US & World Daily Markets Financial Briefing 17-05-2010

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Stocks Turning In A Mixed Performance In Mid-Morning Trading

Stocks are seeing a mixed outing in mid-morning trading on Monday, as activity on the merger and acquisition front and continued concerns regarding the future of the euro-zone are contributing to the split market sentiment. The major averages are on opposite sides of the unchanged mark, looking for direction.

Traders continue to watch Europe, where officials have denied that French President Nicolas Sarkozy clashed with German Chancellor Angela Merkel and other European leaders, threatening to pull out of the European Union. The rumor has further fueled speculation that the future of the monetary union hangs by a thread.

The $1 trillion bailout safety net package crafted last weekend has done little to bolster confidence in the euro, particularly with violence in Greece signaling that debt-ridden nations may not go along with necessary austerity measures.

The dollar soared to $1.2233 versus the euro overnight, reaching its highest level since April of 2006. Additionally, the buck jumped to a new yearly high of $1.4249 against the British pound.

Meanwhile, some news from the M&A front may be limiting downside in trading thus far. Hospital operator Universal Health Services, Inc. (UHS) said that it has reached a definitive deal to buy mental-health facilities provider Psychiatric Solutions, Inc. (PSYS) for $33.75 per share or nearly $2.0 billion in cash. The total deal value is around $3.1 billion, including the assumption of about $1.1 billion in Psychiatric Solutions' net debt.

Further, financial services provider Prudential's (PUK) deal to buy the AIA unit of American International Group (AIG) for $35.5 billion received approval from regulators. Prudential's shareholders still need to approve the acquisition.

Japanese drug maker Astellas Pharmaceuticals Inc. said that it has agreed to acquire biotechnology company OSI Pharmaceuticals Inc. (OSIP) for a sweetened bid of $57.50 per share. The all-cash transaction, which adds OSI's blockbuster lung cancer drug Tarceva to Astellas' portfolio and enables it to expand its presence in the U.S., is valued at $4 billion.

On the economic front, the results of the Federal Reserve Bank of New York's Empire State Manufacturing Survey showed that the general business conditions index fell to 19.1 in May from 31.9 in April, although a positive reading continues to indicate growth in the manufacturing sector. Economists had expected the index to show a much more modest decline to a reading of 30.0.

Later today, the National Association of Homebuilders will release the results of its May survey on homebuilder confidence at 1:00 p.m. ET. The index is widely expected to improve to a reading of 20 from last month's reading of 19.

The major averages currently continue to turn in a mixed performance, with the tech-heavy Nasdaq posting a modest gain. While the Nasdaq is up 7.15 points or 0.3 percent at 2,354.00, the Dow is down 12.62 points or 0.1 percent at 10,607.54 and the S&P 500 is down 0.55 points or 0.1 percent at 1,135.13.

Sector News

Commercial real estate stocks are some of the morning's best performers, with the Morgan Stanley REIT Index posting a 1 percent gain. Despite the move, the index remains rangebound.

Healthcare provider, networking, and electronic storage stocks are also moving notably higher, while steel stocks are under pressure, dragging by NYSE Arca Steel Index down by 1.3 percent. Shares of U.S. Steel (X) are down by 3.2 percent, on pace for a two and a half month closing low.

Gold, oil and banking stocks are also seeing considerable weakness, offsetting the strength seen in the other market segments.

Stocks Driven By Analyst Comments

Power Integrations (POWI) is under pressure after being downgraded at Roth Capital from Buy to Hold. The broker also lowered its target on the stock from $47 to $34. The stock is down by 3.2 percent and is on pace for a fresh three-month closing low.


On the other hand, Alberto-Culver (ACV) is moving higher following an upgrade by analysts at Goldman Sachs from Neutral to Buy. Shares are currently up by 4.8 percent, reaching their best intraday price in nearly two weeks and continuing their recovery from early May's weakness.

Electric utility firm PPL (PPL) is also on the rise after being upgraded from Hold to Buy at Citigroup. The stock has gained 2.8 percent, setting its best intraday price in nearly three weeks.

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Toronto Stocks May Open Lower Amid Weak Global Cues

Bay Street stocks are poised for a lower opening Monday amid falling energy prices and on lingering worries over the euro zone economic conditions.

Meanwhile, a mixed bag of earnings reports from a host of Canadian companies might lead to stock specific action during the day.

On Friday, the S&P/TSX Composite Index surrendered 101.62 points or 0.84% to 12,014.97, losing for a second session.

The price of crude oil lingered around $72 a barrel amid a firm dollar and on worries over the euro zone sovereign debt situation. Crude for June edged up $0.46 to $72.07 a barrel, after dipping to a low of $69.82 in early morning dealings.

Meanwhile, the price of gold was steady, adding $2.2 to $1,230 an ounce.

Financial stocks may be in play after TD Bank Financial Group Inc. said it will acquire 100% of the outstanding common shares of South Financial for around $61 million in cash or TD common stock. This represents 60% discount to South Financial's Friday closing price of $0.67 a share. In addition, immediately prior to completion of the transaction, the United States Department of the Treasury will sell to TD its $347 million of South Financial preferred stock and the associated warrant acquired under the Treasury's Capital Purchase Program.

Building construction services provider Churchill Corp. said it will acquire all of the issued and outstanding common shares of contracting construction services provider Seacliff Construction (SDC.TO) for total cash consideration of approximately C$390 million. Churchill expects this transaction to be immediately accretive to earnings per share.

Geothermal power company Magma Energy reported third quarter net income of $142 thousand or breakeven per share, compared to a loss of $683 thousand or breakeven per share in the same period last year. The company will also be acquiring the stake of Geysir Green Energy ehf in Iceland geothermal company HS Orka ehf. The transaction will increase Magma's geothermal power production to 186 MW.

Coal miner SouthGobi Energy Resources reported a much wider net loss of $1.09 per share for the first quarter, compared to a loss of $0.08 per share in the prior year quarter.

Mineral properties explorer Gabriel Resources posted a wider first-quarter net loss of C$0.05 per share, compared to C$0.03 per share in the same quarter last year.

Oil and gas explorer Tethys Petroleum reported net loss for the first quarter of $8.0 million or $0.05 per share, compared to a net loss of $6.0 million or $0.09 per share for the year-ago quarter.

Independent power producer Maxim Power reported lower net income of C$0.02 per share for the first quarter, compared to C$0.09 per share in the year-ago quarter.

Oil and gas firm Calvalley Petroleum swung to profit in first quarter, reporting net income of $0.03 per share, compared to a loss of $0.02 per share in the same period last year.

Bio-pharmaceutical company MethylGene Inc. reported a narrower first quarter net loss of C$0.11 per share, compared to a net loss of C$0.17 per share in the prior year quarter.

Investment company BAM Investments reported lower net income of C$0.04 per share for the first quarter, compared to C$0.11 per share in the prior year quarter.

Television media company DHX Media slipped into the red in third quarter, reporting a net loss of C$0.01 per share, compared to net income of C$0.01 per share in the prior year quarter.


Healthcare services provider Northstar Healthcare reported a narrower first quarter net loss of $0.10 per share, compared to a loss of $0.12 per share in the same period last year.

Fuel and convenience stores operator Parkland Income Fund reported a considerable decline in first quarter at C$0.09 per unit, compared to C$0.40 per unit in the year ago quarter.

Aerospace industry components supplier Magellan Aerospace reported a notably lower first-quarter net income of C$0.06 per share, compared to C$0.41 per share last year.

Battery products company Electrovaya Inc. reported second quarter loss of $0.02 per share, compared to loss of $0.01 per share last year.

Natural sweetener maker GLG Life Tech reported a narrower first-quarter net loss of C$0.05 per share, compared to C$0.08 in the same period last year.

In economic news from the U.S., the Federal Reserve Bank of New York's Empire State Manufacturing Survey showed that general business conditions index fell to 19.1 in May from 31.9 in April, although a positive reading continues to indicate growth in the manufacturing sector. Economists were expecting the index to show a much more modest decline to a reading of 30.0.

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Asian Markets Plunge Amid Fears About Europe

The markets across Asia plunged on the first day of the week amid increasing fears about the crisis in the Euro region even as austerity measures and revival package worth about $1 trillion was put forth by the EU in association with the IMF. The stock market in China plunged more than 5% on escalating concerns about the global economic recovery.

In Japan, the benchmark Nikkei 225 Index dropped 226.75 points, or 2.17%, to 10,236, while the broader Topix index of all First Section issues was down 16.02 points, or 1.71%, to 920.

On the economic front, a report released by the Cabinet Office revealed that private sector machinery orders climbed a seasonally adjusted 5.4% in March, slightly lower than analysts' expectations of a 6.3% increase, following a revised 3.8% gain in February. The report revealed that, on an annual basis, core machinery orders climbed 1.2%, higher than forecasts for a marginal 0.2% increase, following a sharp 7.1% plunge in the previous month. For the first quarter of calendar 2010, machinery orders advanced 2.9%, higher than economists' forecast for a 1.6% gain.

Separately, the Bank of Japan revealed that an index measuring prices for domestic corporate goods increased 0.4% in April to 103.0, compared to the previous month. Economists projected the index to rise 0.3% during April following 0.2% gain month-over-month in March. On an annual basis, CGPI eased 0.2 percent, roughly in line with expectations for a 0.3 percent fall after the 1.3 percent decline in the previous month.

Glass and ceramic stocks declined the most on concerns about economic recovery. NGK Insulators plunged 3.56%, Asahi Glass slumped 4.49%, Tokai Carbon was down sharply by 5.33%, Nippon Sheet Glass Co. drifted down by 8.63% and TOTO Ltd declined 2.47%.

Financial stocks also ended weaker. Sumitomo Mitsui Financial declined 2.99%, Mitsubishi UFJ Financial fell 1.31% and Resona Holdings edged down 0.09%. Mizuho Financial, however, bucked the trend and ended in positive territory with a gain of 0.61%.

Automotive stocks also ended weaker. Honda Motor Co., declined 0.90%, Suzuki Motor lost 1.92%, Hino Motor plunged 6.21%, Isuzu Motors shed 4.18% and Mazda Motor fell 3.82%. However, Toyota Motor Co., remained unchanged from previous close and Mitsubishi Motor ended in positive territory with a gain of 0.83%.

Trading companies also declined on weaker euro. Mitsubishi Corp. shed 3.37%, Mitsui& Co., fell 3.58%, Toyota Tsusho Corp. lost 2.75%, Itochu Corp. slipped 3.60% and Sumitomo Corp. declined 2.67%.

In Australia, the benchmark S&P/ASX200 Index plunged 143.90 points, or 3.12% to 4,467, while the All-Ordinaries Index ended at 4,501, representing a loss of 142.30 points, or 3.06%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that housing finance for owner occupation, excluding alterations and additions, declined a seasonally adjusted 3.4% month-on-month in March to A$13.53 billion. The report further noted that, commercial finance rose 1.1% to A$28.37 billion, while personal finance decreased 1.3% to A$6.87 billion and lease finance climbed 5.8% to A$388 million, all in seasonally adjusted terms.

Resource stocks declined on lower commodity prices in the international market. BHP Billiton shed 4.53%, Rio Tinto plunged 5.66%, Fortescue Metals fell 6.50%, Gindalbie Metals slipped 4.25%, Iluka Resources declined 2.67%, Macarthur Coal was down 1.11%, Murchison Metals slumped 8.70%, and Oz Minerals decreased by 3.69%.

Oil stocks also declined sharply following steep fall in crude oil prices in the international market. Woodside Petroleum lost 3.46%, Santos fell 2.44%, ROC Oil plunged 5.95%, Oil Search lost 4.59% and Origin Energy slipped 3.78%.


Banks also plunged amid global economic concerns. ANZ Bank declined 2.89%, Commonwealth Bank of Australia fell 3.11%, National Australia Bank lost 2.05% and Westpac Banking plunged 6.47%. Investment banker Macquarie Group was down by 2.30%.

Retailers also declined on concerns about the global economic recovery. David Jones shed 3.84%, Harvey Norman fell 2.30%, JB Hi-Fi Ltd slipped 1.29%, Myer Holdings plunged 3.86%, Reject Shop declined 2.18%, Wesfarmers was down 2.82% and Woolworths edged down 0.84%.

The only notable gainer in the market is the gold sector. Among gold stocks, Lihir Gold advanced 0.73% and Newcrest Mining added 0.57%.


In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a loss of 430.23 points, or 2.14%, at 19,715, taking cues from other markets in the region as well as weak cues from Wall Street which ended in negative territory on Friday amid concerns about the debt crisis in Europe. The decline of the euro to a 4-year low against the US dollar, sharp decline in commodity and oil prices as well as sell-off in mainland China impacted market sentiment, with as many as 40 of the 42 components in the index ending in negative territory. Espirit Holdings declined 7.67%, while Aluminum Corporation of China, or Chalco, plunged 5.74%. Resource stocks, property stocks and china-related stocks also recorded sharp losses.

Risk aversion on account of global events continued to weigh on the Indian stock market Monday. However, after tumbling 444 points to a two-and-a half month low at mid-session, the benchmark 30-share Sensex recovered considerably to finish off the day's low at 16,836, down 159 points 0.94%, as European stocks reversed early losses to turn positive and the U.S stock futures cut initial losses. Likewise, the 50-share S&P Nifty recouped most of its initial loss before ending down 34 points or 0.66% at 5,060.

Among the other major markets open for trading, China's Shanghai Composite Index plunged 136.70 points, or 5.07%, to close at 2,560, Singapore's Strait Times Index slipped 21.52 points, or 0.75%, to close at 2,834, Taiwan's Weighted Index fell 173.41 points or 2.23% to 7,599 and Indonesia's Jakarta Composite Index lost 38.92 points, or 1.36% to close at 2,819.

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After a shaky start on Monday, the major European markets have now moved into positive territory and are trading modestly to moderately higher. The French CAC 40 Index is moving up 0.10% compared to a 0.64% advance by the German DAX Index. Meanwhile, the U.K.'s FTSE 100 Index is gaining 0.47%.

Most stocks are advancing, with the exception of travel-related, insurance and software stocks. A fresh eruption of volcanic ash has led to the closure of airports in England, Midlands, Scotland and Northern Ireland.

On the economic front, Property website Rightmove said that asking prices for English and Welsh homes grew 0.7% month-on-month in May following the 2.6% increase in the previous month. The group said the number of new sellers coming on to the market surged in the week just before the election to its highest weekly total since June 2008. Rightmove commercial director Miles Shipside said the increase in supply was unmatched by demand, with few buyers able to push through purchases and that this had pushed down a greater increase in asking prices.

U.S. Economic Reports

With the Greek crisis taking centerstage, market participants are likely to be preoccupied with worries over the likelihood of the crisis putting the brakes on growth. Nevertheless, traders may keep a close eye on some key economic data releases, including the Commerce Department's housing starts report for April, the National Association of Homebuilders' housing market index for April, the results of the New York and Philadelphia Fed's manufacturing surveys for May and the weekly jobless claims report.

Given indications that inflation expectations are inching up, traders may also pay attention to the Labor Department's consumer and producer price indexes for April. The Conference Board's leading indicators index may also shed some light on the recovery's strength. As often is the case, the minutes of the FOMC meeting are also likely to be scanned by traders to take cognizance of the Fed's thinking on the evolving recovery and the monetary policy. The announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes, all due on Thursday, may also grab some attention.

The recently expired first time homebuyers' credit may have led to an increase in housing starts for the fourth straight month in April. The expectation gains strength due to an increase in building permits last month as well as higher home sales and builder confidence. The housing market is now likely to derive support from the recovery in the job market, as it is being weaned away from the positive impact of the ax credit.

Producer prices are likely to show slower growth than in the previous month and core producer price inflation is expected to remain at a benign 0.1%. However, BMO Capital Markets cautions that the core rate is close to bottoming due to the past run up in commodity prices. That said, weak pricing power and falling labor costs will to a larger extent prevent the higher cost of inputs from getting passed along to consumers.

The results of the New York Federal Reserve's empire state manufacturing survey released short while ago showed that conditions for New York manufacturers improved for the tenth straight month in May, albeit at a much slower pace than in April. The general business conditions index fell 13 points to 19.1. Economists had expected a more modest decline to 30.

Despite declining, the new orders and the shipment indexes remained in positive territory. Meanwhile, the inventories index fell 10 points to 1.3, pointing to stabilization in inventory levels following the solid growth in March and April. Pricing pressure was evident, with the prices paid index rising 3 points to 44.7. Suggesting softness ahead, the future general business conditions slipped to 42.1 from April's 55.7.

The Treasury Department is due to release a report on the flow of financial instruments into and out of the U.S. for March at 9 AM ET. Economists estimate the net long-term flows to total $40 billion for the month.

The National Association of Homebuilders is scheduled to release the results of its April survey on homebuilders' confidence at 1 PM ET. The index is widely expected to improve to 20.

The housing market index for March rose 4 points to 19, while economists had expected a more modest 3-point improvement. The present conditions index rose by 5 points and the future expectations index was up 1 point. The index measuring prospective buyer traffic improved 4 points to 14. The strength is a pointer to quickening activity, as buyers scramble to take advantage of the first time homebuyers' credit, which is scheduled to expire April 30th.

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FirstMerit (FMER) may react to its announcement that it has acquired through, its subsidiary FirstMerit Bank, the banking operations of Midwest Bank and Trust company, the subsidiary bank of Midwest Banc Holdings. The company noted that the acquisition was through a purchase and assumption agreement with the FDIC.

Hertz (HTZ) could see some activity after it announced that it has filed for anti-trust approval for its impending acquisition of Dollar Thrifty Automotive Group (DTG). Incidentally, Dollar Thrifty has another suitor in Avis Budget (CAR), which had said last week that it had filed with federal authorities for anti-trust clearance.

Sara Lee (SLE) is also likely to be in focus after it announced that its CEO Brenda Barnes would take a temporary medical leave of absence, effective immediately. The company's board named CFO Marcle Smits as interim CEO and lead independent director James Crown as the Chairman until Barnes returns.

Amgen (AMGN) could move in reaction to its announcement that it has submitted to the FDA the BLA for denosumab for bone metastases, which means the spread of tumors to the skeleton in patients with advanced cancer.

OSI Pharma (OSIP) may see some activity after it announced that it has agreed to be acquired by Japan's Astellas Pharma in a deal valued at $4 billion on a fully diluted basis. On a per share basis, the deal values OSI Pharma at $57.50 per share, higher than Astellas' earlier offer of $52 per share.

In other deal news, Universal Health Services (UHS) announced a deal to buy Psychiatric Solutions (PSYS) for $33.75 per share in cash or about $2 billion. Including the assumption of about $1.1 billion in Psychiatric Solutions' debt, the total deal value is $3.1 billion.

GLG Partners (GLG) may see buying interest after it announced that it has agreed to be bought by U.K.'s Man Group in a cash and stock deal valued at $1.6 billion.

Home improvement retailer Lowe's (LOW) is seeing a modest loss in reaction to its announcement that its first quarter sales rose 4.7% to $12.4 billion and net earnings increased 6.3% to 34 cents per share. The consensus estimates called for earnings of 31 cents per share on revenues of $12.24 billion.The company expects second quarter sales to rise 5%-7% and earnings to be 57-59 cents per share and for the full year, the company expects earnings of $1.37-$1.47 per share and sales growth of 5%-7%. Analysts estimate earnings of 62 cents per share for the secons quarter and $1.45 per share for the year.

Illnois Tool Works (ITW) is receding sharply in pre-market trading after it reported that its revenues for the three months ended April 30th, 2010 rose 19% year-over-year. The company forecasts income from continuing operations of 74-86 cents per share for the second quarter and $2.72-$3.08 per share for the year. Analysts estimate earnings of 79 cents per share for the second quarter and $2.99 per share for the year.

However, Sirius XM (SIRI) is advancing strongly in pre-market trading after it raised its subscriber addition forecast for the full year to 750,000 and pro forma revenue guidance to $2.75 billion and pro forma adjusted income from operations guidance to $575 million. Analysts estimate revenues of $2.78 billion for the year.

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