US & World Daily Markets Financial Briefing 20-10-2009

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Earnings Optimism May Vie Against Economic Pessimism

The major U.S. index futures are pointing to a modestly higher opening on Tuesday, with the early optimism tempered by a lukewarm housing starts report that showed a smaller-than-expected increase in the housing starts for September and a decline in building permits. That said, the markets are likely to derive support from fairly upbeat earnings reported by companies, including Apple (AAPL), Caterpillar (CAT) and Texas Instruments (TXN). The price of oil may also determine the course of market in today’s session.

U.S. stocks advanced on Monday, encouraged by positive earnings and data that suggested strong global growth. The major averages opened higher and saw indecision in early trading. Thereafter, the indexes rallied till early afternoon trading before moving sideways for the rest of the session.

The Dow Industrials advanced 96.28 points or 0.96 points to close the session at 10,092, a new closing high for the year and its best level since October 3rd, 2008. The Nasdaq Composite Index rallied 19.52 points or 0.91% to 2,176, marking its highest level since September 26th, 2008. Moving to a fresh 1-year high, the S&P 500 Index closed up 10.23 points or 0.94% at 1,098.

Twenty-five of the thirty Dow components ended the session higher, with Caterpillar (CAT) (up 6.01%) and American Express (AXP) (up 2.26%) showing notable advances. Chevron (CVX), DuPont (DD), Disney (DIS), Home Depot (HD), IBM (IBM), Intel (INTC), Johnson & Johnson (JNJ), Merck (MRK), Pfizer (PFE), AT&T (T) and Wal-Mart Stores (WMT) all gained over 1%. Meanwhile, General Electric (GE) extended its losses, sliding 1.49%.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 1.72% and Dow Jones Utility Average advanced 1.48%. The NYSE Arca Securities Broker/Dealer Index gained 1.10%, while the S&P Retail Index rose 1.12%. The NYSE Arca Oil Index and the Philadelphia Oil Service Index moved up 1.08% and 1.57%, respectively. In the technology sector, the Philadelphia Semiconductor Index, the NYSE Arca Disk Drive, the NYSE Arca Networking Index and the NYSE Arca Internet Index rose more than 1% each.

On the economic front, the National Association of Homebuilders’ survey showed that the housing market index declined to 18 in October from 19 in September. Economists had estimated a reading of 20 for the month. While the present conditions index fell 1 point, the future expectations declined 2 points. The index measuring prospective buyer traffic fell 3 points.

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Canadian stocks could move higher again in early Tuesday morning trading as positive earnings results have sparked U.S. futures. Commodities are also slightly higher.

The Bank of Canada on Tuesday announced that it is maintaining its target for the overnight rate at 0.25 percent, as expected.

Policy makers said the key interest rate can be expected to remain at its current level until the end of the second quarter of 2010, given the overall risks to inflation are tilted slightly to the downside.

Crude oil is up 9 cents to $79.70 per barrel after earlier moving above $80 for the first time in more than a year. Gold added $7.50 to $1,065.60 per ounce and copper was little changed at $2.959.

Barrick Gold Corp. said it eliminate 80 positions, primarily in Toronto, over the next six months.
 
Aastra Technologies Limited third-quarter net earnings were C$9.64 million or C$0.71 per share, compared with C$2.60 million or C$0.17 per share posted in the same period a year earlier.

Among the big names across the border, Apple reported a rise in fourth quarter earnings on Monday after the bell. Resuts beat the expectations of analysts.

In economic news, Canadian wholesale sales data dropped 1.4% in August according to data released Tuesday morning. A rise of 1% was expected, compared to a revised increase of 2.57% in July.

Meanwhile, the leading index rose 1.1% in the month of September. Last month's data showed a revised increase of 1.2%.

On Monday, the S&P/TSX Composite Index gained 33.63 points or 0.29% to close at 11,538.39. With the gain, the market added to the moderate gains seen last week.

Currency, Commodity Futures

Crude oil futures are trading down $0.11 at $79.50 a barrel after rallying $1.08 to $79.61 a barrel in Monday’s session. Gold futures, which advanced $13.90 to $1,058.10 an ounce in the previous session, are gaining $6.90 to $1,065 an ounce.

On the currency front, the U.S. dollar is trading at 90.272 yen compared to the 90.5498 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.4966.

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Asian Markets End Higher On Wall Street Gains

The markets open for trading in Asia ended in positive territory on Tuesday, taking cues from Wall Street where the major averages ended sharply higher on better-than-expected earnings from companies and optimism about recovery. Better-than-expected results from Apple Inc. and Texas Instruments after the market closed for trading in the U.S, coupled with higher crude oil and other commodity prices lifted market sentiment. Except for the markets in India, Indonesia and Singapore where profit taking on recent rally dragged the indices to negative territory, all the other markets ended in positive territory.

In Japan, the benchmark Nikkei 225 Index advanced 100.33 points, or 0.98%, to 10,337 points, and the broader Topix index of all first section stocks gained 7.65 points, or 0.84%, to 913.

On the economic front, the Cabinet Office revealed that the leading index for August stood at 83.2, revised down from the initial estimate of 83.3. However, the leading index improved for the sixth month in a row, having recorded 82.5 in the preceding July month. The Office further noted that the coincident index rose to 91.2 in August from 89.8 in July. The reading for August was revised down from 91.4.

Japanese Finance Minister Hirohisa Fujii said that the recent appreciation of yen against the U.S. dollar is due to the loose monetary policy in the U.S., which weakened the greenback.

Technology related stocks led the gains following better than expected quarterly results from Apple after the markets closed for trading in the U.S on Monday.
 
Kyocera Corp. gained 2.13%, Tokyo Electron advanced 1.41%, Fanuc Limited added 1.78%, Panasonic Corp., rose 1.25% and TDK Corp. edged up 0.38%.

Trading companies also ended in positive territory following higher commodity prices in the international market. Mitsubishi Corp rose 2.82%, Sumitomo Corp climbed 2.47%, Toyota Tsusho Corp added 1.08%, and Mitsui & Co., advanced 1.19%.

Among airline stocks, Japan Airlines was in focus following reports in the press that a government-led task force is set to finalize a revival plan for the struggling airline. The stock advanced 4.42% on higher volume. The other airliner, All Nippon Airways advanced 0.79%.

Real estate stocks also ended in positive territory. Sumitomo Realty & Development rose 2.86%, Mitsui Fudosan climbed 2.98%, Mitsubishi Estate gained 2.81% and Tokyu Land Corp advanced 1.75%.

Inpex Corp., engaged in mining and oil exploration, surged up 3.38% after crude oil prices rose in the international market.

In Australia, the benchmark S&P/ASX200 Index gained 53.40 points, or 1.11% to close at 4,846, while the All-Ordinaries Index ended at 4,853, representing a gain of 51.00 points, or 1.06%.

On the economic front, minutes of the October 6 RBA meeting released today revealed that the policy makers in the central bank saw evidence of improving economic conditions both at home and abroad, and as such voted to raise the interest rates by 25 basis points to 3.25% earlier during the month, primarily taking into consideration the risk of keeping interest rates too low for too long, especially in the form of inflation.

Following the release of the minutes, the local currency, the Aussie dollar, surged to a 14-month high of A$0.93 against the greenback before finally settling at A$0.9280 at the close of trading.

In a separate statement, the Australian Bureau of Statistics announced that merchandise imports increased in original terms in September, rising A$2.15 billion or 14% to A$17.64 billion compared to a revised A$15.49 billion in the previous month.
 
Banking and financial stocks led the gains following comments from the RBA. ANZ Bank added 0.25%, Commonwealth Bank of Australia advanced 0.72%, National Australia Bank gained 1.36% and Westpac Banking Corp. rose 0.68%. Investment management company Macquarie Group also climbed 0.78%. Diversified financial services provider Challenger Financial Services surged up 6.27% after the company revealed that assets under administration rose 50% and sale of annuities as well as related products more than doubled in the recently concluded third quarter.

Metals and mining stocks also ended in positive territory following rise in commodity prices in the international market on Monday. BHP Billiton advanced 2.12%, Fortescue Metals edged up 0.25%, Iluka Resources rose 2.11%, Mincor Resources gained 2.12%, Oz Minerals surged up 4.12% and Rio Tinto climbed 3.33%.

Among the oil stocks, Oil Search Ltd was the major loser having slumped 7.26% on huge volume following news that the company scrapped a proposal to sell a part of its stake in gas project venture in New Papua Guinea, jointly handled by the company with Exxon Mobil, to the energy investment arm of Abu Dhabi. However, other oil related stocks managed to end in positive territory. Woodside Petroleum edged up 0.13%, Santos climbed 2.56% and Origin Energy gained 1.17%.

Mixed trading was witnessed among the gold stocks. While Lihir Gold advanced 1.25% and Newcrest Mining added 0.44%, Sino Gold Mining bucked the trend and edged down 0.14%.

 In Hong Kong, the Hang Seng Index ended in positive territory with a gain 184.50 points, or 0.83%, to close at 22,385, taking cues from Wall Street where the major averages ended higher on better-than expected earnings results from companies. Market sentiment also got a lift following positive results from Apple Inc and Texas Instruments, which reported results after the markets closed for trading. Property related stocks were the major gainers, while profit taking at higher levels especially in bank stocks, limited the gains in the index. Among property stocks, New World Development surged up 6.47% and SHK Property soared 7.74%.

In South Korea, the KOSPI Index ended in positive territory with a gain of 10.08 points, or 0.61% at 1,659, taking cues from Wall Street and positive results from Apple and Texas Instruments that reported better-than-expected results after the markets closed for trading on Monday. Foreign institutional investors picked up technology related stocks and automotive stocks on expectation of better performance and recovery prospects, lifting the overall index.
 
Profit taking following recent gains dragged the Indian market lower on Tuesday, with lower European stocks introducing further weakness in the market. The BSE Sensex finished near the day's lows at 17,223, down 103 points or 0.59% and the S&P CNX Nifty fell 27 points or 0.53% to 5,114.

Among the other major markets in the region, China's Shanghai Composite Index gained 46.18 points, or 1.52% to 3,084, and Taiwan's Weighted Index inched up 2.20 points, or 0.03%, to 7,753. However, Singapore's Strait Times Index ended flat with a marginal loss of 0.61 points, or 0.02% at 2,711 and , Indonesia's Jakarta Composite Index declined 18.71 points, or 0.74% to close at 2,502.

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After opening higher, the European markets have moved lower by early trading and are currently in negative territory. While the French CAC 40 Index and the German DAX Index are down 0.03% and 0.06%, respectively, while the U.K.’s FTSE 100 Index is declining 0.14%.

On the economic front, Germany's Federal Statistical Office announced that its producer price index fell by 7.6% year-over-year in September compared to the 6.9% drop in the previous month. Economists had expected a decline of 7.1%. A year ago, producer prices were up 7.9%. On a monthly basis, producer prices decreased 0.5% compared to the 0.5% growth in the preceding month.

Meanwhile, Eurostat reported that the euro zone’s construction output fell 0.4% month-over-month in August following the 1.4% decline in the preceding month. Annually, construction output fell 11.3%, steeper than the 9.8% decline in the previous month.

U.S. Economic News

A report released by the Commerce Department showed that housing starts rose 0.5% month-over-month to 590,000 in September from a downwardly revised reading of 587,000 in August. Economists had expected housing starts to have risen to 610,000 from the initially estimated reading of 598,000 for August.

Single-family starts rose 3.9%, while starts of buildings with five units or more were 78,000. Annually, housing starts slumped 28.2%. On the other hand, building permits fell 1.2% month-over-month to 573,000.

The Labor Department reported that the producer price index fell 0.6% month-over-month in September following a 1.7% increase in the previous month. Economists had expected producer prices to have remained unchanged. Core producer prices rose edged down 0.1%, while economists had estimated 0.1% growth.

Food prices edged down 0.1% compared to a 2.4% decline in energy prices. Inflation in the pipeline eased, as intermediate food and energy prices fell 0.5% and 2.1%, respectively.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to speak on monetary policy in a tough environment to the Stanford Institute for Economic Policy Research in Palo Alto, California at 8 PM ET.

Earnings

DuPont (DD) said its third quarter earnings rose to 45 cents per share from 40 cents in the year-ago period. The year-ago results included a charge of 16 cents per share related to a hurricane. Sales fell to $5.96 billion from the year-ago’s $7.30 billion. Analysts estimated earnings of 33 cents per share on revenues of $6.14 billion. The company revised its 2009 adjusted earnings estimate to $1.95-$2.05 per share from its earlier estimate of $1.70-$2.10 per share, while analysts estimate earnings of $1.83 per share.

Bank of New York Mellon (BK) reported a third quarter loss from continuing operations of 26 cents per share compared to a profit from continuing operations of 23 cents per share in the year-ago period. The company’s adjusted earnings were 54 cents per share, ahead of the 48 cents per share consensus estimate.

Caterpillar’s (CAT) third quarter earnings fell to 64 cents per share from $1.39 per share in the year-ago period. Sales fell 45% to $7.298 billion. Analysts estimated earnings of 6 cents per share on revenues of $7.48 billion. The company raised its adjusted earnings estimate for the year to $1.85-$2.05 per share from its earlier estimate of $1.15-$2.25 per share. Revenues are estimated at $32 billion to $33 billion. The consensus estimates call for earnings of $1.49 per share on revenues of $33.07 billion.

Coca-Cola’s (KO) third quarter comparable earnings per share fell 1% year-over-year to 81 cents per share. Net operating revenues fell 4% to $8.04 billion. The Street had estimated earnings of 81 cents per share on revenues of $8.09 billion.

Pfizer (PFE) reported third quarter sales of $11.62 billion, down 3% from last year, while analysts estimated revenues of $11.41 billion. The company’s adjusted earnings were 51 cents per share, ahead of the 48 cents per share consensus estimate.

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Apple (AAPL) is likely to rally after it reported fourth quarter revenues of $9.87 billion, sharply higher than $7.9 billion in the year-ago period. The company’s earnings rose to $1.82 per share from $1.26 per share last year. Analysts estimated earnings of $1.42 per share on revenues of $9.20 billion. For the first quarter, the company estimates earnings of $1.70-$1.78 per share on revenues of $11.3 billion to $11.6 billion. The consensus estimates call for earnings of $1.91 per share on revenues of $11.45 billion.

Texas Instruments (TXN) may advance after it reported third quarter earnings of 42 cents per share, which despite slipping 4% year-over-year exceeded the consensus estimate of 39 cents per share. Sales fell 15% to $2.88 billion, but they still came in ahead of the analysts’ estimate of $2.82 billion. For the fourth quarter, the company expects earnings of 42-50 cents per share on revenues of $2.78 billion-$3.02 billion. Analysts, on average, estimate earnings of 40 cents per share on revenues of $2.78 billion.

Boston Scientific (BSX) could be in the spotlight after it reported net income of 13 cents per share in the third quarter compared to a loss of 4 cents per share last year. Sales climbed 3% to $2.03 billion. The consensus estimates had called for earnings of 14 cents per share on revenues of $2.04 billion. The company lowered its earnings estimate for the year to 75-79 cents per share from its earlier guidance of 82-86 cents per share, while it now expects revenues of $8.13 billion to $8.23 billion. Analysts estimate earnings of 56 cents per share on revenues of $8.22 billion.

JDA Software (JDAS) receded in Monday’s after hours session after it reported a third quarter loss of 7 cents per share compared to a profit of 23 cents per share last year. The company’s adjusted earnings were 40 cents per share. Revenues fell 2.6% to $95.9 million. The Street had estimated earnings of 36 cents per share on revenues of $92.6 million.

MPS Group (MPS) may rally after it announced that it has agreed to be acquired by Adecco Group in a cash deal valued at $1.3 billion or $13.80 per share. The deal is expected to close in the first quarter of 2010.

Off price retailer TJX Companies (TJX) could gain ground after it raised its third quarter and full year guidance. The company raised its third quarter earnings from continuing operations estimate to 77-79 cents per share, while it now expects full year 2010 earnings per share from continuing operations of $2.46-$2.54. Analysts estimate earnings of 74 cents per share for the quarter and $2.49 per share for the year.

Morgan Stanley (MS) may react to its announcement that it will sell its retail asset management business, including its Van Kampen division, to Invesco Ltd. (IVZ) for $1.5 billion. Morgan Stanley will receive $500 million in cash and $44.1 million in shares. The shares offered will provide Morgan Stanley a 9.4% stake in Invesco.

Human Genome Sciences (HGSI) and GlaxoSmithKline (GSK) may be in focus after they made a full presentation of the results of the first of the two pivotal late stage studies of their lupus drug candidate BLISS-52. The companies noted that the study results showed that the treatment was well tolerated, with the adverse event rates the same as with the placebo treatment group, while administration of BLISS-52 along with standard care achieved a clinically and statistically significant improvement in patient response rate. Meanwhile, in a separate release, GlaxoSmithKline said the FDA has approved its VOTRIENT to treat patients with a form of kidney cancer.

Wells Fargo (WFC) is likely to see activity after it announced that it has acquired Sierra Self Insurance Services LLC. The company did not divulge the terms of the deal. Cathay General Bancorp. (CATY) is likely to react to its announcement that it has completed its previously announced offering of 7.61 million shares. The company noted that net proceeds from the offering were $76 million.

Transportation stocks Werner Enterprises (WERN) and J.B. Hunt Transportation (JBHT) are likely to move in reaction to their results. Werner reported that its third quarter earnings fell to 26 cents per share from 31 cents per share last year. Revenues declined to $429.3 million from $584.1 million. Analysts estimated earnings of 20 cents per share on revenues of $427.9 million. At the same time, J.B. Hunt reported a decline in third quarter earnings to 31 cents per share from 47 cents per share last year. Revenues declined 16% year-over-year to $833.7 million. The consensus estimates had called for earnings of 28 cents per share on revenues of $804.7 million.

Target (TGT) could see some activity in reaction to its announcement that it is offering pre-orders of the season’s much-awaited books at $8.99. The move is in line with recent price cuts announced by Wal-Mart (WMT) and Amazon (AMZN).

Barrick Gold (ABX) is also likely to be in focus after it said it would implement a net reduction of 80 positions, mainly in Toronto, as part of efforts to improve its organizational structure. The company said it would record a non-recurring charge of $30 million to be split between the third and fourth quarters of this year. Once fully implemented, the company expects the actions to result in pre-tax savings of at least $50 million on an annualized basis.

Meanwhile, Volterra Semiconductor (VLTR) is expected to see weakness after it reported that its third quarter earnings declined to 14 cents per share from 21 cents per share last year. On an adjusted basis, the company reported earnings of 19 cents per share, missing the consensus estimate of 20 cents per share. Revenues declined 3% to $29.7 million.

Packaging Corp. of America (PKG) receded in Monday’s after hours session after it reported that its third quarter revenues declined 10.8% to $553.5 million, but they were ahead of the consensus estimate of $548.82 million. The company’s adjusted earnings were 25 cents per share, in line with the consensus estimate. The company expects fourth quarter adjusted earnings of 13 cents per share, below the 17 cents per share consensus estimate.

Steel Dynamics (STLD) may move to the upside after it reported third quarter earnings of 30 cents per share, exceeding the mean analysts’ estimate of 23 cents per share, despite declining from 98 cents per share in the year-ago period. Revenues fell 54% year-over-year to $1.17 billion.

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