US & World Daily Markets Financial Briefing 18-05-2010

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Stocks Posting Solid Gains In Mid-Morning Trading

Stocks are up by solid margins in mid-morning trading on Tuesday, as largely positive housing starts data and docile inflation figures have sparked some buying interest along with another batch of strong earnings reports. The major averages are all in positive territory, building on yesterday's modest gains.

Before the start of trading, the Commerce Department reported that housing starts rose by 5.8 percent to an annual rate of 672,000 in April from the revised March estimate of 635,000. Economists had expected starts to increase to an annual rate of 655,000 from the 626,000 originally reported for the previous month.

The same report, however, revealed that building permits fell by 11.5 percent to an annual rate of 606,000 in April from the revised March rate of 685,000. The decrease surprised economists, who had expected building permits to remain unchanged compared to the 680,000 that had been reported for March.

Also this morning, the Labor Department released a report showing that its producer price index edged down by 0.1 percent in April following an unrevised 0.7 percent increase in March. Economists had been expecting producer prices to increase by about 0.1 percent.

Meanwhile, the core producer price index, which excludes food and energy prices, rose by 0.2 percent in April after edging up by 0.1 percent in each of the two previous months. The increase exceeded economist estimates for another 0.1 percent increase.

In earnings news, Wal-Mart reported first-quarter net income and revenues that edged out analyst estimates. The firm's second quarter guidance, however, was disappointing to some analysts.

Home improvement retailer Home Depot also issued first quarter earnings and revenue results that topped forecast, while it boosted its 2010 earnings and sales guidance just above projections.

The major averages have given back some ground in recent trading, with the Nasdaq pulling back near the unchanged line. The Dow is up 56.83 points or 0.5 percent at 10,682.66, the Nasdaq is up 2.13 points or 0.1 percent at 2,356.36 and the S&P 500 is up 5.40 points or 0.5 percent at 1,142.34.

Sector News

Steel stocks are some of the morning's strongest performers, rebounding from yesterday's weakness. The NYSE Arca Steel Index is up by 1.6 percent, bouncing off of the three-month closing low set in the previous session.

Oil service, oil and natural gas stocks are also on the rise, further reflecting today's recovery in the resource sector from yesterday's steep losses.

Buying interest is also visible in the housing sector after today's largely upbeat data. The Philadelphia Housing Sector Index is up by 1.3 percent but remains rangebound.

Airline, healthcare, defense and biotechnology stocks are also moving higher, while some weakness has emerged among semiconductor and banking stocks.

Stocks Driven By Analyst Comments

Intuit is on the rise after being upgraded at Jefferies from Hold to Buy. The broker also upped its target  on the stock from $35 to $45. The stock has gained 2.7 percent, setting its best intraday price in just over two weeks in earlier trading.

Rightnow Tech is also moving higher following an upgrade by analysts at FBR Capital from Market Perform to Outperform. The target was raised from $17 to $19. Shares are currently up by 4.1 percent, climbing to their highest intraday level in just under two weeks.

On the other hand, BB&T is moving lower after being downgraded from Buy to Hold at Deutsche Bank. The stock has lost 1.8 percent, moving further off of last Wednesday's eighteen month closing high.

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TSX Poised For Higher Open On Easing Euro Worries

Bay Street stocks may recover from their recent slump Tuesday morning as investors take a breather from worries over the euro zone after the EU transferred part of an aid package to Greece.

Also, recovery in the price of oil may lift sentiment on energy stocks, which were battered in the past few days.

On Monday, the S&P/TSX Composite Index dwindled 201.97 points or 1.68% to 11,813.00, taking its cumulative losses in the past three sessions to nearly 400 points or over 3%.

The price of oil recovered from a 8 month low, with crude for June adding $1.95 to $72.03 a barrel. Meanwhile, the price of gold eased on profit taking. Gold for June was down $19.30 to $1,208.80 an ounce.

In corporate news, CN Rail said it would buy back up to 3 million of its common shares as part of the company's 15 million share repurchase program announced on Jan. 26. The repurchase price will not exceed the prevailing market price of company's common shares on the TSX at the time of the purchase.

Oilfield services contractor Forbes Energy Services reported a wider first quarter net loss of C$0.10 per share, compared to a net loss of C$0.07 per share in the year ago quarter.

Copper mining company Nord Resources reported a flat net income of $0.01 per share for the first quarter, compared to $0.01 per share in the prior year quarter.

Nickel mining company Crowflight Minerals turned to loss in first quarter, reporting net loss of C$0.01 per share, compared to net income of C$0.01 per share in the prior year quarter.

Base metals mining company Ivernia Inc. reported a net loss of $0.03 per common share for the first quarter, compared with a net loss of $0.02 per share last year.

Gold and silver explorer ECU Silver Mining reported a narrower net loss of C$1.9 million in the first quarter, compared with a net loss of C$3.6 million in the same period 2009. On per share basis, loss was C$0.01, same as the prior year quarter.

In economic news, Statistics Canada said Canadian investors acquired $4.8 billion of foreign securities in March, the largest outflow since May 2008. Notably, non US foreign stocks accounted for over 80%, with focus on European and Asian stocks, the agency added. Meanwhile, foreign investments in Canadian securities were down by $616 million.

From the U.S., the Labor Department said its producer price index edged down by 0.1% in April following an unrevised 0.7% increase in March. Economists were expecting producer prices to increase by about 0.1%. Meanwhile, the core producer price index, which excludes food and energy prices, rose by 0.2% in April. The increase exceeded economist estimates for another 0.1% increase.

In another report, the Commerce Department said housing starts rose by 5.8% to an annual rate of 672,000 in April from the revised March estimate of 635 000. Economists were expecting starts to increase to an annual rate of 655,000 from the 626,000 originally reported for the previous month. At the same time, building permits fell by 11.5% to an annual rate of 606,000 in April from the revised March rate of 685,000. Economists were expecting building permits to remain unchanged at 680,000 reported for March.

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Asian Markets End Mixed Awaiting More Cues

Mixed trading was witnessed among the markets in Asia on Tuesday as traders sought more visibility into the debt crisis in Europe and preferred to adopt a wait-and-watch attitude.

In Japan, the benchmark Nikkei 225 Index rose 6.88 points, or 0.1%, to 10,243, while the broader Topix index of all First Section issues slipped 6.52 points, or 0.7%, to 914.

On the economic front, results of a monthly survey conducted by Cabinet Office revealed that consumer confidence in Japan improved to 42.1 in April from 41 reported in the previous month. The results further noted that households' consumer confidence rose to 42 in April from 40.9 reported in March. Both the indices matched economists' forecast. Among the sub-indices of households' consumer sentiment, overall livelihood climbed to 42.4 from 41.2. Income growth and employment rose to 40.4 and 38.3, respectively. The index measuring willingness to buy durable goods stood at 47, up from 46.8 in March.

In a separate report, the Ministry of Economy, Trade and Industry revealed that an index measuring tertiary industry activity in the country declined a seasonally adjusted 3.0% in March, coming in at 95.5. That was sharply lower than forecasts that had called for a 1.2 percent contraction following the 0.2 percent decline in February.

The recovery in euro against the yen spurred buying in select blue-chip technology stocks that declined sharply in the recent decline, on bargain hunting. However, as many as 27 sectors among the 33 sectors declined, mirroring the uncertainty among the traders.


Among the gainers, Fanuc Ltd gained 1.55%, Sony Corp. added 0.60%, Kyocera Corp. advanced 0.71%, TDK Corp. gained 0.51% and Mitsumi Electric Co. climbed 2.66%.

Shipping stocks ended in negative territory on concerns about economic recovery. Kawasaki Kisen Kaisha plunged 4.43%, Mitsui OSK Lines lost 3.81% and Nippon Yusen slumped 8.06%.

Real estate stocks also ended weaker. Mitsubishi Estate lost 2.03%, Sumitomo Realty & Development shed 0.97%, Mitsui Fudosan slipped 0.98% and Heiwa Real Estate edged down 0.39%. However, Tokyu Land Corp. managed to end in positive territory with a gain of 1.45%.

Trading companies declined amid concerns about Europe and its impact on global economic recovery. Mitsubishi Corp. fell 1.55%, Sumitomo Corp., lost 2.17%, Itochu Corp. shed 2.19%, Mitsui & Co. Ltd slipped 0.91% and Toyota Tsusho Corp. edged down 0.22%.

All Nippon Airways fell 2.17% amid dilution fears after the company revealed that it would increase the size of new allotment to 5.1 billion shares from the earlier announcement of 3.9 billion shares.

In Australia, the benchmark S&P/ASX200 Index added 3.50 points, or 0.08% to 4,470, while the All-Ordinaries Index ended at 4,500, representing a loss of 0.70 points, or 0.02%.

On the economic front, minutes of the recent monetary policy meeting of the Reserve Bank of Australia revealed that members of the policy board felt that a rate increase was warranted given a faster than expected pick up in inflation and improving economic conditions. The members also hinted that the tightening cycle may now be heading for a pause with interest rates around average levels. The Reserve Bank board saw the decision to raise the cash rate by a quarter percentage point to 4.50% to be "prudent". The board noted that, "if lenders responded as expected to another rise in the cash rate, interest rates faced by most borrowers would then be at around their average levels over the past decade".

In a separate report, the Housing Industry Association and the Commonwealth Bank revealed that housing affordability in the country continued to fall in early 2010. According to the data, home affordability fell 4% in the March quarter compared to the December quarter, and on annual basis, down 28.7% from the same quarter last year. On a quarterly basis, housing affordability was down by 4.2% in the capitals and by 5.3% in regional areas, the data further revealed.

Macarthur Coal was the major loser, having shed 15.73% , after one of its major shareholders China Citic rejected the US$3.8 billion bid from Peabody Energy citing the same as not acceptable.


Mixed trading was witnessed among other mining and metal stocks in lackluster trading. Among the gainers, BHP Billiton advanced 0.95%, Fortescue Metals added 0.74%, Gindalbie Metals climbed 2.46%, Iluka Resources rose 2.97%, Mineral Resource gained 2.28% and Murchison Metals was up by 0.95%. However, Rio Tinto slipped 0.45%, Oz Minerals shed 0.48% and Mincor Resources fell 3.12%.

Gold stocks ended in negative territory following drop in bullion prices in the international market. Lihir Gold fell 0.96% and Newcrest Mining slipped 0.89%.

Mixed trading was also witnessed among oil stocks. Woodside Petroleum slipped 0.42% and Origin Energy fell 1.02%. However, Oil Search Ltd added 0.37%, Santos edged up 0.08% and ROC Oil Co. climbed 1.27%.

Banks also ended mixed. Westpac Banking added 0.43% and Commonwealth Bank of Australia rose 1.15%. However, ANZ Bank fell 1.90% and National Australia Bank slipped 0.56%. Investment banker Macquarie Group ended in positive territory with a gain of 0.28%.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a gain of 229.74 points, or 1.17%, at 19,945, taking cues from Wall Street, where the major averages managed to end in the green with minor gains on bargain hunting even as concerns about Europe continues to haunt the market. Property related stocks led the gains as traders evinced fresh buying interest in beaten down stocks amid speculation that the markets will arrest further downslide on better economic data which, hitherto, took backseat due to economic crisis. Positive closing in mainland China after plunging in the previous session also lifted market sentiment. China Resources Land surged up 6.53% followed by Espirit Holdings which climbed 5.09%.

Re-emergence of buying at lower levels on the back of firm overseas leads helped the Indian market end a volatile session on a positive note Tuesday. Asian stocks saw some late recovery after falling to three-month lows, while the Dow futures were up 14 points ahead of retail giant Wal-Mart's results. After moving in a range of 17,000- 16,744, the 30-share Sensex average ended up 40 points or 0.24% at 16,876, while the 50-share Nifty rose by 6 points or 0.12% to 5,066.

Among the other major markets open for trading, China's Shanghai Composite Index advanced 34.85 points, or 1.36%, to close at 2,595, Singapore's Strait Times Index gained 10.66 points, or 0.38%, to close at 2,844, and Indonesia's Jakarta Composite Index rose 14.72 points, or 0.52% to close at 2,834. However, Taiwan's Weighted Index bucked the trend and ended in negative territory with a loss of 13.42 points or 0.18% at 7,585.

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The major European markets are rebounding on Tuesday following two straight sessions of losses. The upside is partly due to positive earnings, which has led to some bargain hunting, and have come despite the release of some insipid domestic economic data.

The French CAC 40 Index and the German DAX Index are rising 2.48% and 1.51%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.13%.

In corporate news, U.K. telecommunication giant Vodafone (VOD) reported that its full year pre-tax profits rose to 8.7 billion pounds, up from 4.2 billion pounds last year, which included some one-of charges. Revenues rose 8.4% to 44.5 billion pounds, with growth coming mainly from new markets.

British REIT British Land reported net income of 1.14 billion pounds for the full year ended March 31st compared to a loss of 3.88 billion pounds in the year-ago period.

On the economic front, the Mannheim-based Centre for European Economic Research said its ZEW indicator of economic sentiment for Germany shed 7.2 points in May to 45.8 from 53 in April. Economists had expected the index to fall to 47. However, the reading was well above the indicator's historical average of 27.4 points.

The current conditions index of the survey continued its improvement, rising 17.6 points in May to minus 21.6 from minus 39.2 in the previous month. Economists were looking for a reading of minus 33.

Eurostat released its revised inflation report for April, showing a 1.5% year-over-year increase by the consumer price index compared to a 1.4% increase in the previous month. On a monthly basis, the inflation rate was 0.5%.

A separate report released by the agency showed that the trade surplus of the euro zone rose to 4.5 billion euros in March compared to a surplus of 2.4 billion euros in February. Economists had expected a bigger surplus of 5 billion euros. On a monthly basis, exports rose 7.5%, slower than the import growth of 10.3%.

Meanwhile, U.K. inflation rose to its highest level since November 2008, a report released by the U.K. Office for National Statistics showed. The consumer price index rose 3.7% year-over-year, remaining above the central bank’s 2% target. Economists had expected a more modest 3.5% increase.

U.S. Economic Reports

On the economic front, the Commerce Department said housing starts rose by 5.8% month-over-month to a seasonally adjusted annual rate of 672,000 in April from an upwardly revised 635,000 units in the previous month. Economists had expected a more modest improvement to 655,000. With the increase, housing starts rose to their highest level since October of 2008.

The increase was mainly due to a 10.2% rise in single-family starts to 593,000. However, building permits, an indicator of future housing activity fell by 11.5% to 606,000.

Producer price inflation report released by the Labor Department showed that producer prices fell 0.1% month-over-month in April, reversing some of the 0.7% increase in the previous month. Economists had expected a 0.1% increase for the month.

The core producer price index, which excludes food and energy, was up 0.2%, a sharper rise than the 0.1% increase in the previous month. Food prices edged down 0.2% compared to the 2.4% growth in the previous month, while energy prices fell 0.8%. Prices of intermediate goods increased 0.8%.

Cleveland Federal Reserve Bank President Sandra Pianalto is due to speak to the Economic Club of Pittsburgh about forecasting in uncertain times at 12:20 PM ET.

Earnings

Wal-Mart (WMT) said its first quarter earnings net sales rose 6% to $99.1 billion and earnings per share were 88 cents per share. The consensus estimates called for earnings of 85 cents per share on revenues of $98.45 billion. For the second quarter, the company expects earnings per share from continuing operations of 93-98 cents per share, while analysts estimate earnings of 98 cents per share.

Home Depot (HD) reported that its first quarter net earnings rose to 43 cents per share from 30 cents per share last year. On an adjusted basis, the company reported earnings of 45 cents per share, higher than 35 cents per share last year. Sales rose 4.3% year-over-year to $16.9 billion. Analysts estimated earnings of 40 cents per share on revenues of $16.35 billion. The company updated its 2010 guidance, expecting sales growth of 3.5% and earnings per share from continuing operations of $1.88. The consensus estimates call for sales growth of 3.30% and earnings of $1.87 per share.

Abercrombie & Fitch (ANF) reported a first quarter loss of 13 cents per share compared to a loss of 68 cents per share last year, which included a loss of 41 cents per share from discontinued operations. Net sales rose 14% to $687.8 million. Analysts estimated a loss of 14 cents per share on revenues of $673.06 million.

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Agilent receded in Monday’s after hours session despite reporting second quarter revenues that rose 16% year-over-year to $1.27 billion. On a non-GAAP basis, the company reported earnings of 43 cents per share, higher than 13 cents per share last year. Analysts expected earnings of 42 cents per share on revenues of $1.24 billion. The company expects third quarter revenue growth of 16%-19% and non-GAAP earnings of 43-45 cents per share.

For the full year, Agilent expects revenue growth of about 12% and non-GAAP earnings of $1.70-$1.75 per share. Analysts estimate revenue growth of 13.80% for the third quarter and 10% for the full year, while for earnings the consensus is at 42 cents per share for the quarter and $1.70 per share for the year.

Boeing may also see some activity after it said it would increase the production of its Boeing 737 airplanes to 34 planes per month in early 2010 to satisfy customer demand. The company also said it continues to study further potential 737 rate increases, given continued customer demand.

Sina Corp. could be in focus after it reported that its first quarter net revenues rose 15% year-over-year to $85 million. On a non-GAAP basis, the company reported net income of 34 cents per share, up 66% year-over-year. Analysts estimated earnings of 27 cents per share on revenues of $80.37 million. For the second quarter, the company estimates net revenues of $90 million to $93 million, while analysts estimate revenues of $93.47 million.

Coach and Target are likely to see some activity after they announced that they have amicably resolved a lawsuit filed by Coach on October 1, 2009, alleging that Target had designed and sold handbags that infringed on certain of Coach’s design. The companies did not disclose the terms of the settlement.

TD Ameritrade could move in reaction to its announcement that its average clients trade per day rose 9% year-over-year in April and were 15% higher than in the previous month.

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