US & World Daily Markets Financial Briefing 12-08-2009

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Stocks Posting Strong Gains In Mid-Morning Trading

After a slow start, stocks surged and are posting notable gains in mid-morning trading on Wednesday as traders have gone bargain hunting ahead of the Federal Reserve’s interest rate decision. The major averages are all in positive territory by substantial margins, looking to offset the losses posted in the previous two sessions.

Traders are looking ahead to the policy announcement from the Federal Reserve at the conclusion of the FOMC meeting at 2:15 p.m. ET. While interest rates are likely be maintained at the current level, traders will pay close attention to the Fed's economic commentary along with any additional information on its quantitative easing measures.

Earlier, traders largely shrugged off a report from the Commerce Department showing that the U.S. trade deficit widened in the month of June compared to the previous month. The deficit for the month still came in narrower than economists had been anticipating.

With imports increasing at a faster pace than exports, the report showed that the trade deficit widened to $27.0 billion in June from $26.0 billion in May. Economists had been expecting a somewhat more significant increase in the size of the deficit to $28.7 billion.

In earnings news, Applied Materials Inc. (AMAT), the world's biggest semiconductor equipment maker, said after the markets closed Tuesday that it swung to a third quarter loss, as sales dropped 39 percent amid weak demand in light of the continuing global recession. Nonetheless, the bottom line beat analyst expectations.

Processed and packaged foods company Sara Lee (SLE) revealed a narrower loss for the fourth quarter, but the results fell well short of expectations. Meanwhile, department store operator Macy's (M) reported second quarter adjusted earnings that beat analyst estimates, although revenues fell just short of forecasts.

In overseas earnings, Swiss food and beverage company Nestle SA reported a decline in its net profit for the first half of the year, as sales declined in the tough economy. The company's profit attributable to non-controlling interests, however, increased significantly from last year.

The world's largest mining company, BHP Billiton (BHP) reported a 30 percent drop in its profit for the full year, excluding write downs, hurt by a sharp drop in metal prices and lower demand.

The major averages have slowed their advance in recent trading and are holding near their best levels of the day. The Dow is currently up 113.13 at 9,354.58, the Nasdaq is up 29.07 at 1,998.80 and the S&P 500 is up 11.10 at 1,005.45.

Sector News

A broad variety of sectors have shown strong upward moves on the day, offsetting the majority of the losses posted earlier this week.

Housing and airline stocks are turning in some of the day’s strongest performances, with the Philadelphia Housing Sector Index and the NYSE Arca Airline Index rising by 3.3 percent and 3.2 percent, respectively. The indices are regaining some of the ground lost in the previous two sessions

Trucking stocks are extending their recent gains, with the Dow Jones Trucking Index posting a gain of 2.1 percent. The advance propelled the index to its best intraday level in ten-months in earlier trading.

Networking, biotechnology, electronic storage, brokerage and a slew of other stocks are also moving sharply higher on the day, reflecting the broad based strength in the equity markets.

Stocks Driven By Analyst Comments

Shares of Commercial Vehicle Group (CVGI) are surging in mid-morning trading after the stock was upgraded by JP Morgan Chase to Overweight from Underweight. The stock has soared by 22 percent, reaching a ten-month intra-day high.

Healthcare Realty Trust (HR) is also gaining after Morgan Keegan raised its rating on the stock to Outperform from Market Perform. The stock is posting a gain of 3.6 percent, reaching its best intraday price in seven months earlier in the session.

On the other hand, shares of YRC Worldwide Inc. (YRCW) are moving lower after a downgrade at Stifel Nicolaus, which lowered its rating on the stock to Sell from Hold. The broker said that recent wage concessions will not be enough for the firm to stave off bankruptcy. The stock is falling by 6.5 percent, backing further off Monday’s one and a half month high.

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Toronto stocks could see a flat open on Wednesday morning, with U.S. futures near the unchanged mark. The market fell to its lowest level of the month in the previous session.

Crude oil prices inched up 5 cents to $69.50 as investors awaited the Energy Department's inventory data. On the metal front, gold fell $2.60 to $945.00 and copper dropped slightly to $2.7285.

CAE Inc. reported first quarter net earnings of C$27.2m or C$0.11 per share, compared to C$47.3m or C$0.19 per share in the prior year quarter. Excluding charges, net earnings for the quarter were C$46.1m or C$0.18 per share.

Novadaq Technologies announced that its second quarter net loss was US$3.36m or US$0.14 per share, compared to a loss of US$4.37m or US$0.18 per share in the year ago quarter.

Penn West Energy Trust announced second quarter net loss was C$41m or C$0.10 per unit-basic, compared to a net loss of C$323m or C$0.86 per unit-basic in the prior year quarter.

Cameco Corp. reported second quarter net earnings of C$247m or C$0.63 per share, compared to C$150m or C$0.42 per share recorded in the second quarter of 2008.
 
Pan American Silver reported net income for the second quarter of US$10.2m or US$0.12 per basic share, compared to US$21.36m or US$0.26 per share in the year-ago quarter.

Bellus Health reported second quarter earnings, compared to a loss last year, helped in large part by a gain in extinguishment of debt related to its senior convertible notes.

Data released Wednesday morning showed Canadian international merchandise trade deficit was C$100m, compared to a revised deficit of C$1.1 billion for May. A deficit of C$500m was forecast by analysts.

A Commerce Department report showed that the trade deficit widened to $27.0 billion in June from $26.0 billion in May. Economists had been expecting a somewhat more significant increase in the size of the deficit to $28.7 billion.

The big economic news comes this afternoon when the Federal Open Market Committee reveals its interest rate decision. Rates are expected to be left unchanged near zero when the announcement is made at around 2:15 p.m. ET.

Canadian stocks finished notably on Tuesday for a second straight session and posted its lowest close since July. The S&P/TSX Composite Index fell 164.20 points or 1.52% to settle at 10,629.47.

Oil Edges Higher Ahead Of EIA Report

Crude oil prices were up slightly on Wednesday morning as the International Energy Agency boosted its demand expectations for both 2009 and 2010. Traders also looked ahead to Energy Information Administration data later this morning.

Light crude oil for September delivery climbed to $69.72 per barrel, up 27 cents on the session. Prices briefly touched as high as $70 per barrel.

The IEA increased the demand forecast to 83.9m barrels a day this year, up 190,000 from its previous forecast. Demand is expected at 85.25m barrels per day next year, up 70,000 barrels a day.

The EIA report is due at 10:30 a.m. ET. Experts are looking fora build in crude supplies of 1.2m barrels. Gasoline inventories are expected to drop 1.7 m barels and distilles are predicted to increase 900,000.
 
The Federal Open Market Committee's two-day meeting concludes today with the rate decision at around 2:15 p.m. ET tomorrow. The Fed is widely expected to keep rates unchanged near zero.

In other economic news, a Commerce Department report showed that the trade deficit widened to $27.0 billion in June from $26.0 billion in May. Economists had been expecting a somewhat more significant increase in the size of the deficit to $28.7 billion.

The increase in the size of the deficit came as the value of imports increased by 2.3 percent to $152.8 billion in June from $149.3 billion in May. This outpaced the increase in the value of exports, which rose 1.9 percent to $125.8 billion from $123.4 billion in the previous month.

On Tuesday, crude for September delivery settled at $69.45, down $1.15 on the session. This marks the lowest close since July 31.

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Asian Markets End Weaker On Valuation Concerns

The markets across Asia, except Australia, ended in the negative territory on Wednesday ahead of the FOMC announcement in the U.S. later in the day. Profit taking after the recent rally and concerns about valuations following recent run-up in stocks much too quickly impacted sentiment across the region.

In Japan, the benchmark Nikkei 225 Index ended the session at 10,435, down 150.46 points, or 1.42%, while the broader Topix index of all first section stocks slipped into negative territory with a loss of 13.40 points, or 1.40% at 960.

Releasing its Monthly report on Recent Economic and Financial Developments, the Bank of Japan maintained its economic assessment for the country, after having upgraded the assessment in the past three months. Reaffirming its statement made in July that "economic conditions have stopped worsening", the Bank said that "economic conditions are likely to turn upward over time."

Separately, the Bank of Japan revealed that the corporate goods price index, or the the prices paid by producers dropped at a record pace in July. The Bank stated that corporate goods prices slipped 8.5% year-on-year in July, quicker than the 6.7% fall in the preceding month. However, month-on-month, the producer prices climbed 0.4% in July, reversing ten consecutive months of falls.

Profit taking was witnessed across the board as traders preferred to lock in gains and move to sidelines ahead of key FOMC announcement in the U.S. Exporters declined following appreciation of the local currency, Japanese Yen, against the greenback.

Banks ended in negative territory on profit taking. Mitsubishi UFJ Financial lost 1.48%, Mizuho Financial fell 1.26%, Resona Holdings declined 1.42% and Sumitomo Mitsui Financial shed 1.44%.
 
Trading companies ended weaker. Mitsubishi Corp. fell 2.58%, Mitsui & Co., lost 3.00%, Sumitomo Corp shed 2.41%, Toyota Tsusho Corp slipped 1.33% and Itochu Corp. declined 1.62%.

Automotive stocks also slipped on profit taking. Toyota Motor Corp. lost 2.42%, Honda Motor slumped 4.10%, Suzuki Motor shed 1.31% and Nissan Motor declined 2.20%.

Among shipping stocks, Nippon Yusen lost 2.40% and Mitsui OSK Lines fell 1.51%. Kawasaki Kisen however remained unchanged from previous close.

In retail space, Fast Retailing edged down 0.70%, J Front Retailing slipped 1.13%, Seven & I Holdings lost 2.13% and Aeon & Co., fell 1.31%.

In Australia, the benchmark S&P/ASX200 Index advanced 11.10 points, or 0.26%, to close at 4,343, and the All-Ordinaries Index ended at 4,346, representing a gain of 11.50 points, or 0.27%.

Data compiled by Westpac and Melbourne Institute revealed that the consumer sentiment index for the month of August rose 3.7% from the previous month, the highest monthly rise since October 2007. According to the report, the index rose to a seasonally adjusted 113.4 points in August from 109.4 points recorded for the month of July. In annual terms, the consumer index rose to a seasonally adjusted 31.6%, the report revealed.

In a separate report, the Australian Bureau of Statistics revealed that wages growth stalled in the previous quarter. The report revealed that wages, excluding bonuses, rose a seasonally adjusted 0.8% during the second quarter, the same as reported for the preceding first quarter. Year-over-year, wages rose 3.8% during the second quarter, the report stated.

Commonwealth Bank of Australia reported a 1% drop in its annual profit in line with market expectations. The bank further noted that the outlook for the year remains challenging, anticipating a slowdown in credit growth amid expectations of rise in interest rates. The stock gained 3.16%. Westpac Banking advanced 1.35%. However, ANZ Bank slipped 0.46% and National Australia Bank shed 0.65%.

Oil stocks ended in negative territory after the price of crude oil ended below the $70 a barrel mark in New York on Tuesday. Woodside Petroleum lost 0.96%, Santos fell 0.83%, Oil Search shed 0.37% and Origin Energy slipped 0.27%.

Mixed performance was witnessed among the metal and mining stocks. BHP Billiton gained 1.04%, Fortescue Metals advanced 3.33%, and Gindalbie Metals rose 2.35%. However, Rio Tinto edged down 0.17%, Iluka Resources fell 2.57%, Minara Resources lost 5.26% and Oz Minerals dropped 2.21%.
 
Gold stocks ended mixed. While Lihir Gold added 0.76%, Newcrest Mining edged down 0.17% and Sino Gold slipped 0.52%.

In Hong Kong, the Hang Seng Index sharply declined 3.03% or 638.97 points and closed at 20,435, taking cues from Shanghai where stocks slipped more than 4.5% on profit taking Valuation concerns also impacted sentiment as traders preferred to lock-in gains and move to the sidelines ahead of the FED decision later in the the day.

Of the 42 components in the index, only four stocks managed to end in positive territory, with the rest ending in the red, on profit taking and valuation concerns.

Resource related stocks fell sharply as commodity prices declined in the international market on Tuesday. Aluminum Corp. of China, or CHALCO, slumped 4.85%, PetroChina lost 4.77% and CNOOC fell 4.05%. Property and banking stocks also ended weaker on valuation concerns. Among banks, HSBC Holdings slumped 4.71%, BOC Hong Kong fell 3.77% and Bank of Communications lost 2.05%. All the property stocks ended sharply lower on valuation concerns.

In South Korea, the benchmark KOSPI Index ended in the negative territory with a loss of 13.86 points, or 0.88% to close at 1,565. Traders preferred to lock in gains after recent rally, ahead of the FED announcement later in the day. Automakers, banks and technology stocks ended weaker as foreign institutional investors unloaded the stocks on profit taking.

In India, expectations that strong momentum in industrial output could help mitigate the effects of a poor monsoon helped the stock market recover most of its early loss. The benchmark Sensex closed at 15,020, down 54 points or a modest 0.36% from its previous close. The S&P CNX Nifty recouped most of its early loss and finished at 4,458, down 14 points or 0.31%.

Among the other major markets in the region, China's Shanghai Composite Index slumped 152.01 points, or 4.66% to close at 3,113, Singapore's Strait Times Index shed 25.99 points, or 1.00% to close at 2,571, Indonesia's Jakarta Composite Index declined 51.92 points, or 2.16% to close at 2,347, and Taiwan's Weighted Index fell 10.12 points, or 0.15%, to close at 6,899.

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The major European markets ignored some early weakness and are moving to the upside after seeing weakness for the past two sessions. The French CAC Index and the German DAX Index are rising 0.40% and 0.61%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.29%.

In corporate news, miner BHP Billiton (BHP) reported that its pre-tax profits for the year ended June fell 15% to $11.6 billion from $23.5 billion in the year-ago period. Net income, adjusted for one-time items, fell to $4.67 billion. Sales fell 16% to $50.2 billion.

British engineering company Balfour Beatty said its pre-tax profits for the first-half rose 14% to 108 million pounds. The company raised its dividend by 8% to 5.5 pence.

On the economic front, the French National Institute for Statistics and Economic Studies reported that French consumer prices fell 0.7% in June compared to a year earlier. Economists had expected a 0.8% decline. On a monthly basis, consumer prices were down 0.4%.

The U.K.’s Office for National Statistics showed that the number of people claiming jobseeker's allowance benefits in the U.K. increased 24,900 to 1.58 million in July. Economists had expected an increase of 28,000 for July. The claimant count rate was 4.9% of the workforce in July versus 4.8% in June. The rate came in line with economists' expectations.

The Bank of England said in its latest quarterly Inflation report that consumer price inflation is likely to drop further below target in the coming months. Downward pressure from the margin of spare capacity signals inflation is more likely to stay below target in the medium term than above, the bank said. This is based on the assumption that the Bank Rate moves in line with market rates and asset purchases using central bank reserves reach 175 billion pounds. However, the central bank finds significant risks to the inflation outlook in both directions.

Eurozone industrial production decreased 17% year-over-year in June compared with the revised 17.6% drop in May, according to a report released by Eurostat. Economists were looking for a decline of 16.4%.

U.S. Economic Reports

The Commerce Department said the trade deficit for June was $27 billion, wider than the deficit of $26 million in May. Economists estimated that the trade gap to have widened to $28.6 billion in the month.

In June, exports increased $2.4 billion to $125.8 billion and imports rose $3.5 billion to $152.8 billion. The goods deficit climbed $1.2 billion to $38.4 billion and the services surplus rose $0.1 billion to $11.4 billion.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 7th at 10:30 AM ET.

The oil inventory report for the week ended July 31st showed that crude oil stockpiles rose by 1.7 million barrels to 349.5 million barrels and remained above the upper half of the average range.

However, gasoline and distillate fuel inventories declined by 0.2 million barrels and 1.1 million barrels, respectively in the week ended July 31st. Notwithstanding the decline, gasoline inventories were in the upper half of the average range and distillate inventories were above the upper half of the average range. Refinery capacity utilization averaged 85.7% over the four weeks ended July 31st compared to 86.3% 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 $180 billion for July.

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Bob Evans Farm could trend lower after it said first quarter sales fell 2.5% to $429.5 million, trailing the consensus estimate of $435.8 million. The company’s net income rose to 52 cents per share from the year-ago’s 45 cents per share, while analysts expected earnings of 52 cents per share. The company also said it is suspending its share repurchase program until 2010.

Cree, Inc. is likely to gain ground after it reported that its fourth quarter earnings rose to 11 cents per share from 9 cents per share last year. On an adjusted basis, the company reported earnings of 18 cents per share. Revenues climbed 9% to $148.1 million. Analysts estimated earnings of 17 cents per share on revenues of $146.5 million. The company guided first quarter adjusted earnings to 21-23 cents per share on revenues of $160 million to $166 million. The consensus estimates call for earnings of 17 cents per share on revenues of $151 million.

Applied Materials is also likely to move to the upside after it broke even results on an adjusted per share basis, while analysts expected a loss of 8 cents per share. Revenues fell to $1.13 billion from last year’s $1.85 billion, but still beat the $958 million consensus estimate.

Lionsgate may be in focus after it announced that it has reached a multi-year agreement with Coinstar’s subsidiary Redbox to supply DVDs at more than 15,000 redbox DVD rental locations.

Ball Corp.  is likely to react to its announcement that it has priced an underwritten public offering of $375 million in aggregate principal amount of 7.125% senior notes due 2016 and $325 million in aggregate principal amount of 7.375% senior notes due 2019 for a total of $700 million in aggregate principal amount.

Meanwhile, Brunswick may also be in focus after it announced that it has priced an offering of $350 million aggregate principal amount of 11.25% senior secured notes due 2016 at an issue price of 97.036%. The company also said it has amended its revolving credit facility, with the amendment helping to increase the permitted secured debt related to its refinancing of its 2013 notes.

Schering-Plough could move in reaction to its announcement that it has settled its patent litigation with Orchid Chemicals and Pharmaceuticals over the latter’s intention to make a generic version of its allergy drug Clarinex. The agreement allows Orchid to manufacture orally disintegrating RediTabs in the U.S. on January 1st, 2012 and Clarinex 5 mg tablets on July 1st, 2009. With this settlement, Schering-Plough has ended all pending litigations against several drug makers that had sought to manufacture generic brands of Clarinex.

TRW Automotive Holdings is likely to see some weakness after it announced that it has priced its public offering of 14 million shares at $17.50 per share. The company expects to generate net proceeds of $234.09 million from the offering.

BRE Properties is expected to react to its announcement that it has appointed John Schissel as its chief financial officer, effective October 5th, 2009. Wyeth (WYE) may be in focus after it announced that the action date for the FDA’s review of the BLA for its vaccine Prevnar 13 has been extended by 3 months to December 30th, 2009. The delay is due to the fact that the FDA had deemed the additional information about analysis and specifications on the physical and chemical properties as a major amendment.

Earnings

Sara Lee reported a fourth quarter loss of 2 cents per share compared to a loss of 95 cents per share last year. On an adjusted basis, the company reported earnings of 29 cents per share. Revenues were down 10% to $3.16 billion. The consensus estimates called for earnings of 24 cents per share on revenues of $3.27 billion.

Macy’s (M) said its second quarter earnings were 2 cents per share compared to 17 cents per share last year. The company’s adjusted earnings were 20 cents per share compared to the 15 cents per share consensus estimate. Revenues fell to $5.16 billion, missing the consensus estimate of $5.19 million.

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