US & World Daily Markets Financial Briefing 21-01-2010

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Job Market Worries May Lead to Negative Start on Wall Street

The major U.S. index futures are pointing to a lower opening on Thursday. Although yesterday’s declines may support some bargain hunting, traders are yet again confronted by uncertainty. The jobless claims report released earlier in the day showed a sharp spike, re-igniting concerns over the debilitated job market. Additionally, China reported strong GDP growth along with a rise inflationary pressure-a perfect combination that calls for restraint.

The data may accelerate efforts by the government to rein in lending and cool growth. That said, earnings news have mostly been encouraging. Trading direction may also hinge on a handful of economic reports due to be released after the markets open and also the direction of oil prices, which is likely to be influenced by the weekly oil inventory report.

U.S. stocks opened Wednesday’s session sharply lower, pushed down by speculated Chinese moves to curb lending in order to cool off growth and a disappointing housing starts report. Thereafter, the major averages declined further, reaching intra-day lows by early afternoon trading, before cutting back some of their losses. Despite the recovery, the major averages closed notably lower, giving back almost all of their previous session’s gains.

The Dow Industrials ended down 122.28 points or 1.14% at 10,603, the Nasdaq Composite Index fell 29.15 points or 1.26% to 2,291 and the S&P 500 Index receded 12.19 points or 1.06% to close at 1,138.

Twenty-four of the thirty Dow components ended the session lower, with Alcoa (AA) (down 2.50%), Caterpillar (CAT) (down 1.92%), Cisco Systems (CSCO) (down 1.77%), Chevron (CVX) (down 1.92%), IBM (IBM) (down 2.90%), Kraft Foods (KFT) (down 2.14%) and Exxon Mobil (XOM) declining sharply in the session. However, Merck (MRK) rose 1.01% and Bank of America (BAC) rose 1.04%.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average slid 1.63%, the NYSE Arca Oil Index fell 1.71%, the Philadelphia Oil Service Index receded 2.08% and the NYSE Arca Gold Bugs Index slumped 4.61%. While the Philadelphia Housing Sector Index lost 1.90%, the KBW Bank Index gained 1.40%. In the technology space, the NYSE Arca Disk Drive Index lost 3.07% compared to a 2.06% decline by the NYSE Arca Computer Hardware Index and a 2.03% slippage by the NYSE Arca Internet Index.

On the economic front, the Labor Department reported that the producer price index for December rose 0.2% compared to the previous month. Economists had expected no change in prices. Excluding food and energy prices, core producer prices remained unchanged, while estimates were for a 0.1% rate. Core producer prices rose at an annual rate of 0.9% in December, softer than November’s 1.2% rate. Food prices surged up 1.4% compared to a 0.4% decline in energy prices. Annually, producer prices were now up 4.4%, the highest reading since October 2008, as easier comparisons pushed the reading higher. Intermediate goods prices rose 0.5% month-over-month, suggesting rising inflationary pressures in the pipeline.

Meanwhile, housing starts fell 4% month-over-month in January to a seasonally adjusted annual rate of 557,000 units compared to 580,000 units in November. The decline was due to a sharp retreat in single-family starts, while multi-family starts showed an increase. However, offering some consolation was an increase in single-family building permits to 508,000, with the total building permits rising by 10.9% to 653,000 units.

On a cautionary note, the World Bank warned yesterday that the global recovery would slow later this year, as the impact of fiscal stimulus wanes. The world body predicts that global GDP will rise 2.7% in 2010 and 3.2% in 2011 following a 2.2% decline in 2009. The bank added that growth in 2011 could slow to as low as 2.5% depending on consumer and business confidence in the next few quarters and the timing of fiscal and monetary stimulus withdrawal.

Bay Street Poised For A Lackluster Open Amid Mixed Cues

Canadian stocks are likely to open flat with a positive bias on Thursday amid mixed cues from the commodity prices and after a steep fall in the previous session.

While the price of oil ticked higher, the bullion price continued to linger around $1100-mark, continuing its steep fall in the previous session. The US stock futures point to lower opening, after the just released US jobs data.

On Wednesday, the S&P/TSX Composite Index surrendered 84.11 points or 0.72% to settle at a three-week low of 11,679.32.

The price of crude oil was nearing the $78-mark in Thursday morning deals, after falling near $76 mark intraday previous session on worries over credit tightening in China.

China's economy expanded by 10.7% in the last quarter of 2009, raising doubts that the red-hot economy would resort to more monetary tightening policies.

Yesterday, the Chinese central bank took measures to soak up extra money in the system. Meanwhile, the price of bullion continued to drift down, losing $6.3 to $1,106 an ounce.
 
In corporate news, mining company Strateco Resources Inc. said it reached a final agreement for a C$15 million private placement with The Sentient Group.

Iamgold Corp. announced 2009 gold production of 939,000 ounces in line with guidance.

Gold producer Medusa Mining reported gold production of 21,108 ozs for December quarter, up from 12,158 ounces in the prior year quarter and said its exploration budget for 2010 is increased to $18 million.

Agri-business company Viterra reported fourth-quarter net loss of C$920 thousand or breakeven per share, compared to net income of C$46.8 million or C$0.20 per share last year. It also plans to reduce the short-term debt of its Australian operations by $300 million, by the end of January 2010.

Mineral explorer South Gopi Energy Resources said it will price its previously announced 27 million common share offering at C$17 per share.

Eco-friendly solutions provider Poly-Pacific International Inc. announced the appointment of Philip Kempisty to the Board of Directors and said it would consolidate its share capital on the basis of one new common share for up to every existing fifteen common shares.

Non conventional energy company Canadian Spirit Resources said it plans capital expenditure of up to C$18.0 million for 2010, up significantly from C$1.2 million in 2009. Pharmaceutical research services provider MDS Inc. reported adjusted loss per share of $0.10, compared to a loss of $0.08 for the same period in 2008 in its preliminary and unaudited financial results for the fourth-quarter.

In economic news, Statistics Canada said country's wholesale sales rose 2.5% to C$42.4 billion on widespread gains, with six of the seven sectors reporting increased sales.

From across the border, the US Labor Department said the number of newly-laid off workers seeking jobless benefits unexpectedly rose by 36,000 to a seasonally adjusted 482,000. Economists were expecting a small drop.

Commodity, Currency Markets

Crude oil futures for March delivery are trading up $0.15 at $77.89 a barrel in their first trading session as the front-month contract. The February futures expired on Wednesday at $77.62 a barrel, down $1.40.

Gold futures are sliding $6 to $1,106.60 an ounce after they tumbled $27.40 to $1,112.60 an ounce in the previous session.

On the currency front, the U.S. dollar is trading at 91.747 yen compared to the 91.241 yen it fetched at the close of New York trading on Wednesday. Against the euro, the greenback is valued at $1.4075 compared to yesterday’s $1.4105.

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Concerns About Recovery, China Moves Drag Asian Markets Lower

The markets across Asia, except Japan and South Korea, ended weaker on Thursday on concerns about global economic recovery following better than expected GDP numbers from China for the fourth quarter and possibility of further tightening measures by Chinese Government to cool the over-heating economy and inflation. Commodity stocks related to China led the declines across the region. Japanese market, however, bucked the trend and advanced on bargain hunting, weaker yen and optimism about domestic corporate earnings.

In Japan, the benchmark Nikkei 225 Index climbed 130.89 points, or 1.22%, to 10,868, while the broader Topix index of all First Section issues gained 11.31 points, or 1.20%, to 956.

On the economic front, a final report published by the Cabinet Office in Japan revealed that the country's leading index for November was revised downwards to 90.7 from 91.2 reported earlier in the preliminary report. The report further noted that despite the marginal downward revision, leading index has improved for the ninth consecutive month in November.

Separately, results of a quarterly survey released by the Bank of Japan revealed that corporate demand for bank loans in the country declined to a five-year low during the last quarter of 2009. According to the results, the index measuring firms' demand for loans declined to minus 17 for the period October to December from minus 14 recorded for the previous three-month period of July to September.
 
Notwithstanding the weak closing on Wall Street in the previous session and weakness among other markets in the region on fears about global economic recovery following tightening measures from China, the Japanese market advanced on weaker local currency, led primarily by high-tech blue-chip stocks and insurance stocks. More selective buying from foreign buyers in the market also lifted market sentiment.

High tech stocks such as precision machinery stocks advanced on expectations of better earnings for the quarter. Olympus Corp. gained 3.20%, Nikon Corp. advanced 2.47%, Konica Minolta Holdings rose 2.84% and Terumo Corp. added 0.57%.

Automotive stocks ended higher as weaker local currency boosts export realization in local currency terms and increases bottom lines. Toyota Motor rose 2.07%, Honda Motor gained 1.69%, Mazda Motor climbed 3.33%, and Mitsubishi Motor advanced 1.46%.

Banking stocks also advanced on optimism about recovery. Sumitomo Mitsui Financial surged up 4.46%, Mizuho Financial advanced 2.17%, Mitsubishi UFJ Financial climbed 2.07% and Resona Holdings soared 4.63%.

Shipping stocks also ended higher. Mitsui OSK Lines gained 1.17% and Kawasaki Kisen Kaisha advanced 0.90%. Nippon Yusen remained unchanged from previous close.

In Australia, the benchmark S&P/ASX Index declined 41.00 points, or 0.84% to close at 4,827, while the All-Ordinaries Index ended at 4,850, representing a loss of 45.80 points, or 0.94%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the sale of new motor vehicles in the country rose a seasonally adjusted 3.3% in December compared to the previous three months, coming in at 89,741 vehicles. In the month of November, the sales rose 3.7%. The report further noted that, on an annual basis, new motor vehicles were up 17.2% in December, after having gained 15.8% in the previous month.

In a separate report, the Melbourne Institute revealed that its latest survey on consumer inflationary expectations in the country decreased slightly to 3.5% in January from 3.6% in the previous month. According to Michael Chua of the Melbourne Institute, consumer inflationary expectations have been above the Reserve Bank of Austalia's target band of 2% to 3% since July 2009.

Light sweet crude oil futures for March delivery ended at $78.05 a barrel in electronic trading, up $0.31 per barrel from previous close at $77.74 a barrel in New York on Wednesday.

Commodity related stocks ended weaker on concerns that China's initiative to tighten fresh lending might derail global economic recovery and demand for commodities.
 
BHP Billiton declined 1.70%, Rio Tinto lost 3.19%, Fortescue Metals fell 2.92%, Gindalbie Metals plunged 5.63%, Iluka Resources shed 3.44%, Macarthur Coal dropped 3.64%, and Murchison Metals ended lower by 5.56%.

Oil stocks also ended in negative territory on weaker crude oil prices. Woodside Petroleum lost 1.29%, Santos fell 1.10%, Oil Search slumped 3.61%, Origin Energy slipped 0.42% and Caltex plunged 4.98%.

Gold stocks also plunged on lower bullion prices. Lihir Gold fell 4.28% and Newcrest Mining lost 3.64%.

Mixed trading was witnessed among banking stocks. ANZ Bank edged down 0.04% and National Australia Bank dropped 0.95%. However, Commonwealth Bank of Australia remained unchanged from previous close and Westpac Banking advanced 0.51%.

Telecom stocks ended in positive territory. Telstra gained 1.49% and Singapore Telecommunications advanced 0.43%.

In Hong Kong, the Hang Seng Index ended in negative territory with a sharp loss of 423.50 points, or 1.99% to a three-month low of 20,863, dragged down by banks and property stocks on concerns that the mainland Chinese Government will unleash more tightening measures to cool down the economic growth and also arrest inflation growth. As many as 39 of the 42 components in the index ended in negative territory on concerns about the impact of Chinese actions on global economic recovery.

In South Korea, the KOSPI Index ended in positive territory with a gain of 7.63 points, or 0.45% at 1,722, as traders evinced fresh buying interest in technology stocks amid optimism about economic recovery and better results from domestic companies. Traders have discounted the likely impact of Chinese tightening measures on the global economic recovery. The strengthening of the dollar or weakening of the local currency also impacted market sentiment.

Discouraging global cues, growing inflation pressures and weaker-than-expected earnings from engineering and construction conglomerate Larsen & Toubro pulled India's benchmark stock indexes sharply lower on Thursday. The benchmark Sensex closed near the day's lows at 17,051, down 423 points or 2.42%, the biggest percentage decline since November 3, while the Nifty fell 128 points or 2.44% to 5,094.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index declined 28.88 points, or 1.08% to close at 2,638, Taiwan's Weighted Index ended in negative territory with a loss of 93.06 points, or 1.13% at 8,128, and the Strait Times Index in Singapore lost 42.15 points, or 1.46%, to close at 2,851.. China's Shanghai Composite Index however ended in positive territory with a gain of 7.01 points, or 0.22%, to close at 3,159.

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The major European markets are moving to the upside on Thursday after yesterday’s sharp declined. The French CAC 40 Index and the German DAX Index are rising 0.37% and 0.30%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.14%.

U.S. Economic Reports

First time claims for unemployment benefits unexpectedly showed a significant increase in the week ended January 16th, according to a report released by the Labor Department, with the jump in jobless claims likely to renew concerns about the outlook for the labor market.

The report showed that initial jobless claims rose to 482,000 from the previous week's revised figure of 446,000. The increase came as a surprise to economists, who had expected jobless claims to edge down to 440,000 from the 444,000 originally reported for the previous week.

The Conference Board is scheduled to release a report on U.S. leading economic indicators index for December at 10 AM ET. The consensus estimate calls for a 0.7% increase in the leading indicators index for the month.

The leading indicators index rose 0.9% month-over-month in November compared to the consensus estimate of 0.7% growth. The index has been showing increases for the eight consecutive months. Additionally, the coincident index, reflecting current conditions, increased 0.2% following an unchanged reading in October.

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 18 for January.

The results of the December survey showed that conditions in the sector improved. The manufacturing index rose to 20.4 in December from 16.7 in November, reaching the highest level since November 2005. The new orders index fell to 6.5 from the previous month's 14.8, while the order backlogs index rose to 0 in December from -5.4 in the previous month. The employment index moved into positive territory for the first time since May 2008, rising 6.8 points to 6.3. The inventories index also signaled some improvement from depressed levels. However, the 6-month outlook index declined 12 points to its lowest level since March.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended January 15th at 11 AM ET. The release date was pushed back by a day from the customary release of day of 'Wednesday' due to the public holiday on Monday.

The oil inventory report for the week ended January 8th, 2010 showed that crude oil stockpiled rose by 3.7 million barrels. With the increase, inventories remained above the upper limit of the average range.

Gasoline stockpiles rose by 3.8 million barrels and remained above the upper limit of the average range. Distillate fuel inventories also increased, rising by 1.4 million barrels. Inventories of distillates were now above the upper boundary of the average range. Meanwhile, refinery capacity utilization averaged 80.4% over the four weeks ended January 8th compared to 80% in the previous week.

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Goldman Sachs (GS) is expected to be in focus after it reported that its fourth quarter net revenues were $9.62 billion and earnings per share were $8.20 per share. In the year-ago period, the company reported a loss per share of $4.97. Analysts estimated earnings of $5.20 per share on revenues of $9.65 billion.

Online auctioneer eBay (EBAY) surged up strongly in Wednesday’s after hours session after it reported that its fourth quarter revenues rose 16% year-over-year to $2.4 billion. On a pro forma basis, excluding contributions from Skype, which has since been divested, revenue growth would have been 19%. On a non-GAAP basis, net income was 44 cents per share compared to 41 cents per share last year. The consensus estimates called for earnings of 40 cents per share on revenues of $2.29 billion. For the full year 2010, the company estimates non-GAAP earnings per share in the range of $1.63-$1.68 on revenues of $8.8 billion to $9.1 billion. Analysts estimate earnings of $1.54 per share on revenues of $8.65 billion.

Among other technology companies, Seagate Technology (STX) said its second quarter revenues climbed to $3.03 billion from the year-ago’s $2.27 billion. Analysts estimated revenues of $2.85 billion. The company turned around to a profit of $1.03 per share from a loss of $5.80 per share last year. The stock last traded up over 10% in the after hours session.

F5 Networks (FFIV) also advanced in Wednesday’s after hours session after it reported first quarter non- GAAP earnings of 52 cents per share compared to 40 cents per share last year. Revenues rose 9.2% year-over-year to $191.2 million. Analysts estimated earnings of 49 cents per share on revenues of $185.65 million. For the second quarter, the company estimates earnings of 52-54 cents per share on revenues of $195 million to $200 million. The Street estimates earnings of 48 cents per share on revenues of $186.81 million.

Starbucks (SBUX) rallied in Wednesday’s after hours session after it reported that its first quarter consolidated net revenues rose 4% year-over-year to $2.7 billion, ahead of the $2.60 billion mean analysts’ estimate. The company reported non-GAAP earnings of 33 cents per share, higher than 15 cents per share last year and better than the 28 cents per share consensus estimate. The company updated its 2010 targets, now expecting mid-single digit revenue growth on the back of modestly positive comparable store sales and earnings per share on a non-GAAP basis in the range of $1.05-$1.08. Analysts estimate earnings of $1.02 per share for the year.

Xilinx (XLNX) is expected to see some activity after it reported that its third quarter sales rose 12% to $513.3 million. On a GAAP basis, the company’s earnings declined to 38 cents from 44 cents per share last year. The recent quarter’s results included restructuring charges of 2 cents per share compared to a pre-tax gain of $58.3 million in the year-ago period. Analysts estimated earnings of 35 cents per share on revenues of $491.67 million. The company expects fourth quarter sales to be up 3% sequentially to decline 1% sequentially, while analysts estimate a 4% sequential decline.

Logitech (LOGI) may be in focus after it reported that its third quarter sales fell 2% to $617 million. Adjusted for currency effects, sales declined a steeper 7%. The company’s earnings climbed to 32 cents per share from 22 cents per share last year. Analysts estimated earnings of 27 cents per share on revenues of $603.10 million. For the fourth quarter, the company expects operating income in the range of $15 million to $20 million, gross margin of about 34% and revenues in the range of $500 million to $515 million. The consensus estimate calls for sales of $502.94 million.

Charles Schwab (SCHW) may see some activity after it announced that it has priced its underwritten public offering of 26.32 million shares at $19 per share, in line with its previous session’s closing price of $19.02. The company estimates net proceeds from the offering at $480.8 million.

Estee Lauder Companies (EL) could see buying interest after it said it expects second quarter results to exceed it previous expectations. On a preliminary basis, the company expects net sales growth of 10%-11% and earnings per share of $1.23-$1.30. The company attributed the optimism to stronger net sales, a favorable product mix and the positive effect of continued cautious spending. Analysts estimate earnings of 89 cents per share on revenues of $2.17 billion.

Thomas & Betts (TNB) may react to its announcement that it has agreed to acquire the net assets of power equipment supplier JT Packard & Associates for an estimated net purchase price of $22 million. The company expects the deal to close on January 26th, 2010.

Skyworks (SWKS) receded in Wednesday’s after hours session despite reporting 17% year-over-year revenue growth to $245.1 million in its first quarter. On a non-GAAP basis, the company reported earnings of 27 cents per share, higher than 17 cents per share last year. The results exceeded the consensus estimates, which called for earnings of 25 cents per share on revenues of $240.9 million. For the second quarter, the company expects non-GAAP earnings of 21 cents per share on revenues of about $225 million. Analysts estimate earnings of 19 cents per share on revenues of $214.56 million.

Amdocs (DOX) is also likely to gain ground after it reported first quarter revenues of $725 million, down 3.9% year-over-year. The company reported non-GAAP earnings of 55 cents per share, flat with last year. The Street estimated earnings of 53 cents per share on revenues of $715.54 million. For the second quarter, the company estimates non-GAAP earnings of 52-56 cents per share on revenues of $730 million to $750 million. Analysts currently estimate earnings of 54 cents per share on revenues of $752.40 million.

FMC Technologies (FTI) may also be in focus after it said it has signed a subsea service contract with Petrobras. The company noted that the agreement is effective through 2012 and will result in an incremental $80 million in revenues for the company.

SLM Corp. (SLM) is likely to move in reaction to its announcement that its fourth quarter core earnings rose to 41 cents per share from 8 cents per share last year. Analysts estimated earnings of 44 cents per share.

Panera Foods (PNRA) could see strength after it raised its fourth quarter earnings per share guidance to 94-95 cents per share, including estimated charges of 5 cents per share. Analysts estimate earnings of 88 cents per share for the quarter. The company attributed the expected upside to strong comparable bakery-café sales, which rose 7.4% on a calendar basis. The company also said company-owned comparable bakery-café sales were up 9.1% in the first 21 days of January.

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