US & World Daily Markets Financial Briefing 09-06-2009

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Indecision Could Plague Markets Despite Further Positive Signals

The major U.S. index futures are pointing to a higher opening on Tuesday. After showing lackluster performances in the past two sessions, the markets may look forward to positive catalysts that could help them in the resumption of the rally. Texas Instrument’s (TXN) positive guidance could infuse some optimism and add evidence to the expectations of the economy hitting the bottom. The commodity space, which experienced some weakness yesterday, could see a turnaround, as commodity prices are moving higher. That said, oil is likely to see some volatility amid the release of API’s oil inventory report.

Some traders may also dither to take position ahead of Wednesday’s retail sales report, given the key role many expect consumer spending to play in the anticipated recovery. However, without the conviction that all is well with the economy, there is unlikely to be significant upside from current levels, while the downside could also be limited.

After showing significant weakness throughout much of Monday’s sessions, as traders expressed apprehensions over the sustainability of recent gains in the absence of no sure-fire signals of a recovery around the corner, the major averages ended on a mixed note. In late trading, firm buying interest emerged, catapulting the major averages above the unchanged line before the rally fizzled out in the final few minutes of trading, although it helped cut most of the early losses.

The Dow Industrials ended the session up 1.36 points or 0.02% at 8,765, while the Nasdaq Composite Index receded 7.02 points or 0.38% to 1,842 and the S&P 500 Index eased 0.95 points or 0.10% at 939.

The breadth among the Dow components was almost even, with 13 Dow components ending lower and two ending unchanged, while the remainder of the 15 stocks closed in positive territory.

The Philadelphia Oil Service Index ended down 1.05% and the Philadelphia Housing Sector Index fell 1.73%. The Amex Airline Index lost 3.12%, while the Amex Internet Index declined by about 1%. On the other hand, the KBW Bank Index moved up 1.29%.

Ahead of Thursday’s retail sales report, a look at the S&P 500 Retail Index shows that the index is maintaining the positive momentum. After completing a double-bottom formation, the index is now going through the motions of a consolidation and is about to complete a cup and handle formation. The key support levels for the index are 318 and 287.

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Resource Stocks May Lead TSX To Early Gain

Toronto stocks could move higher on Tuesday morning after rebounding throughout the afternoon in the previous session. Resource stocks could see early strength as commodities have bounced back in early trading.

Crude oil prices rallied $1.29 to $69.38 per barrel in NYMEX trading. Gold added $5.20 to $957.70 and copper added nearly 6 cents to $2.32125 a pound.

Gold producer Agnico-Eagle Mines said its gold production cash could rise to between $300 and $350 per ounce next year, according to reports.

Air Canada reached a tentative deal with three of its unions regarding pension funding, according to the Globe and Mail.

Construction steel-structures builder ADF Group reported that its first-quarter earnings declined to C$2.2 million or C$0.06 per share from C$3.2 million or C$0.09 per share in the previous year.
 
Heritage Oil announced that it has entered into a reverse-takeover deal with Genel Enerji A.S., a deal worth approximately $3 billion.

Major Drilling Group International reported a net loss for the fourth quarter of C$4.6 million or C$0.19 per share, compared to net income of C$25.4 million or C$1.07 per share in the year-ago quarter.

Brick Brewing Co. Limited reported net income for the first quarter of C$431 thousand or C$0.02 per share compared to a loss of C$78.53 thousand or a breakeven per share in the year-ago quarter.

Across the border, investors are waiting on an announcement from the Treasury Department regarding which financial institutions will be allowed to repay the funds they borrowed under the Troubled Asset Relief Program, or TARP. Reports have said the Treasury could name as many as 10 banks.

On Monday, the S&P/TSX Composite Index slipped 20.17 points or 0.19% to end at 10.549.12. The index fell below 10,400 in mid-day trading but recovered most of its losses with an uptrend throughout the afternoon.

Gold Reclaims $960 As Dollar Weakens

The price of gold moved higher in early trading on Tuesday morning as traders bet a recent decline below $950 was overdone. The metal's hedge value was boosted as the dollar gave back some of its recent gains.

Gold for August delivery rallied to $960.50, up $8 for the session. Prices reached as high as $964.50 earlier in the session after earlier moving as low as $948.30.

The greenback turned lower against the euro and re-crossed the 1.4000 mark after moving at an 11-day high of 1.3804 yesterday. The buck also slipped against the British pound and Japanese yen.

On the economic front, wholesale inventories data for April will be released at 10 a.m. ET by the Commerce Department. Economists expect inventories to decline 1.1 percent.
 
Investors are also waiting on an announcement from the Treasury Department regarding which financial institutions will be allowed to repay the funds they borrowed under the Troubled Asset Relief Program. The Treasury reportedly may name as many as 10 banks.

Treasury Secretary Timothy Geithner is scheduled to testify before the Senate Appropriations Committee regarding his department's budget. IRS Commissioner Douglas Shulman is also set to appear before the committee.

August gold settled at $952.50 per ounce, down $10.10 on the session. Prices dipped as low as $943.80 in mid-morning trading. Gold fell $18.40 last week.

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Mixed trading was witnessed among the major markets across the Asia-Pacific region, taking cues from the Wall Street, where the major indices ended mixed on Monday, as traders paused to take profits. Concerns that recent gains in the market were excessive and do not reflect the intrinsic value of stocks and apprehensions over the pace and the magnitude of economic recovery impacted market movement. However, the Indian market turned in a particularly strong performance on optimism about economic reforms and pre-budget announcements from the new Government.

Japan's Nikkei 225 Average opened sharply lower at 9,824 compared to its previous close of 9,866. The strengthening of the local currency against the U.S. greenback and weak trading across the other Asian markets on valuation concerns also influenced trading, as investors preferred to lock in profits on their recent gains and retreat to the sidelines ahead of a few key economic numbers due out later in the week both in the U.S and China. The index ended with a loss of 78.81 points or 0.80% at 9,787. The broader Topix Index of all first section issues also edged lower to 918, a loss of 8.65 points, or 0.9%.

On the economic front, the Cabinet Office revealed that the government's key measure of the state of the economy, reflected by the composite index of coincident economic indicators, rose for the first time in 11 months in April to 85.8, up 1 point from March. The Cabinet Office further noted that the government maintained its overall assessment of the economy as "showing deterioration" but added that "there are signs it has stopped contracting."

Insurance stocks declined after a newspaper report revealed that the proposed merger of Nipponkoa Insurance with Sompo Japan Insurance might face stiff opposition. Shares of Nipponkoa slumped 4.6% while shares of Sompo Japan Insurance fell 3.1%. Other major insurance stocks also ended weaker.

Trading houses, automakers and exporters also slipped following the strengthening of the local currency against the U.S. greenback. Canon edged down 0.30%, Sony Corp slipped 0.92%, Honda Motors lost 1.38%, Toyota Motor fell 1.79%, and Mitsui & Co shed 3.68%.

Financial stocks ended weaker ahead of an impending announcement by the U.S. government today regarding the list of banks that are eligible for repaying the TARP funds to the Treasury. Mitsubishi UFJ lost 3.1% and Mizuho Financial Group fell 3.2%, and Sumitomo Mitsubishi shed 2.60%.

Chip equipment makers advanced after Texas Instruments boosted its earnings guidance for the second quarter. Advantest Corp. edged up 0.32% and Tokyo Electron advanced 2.12%.

Australia's All Ordinaries Index opened at 3,959, slightly lower than its previous close at 3,969, but it moved above the unchanged line on recovery hopes. However, a drop in copper prices in the international market led resource stocks lower, pulling down the index into negative territory amid volatile trading. The index ended down at 3,934, representing a loss of 35.40 points or 0.89%. The benchmark S&P/ASX 200 Index followed a similar trend and ended lower at 3,935, a loss of 36.30 points or 0.91%.

Resource stocks dragged down the markets on lower copper prices in the international market. BHP Billiton, the world's largest mining company, lost 4.40% and its rival Rio Tinto shed 2.59%. Fortescue Metals slipped 2.20% and Iluka Resources fell 1.46%. Gold stocks also ended weaker on lower gold prices.

In the banking space, ANZ Bank edged up 0.61%, Commonwealth Bank advanced 1.31%, and Westpac Banking gained 0.61%. However, National Australia Bank bucked the trend and ended down 1.14%.

In Hong Kong, the Hang Seng Index opened sharply higher at 18,451 compared to its previous close of 18,253, but it slipped below the unchanged line on increasing concerns about the valuations of stocks that rallied in the past few session. The index ended with a loss of 195 points or 1.07%, at 18,058.

Property, financial and china-related stocks ended in negative territory on profit taking and concerns of over-valuation. All financial stocks also ended weaker ahead of the news from the U.S. regarding the list of banks that would be eligible for the repayment of TARP funds to the Treasury. HSBC Holdings edged down 0.085%, Hang Seng Bank lost 1.31%, BOC Hong Kong fell 3.98% and Bank of China was down 0.57%.

In South Korea, the benchmark KOSPI Index ended in negative territory on concerns about the pace of the global economic recovery. Institutional investors continued to offload blue-chip stocks on profit taking amid weak global cues. After opening strongly higher at 1,407 compared to its previous close at 1,393, the market slipped below the unchanged line. Weak Asian markets and lower commodity prices also impacted sentiment as institutional investors preferred to take profits and sold blue chip stocks. The index ended with a loss of 21.46 points or 1.54% at 1,372.

In India, the stock market ended sharply higher, bucking the weak sentiment prevailing across the other Asian markets. Optimism about the continuation of economic reforms at a faster pace and pre-budget announcements from the new government helped lift the market. The BSE Sensex gained 461.08 points or 3.14% to close at 15,127, and the broader Nifty Index advanced 2.73% or 121.05 points to close at 4,551.

Among the other major markets in the region, China's Shanghai Composite Index ended higher by 19.55 points or 0.71% at 2,787, Strait Times Index in Singapore gained 16.17 points or 0.69% to close at 2,350, and Indonesia's Jakarta Composite Index added 36.65 points, or 1.78% to close at 2,093. However, the Taiwan Weighted Index slipped 3.22% or 213.63 points, to close at 6,414.

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The major European averages are rebounding on Tuesday after recording losses in the previous session, with resource stocks leading the turnaround. The French CAC 40 Index and the German DAX Index are advancing 0.15% and 0.18%, respectively, while the U.K.’s FTSE 100 Index is moving up 0.26%.

In corporate news, Lloyds Banking is likely to react to reports the company is looking to eliminate 1,500 jobs and close its Cheltenham and Gloucester branches. Punch Taverns announced a deal to sell 11 managed pubs to Green King for about 30.4 million pounds.

On the economic front, a housing survey by the Royal Institution of Chartered Surveyors showed that the number of respondents saying house prices fell were 44.1 percentage points higher than those said house prices rose. This marked the best reading since November 2007.

The German Federal Statistical Office reported that Germany’s trade balance showed a surplus of 9.4 billion euros in April. The nation’s trade surplus on a calendar and seasonally adjusted basis was 9 billion euros compared to 19 billion euros in the year-ago period. On an adjusted basis, exports were down 4.8% year-over-year compared to a 5.8% decline in imports. Meanwhile, the current account balance showed a surplus of 5.8 billion euros in April 2009 compared to a surplus of 15.4 billion euros last year.

A Bank of France survey showed that the French business sentiment index climbed to 81 in May, the highest since September 2008. Economists were expecting the index to rise to 77 in May from 75 in April.

U.S. Economic Reports

The Commerce Department is due to release its wholesale inventories report at 10 AM ET on Tuesday. Economists expect wholesale inventories at the end of April to show a 1.1% decline.

In March, wholesale sales declined 2.4% month-over-month to $310.9 billion from the revised February rate. On a year-over-year basis, wholesale sales declined 18.1%. Sales of March durable goods declined 3.3% on a monthly basis, while sales of non-durable goods fell 1.6%. Meanwhile, wholesale inventories were down 1.6%, with the inventories to sales ratio at 1.32 compared to the year-ago's 1.12.

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Texas Instruments could move to the upside after it raised its second quarter earnings guidance to a range of 14-22 cents per share from a range of 1-15 cents per share. The company expects revenues of $2.3 billion to $2.5 billion compared to an earlier guidance of $1.95 billion to $2.4 billion. The consensus estimates call for a profit of 10 cents per share on revenues of $2.21 billion.

Pep Boys – Manny, Moe & Jack could gain ground after it said its first quarter profit from continuing operations rose to 21 cents per share from 9 cents per share last year. The recent quarter’s results included a gain of $6.2 million from the bond repurchases. Analysts, on average, estimated earnings of 7 cents per share on revenues of $495.6 million.

Callaway Golf is likely to see weakness after it announce that it will trim its second quarter dividend to 1 cent from 7 cents in a bid to improve liquidity. On the other hand, Men’s Warehouse (MW) may trade higher after it said its first quarter earnings of 10 cents per share beat the 1 cent per loss estimated by analysts despite declining from 19 cents per share in the year-ago period. Sales declined by 6% to $464.1 million, also exceeding the consensus estimate of $459.3 million.

Quiksilver receded in Monday’s after hours session despite reporting a profit of 2 cents per share for its second quarter compared to a loss of $1.59 per share in the year-ago period, which included losses from discontinued operations of $244.9 million. On an adjusted basis, the company reported earnings of 5 cents per share. Revenues fell 17% to $494.2 million. Analysts, on average, estimated earnings of 4 cents per share on revenues of $502.1 million. The company expects revenues for the third quarter to decline in the mid-teen percentage range.

International Game Technology is likely to be in focus after it announced that it has amended and restated its credit facility to extend about $1.7 billion of its commitments under the prior facility with a group of 28 lender banks until June 8th, 2012.

Flagstar Bancorp. the holding company of Flagstar Bank may also be in focus after it announced that Mark Hammond has decided to step down as President and CEO of both companies on or before January 29, 2010. At the same time, Hammond will continue to serve as Vice-Chairman of the Board of Directors and also as a non-officer Executive Advisor of the company.

Pall Corp. is likely to see weakness after it reported that its third quarter pro forma earnings per share were 42 cents per share compared to last year’s 54 cents per share. Sales fell to $555.9 million from $661.7 million in the year-ago period. Analysts, on average, estimated earnings of 42 cents per share on revenues of $563.61 million.

St. Jude Medical could also be in focus after it announced that it acquired the intellectual property and non-cash assets of medical device company Northstar Neuroscience for $2 million.

Blyth receded in Monday’s after hours session after it announced that its first quarter net sales fell 14% to $214.7 million. The company’s adjusted earnings declined sharply to 31 cents per share from 71 cents per share last year. For fiscal 2010, the company still expects earnings per share in the range of $3-$3.30 per share.

TD Ameritrade Holding is likely to move to the upside after it reported that its average client traders in May rose 38% year-over-year and 5% month-over-month.

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