US & World Daily Markets Financial Briefing 10-03-2010

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Stocks Moving Moderately Higher In Mid-Morning Trading

Stocks are moving mostly higher in mid-morning trading on Wednesday, with the latest inventory figures helping the markets to build on their initial upside. The major averages are all in positive territory, although the advance may be subdued amid a lack of first-tier economic data.

The Commerce Department reported that wholesale inventories unexpectedly showed a modest decrease in the month of January, while the report also showed a notable increase in wholesale sales.

Inventories edged down by 0.2 percent in January following a revised 1.0 percent drop in December. The decrease came as a surprise to economists, who had expected inventories to rise by 0.2 percent versus the 0.8 percent drop originally reported for the previous month.

At the same time, the Commerce Department said that wholesale sales surged up by 1.3 percent in January after increasing by 1.2 percent in the previous month.

At 2:00 p.m. ET, the Treasury Department will unveil its budget for February. Economists anticipate the budget to show a deficit of $222 billion for February following a $42.6 billion deficit in January.

On the corporate front, Abbott Laboratories (ABT) entered an agreement to buy Facet Biotech Corp. (FACT) for $27 per share in cash to further strengthen its biologics capabilities and pharmaceutical pipeline. The net value of the deal is approximately $450 million.

InterMune Inc. (ITMN) announced after the bell Tuesday that the FDA Pulmonary-Allergy Drugs Advisory Committee voted 9-3 to recommend approval of Esbriet, for the treatment of patients with idiopathic pulmonary fibrosis, to reduce decline in lung function. The stock has surged up by more than 66 percent in reaction to the news.

Additionally, apparel retailer J. Crew Group, Inc. (JCG) swung to a fourth quarter profit, helped by higher sales and improved margins. The company's quarterly earnings per share breezed past Wall Street expectations as did its quarterly revenue. Looking ahead, J. Crew forecast fiscal 2010 earnings above analysts' current consensus estimate.

In global economic news, China revealed that its exports grew substantially in February, raising fresh concerns that the country might resort to more policy tightening measures to cool its overheating economy.

According to the General Administration of Customs, exports surged up 45.7 percent year-on-year to $94.52 billion in February, while imports jumped 44.7 percent to $86.91 billion.

The major averages have seen additional upside in recent trading and are currently near their highs of the session. The Dow is up 33.11 points or 0.3 percent at 10,597.49, the Nasdaq is up 18.94 points or 0.8 percent at 2,359.62 and the S&P 500 is up 6.62 points or 0.6 percent at 1,147.06.

Sector News

Airline stocks are adding to their recent gains, with the NYSE Arca Airline Index up by 3.7 percent. The advance has lifted the index to a fresh two-year intraday high.

Banking stocks are also seeing a strong outing, as reflected by the 3 percent gain being shown by the Kbw Bank Index. With the upward move, the index has reached a fifteen-month intraday high.

The index is being helped by shares of Regions Financial (RF), which have jumped by 8.2 percent and broke out to their best intraday price in nearly a year earlier.

Semiconductor, steel, railroad and internet stocks are also on the rise, indicative of the day's broad-based buying interest.

Stocks Driven By Analyst Comments

Sonic (SONC) is moving higher in mid-morning trading after being upgraded at KeyBanc Capital Markets from Hold to Buy. The stock has gained 5.1 percent, setting a more than two-month intraday high in earlier trading.

CardioNet (BEAT) is also on the rise following an upgrade by Jefferies & Co from Underperform to Hold. The broker also raised its target price on the stock from $4 to $7. Shares are currently up by 4.5 percent, climbing to its best intraday price in nearly five months.

On the other hand, Annaly Capital Management Inc. (NLY) is sliding after being downgraded by JP Morgan Chase from Overweight to Neutral. The stock has lost 1 percent, pulling back off of yesterday's two and a half month closing high.

TSX May Gain On Firm Commodities Prices

Canadian stocks are likely to open higher Wednesday on firm commodities prices and on encouraging economic data from China, one of Canada's largest export destinations.

Tuesday, the S&P/TSX Composite Index lost 45.13 points or 0.38% to 11,918.71, after having risen above the 12,000-mark in last Friday.

The price of oil was up $0.19 to $81.68 a barrel after OPEC raised its oil demand forecast for 2010, while bullion was up $3.1 to $1,125.40 an ounce.

In news positive to oil producers, Alberta may reduce energy royalties to spur investment in this sector, the Globe and Mail reported.

Integrated oil firm Husky Energy announced plans to issue C$700 million in medium term notes in two tranches.

Oil field services company Canyon Services Group slipped to loss in fourth quarter, reporting net loss of C$0.05 per share, compared to profit of C$0.19 per share in the prior year quarter.

Financial services provider Pinetree Capital swung to profit in the fourth quarter, posting net income of C$0.15 per share, compared to a net loss of C$0.71 per share in the previous year period.
 
Merchandise leasing company easyhome Ltd. reported a lower fourth quarter net income of C$0.14 per share, compared with C$0.17 per share last year.

Gold explorer Minco Gold Corp. Tuesday announced it has discovered a large gold zone on its Oujiaba property in China. The stock rose nearly 60% to C$1.50 on Tuesday.

Bio-pharmaceutical company Helix BioPharma reported a narrower loss in second-quarter at $0.06 per share, compared to $0.08 per share in the year-ago period.

Bio-pharmaceutical company QLT Inc. reported multi-fold growth in its fourth quarter net income at $1.49 per share, compared to $0.08 per share last year. However, on a non-GAAP basis, the company posted breakeven per share.

Logistic technology services provider Descartes Systems Group said its fourth-quarter net income declined to $0.17 per share from $0.29 per share in the prior year period. The adjusted earnings came in at $0.08 per share in line with analysts' estimates.

Media company Quebecor Inc. said it has turned to profit reporting fourth quarter net income of C$1.12 per share, compared to net loss of C$5.34 per share last year.

In brokerage updates, Scotiabank cuts its rating on Celestica Inc to "Sector Perform" from "Sector Outperform". Raymond James initiated coverage of Shoppers Drug Mart with an "Outperform" rating. RBC cuts Scotiabank price target to C$53 from C$54.

China's trade surplus narrowed to $7.6 billion in February from $14.2 billion in the earlier month as imports soared. Value of imports climbed over 44% indicating growing domestic consumption.

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Asian Markets End Higher In Lackluster Trading

The markets across Asia ended in positive territory with marginal gains or flat trading on Wednesday as traders turn apprehensive about sustaining the economic recovery and await more cues on the health of the economy. Gains in recent sessions and lack of fresh cues provided the excuse for traders to lock in gains and move to sidelines awaiting fresh economic data.

In Japan, the benchmark Nikkei 225 Index lost 3.73 points, or 0.04%, to 10,564, while the broader Topix index of all First Section issues fell 1.94 points, or 0.2%, to 922.

On the economic front, data released by the Cabinet Office revealed that core machinery orders in the country declined a seasonally adjusted 3.7% in January compared to the previous month in which it surged 20.1%. Economists were expected the machinery orders to contract 3.5% for January. On an annual basis, machinery orders were down 1.1% in January following the 1.5% decline in the previous month. Economists projected that machinery orders, on annual basis, will contract 0.6% on annual basis during January.

In a separate statement, the Bank of Japan revealed that an index measuring domestic corporate goods prices was up 0.1% in February to 102.5 compared to the previous month. The index came in line with economists expectations for the month, following the 0.3% gain in January.

Light sweet crude oil futures for April delivery ended at $81.52 a barrel in electronic trading, up $0.03 per barrel from previous close at $81.49 a barrel in New York on Tuesday.
 
Machinery related stocks gained following slowing down in the decline of core machinery orders during January amid optimism that capital spending will increase in the medium term. Kyocera Corp., advanced 1.06%, Sony Corp. rose 1.35%, Advantest Corp. gained 1.54%, Mitsumi Electric Co., climbed 2.21% and Fujitsu increased 1.28%.

Real estate stocks ended in positive territory with minor gains. Mitsui Fudosan added 0.39%, Sumitomo Realty and Development advanced 0.30% and Tokyu Land Corp. gained 0.60%. Mitsubishi Estate and Heiwa Real Estate remained unchanged from previous close.

Mixed trading was witnessed among automotive stocks. Toyota Motor declined 1.43%, Nissan Motor edged down 0.27% and Mitsubishi Motor shed 0.82%. However, Honda Motor managed to end in positive territory with a gain of 0.15% and Hino Motor surged up 2.58%.

Trading companies also ended mixed amid lackluster trading. Toyota Tsusho Corp edged down 0.07%, Sumitomo Corp. slipped 0.30% and Marubeni Corp. shed 0.36%. Mitsui & Co., as well as Sojitz Corp. ended unchanged from previous close. Itochu Corp. managed to end in positive territory with a gain of 0.53%.

Large banks also ended mixed in narrow trading range. Mizuho Financial ended unchanged from previous close. Resona Holdings ended higher with a gain of 1.02%. However, Sumitomo Mitsui Financial slipped 0.31% and Mitsubishi UFJ Financial shed 0.87%.

In Australia, the benchmark S&P/ASX 200 Index ended flat with a marginal loss of 0.10 points, to close at 4,820, while the All-Ordinaries Index ended at 4,830, representing a marginal gain of 0.50 points, or 0.01%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the number of loans for housing in the country fell sharply in January. According to the report, the number of finance commitments for owner-occupied housing declined a seasonally adjusted 7.9% to 51,056 commitments in January compared to December. The report further noted that, in terms of value, total dwelling commitments declined 3.3% in January in seasonally adjusted terms compared to the previous month.

A statement released by the Department of Education, Employment and Workplace Relations revealed that the country's leading indicator of employment fell for the second consecutive month in March. According to the statement, the index stood at minus 1.019 in March, down from minus 0.939 in February. Commenting on the latest reading, the department said, "It is too early to confirm that a slowing in the pace of employment growth below its upwardly revised long-term trend rate of 1.9% per annum is in prospect, because the Indicator has fallen for fewer than six consecutive months."
 
Results of a latest survey conducted by Westpac Bank and the Melbourne Institute revealed that consumer confidence in the country improved slightly in March. According to the survey results, the group's Consumer Sentiment Index for March was up 0.2% or 0.3 index points in March to 117.3 from 117.0 reported in February.

Light sweet crude oil futures for April delivery ended at $81.52 a barrel in electronic trading, up $0.03 per barrel from previous close at $81.49 a barrel in New York on Tuesday.

Banks continued to gain on optimism about economic growth. ANZ Bank advanced 0.50%, Commonwealth Bank of Australia gained 0.87% and Westpac Banking rose 1.33%. Investment banker Macquarie Group added 0.45%. However, National Australia Bank bucked the trend and ended in negative territory with a marginal loss of 0.26%.

Metals and mining stocks ended weaker as traders resorted to profit taking following recent rally. BHP Billiton slipped 0.37%, Rio Tinto shed 1.05%, Fortescue Metals fell 0.41%, Gindalbie Metals lost 0.45%, Illuka Resources declined 0.55% and Minara Resources was down by 1.80%.

Mixed trading was witnessed among gold stocks. While Lihir Gold rose 3.11%, Newcrest Mining ended in negative territory with a loss of 0.35%.

Mixed trading was also witnessed among oil stocks. Woodside Petroleum gained 0.60% and Oil Search rose 1.42%. However, Santos lost 1.28% and Origin Energy shed 1.65%.

Retail stocks ended mixed. David Jones gained 0.60%, JB Hi-Fi Ltd advanced 0.41%, and Woolworths added 0.28%. However, Wesfarmers Ltd lost 1.47%, Reject Shop shed 0.81% and Harvey Norman fell 1.26%.

In Hong Kong, the Hang Seng Index ended flat with a marginal gain of 0.74 points, or 0.00%, at 21,208, as traders preferred to lock in gains and move to the sidelines awaiting further cues on global economy. Stronger than expected export data for February released in mainland China also impacted market sentiment as traders fear more tightening measures from China to cool off its economy.
 
In South Korea, the KOSPI Index ended flat with a marginal gain of 1.41 points, or 0.08%, at 1,662, as traders remained cautious in lackluster trading characterized by lower volumes, awaiting further direction on global economy. Profit taking at higher levels for institutional investors, both domestic and foreign investors, has been attributed for flat closing in the market.

The Indian market ended a volatile session off the day's high as profit taking emerged at higher levels following recent sharp gains. After rising to as high as 17,184 earlier in the session, the benchmark Sensex pared gains and slipped further into the red before finishing at 17,098, up 46 points or 0.27% while the Nifty ended up 15 points or 0.29% at 5,116.

Among the other major markets, China's Shanghai Composite Index ended in negative territory with a loss of 20.21 points, or 0.66%, at 3,049. However, Singapore's Strait Times gained 22.75 points, or 0.80% to close at 2,862, Taiwan' s Weighted Index gained 8.49 points, or 0.11%, to close at 7,779, and Indonesia's Jakarta Composite Index added 13.05 points , or 0.49%, to close at 2,670.

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The major European averages, which closed on a mixed note on Tuesday, ignored some weakness early in Wednesday’s session and have moved into positive territory. The French CAC 40 Index is up 0.35% compared to a 0.19% gain by the German DAX Index. The FTSE 100 Index is moving up 0.07%.

On the economic front, the German Federal Statistical Office’s revised consumer price inflation report showed that consumer prices rose 0.6% year-over-year in February compared to the 0.8% increase in the previous month. The monthly consumer price inflation slowed to 0.4% from 0.6% in January.

Separately, the statistical agency said exports declined 6.3% month-over-month in January, marking the first decline in 5 months. At the same time, imports rose 6%. On a year-over-year basis, exports edged up 0.2% compared to a 1.4% increase in imports. Accordingly, Germany reported a smaller surplus of 8 billion euros on its trade account compared to a 13.4 billion euro surplus in December. In the year-ago period, Germany recorded a surplus of 7.1 billion euros.

A report released by French statistical office INSEE showed that industrial output in France rose 1.6% in January compared to the previous month. Economists had estimated a mere 0.1% increase. Manufacturing output increased 0.8%, faster than the 0.2% increase expected by economists.

Industrial output in the U.K. rose 0.4% month-over-month in January, according to a report released by the U.K. Office for National Statistics. Economists had expected a 0.3% increase. On a year-over-year basis, industrial output declined 1.5%, a smaller drop than the 3.7% decline in the previous month.

U.S. Economic Reports

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of January to show 0.2% growth.

In December, wholesale sales rose 0.8% month-over-month to $341.2 billion, while annually, sales of merchant wholesales climbed 5.7%. At the same time, wholesale inventories edged down 0.8% from the previous month and declined 15.9% from the previous year. The wholesale inventories to sales ratio was at 1.12 compared to 1.32 in the year-ago period.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 5th at 10:30 AM ET.

In the week ended February 26th, crude oil stockpiles rose by 4.1 million barrels to 341.6 million barrels. Gasoline stockpiles also increased, rising by 0.7 million barrels, while distillate inventories edged down by 0.9 million barrels. Refinery capacity utilization averaged 80.5% over the four weeks ended February 26th compared to 79.4% in the previous week.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $222 billion for February.

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Staples could gain ground after it announced a 9% increase in its dividend to 9 cents per share. The announcement should help to dispel some of the weakness in the stock following the announcement of insipid results on March 2nd. The stock has lost over 11% since then.

The stock faces a crucial test around an overhead resistance around 23.07 level, although downside appears to be limited around its 200 moving average, which is currently around 22.63.

The financial sector could be in focus in today’s session after Bank of America reportedly said that it would do away with the overdraft fees it charge on debit card purchases. The decision may have been prompted by a new federal rule that mandates that banks seek permission from account holders before they provide overdraft services for debit purchases and ATM withdrawals. It is expected that other banks could follow suit, costing them billions in revenue a year.

Abbott Labs is likely to see some activity after it announced that it has agreed to acquire Facet Biotech for $27 per share in cash for a net transaction value of about $450 million, including a total purchase price of about $722 million less Facet’s projected cash and marketable securities at closing of about $272 million.

J. Crew Group may see some activity after it reported that its fourth quarter revenues rose 19% to $460.6 million. The company reported a profit of 61 cents per share compared to a loss of 22 cents per share last year. The consensus estimates called for earnings of 46 cents per share on revenues of $443.08 million. For the first quarter, the company estimates earnings of 48-53 cents per share, and for full year 2010, the company estimates earnings of $2.20-$2.30 per share. Analysts estimate earnings of 48 cents per share for the first quarter and $2.13 per share for the year.

Collective Brands dipped modestly in Tuesday’s after hours session after it reported a net loss of 17 cents per share for its fourth quarter compared to a loss of $2.28 per share last year. On an adjusted basis, the company reported a loss of 18 cents per share compared to the year-ago’s loss of 60 cents per share. Net sales rose to $741.7 million from $735.2 million last year. Analysts estimated a loss of 26 cents per share on revenues of $724.74 million.

OM Group could be in focus after it announced that it has entered into a new $250 million secured revolving credit facility with a syndicate of lenders led by PNC bank. The company noted that the new facility replaces the previous $100 million facility, which was due to expire in December 2010.

Equity One could come under selling pressure after it announced that it would issue and sell 4.2 million shares of its common stock in a public offering. The company expects to use the net proceeds for the repayment of outstanding mortgage debt and general corporate purposes. Meanwhile, EQT may also see weakness after it said it intends to offer 12.5 million shares in an underwritten public offering.

Wabash National is likely to move to the upside after it announced confirmation of a 3-year purchase agreement with Swift Transportation for building 3,100 new DuraPlate HD dry vans over the next 12 months. The company noted that production would begin at the end of March.

NCI Building Systems could recede after it reported that its first quarter sales fell about 30% to $182.9 million. The company reported a loss of $1.04 per share compared to a loss of $136.32 per share in the year-ago quarter.

Jamba receded sharply in Tuesday’s after hours session after it reported that its fourth quarter revenues fell to $50.60 million from $56.10 million last year. The company reported a loss of 23 cents per share, wider than the loss of 75 cents per share last year. Analysts expected a loss of 15 cents per share on revenues of $52.18 million. The company expects to deliver positive comparable store sales in 2010.

Wintrust Financial also fell in Tuesday’s after hours trading after it said it has closed its previously announced public offering of 5.89 million shares. The company noted that it received net proceeds of about $182.9 million from the offering.

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