US & World Daily Markets Financial Briefing 13-07-2009

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Stocks Showing A Lack Of Direction In Morning Trading

After failing to sustain an early upward move, stocks are showing a lack of conviction in mid-morning trading on Monday, as traders are looking for direction amid a light day on the economic and earnings front.

In earnings news, industrial and construction supplies wholesaler Fastenal reported second quarter earnings that fell to $0.29 per share from $0.51 per share in the year-ago quarter, coming in below analyst estimates of $0.33 per share.

Ahead of the results, Fastenal announced Friday that its board of directors authorized the repurchase of 2 million shares in the market.

Rail-based transportation provider CSX Corp. is scheduled to report second quarter results after the closing bell. Analysts expect the company to report earnings of $0.69 per share for the quarter.

Novellus Systems will also report is second quarter results after the markets close today. The semiconductor equipment maker is expected to slip to a loss of $0.38 per share compared to a profit of $0.06 in the year-ago quarter.

Meanwhile, aluminum die-cast auto parts maker J. L. French Automotive Castings, whose major customers include General Motors and Ford, announced that it is filing for bankruptcy protection under Chapter 11 with the District Court of Delaware.

Commercial lender, CIT Group revealed that it is in discussions with regulators seeking assistance to improve its liquidity measures in the near term. The firm reportedly hired a law firm to explore a possible bankruptcy filing.

The Treasury Department's Treasury Budget for June is the lone economic report that is scheduled to be released today, with economists expecting a deficit of $77.5 million. The data is on tap for 2 p.m. ET.

The major averages have moved back to the upside in recent trading, with the Nasdaq climbing back above the unchanged line. The Dow is currently up 50.56 at 8,197.08, the Nasdaq is up 1.13 at 1,757.16 and the S&P 500 is up 4.97 at 884.10.

Sector News

Banking stocks are showing strength in mid-morning dealing, with the Kbw Bank Index currently up by 2.8 percent. With the gain, the index is moving further off the two-month closing low it set last week.

Huntington Bancshares is turning in one of the sector’s best performances, advancing by 5.7 percent. The stock is continuing its move away from a two-month closing low set last Wednesday.

Additionally, shares of Bank of America, Fifth Third, Wells Fargo and M&T Bank are also posting strong gains. Earlier, shares of M&T surged to their best intraday level in two months.

While some strength has also emerged among electronic storage, real estate, and retail stocks. Resource stocks are moving lower along with commodities prices. Gold stocks are posting notable losses, dragging the NYSE Arca Gold Bugs Index down 1.7 percent.

Significant weakness is also visible among healthcare provider and transportation stocks, helping to limit the upside for the broader markets.

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Toronto Stocks Look To Recoup Some Of Last Week's Slide

Canadian stocks will look to bounce back in Monday morning trading after slumping notably last week. A rise in commodity prices could provide a spark on Bay Street.

Crude oil prices have rebounded above $60 after a sharp sell-off last week. Light sweet crude for August delivery has added 71 cents to $60.60 per barrel.

Copper has also added nearly 1%, rising 2.2 cents to $2.2335. Gold is up $1.70 at $914.20 per ounce.

In corporate news, ADF Group announced that it has been granted a major contract of C$77 million in the North America's public infrastructure sector.
 
Nortel Networks said it was selected by Czech Railways to provide wireless communications to International Railway Corridor IV between Austria and Poland.

Couche-Tard is expected to report quarterly earnings during business hours today. Later in the week, Corus Entertainment and Nexen are among those on the earnings calendar.

On Friday, the S&P/TSX Composite Index slipped 26.79 points or 0.27% to end at 9,747.13. The main index lost 535.97 points for the week.

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The major Asian markets ended lower on Monday, with the Taiwanese and South Korean markets both ending down more than 3%. The major indexes in the Hong Kong, Indonesian and the Japanese markets lost over 2% each. Even as uncertainty over a recovery continues to weigh on the markets, the mood was made more somber by the trepidation over earnings prospects.

Japan’s Nikkei 225 average traded close to the unchanged line in early trading, but it fell steadily and sharply after morning trading. The index ended down 236.95 points or 2.55% at 9,050, as the uncertain political climate and general apprehension ahead of the reporting season weighed on the index. The market witnessed a broad based sell-off, although breweries bucked the downtrend.

Meanwhile, in the aftermath of an electoral debacle for the ruling Liberal Democratic Party in an election poll in Tokyo, the Japanese government has called for a snap election. Analysts do not believe the market reacted very much to the news.

On the economic front, industrial production in Japan grew a seasonally adjusted 5.7% month-on-month in May, revised down from a 5.9% rise reported on June 28, the Ministry of Economy, Trade and Industry said in a final report. On an annual basis, industrial output was down an unadjusted 29.5% in May, confirming the initial estimates.

Hong Kong’s Hang Seng Index opened lower and fell further in early trading. Thereafter, the index moved sideways before closing down 453.79 points or 2.56% at 17,255. Thirty-seven of the forty-two index components ended lower, with financial and property stocks leading the slide. China Unicom, Sino Land and Cathay Pacific Airways were the top decliners in the session.

Australia’s All Ordinaries, which traded with modest losses in early trading, declined steadily throughout the session to close down 52.60 points or 1.39% at 3,738. Stocks fell across the board, with the weakness more pronounced among energy and material stocks.

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The major European markets are moving to the upside after showing weakness early in the session. The French CAC 40 Index and the German DAX Index are edging up 1.51% and 1.88%, respectively, while the U.K.’s FTSE 100 I ndex is rising 1.24%.

In corporate news, Royal Philips Electronics (PHG) said its second quarter earnings declined to 45 million euros from 735 million euros in the year-ago quarter. On a per share basis, earnings fell to 0.05 euros from 0.72 euros in the same period last year. The recent quarter included 148 million euros in restructuring and acquisition-related charges. Sales declined 19% to 5.23 billion euros.

U.S. Economic Reports

After a week of relative calm, we move into a week with a flurry of reports that are likely to be closely watched by traders, as they attempt to chart the economy's course. The Commerce Department's retail sales report for June, the results of the June manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve, the Federal Reserve's industrial production report for June and the Commerce Department's housing starts report for June are likely to be on the radar.

Traders may also closely watch the weekly jobless claims report to confirm if the improvement witnessed in the past week is sustained. The minutes of the FOMC meeting are expected to reveal deliberations among the members over how long interest rates should be kept accommodative and the need for additional quantitative measures to smoothen out the economic wrinkles.

At the same time, the consumer and producer price inflation reports for June, the Commerce Department's business inventories report for May and the Treasury Budget for June could also be parsed by traders, although they are not likely to have a significant impact on the markets.

Market participants are expected to focus on the retail sales report to gauge the impact of stimulus spending and job cuts on consumer spending. Although most economists unequivocally support the theory that a rebound will materialize in the second half of 2009, there are still doubts over whether the recovery will carry over to 2010. The fate of consumer spending has a big role in making the recovery sustainable and an improvement in consumer spending in turn depends on whether the people decide to spend the tax cuts or save them.

Additionally, the production rebound anticipated in the second half of the year should be strong enough to improve conditions in the job market and result in job creation, stalling the job losses. The price of oil also has a key role to play in uplifting or denting consumer confidence, thereby impacting spending.

Industrial production will most likely decline again, although a rebound cannot be completely ruled out. Motor vehicle production should once again act as a drag, while general manufacturing conditions remain anemic too. Utility output is likely to have been impacted by milder weather that prevailed across most of the country. In line with recent improvement, the regional manufacturing surveys from New York and Philadelphia could show an improvement from the month-ago levels.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET on Monday. The budget is considered as an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $77.5 million for June.

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Cerner Corp. could see buying interest after the Nasdaq OMX Group said the company will join the Nasdaq-100 Index, the Nasdaq-100 Equal Weighted Index and the Nasdaq-100 Technology Sector Index prior to the market open on Friday, July 17th, 2009. Cerner will replace Sun Microsystems.

Expeditors International is likely to react to its announcement that that it expects second quarter earnings to be between 24-26 cents per share, which is lower than the year-ago earnings of 32 cents per share and the consensus estimate of 30 cents per share.

Fasternal could be in focus after it announced that its board has authorized the buyback of 2 million shares. The authorization replaces any unused authorization previously granted by the board.

Eli Lilly may trade higher after the FDA approved Effient, a blood thinning drug the company develops along with Japan’s Daiichi Sankyo. However, the FDA mandates that the drug should carry a boxed warning alerting doctors to the possibility of causing fatal bleeding.

Currency, Commodity Markets

Crude oil futures are trading up $0.58 at $60.47 a barrel after seeing further weakness in the week ended July 10th, when it ended down $6.84 or 10.25% at $59.89 a barrel, on top of the 3.5% decline in the previous week.

Oil declined sharply last Monday, falling more than $2.50-a-barrel last Monday, with the dollar's strength primarily responsible for the weakness. Oil fell more than a dollar on Tuesday and dropped a steeper $2.79-a-barrel on Wednesday, as bearish inventory data also weighed on prices. However, on Thursday, the commodity arrested the slide and edged up modestly only to retreat modestly on Friday.

Gold futures are gaining ground and are trending up to $913.10 an ounce, representing a loss of $. In the previous week, the precious metal declined $18.50 or about 2% to $912.50 an water.

On the currency front, the week ended July 10th saw the U.S. dollar slide against the yen, another currency considered to be a safe haven due to its low yield. The dollar slid 3.60% to 92.545 yen, while it appreciated modestly against the euro to $1.3936, a gain of 0.34%.

With the G-8 meeting failing to provide any momentum, the euro-dollar exchange remained in the $1.38-$1.42 trading range for most of last week. Commerzbank expects the pair to continue to move sideways. The yen’s strength in the previous week was in reaction to apprehensions ahead of the U.S. reporting season and skepticism over a near term stabilization in economic conditions, which exerted further pressure on the dollar-yen exchange rate. However, Commerzbank does not view this as a trend and does not see further yen appreciation.

Currently, the dollar is trading at 92.43 yen and is valued at $ versus the euro.

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