US & World Daily Markets Financial Briefing 15-07-2009

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The major U.S. index futures are pointing to a higher opening on Wednesday. Sentiment suddenly seems to have taken a turn for the better following the unfolding of the reporting season. Sour sentiment generated by some recent downbeat data has given way to optimism after companies reported earnings better than muted expectations. Chipmakers are giving upbeat outlook, which has served to increase optimism over stabilization in the economy. Traders may also focus on the minutes of the FOMC meeting and the industrial production report.

U.S. stocks showed a considerable degree of volatility on Tuesday, notwithstanding the support lent by Goldman’s better-than-expected results. The Dow Industrials went about wild swings, gyrating between 8,285 and 8,361 before closing up 27.81 points or 0.33% at 8,360. The S&P 500 Index climbed 4.79 points or 0.53% to close at 906 and the Nasdaq Composite Index ended at 1,800, representing a gain of 6.52 points or 0.36%.

Nineteen of the thirty Dow components ended higher, with Home Depot  and Intel ending up more than 2% each. Procter-Gamble, Merck, General Electric, Disney and DuPont all gained over 1% each. On the other hand, Travelers Co. and AT&T fell 2.13% and 1.35%, respectively.

The Dow Jones Transportation Average moved up 1.33% and the NYSE Arca Airline Index rose 1.53% The NYSE Arca Oil Index and the Philadelphia Oil Service Index rose about 1% and 1.80%, respectively, while the NYSE Arca Gold Bugs Index climbed 2.39%. The S&P Retail Index rose 1.58% compared to a 2.42% advance by the Philadelphia Housing Sector Index. Among the technology indexes, the Philadelphia Semiconductor Index ended up 1.63% and the NYSE Arca Internet Index rose 1.15%, while the NYSE Arca Computer Hardware Index fell 1%.

The Philadelphia Semiconductor Index is likely to see some strength in Wednesday’s session, given the good tidings that are emerging from the chip sector. Despite the major averages breaking below their 50 and 100-day moving averages, the Philadelphia Semiconductor is holding above those key levels. In the past couple of weeks, the index has been confined to the 255-269 trading range. A break above the upper bound of the range could put the index on track to test another resistance around the 285 level.

On the economic front, the Commerce Department said retail sales rose 0.6% month-over-month in June, propped up by auto and gasoline sales. Gasoline sales rose 5%, reflecting higher prices. Excluding gasoline and auto sales, retail sales remained anemic, showing a 0.2% monthly drop. Overall, retail sales declined a seasonally adjusted 1.7% in the second quarter compared with a 5.5% drop in the first quarter.

A separate report released by the Commerce Department showed that business inventories at the end of May were down 1%, slightly steeper than the 0.8% decline expected by economists. Inventories declined for the ninth straight month. Meanwhile business sales eased 0.1%, with the inventory to sales ratio declining to 1.42 in May from 1.43 in the year-ago period, marking the lowest level since October 2008.

Meanwhile, producer prices surged up 1.8% in July compared with the previous month. Excluding food and energy, core producer prices rose 0.5%, while economists had expected only 0.1% growth. Energy prices were up 6.6%, food prices moved up 1.1% and autos prices rose 3.4%.

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Toronto stocks could see strength for a third straight session on Wednesday. With the rebound, Bay Street's market may move away from a two-month low reached last week.

Crude oil is up 96 cents to $60.48 per barrel as traders await the Energy Department's weekly inventory report. Prices have struggled to hold above the $60 mark in recent days.

Meanwhile, gold has jumped $15.50 to $938.30 per ounce and copper is up 9.35 cents to $2.3925 a pound.

On the corporate front, Corus Entertainment reported that its third-quarter net loss was C$145.0 million or C$1.81 per share, compared to net income of C$37.7 million or C$0.45 per share in the year ago quarter.

CVTech Group Inc. said it has signed a share purchase agreement for the acquisition of Riggs Distler & Company, effective retroactively to July 1. The deal is worth approximately C$43.0 million.
 
DragonWave reported a net loss for the first quarter of C$2.88 million or C$0.10 per share, compared to a net loss of C$1.94 million or C$0.07 per share in the year-ago quarter.

In economic news, Canadian manufacturing sales fell 6.0% to $38.4 billion in May, the lowest level since November 1998, according to data released Wednesday morning by Statistics Canada. Economists forecast a drop of 0.8%.

Meanwhile, the U.S. Labor Department revealed that consumer prices climbed 0.7 percent in June compared to the previous month. Economists had projected an advance of about 0.6 percent.

On Tuesday, the S&P/TSX Composite Index gained 94.22 points or 0.95% to settle at 9,986.15. The index finished at its highest level in a week.

Currency, Commodity Markets

Crude oil futures are rising $0.88 to $60.40 a barrel after receding $0.17 to $59.52 a barrel in Tuesday’s session. Gold futures are rising $15.20 to $938 an ounce. In the previous session, the precious metal gained $0.30 to close at $922.80 an ounce.

On the currency front, the U.S. dollar is trading at 93.47 a yen compared to the 93.19 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.4092.

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The major Asian markets ended sharply higher on Wednesday, as earnings-induced optimism helped the averages in the region overcome a lean patch. Japan’s Nikkei 225 average closed up marginally amid the announcement of a central bank decision to leave interest rates unchanged.

Japan’s Nikkei 225 average held above the unchanged line amid volatility for the better part of the session before showing a lack of direction in late trading. The index closed up 7.44 points or 0.08% at 9,269.

In a central bank decision from the region, the Bank of Japan said it retained its key interest rate, and at the same time extended its special funding measures for three months to facilitate corporate financing. The Bank also lowered its growth forecast for the year 2010 to 1% from its earlier expectation of a 1.2% growth.

The Australian market ended in positive territory, led by mining and infrastructure stocks on optimism that the worst for the economy might be over. A positive closing on Wall Street and better-than-expected results from Intel also lifted market sentiment.

The All Ordinaries Index opened slightly higher at 3,863 compared to its previous close of 3,859 and moved northward, led by mining and infrastructure stocks. The index stayed in positive territory throughout the session and ended with a gain of 1.52% or 58.70 points at 3,918. The benchmark S&P/ASX 200 Index followed a similar trend and ended at 3,925, representing a gain of 1.5% or 57.40 points.

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The major European markets are trading higher on Wednesday, with the French CAC 40 Index and the German DAX Index rising 1.75% and 1.76, respectively, while the U.K.’s FTSE 100 Index is advancing 1.67%.

On the economic front, Eurostat said the euro area’s annual inflation rate turned negative for the first time on record in June. The final report from the statistical office showed that the consumer price index or CPI dropped 0.1% year-on-year in June after remaining flat in May. A year earlier, the inflation rate was 4%. On a monthly basis, consumer prices rose 0.2% in June. Core annual inflation, which excludes energy, food, alcohol and tobacco prices, eased to 1.4% in June from 1.5% in May.

A report released by the U.K. Office of National Statistics Office showed that the number of people claiming Jobseeker's Allowance benefit in the U.K. increased by 23,800 to 1.56 million in June. This was the smallest monthly rise in the claimant count since May 2008 and was much smaller than the expected increase of 41,200.

U.S. Economic Reports

On the economic front, the U.S. Labor Department revealed that consumer prices climbed 0.7% in June compared to the previous month. Economists had projected an advance of about 0.6%.

Annually, consumer prices were down 1.4%. This was the largest year-over-year decline since 1950. Core prices, which exclude the volatile food and energy sectors, advanced 0.2% compared to the previous month. Economists had expected an increase of 0.1%.

The results of the New York Federal Reserve's empire state manufacturing survey, which elicits responses from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET. The headline general business conditions index for July is expected to come in at -5.

Separately, the New York Fed said conditions for New York manufacturers were roughly flat in July, according to a report released by the Federal Reserve Bank of New York on Wednesday, with the index of activity in the sector rising to a level close to zero.

The New York Fed said its general business conditions index rose to a negative 0.6 in July from a negative 9.4 in June, with a negative reading indicating a contraction in activity. Economists had been expecting a more modest increase to a reading of negative 5.0.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production declined 0.6% in June, while capacity utilization is expected to come in at 67.9%.

In May, industrial output dropped 1.1% month-over-month, almost in-line with the expected decrease of 1%. Auto output showed one of the steepest declines, falling 7.9%. The April reading was revised down by 0.2 percentage points. Capacity utilization was at 68.3%, marking another record low reading. The output of mines fell by 2.1%.

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

Crude oil stockpiles declined by 2.9 million barrels in the week ended July 3rd to 347.3 million barrels. Inventories of crude oil remained above the upper bound of the average range.

Meanwhile, gasoline and distillate inventories increased by 1.9 million barrels and 3.7 million barrels, respectively. While gasoline stockpiles climbed into the upper half of the range, distillate inventories were above the upper boundary of the average range. Refinery capacity utilization averaged 86.7% over the four weeks ended July 3rd compared to 86.4% in the previous week.

The Federal Reserve is scheduled to release the minutes of its June 24th-25th meeting at 2 PM ET.

At its June meeting, the FOMC decided along the expected lines, opting to hold interest rates unchanged at 0%-0.25%. The central bank did not make any changes to its qualitative easing measures, instead suggesting that as previously announced, it would purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. The Fed also will be buying up to $300 billion of Treasury securities by autumn.

On economic conditions, the central bank noted that the pace of contraction has been slowing. The Fed also observed that financial market conditions have improved. While constrained by job losses, lower housing wealth and tight credit, household spending has been showing signs of stabilization. The central bank said firms have been successful in bringing inventories in line with sales, although they are continuing to reduce fixed investment and workforce.

The FOMC expressed confidence that concerted policy actions will lead to the resumption of a sustainable recovery due to concerted policy actions. The committee also said it expects inflation to remain subdued for some time due to substantial resource slack.

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Intel may see some strength after it reported second quarter adjusted earnings of 18 cents per share were ahead of the consensus estimate of 8 cents per share, although they trailed the year-ago earnings of 28 cents per share. Sales fell 16% to $8 billion, yet exceeded the consensus estimate of $7.28 billion. For the third quarter, the company expects revenues of $8.5 billion, plus or minus $400 million and gross margin of 53%, plus or minus 2 percentage points. Analysts had expected revenues of $7.81 billion for the quarter.

Altera also traded higher in the after hours session after it reported second quarter earnings of 16 cents per share on revenues of $279.2 million. The consensus estimates had called for earnings of 16 cents per share on revenues of $277.6 million. In the year-ago quarter, the company reported earnings of 32 cents per share on revenues of $359.9 million. For the third quarter, the company expects a sequential sales decline of 1%-5%.

Adtran could also move higher after it reported second quarter sales of $121.53 million and earnings of 30 cents per share. The results exceeded the consensus estimates that called for earnings of 28 cents per share on revenues of $117.85 million. In the year-ago period, the company reported earnings of 34 cents per share on revenues of $131.18 million.

However, Yum Brands receded in Tuesday’s after hours session after the company said it expects its 2009 earnings of $2.10 per share, below the consensus estimate of $2.12 per share. On an adjusted basis, the company reported earnings of 50 cents per share, ahead of the consensus estimate of 43 cents per share. Revenues declined 7% to $2.5 billion.

Heelys is also likely to be in focus after the board of directors announced the appointment of Tom Hansen as the company’s president and chief executive officer, effective August 1, 2009.

GenCorp. may also see buying interest after it announced that its subsidiary Aerojet has received a contract valued at $40 million to deliver HAWK rocker motors to the U.S. Army Aviation and Missile Command for sale to allied countries. The deliveries are set to begin in 2010.

AAR could gain ground after it reported fourth quarter consolidated sales of $317.7 million and income from continuing operations of 49 cents per share, down 6% year-over-year. The results included an impairment charge of $10.1 million and a loss on investment of $1.4 million and a $10 million gain. Analysts estimated earnings of 46 cents per share on revenues of $365.51 million.

Century Bancorp. may also be in the spotlight after it reported second quarter net income of 36 cents per share, higher than 34 cents per share last year. Net interest income was higher at $11.96 million compared with $10.66 million in the year-ago quarter. The company’s board also approved a reauthorization of the stock repurchase program.

J.B. Hunt is likely to react to its announcement that its second quarter earnings were 19 cents per share compared to 39 cents per share last year, with the decline mainly due to a pre-tax charge of 5 cents per share and a 2 cents per share charge for start up costs. On an adjusted basis, the company’s earnings were 23 cents per share. Revenues fell 21% year-over-year to $770 million. Analysts, on average, estimated earnings of 31 cents per share on revenues of $799.44 million.

Earnings

Abbott Labs said its second quarter adjusted earnings rose to 89 cents per share from 84 cents per share in the year-ago period. Net sales fell to $7.50 billion from $7.31 billion last year. Analysts estimated earnings of 89 cents per share on revenues of $7.55 billion. The company said it expects adjusted earnings of 88-90 cents per share for the third quarter compared to the 90 cents per share consensus estimate.

Gannett reported second-quarter adjusted net income attributable to Gannett was $108.53 million or $0.46 per share, lower than $236.92 million or $1.04 per share in the same quarter a year earlier. Total operating revenues declined to $1.41 billion from $1.72 billion in the comparable period a year ago.

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