US & World Daily Markets Financial Briefing 14-10-2009

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Stocks May Savor Strong Earnings

The major index futures are pointing to a higher opening on Wednesday, with the optimism reflecting positive earnings reported by blue chip companies such as Intel (INTC) and JP Morgan Chase (JPM). Crude oil continues to move higher, encouraged by a report that showed that exports by China fell at the slowest pace this year. Additionally, an economic report released earlier in the day showed that retail sales, excluding autos, remained fairly robust, suggesting that consumers, though reluctant, are still spending.

An increase in risk appetite of investors has led to a nearly uninterrupted rally on Wall Street ever since March this year. That said, a recovery cannot be taken for granted, as the labor market that has to be kick started and move into top gear to stimulate consumer spending cannot show an improvement without a strong economic rebound.

After opening lower on Tuesday, U.S. stocks showed a lack of direction, as traders expressed apprehension over the recent strong run up. After trading in a wide range amid volatility, the major averages ended on a mixed note. While the Dow Industrials ended down 14.74 points or 0.15% at 9,871 and the S&P 500 Index closed down 3 points or 0.28% at 1,073, the Nasdaq Composite Index advanced 0.75 points or 0.04% to 2,140.

The breadth among the Dow components was even, with 15 stocks ending higher, while the remaining 15 stocks closed lower. Alcoa (AA), Bank of America (BAC), Johnson & Johnson (JNJ), Merck (MRK), Pfizer (PFE) and Travelers Co. (TRV) ended lower. On the other hand, Home Depot (HD), AT&T (T) and Wal-Mart (WMT) advanced.

Among the sector indexes, the NYSE Arca Biotechnology Index slipped 1.14%, the NYSE Arca Broker/Dealer Index gained 1.04%. However, the S&P Retail Index rose 0.88% and the Philadelphia Housing Sector Index rose 1.53%.

Earnings

Host Hotels (HST) reported that its third quarter revenues fell by 19.9% to $912 million. The company reported a net loss of 9 cents per share compared to earnings of 9 cents per share in the year-ago period. Funds from operations were 11 cents per share, lower than 31 cents per share last year. Analysts estimated funds from operation of 8 cents per share on revenues of $889.38 million. For 2009, the company now expects funds from operations of 46-51 cents per share, higher than its earlier estimate of 43-50 cents per share.

J.P. Morgan (JPM) said its third quarter earnings rose to 82 cents per share from 9 cents per share last year. The company’s net revenues on a reported basis rose 81% to $26.62 billion, and on a managed basis, net revenues climbed 79% to $28.78 billion. Analysts estimated earnings of 52 cents per share on revenues of $24.96 billion.

Abbott Labs (ABT) reported third quarter adjusted earnings of 92 cents per share, ahead of the 90 cents per share consensus estimate. Total sales rose 3.5% to $7.76 billion, in line with the mean analysts’ estimate. The company raised its ongoing earnings guidance for 2009 to $3.70 to $3.72 per share from its previous range of $3.65-$3.70 per share.

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Energy, Financial Stocks Could Lead TSX Higher

Canadian stocks could see strength early Wednesday morning on higher oil prices and encouraging corporate news from the U.S.

Crude oil is up another 52 cents to $54.67 per barrel, continuing a recent climb. Copper is also higher, rising 4.15 cents to $2.836 per pound. Gold slipped $4.50 to $1,060.50 after hitting record highs yesterday.

Financial services giant JPMorgan Chase & Co. (JPM) reported a sharp increase in third-quarter profit, while chipmaker Intel beat the expectations of analysts.

In corporate news in Canada, Barrick Gold priced an aggregate of $1.25 billion debt securities that consist of $400 million of 4.95% notes due 2020 and $850 million of 5.95% notes due 2039.

Vermilion Energy Trust announced a bought deal to sell 7.3 million trust units at $30.90 per trust unit to raise gross proceeds of $225 million.
 
Plutonic Power Corp. announced a bought deal to sell 21 million common shares at a price of $3.35 per common share for gross proceeds of $70.35 million.

Glendale International Corp. reported for the third quarter a net loss of C$2.1 million or C$0.23 per share, narrower than C$2.23 million or C$0.24 per share posted a year ago.

Canadian new motor vehicle sales fell 0.3% to 126,401 units in August as sales of passenger cars slipped.

On Tuesday, the S&P/TSX Composite Index fell 39.43 points or 0.34% to close at 11,393.10. Traders returned to their desks after a three-day holiday weekend.

Currency, Commodity Futures

Crude oil futures are trading up $0.55 at $74.70 a barrel after advancing $0.88 to $74.15 a barrel in Tuesday’s session. The weakening of the dollar and the strengthening of the equity markets has been supporting the commodity to a large extent. A continuation of the trend could lead to further upside for oil prices notwithstanding a lack of fundamental support. Underlying oil demand is still weak in industrialized nations.

After rising $7.50 to $1,065 an ounce in the previous session, gold futures are slipping $3 to $1,062 an ounce. Commerzbank analyst Eugen Weinberg attributed the rally in gold prices to the softer dollar and an increase in physical demand from India due to major religious holidays and the upcoming wedding season. Additionally, higher speculative buying interest has also been providing solid support to the precious metal.

Among the currencies, the U.S. dollar is trading at 88.995 yen, weaker than the 89.76 yen it fetched at the close of New York trading on Tuesday. Currently, the greenback is valued at $1.4887 versus the euro.

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Asian Markets End In Positive Territory On Intel Results

The markets across Asia, except Japan's Nikkei, ended in positive territory after bellwether Intel reported better than expected sales for third quarter and forecast Q4 earnings higher than analysts estimates after the markets closed for trading in the U.S on Tuesday. Traders view Intel results as a pointer towards recovery and lifted the major markets across the region. The Nikkei in Japan ended in negative territory, dragged down by banks ahead of banking results in the U.S during the week..

In Japan, the benchmark Nikkei 225 Index lost 16.35 points, or 0.16% to 10,060.21, while the broader Topix index of all first section stocks was down 7.06 points, or 0.78%, to 894.

On the economic front, the Policy Board of the Bank of Japan unanimously decided to maintain the uncollateralized overnight call rate at 0.1%, and upgraded its economic assessment even as it made no comments on scrapping its corporate debt purchase programs.

In a separate statement, the central bank revealed that the prices for domestic corporate goods shed 7.9% on year in September, posting an index score of 103.0. That was exactly in line with analyst expectations following the 8.5 percent annual decline in August.

Banks ended in negative territory as traders preferred to lock in gains in recent gains ahead of results of major US banks including JP Morgan Chase, Citigroup, and Goldman Sachs during this week. Analyst Meredith Whitney has downgraded the stock rating for Goldman Sachs in the U.S
 
Sumitomo Mitsui Financial plunged 4.66%, Resona Holdings declined 4.32%, Mizuho Financial shed 4.84% and Mitsubishi UFJ Financial lost 3.58%.

Exporters declined following strengthening of the local currency against the US greenback. Canon Inc. slipped 1.14%, Sharp Corp. declined 1.38% and Sony Corp lost 1.57%.

Automakers also ended in negative territory on weaker dollar. Honda Motor lost 1.78%, Toyota Motor Corp. shed 1.11%, Suzuki Motor slipped 0.95%, Nissan Motor fell 2.92% and Mitsubishi Motor declined 3.40%.

Among airline stocks, Japan Airlines plunged 3.75% after the air carrier reportedly approached the creditors for financial assistance. However, the other major airline, All Nippon Airways managed to end in positive territory with a modest gain of 0.41%.

In Australia, the benchmark S&P/ASX200 Index gained 45.40 points, or 0.95% to close at a 12-month high of 4,835, while the All-Ordinaries Index also ended at a 12-month high of 4,834, representing a gain of 44.20 points, or 0.92%.

On the economic front, a latest report released by Westpac and Melbourne Institute revealed that consumer confidence in the country continued to surge ahead in October. According to the report, the consumer confidence index moved up to 121.4 in October from 119.3 in the preceding month. A reading above 100 means optimists outnumber pessimists. The index rose 1.7% month-on-month in October, following a 5.2% rise in the previous month.

Mining stocks led the gains after Rio Tinto, the biggest iron-ore producer in the country, boosted its global iron-ore production forecast for 2009 to between 210 and 215 million tonnes, from an earlier target of 200 million tonnes, citing rise in demand for its products in the global markets. The stock gained 1.70%. Among other mining and metal stocks, BHP Billiton added 0.42%, Fortescue Metals rose 2.05%, Gindalbie Metals climbed 4.95% and Oz Minerals advanced 1.55%.

Oil stocks gained following rise in crude oil prices in the international market. Woodside Petroleum advanced 1.90%, Santos gained 2.06%, and Origin Energy climbed 1.99%. Oil Search remained unchanged from previous close.

Gold stocks also ended in positive territory after bullion prices rose in international market. Lihir Gold surged up 4.06%, Newcrest Mining rose 2.32% and Sino Gold Mining gained 1.65%.
 
Retail stocks also advanced following rise in consumer confidence index for October. JB Hi-Fi, one of the leading retailers, surged up 4.92% after the company reaffirmed its sales forecast. Among other retailers, David James added 0.70%, Harvey Norman gained 2.20%, Wesfarmers advanced 1.70% and Woolworths climbed 1.32%.

Banking stocks also ended higher on positive consumer confidence index. ANZ Bank added 0.65%, Commonwealth Bank of Australia rose 2.46%, National Australia Bank gained 1.40% and Westpac Banking Corp. climbed 1.86%.

In Hong Kong, the Hang Seng Index surged up 1.95% or 419.12 points, to close at 21,886, taking cues from other markets in the region as well as positive results from Intel Corp. which reported higher sales for Q3 and also forecast Q4 earnings higher than analysts estimates. Traders perceive Intel's results as a pointer for better things to come days ahead and went ahead on a buying spree. All the 42 components of the index, except three, ended in positive territory.

In South Korea, the KOSPI Index also followed the positive sentiment prevailing across the markets in the Asian region and ended higher with a gain of 20.16 points, or 1.24% at 1,649, as traders picked up stocks of blue-chips including technology stocks on increasing optimism about higher corporate earnings for the recently concluded third quarter. Intel's results after the market closed for trading in the U.S is perceived as a pointer for better things to come from the corporates.

Among the other major markets in the region, China's Shanghai Composite Index gained 34.34 points, or 1.17% to 2,970, Indonesia's Jakarta Composite Index advanced 39.73 points, or 1.61%, to close at 2,512, Singapore's Strait Times Index rose 40.08 points, or 1.50% to close at 2,708 and Taiwan's Weighted Index surged up 99.15 points, or 1.31% to 7,696.

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The business inventories report for July revealed a 1% month-over-month decline in business inventories. Business sales rose 0.1%. Consequently, the business inventories to sales ratio was 1.36 compared to 1.38 in the month-ago period.

The Federal Reserve is scheduled to release the minutes of its September 22-23 meeting at 2 PM ET.

After its two-day meeting that ended on September 22nd, the Federal Open Market Committee announced that it would maintain its target rate for the federal funds rate at 0 to 0.25%, while it continued to believe that economic conditions warrant exceptionally low levels of the federal funds rate for an extended period.

In line with expectations, the FOMC gave an upbeat assessment about growth by saying that economic activity is picking up following its severe downturn, a change from its previous meeting's assessment that economic activity is leveling out. The committee appended a statement pertaining to the housing sector, stating that activity in the housing sector has increased. On businesses, the central bank noted that the pace of cut backs on fixed investment and staffing by businesses is slowing down.

Discussing its quantitative easing measures, the Committee said it would gradually slow the pace of the purchases of agency mortgage-backed securities and agency debt in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010, which is in contrast to an earlier timeframe estimate of the end of the year. The Fed confirmed that its $300 billion worth of Treasury securities would be completed by the end of October 2009.

The major European markets are rallying on Wednesday after earnings continued to reinforce the recovery theme. The French CAC 40 Index and the German DAX Index are rising 1.86% and 2.23%, respectively, while the U.K.’s FTSE 100 Index is moving up 1.75%.

In corporate news, Dutch chip equipment maker ASML Holdings (ASML) reported a profit of 20 million euros or 0.05 euros per share, the first profit in a year, even as sales declined 20% to 555 million euros. The company indicated that new orders as well as order backlogs increased from the previous quarter.

Meanwhile, Rio Tinto (RTP) said its third quarter iron ore production rose 12% year-over-year and increased 5% sequentially to 47.5 million tons. The company also increased its full year iron ore production estimate to 210 million to 215 million metric tons from its previous estimate of 200 million tons.

On the economic front, the U.K. Office of National Statistics reported that the U.K.’s unemployment rate in the three months ended August 2009 rose 0.3 percentage points from the previous three-month period too 7.9% and was up 2.1 percentage points from the year-ago period. The number of unemployed people rose to 2.47 million in the three months ended August, up 88,000 sequentially. Meanwhile, the claimant count rose 20,800 to 1.63 million in September compared to the previous month, with the claimant count rate up 0.1 percentage points to 5%. At the same time, average earnings, excluding bonuses, rose 1.9% in the three months ended August from the previous three-month period.

Industrial output in the euro zone region rose a seasonally adjusted 0.9% month-over-month in August, according to a report released by Eurostat, the statistical agency of the European Union. The increase was faster than the 0.2% growth in the previous month. Annually, industrial output declined 15.4% compared to the 15.9% decline expected by economists.

U.S. Economic News

A Commerce Department report showed that retail sales showed a smaller than expected drop of 1.5% in September following a downwardly revised 2.2% growth in August. Retail sales, excluding autos, rose 0.5% compared to the previous month's 1% growth. For August, economists estimated a 2.1% decline in the retail sales and a 0.2% climb in retail sales excluding autos.

Reflecting the pay back phenomena of sales pushed ahead due to the cash for clunkers program, auto sales fell 10.4%. On the other hand, most other categories showed sales growth. Gasoline store sales rose 1.1%.

Meanwhile, the Labor Department said the import price index edged up 0.1% month-over-month in September compared to 1.6% growth in August, with a 0.6% increase in non-fuel import prices offsetting almost all the 1.8% decline in fuel import prices. On a year-over-year basis, the index was down 12%.

Export prices edged down 0.3% in September after rising 0.7% in August. Agricultural export prices fell 2.8%, while export prices of non-agricultural commodities remained unchanged. On a year-over-year basis, export prices declined 5.6%.

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

The business inventories report for July revealed a 1% month-over-month decline in business inventories. Business sales rose 0.1%. Consequently, the business inventories to sales ratio was 1.36 compared to 1.38 in the month-ago period.

The Federal Reserve is scheduled to release the minutes of its September 22-23 meeting at 2 PM ET.

After its two-day meeting that ended on September 22nd, the Federal Open Market Committee announced that it would maintain its target rate for the federal funds rate at 0 to 0.25%, while it continued to believe that economic conditions warrant exceptionally low levels of the federal funds rate for an extended period.

In line with expectations, the FOMC gave an upbeat assessment about growth by saying that economic activity is picking up following its severe downturn, a change from its previous meeting's assessment that economic activity is leveling out. The committee appended a statement pertaining to the housing sector, stating that activity in the housing sector has increased. On businesses, the central bank noted that the pace of cut backs on fixed investment and staffing by businesses is slowing down.

Discussing its quantitative easing measures, the Committee said it would gradually slow the pace of the purchases of agency mortgage-backed securities and agency debt in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010, which is in contrast to an earlier timeframe estimate of the end of the year. The Fed confirmed that its $300 billion worth of Treasury securities would be completed by the end of October 2009.

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Intel is expected to see some buying interest after it reported third quarter net income of 33 cents per share compared to 35 cents per share last year, as sales fell to $9.4 billion from $10.2 billion a year-ago. Analysts estimated earnings of 28 cents per share on revenues of $9.04 billion. The company guided fourth quarter revenues to $9.7 billion to $10.5 billion, exceeding the consensus estimate of $9.51 billion.

Railroad operator CSX Corp. could gain ground after the company reported third quarter earnings of 74 cents per share on revenues of $2.29 billion. Analysts estimated earnings of 71 cents per share on revenues of $2.32 billion. Notwithstanding the year-over-year declines in earnings and revenues, the company suggested that the worst of the recession may be over.

Altera may rally after it guided fourth quarter revenues to show 6%-10% sequential growth. The company reported third quarter earnings of 19 cents per share, including a pre-tax restructuring charge of $4.8 million, compared to earnings of 31 cents per share last year. Revenues fell 20% to $286.6 million. The consensus estimates called for earnings of 19 cents per share on revenues of $283.3 million.

Linear Technology may move to the upside after it reported third quarter adjusted earnings of 34 cents per share, beating the 24 cents per share consensus estimate. Revenues fell 24% to $236.1 million, yet exceeded the consensus estimate of $215.9 million.

Adtran could see some strength after its third quarter earnings per share of 34 cents per share exceeded the 32 cents per share consensus estimate, despite declining from 35 cents per share last year. Revenues were $128.06 million compared to $137.20 million last year, while analysts estimated revenues of $126.42 million.

Group 1 Automotive may see some activity after it released its preliminary third quarter results, expecting earnings of 68-72 cents per share. The estimated earnings exclude one-time items. Analysts estimate earnings of 51 cents per share for the quarter.

Audiovox could be in focus after it said its second quarter net sales fell 15.2% to $124.9 million. The company reversed to a profit of 12 cents per share from a loss of 10 cents per share.

Corporate Executive Board is likely to move in reaction to its announcement that it has acquired financial services industry research and advisory firm TowerGroup.

McGraw-Hill could be in focus after it announced that it would sell BusinessWeek to Bloomberg L.P. The company did not reveal the financial terms of the deal.

U.S. Bancorp. is likely to see some activity after it announced that it has signed a definitive agreement to acquire about $800 million in deposits and certain branch locations of BB&T’s Nevada banking operations. The company did not divulge the financial terms of the deal, but it said it expects the deal to close in early 2010.

Cathay General Bancorp. may be in focus after it said it had priced its offering of 7.61 million shares at $9.25 per share for $70.4 million in aggregate gross proceeds. The company expects the offering to close on October 19th, 2009.

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