US & World Daily Markets Financial Briefing 13-05-2009

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Weak Retail Sales Could Sap Positive Energy From Markets

The major averages currently remain sharply lower, near their worst levels of the day. The Dow is currently down 162.40 at 8,306.71, the Nasdaq is down 37.66 at 1,678.26 and the S&P 500 is down 18.51 at 889.84.

The major U.S. index futures are pointing to a notably lower opening on Wednesday. The retail sales report released earlier in the day is likely to serve as a dampener in today’s session, even as the major averages are fighting hard to sustain their recent buying momentum, as had been witnessed in the past two sessions. The report showed that retail sales unexpectedly declined in April, stirring concerns over recovery hope nipped in the bud.

Another sector considered to be central to recovery, namely the housing market also is generating mixed signals. A report released by RealtyTrac showed that U.S. foreclosure activity jumped 32% year-over-year in April to a record high. Oil is seeing strong resistance below $60-a-barrel and is unlikely to see much gains from current levels in the absence of concrete sings towards an economic revival.

U.S. stocks opened Tuesday’s session higher, latching onto some positive comments by Federal Reserve Chairman Ben Bernanke on the stress test results, but the markets could not maintain the momentum going into the session amid announcements related to stock offerings by several companies. The Dow Industrials showed some volatility before advancing sharply in late trading to close with a gain of 50.34 points or 0.60% at 8.469.

After spending most of the session below the unchanged line, the S&P 500 Index fought its way back to the positive zone in late trading only to slip again in the final few minutes of trading. At the close of trading, the broader gauge was down 0.89 points or 0.10% at 908. The Nasdaq Composite languished in negative territory, but for the positive start, and closed down 15.32 points or 0.88% at 1,716.

Pfizer (up 5.51%), Coca Cola (up 3.86%), Merck (MRK) (up 2.38%), Microsoft (up 2.95%), Chevron (up 1.75%), DuPont (up 1.74%), Verizon (up 1.95%) and Exxon Mobil  (up 2.24%) were among the Dow components that advanced in the session. On the other hand, General Motors tumbled 20.14%, American Express fell 2.27%, General Electric lost 3.59% and Bank of America and Citigroup ended down 5% each.

Among the sector indexes, the Amex Oil Index and the Philadelphia Oil Service Index showed moderate gains, while the Amex Gold Bugs Index rallied 3.86%. However, the Dow Jones Transportation Average fell 2.27% and the Amex Airline Index slipped 4.29%. The Philadelphia Housing Sector Index ended down 2.21%. In the technology space, the Philadelphia Semiconductor Index and the Amex Disk Drive Index declined over 2% each.

Banking stocks are now facing a key test over whether they will sustain the gains they have been recording since they hit a low in March. The S&P Banks Index, which unsuccessfully challenged a long-term resistance around 127 and its 50-day moving average around 129, has pulled back. If the weak trend that was witnessed in the past two sessions continues, then the index may well be on its way towards its support around 103. The index has additional downside support around the 76 and 58 levels.

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Toronto's Main Index Drops Below 10,000

Toronto's main index is down for a third straight session on Wednesday and has dropped below the 10,000 mark. Weakness in the energy and mining sectors has dragged stocks lower.

The S&P/TSX Composite Index has declined 118.26 points or 1.17% to 9,958.83. The index had reached a seven-month high above 10,300 last week.

Mining stocks are down 4.4% as copper has dropped 5.2 cents to $2.0375 per pound. Among the big names, Teck Cominco has plunged 8.1%, First Quantum has slipped 3% and Thompson Creek Metals has dropped 2.9%.

Energy stocks are down 2.5% as crude oil has turned lower on the NYMEX after an early advance. Suncor has declined 4%, Canadian Natural Resources is down 3.1%, Canadian Oil Sands  has slipped 2.9% and Encana is down 1.9%.

Gammon Gold is down 1.5% after the company reported first-quarter net income of US$2.6 million or US$0.02 per share, compared to net income of US$8.5 million or US$0.07 per share in the same quarter last year.

New Gold has added 2.75% after the company reported net earnings for the first quarter of US$12.1 million or US$0.06 per share, higher than US$9.8 million or US$0.13 per share in the same quarter a year-ago.
 
Pan American Silver Corp. is up 0.4% after the company said its first quarter profit declined from last year, hurt by lower base metal and silver prices, offset in part by a reduction in cost of sales.

In other corporate news, Hydrogenics Corp. has plunged 13.4% after reporting first-quarter net loss of US$4 million or US$0.04 per share, compared to net loss of US$4.32 million or US$0.05 per share last year.

ING Canada has lost 3.9% after the insurer reported a net loss for the first quarter of C$36.3 million or C$0.30 per share compared with net income of C$23.0 million or C$0.19 per share in the corresponding period last year.

On the economic front across the border, a Commerce Department report showed that retail sales fell 0.4 percent in April following a revised 1.3 percent decrease in March. Economists had expected sales to come in unchanged compared to the 1.2 percent decrease originally reported for the previous month.

Tuesday, the S&P/TSX Composite Index lost 16.44 points or 0.16% to settle at 10,077.70. The index finished lower for a second straight day after finishing Friday at a seven-month high.

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The major European markets are showing caution amid volatility, with the averages in the region trading lower on Wednesday. While the French CAC 40 Index and the German DAX Index are receding 1.77% and 2.72%, each, the U.K.’s FTSE 100 Index is receding 1.94%. Trading has assumed an element of caution ahead of the release of the U.S. retail sales data. Financial and metal stocks are showing weakness, keeping sentiment subdued.

In corporate news, French banking giant Dexia said its first quarter profit declined 13% year-over-year to 251 million euros. However, the decline was not as steep as analysts had feared. Grocer J. Sainsbury said its full year sales rose 5.7% to 20.4 billion pounds, while its profit before tax rose to 479 million pounds from 466 million pounds last year.

Spanish telecommunication company Telefonica said its first quarter revenues rose 2.8% to 13.70 billion euros. Consolidated net income was up 9.8% to $1.69 billion. The company reiterated its guidance for 2009.

German steel giant Thyssenkrupp reported a pre-tax loss of 455 million in the first quarter compared to a profit of 742 million euros in the year-ago period. On an adjusted basis, the company reported a pre-tax loss of 282 million euros. The company lowered its outlook, now expecting a loss in the mid-to-high 3-digit-million euro range.

On the economic front, the French National Institute for Statistics and Economic Studies reported that French consumer prices rose by 0.2% year-over-year in April following a 0.3% increase in March. The increase marked the slowest annual gain since 1957. The core inflation showed a 1.6% annual advance.

A report released by Eurostat showed that the euro area’s industrial production declined by 2% in March compared to the previous month. In February, industrial output had fallen a steeper 2.5%. Annually, industrial output declined by 20.2%.

U.S. Economic Reports

On the economic front, the Commerce Department said retail sales edged down 0.4% month-over-month in April following an upwardly revised 1.3% decline in March. Economists had estimated retail sales to have remained unchanged in April.

Sales, excluding autos, fell 0.5% in April, adding to the upwardly revised 1.2% decline in the previous month. Economists had estimated retail sales, excluding autos, to have risen 0.2% in the month. Sales at motor vehicle & part dealers rose 0.2% compared to the previous month and they declined 20.7% from the year-ago period.

Sales at electronics & appliance stores fell 2.9% compared to a 7.8% decline in the previous month. Sales at gasoline station sales slipped 2.3% compared to a 3.2% drop witnessed in the previous month.

Meanwhile, the Labor Department said import prices rose 1.6% month-over-month in April compared to a revised 0.2% growth in the previous month. The increase reflected a 15.4% increase in petroleum import prices. On a year-over-year basis, import prices were down 16.3%.

Export prices rose at a 0.5% rate in April compared to a 0.7% decline in March. Agricultural export prices climbed 3.6% compared to a 0.3% decline in export prices of non-agricultural commodities. On a year-over-year basis, export prices declined 6.8%.

The Commerce Department is scheduled to release its business inventories report for March 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 1.1% decline in business inventories for the month.

Business inventories at the end of February were down 1.3% compared to the previous month, a slightly bigger drop compared to expectations for a 1.2% decline. Meanwhile, business sales edged up 0.2%. Annually, business inventories at the end of February declined 3.5%, while business sales for the month were down 13% compared to the previous year. The total business inventories to sales ratio was 1.43 in February compared to 1.29 in the year-ago period.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

The report for the week ended May 1st showed that crude oil inventories, excluding those in the Strategic Petroleum Reserve, rose by 0.6 million barrels to 375.3 million barrels. Inventory levels of crude oil were above the upper bound of the average range for this time of the year.

Gasoline stockpiles fell by 0.2 million barrels, but they remained above the upper boundary of the average range. Meanwhile, distillate inventories rose by 2.4 million barrels and were above the upper boundary of the average range. Refinery capacity utilization averaged 83% over the four weeks ended May 1st compared to 82.1% in the previous week.

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Asian stocks closed mixed on Wednesday ahead of the release of some key data, including the U.S and Chinese retail sales for April. While bargain hunting on signs of an early recovery by the global economy helped many markets end higher, investors pared their long positions at higher levels following unfavorable cues from Wall Street overnight.

The Japanese market closed modestly higher, as hopes of an early economic recovery more than offset negative sentiment on account of a stronger yen. The benchmark Nikkei 225 index closed at 9,340, up 42 points or 0.45% and the broader Topix index of All First Section issues on the Tokyo Stock Exchanged rose 3 points or 0.4% to 889.

Automakers and exporters closed weaker after the Japanese yen rose to around the 96-yen level against the dollar. Tech exports also came under selling pressure.

Olympus, the world's top endoscope manufacturer, soared 12.83% after the company unexpectedly forecast a return to profit this year. Pioneer Corp. fell 3.43%, while Nikon Corp. rose 2.85% and Shinsei Bank closed flat ahead of the announcement of their fiscal 2008 earnings after the closing bell Wednesday.

Citizen Holdings jumped 9.15% after the company forecast a return to profit this business year. Electronics maker Hitachi tumbled 10.76% on a prediction for a loss that was more than double what analysts had estimated. Shipping stock Mitsui O.S.K. Lines tumbled 4.33% after Nomura Holdings Inc. cut its rating on the stock to "neutral" from "buy."

In economic news, the Economy Watchers Survey released by the Cabinet Office showed that the Japanese current and outlook indices improved further in April. The current index that measures existing economic conditions rose to 34.2 in April from 28.4 in the previous month. The indicator came in above the expected level of 30. At the same time, the outlook index moved up to 39.7 from March's 35.8.

The Australian market closed lower, as investors digested Tuesday's federal budget. The benchmark S&P/ASX200 index closed at 3,856, down 21 points or 0.54% and the broader All Ordinaries index fell 21 points or 0.55% to 3,842.

Retailer Harvey Norman fell 2.81%, JB Hi Fi slipped 0.23% and Woolworths closed down 0.97%, as investors see a lot less stimulus from the government next year. However, David Jones rose 0.52% and Wesfarmers, which owns Coles, edged up 0.39%.

Commonwealth Bank of Australia rose 0.38% even as it cut its final dividend for the six months ending in June by 25%. National Australia Bank slipped 0.64%, ANZ declined 1.63% and investment bank Macquarie Group tumbled 3.07%, but Westpac Banking rose 1.08%.

Big-miner Rio Tinto tumbled 4.72% after its American depositary shares plunged 8.4% overnight. According to reports, the company may drop an investment deal with Aluminum Corp. of China for a 5 billion pound ($10 billion) share sale. Iluka Resources also ended down 2.07%, but BHP Billiton rose 0.35%.

Oil and gas producer Santos plunged 8.29% after it raised A$1.75 billion ($1.3 billion) in the "heavily oversubscribed" institutional portion of its A$3 billion share sale. Woodside Petroleum edged up 0.18%, while Oil Search closed down 0.76%.

The South Korean market closed higher on bargain hunting following a loss in the previous session. The benchmark KOSPI closed at 1,415, up 11 points or 0.78%. Volume was significant at 705.97 million shares worth 6.93 trillion won (US$5.56 billion) and advancers outnumbered decliners by 538 to 300.

Shipbuilder Daewoo Shipbuilding closed down 1.63% despite reporting a 23% rise in its first-quarter net earnings. Hyundai Heavy Industries slipped 0.2% and Samsung Heavy Industries fell 2.42%

Technology stocks closed mostly lower. Hynix Semiconductor tumbled 4.12%, LG Electronics fell 3.86% and market heavyweight Samsung Electronics closed down 0.18%, but LG Display LCD ended up 0.96%

Banking stocks closed mixed. Woori Finance declined 1.36% and Korea Exchange Bank closed down 0.35%, but KB Financial, the holding firm of Kookmin Bank moved up 1.94%. Automaker Kia Motors slipped 0.41%, Hyundai Motor closed down 0.46% and Ssangyong Motor slumped 5%.

Hong Kong’s Hang Seng Index ignored a weak start and moved into positive territory by late morning trading. The index attempted to hold its gains, although unsuccessfully, as it receded in late afternoon trading to close down 94.02 points or 0.55% at 17,060.

HSBC Holdings, CCB and China Unicom led the declines, posting losses in excess of 3%. Mainland bank and insurance stocks also saw weakness. China Mobile ended unchanged, while property and resource stocks gained ground in the session.

Among the other markets in the region, China's Shanghai Composite index rose 1.74%, Singapore's STI Straits Times index gained 0.33% and Taiwan's TWII Weighed index added 0.82%. India’s benchmark, the Sensex closed down 138.38 points or 1.14% at 12,020.

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Gold Prices Slip Away From Six-Week High

Gold prices edged into negative territory on Wednesday, moving off of a six-week high. The metal fell as the dollar bounced back versus the euro and sterling.

June-stamped gold dipped to $921.30, down $2.60 on the session. Prices had hit as high as $929.50 earlier in the session.

The dollar rebounded against the other major currencies, limiting gold's hedge appeal. The greenback edged higher against the euro, moving off of a seven-week low and also climbed away from a four-month low against the British pound.
 
On the economic front, a Commerce Department report showed that retail sales fell 0.4 percent in April following a revised 1.3 percent decrease in March. Economists had expected sales to come in unchanged compared to the 1.2 percent decrease originally reported for the previous month.

Business inventories data is scheduled for release at 10 a.m. ET. Experts are calling for a drop of 1.1% in March, compared to a drop of 1.3% in February.

Gold settled at $923.90, up $10.40 for the session, at its best close since April 1. The metal had rallied more than $25 last week.

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Intel is likely to come under selling pressure after the EU announced that it has slapped a fine of 1.06 billion euros on the chipmaker for using illegal sales tactics to keep AMD out of the market.

BB&T Corp. could move in reaction to its announcement that it has priced its public offering of common stock at $20 per share to generate gross proceeds of $1.5 billion. The company proposes to use the proceeds to repay the preferred stock and associated warrants that it issued to the U.S. Treasury.

Ameren Corp. may also be in focus after it said it is offering $425 million of its 8.875% senior notes due 2014. The company expects to use the proceeds along with other funds to repay a portion of its short-term debt consisting of its borrowings under a $300 million term loan agreement and also to provide its subsidiary CILCORP with funds to repay its outstanding senior notes due 2009.

3M Co. is likely to move in reaction to its announcement that its board has authorized a contribution of up to $600 million in its common stock to its U.S. defined pension plan. The company expects to complete the contributions in 2009.

Protective Life may also be in the spotlight after it announced its intention to offer 12.5 million shares. The company intends to use the proceeds for general corporate purposes.

Freddie Mac is expected to be in focus after it reported a loss of $3.14 per share for its first quarter, as its revenues declined to $771 million from $1.41 billion in the year-ago quarter. The government sponsored enterprise, which was placed under conservatorship, said it will draw a further $6.1 billion from the Treasury.

Ticketmaster Entertainment is likely to react to its first quarter results that showed 7% revenue growth to $373.8 million. However, adjusted earnings per share fell to 21 cents per share from 58 cents per share last year.

BMC Software could see weakness after it reported that its fourth quarter earnings declined to 45 cents per share from 50 cents per share last year. On an adjusted basis, the company reported earnings of 64 cents per share. Revenues fell 3% to $479.3 million. Analysts estimated earnings of 62 cents per share on revenues of $487 million. For 2010, the company estimates adjusted earnings of $2.37-$2.47 per share compared to the consensus estimate of $2.42 per share.

Applied Materials may see some buying interest after it reported a net loss of 19 cents per share for the second quarter, narrower than the 22 cents per share loss in the year-ago period. On an adjusted basis, the company reported a loss of 10 cents per share. Revenues were down 53% to $1.02 billion. The consensus estimates called for a loss of 10 cents per share on revenues of $906.1 million.

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