US & World Daily Markets Financial Briefing 13-07-2010

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Upbeat Earnings News Drives Stocks Higher In Morning Trading

Stocks are posting substantial gains in mid-morning trading on Tuesday, with buying interest driven by a strong start to the earnings season by a number of key firms, including Alcoa (AA) and CSX Corp. (CSX). The major averages are moving higher for a sixth straight session.

Early upside came in reaction to aluminum giant Alcoa's upbeat earnings report released after the close of trading in the previous session. The firm revealed that it swung to a second quarter profit as sales jumped 22 percent from a year earlier, with both earnings and sales topping estimates.

Railroad operator CSX Corp. and semiconductor firm Novellus Systems, Inc. (NVLS) also helped to bolster trader sentiment, reporting second quarter earnings and revenues that also exceeded analyst expectations.

On the economic front today, the Commerce Department reported that the U.S. trade deficit widened to $42.3 billion in May from $40.3 billion in April. The wider trade deficit came as a surprise to economists, who had expected the trade deficit to narrow to $39.4 billion.

Later today, the Treasury Department will release its Treasury Budget for June at 2:00 p.m. ET. The report is estimated to show a deficit of $70 billion for June.

In other economic news, Moody's Investor Services downgraded the credit rating of Portugal two notches to A1. However, the rating agency reaffirmed its stable outlook.

The major averages have traded sideways in recent dealing, hovering near their session highs. The Dow is up 129.11 points or 1.3 percent at 10,345.38, the Nasdaq is up 22.09 points or 1 percent at 2,220.45 and the S&P 500 is up 12.24 points or 1.1 percent at 1,090.99.

Sector News

Networking stocks are among the morning's best performers, with the NYSE Arca Networking Index posting a gain of 4.3 percent. The index is extending a recent upward move, moving further off the ten-month closing low set earlier this month.

ADC Telecommunications (ADCT) is helping to lead the sector higher after agreeing to be acquired by Tyco Electronics (TEL) for $12.75 per share in cash or a total of $1.25 billion. ADC has surged up by 41.6 percent to a two-year intraday high.

Banking, housing, airline and oil stocks are also sharply higher, further extending their hot streak amid today's broad-based rally. Notably, the Philadelphia Housing Sector Index is up by 2.3 percent, setting a three-week intraday high.

Stocks Driven By Analyst Comments

EMCOR Group (EME) is on the upside after analysts at FBR Capital Markets upgraded the stock from a Perform to Outperform rating. The broker also raised its target on the stock from $29 to $39. Shares are currently up by 5.3 percent after reaching their best intraday price in a month.

LaSalle Hotel (LHO) is also posting a notable gain after being upgraded at Robert W. Baird from Underperform to Neutral. The stock is up by 4.8 percent, rising to its highest intraday price in just over two weeks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Tuesday. Hong Kong's Hang Seng Index slipped by 0.2 percent, while Japan's benchmark Nikkei 225 Index edged down by 0.1 percent.

Meanwhile, the major European markets are seeing strong gains. The U.K.'s FTSE 100 Index and the German DAX Index are both up by 2 percent, while the French CAC 40 Index is up by 1.9 percent.

In the bond markets, treasuries are moderately lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 3.084 percent, posting a gain of 3.8 basis points.

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Early Signals Point To A Higher Open For TSX

Bay Street stocks are poised for a higher open Tuesday amid firm commodities prices and encouraging global cues. Also, an improved earnings report from the U.S. aluminum company Alcoa likely to lift trader sentiment.

Elsewhere, the Asian markets ended mixed after China said housing prices fell for the first time in 18-months, declining 0.1% in June from May and the government said it had no plans to ease curbs on property development.

Meanwhile, European stocks rose for a sixth session taking cues from market-beating earnings report from Alcoa Inc. Greece announced today successful auction of $2.05 billion 26-week T-Bills.

On Monday, the S&P/TSX Composite Index snapped its 4-day winning streak to edge down 4.69 points or 0.04% to 11,565.76.

The price of crude oil moved up ahead of weekly inventories data from the API, with crude for August rising $0.94 to $75.89 a barrel. The IEA said today that global oil demand will increase by 1.6% in 2011. However, the increase rate is below the 2.1% rise in global crude consumption expected this year.

The price of gold was up after Moody's downgraded Portugal's debt. Gold for August added $12.20 to $1,210.90 an ounce. Moody's Investor Services downgraded its rating on Portugal by two notches to A1 amid concerns over the country's financial strength over the medium term.

In corporate news, Blackberry maker Research In Motion said it has received approval from the Toronto Stock Exchange for its 22.46 million share buy back program.

Logistics technology solutions provider Descartes Systems Group announced that MOL, a multi-modal transport company, has selected it to help manage its EU Import Control System.

Coal producer Homeland Energy Group said it concluded its rights offering, issuing about 169.09 million shares for total proceeds of about C$8.45 million.

Oil fields services contractor Forbes Energy Services announced that it has signed a settlement agreement with Pennsylvania's Department of Environmental Protection, which would now enable its two work-over rigs in Pennsylvania to return to full service.

Drug maker Wex Pharmaceuticals said it has received an unsolicited take-over bid from Pharmagesic (Holdings) Inc., a unit of CK Life Sciences Int'l (Holdings) Inc., to acquire its outstanding restricted voting shares at C$0.13 cash per share. Pharmagesic is the holder of about 88.7% of Wex's restricted voting shares and the sole Class A share.

Bio-technology company Thallion Pharmaceuticals reported a narrower second-quarter net loss of C$0.03 per share, compared to C$0.09 per share in the same quarter last year.

Windows and doors making company GBO INC. posted a narrower first-quarter net loss of C$0.02 per share, compared to C$0.04 per share in the prior year period.

Network engineering company Prestige Telecom reported a narrower fiscal year 2010 net loss of C$0.01 per share, compared to a net loss of C$0.16 per share last year.

In economic news, Statistics Canada said merchandise exports rose 5.2% in May, largely helped by improved volumes in automotive products. Exports rose to C$34.5 billion in May from C$32.8 billion in April and imports rose to C$35.0 billion in May from C$33.1 billion in April. Meanwhile, the agency said that the country's trade deficit widened to C$503 million in May from C$330 million in April.

From the U.S., data from the Commerce Department showed that the trade deficit widened to $42.3 billion in May from $40.3 billion in April. Economists were expecting the trade deficit to narrow to $39.4 billion.

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Asian Markets End Mixed; Commodity Stocks Slip

Mixed trading was witnessed in Asian markets on Tuesday with the markets in Australia, Japan, Hong Kong, China and Taiwan ending in negative territory, while the markets in India, Indonesia, Singapore and South Korea ended in positive territory with marginal gains. Positive closing on Wall Street in the previous session and better-than-expected results from Alcoa was partly overshadowed by concerns about lower commodity prices and softening demand from China. Traders remained cautious looking for more definitive clues about sustaining global economic recovery.

In Japan, the benchmark Nikkei 225 Index fell 10.88 points, or 0.1%, to 9537, while the broader Topix index of all First Section issues fell 3.31 points, or 0.4%, to 854.

On the economic front, final data released by the Ministry of Economy, Trade and Industry revealed that industrial production recorded a 0.1% monthly growth in May, compared to the initial estimate of a 0.1% decline reported previously. On year-over-year basis, industrial production surged 20.4%, the data noted. The data further noted that shipments dipped 1.7% month-on-month, unrevised from the preliminary estimate. Growth in inventory was also left unrevised at 2% for May. Annually, shipments climbed 21%, while inventory slipped 0.8%. Inventory ratio increased by a revised 4.8% on a monthly basis and plunged 22.7% on a yearly comparison.

Separately, results of a survey conducted by the Cabinet Office revealed that consumer confidence in the country improved for the sixth consecutive month in June. As per the results, overall consumer confidence for the month rose to 43.6 from 42.7 in the previous month. Economists had expected the index to fall to 42.5. Households' consumer sentiment index unexpectedly increased to 43.5 for the month from 42.8 in May.

Steel stocks ended the session in negative territory. JFE Holdings declined 2.38%, Pacific Metals Corp. fell 2.42%, Nippon Steel Corp. fell 2.27%, Nisshin Steel Co. plunged 3.32%, Sumitomo Metal Industries shed 1.89% and Kobe Steel slipped 0.55%.

Manufacturers of construction equipment also ended weaker following reports that rise in real estate prices across China eased slightly in June. Komatsu Ltd declined 1.62%, Chiyoda Corp. plunged 5.64%, Hitachi Construction Machinery slipped 1.04% and Kubota Corp. fell 1.73%.

Mixed trading was witnessed among the major banks.

Mizuho Financial Group, which is tapping the market with a new share issue of 857.6 billion yen, declined 2.77% as the traders expect the bank to set a lower price for the new shares, and the volumes surged 5-fold than normal.

Among other major banks, Sumitomo Mitsui Financial shed 0.16% and Resona Holdings fell 0.86%. Mitsubishi UFJ Financial, however, bucked the trend and ended in positive territory with a gain of 0.72%.

In Australia, the benchmark S&P/ASX200 Index declined 29.60 points, or 0.67% and closed at 4,380, while the All-Ordinaries Index ended at 4,400, representing a loss of 29.50 points, or 0.67%.

On economic front, results of a survey conducted by National Australia Bank revealed that business confidence in the country declined in July. As per the results, the monthly index of business confidence dropped 1 point to 4.0. This is the third straight monthly decline, sending the index to its lowest level since July 2009, NAB said.

Mining and metal stocks led the decline on concerns about demand for iron ore from China. BHP Billiton declined 2.56%, Rio Tinto fell 3.23%, Fortescue Metals plunged 4.48%, Gindalbie Metals lost 2.45%, Macarthur Coal fell 4.40%, Murchison Metals was down 3.90%, Mincor Resources shed 1.90% and Oz Minerals slipped 2.73%.

Oil related stocks also ended in negative territory on lower crude oil prices in the international market. Woodside Petroleum shed 0.58%, Santos fell 2.06%, ROC Oil Ltd plunged 5.71%, Oil Search Ltd lost 1.54% and Origin Energy was down 1.53%.

Gold stocks also ended weaker following drop in gold prices in the international market. Lihir Gold slipped 0.69% and Newcrest Mining shed 0.43%.

Mixed trading was witnessed among the banking stocks. Commonwealth Bank gained 0.75% and National Australia Bank advanced 0.62%. However, ANZ Bank slipped 0.80% and Westpac Banking Corp shed 0.27%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 36.37 points, or 0.18%, at 20,431 following weak trading across other markets in the region, despite positive closing on Wall Street in the previous session and better-than-expected earnings from Alcoa, which kickstarted earnings season in the US. Weak commodity prices and efforts by mainland China to rein in steel production also impacted market sentiment.

Shrugging off lower-than-expected first-quarter earnings from Infosys, the Indian market recouped its early loss and ended higher for a fourth consecutive session Tuesday. While the other Asian markets closed on a mixed note, weighed by concerns surrounding China's attempts to curb property speculation, the major European averages rose over a percent in early trading, extending a five-day rally, boosting sentiment in late trading. The benchmark 30-share Sensex ended up about 50 points or 0.27% at 17,986 and the 50-share Nifty rose by 18 points or 0.33% to close near the day's high above the crucial 5,400 level.

Among the other major markets open for trading, China's Shanghai Composite Index lost 40.43 points, or 1.62%, and ended at 2,450, and Taiwan's Weighted Index ended in negative territory with a loss of 42.13 points, or 0.55%, at 7,597. However, Singapore's Strait Times Index added 3.38 points, or 0.12% to close at 2,929, and Indonesia's Jakarta Composite Index edged higher by 2.72 points, or 0.09%, and closed at 2,962.

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The major European markets look set to extend their gains for a sixth straight session, as traders focused on Alcoa’s stellar quarterly results. Earnings optimism helped the markets overlook a negative rating action by Moody’s on Portugal.

The French CAC 40 Index and the German DAX Index are rising 1.77% and 1.76%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.94%.

Moody’s today downgraded Portugal’s credit rating by 2 notches to A1, although with a stable outlook. Though it is a retrograde step, the rating action brings Moody’s ratings for the nation closer to the ratings of rivals S&P, which rates Portugal A- with a negative outlook and Fitch, which has a AA- rating with a negative outlook for Portugal. Moody’s attributed its action to the government’s rising debt-to-GDP ratio and debt-to-revenue ratio.

On the economic front, a house price survey by the Royal Institution of Chartered Surveyors showed that the balance for real estate agents who said house prices rose versus those who saw prices decline in the United Kingdom was 9 percent in June. This was below expectations for 20%. Meanwhile, the results of the U.K. Department of Communities and Local Government’s survey showed that house prices in the U.K. rose 11% year-over-year in May compared to the 10.2% growth expected by economists.

The German Federal Statistical Office reported that Germany’s wholesale price index rose 5.1% year-over-year in June, slower than the 6.2% growth in May. Economists had expected a 5.5% increase for the month. On a monthly basis, wholesale prices fell 0.2%, reversing some of the 0.3% increase seen in May.

A report released by French statistical agency INSEE showed that French consumer prices rose 1.5% year-over-year in June, with the increase in line with economists’ expectations.

At the same time, U.K. consumer prices rose by more than economists had expected, according to a report released by the U.K. Office for National Statistics. The consumer price index rose 0.1% month-over-month in June and was 3.2% higher than a year-ago. Economists had expected unchanged prices compared to May and a 3.1% annual increase.

The Zew indicator of economic sentiment for Germany released earlier in the day showed a 7.5-point decline in July to 21.2. The index has now fallen below its historical average of 27.4.

The insipid reading was blamed on the sovereign debt crisis and the resulting need for budget consolidation in various countries. However, the assessment of the current economic situation rose by 22.5 points to 14.6, turning positive for the first time since July 2008. The improvement signals that the potential for further improvement seems to be widely used up.

U.S. Economic Reports

Imports in the month of May rose at a slightly faster pace than exports, according to a report released by the Commerce Department, with the report subsequently showing an unexpected increase in the size of the U.S. trade deficit.

The report showed that the trade deficit widened to $42.3 billion in May from $40.3 billion in April. The wider trade deficit came as a surprise to economists, who had expected the trade deficit to narrow to $39.4 billion.

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 $70 billion for June.

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Brooks Automation (BRKS) may see some activity after it said it expects to report revenues of $156 million to $157 million in its third quarter. Citing the stronger than expected revenues, the company raised its earnings guidance for the quarter to 22-24 cents per share. Analysts estimate earnings of 19 cents per share on revenues of $152.68 million. The company also said it expects sequential revenue growth, margin expansion and earnings growth for the fourth quarter due to strong backlog and new order booking trends.

SRA International (SRX) could see some strength after it said it has won a $57 million single-award indefinite delivery indefinite contract from the Federal Aviation Administration to continue supporting the airport technology R&D technical/engineering support program. The contract value is spread over five years.

MoneyGram International (MGI) may react to its announcement that it has appointed James Shields as its EVO and CFO, effective July 13th, 2010.

Chip equipment maker Novellus Systems (NVLS) could also be in focus after it reported that its second quarter net sales rose to $321.4 million from $119.2 million in the year-ago period. The company reported earnings of 66 cents per share compared to a loss of 52 cents per share last year. Analysts estimates, which typically exclude one-time items, called for earnings of 60 cents per share on revenues of $312.01 million.

Railroad operator CSX (CSX) is likely to see some activity after it said its second quarter revenues rose 22% to $2.7 billion. The company’s earnings improved to $1.07 per share from 71 cents per share in the year-ago period. The consensus estimates called for earnings of 98 cents per share on revenues of $2.63 billion.

Indian outsourcing giant Infosys (INFY) may see weakness after it reported a decline in its fiscal first quarter profits in rupee terms to 14.88 billion rupees from 15.25 billion rupees in the year-ago quarter, weighed down by staffing expenses. The company’s earnings trailed estimates by some analysts. However, revenues rose to 61.98 billion rupees from 54.72 billion rupees in the same quarter last year. Looking ahead, the company raised its guidance for fiscal year 2011.

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