outlets.

Energy Fuels soared 28.57%. The uranium explorer said it raised C$3.08 million from the sale of 19.25 million common shares in a private placement.

TransForce gained 0.91%. The transportation and logistics firm said it purchased a new cross-dock terminal in Calgary, by which it expects to increase the capacity of its subsidiary in the region by more than three-fold.

In economic news, the Ivey Purchasing Managers Index, an indicator of business activity in Canada, unexpectedly fell to 58.9 in June from the prior-month reading of 62.7. Economists had expected the index to edge up to a reading of 63.5.

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The major Asian markets rebounded strongly on Thursday, with the overnight rally on Wall Street and some positive economic reports from the region encouraging traders. However, the Chinese Shanghai Composite Index bucked the uptrend, declining 5.97 points or 0.25% to 2,415 in the session.

Japan's Nikkei 225 average opened notably higher and showed a consolidation move for the rest of the session. The index closed up 256.09 points or 2.76% at 9,536. A majority of Stocks declined in the session.

On the economic front, Japan's Cabinet Office reported that core machinery orders, excluding orders for ships and from electric companies, declined 9.1% month-over-month in May. The decline was steeper than the 3% drop anticipated by economists. Despite the weak data, BNP Paribas expects demand for capital goods to gradually strengthen due to stronger than expected exports, record levels of free cash flow in the manufacturing sector and an increase in the operating rate of the factory sector.

A separate report released by the Ministry of Finance showed that Japan's current account surplus fell for the first time in ten months due to a slowdown in export growth and a drop in income on overseas investment. The current account surplus declined 8.1% year-over-year to 1.21 trillion yen, as the trade surplus fell 0.6%.

Buoyed by a strong employment report, Australia's All Ordinaries ended the session sharply higher. After opening moderately higher, the index rose sharply in early trading before moving sideways and closing up 96.20 points or 2.25% at 4,374. The market witnessed broad based buying interest.

The Australian Bureau of Statistics said the unemployment rate stood at a seasonally adjusted 5.1% in June, while May's unemployment was downwardly revised to 5.1% from 5.2%. A year ago, the Australian unemployment rate stood at 5.8%. The total number of employed people increased by 45,900 to 11.1 million, higher than forecasts for a 15,000 increase.

Hong Kong's Hang Seng Index also opened higher and showed sideways movement for much of the session. In the afternoon, the index gave back some ground yet closed up 193.49 points or 0.97% at 20,051. Thirty-five of the forty-three index components ended the session higher, with utilities and some resource stocks bucking the uptrend.

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The major European averages are trading higher for the second straight session on Thursday, with the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index advancing 1.62%, 0.84% and 2.04%, respectively.

In economic news, the German Federal Statistical Office reported that Germany’s current account surplus declined to 2.2 billion euros in May from 11.3 billion euros in April. Economists had expected a surplus of 11.4 billion euros. The reduction reflected a smaller trade surplus of 9.7 billion euros, as import growth outpaced export growth, and the reversal in the services account balance to a deficit of 1.5 billion euros from a surplus of 0.3 billion in April. Factor income also showed a deficit of 3.2 billion euros compared to a surplus of 0.8 billion euros in the previous month.

The U.K. industrial production report released by the U.K. Office for National Statistics showed that industrial output rose by 0.7% month-over-month in May compared to a 0.7% drop in the previous month. Economists had expected a much more modest 0.4% increase. Manufacturing output rebounded to record a 0.3% increase, reversing some of the 0.8% drop in the previous month.

A housing report released by Halifax showed that the U.K. house prices fell another 0.6% in June following a 0.5% monthly decline in May. This was in contrast to analyst expectations for a 0.2% increase. The bank said the cooling housing market was largely due to a surge in the number of properties coming onto the market following the abolition of Home Information Packs.

Following a 2-day monetary policy meeting, the Bank of England announced that it maintained its official bank rate paid on commercial bank reserves at 0.5%. The committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at 200 billion pounds. The previous change in the bank rate was a 0.5 percentage point-reductions to 0.5% in March 2009.

The European Central Bank also announced a status-quo decision, with the Governing Council opting to hold interest rates unchanged at 1% for the fourteenth straight month. The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points.

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H&R Block may be in focus after it announced the appointment of Alan Bennett as its president and CEO, effective immediately. Bennett will replace Russ Smyth, who left the company to take up the position of CEO of a private company.

Legg Mason is likely to move in reaction to its announcement that its CFO C.J. Daley is leaving the company to take up a senior position with a privately-held asset manager. The company named COO Terrence Murphy as the interim CFO.

Tractor Supply rallied in Wednesday’s after hours session after it said it expects second quarter net sales to increase 12.6% year-over-year to $1.07 billion. The company also said it expects earnings of $2.03-$2.05 per share for the quarter. The consensus estimates called for earnings of $1.71 per share on revenues of $1.04 billion. The company attributed the optimistic expectations to the better performance of its consumable, usable and edible categories such as pet food and animal feed. Additionally, the company raised its 2010 sales guidance to $3.49 billion to $3.53 billion from its earlier estimate of $3.44 billion to $3.50 billion, while it also upwardly revised its earnings guidance to $4-$4.10 per share from $3.48-$3.60 per share. Analysts estimate earnings of $3.72 per share on revenues of $3.52 billion.

Hain Celestial Group was little changed in Wednesday’s after hours trading after it announced that it has reached an agreement with the Carl Icahn group, agreeing to the induction of Brett Icahn and David Schechter into the company’s board. In return, the Carl Icahn Group has agreed to support the company’s slate of director nominees.

WD-40 Co. is also likely to be in focus after it reported that its third quarter net sales rose 20% to $82.6 million. The company’s net income rose to 54 cents per share from the year-ago’s 41 cents per share. Analysts estimated earnings of 42 cents per share on revenues of $77.72 million. The company updated its 2010 guidance and now expects net sales of $313 million to $319 million and earnings of $2.05-$2.14 per share. The guidance was in line with estimates.

Among retailers, Fred’s reported that its same store sales for June rose 1.7% compared to a 0.2% increase in the previous month. Meanwhile, Hot Topic said its same store sales for June declined 1.6% compared to a steeper 7.2% drop in the year-ago period.

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