US & World Daily Markets Financial Briefing 21-05-2010

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Stocks Looking For Direction In Mid-Morning Trading

Stocks have bounced back from substantial weakness at the open and are looking for direction in mid-morning trading on Friday. The initial pullback towards "flash crash" levels signaled a buying opportunity for some traders who deemed the market oversold, while pessimism regarding the European debt crisis still may be driving some selling.

Developments in Europe still continue to be carefully watched by the markets. Earlier, Germany approved its input to the 750 billion euro (roughly $950 billion) safety net package engineered by European Union and the International Monetary Fund.

Traders are now looking forward to a summit of finance ministers in Brussels today, anxiously waiting to see who will follow in the footsteps of Germany, which banned naked short selling of certain financial instruments earlier this week.

In the U.S. late Thursday, the Senate approved the financial regulatory reform bill by a 59-39 margin after weeks of wrangling, although some stringent measures had to be dropped to pave the way for its clearance.

The bill is intended to usher in sweeping changes in the banking system and will establish checks and balances to prevent another swoon in the financial sector.

Now, the version passed by the Senate has to be reconciled with the one that was passed by the House before it goes to the President to be signed into law.

President Barack Obama will meet with Senate Banking Committee Chairman Chris Dodd, D-Conn., and House Financial Services Committee Chairman Barney Frank, D-Mass., later this morning to begin the process of combining the Senate and House bills.

On the earnings front, PC maker Dell (DELL) reported forecast-beating first quarter results, and footwear retailer Foot Locker (FL) reported that its first quarter earnings rose to 34 cents per share from 20 cents per share in the year-ago period. Sales rose 5.3 percent to $1.28 billion.

The major averages have all seen choppy movement in recent dealing as they continue to lack direction. The Dow is currently up 6.72 points or 0.1 percent at 10,075.73, the Nasdaq is up 5.49 points or 0.3 percent at 2,209.50 and the S&P 500 is up 3.39 points or 0.3 percent at 1,074.98.

Sector News

Steel stocks are rebounding from recent weakness, as reflected by the 2.9 percent advance being shown by the NYSE Arca Steel Index. The upward move is helping the index to climb off of a seven-month closing low.

Brokerage, banking and airline stocks are also moving higher, while weakness is visible among tobacco stocks. The NYSE Arca Tobacco Index is down by 1.3 percent, on pace for a more than five-month closing low.

Health insurance, utility and pharmaceutical stocks are also seeing weakness, offsetting the gains in the other market segments.

Stocks Driven By Analyst Comments

Advance Auto Parts Inc. (AAP) is notably higher in mid-morning trading after being upgraded at FBR Capital Markets from Underperform to Outperform. The stock is currently up by 1 percent after shooting up to a fresh historic intraday high.

On the other hand Wendy's (WEN) is sliding after being downgraded at Argus from Buy to Sell. Shares are currently down by 1.4 percent, sinking to a five-month intraday low.

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Bay Street Stocks May Open Lower Amid Euro Worries

Toronto stocks are poised for a lower open Friday morning on persistent concerns over euro zone sovereign debt levels and tougher financial regulation.

Meanwhile, Canadian consumer prices continued to rise in April, putting further pressure on the Bank of Canada to hike interest rates as the nation's economy recovers from the global recession.

However, value buying at lower levels may help arrest steep declines during the day.

On Thursday, the S&P/TSX Composite Index shed another 259.82 points or 2.23% to 11,405.96, taking its cumulative losses in the past six sessions to 790 points or 6.65%.

The price of oil was lingering near a 10-month low, amid worries over the euro zone. Crude for July moved down $1.64 to $69.16 a barrel.

The price of gold moved down for a fifth session, with gold for June shedding $13.90 to $1,174.70 an ounce.

In corporate news, transcontinental railways operator Canadian Pacific Railway increased quarterly dividend to C$0.27 per share from C$0.2475 per share, payable on July 26, 2010 to holders of record at the close of business on June 25, 2010. The company now plans to spend in the range of $750 million to $800 million on capital programs in 2010.

Integrated energy company Husky Energy announced the appointment of Asim Ghosh as President and CEO, effective June 1, 2010.

Investment holding company Kingsway International Holdings said it will raise up to C$5 million through its amended non-brokered private placement of up to 10.0 million common shares.

Gold explorer Carpathian Gold announced closure of $30 million gold sale agreement with Macquarie Bank Ltd for RDM gold project in Brazil. The bank would disburse $30 million in three tranches, with the first tranche of $7.5 million due today.

Renewable energy company NaiKun Wind Energy posted a narrower second-quarter net loss of C$0.04 per share, compared to C$0.08 per share in the same quarter last year.

In brokerage updates, Scotiabank upped its price target on BCE Inc to C$30 from C$ 27. Clarus initiated coverage of Biox Corp with a 'Buy' rating and a price target of C$2.50.

In economic news, Statistics Canada said consumer prices rose 1.8% in the 12 months to April, following a 1.4% increase in March. The result was roughly in line with the expectations of economists. The Bank of Canada's core index advanced 1.9% over the 12 months to April, following a 1.7% rise in March.

In another report the agency said retail sales rose 2.1% to C$37.0 billion in March, recording a fourth consecutive increase. The jump was largely contributed by higher sales of motor vehicle and parts.

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Indian Market Cuts Early Loss

Worries over the impact of Europe's debt crisis on the global economy continued to weigh on Indian market Friday. However, bargain hunting in select heavyweight stocks amid improving domestic economic outlook helped the benchmark indexes end off the day's lows.

After falling as much as 333 points or about 2% earlier in the session, the 30-share Sensex recouped most of its loss, but closed down 74 points or 0.45%, while the 50-share S&P Nifty fell by 16 points or a modest 0.33% to 4,931. The BSE mid-cap and small-cap indexes lost about 1.5% each, underperforming the frontline indexes.

On the BSE, while 2025 stocks fell, 772 stocks rose, and 85 others closed unchanged. Sector-wise, while power, realty, capital goods and healthcare stocks fell sharply, auto and FMCG stocks witnessed selective buying.

Elsewhere in Asia, extremely weak Wall Street cues and tumbling commodity prices weighed on equities Friday, dragging the MSCI Asia Pacific Index down by about 1.4% to its lowest level in nine months. However, Shanghai stocks ended up 1.08%, reversing an early loss on expectations that the government may pause its tightening cycle. The markets in Hong Kong and South Korea were closed for a public holiday.

The European markets recouped some of their early losses, as the euro gained against the dollar and the U.S stock futures pointed to a higher opening at the opening bell Friday morning.


In economic news, the Bank of Japan maintained its key interest rate at near-zero at the end of its two-day policy meeting on Friday and announced that it will offer one-year loans to commercial banks to encourage lending and pull the country out of deflation.

Bach home, HDFC Bank, TCS, Wipro, Sterlite, Reliance Communication, Larsen & Toubro, ONGC, Tata Power, Hindustan Unilever, Grasim, Hindalco and NTPC led the decliners ending down by 1.5%-4%.

On the flip side, diversified business conglomerate ITC rallied 3.41% on reporting a better-than-expected 27% rise in fourth-quarter net profit. The company also convened a board meeting on June 18 to consider a bonus issue.

Telecom giant Bharti Airtel rose 2.19% after data showed it added three million mobile subscribers in April. Utility vehicles manufacturer Mahindra & Mahindra gained 3.34% on news it will launch its compact diesel pick-up truck in the U.S by the end of December.

In the financial sector, state-run SBI edged up 0.36%, private sector lender ICICI Bank rose 0.17% and mortgage lender HDFC ended up marginally.

Maruti Suzuki (up 2.62%), ACC (up 1.77%), Jaiprakash Associates (up 0.90%), Reliance Infrastructure (up 0.38%) and Tata Steel (up 0.31%) were the other prominent gainers.

Newly-listedp fell over 10% on its listing. Piramal Healthcare plunged almost 12% after Illinois-based pharmaceuticals giant Abbott proposed to buy the former's formulations business for an upfront payment of $2.12 billion. Abbott India shares, meanwhile, rallied 3.71%.

State-run oil companies gained, as crude futures continued to fall in Asian trading Friday. BPCL rose 0.32% and IOC gained 1.54%.

IRB Infrastructure Developers advanced 0.88% on bagging a 114-km road project from NHAI. Fame India added 1.28% after the ADAG group raised its stake in the multiplex operator to 14.51%. Bank of Rajasthan which is merging with ICICI Bank was locked at the 10% upper circuit limit.

Shree Cement slumped over 7% after posting a Rs.71-crore loss in the fourth quarter. Shree Ganesh Jewelery House fell 3% after it bought Kolkata-based Sumit Jewels. Ranbaxy Laboratories said that it has received Canadian health regulator approval to market the generic version of cholesterol lowering medicine Lipitor. However, the stock ended down 2%.

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The major European averages are trading lower for the third straight day, although the losses have been much more modest than on Thursday. Financial stocks are among the worst hit.

Earlier today, Germany's lower house approved the nation's share of the euro rescue package.

The French CAC 40 Index is trading down 1.79% compared to a 2.45% drop by the German DAX Index, while the U.K.’s FTSE 100 Index is receding 1.89%.

In corporate news, British Airways reported a pre-tax loss of 531 million pounds for the full year ended March 2010, wider than the 401 million pound loss reported last year. The loss included a 43 million pound hit to its bottom line due to a 7-day strike by its cabin crew in March.

On the economic front, a survey by the Munich-based Ifo Institute showed that its business climate index fell to 101.5 in May from 101.6 in April, while economists had expected an improvement to 101.9.

The current conditions indicator edged up one-tenth of a point to 99.4, although it came in below forecasts of 100.

Meanwhile, Germany’s Federal Statistical Office today confirmed its preliminary estimate of 0.2% GDP growth for Germany in the first quarter.

The first quarter growth trailed the 0.7% growth recorded in the fourth quarter of 2009, as a relatively cold and long winter caused a steeper than expected slump in the construction sector.

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Dell rose in Thursday’s after hours session after it reported that its first quarter revenues rose 21% year-over-year to $14.9 billion. On a non-GAAP basis, the company reported earnings of 30 cents per share, higher than 25 cents per share last year. Analysts estimated earnings of 27 cents per share on revenues of $14.27 billion.

Bunge may also gain ground after it announced that its board has approved a 9.5% increase in its regular quarterly cash divided to 21 cents per share.

Foot Locker also advanced in Thursday’s after hours session after it reported that its first quarter earnings rose to 34 cents per share from 20 cents per share in the year-ago period. Sales rose 5.3% to $1.28 billion. The results were ahead of Street expectations.

However, teen apparel retailers reacted negatively to their earnings announcement. Pacific Sunwear (PSUN) reported a first quarter loss of 47 cents per share, wider than the loss of 13 cents per share last year. On a non-GAAP basis, the company reported a loss of 30 cents per share, narrower than the consensus estimate for a loss of 36 cents per share. Net sales fell to $190.31 million from the year-ago’s $223.47 million but exceeded the $185.77 million consensus estimate. For the second quarter, the company expects a loss of 22-28 cents per share, while analysts estimate a loss of 17 cents per share.

Aeropostale’s first quarter net sales rose 14% to $463.6 million. The company’s earnings rose to 48 cents per share from 31 cents per share last year. Analysts estimated earnings of 46 cents per share on revenues of $463.67 million. For the second quarter, the company estimates earnings of 45-48 cents per share. The consensus estimates call for earnings of 47 cents per share.

Gaps said its first quarter earnings rose 45% to 45 cents per share and its net sales rose 6% to $3.33 billion. The results were ahead of estimates The company upwardly revised its 2010 earnings per share guidance to $1.77-$1.82 from its earlier estimate of $1.70-$1.75, while analysts estimate earnings of $1.84 per share.

Marvell Technology showed moderate strength in Thursday’s after hours session after it reported first quarter net revenues of $856 million, up 64% year-over-year. The company’s non-GAAP net income rose to 38 cents per share from 5 cents per share last year. Analysts estimated earnings of 37 cents per share on revenues of $845.29 million.

Salesforce.com receded sharply in Thursday’s after hours session after it forecast second quarter revenues of $381 million to $383 million and non-GAAP earnings to 26-27 cents per share. Analysts estimate earnings of 31 cents per share on revenues of $367.86 million. The company raised its 2011 revenue guidance to $1.55 billion to $1.56 billion and it expects non-GAAP earnings of $1.13-$1.15. The consensus estimates call for earnings of $1.28 per share on revenues of $1.54 billion. The company reported first quarter revenues of $376.8 million, up 24% year-over-year, and non-GAAP earnings of 30 cents per share, up 7% year-over-year. Revenues exceeded the $367.86 million consensus estimate, while the earnings were in line with estimates.

Brocade rallied in Thursday’s after hours session after it reported that its second quarter revenues declined 1.1% year-over-year to $501 million and its non-GAAP earnings rose 18.2% to 13 cents per share. The consensus estimates had called for earnings 12 cents per share on revenues of $505.23 million.

Intuit is likely to see some activity after it reported that its first quarter revenues rose 13% year-over-year to $1.6 billion. The company’s non-GAAP earnings rose 13% to $1.89 per share. Analysts estimated earnings of $1.82 per share on revenues of $1.55 billion. The company raised its guidance for the full year, now expecting non-GAAP earnings of $2.03-$2.06 per share on revenues of $3.410 billion to $3.425 billion. The consensus estimates call for earnings of $2.02 per share on revenues of $3.37 billion.