US & World Daily Markets Financial Briefing 20-05-2010

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Stocks Posting Steep Losses In Mid-Morning Trading

Stocks are down by substantial margins in mid-morning trading on Thursday, as anxiety regarding European financial stability and Greek debt are prompting significant selling pressure. The major averages are all firmly lower, with the Dow falling for the fifth time in six sessions.

The downside for stocks comes amid strikes in Greece in opposition to the austerity measures proposed by the European Union. Consequently, traders are once again moving to the exits from riskier investments such as stocks and the embattled European currency.

Earlier this week, German Chancellor Angela Merkel warned that the euro is in danger and that the consequences will be "incalculable" if Europe fails to deal with the crisis.

On the economic front in the U.S., the Federal Reserve Bank of Philadelphia said that manufacturing activity in the mid-Atlantic region has continued to expand in May, with the index of activity in the manufacturing sector increasing by more than anticipated.

The Philly Fed said its index of regional manufacturing activity rose to 21.4 in May from 20.2 in April, with a positive reading indicating growth in the sector. Economists had been expecting a more modest increase to a reading of 20.7.

At the same time, the Conference Board released a separate report showing that its leading economic index edged down by 0.1 percent in April following a downwardly revised 1.3 percent increase in March. The decrease came as a surprise to economists, who had expected the index to increase by 0.2 percent.

Before the opening bell this morning, the Labor Department reported that jobless claims for the week ended May 15th rose to 471,000 from the previous week's revised figure of 446,000. The increase surprised economists, who had expected jobless claims to slip to 439,000 from the 444,000 originally reported for the previous week.

The major averages have regained some ground in recent trading, but they currently continue to post steep losses. The Dow is down 255.14 points or 2.4 percent at 10,189.23, the Nasdaq is up 67.47 points or 2.9 percent at 2,230.90 and the S&P 500 is down 31.00 points or 2.8 percent at 1,084.05.

Sector News

Steel stocks are some of the morning's worst performers, with the NYSE Arca Steel Index posting loss of 5.9 percent. The decline has pulled the index down to its lowest intraday level in six and a half months.

Oil service and gold stocks are also notably lower on the day, further reflecting the sell-off in resource stocks. The move comes as crude oil for June delivery is down by $2.09 to $70.39 a barrel and gold for June delivery is down by $13.00 to $1,180.10 an ounce.

Railroad, networking, banking and defense stocks are also retreating by sharp margins along with many other equity segments, further indicative of today's broad-based selling pressure.

Stocks Driven By Analyst Comments

Spectra Energy (SE) is notably lower after being downgraded by analysts at Jefferies from Hold to Underperform. The broker also lowered its target on the stock from $23.50 to $18. Shares are currently down by 7.2 percent, sinking to their lowest intraday level in over five months.

Rockwell Automation Inc. (ROK) is also under pressure following a downgrade to neutral from overweight by JP Morgan Chase. The broker cited economic volatility as a reason for downgrade. The stock has dropped by 7.1 percent, setting a three and a half month intraday low.

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Toronto Stocks May Extend Slide As Resources Melt Down

Bay Street stocks may extend their losses Thursday morning amid falling commodities prices. Also, heightened concerns over euro-zone debt problems continued to cloud investors' outlook for the global economic recovery.

Meanwhile, value buying, after the main index lost heavily in the week, might help arrest a steep fall..

On Wednesday, the S&P/TSX Composite Index shed 98.74 points or 0.84% to 11,665.77, erasing 530 points or 4.42% in the past five sessions.

The price of oil slipped to a new 10-month low amid lingering worries over the euro zone sovereign debt situation. Crude for June was down $1.54 to $68.33 a barrel.

The price of gold was easing for a fourth session, with gold for June shedding $15.90 to $1,177.20 an ounce. Base metal prices also fell sharply in early dealing.

In corporate news, self-storage faculties provider Public Storage Canadian Properties said that PS Canada Company ULC has increased its offer for all outstanding units of Public Storage to C$20 in cash per unit from the previous offer of C$17 per unit. PS Canada, indirectly controlled by Wayne Hughes and Tamara Gustavson, and its affiliates currently hold 56.7% of Public Storage's outstanding units.

Oil and gas firm Nexen Inc. said it will sell its Western Canadian assets to privately-held Northern Blizzard Resources Inc. for about $975 million. The sale would result in gains of over $700 million, and would not affect its original 2010 production outlook, Nexen said. The transaction is expected to close on June 30, 2010.

Minerals explorer Teras Resources said it would raise C$600 thousand through a non-brokered private placement of up to 2.4 million units at a price of C$0.25 per unit.

Base metals miner Iberian Minerals posted a narrower first quarter net loss of C$0.03 per share, compared to a net loss of C$0.24 per share in the last year quarter.

Data communications services provider Sangoma Technologies reported lower third quarter net income of C$0.014 per share, compared to C$0.022 per share in the previous year quarter.

Bio-technology company Stem Cell Therapeutics reported first quarter net loss of C$1.3 million or C$0.01 per share, compared to a loss of C$884,759 or C$0.01 per share for the year-ago quarter.

In economic news, Statistics Canada said number of people receiving regular Employment Insurance were down 24,200 to 668,100 in March from the previous month, recording sixth straight month of decline.

From the U.S., the Labor Department said initial jobless claims rose to 471,000 from the previous week's revised figure of 446,000. The increase surprised economists, who had expected jobless claims to slip to 439,000 from the 444,000 originally reported for the previous week

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Asian Markets Extend Losses On Euro Concerns

The markets across Asia, excluding India, ended in negative territory on Thursday at multi-month lows as risk aversion increased with investors preferring to offload shares amid lingering concerns about the debt crisis in Europe. The Indian market, however, ended in positive territory with a modest gain

In Japan, the benchmark Nikkei 225 Index closed down 1.5%, or 156.53 points, at 10,030, while the broader Topix index of all First Section issues fell 12.49 points, or 1.4%, to 898.

On the economic front, a preliminary report released by the Cabinet Office in Japan revealed that the country's gross domestic product added 1.2% in the first quarter of 2010 compared to the previous three months. Analysts expected the economy to report a growth of 1.4% for the quarter, following a revised 1% growth in the preceding fourth quarter of 2009. On an annualized basis, GDP was up 4.9% for the fourth straight quarter of gain - but again missing forecasts for a 5.5% increase after the revised 4.2% gain in the previous three months. Nominal GDP was up 1.2% on quarter versus expectations for a 1.3% rise after adding 0.3% in the previous quarter.

Exporters ended in negative territory on stronger local currency. Fanuc Ltd declined 2.85%, TDK Corp. plunged 3.75%, Tokyo Electron slumped 3.55%, Kyocera Corp., slipped 1.66%, Canon Inc. shed 2.67%, Advantest Corp. fell 2.89%, Panasonic Corp. was down 3.69% and Sony Corp. declined 1.55%.


Automotive stocks also ended weaker. Toyota Motor Corp. declined 2.56%, Honda Motor shed 2.98%, Suzuki Motor Co. plunged 3.77%, Nissan Motor Co. lost 2.65%, Isuzu Motors slumped 5.00% and Hino Motors slipped 2.05%.

Defensive shares found favor with traders as they shun risky assets amid concerns about the negative impact of eurozone crisis on global economic growth. Among the defensives, Tokyo Electric Power Co., edged up 0.04%, Kansai Electric Power Co., added 0.57% and Chubu Electric Power Co., advanced 0.42%.

In Australia, the benchmark S&P/ASX200 Index declined 70.60 points, or 1.61% and closed at 4,316, while the All-Ordinaries Index ended at 4,342, representing a loss of 71.90 points, or 1.63%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the average weekly wages in the country rose 5.8% on a yearly basis in February 2010, coming in at A$1,242.20. In the three months to February, the average weekly ordinary time earnings increased a seasonally adjusted 1.1%, compared to the 2.2% increase recorded in the previous three months period up to November, the report added. The average weekly earnings of all employees stood at A$968.10 in February, up 5.7% from a year ago.

In a separate report, the Melbourne Institute revealed that Australia's median consumer inflationary expectations slid to 3.6% in May from 4.1% in April. As per the report, the proportion of consumers expecting inflation to be within the RBA's 2-3% target range rose slightly in May, reaching 16.2% from 15.9%.

A statement released by the Reserve Bank of Australia revealed that the central bank sold a net A$350 million in the foreign exchange market in April, following the net sale of A$892 million in the previous month. The RBA further noted that it had bought a net A$369 million in the forex market from the government in April.

Banks led the declines on weaker local currency and concerns about the impact of European crisis on global economic growth. ANZ Bank fell 2.92%, Commonwealth Bank of Australia lost 2.55%, Macquarie Group slipped 1.74%, National Australia Bank shed 2.31% and Westpac Banking Corp. plunged 3.96%.


Mining and metal stocks also ended sharply weaker. BHP Billiton shed 0.60%, Rio Tinto slipped 1.00%, Fortescue Metals plunged 7.75%, Gindalbie Metals fell 3.06%, Iluka Resources lost 1.35%, Macarthur Coal slumped 7.83%, Murchison Metals was down by 8.21% and Oz Minerals declined 1.97%.

Gold stocks plunged sharply following drop in gold prices in the international market. Lihir Gold fell 2.72% and Newcrest Mining lost 2.82%.

In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a loss of 33.15 points or 0.17%, at 19,546, well off the lows as bargain hunting at lower levels in china related shares. A smart recovery in Wall Street in the previous session in late trading session, despite the indices ending in negative territory on lingering euro concerns, and positive trading in European markets in early session helped shares stage a smart recovery, even as concerns about the Euro continue to haunt investors.

Positive news on April exports, the successful completion of 3G auction process and the government's move to raise natural gas prices produced by state firms revived investor sentiment, helping the Indian market end on a firm note Thursday after the sell-off in the previous session. However, the benchmark indexes closed off the day's highs, as lingering worries regarding the future of the European Union and its currency continued to haunt investors. The 30-share Sensex rose as much as 210 points before paring its gain and ending up 111 points or 0.68% at 16,520, while the 50-share Nifty rose 28 points or 0.57% to 4,948.

Among the other major markets open for trading, China's Shanghai Composite Index lost 31.87 points, or 1.23%, to close at 2,556, Singapore's Strait Times Index slipped 21.03 points, or 0.76%, to close at 2,754, Indonesia's Jakarta Composite Index declined 35.24 points, or 1.29% to close at 2,694, and Taiwan's Weighted Index plunged 134.73 points or 1.77% to close at 7,424.

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The major European markets are falling for the second straight day on Thursday, as risk aversion has led to an exodus away from equities. Greeks took to streets in protest against the austerity measures the government is proposing to implement in compliance with the diktats that come along with the EU/IMF loans.

The French CAC 40 Index and the German DAX Index are down 2.35% and 1.75%, respectively, while the U.K.’s FTSE 100 Index is moving down 1.28%.

On the economic front, the Office for National Statistics reported that retail sales in the U.K. rose 1.8% year-over-year in April, in line with expectations and also at the same pace as in the previous month. On a monthly basis, sales rose 0.3%, slightly better than the 0.2% increase forecast, although smaller than the revised 0.5% increase in March.

U.S. Economic Reports

After falling for four consecutive weeks, first-time claims for unemployment benefits unexpectedly showed a notable increase in the week ended May 15th, according to a report released by the Labor Department.

The report showed that initial jobless claims rose to 471,000 from the previous week's revised figure of 446,000. The increase surprised economists, who had expected jobless claims to slip to 439,000 from the 444,000 originally reported for the previous week.

The Conference Board is scheduled to release a report on its leading indicators index for April at 10 AM ET. The consensus estimate calls for a 0.2% increase in the leading indicators index for the month.

The leading economic index rose 1.4% month-over-month in March following a 0.4% increase in February, with the index reaching a record high. The coincident index rose 0.1% in March on top of a 0.1% increase in the previous month, while the lagging economic index rose 0.2%.

The results of the Philadelphia Federal Reserve's manufacturing survey are also due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 20.7 for May.

Conditions in the manufacturing sector improved in April, with the business activity index rising to 20.2 from 18.9 in March. The new orders index rose 4.6 points, while the shipments index fell by 8 points. Despite rising 4 points, the unfilled orders index remained negative at -0.9, but the inventories index improved to 2 from -11 in the previous month. Meanwhile, the employment index slid back 1.1 points to 7.3. The business outlook was less optimistic, with the 6-month business activity index dropping 8 points to 44.2.

Earnings

Staples said its first quarter adjusted earnings rose 27% to 28 cents per share last year. Sales rose 4% to $6.1 billion. Analysts estimated earnings of 27 cents per share on revenues of $6.06 billion. The company expects adjusted earnings of 18-20 cents per share for the second quarter and $1.25-$1.33 per share for the full year. The consensus estimates call for earnings of 20 cents per share for the quarter and $1.33 per share for the year.

Williams-Sonoma reported first quarter net revenues of $718 million, up 17.3% year-over-year. On a non-GAAP basis, the company reported earnings of 23 cents per share compared to a loss of 14 cents per share for the year-ago period. Analysts estimated earnings of 12 cents per share on revenues of $675.57 million. The company raised its guidance for the full year, now expecting revenue growth of 6%-9% and non-GAAP earnings of $1.39-$1.48 per share. The Street estimates revenue growth of 5.80% and earnings of $1.33 per share.

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Netease.com may be in focus after it reported that its first quarter revenues rose to 1.2 billion yuan or $175.1 million from 781.7 million yuan in the year-ago period. The company reported earnings of 65 cents per share compared to 47 cents per share last year. Analysts estimated earnings of 61 cents per share on revenues of $185.90 million.

Con-way is likely to react to its announcement that it has completed its previously announced public offering of 4.3 million shares at $35 per share. The company raised $143.7 million in net proceeds from the offering.

Clorox may gain ground after it announced a 10% increase in its quarterly dividend to 55 cents per share. Meanwhile, Wabash National (WNC) could lose ground after it said it intends to offer 11 million shares in a public offering. A selling stockholder will offer 12.50 million shares.

Limited Brands may see some activity after it reported first quarter earnings of 34 cents per share, higher than 1 cent per share in the year-ago period. On an adjusted basis, the company reported earnings of 25 cents per share, ahead of the consensus estimate of 19 cents per share. Net sales rose to $1.93 billion from the year-ago’s $1.73 billion, trailing the $2.20 billion consensus estimate. The company expects second quarter earnings of 27-32 cents per share.

Symantec is likely to move in reaction to its announcement that it has agreed to acquire VeriSign’s (VRSN) identity and authentication business for $1.28 billion in cash. Symantec expects the deal to be 9 cents per share dilutive to its non-GAAP earnings in fiscal year 2011 and accretive to non-GAAP earnings in the September quarter of 2011.

Synopsys could also be in focus after it reported that its second quarter revenues rose to $338.1 million from $336.8 million last year. The company’s non-GAAP earnings fell to 41 cents per share from 45 cents per share last year. Analysts estimated earnings of 40 cents per share on revenues of $334.93 million. For the full year, the company estimates non-GAAP earnings of $1.52-$1.62 per share and revenues of $1.34 billion to $1.355 billion. The consensus estimates call for earnings of $1.58 per share on revenues of $1.34 billion.

Applied Materials is likely to see some activity after it reported that its second quarter net sales rose to $2.30 billion from the year-ago’s $1.02 billion, while on a non-GAAP basis, the company reported earnings of 22 cents per share compared to a loss of 12 cents per share last year. Analysts estimated a profit of 21 cents per share on revenues of $2.21 billion. For the third quarter, the company estimates non-GAAP earnings of 22-26 cents per share and net sales to be in the range of a 2% decline to 5% growth sequentially. The consensus estimate calls for earnings of 21 cents per share for the quarter.

Hot Topic could move to the downside after it said it expects a loss of 7-10 cents per share for its second quarter. The company reported a loss of 4 cents per share for its first quarter compared to a profit of 3 cents per share in the year-ago period. Sales fell 7.1% to $162.6 million, exceeding the $158.08 million consensus estimate.

Autodesk is also likely to move in reaction to its announcement that its first quarter revenues rose 11% year-over-year to $475 million. On a non-GAAP basis, earnings rose to 29 cents per share from 18 cents per share last year. Analysts estimated earnings of 26 cents per share on revenues of $443.16 million. For the second quarter, the company expects revenues of $435 million to $460 million and non-GAAP earnings of 23-28 cents per share. The consensus estimates call for earnings of 30 cents per share on revenues of $452.49 million.