US & World Daily Markets Financial Briefing 17-06-2010

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Stocks Moderately Lower After Dismal Philly Fed Manufacturing Reading

Stocks are down by moderate margins in mid-morning trading on Thursday, as the June reading on manufacturing activity in the Philadelphia area saw a sharp decline. The disappointing news added to an already tepid jobless claims report released earlier, further fueling market worries.

The Federal Reserve Bank of Philadelphia reported that manufacturing activity in the mid-Atlantic region expanded but at a much slower pace than expected in June, prompting a pullback in the markets.

The Philly Fed said its index of regional manufacturing activity fell to 8 in June from 21.4 reading in May, with a positive reading indicating growth in the sector. The figure shocked economists who had expected the figure to dip modestly to 20.0 for the month.

Before the start of trading, market sentiment was dented by news from the U.S. Labor Department which reported that jobless claims in the week ended June 12th rose to 472,000 from the previous week's revised figure of 460,000. The increase surprised economists, who had expected jobless claims to slip to 450,000 from the 456,000 originally reported for the previous week.

Separately, the Labor Department reported that May's consumer price levels fell in-line with estimates. The data showed that the consumer price index edged down by 0.2 percent in May following a 0.1 percent decline in April. Core prices, which exclude the volatile food and energy sectors, edged up 0.1 percent, also in-line with economist forecasts.

In other news on the economic front, the Conference Board said its index of leading economic indicators rose 0.4 percent after no change in April and a 1.4 percent rise in March. "The index points to continued, though slower, U.S. growth for the rest of this year," Bart van Ark, chief economist of The Conference Board, said in a release.

On the corporate front, BP Plc (BP) is in the spotlight in Washington today, as CEO Tony Hayward answers questions before a U.S. government panel regarding the firm's actions in the ongoing Gulf of Mexico oil spill.

The Dow is down by 67.57 points or 0.7 percent at 10,341.89, the Nasdaq is down by 13.59 points or 0.6 percent at 2,292.34 and the S&P 500 is down by 6.88 points or 0.6 percent at 1,107.73.

Sector News

Housing stocks are some of the morning's worst performers, dragging down the Philadelphia Housing Sector Index by 3 percent. With the decline, the index is headed back down towards a seven-month closing low set earlier this month.

Weakness is also present among semiconductor stocks, as reflected by the 1.5 percent loss in the Philadelphia Semiconductor Index. With the drop, the index is pulling off of the one-month closing high set in the previous session.

Steel, electronic storage, trucking and networking stocks are also under pressure, while gold stocks may be helping to mitigate some of the pullback in the broader markets. The NYSE Arca Gold Bugs Index is up by 1.8 percent and on target for a one-month closing high.

Stocks Driven By Analyst Comments

Despite a down day in the markets thus far, First Solar (FSLR) is on the upside following an upgrade by Credit Suisse from Neutral to Outperform. Shares are currently up by 3.5 percent and are on target for a one-month closing high.

DryShips (DRYS) is lower after being downgraded by analysts at Credit Suisse to Neutral from Outperform. The stock is down by 6.3 percent, moving back down towards this month's fifteen-month closing low.

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TSX Poised For A Mixed Open Thursday Amid Easing Energy, Rising Euro

Canadian stocks may open mixed Thursday amid easing energy prices and mixed economic data from both sides of the border. While the U.S. inflation numbers came in as widely expected, unexpected increase in weekly jobless claims may weigh on sentiment.

The euro and the European stocks moved up after Spain said its $4.3 billion bonds issue was oversubscribed, easing concerns over the debt situation in the region. Shares of BP plc rallied over 7% after the company said it will scrap dividends and announced plan to sell asset to meet the demand from the U.S. for a $20 billion fund.

On Wednesday, the S&P/TSX Composite Index edged up 13.52 points or 0.11% to 11,921.05, after recording its biggest one-day gain in over a month on Tuesday.

The price of oil moved down after the EIA reported pile-up in U.S. crude inventories this week. Crude for July slipped $0.45 to $77.22 a barrel.

Meanwhile, the price of gold edged up $11.90 to $1,242.40 an ounce.

In corporate news, crude oil and natural gas distributor Enbridge Inc. said it acquired 50% of the Hardisty Caverns Limited Partnership previously owned by CCS Corp. for approximately C$52 million.

Liquid bulk storage and transportation services provider World Point Terminals Inc. said World Point Inc has acquired 23.7 million of its common shares from World Point Holdings, Inc. WPO's shareholders will receive consideration of $19.90 per share through a combination of a special dividend and redemption.

Motion picture company Cineplex Entertainment Limited Partnership said it will buy DDC Group International Inc. for $3.5 million.

Logistic technology solutions provider Descartes Systems Group said it has acquired privately-held Belgian-based Routing International nv, a developer and distributor of optimized route planning solutions.

Gammon Gold said that it has indefinitely suspended operations at the El Cubo mine due to continued illegal labor disruptions.

Broadcast equipment maker Evertz Technologies reported lower fourth-quarter net income of C$0.21 per share, compared with C$0.28 per share in the same quarter last year. The company has declared a dividend of C$0.08 per share.

Canadian Energy Services & Technology increased its dividend to common shareholders by 33% to C$0.08 per share, from C$0.06 per share.

In economic news, Statistics Canada said wholesale sales declined 0.3% in April to C$44.0 billion, following a downwardly revised 1.2% increase in March. Economists were expecting a month-over-month increase of 0.3%, after the 1.4% increase initially reported for the previous month.

From the U.S., the Labor Department said that consumer prices dropped 0.2% in May, following a 0.1% decline in April. Core prices, which exclude the volatile food and energy sectors, edged up 0.1%. Both the figures came in as expected by economists.

In another report, the Labor Department said initial jobless claims rose 12,000 to 472,000 for the week ended June 12, belying economists expectations for around 450,000 claims. Meanwhile, the number of people receiving ongoing unemployment claims rose by 4.57 million.

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Asian Markets End Mixed

Mixed trading was witnessed among the major Asian markets open for trading on Thursday. While the markets in Australia, Japan, Singapore and China ended in negative territory, the markets in India, HongKong, Indonesia, Taiwan and South Korea ended in positive territory with modest gains on optimism about global economic recovery.

In Japan, the benchmark Nikkei 225 Index dropped 67.75 points, or 0.67%, to 9,999,. while the broader Topix index of all First Section issues was down 4.90 points, or 0.55%, to 887.

On the economic front, data released by the Cabinet Office in Japan confirmed a decline in the leading index in April, the first drop since February 2009. As per the data, the leading index declined to 101.7 from 101.9 reported in March. The coincident index, at the same time, rose to 101.3 from 100.5 last month. But the reading for April was revised down from 101.6. Further, the lagging index dipped dropped to 82.9, revised from 82.6. March's reading was 84.8.

Glass and ceramic stocks were the major losers in the market. NGK Insulators lost 3.25%, Asahi Glass Co. fell 2.91%, Tokai Carbon Ltd declined 1.01%, Nitto Boseki slipped 1.82% and TOTO Ltd slipped 0.32%.

Oil related stocks also ended in negative territory. Showa Shell Sekiyu shed 0.46% while JX Holdings plunged 3.19%.

Precision machinery maufacturers also declined on stronger dollar. Nikon Corp. lost 2.78%, Konica Minolta Holdings fell 2.82%, Terumo Corp. shed slipped 0.56% and Olympus Corp. shed 0.77%.


Shipping stocks also declined on profit taking. Kawasaki Kishen Kaisa shed 1.03%. Mitsui OSK Lines fell 0.77%, and Nippon Yusen lost 2.27%.

In Australia, the benchmark S&P/ASX200 Index slipped 31.70 points, or 0.70% and closed at 4,527, while the All-Ordinaries Index ended at 4,547, representing a loss of 25.10 points, or 0.55%.

On the economic front, data released by the Reserve Bank of Australia revealed that the central bank sold a net A$446 million in the foreign exchange market in May, following a net sale of A$350 million in April. The central bank further noted that it had bought a net A$488 million in the forex market from the Australian Government in May.

Light sweet crude oil futures for July delivery ended at $77.06 a barrel in electronic trading, down $0.61 per barrel from previous close at $77.67 a barrel in New York on Wednesday.

Banking stocks ended lower on profit taking following recent gains. ANZ Bank slipped 0.99%, Commonwealth Bank of Australia shed 0.91%, investment banker Macquarie Group lost 2.44%, National Australia Bank fell 1.23% and Westpac Banking was down 1.11%.

Mining and metal stocks also ended weaker. BHP Billiton shed 1.05%, Gindalbie Metals shed 2.58%, Iluka Resources slipped 0.40%, Macarthur Coal declined 2.40%, Mincor Resources plunged 5.38%, Murchison Metals was down 2.41%, Oz Minerals fell 2.36%, and Rio Tinto decreased 1.78%. However, Fortescue Metals bucked the weak trend and managed to end in the green with a marginal gain of 0.94%.

Mixed trading was witnessed among oil stocks. Santos Ltd ended in positive territory with a gain of 0.15% and ROC Oil Co. remained unchanged from previous close. However, Woodside Petroleum shed 0.69%, Oil Search Ltd declined 1.17% and Origin Energy was down 0.39%.

Gold related stocks ended in positive territory on firm gold prices in the market. Lihir Gold gained 1.19% and Newcrest Mining rose 1.41%.

Mixed trading was also witnessed among the major retailers in the country. David Jones slipped 0.44%, Harvey Norman shed 0.29%, Myer Holdings fell 0.94%, Pacific Brands plunged 4.64%, and Wesfarmers edged down 0.03%. Howevers, Woolworths gained 0.36% and Reject Shop advanced 2.57%.

In Hong Kong, the Hang Seng Index ended in positive territory with a modest gain of 76.25 points, or 0.38% and closed at 20,138, following positive trading in European markets and higher US stock futures, that attracted bargain hunting at late trading session. Optimism about global economic recovery and Spain's bond sale, as well as modest gains in Euro against the US dollar also lifted market sentiment.

The Indian market extended its winning streak to a seventh straight session on Thursday, shrugging off mixed Asian cues. Trading remained relatively volatile due to profit taking following recent strong gains. A pick up in FII buying activity, expectations of a good monsoon this year and strong domestic economic outlook helped keep the underlying mood upbeat. A rebound in European stocks and higher U.S. stock futures also aided the rally. After flip-flopping in early trading, the 30-share BSE Sensex rose steadily in the afternoon before finishing up 154 points or 0.88% at 17,617, while the 50-share S&P Nifty rose by 42 points or 0.79% to 5,275.

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 Taiwan;s Weighted Index advanced 61.72 points, or 0.83% to close at 7,516. However, China's Shanghai Composite Index ended in negative territory with a loss of 9.70 points, or 0.38%, at 2,560, and Singapore's Strait Times Index declined 2.99 points, or 0.11% to close at 2,844.

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The major European averages showed some apprehension in early trading on Thursday, but they recovered in late morning trading and are trading with moderate gains. The fairly encouraging results of bond auctions by the Spanish government seem to be generating positive sentiment.

The French CAC 40 Index and the German DAX Index are rising 0.36% and 0.51%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.80%.

In other economic events, the U.K. Office for National Statistics showed that retail sales in the U.K. rose 0.6% month-over-month in May. Economists had expected a more modest 0.1% growth. Annually, retail sales were up 2.2% following a 1.3% increase in April.

A survey by the Confederation of British Industry showed that 19%of manufacturers said that total orders were above normal, while 42% said they were below normal. The resulting negative balance of 23% was down from minus 18% recorded in May. Further, the survey found that export order books were a little weaker than in May. A net balance of 2% said export orders were below normal.

U.S. Economic Reports

A Labor Department report showed that consumer prices fell 0.2% month-over-month in May compared to a 0.1% drop in April. Economists expected a more modest 0.1% decline. Core consumer prices rose 0.1%, in line with expectations.

Food prices remained unchanged, while energy prices slid 2.9%, reflecting a 5.2% drop in gasoline. Shelter costs, which have a significant weighting in the headline number, rose 0.1%. Annually, on an unadjusted basis, consumer prices rose 2% and core consumer prices climbed 0.9%.

First time claims for unemployment benefit rose 12,000 in the week ended June 12th to 460,000 from an upwardly revised reading of 460,000 for the previous week, according to a separate report released by the Labor Department. Economists had estimated a decline in jobless claims to 450,000 from the initially reported 459,000 for the previous week.

However, the four-week average fell 500 to 463,500. Continuing claims, which is calculated with a week’s delay, rose 88,000 in the week ended June 5th to 4.571 million.

The Conference Board is scheduled to release a report on the U.S. leading index for May at 10 AM ET. The consensus estimate calls for a 0.5% increase in the leading indicators index for the month.

In April, the leading economic indicators index fell for the first time in 13 months, edging down 0.1% month-over-month. While the coincident index edged up 0.3 points, the lagging index rose by 0.1 points. Building permits accounted for much of the downside in the leading indicators index.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 20 for June.

The Philadelphia Fed's manufacturing index rose to 21.4 in May from 20.2 in April. However, the new orders index fell 7.8 points to 6.1 and the order backlogs index declined to -3 from -0.9. The employment index also moved lower, dropping 4.1 points to 3.2, its lowest level since November 2009, while the inventories index moved into negative territory to -7.9 from the month-ago's 2. However, the shipment index climbed 10.2 points to 15.8. The 6-month outlook index was also softer at 37 compared to April's 44.

Earnings

J.M. Smucker (SJM) reported that its fourth quarter sales remained almost flat at $1.07 billion. The company’s earnings per share rose to $1.01 per share from 80 cents per share last year. On an adjusted basis, the company reported earnings of $1.07 per share. Analysts expected earnings of 80 cents per share on revenues of $1.04 billion. The company expects 2011 organic sales growth of 3% year-over-year and adjusted earnings of $4.50-$4.60 per share. The consensus estimates call for earnings of $4.43 per share on 3.90% sales growth.

Pier 1 Imports (PIR) reported first quarter sales growth of 8.9% to $306.3 million. The company’s earnings fell to $7.7 million or 7 cents per share from $29.3 million or 32 cents per share last year, which included a gain of $47.8 million. Analysts estimated a loss of 2 cents per share on revenues of $306.13 million.

Smithfield (SFD) reported a loss of 3 cents per share for its fourth quarter compared to a loss of 57 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 18 cents per share. Consolidated sales rose to $2.91 billion from the year-ago’s $2.85 billion. Analysts estimated a profit of 19 cents per share on revenues of $2.94 billion.

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Liberty Global (LBTYA) is likely to be in focus after it said its board has authorized an $250 million increase in its stock repurchase authorization, bringing the total authorization as of June 11th to $309 million.

DIRECTV (DTV) could see some activity after it said it has completed its previously announced transaction with Dr. Johm Malone to recapitalize the DIRECTV stock ownership held by Malone, his wife and two trusts for the benefit of his children. Under the transaction, Malones exchanged 21.81 million Class B shares of the company for 26.55 million Class A shares, resulting in the reduction of Melone’s voting interest in the company to about 3% from 24.3%. The company also clarified that all of the Class B shares would be cancelled.

Toll Brothers (TOL) could also move in reaction to its announcement that demand has been choppy. In the three weeks following its May 26th conference call, the company noted that its per-community deposits were 20% lower than in the year-ago period and per-community traffic was down 3%. Therefore, for the six weeks of the company’s third quarter, that pace of per-community contract signings was slightly faster than in the year-ago period, although communities were down 21% from the year-ago period. The company expects net signed contracts in the third quarter to be lower than in the second quarter.

American Greetings (AM) is likely to see some activity after it announced that it has successfully amended and restated its existing $350 million revolving credit facility. The company also noted that the amended facility is scheduled to expire by June 11th, 2015. Additionally, the company said it has repaid the entire principle balance outstanding under its $99 million term loan.

IHS, Inc. (IHS) may also be in focus after it announced that its second quarter revenues rose to $266.48 million from the year-ago’s $235.28 million. On an adjusted basis, the company reported earnings of 78 cents per share, higher than 64 cents per share last year. The consensus estimates had called for earnings of 74 cents per share on revenues of $263.44 million. For the full year, the company expects revenues of $1.045 billion to $1.06 billion and adjusted earnings of $2.90 per share. Analysts estimate earnings of $2.89 per share on revenues of $1.05 billion.