US & World Daily Markets Financial Briefing 16-06-2010

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Stocks Moderately Lower In Mid-Morning Trading

Stocks are seeing moderate losses in mid-morning trading on Wednesday, as disappointing data on housing starts has turned up the selling pressure in equities. Nonetheless, some upbeat news on industrial production may be helping to limit the selloff.

Equities opened lower today after the Commerce Department said that new residential construction slid by more than expected in the month of May, with housing starts falling by 10.0 percent to an annual rate of 593,000 in May from the revised April estimate of 672,000. Economists had expected starts to slip to an annual rate of 655,000 from the 659,000 originally reported for the previous month.

At the same time, building permits fell by 5.9 percent to an annual rate of 574,000 in May from the revised April rate of 606,000. The decrease surprised economists, who had expected building permits to rise to 631,000.

However, some of the selling pressure may be being mitigated by data from the Federal Reserve, which showed that industrial production rose 1.2 percent in May, beating forecasts for a pickup of 0.8 percent. The Fed also said that the economy's capacity utilization moved up to 74.7 percent from 73.7 in April, also topping expectations which pegged utilization at 74.4 percent for the month.

Also on the economic front this morning, the Labor Department said that its producer price index edged down by 0.3 percent in May while economists had expected a 0.5 percent decline in prices.

Meanwhile, the core producer price index rose by 0.2 percent in May, after an identical 0.2 percent climb in the previous month. The increase was only slightly higher than the projected 0.1 percent forecast by economists.

On the corporate front, BP plc (BP) is once again under pressure today after President Obama told a national audience in his address from the White House last night that he will direct BP to establish a fund to compensate workers and business owners hurt by the Gulf of Mexico oil leak and pay for its cleanup.

Meanwhile, the outflow of oil from the ruptured well in the Gulf has increased voluminously, according to the latest estimates by U.S. government scientists. Scientists led by Energy Secretary Steven Chu said that the well is releasing anywhere from 35,000 to 60,000 barrels of oil per day.

In other corporate news, FedEx Corp. (FDX) reported that its fourth-quarter net income was $1.33 per share, just over the $1.32 per share forecast by analysts for the quarter. Total revenues for the quarter were up 20 percent to $9.43 billion, topping forecasts for $9.04 billion for the period.

The Dow is down by 50.86 points or 0.5 percent at 10,354.29, the Nasdaq is down by 8.34 points or 0.4 percent at 2,297.83 and the S&P 500 is down by 4.98 points or 0.5 percent at 1,110.25.

Sector News

Housing stocks are some of the morning's worst performers, prompting a 2.1 percent slide in the Philadelphia Housing Sector Index following the day's housing data.

Within the sector, Temple Inland (TIN) is notably lower, posting a loss of 2.5 percent while pulling off of a six-week closing high set in the previous session.

Telecommunication, wireless, networking and natural gas stocks are also notably lower while some of the downside is being limited by gold and railroad stocks.

Stocks Driven By Analyst Comments

Despite a down day in the markets, Priceline.com (PCLN) is higher after an upgrade at Goldman Sachs to Buy from Neutral. The broker also boosted its price target from $230 to $240. Shares are currently up by 5.2 percent, setting a three-week intraday high.

DreamWorks Animation (DWA) is lower after being downgraded by Goldman Sachs from Buy to Neutral. The broker also reduced its price target on the stock from $42 to $35. The stock has slipped by 3.9 percent, setting a ten-day intraday low.

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TSX May Pause Wednesday Morning After Big Rally

Toronto stocks may take a breather Wednesday morning after rallying smartly in the previous session. Also, easing energy prices, disappointing economic data from south of the border and profit taking at higher levels might curb further gains during the day.

Meanwhile, worries over the European debt market resurfaced after the European Commission denied a newspaper report that the EU, the IMF and the U.S. Treasury were considering a liquidity plan for Spain.

On Tuesday, the S&P/TSX Composite Index rallied 240.19 points or 2.06% to 11,907.54.

The price of crude oil was down $0.82 to $76.12 a barrel after the API yesterday revealed surprise build in U.S. crude inventories. Oil advanced to a monthly high of above $77 a barrel intraday Tuesday amid recovering euro and equities.

The price of gold edged up $3.80 to $1,238.20 an ounce after gaining nearly $10 in the previous session.


In corporate news, Serabi Mining Plc has agreed to issue to Canadian gold mining company Eldorado Gold Corp. 120 million new ordinary shares of 0.5 pence each in the company at a price per ordinary share of 3.0 pence. Serabi shares soared nearly 80% in Wednesday morning trade.

Gold and silver explorer Starcore International Mines reported a flat third quarter net loss of C$0.01 per share, compared to a net loss of C$0.01 per share in the year-ago quarter.

The Ontario Securities Commission challenged the proposal by auto-parts company Magna International to eliminate its dual class share structure. The proposal, if implemented, would benefit the founder - Frank Stronach - approximately $900 million.

Transportation equipments and systems maker Bombardier Inc. said its unit, Bombardier Transportation, has won a tender from the Swiss Railways, SBB, to supply new double-deck trains. The contract for 59 Bombardier Twindexx trains has a total value of around $1.6 billion.

Food and drug store company Loblaw Companies has agreed to issue $350 million principal amount of Medium Term Notes, mainly used to pre-fund the company's $350 million of debts maturing in January 2011.

In economic news from the U.S., Commerce Department said housing starts plummeted 10% to a seasonally adjusted annual rate of 593,000, from a downwardly revised 659,000 in April. Economists were expecting 653,000 housing starts on an annualized basis. Meanwhile, building permits slumped 5.9% to an annual rate of 574,000 in May. Economists were expecting for 625,000 building permits in May.

In another report, the U.S. Department of Labor revealed that producer prices fell 0.3% in May, belying economists expectations for a decline of 0.5%.

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Asian Markets End Higher On Wall Street Gains

The Asian markets, open for trading, ended the trading session in positive territory on Wednesday, lifted by smart gains on Wall Street in the previous session where all the major indices ended sharply higher on optimism about sustaining economic recovery after concerns about Europe appear to have eased slightly. Higher commodity and oil prices also lifted market sentiment. The markets in China, Hong Kong and Taiwan are closed for holidays.

In Japan, the benchmark Nikkei 225 Index advanced 179.26 points, or 1.81% to 10,067, while the broader Topix index of all First Section issues gained 13.55 points, or 1.54%, to 892.

On the economic front, a report released by the Ministry of Economy, Trade and Industry revealed that the tertiary industry activity in the country rose 2.1% in April, compared to a 2.7% decline reported in the previous month. However, economists were looking for a 2.5% increase for the month. Activity in the information & communications industry increased 9.4% month-on-month in April. Activity in the wholesale & retail trade industry grew 3.6% while that in the real estate & goods rental & leasing grew 0.4%. Electricity, gas, heat supply & water rose 0.9%.

Releasing the Monthly Report of Recent Economic and Financial Developments for June, the Bank of Japan has maintained its economic assessment. The central bank expects the Japanese economy to recover at a moderate pace. Further, the BoJ expects the uptrend in exports and production to continue, reflecting continued improvement in overseas economic conditions, although the pace of growth is set to moderate gradually. Domestic private demand is forecast to improve, while public investment is set to continue its fall, the central bank added.

Data released by the Ministry of Health, Labor and Welfare revealed that the average labor cash earnings in Japan increased for a second consecutive month in April. As per the report, earnings rose 1.6% annually in April, revised up from 1.5%. This followed a 1% rise seen in March. Scheduled cash earnings of the employees in establishments with five or more employees, meanwhile, dropped 0.2% year-on-year, which was revised from 0.4% decline. Overtime pay moved up 12.4%, down from 12.8% in March.

Light sweet crude oil futures for July delivery ended at $76.96 a barrel in electronic trading, up $0.02 per barrel from previous close at $76.94 a barrel in New York on Tuesday.

Almost all the stocks ended in positive territory on optimism about economic recovery. The strengthening of the euro against the yen and the US dollar enthused exporters, and thus lifted the psychological NIKKEI -225 index past the 10,000 market for the first time since a month.

Among the exporters and machinery stocks, Kyocera Corp. gained 2.49%, Fanuc Ltd advanced 1.52%, Canon Inc. climbed 3.89%, Sharp Corp. rose 3.14%, and Sony Corp. added 0.96%.

Shipping stocks also surged up on optimism about recovery. Mitsui OSK Lines gained 2.53%, Kawasaki Kisen Kaisha climbed 3.20% and Nippon Yusen advanced 0.94%.

In Australia, the benchmark S&P/ASX200 Index gained 54.00 points, or 1.20% and closed at 4,559, while the All-Ordinaries Index ended at 4,572, representing a gain of 54.50 points, or 1.21%.

On the economic front, a report released by the Australian Bureau of Agricultural and Resource Economics, or ABARE, revealed that wheat production in the country during the winter cropping season is expected to rise to 22.1 million tonnes in 2010-11, up 2% from 2009-10 assuming average yields. At the same time, the area planted to wheat is forecast to drop by 2% to 13.5 million hectares.

A report jointly released by the Westpac Bank and Melbourne Institute revealed that a leading indicator of the Australian economy continued to surge ahead in April despite moderation in the pace of growth. As per the report, the leading index rose 7.6% on an annualized basis in April, well above the long-term trend of 3%. In March, the annualized rate stood at 8.8%, a twelve and a half year high.


In a separate report, the Australian Bureau of Statistics revealed that the total number of dwelling units commenced in Australia rose a seasonally adjusted 4.3% in the March quarter compared with the December quarter. This follows a 16.8% surge in the December quarter. Economists had forecast a 7% increase for the March quarter. New private sector house commencements fell 2.4% in the March quarter following a rise of 14.3% in the December quarter. At the same time, new private sector other residential building starts rose 7.9%, following a rise of 20.6%.

Light sweet crude oil futures for July delivery ended at $76.96 a barrel in electronic trading, up $0.02 per barrel from previous close at $76.94 a barrel in New York on Tuesday.

Mining and metal stocks led the gains on bargain hunting at lower levels. BHP Billiton gained 2.19%, Fortescue Metals advanced 3.14%, Gindalbie Metals surged up 8.88%, Iluka Resources added 2.86%, Macarthur Coal rose 5.04%, Murchison Metals soared 11.11%, Oz Minerals was up 2.42% and Rio Tinto climbed 2.77%.

Oil related stocks also ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum advanced 0.72%, Santos Ltd added 0.90%, ROC Oil co. climbed 4.29%, Oil Search Ltd gained 0.85% and Origin Energy rose 0.52%.

Mixed trading was witnessed among gold stocks. While Lihir Gold managed to remain unchanged from previous close, Newcrest Mining ended in negative territory with a loss of 0.18%.

Banks also ended in positive territory on optimism about recovery. ANZ Bank gained 0.74%, Commonwealth Bank of Australia rose 1.49%, Macquarie Group gained 1.11%, National Australia Bank added 0.88% and Westpac Banking increased 0.94%.

In Hong Kong, the stock market is closed for a holiday.

Firm Asian cues and positive news flow on the domestic front on corporate advance tax payments and indirect tax collections helped the Indian market end higher for a sixth consecutive session on Wednesday. Successful bond auctions in Spain, Belgium and Ireland also eased concerns about Europe's debt crisis and capital outflows. However, with stocks fluctuating in Europe and U.S stock futures signaling losses, the benchmark 30-share Sensex closed off the day's high at 17,463, up about 50 points or 0.29% after rising by as much as 118 points earlier in the session and the 50-share Nifty rose 0.21% to 5,233.

Among the other major markets open for trading, Indonesia's Jakarta Composite Index gained 28.49 points, or 1.01% to close at 2,859, and Singapore's Strait Times Index advanced 28.73 points, or 1.02% to close at 2,847.

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After seeing some strength in Monday’s morning session, the major European markets have given back their gains following the release of the U.S. housing starts report. The French CAC 40 Index and the German DAX Index are moving down 0.26% and 0.35%, respectively, while the U.K.’s FTSE 100 Index is declining 0.02%.

In corporate news, U.K. grocery chain J Sainsbury said its first quarter like-for-like sales, excluding fuel, rose 1.1% year-over-year. The sales growth slowed from the 7.8% rate in the year-ago period.

On the economic front, the Nationwide Building Society reported that its consumer confidence index for the U.K. slid to 65 in May from an upwardly revised reading of 75 for April. Economists had expected a more modest drop to 72.

A report released by the U.K. Office for National Statistics showed that the number of jobseeker’s allowance in the U.K. fell by 30,900 to 1.48 million in May, marking the first time the claimant count had fallen below the 1.5 million mark since March 2009. In the three months to April, the unemployment rate in the U.K. rose 0.1 points from the previous three-month period to 7.9%. The average total pay including bonuses rose by 4.2% year-over-year in the three months to March.

The final consumer price inflation report released by Eurostat showed that the euro area’s inflation rate rose to 1.6% in May from 1.5% in the previous month. The increase came in line with expectations.

Hourly labor costs of the euro area grew a working day adjusted 2.1% year-over-year in the first quarter, faster than the 1.7% growth in the previous quarter, a separate report released by Eurostat showed. Economists had expected an increase of 2.1%. In the same period last year, labor costs had risen 3.1%.

U.S. Economic Reports

A Commerce Department report showed that housing starts fell 10% month-over-month to a seasonally adjusted annual rate of 593,000 in May from the previous month’s downwardly revised rate of 659,000. Economists had expected starts to decline to 655,000 from the originally reported rate of 672,000 for April.

Single-family starts fell 17.2% to 565,000, while starts of units in buildings with five units or more were at 112,000. Meanwhile, building permits, an indicator of future housing activity, declined 5.9% to 574,000.

Meanwhile, producer prices fell 0.3% month-over-month in May following a 0.1%drop in the previous month. Economists had expected the headline index to show a steeper 0.5% decline. The core consumer price index rose 0.2% compared to the 0.1% growth expected by economists.

Food prices fell 0.6% compared to the 0.2% drop in the previous month, while energy prices fell 1.5%. Prices of intermediate goods rose 0.4%, while prices of crude goods fell 2.8%.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate a 0.8% increase in industrial production in May, while capacity utilization is expected to come in at 74.4%.

Industrial production growth continued to outperform, with output rising 0.8% month-over-month in April following an upwardly revised 0.2% increase in March. Machinery output rose 2.6%, helping to offset the 2.2% decline in the production of motor vehicle/parts and a 1.3% decline in utility output. Mining output was up 1.4% and computer/electronics output rose 0.8%. Capacity utilization rose six-tenths of a percentage point to 73.7%, its highest level since November 2008.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 12th at 10:30 AM ET.

The inventory report for the week ended June 4th showed that crude oil stockpiles fell by 1.8 million barrels to 361.4 million barrels. Despite the drop, inventories were above the upper limit of the average range.

Gasoline stockpiles were unchanged at 219 million barrels, remaining above the upper limit of the average range. Meanwhile, distillate stockpiles rose by 1.8 million barrels and remained above the upper boundary of the average range. Refinery capacity utilization averaged 89.1% over the four weeks ended June 4th compare to 87.5% in the previous week.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to take part on a panel discussion at an academic forum on fixing the financial system, in New York at 2:15 PM ET.

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FedEx (FDX) is expected to move in reaction to its fourth quarter results, which showed a profit of $1.33 per share compared to a loss of $2.82 per share last year, which included a charge of $3.46 per share. Excluding the charge, the year-ago earnings would have been 64 cents per share. Revenues rose 20% year-over-year to $9.43 billion. The consensus estimates had called for earnings of $1.32 per share on revenues of $9.04 billion. The company guided first quarter earnings to 85 cents to $1.05 per share and 2011 earnings to $4.40-$5 per share. Analysts estimate earnings of $1.04 per share for the first quarter and $5.06 per share for the full year.

Polo Ralph Lauren (RL) could be in focus after it said it has priced its underwritten secondary public offering of 9 million Class A shares at $81 per share. The company clarified that it would not sell any shares in the offering and would not receive any proceeds from the offering. The stock closed Tuesday’s session at $82.44.

Transocean (RIG) may see weakness after Fitch downwardly revised its rating outlook on the company to ‘Negative’ from ‘Stable’, citing uncertainties surrounding the increasing cost estimates and increased political response associated with the Macondo spill in the Gulf of Mexico region. However, the rating agency reaffirmed its ratings for the company.

Meanwhile, Halliburton (HAL) is likely to see some activity after Fitch reaffirmed its issuer default ratings for Halliburton at ‘A-‘, with rating outlook at ‘Stable.’ Fitch noted that Halliburton is unlikely to be exposed to the costs associated with the current BP (BP) oil spill.

Ball Corp. (BLL) may react to its announcement that it has agreed to sell its packaging business for about $280 million. Of the consideration, $265 million will be paid in cash at closing and the remaining $15 million in contingent consideration. The company also said its board has authorized the repurchase of up to 12 million shares, with the new plan replacing all its previous authorization.

Coca-Cola Enterprises (CCE) saw modest strength in Tuesday’s after hours session after it said it expects full year earnings to grow in a range of 10%-12% in 2010. The company also said currency is expected a negative impact of 10 cents on comparable earnings per share. Analysts currently estimate about 8% earnings per share growth. Additionally, the company said its pending merger with Coca-Cola remains in track.

Progressive Corp. (PGR) may see some activity after it said its net premiums earned rose 5% year-over-year to $1.11 billion. However, net income per share fell to 7 cents per share from 8 cents per share in the year-ago period. The company’s combined ratio rose 0.3 percentage points to 95.6%.

CLARCOR (CLC) rallied strongly in Tuesday’s after hours session after it said its second quarter net sales rose 12% to $257.9 million and earnings per share climbed to 47 cents per share from 33 cents per share last year. Analysts estimated earnings of 41 cents per share on revenues of $237.59 million. Despite sounding cautious, given the macroeconomic backdrop, the company raised its 2010 earnings per share guidance to $1.70-$1.85 from $1.55-$1.70, while the Street estimates earnings of $1.69 per share.

PDL BioPharma (PDLI) could move in reaction to its announcement that it expects second quarter revenues of $120 million, lower than $125.9 million last year. The company noted that it does not expect to receive royalties for Synagis sales in the second quarter die to the ongoing legal dispute with MedImmune.

TD Ameritrade (AMTD) could also be in focus after it announced that its average clients trades per day rose 18% year-over-year in May and were 13% higher than in April 2010.

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