US & World Daily Markets Financial Briefing 11-03-2010

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Stocks Modestly Lower In Mid-Morning Trading

Stocks are seeing modest weakness in mid-morning trading on Thursday, although they have moved well off of their worst levels of the session. The slim losses come following the release of a lackluster report on the labor market.

The Labor Department released a report showing that initial jobless claims for the week ended March 6th edged down to 462,000 from the previous week's revised figure of 468,000. Economists had expected jobless claims to slip to 460,000 from the 469,000 originally reported for the previous week.

At the same time, the report showed that continuing claims, a reading on the number of people receiving ongoing unemployment help, rose to 4.558 million in the week ended February 27th from the preceding week's revised level of 4.521 million.

Also on the economic front this morning, the Commerce Department reported that the U.S. trade deficit narrowed to $37.3 billion in January from a revised $39.9 billion in December. The smaller deficit surprised economists, who had expected the deficit to widen to $41.0 billion from the $40.2 billion deficit originally reported for the previous month.

On the housing front, RealtyTrac, an online marketplace for foreclosure properties, stated that foreclosure filings rose 6 percent in February compared to last year but declined 2 percent from the previous month. Nevada, Arizona and Florida reported the highest state foreclosure rates during the month.

In corporate news, Devon Energy Corp. (DVN) said that it has entered into agreements to sell its assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan to British oil giant BP plc (BP) for $7.0 billion.

Men's Wearhouse, Inc. (MW) said that it swung to a fourth quarter loss, hurt by lower sales and an asset impairment charge. However, the company's adjusted loss per share was narrower than what analysts had forecast.

The major averages have seen some upside in recent dealing, but they currently remain negative. The Dow is down 16.85 points or 0.2 percent at 10,550.48, the Nasdaq is down 3.07 points or 0.1 percent at 2,355.88 and the S&P 500 is down 2.48 points or 0.2 percent at 1,143.13.

Sector News

Electronic storage stocks are seeing steep losses in mid-morning trading, as reflected by the 1.1 percent decline by the NYSE Arca Disk Drive Index. With the pullback, the index is falling from Wednesday's six and a half-week closing high.

Steel stocks are also under pressure, with the NYSE Arca Steel Index sliding by 1 percent. The index is pulling back off the seven-week closing high set yesterday.

Shares of Commercial Metals Co. (CMC), which are down by 5 percent, are weighing on the steel index, moving off of yesterday's five-month closing high.

Airline, computer hardware and biotechnology stocks are also moving lower, while railroad stocks are bucking the day's downtrend. The Dow Jones Railroads Index is up by 1.3 percent, reaching its best intraday price in over seventeen months.

Stocks Driven By Analyst Comments

SkillSoft plc (SKIL) is moving lower in mid-morning trading after a downgrade by William Blair from Outperform to Market Perform. The stock has slipped by 5.1 percent and has set a one-month intraday low.

Bed Bath & Beyond (BBBY) is also retreating following a downgrade at FBR Capital Markets from Perform to Underperform. Shares are currently down by 1.6 percent after sliding to their lowest intraday price in just under a month in earlier trading.

On the other hand, Dr. Pepper Snapple Group Inc. (DPS) is moving to the upside after UBS upgraded the stock from Neutral to Buy. The broker also boosted its target price on the stock from $31 to $42. The stock has gained 4.2 percent, jumping to an all-time intraday high.

TSX May Open Lower As Commodities Ease

Canadian stocks may struggle to move higher Thursday morning on lack of positive triggers to support the main index surpass the calendar year high. Commodity prices were off from their recent highs after China reported a bigger than expected jump in inflation in February, while worries over the Greece debt-situation continued to cap gains.

However, encouraging economic data from both sides of the border released just now could arrest fall. Wednesday, the S&P/TSX Composite Index failed to close above the 12,000-mark, but added 42.35 points or 0.36% to 11,961.06.

The price of oil eased $0.34 to $81.75 barrel after surging past the $83-mark intra-day Wednesday, while gold slipped back from the recently hit multi week high to around $1,102.00, easing $6.6 an ounce.

Energy stocks may be in play after BP Plc said it will spend $7 billion in acquiring exploration rights in countries including Brazil. The company also said it will sell some of its interests in Canada to Devon Energy for $500 million.

In another news in M&A space, Scotiabank's affiliate Thanachart Pcl will be acquiring a 48% stake in Siam City Bank Pcl for $979 million.
 
Agriculture business company Viterra Inc will, through its subsidiary, acquire Growers Pasta Company, Inc., for $240 million. Grower Pasta is a portfolio arm of U.S. based business development company MVC Capital, Inc.

In other corporate news, Xceed Mortgage slipped to loss in the first quarter, reporting a net loss of C$0.42 per share versus a profit of C$0.12 in the year-ago quarter.

Mineral explorer Gabriel Resources reported a wider fourth quarter loss of C$0.03 per share, compared to loss of C$0.02 per share last year.

Oil and natural gas explorer Galleon Energy reported a loss of C$0.43 for the full year 2009 compared to a profit of $1.10 in the previous year.

Oil and gas firm TransGlobe Energy reported decrease in its fourth-quarter net income at $0.04 per share, compared to $0.13 per share a year ago.

Natural gas producer Paramount Energy said it will issue 10.5 million subscription receipts, that could be converted into trust units at C$4.75, mainly aimed at funding its $123 million asset purchase.

Entertainment company IMAX Corp. said it swung to profit in fourth quarter, reporting net earnings of $0.06 per share, compared to net loss of $0.21 per share last year.

Integrated tour operator Transat A.T. reported a a narrower first quarter net loss of C$0.37 per share, compared to net loss of C$0.90 per share last year.

Diagnostic solutions provider Spectral Diagnostics fourth-quarter loss widened to C$0.05 per share from C$0.01 per share in the year ago period.

Diagnostic technology company Response Biomedical reported a narrower net loss of $0.04 per share, down from $0.10 per share a year ago.

Asset management company Sprott Inc. reported lower fourth-quarter net income of C$0.09 per share compared with C$0.14 per share in the prior year period.

In brokerage updates, RBC hiked Crew Energy price target to C$16 from C$14. UBS raised Quebecor price target to C$39 from C$33.
 
In economic news, Statistics Canada said the country's trade surplus was wider than expected in January at $799 million compared to $75 million in December. It also said merchandise exports in the country grew 0.5% in January.

From across the border, the U.S Labor Department said initial jobless claims edged down to 462,000 in the week ended March 6th from the previous week's revised figure of 468,000. Economists were expecting claims to ease to 460,000.

Meanwhile, the U.S. Commerce Department said trade deficit unexpectedly narrowed to $37.3 billion in January from a revised $39.9 billion in the earlier month. Economists were expecting the deficit to widen $41.0 billion from the $40.2 billion originally reported for December.

Elsewhere, China said its inflation jumped by a more-than-expected 2.7% in February from a year ago period. Industrial production too jumped by 20.7% from the 469,000 originally reported for the previous week in the first two months of 2010.

These data came in just a day after China said its trade surplus narrowed to $7.6 billion in February from $14.2 billion in the earlier month as imports soared. All these data raised speculation that the country will resort to tighten its credit policy sooner than expected to slow down its overheating economy.

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The major Asian markets ended another lackluster session on a mixed note on Thursday, as traders expressed some uneasiness over inflation data from China. A stronger dollar helped some export-dependent stocks in the region.

China released a slew of economic reports that highlighted the growth momentum in the communist nation. Consumer prices rose 2.7% year-over-year in February, faster than the 1.5% growth in the previous month and the 2.5% increase expected by economists. Meanwhile, retail sales jumped 22.1% in February, exceeding forecast for 18.7% growth. However, industrial production rose 12.8% year-over-year in February, much slower than the 19.5% increase expected by economists.

Two central bank from the region, namely the Reserve Bank of New Zealand and the Bank of Korea, announced their decision to hold interest rates unchanged. The Reserve Bank of New Zealand held its official cash rate unchanged at 2.5%. The monetary policy statement was dovish, with the central bank suggesting that the policy stimulus may be removed around the middle of 2010.

Meanwhile, the Bank of Korea also retained its 7-day repurchase agreement rate unchanged at 2%, maintaining the rate at this level for the 13th straight month. The central bank deemed it appropriate to adopt an unchanged policy stance, given the uncertainty surrounding the economic outlook.

Notwithstanding a downward revision to fourth quarter GDP data, Japan’s Nikkei 225 average held above the unchanged line for better part of the session before closing up 101.03 points or 0.96% at 10,665.

A majority of stocks advanced in the session, with export stocks deriving support from the yen’s weakness. Credit Saison, Hitachi Zosen, Nippon Light Metal, Sumitomo Heavy Industries, Mitsumi Electric and NEC Corp. were among the notable gainers in the session. On the other hand, Fuji Electric, JFE Holdings, Kobe Steel, Nitto Boseki, Showa Shell and Unitika declined.

The Japanese Cabinet Office today released its revised fourth quarter GDP report, showing that the Japanese economy grew at a downwardly revised annualized rate of 3.8% compared to the previous quarter. Earlier, fourth quarter growth was estimated at 4.6%. On a linked quarter basis, the economy grew 0.9%, downwardly revised from the 1.1% growth estimated initially.

The downward revision reflects weaker than estimated business and government spending and a decline in private sector inventory. On a more negative note, the Cabinet Office downwardly revised its third quarter GDP data to show a contraction of 0.6% compared to the 0.3% growth estimated earlier.

Australia’s All Ordinaries, which held mostly above the unchanged line until late afternoon trading, receded into negative territory thereafter. The index closed down 4.30 points or 0.09% at 4,826. Most sectors, barring defensive healthcare, telecommunication, consumer staple and utility stocks, showed weakness.

A report released by the Australian statistical bureau showed that employment growth slowed in February. The economy added 400 jobs compared to the 56,500 jobs added in January.

Hong Kong’s Hang Seng moved in a directionless manner before closing up 19.91 points or 0.09% at 21,228. Hong-Kong based bank stocks and resource stocks advanced, while property and mainland financial stocks showed mixed sentiment. Utility stocks came under selling pressure.

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Despite a mid-session recovery on Thursday, the major European markets have dipped back into negative territory. Currently, the French CAC 40 Index and the German DAX Index are moving down 0.52% and 0.28%, respectively, while the U.K.’s FTSE Index is receding 0.60%.

The European Central Bank said in its monthly bulletin that the euro zone’s economic recovery is on track, with the region’s economy expected to grow at a moderate rate in 2010. The central bank said the outcome of the monetary policy analysis confirms the assessment of low inflationary pressures over the medium term. The ECB also said the decisions taken at the March 4 Governing Council meeting would help to avoid distortions associated with maintaining non-standard measures for longer than needed.

U.S. Economic Reports

The U.S. trade deficit unexpectedly narrowed in the month of January, with the narrower deficit coming as the value of imports declining at a faster pace than the value of exports.

The trade deficit narrowed to $39.9 billion in January from a downwardly revised deficit of $39.9 billion in December. The narrower deficit came as a surprise to economists, who had expected the deficit to widen to $41 billion.

While the Labor Department released a report showing a modest decrease in first-time claims for unemployment benefits in the week ended March 6th, the report also showed an increase in continuing claims.

The report showed that initial jobless claims edged down to 462,000 from the previous week's revised figure of 468,000. Economists had expected jobless claims to slip to 460,000 from the 469,000 originally reported for the previous week.

At the same time, the Labor Department said that continuing claims, a reading on the number of people receiving ongoing unemployment help, rose to 4.558 million in the week ended February 27th from the preceding week's revised level of 4.521 million.

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Gymboree (GYMB) is likely to see some buying interest after it said its fourth quarter net sales rose 4% to $299.6 million. The company reported earnings of $1.11 per share compared to $1 per share last year. The consensus estimates call for earnings of $1.10 per share on revenues of $299.91 million. For the first quarter, the company expects comparable store sales growth in the mid-single digits. Separately, the company said it has entered into a multi-year franchise agreement with Azadea Group to launch the Gymboree retail brand in the Middle East.

CA, Inc. (CA) could see some activity after it said it has entered into a definitive agreement to buy privately held Nimsoft for $350 million in cash. Nimsoft is a provider of monitoring solutions to emerging enterprises and managed service providers.

Hot Topic (HOTT) moved higher in Wednesday’s after hours session after it reported fourth quarter net income of 18 cents per share compared to 32 cents per share last year. Net sales fell 10% to $214.2 million. The consensus estimates called for earnings of 18 cents per share on revenues of $214.64 million. For the first quarter, the company estimates a loss of 2-5 cents per share despite expecting high-single digit comparable store sales growth, while analysts estimate a loss of 2 cents per share.

Jo-Ann Stores (JAS) receded in Wednesday’s after hour session after it reported that its fourth quarter earnings rose to $1.36 per share compared to 79 cents per share last year, which included a gain of 5 cents per share. Net sales rose 5.3% to $602.2 million. Analysts estimate earnings of $1.33 per share on revenues of $600.40 million. For 2011, the company expects earnings of $2.75-$2.90 per share and same store sales growth of 2.5%-3.5%. The Street estimates earnings of $2.85 per share for the year.

Men’s Wearhouse (MW) tumbled in Wednesday’s after hours session after the company said its sales fell 4% to $457.2 million, missing the consensus estimate of $465.9 million. The company reported a loss of 36 cents per share compared to a profit of 3 cents per share last year. On an adjusted basis, the company reported a loss of 11 cents per share. For the first quarter, the company expects earnings of 12-16 cents per share.

Motorola (MOT) and Microsoft (MSFT) could be in focus after the companies announced that Microsoft’s Bing search services would be used in Motorola’s devices running on Android. This service will be launched in China in the first quarter and allow users to customize their devices and select their own search provider.

EQT Corp. (EQT) may see some activity after it announced that it has priced its public offering of 12.50 million shares at $44 compared to the $44.68 at which it closed on Wednesday. The company expects the issuance and delivery of the shares to occur on March 16th, 2010.

FuelCell (FCEL) could gain ground after it announced that it has won $2.1 million in subcontracts from Air Products (APD). The company also reported first quarter revenues of $14.6 billion compared to $19 million in the year-ago period. The company’s net loss narrowed to 18 cents per share compared to a loss of 30 cents per share last year. Analysts estimated a loss of 18 cents per share on revenues of $26.34 million.

United Technologies (UTX) is also likely to move to the upside after its board authorized the repurchase of up to 60 million shares worth $4.3 million. The company noted that the new authorization replaces a previous program approved in June 2008, which was nearing completion.

Semtech (SMTC) may move in reaction to its announcement that its fourth quarter net revenues climbed 35.6% to $85 million. On a non-GAAP basis, the company reported a profit of 30 cents per share compared to 26 cents per share last year. Analysts estimated earnings of 22 cents per share on revenues of $76.93 million. For the first quarter, the company estimates sequential sales growth of 7%-13% and non-GAAP earnings per share of 27-30 cents. Analysts estimate a 6.4% sequential decline in revenues to $79.56 million and earnings of 21 cents per share.

Mannatech (MTEX) could also be in focus after it reported fourth quarter earnings of 8 cents per share compared to 2 cents per share last year. Net sales fell 8.4% to $70.1 million.

Hibbett Sports (HIBB) is likely to see some activity after it said its Chairman and CEO Mickey Newsome is being appointed as executive Chairman of the company. Simultaneously, the company announced the promotion of President and COO Jeffry Rosenthal as its President and CEO, effective March 15th, 2010.

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