US & World Daily Markets Financial Briefing 12-03-2010

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Stocks Turn Mixed Following Lackluster Economic Data

Stocks are showing a lack of direction in mid-morning trading on Friday, as a mixed batch of economic data once again failed to provide the markets with a clear economic outlook. The major average are on opposite sides of the unchanged mark, seeing another lackluster session.

Reuters and the University of Michigan recently released a report showing that the preliminary reading on the consumer sentiment index for March fell to 72.5 from February's final reading of 73.6. Economists had expected the index to edge up to a reading of 74.0.

Separately, the Commerce Department said that business inventories were essentially unchanged in the month of January following a revised 0.3 percent decrease in December. Inventories had been expected to edge up by 0.1 percent compared to the 0.2 percent drop originally reported for the previous month.

Early optimism came from an earlier report from the Commerce Department showing that retail sales rose by 0.3 percent in February following a downwardly revised 0.1 percent increase in January. The sales growth came as a surprise to economists, who had expected sales to edge down by 0.2 percent compared to the 0.5 percent growth originally reported for the previous month.

Excluding a 2.0 percent drop in sales by motor vehicle and parts dealers, sales increased by a more substantial 0.8 percent in February compared to a 0.5 percent increase in the previous month. Economists had expected ex-auto sales to edge up by 0.1 percent.

In other news, the Obama administration has reportedly tapped San Francisco Federal Reserve President Janet Yellen to take over as Vice Chair of the Federal Reserve following the retirement of the current vice chairman Donald Kohn.

On the corporate front, Canadian fertilizer and agricultural products distributor Agrium, Inc. (AGU) announced that it will no longer pursue U.S.-based rival CF Industries Holdings Inc. (CF) and will let its exchange offer for CF shares expire on March 22nd. Agrium will also not push for the election of its nominees to the CF board.

Teen apparel discount retailer Aeropostale Inc. (ARO) said that its profit for the fourth quarter jumped 42 percent over last year, coming in well ahead of analysts' expectations along with sales. Looking ahead, the company provided an earnings outlook for the first quarter that beat the Wall Street consensus.

The major averages have all seen choppy movement in recent dealing, showing a lack of direction. The Dow is up 2.50 points or less than a tenth of a percent at 10,614.34, while the Nasdaq is down 5.98 points or 0.3 percent at 2,362.48 and the S&P 500 is down 1.17 points or 0.1 percent at 1,149.07

Sector News

Healthcare-related stocks are under pressure in mid-morning trading, as evident by the 1.3 percent pullback by the Morgan Stanley Healthcare Provider Index. With the pullback, the index is falling from yesterday's historic high.

Housing stocks are also sliding, giving back recent gains. The Philadelphia Housing Sector Index is down by 0.8 percent, moving further off of the six-month closing high set earlier in the week.

Defense, trucking and networking stocks are also under pressure, while steel stocks are bucking the downtrend, lifting the NYSE Arca Steel Index up by 0.9 percent.

Stocks Driven By Analyst Comments

Southern Copper (SCCO) is moving higher in mid-morning trading after being upgraded by Deutsche Bank from Hold to Buy. The broker also raised its target price on the stock to $38 from $35. The stock has gained 1.7 percent, reaching its best intraday price in nearly two months.

On the other hand, American Public Education (APEI) is retreating after being downgraded at Credit Suisse from Outperform to Neutral. The stock has slipped by 3.4 percent, pulling back sharply off of yesterday's nearly one-year closing high.

TSX At New Closing High For 2010

Bay Street ended a lackluster day with modest gains, at the highest closing level so far in 2010. The specter of further tightening measures by China offset any optimism generated by encouraging trade figures from Canada and the US.

The S&P/TSX Composite Index ended higher 18.64 points or 0.16% to 11979.70. The index was stuck in the mud for most part of the afternoon, after an initial weakness and a subsequent recovery, flirting with the neutral line.

Canadian trade surplus widened more-than-expected in January, while trade deficit of the US unexpectedly narrowed. But fears of policy-tightening in China cast a shadow over the sentiment, as the country's inflation rose to a 16-month high in February.

The Financials Index added 0.38%. Canadian Western Bank gained 1.84% and BMO rose 0.42%.

TD Bank was up 0.55%. The second largest Canadian lender announced its chief economist Don Drummond is planning to step down at the end of June.

Power Financial Corp. which reported a turnaround to profit in the fourth-quarter of 2009 with net earnings of C$340 million compared to a loss of C$773 million in the prior-year quarter, ended higher 0.22%.

The Gold Index was rose 0.61%, with Goldcorp Inc. up 1.14% and Agnico-Eagle Mines Ltd. up 1.79%. Among energy stocks, Encana Corp. down 1.48%.

Crew Energy Inc. gained 6.81%. The Calgary-based oil and gas producer had announced plans to sell its assets in the Edson area of Alberta for $126 million.

The prices of gold and crude oil were relatively flat at $1108.20 a troy ounce and $82.11 per barrel respectively. The Health Care Index was up 1.69%. SXC Health Solutions Corp. rose 4.36% and Biovail Corp. added 1.32%.

In economic news, Canadian trade surplus rose to $799 million in January from a revised $75 million for the previous month, as decline in imports offset a modest growth in exports, according to the release by Statistics Canada.

In a separate release, Statistics Canada said its New Housing Price Index rose 0.4% in January, largely in line with estimates.

US trade deficit narrowed to $37.3 billion in January from a revised $39.9 billion in December. Economists had expected the deficit to widen by $41.0 billion.

A report from the Labor Department showed initial claims for unemployment benefits in the US fell to 462,000 in the week ended March 6, from the revised 468,000 for the previous week.

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The Asian markets had a mixed closed on Friday, as traders groped around amid a lack of major market-moving news and waited in anticipation for the U.S. retail sales report.

Japan’s Nikkei 225 average opened higher and hovered in positive territory throughout the session to close up 86.31 points or 0.81% at 10,751. The yen’s weakness supported export stocks, while traders also took heart from expectations that the Bank of Japan will announce more monetary policy easing measures when its Monetary Policy Board meets next week. Most sectors advanced, with the exception of resource, some electric machinery and utility stocks.

Fuji Heavy Industries, Hino Motors, Kajima, Kuraray, Nippon Sheet Glass, Nitto Boseki, Sumitomo Chemical, Taiheiyo Cement, Teijin and Unitika were among the top gainers in the session. On the other hand, Sumitomo Metal, Sumco, Sony, Sapporo Holdings, Nippon Light Metal, Mitsumi Electric, Mitsui Chemical, Meiji, Fuji Electric and Credit Saison declined sharply.

On the economic front, Japan’s Ministry of Economy, Trade and Industry released its revised industrial production report for January, showing a 2.7% increase in output compared to the 2.5% increase estimated initially. Shipment growth was upwardly revised to 2.7% from 2.4% and inventories increased at an upwardly revised rate of 1.1%. On a year-over-year basis, industrial production rose at an unadjusted 18.5% rate.

Australia’s All Ordinaries, which saw notable buying interest in the morning, surrendered much of its gains over the course of trading to close up merely 6 points or 0.12% at 4,832. Energy, financial and material stocks showed modest strength, while most other sector stocks experienced weakness.

Among miners, Rio Tinto, Newcrest Mining, Incitec, Fortescue and Lihir Gold advanced, while BHP Billiton fell. In the banking space, ANZ, Commonwealth Bank and National Australia Bank rose, while Westpac declined.

After trading in a lackluster fashion for most of the session, Hong Kong’s Hang Seng Index closed down 18.46 points or 0.09% at 21,210.

Among the index heavyweights, HSBC declined modestly, while China Mobile rose. Financial stocks ended mostly lower along with utility stocks. Property and resource stocks saw mixed sentiment.

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The European markets showed some volatility in early trading on Friday but are currently hovering in positive territory. The French CAC 40 Index and the German DAX Index are currently up 0.51% and 0.97%, respectively, while the U.K.’s FTSE 100 Index is advancing by 0.48%.

On the economic front, Germany's Federal Statistical Office announced that its wholesale price index increased 2.1% year-over-year in February, faster than the 1.9% growth in the previous month. Economists had expected a sharper 2.3% increase. A year earlier, the wholesale price index was down 5.7%. On a monthly basis, wholesale prices rose 0.1%, slower than the 1.3% growth in the preceding month. Economists had expected a 0.3% increase.

The Bank of France reported that the French current account deficit widened to 3.4 billion euros in January from 3.3 billion euros in December. The consensus estimates had forecast a deficit of 3.9 billion euros for the month.

Eurostat said the euro area's industrial output increased 1.4% year-over-year in January, compared to the revised 4.1% drop in the previous month. Economists had expected a decrease of 1.6%.
U.S. Economic Reports

Retail sales unexpectedly showed a modest increase in the month of February, according to a report released by the Commerce Department on Friday, with the unexpected growth partly due to a jump in sales by electronics and appliance stores.

The report showed that retail sales rose by 0.3 percent in February following a downwardly revised 0.1 percent increase in January. The sales growth came as a surprise to economists, who had expected sales to edge down by 0.2 percent compared to the 0.5 percent growth originally reported for the previous month.

Excluding a 2.0 percent drop in sales by motor vehicle and parts dealers, sales increased by a somewhat more substantial 0.8 percent in February compared to a 0.5 percent increase in the previous month. Economists had expected ex-auto sales to edge up by 0.1 percent.

Auto sales remained unchanged compared to the previous month after rising 0.1% in December. Electronics and appliance sales showed a turnaround, rising 1.2% compared to the 3.5% drop in December. However, furniture and home furnishing store sales slipped 1.4%. Building equipment and garden equipment supplies dealers saw a 1.2% drop in sales, adding to the 0.4% decline in the previous month. Gasoline sales rose at a slower rate, rising by 0.4% in January. General merchandise store sales picked up.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for March is scheduled to be released at 9.55 AM ET. The consumer sentiment index is expected to rise slightly to 74 from February’s 73.6.

The Commerce Department is scheduled to release its business inventories report for January at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.1% increase in business inventories for the month.

Business inventories edged down 0.2% in December, weighed down by a 0.8% decline in wholesale inventories. Retail inventories were more or less unchanged. However, business sales increased by 0.9%, rising for the seventh consecutive month.

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National Semiconductor (NSM) moved to the upside in Thursday’s after hours session after it reported third quarter sales that rose 24% to $362 million and earnings that climbed to 22 cents per share from 9 cents per share last year. Analysts estimated earnings of 18 cents per share on revenues of $348.58 million. For the fourth quarter, the company estimates revenues of $375 million to $390 million, ahead of the $360.89 million consensus estimate.

Baxter (BAX) could see some activity after it said that the Phase III trial measuring the clinical efficacy of PREFLUCEL, a seasonal influenza vaccine the company is developing along with CSC Co.’s (CSC) DynPort Vaccine, showed that the treatment offers a 78% overall protection rate against influenza from influenza strains that matched those in the vaccine. The companies said they would complete the Phase III trials in adults and elderly individuals in early 2010.

AstraZeneca (AZN) could also be in focus after it said it is confident in the positive benefit-risk profile of SYMBICORT in asthma. The company said this in response to the FDA Joint Advisory Committees’ discussion on the design of post-marketing studies for long-acting beta-agonist containing products in the U.S., including SYMBICORT.

Pall Corp. (PLL) receded sharply in Thursday’s after hours session after it reduced the high end of its 2010 earnings guidance to $2.05 per share, while maintaining the low end at $1.95 per share. Analysts estimate earnings of $2.07 per share. The company reported second quarter pro forma earnings of 42 cents per share compared to 38 cents per share last year. Sales rose 3.2% to $560.4 million. The consensus estimates called for earnings of 47 cents per share on revenues of $589 million.

Pfizer (PFE) could see weakness after it announced that it has decided to discontinue a Phase III study of its investigational compound Fijitumumab in combination with erlotinib as a second and third-line treatment in patients with previously treated advanced non-adenocarcinoma non-small cell lung cancer. The decision follows a determination by an independent committee that the addition of the compound to erlotinib is unlikely to demonstrate a statistically significant improvement in the primary endpoint of overall survival compared to erlotinib alone.

Watson Pharma (WPI) could gain ground after it said the FDA has approved TRELSTAR 22.5 mg for the palliative treatment of advanced prostrate cancer. The company expects to launch the treatment in May.

Aeropostale (ARO) is expected to see buying interest after it reported that its fourth quarter net sales rose 16% to $801.2 million. The company’s earnings rose to 99 cents per share from 67 cents per share last year. Analysts estimated earnings of 95 cents per share on revenues of $797.74 million. The company expects full year earnings growth of 15% and first quarter earnings of 39-40 cents per share. The consensus estimates call for full year earnings of $2.48, up about 10%, and first quarter earnings of 37 cents per share.

Wabash National (WNC) could see some activity after it said it has hired 100 temporary associates with plans to hire 90 more during the quarter. The company attributed the need for additional hires to recent improving trends in freight demand.

XOMA (XOMA) rallied in Thursday’s after hours session after it reported that its fourth quarter revenues rose to $21.6 million from $36.9 million last year. The company reported net income of 1 cent per share compared to 7 cents per share last year. Analysts estimated a loss of 3 cents per share on revenues of $15.16 million. The company said it would not provide guidance for 2010 to facilitate managing its ongoing negotiations for XOMA 053 and technology licensing and in light of general economic and market conditions.

Smith & Wesson Holding (SWHC) tumbled in Thursday’s after hours session after it reported that its third quarter net sales rose 6.8% to $89.4 million, missing the consensus estimate of $92.57 million. On an adjusted basis, the company reported earnings of 2 cents per share, above the mean analyst estimate of 1 cent per share. For the fourth quarter, the company expects sales of $97 million to $101 million, while analysts estimate revenues of $103.73 million.

Shuffle Master (SHFL) may also see weakness after it reported that its first quarter revenues rose by 17% to $40.3 million, below the mean analysts’ estimate of 8 cents per share. On a GAAP basis, the company reported a profit of 7 cents per share compared to a loss of 2 cents per share last year.

RadiSys (RSYS) may move in reaction to its announcement that it has acquired privately held IP communications solutions provider Pactolus Communications. RadiSys did not announce the financial terms of the deal.

Pacific Sunwear of California (PSUN) slumped in Thursday’s after hours session after it reported that its fourth quarter sales fell 17% to $292 million. The company reported a net loss of 56 cents per share compared to a net loss of 42 cents per share last year. On an adjusted basis, the company reported a loss of 26 cents per share. Analysts estimated a loss of 29 cents per share on revenues of $274.46 million. For the first quarter, the company expects a non-GAAP loss of 32-38 cents per share and a 13%-18% decline in sales. Analysts estimate a loss of 15 cents per share for the first quarter.

Potash Corp. (POT) may see buying interest after it raised its first quarter earnings guidance to $1.30-$1.50 per share from its earlier estimate of 70 cents to $1 per share. The company attributed the optimism to a sharp rebound in potash demand.

Books-A-Million (BAMM) could rally after it said its fourth quarter earnings rose to 76 cents per share from 71 cents per share last year. Sales fell 4.6% to $157.2 million. The company’s board also authorized a program to repurchase up to $5 million worth of shares.

CF Industries (CF) is likely to be in focus after Agrium (AGU) said it is dropping its attempts to buy CF Industries. Agrium said it would allow its offer for CF Industries to expire by March 22nd. The decision comes about following Terra Industries’ (TRA) embracement of a sweetened bid by CF Industries, which prompted Terra to abandon the earlier definitive agreement negotiated between Terra and Yarra for the latter to buy the former.

Quiksilver (ZQK) may see weakness after it announced that its first quarter net revenues from continuing operations fell 2% to $432.7 million. The company reported a pro forma loss from continuing operations of 2 cents per share compared to a loss of 7 cents per share last year. Analysts estimated a loss of 13 cents per share on revenues of $412.83 million.

Goldcorp. (GG) could see some activity after it reported fourth quarter adjusted earnings of 25 cents per share on 28% revenue growth to $778.3 million. Analysts estimated earnings of 25 cents per share on revenues of $732.43 million.

Navisite (NAVI) saw some buying interest in Thursday’s after hours session after it reported second quarter revenues of $37.7 million, lower than $38 million last year. The company’s net loss, however, narrowed to 8 cents per share from 9 cents per share last year. The results were in line with expectations.

Zumiez (ZUMZ) receded sharply in Thursday’s after hours session after it said it expects a loss of 9-11 cents per share for the first quarter. Analysts estimate a loss of 1 cent per share. The company reported fourth quarter earnings of 29 cents per share, higher than the 21 cents per share earned a year-ago and exceeding the 27 cents per share consensus estimate. Revenues rose 6% to $132.4 million, also exceeding the $131.33 million consensus estimate.

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