US & World Daily Markets Financial Briefing 17-04-2009

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Stocks Turning In A Mixed Performance In Early Trading

Stocks have turned mixed in early trading on Friday, with the major averages moving in opposite directions after moving sharply higher in the previous session. The mixed open comes as traders digest earnings news from big-name companies such as General Electric (GE) and Citigroup (C).

A mixed performance by the major sectors is contributing to the lack of direction being shown by the broader markets. While real estate, airline, and computer hardware stocks are under pressure, housing, railroad, and natural gas stocks are posting strong gains.

The major averages are currently stuck on opposite sides of the unchanged line, with the Dow clinging to a modest gain. The Dow is currently up 4.94 at 8,130.37, while the Nasdaq is down 8.78 at 1,661.66 and the S&P 500 is down 1.29 at 864.01.

Twenty-four of the thirty Dow components ended the session higher, with DuPont (DD), Disney (DIS), General Electric (GE), Hewlett-Packard, Microsoft (MSFT) (up 4.94%) and Procter & Gamble (PG) (up 3.45%) advancing strongly in the session.

Among the sector indexes, the KBW Bank Index rose 2.13% compared a 1.69% advance by the Amex Securities Broker/Dealer Index. The S&P Retail Index and the Philadelphia Housing Sector Index rallied 3.21% and 4.35%, respectively. The Philadelphia Oil Service Index gained 2.82%. Technology stocks moved to the upside, as reflected by the 3.36% advance by the Philadelphia Semiconductor Index, a 5.49% gain by the Amex Disk Drive Index and a 4.67% climb by the Amex Computer Hardware Index. Internet, software and networking stocks also advanced. On the other hand, the Amex Gold Bugs Index slipped 5.51%.

The CBOE Volatility Index is seeing a downtrend, with its 200-day moving average on a weekly chart poised to break above the shorter-term 50-day moving average. That would signal bearishness for the index and any reduction in volatility should help maintain the recent buying momentum.

On the economic front, the initial jobless claims report showed a bigger-than-expected drop in first time claims. That said, continuing claims rose for the thirteenth straight week and climbed above the 6 million mark for the first time ever.

Meanwhile, the Commerce Department’s housing market report showed that housing starts fell over 10% month-over-month in March to 510,000, with the bulk of the decline concentrated in multi-family starts following a very strong performance in February. February starts were revised down to 572,000 from the 583,000 reported initially. Building permits declined 9% to a record low, as both single-family and multi-family permits declined in the month. According to FTN Financial, builders are continuing to hold off on initiating new projects until the outstanding inventory glut shows signs of dissipating.

Commerzbank is of the view that there is little room for a further downside in building activity, given the extent of correction in the housing market seen since September 2005. The firm believes that residential investment will cease to be a brake on GDP over the course of 2009, thereby having a positive effect on growth rates even if construction activity does not rebound.

A slowdown in the contraction of manufacturing activity was confirmed by the Philadelphia Fed’s manufacturing survey. The manufacturing index of the survey rose 10.6 points to –24.4 in April. While the new orders index jumped 16 points to –24.3, the index of backlog of orders rose to its highest level since September 2008. Notwithstanding a 15-point increase in the employment index, it remained in negative territory at –40.2. The prices paid and the prices received indexes drifted down to record low levels. The 6-month outlook index rose sharply to 36.2 in April from 14.5 in March.

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Canadian stocks look to close positive week on high note

Canadian stocks will look to extend this week's gains Friday morning after closing the previous session at a fresh 3-month high, led by tech and financial shares. However, early signals are mixed, with traders reacting to tame inflation figures and key earnings results from bellwethers Citigroup and General Electric.

On Thursday, the S&P/TSX Composite Index added 97.26 points or 1.05% to close at 9,343.37.

The pace of Canadian inflation slowed in March as higher food costs were offset by less expensive gasoline and automobiles, according to data released Friday by Statistics Canada.

Canadian consumer prices rose 1.2% in the 12 months to March 2009, down from the 1.4% increase in February. The upward pressure on the Consumer Price Index (CPI) came primarily from two sources: higher food and shelter costs.

In corporate news, UTS Energy said its board rejected a sweetened bid by Total S.A. to acquire UTS for C$1.75 per share, indicating that the offer was inadequate.

Dennis Sharp, Chairman of the Board said, "The revised bid in no way reflects improving industry fundamentals, remains lower than the sum of UTS' cash and remaining earn-in and attributes no value to our excellent and expanding suite of oil sands assets."
 
Royal Bank of Canada said Thursday that it expects to record a goodwill impairment charge of about US$850 million on both a pre and after tax basis for the second quarter, reflecting the impact of prolonged challenging economic conditions that have affected its International Banking reporting unit.

On Wall Street, Citigroup reported first-quarter net profit of $1.59 billion, compared to a net loss of $5.11 billion in the same quarter of last year.

Loss available to common shareholders for the quarter narrowed to $966 million or $0.18 per share, from $5.19 billion or $1.03 per share in the year ago quarter.

Elsewhere, General Electric reported first-quarter net earnings attributable to the company of $2.81 billion, compared to $4.3 billion last year.

Earnings from continuing operations attributable to GE were $2.8 billion, down 35% from $4.4 billion in the same quarter a year earlier.

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The major European averages are trading higher on Friday. While the French CAC 40 Index and the German DAX Index are moving up 1.57% and 1.35%, respectively, the U.K.’s FTSE 100 Index is rising 1.41%.

In corporate news, Sony Ericsson (SNE, ERIC) reported a first quarter net loss of 293 million euros compared to a profit of 133 million euros in the year-ago quarter. The loss reflected a sharp decline in net sales, resulting from lower unit shipments and prices. The company also announced additional cost saving programs, including about 2,000 job cuts.

On the economic front, the European Commission’s statistical arm, Eurostat, reported that the trade balance for the euro area showed a deficit of 2 billion euros in February compared to a surplus of 1.7 billion euros in February last year. In January, the region reported a deficit of 10.9 billion euros. On a monthly basis, exports rose a seasonally adjusted 8%, while imports fell 1.9%. Another report showed that February construction output fell by 1.8% in the euro area compared to the previous month. Annually, construction output was down 11.8%.

U.S. Economic Reports

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for April is scheduled to be released at 10 AM ET on Friday. Consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 58.5 from 57.3 in the previous month.

Bernanke is due to deliver a keynote speech at the Kansas City Federal Reserve Bank's conference on Innovative Financial Services for the Underserved at 12 PM on Friday. Kansas City Federal Reserve President Thomas Hoenig is scheduled to deliver opening remarks in Washington at 8:30 AM ET.

Earnings

Citigroup reported a first quarter loss of 18 cents per share, which reflected the reset of the conversion price of the $12.5 billion convertible preferred stock issued in a private offering in January 2008, which reduced net income available to common shareholders by 24 cents per share. Additionally, the results included $7.3 billion in net credit losses and a $2.7 billion net loan loss reserve build. Revenues rose 99% to $24.8 billion. Analysts estimated a loss of 34 cents per share on revenues of $21.94 billion.

General Electric reported first quarter earnings from continuing operations of 26 cents per share attributable to common shareholders, down 40% from last year. Revenues from continuing operations declined 9% to $38.4 billion. Analysts expected earnings of 21 cents per share on revenues of $39.83 billion.

Mattel’s (MAT) first quarter net sales declined 15% to $785.6 million. The company reported a loss per share of 14 cents compared to a 13 cent-per loss estimated by analysts. The consensus estimates had called for revenues of $795.81 million.

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The major markets across the Asia-Pacific region ended in positive territory on Friday, taking cues from Wall Street, where the major indices ended in positive territory on increasing confidence that the downturn in the economy has slowed down and the economy can begin to recover sooner-than-expected. Profit taking by investors trimmed the gains, however, with the markets in Australia and Hong Kong ending nearly flat, while the South Korean market ended in negative territory. The underlying trend seems to be cautiously optimistic among investors despite the downward risk for the economies remaining relatively higher.

In Tokyo, The benchmark Nikkei 225 Index added 152.32 points or 1.70% to close at 8,908 and the broader Topix Index of all First Section Issues advanced 13.53 points or 1.60% to end at 846.

On the economic front, Japan's service sector output was down a seasonally adjusted 0.8% month-over-month in February to 105.6, the Ministry of Economy, Trade and Industry said. The decline was worse than the 0.7% drop expected by economists and follows a 0.4% gain in January and a revised 1.6% decline in December.

Bank stocks moved up strongly in the session, while among exporters, Canon gained 1.84%, Sony surged up 5.93% and Sharp soared 9.00%. Toshiba Corp. reported an operating loss of around 250 billion yen for the year ended March 31 compared to its previous estimate of a loss of 280 billion yen. The company's shares ended higher by 4.40%. Automaker Toyota advanced 2.96% and Honda Motor gained 4.63%.

Retailer Aeon Co. has set up a line of credit totaling 200 billion yen with several financial institutions, expanding its sources of funds amid capital market instability. The company also refinanced 175.4 billion yen in loans that had been due in the fiscal year ended February 28. The company's shares are gaining 2.88%.

In Australia, the benchmark S&P/ASX 200 Index added 1 point or 0.03% before ending at 3,778 and the broader All Ordinaries Index added 2.5 points or 0.07% to close at 3,728.

In the mining sector, BHP Billiton moved up 0.60% and rival Rio Tinto rose 1.84%. However, gold miners ended sharply lower after gold dropped to a ten-day low overnight

Banks ended mixed on profit taking at higher levels, while in the retail sector, Harvey Norman gained 1.42%, Coles' owner Wesfarmers advanced 3.41% and Woolworths rose 1.17%, but David Jones declined 1.31%. Woolworths said its sales for the third quarter, adjusted for Easter, increased by 6.5% to A$12.3 billion. Excluding petrol sales, sales rose 8.3%. The company forecasts full year sales, excluding petrol sales, to grow in the upper single digits.

In South Korea, the benchmark KOSPI Index closed at 1,329, down 7.72 points, or 0.58% as investors preferred to take profits after a recent rally.

Among financials, Shinhan Financial lost 1.88% and Woori Finance fell 1.51%, while KB Financial ended unchanged from its previous close. Shipbuilding stocks also saw weakness. However, technology stocks ended higher. Hynix Semiconductor surged up 8.68%, LG Electronics added 0.96% and LG Display gained 0.96%. Market heavyweight Samsung Electronics advanced 2.75%. In the auto space, Hyundai Motor gained 1.08%, but Kia Motor decreased 1.96% and Ssangyong Motor lost 7.50%.

In Hong Kong, the benchmark Hang Seng Index ended higher by 18.28 points or 0.27% at 15,601, giving away more than 350 points from its early gains on profit taking.

Property-related stocks ended higher, while telecommunication stocks ended mixed. Tencent gained 2.33% and China Unicom added 0.95%, but Hutchison Whimpoa lost 2.28% and China Mobile slipped 0.20%. Financial and China-related stocks saw notable weakness. Among resource stocks, Aluminum Corporation of China, or CHALCO, fell 4.45% and Petrochina lost 1.46%, but CNOOC gained 4.78%.

Among the other major markets, China's Shanghai Composite Index slipped 30.20 points or 1.19% before closing at 2,504 and Taiwan's Weighted Index declined 4.03% or 241.79 points to end at 5,755. At the close of trading, the Jakarta Composite Index in Indonesia was up 0.60% or 9.70 points at 1,635 and the Singapore Strait Times Index was up 0.25% or 4.81 points at 1,897.

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