US & World Daily Markets Financial Briefing 14-07-2010

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Stocks are seeing choppy movement in mid-morning dealing on Wednesday, as a mixed batch of indicators has polarized sentiment. The dispersed market reaction has the major averages on opposite sides of the unchanged mark by varied margins.

Some upbeat sentiment was generated after Intel (INTC) said it swung to a $2.9 billion second quarter profit, helped by higher revenue, sharply improved margins and the absence of a hefty charge that it took in the prior year quarter

The company's quarterly earnings came in above analysts' expectations as did its quarterly revenue. Intel also forecast third quarter revenues above analysts' current consensus estimate and raised its gross margin outlook for full year 2010.

Meanwhile, Goldman Sachs issued a downgrade of the housing sector, lowering its rating to Neutral from Attractive. The firm cited a slower than expected pace of recovery in the sector along with concerns about unemployment.

The Commerce Department also reported that retail sales fell by 0.5 percent in June following a revised 1.1 percent decrease in May. Economists had expected a more modest decrease in sales of about 0.2 percent compared to the 1.2 percent drop originally reported for the previous month.

Excluding a 2.3 percent drop in sales by motor vehicle and parts dealers, retail sales edged down by only 0.1 percent compared to a 1.2 percent decrease in the previous month. The modest decrease came in line with economist estimates.

In a separate report, the Commerce Department said that business inventories edged up by 0.1 percent in May following an unrevised 0.4 percent increase in April. The modest increase came in slightly below economist estimates for a 0.2 percent increase in inventories.

At the same time, the report revealed that business sales fell by 0.9 percent in May after increasing by 0.6 percent in the previous month. The drop reflected notable declines in sales by both manufacturers and retailers.

This afternoon, the Federal Reserve will release the minutes of the June Federal Open Market Committee meeting, with traders looking to get a glimpse at central bankers' assessment of economic conditions. The minutes will be released at 2:00 p.m. ET.

In other earnings news, restaurant chain operator Yum! Brands Inc. (YUM) said that its second-quarter profit declined by 6 percent from last year on a higher provision for income taxes. However, adjusted earnings grew 17 percent and came in above the analyst expectations.

The major averages have remained choppy as they look for direction ,although the Nasdaq is posting a modest gain. While the Nasdaq is up 6.54 points or 0.3 percent at 2,248.57, the Dow is down 5.26 points or 0.1 percent at 10,357.76 and the S&P 500 is down 2.36 points or 0.2 percent at 1,092.98.

Sector News

Tech stocks are among the day's best performers thus far following the strong earnings from Intel. Specifically, networking, electronic storage and computer technology stocks are all seeing buying interest, while semiconductor stocks are also seeing solid gains.

Meanwhile, banking and housing stocks are seeing sharp losses on the day, with the KBW Bank Index and the Philadelphia Housing Sector Index posting losses of 1.9 percent and 1.7 percent, respectively.

The banking index is backing off its best closing level in six weeks, while the housing index is dropping from a three-week closing high. Weakness is also visible among commercial real estate, oil and utility stocks.

Stocks Driven By Analyst Comments

Home healthcare services provider Almost Family (AFAM) is notably lower after being downgraded at RBC Capital Markets from Outperform to Sector Perform. The broker also lowered its target on the stock from $35 to $28. Shares are currently down by 4.3 percent, sinking to a one-year intraday low.


Building materials provider Valspar (VAL) is also down after analysts at Longbow lowered their rating on the stock from Buy to Neutral. The stock is posting a loss of 3.5 percent, pulling back off of yesterday's three-week closing high.

On the other hand, AK Steel (AKS) is trading higher after being upgraded at Goldman Sachs from Neutral to Buy due to a pullback in ore prices. The stock has gained 6.5 percent, setting a three-week intraday high.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed mostly higher on Wednesday. Hong Kong's Hang Seng Index gained by 0.6 percent, while Japan's benchmark Nikkei 225 Index jumped by 2.7 percent.

Meanwhile, the major European markets are notably lower. The U.K.'s FTSE 100 Index and the French CAC 40 Index are down by 1.2 percent and 0.9 percent, respectively, while the German DAX Index is down by 0.4 percent.

In the bond markets, treasuries are seeing moderate gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 3.073 percent, posting a loss of 4.1 basis points.

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Dollar On The Ropes As Retail Sales Slump

The dollar wobbled Wednesday morning amid the release of data showing the US consumer remains gun shy due to lingering weakness in the labor and housing markets.

Retail sales fell more than expected for a second straight month in June, providing further evidence that the economic recovery is losing momentum.

Sales decreased 0.5%, the Commerce Department said Wednesday. Excluding auto and gas sales, retail sales rose 0.1%.

The dollar stayed near its 2-month lows versus the euro and sterling, having lost significant ground over the past few weeks.

While the US economic picture has grown increasingly murky, things appear to be improving in Europe, where a sovereign debt crisis has eased somewhat since early June.

The dollar was stuck at 1.2730 versus the euro, near yesterday's 8-week low of 1.2738.


Spain's borrowing from the European Central Bank rose to record highs overnight, but yesterday's news that a Greek bond auction was oversubscribed continued to support the euro.

Eurozone inflation eased in June and remained within the official target range, giving no reason to change monetary policy.

The consumer price index rose 1.4% year-on-year in June, slower than May's 1.6% increase, final data

Meanwhile, the dollar slumped to a fresh 2-month low of 1.5290 versus the sterling overnight, and was only slightly improved at 1.5225 after the retail sales report.

Against the yen, the dollar dipped to Y88.40, staying close to a 2010 low of 86.95 set late in June.

Japanese consumer confidence improved for the sixth straight month in June, rising to its highest level in thirty-three months, signaling that economic recovery is gaining traction, official data showed Tuesday.

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The Asian markets, except the Indian market, ended in positive territory Wednesday, following positive results from technology bellwether Intel (INTC) that reported after the markets close in the previous session on Wall Street. Sharp gains recorded by all the major indices in the US following results from Alcoa (AA) also lifted market sentiment. Higher commodity prices and oil prices led gains in resource stocks while technology and banking shares also advanced as optimism about sustaining global economic recovery looks bright following encouraging start to the corporate earnings season. The Indian market slipped in late trading session on profit taking.

In Japan, the benchmark Nikkei 225 Index rose 258.01 points, or 2.7%, to 9795, while the broader Topix index of all First Section issues gained 16.34 points, or 1.9%, to 871.

Almost all the stocks across the 33 sectors ended in positive territory.

Technology sectors led the pack of gainers following positive results and forecast from bellwether Intel in the previous session on Wall Street.

Advantest Corp. surged up 5.67%, and Tokyo Electron climbed 4.07%. Among other machinery stocks, Fanuc Ltd gained 4.23%, Kyocera Corp. climbed 4.42%, and TDK Corp. surged up 5.13%.

Exporters also joined the rally with the local currency, Japanese yen, weakening against the euro and the US dollar. Canon Inc. gained 3.47%, Sony Corp. advanced 1.81%, Sharp Corp. rose 2.23%, and Panasonic Corp. was up 1.70%.

Shipping stocks ended sharply higher on optimism about higher demand, and weaker local currency. Mitsui OSK Lines surged up 5.15%, Kawasaki Kisen Kaisha climbed 4.12% and Nippon Yusen rose 3.02%

Mizuho Financial Group, which had priced new price offer at Y130 on Tuesday, climbed 3.70% amid huge volumes which accounted for nearly 40% of the total volume traded in the market. Among other major banks, Sumitomo Mitsui Financial advanced 0.70%, and Mitsubishi UFJ Financial added 0.71%. However, Resona Holdings bucked the trend and ended in negative territory with a loss of 1.15%.

Automotive stocks ended in positive territory on optimism about sustaining global economic recovery and weaker yen. Toyota Motor Corp. climbed 4.00%, Honda Motor rose 3.87%, Suzuki Motor Corp. advanced 1.84%, Nissan Motor Co. surged up 3.88%, Mitsubishi Motors added 1.74% and Mazda Motor increased 2.84%.

In Australia, the benchmark S&P/ASX200 Index surged up 82.10 points, or 1.87% and closed at 4,462, while the All-Ordinaries Index ended at 4,477, representing a gain of 77.30 points, or 1.76%.

On economic front, results of a survey revealed that Australian consumer confidence improved significantly in July from previous month. According to the survey, the Westpac-Melbourne Institute Consumer Sentiment Index rose 11.1% in July to 113.1 from 101.9 in June. As per the survey, all components of the index improved in the month. The assessment of family finances today relative to a year ago rebounded 17.2%, following a 17.7% slump in June. Further, expectations for family finances over the next 12 months rose by a more subdued 7.3% but had seen a milder fall in June. Commenting on the survey results, Bill Evans, Westpac's Chief Economist said, ""We were surprised at the vigour of the bounce back."

Treasurer Wayne Swan, in a statement, said that the Australian Government is projecting a return to surplus in 2012-13, much ahead of any of the major advanced economies. He stated that the government's budget surplus will rise to A$3.1 billion in 2012-13, sharply higher than A$1 billion estimated in May budget. For the year 2010-11, he reduced the deficit estimate to A$40.4 billion from $40.8 billion projected earlier, and also revised the shortfall for 2011-12 to A$10 billion from A$13 billion projected earlier. Wayne Swan further reiterated that the government remains committed to maintaining strict budget discipline, including restricting real spending growth to 2% a year on average until the surplus has reached 1% of GDP.

Banks led the gains taking cues from Wall Street where the major financial stocks ended higher on optimism about recovery. ANZ Bank advanced 2.47%, Commonwealth Bank rose 3.12%, National Australia Bank added 1.64% and Westpac Banking climbed 3.23%. Investment banking company Macquarie Group was up 2.33%.

Mining and metal stocks ended in positive territory following higher commodity prices in the international market. BHP Billiton rose 2.07%, Rio Tinto advanced 1.25%, Fortescue Metals gained 2.82%, Gindalbie Metals added 0.50%, Iluka Resources added 1.31%, Macarthur Coal was up 0.55%, Mincor Resources increased 1.01%, Murchison Metals collected 2.03% and Oz Minerals looked up by 1.87%.

Oil stocks also ended higher following rise in crude oil prices in the international market. Woodside Petroleum gained 1.61%, Santos added 0.58%, ROC surged up 4.55%, Oil Search rose 1.22% and Origin Energy climbed 1.49%.

Gold stocks gained. Lihir Gold rose 1.40% and Newcrest Mining gained 1.26%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 129.75 points, or 0.64%, at 20,561, taking cues from other markets in the region as well as better than expected results from technology bellwether Intel (INTC) that reported results after the markets closed in the US yesterday. Higher commodity prices in the international market also lifted market sentiment. Profit taking in late trading session, however, limited the gains.

The Indian market snapped a four-day rally on Wednesday, as investors indulged in some profit taking in late-session deals. IT stocks continued to fall for a second consecutive session following Infosys' disappointing first-quarter results. Infosys fell nearly 2%, TCS eased marginally and Wipro ended down 1.89%. After rising by about a percent in opening trading, the benchmark 30-share Sensex gradually trimmed its gain before ending down 48 points or 0.27% at 17,938. The 50-share S&P Nifty slipped by 15 points or 0.27% to 5,386.

All the other major markets open for trading ended in positive territory. China's Shanghai Composite Index added 20.15 points, or 0.82%, and ended at 2,470, Taiwan's Weighted Index surged up 117.09 points, or 1.54%, to 7714, Singapore's Strait Times Index gained 24.11 points, or 0.82% to close at 2,953, and Indonesia's Jakarta Composite Index advanced by 19.55 points, or 0.66%, and closed at 2,981.

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The major averages in Europe are pulling back after six straight sessions of gains. The French CAC 40 Index and the German DAX Index are receding 0.90% and 0.22%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.74%.

In corporate news, Rio Tinto (RTP) reported that its iron ore production fell 2% in the second quarter to 43.6 million metric tons. However, the company sounded optimistic about overall long-term demand outlook. Separately, the company said it has secured a $200 million funding for the expansion of its Pilbara mines in Western Australia.

Dutch chip equipment maker ASML Holdings (ASML) reversed to a profit of 239 million euros in its second quarter compared to a loss of 104 million euros in the year-ago period. Sales jumped to 1.07 billion euros from the year-ago’s 277 million euros. The company expects full year sales to increase 10%-15% from its record sales of 3.8 billion euros achieved in 2007.

On the economic front, the Nationwide Building Society reported that U.K.’s consumer confidence fell for the second straight month in June, with the corresponding index dipping 3 points to 63. The decline was mainly due to a 6-point drop in the expectations index, which slipped to its lowest level since May 2009.

A report released by the U.K. Office for National Statistics showed that the number of people in employment in the U.K. rose by 160,000 in the three month ended May compared to the previous three month period. The bulk of the increase was due to the hiring of part time employees. The unemployment rate edged down 0.1% in the three months ended May.

Meanwhile, the number of people claiming jobseeker’s allowance declined by 20,800 to 1.46 million in June compared to the previous month. The earnings growth rate for total pay was 2.7% in the three months ended May compared to a 4.1% rate for the three months ended April.

The revised inflation report released by Eurostat showed that the annual rate of consumer price index for the euro area slowed to 1.4% in June from 1.6% in May. On a monthly basis, prices remained unchanged.

Separately, Eurostat said industrial output of euro zone rose by 0.9% month-over-month in May, the same rate as in the previous month. On a year-over-year basis, industrial production climbed 9.4% in May. Economists expected a 1.2% monthly increase in output and an 11.4% year-over-year jump.

U.S. Economic Reports

The Commerce Department reported that retail sales fell 0.5% month-over-month in June, steeper than the 0.2% expected by economists. In April, retail sales fell at an unrevised 1.1% rate. Retail sales, excluding autos, declined 0.6%, while economists expected an unchanged reading. Auto sales fell 2.3%, steeper than the 0.6% drop in the previous month.

Gasoline sales declined 2%, while sales decline at building material & garden equipment store sales slowed to 1.1% from the 9% drop in the previous month. On the other hand, sales at electronics & appliance stores, general merchandise stores and miscellaneous retail stores increased.

Meanwhile, import prices declined for the second consecutive month in June, according to a report released by the Labor Department, with the report also showing a modest decrease in export prices.
Import prices fell by 1.3 percent in June after slipping by a revised 0.5 percent in May. Excluding a 4.0 percent drop in prices for fuel imports, import prices fell by a more modest 0.6 percent.
Additionally, the report showed that export prices edged down by 0.2 percent in June following a revised 0.6 percent increase in the previous month. Export prices still fell 0.2 percent excluding a 0.1 percent drop in prices for agricultural exports

The Commerce Department is scheduled to release its business inventories report for May 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 0.2% increase in business inventories for the month.

Business inventories rose by 0.4% in April, although the increase was smaller than the 0.5% increase expected by economists. Business sales rose 0.6%, with the inventories to sales ration at 1.23 compared to 1.43 in the year-ago period.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 9th at 10:30 AM ET.

The oil inventory report for the week ended July 2nd showed that crude oil inventories declined by 5 million barrels, but remained above the upper limit of the average range.

However, gasoline stockpiles rose by 1.3 million barrels and were above the upper limit of the average range. Distillate inventories edged up 0.3 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 89.3% over the four weeks ended July 2nd compared to 88.4% in the previous week.

The Federal Reserve is scheduled to release the minutes of its June 22nd-23rd Federal Open Market Committee meeting at 2 PM ET.

At its June meeting, the Federal Open Market Committee maintained the fed funds futures rate unchanged at 0%-0.25% and also retained the statement conveying its intention to leave interest rates at exceptionally low levels for an extended period. As in the past meeting, Kansas City Federal Reserve Bank President Thomas Hoenig dissented, calling for the dropping of the statement reflecting the central bank's faith in an extended period of low rates.

In the post meeting policy statement, the FOMC termed the economic recovery as "proceeding" compared to its earlier assessment that economic activity continued to strengthen. The committee said labor market is improving gradually. The central bank noted that household spending is increasing, suggesting some progression from April, when it said growth in household spending is picking up. While discussing housing starts, the committee noted that they are remaining at depressed levels.

There was a marked change in the way the FOMC saw financial market conditions, with the central bank saying that financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. In April, the Fed had said financial market conditions remain supportive of growth.

The Fed also made a note of falling prices of energy and other commodities in recent months, while continuing to believe that inflation will remain subdued for some time.

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Zumeiz (ZUMZ) could be in focus after it said it would not proceed with its offer for Canadian action sport retailer West 49, Inc. Zumeiz clarified that its decision was prompted by its inability to reach an agreement with the Canadian company on the terms of the due diligence process.

ADTRAN (ADTN) is likely to see some activity after it reported that its second quarter sales rose 24% year-over-year to $150.36 million. The company’s net income climbed to 44 cents per share from 30 cents per share last year. Analysts estimated earnings of 38 cents per share on revenues of $137.90 million.

Hanover Insurance Group (THG) could move in reaction to its announcement that it estimates pre-tax losses from catastrophe events to be about $85 million in the second quarter. The company expects the losses to add 12 points to its combined ratio.

Expeditors (EXPD) may also be in focus after it released preliminary second quarter results, expecting second quarter earnings of 38-40 cents per share compared with 25 cents per share last year. The company noted that volumes in both its airfreight and ocean freight business has improved relative to the previous year. The consensus estimates had call for earnings of 30 cents per share.

FLIR Systems (FLIR) is expected to gain ground after it said it has received a $5.4 million order for the supply of multi-sensors from the U.S. Customs and Border Protection. The company noted that deliveries are expected to be completed by the end of 2010.

Yum Brands (YUM) could also see some activity after it reported that its second quarter adjusted earnings rose 17% to 58 cents per share. Total revenues were 4% higher at $2.57 billion. Analysts estimated earnings of 54 cents per share on revenues of $2.54 billion. The company raised its 2010 adjusted earnings per share guidance to $2.39-$2.43 per share, while analysts estimate earnings of $2.48 per share.

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