US & World Daily Markets Financial Briefing 08-10-2009

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Earnings Optimism May Help Maintain Buying Momentum

The major index futures are pointing to a higher opening on Thursday, with sentiment lifted by Alcoa’s (AA) surprise profit and a bigger than expected drop in jobless claims for the recent reporting week. Chain store sales report from the nation’s retailers showed mixed results for September, reflecting the still fragile consumer sentiment and spending. The absence of any other major economic reports could leave traders focusing on corporate profits and their implication for growth.

After rallying for two straight sessions, U.S. stocks showed a consolidation move on Wednesday, as traders anxiously looked ahead to the impending earnings season. The major averages exhibited a considerable degree of volatility before closing on a mixed note.

The Dow Industrials ended off its lows, but still declined 5.67 points or 0.06% to 9,726, while the S&P 500 Index rose 2.86 points or 0.27% to end at 1,058 and the Nasdaq Composite Index advanced 6.76 points or 0.32% before closing at 2,110.

Seventeen of the thirty Dow components ended the session lower, with AT&T (T) (down 2.09%), Travelers Co. (TRV) (down 1.21%), Verizon Communications (VZ) (down 1.04%), 3M Co. (MMM) (down 1.07%) and, Hewlett Packard (HPQ) and Boeing (BA) (down 0.98%) among the worst decliners in the session. However, Alcoa (AA) rose 2.23% ahead of its earnings. Bank of America (BAC) ended up 2.06%, while American Express (AXP), Cisco Systems (CSCO), IBM (IBM) and JP Morgan Chase (JPM) and Coca-Cola (KO) were among the other notable gainers.

The NYSE Arca Airline Index fell 1.82% and the Philadelphia Housing Sector Index ended off about 1%. On the other hand, the NYSE Arca Internet Index rallied 1.66% and the Philadelphia Oil Service Index rose 1.54%. The NYSE Arca Gold Bugs Index gained close to a percentage point, while the KBW Bank Index ended up 1.16%.

On the economic front, the results of the Treasury auction of $20 billion worth of 10-year notes were strong, with the yield coming in at 1-2 basis points below the level when they were issued. The bid-to-cover ratio was an impressive 3.01 and indirect bidders totaled 47.4% of the total bidders.

The Federal Reserve’s consumer credit report showed that consumer credit fell for the seventh straight month, dropping by $12 billion in August, a bigger drop than the $10 billion decline expected by economists. Revolving debt fell by $9.91 billion and non-revolving credit, tied to auto loans, declined by $2.07 billion.

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TSX Could Follow U.S. Higher On Alcoa's Q3 Profit, Rising Commodities

Bay Street stocks will look to continue its recent surge on Thursday morning, following the lead of U.S. market, after Alcoa reported a surprise profit in the third quarter.

Earnings season unofficially began Wednesday after the bell as Alcoa (AA) adjusted income for the 2009 third quarter was $39 million or $0.04 per share. Wall Street expected a loss of $0.09.

Sandvine Corp. said its third-quarter net loss narrowed to C$4.4 million or C$0.032 per share from C$6.3 million or C$0.046 per share in the prior year period.

5N Plus Inc. reported first quarter net earnings of C$3.01 million or C$0.07 per share, down 26.4% from C$4.09 million or C$0.09 per share in the year-ago quarter.

Rogers Communications Inc. and Research In Motion Ltd. announced the launch of BlackBerry Curve 8520 smartphone.
 
Rock Energy Inc. announced that it will sell 4.35 million common shares at a price of C$3.50 per common share for gross proceeds of C$15.23 million in a bought deal.
On the economic front, Canadian housing starts were reported at 150,000 for September, compared to a revised 151,000 for August.

Housing starts were expected to slip to 148,000, compared to the originally-reported 150,400 in the previous month.

In commodities, crude oil prices gained 55 cents to $70.12 per barrel. Gold added $7.30 to cross above $1,050 for the first time and copper added more than 7.5 cents.

Toronto stocks finished Wednesday's session higher for the third session in a row and settled at a weekly high. The S&P/TSX Composite Index surged 101.91 points or 0.9% to finish at 11,349.88.

Currency, Commodity Futures

Crude oil futures are trading up $0.71 at $70.28 a barrel after declining $1.31 to $69.57 a barrel in Wednesday’s session. The decline came despite the EIA’s oil inventory report for the week ended October 2nd showing a 1 million barrel drop in crude oil stockpiles to 337.4 million barrels. Inventory levels remained above the upper boundary of the average range.

However, gasoline and distillate inventories rose by 2.9 million barrels and 0.7 million barrels, respectively. Stockpiles of gasoline were above the upper limit of the average range, while inventories of distillate fuel remained above the upper boundary of the average range. Refinery capacity utilization averaged 85.5% over the four weeks ended October 2nd compared to 86.1% in the previous week.

Gold futures are currently advancing $9.30 to $1,053.70. In the previous session, the precious metal receded $4.70 to $1,044.40 an ounce.

Among currencies, the U.S. dollar is trading at 88.487 yen compared to the 88.61 yen it fetched at the close of New York trading on Wednesday. Currently, the greenback is valued at $1.4749 versus the euro compared to yesterday’s $1.4692.

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Asian Markets Extend Gains Following Alcoa Results

The major Asian markets open for trading continued its northward march and ended in positive territory on Thursday amid increasing optimism that the world economy is on the recovery path and corporate earnings will be better for the recently concluded quarter.

In Japan, the benchmark Nikkei 225 Index gained 32.87 points, or 0.3%, to 9832, while the broader Topix index of all first section stocks rose 1.90 points, or 0.2%, to 888.

On the economic front, the Ministry of Finance revealed that current account surplus increased in August from the previous year, mainly due to the country recording a trade surplus compared to a deficit last year and the narrowing of the current transfers deficit. According to the report, current account surplus rose 10.4% year-on-year to 1.17 trillion yen from 1.06 trillion yen in the previous year. The surplus was virtually in line with the 1.15 trillion surplus estimated by economists, although it decreased from July's surplus of 1.27 trillion.

Shipping stocks led the gains after Merrill Lynch upgraded the individual stocks collectively to "Neutral" from "Underperform" and also raised the price targets. Kawasaki Kishen Kaisa surged up 7.35%, Mitsui O.S.K. Lines climbed 5.81% and Nippon Yusen K.K soared 7.29% as the stocks witnessed fresh buying interest.

According to reports in the press, Toshiba Corp. has obtained certification from the U.S Nuclear Regulatory Commission to act as a nuclear reactor supplier. Following the news, the stock gained 3.26%.
 
Trading companies also ended in positive territory following surprise profit announcement by Alcoa in the U.S after the markets closed for trading. Mitsubishi Corp. gained 1.50%, Marubeni Corp. advanced 1.1%, Itochu Corp rose 1.51% and Sojitz Corp. climbed 3.47%.

Real-estate stocks ended in negative territory as traders preferred to lock-in profits following recent gains. Mitsui Fudosan lost 1.99%, Mitsubishi Estate fell 1.32% and Sumitomo Realty and Development slipped 0.77%.

In Australia, the benchmark S&P/ASX200 Index gained 72.90 points, or 1.55% to close at 4,769, while the All-Ordinaries Index ended at 4,763, representing a gain of 67.50 points, or 1.44%.

On the economic front, the Australian Bureau of Statistics revealed that unemployment rate was better than expected for the month of September, coming in at 5.7%. That beat analyst expectations for 5.9% following a rise to 5.8% in August. According to the report, the workforce added 40,600 jobs in September to 10,805,600 - defying expectations for a decline of 10,000 jobs after the revised loss of 26,100 jobs in August. Full-time employment increased by 35,400 to 7,589,800 and part-time employment increased by 5,200 to 3,215,800.

Separately, the Reserve Bank of Australia revealed that official reserve assets stood at A$48.8 billion in September, down from A$55.4 billion in August. Foreign exchange reserves decreased to A$39.6 billion from A$46.5 billion, while the reserves with the IMF fell to A$1.24 billion from A$1.29 billion. Gold reserves dropped marginally to A$2.9 billion from A$2.92 billion. However the SDRs increased to A$5.1 billion from A$4.7 billion in the previous month.

Banking stocks advanced on positive jobs report on expectations that bad debts are less likely to increase in the coming days. ANZ Bank advanced 3.73%, Commonwealth Bank of Australia gained 3.26%, National Australia Bank climbed 4.43% and Westpac Banking Group rose 3.10%. Investment bank Macquarie Group added 0.66%.

Retail stocks ended in positive territory on hopes of revival in demand following unexpected drop in unemployment rate for September. Among the retail stocks, David Jones edged up 0.18%, Harvey Norman surged up 4.69%, Wesfarmers advanced 1.15% and Woolworths edged up 0.07%.

Metals and mining stocks also ended in positive territory. Alumina Ltd climbed 4.43% after Alcoa reported unexpected profit for the third quarter in the U.S, contrary to analysts' expectations of a loss for the quarter. Among others, BHP Billiton gained 0.93%, Rio Tinto advanced 0.91%, Fortescue Metals rose 0.81%, Gindalbie Metals added 1.10%, and Oz Minerals climbed 2.87%.
 
Mixed trading was witnessed among gold stocks despite bullion prices ended higher. Lihir Gold gained 0.96% and Newcrest Mining edged up 0.03%. However, Sino Gold Mining bucked the trend and slipped 0.14%.

Oil stocks also witnessed mixed trend. Oil Search climbed 3.29% and Origin Energy added 0.49%. However, Woodside Petroleum lost 0.47% and Santos edged down 0.13%.

In Hong Kong, the Hang Seng Index continued its northward march and ended in positive territory with a gain of 251.31 points, or 1.18%, at 21,493, taking cues from other markets in the region which traded in positive territory after aluminum company Alcoa Ltd reported surprise profit for the third quarter after the U.S market closed for trading. The sentiment across the markets was lifted with a positive beginning to the US earnings season. Higher commodity prices and increasing optimism that the corporate earnings will be better than projected acted as positive catalysts. Thirty five of the 42 components in the index ended with gains.

In South Korea, the KOSPI Index ended in positive territory for the first day in six days with a gain of 17.46 points, or 1.09%, at 1,615, as traders went on bargain hunting, picking up stocks at lower levels amid apprehensions that the Central Bank, in its next meeting on Friday, will not follow the Australian Central Bank and raise interest rates, but instead hold the interest rates at the present level. Positive results from Alcoa in the U.S on Wednesday also lifted market sentiment.

after trading notably higher for most of the day, the Indian market ended off the day's high,as investors awaited earnings from bellwether Infosys on Friday. While realty, FMCG, auto, oil/gas, power and metal stocks showed strong advances on the back of firm global cues, weakness in the telecom and the IT sector restricted large gains. The BSE Sensex finished at 16,844, up 37 points or 0.22% and the S&P CNX Nifty rose 16 points or 0.33% to 5,002.

Among the other major markets in the region, Indonesia's Jakarta Composite Index declined 28.89 points, or 1.15% and ended lower at 2,485 and Taiwan's Weighted Index lost 105.35 points, or 1.38% to close at 7,503. However, Singapore's Strait Times Index rose 16.32 points, or 0.62%, to close at 2,651. The market in Shanghai is closed for national holidays.

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The major European markets are also advancing on Thursday amid two crucial central bank decisions from the region. The French CAC 40 Index and the German DAX Index are rising 1.27% and 1.66%, respectively, while the U.K.’s FTSE 100 Index is moving up 0.65%.

Both the major central banks in the region, which met to discuss monetary policy, decided in line with expectations. The Bank of England announced that it is retaining its interest rates unchanged at a record low of 0.5%, holding it unchanged for the seventh straight month. The bank also did not make any changes to its 175 billion pound asset purchase program.

Amid fledgling signs of growth, the European Central Bank’s Governing Council today announced a status quo decision on rates. The bank kept interest rates at an ultra-low level of 1%. Markets participants now look towards the conference to be addressed by the bank’s president Jean Claude Trichet.

U.S. Economic News

First-time claims for unemployment benefits decreased by much more than expected in the week ended October 3rd, according to a report released by the Labor Department, although jobless claims remain above the 500,000 level.

The report showed that jobless claims fell to 521,000 from the previous week's revised figure of 554,000. Economists had expected claims to fall to 540,000 from the 551,000 originally reported for the previous week.

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of August to show a 1% decline.

In July, wholesale sales rose 0.5% month-over-month, although they declined 19.8% from the year-ago period. Wholesale inventories at the end of the month were down 1.4% from June and were down 12.8% from July last year. The July inventories to sales ratio was 1.23 compared to 1.13 in the year-ago period.

Kansas City Federal Reserve Bank President Thomas Hoenig is scheduled to deliver a speech to the economic forum sponsored by the bank's Oklahoma City branch at 8:45 PM ET.

Earnings

Marriott International (MAR) reported a third quarter loss of $1.31 per share compared to earnings of 25 cents per share. On an adjusted basis, the company reported income from continuing operations was 15 cents per share. Revenues fell 17% year-over-year $2.47 billion. Analysts estimated earnings of 22 cents per share on revenues of $2.39 billion.

PepsiCo. (PEP) reported that its third quarter earnings rose to $1.72 per share from 99 cents per share last tear, Analysts estimated earnings of $1.03 per share. Sales fell 15 to $11.08 billion, shy of the consensus estimate of $11.25 billion.

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Alcoa (AA) is expected to firm up after it reported third quarter earnings of 8 cents per share, lower than 33 cents per share reported for the year-ago period. On an adjusted basis, the company reported a profit of 4 cents per share compared to the 9 cents per share loss expected by analysts. Revenues declined 34% to $4.62 billion, exceeding the consensus estimate of $4.55 billion. The company also said it expects worldwide aluminum demand in the second-half of the year to increase 11% year-over-year.

Savient Pharma (SVNT) could come under selling pressure after it announced that it would offer 4.6 million shares in a public offering. Meanwhile, ScanSource (SCSC) may climb after it reported that its first quarter sales are likely to be $480 million to $488 million. Analysts estimate sales of $450.6 million.

California Pizza Kitchen (CPKI) is also likely to move to the upside after it said it expects third quarter earnings of 22-24 cents per share, higher than its earlier estimate of 19-21 cents per share. The consensus estimate calls for earnings of 21 cents per share. Revenues declined 5.3% to $164.8 million, slightly shy of the mean analysts estimate of $167.4 million.

Ruby Tuesday (RT) is likely to move to the upside after it said its first quarter earnings rose to 11 cents per share from 1 cent per share in the year-ago period. Revenues declined to $300.6 million from $324 million in the year-ago period. Analysts estimated earnings of 9 cents per share on revenues of $296.9 million. The company expects earnings for the year at 50-60 cents per share compared to the consensus estimate of 57 cents per share.

Triad Guaranty (TGIC) may move in reaction to its announcement that it has reached an agreement to sell its IT and operating platform to Essent Guaranty for $30 million in cash and the assumption by Essent of certain software related contractual obligations.

NCR (NCR) is expected to see some activity after it said its CFO Anthony Massetti would resign from the company, effective October 23, 2009, as he leaves to accept a position at another company. The company said Robert Fishman has been appointed as the interim CFO, as it launches a search for a permanent replacement.

Protective Life (PL) could be in focus after rating agency Fitch said it has assigned a ‘BBB’ rating to the company’s $800 million worth of senior notes, while the Rating Outlook is negative. Meanwhile Martin Marietta Materials (MLM) may also react to the announcement by Fitch that it has reaffirmed its ratings of the company’s Issuer Default Rating at ‘BBB’, short-term Issuer Default Rating at ‘F2’, senior unsecured debt rating at ‘BBB’ and commercial paper rating at ‘F2’. However, Fitch has revised its Rating Outlook to ‘Stable’ from ‘Negative.’

AirTran Holdings (AAI) is likely to see some activity after it said it has priced its offering of $100 million aggregate principal amount of 5.25% convertible senior notes due 2016. The company said its notes would be converted into AirTran common stock at an initial conversion rate of 164.042 shares of its common stock per $1,000 principal amount of notes, which equates to an initial conversion price of about $6.10 per share. AirTran closed Wednesday’s trading session at $5.08.

Avis Budget (CAR) may be in focus after it said it has priced its offering of $300 million aggregate principal amount of 3.50% convertible notes due 2014. The company noted that the initial conversion rate for the notes is 61.5385 shares of common stock per $1,000 principal amount of the notes, which is equal to an initial conversion price of about $16.25 per share compared to its closing price of $12.50 per share on Wednesday.

Among retailers, Hot Topic (HOTT) said its same store sales for September declined 4% year-over-year. Meanwhile Zumeiz (ZUMZ) reported a 4.3% dip in comparable store sales for September.

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