US & World Daily Markets Financial Briefing 21-10-2009

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Mixed Earnings May Increase Anxiety of Traders

The major U.S. index futures are pointing to a lower opening on Wednesday, with apprehensions about recovery and some mixed earnings reports dampening sentiment. In reaction to the muted outlook, commodity prices have turned lower. The oil space may see some volatility ahead of the release of the EIA’s oil inventory report. Traders may also closely watch the Fed’s Beige Book to read between lines, as they are confronting an uncertain economic outlook.

U.S. stocks declined on Tuesday, as a lukewarm housing report stirred the hornet’s nest, re-igniting concerns about the economic recovery. The markets largely ignored upbeat earnings from some bellwether companies and succumbed to profit taking following the recent run-up. The major averages, which climbed to fresh highs for the year in the previous session, opened lower and saw a steady decline throughout the morning. After bottoming out by the mid-session, the indexes recouped some of their losses but still ended moderately lower.

The Dow Industrials retreated 50.71 points or 0.50%, but held above the 10,000 level, ending the day at 10,042. The Nasdaq Composite ended down 12.85 points or 0.59% at 2,164, while the S&P 500 Index receded 6.85 points or 0.62% to 1,091.

Twenty-four of the thirty Dow components ended the session lower, with the decline spearheaded by Boeing (BA) (down 2.92%), DuPont (DD) (down 2.17%), Home Depot (HD) (down 2.39%) and Alcoa (AA) (down 1.99%). On the other hand, Caterpillar (CAT), which reported better than expected third quarter results and upwardly revised its guidance for the full year, rallied 3.04%.

Among the sector indexes, the Dow Jones Utility Average fell 1.49% and the Dow Jones U.S. Basic Materials Average slipped 1.02%. The NYSE Arca Biotechnology Index declined 2.91%, the Philadelphia Oil Service Index receded 1.59% and the NYSE Arca Gold Bugs Index declined 2.38%. The NYSE Arca Securities Broker/Dealer Index slid 1.39% compared to a 1.66% drop by the S&P Retail Index and a 1.23% decline by the Philadelphia Housing Sector Index. However, the NYSE Arca Airline Index gained about 1%, and helped by a nearly 5% rally by Apple (AAPL), the NYSE Arca Computer Hardware Index rose 2.26%.

On the economic front, the Commerce Department’s housing starts report showed a smaller-than-expected 0.5% month-over-month increase in starts to 590,000 in September. Although housing starts have bounced back from their all time lows in April, they were down 28% from the year-ago period. On a mildly positive note, single-family starts rose a solid 3.9%. However, building permits, an indicator of future housing activity, declined 1.2%, probably in nervous reaction to the November 30 deadline for the first time home buyers credit.

Producer prices fell 0.6% month-over-month in September and core producer prices edged down 0.1%. The decline in the headline number was primarily due to a 2.4% drop in energy prices. However, with commodity prices rising in October, the deflationary trend is likely to reverse in the coming months.

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Resource Stocks Could Pull TSX Lower

Canadian stocks could see early weakness on Wednesday as lower commodity prices could weigh on the resource sectors. The market has moved near a four-week high in recent days.

Crude oil has dropped 96 cents to $78.13 as investors await the Energy Information Administration's weekly inventory report later this morning. Gold is down $6.80 to $1,051.80 per ounce and copper has slipped 1.1 cent to $2.921 per pound.

In corporate news, Canadian National Railway reported net income of C$461 million or C$0.97 per share for the third quarter, compared to C$552 million or C$1.16 per share in the year-ago quarter. The stock rose 0.5% during the session.

Dynasty Metals & Mining announced that it has entered into deal with a syndicate of underwriters to sell 1.5 million common shares at $4.00 per common share for gross proceeds of $6 million on a bought deal private placement basis. Closing of the offering is anticipated to occur on or before November 3.
 
Ivanhoe Energy Inc. announced the appointment of David Dyck as President and CEO of Ivanhoe Energy Canada.

TransAlta Corp. said its subsidiary has acquired 87% of Canadian Hydro Developers for $5.25 cash per share.

SemBioSys Genetics announced it will acquire a 10% stake in Advitech.

On Tuesday, the S&P/TSX Composite Index edged down 0.27 point to finish at 11,538.12. The market finished Monday at its best level since September 22.

Currency, Commodity Futures

Crude oil futures for December delivery in their first day as the front-month contract are trading down $1.30 at $77.82 a barrel after a private U.S. oil inventory report showed a fairly decent build up in crude oil stockpiles. Snapping an 8-session winning streak, the November futures expired at $79.08 a barrel, down $0.52, on Tuesday.

After rising $0.50 to $1,058.60 an ounce in the previous session, gold futures are receding $6.50 to $1,052.10 an ounce.

Among currencies, the U.S. dollar is trading at 91.114 yen compared to the 90.775 yen it fetched at the close of New York trading on Tuesday. The dollar is currently valued at $1.4918 versus the euro.

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Asian Markets Drift Lower On Profit Taking

The markets open for trading in Asia ended in negative territory as traders preferred to lock-in gains and move into sidelines awaiting further cues about global economy and earnings from U.S companies. Weak closing in Wall Street on Tuesday following weaker-than-expected economic data related to housing starts and producer prices also impacted market sentiment.

In Japan, the Nikkei 225 Index fell 3.45 points, or 0.03% to 10,333, while the broader Topix index of all first section stocks was up 0.25 point, or 0.03%, to 914.

Bank of Japan Deputy Governor Kiyohiko Nishimura hinted that the central bank may end its corporate funding programmes on December 31, when they expire.

Recent improvements in the financial market conditions have strengthened this speculation. Speaking to business leaders in Kobe, western Japan, Nishimura said companies with higher credit ratings now find it easier to sell bonds and commercial paper. He added that the central bank will make comprehensive and appropriate decision on corporate funding measures at its next policy meeting on October 30 or later.

Light sweet crude oil futures for November delivery ended at $78.65 a barrel in electronic trading, down $0.47 per barrel from previous close at $79.12 a barrel in New York on Tuesday.

Property related stocks declined as traders preferred to lock in gains from the recent rally. Mitsui Fudosan declined 4.08%, Mitsubishi Estate fell 2.80%, Sumitomo Realty & Development slipped 0.44% and Tokyu Land Corp. shed 1.23%.
 
Non-ferrous metal stocks also ended lower on profit taking. Sumco Corp declined 1.27%, Sumitomo Metal Mining fell 1.58%, Sumitomo Electric Industries lost 1.82% and Fujikura Ltd shed 1.62%.

Pulp & Paper stocks ended in negative territory. Nippon Paper Group lost 1.69%, Oji Paper Company shed 0.71% and Mitsubishi Paper Mills slipped 0.79%.

Japan Airlines, the struggling airline, is the major gainer, having gained 7.76% on speculation that the company might get funding from the government.

Fast Retailing, operator the Uniglo casual wear brand, surged up 4.96% on fresh buying interest. The other major retailers, however, ended in negative territory. Aeon Co. lost 1.09%, Seven & I Holdings fell 3.22% and J Front Retailing declined 1.41%.

In Australia, the benchmark S&P/ASX200 Index slipped 7.60 points, or 0.16% to close at 4,839, while the All-Ordinaries Index ended at 4,846, representing a loss of 6.60 points, or 0.14%.

On the economic front, a report from Westpac Bank and Melbourne Institute said that the annualized leading index for Australian economic activity showed positive growth in August, signaling a further improvement in economic conditions in the coming months. The Leading Index rose 1.7% on an annualized basis, marking the first time since September 2008 that the annualized leading index has recorded positive growth. However, the annualized growth rate remained below its long term trend of 2.8%.

Separately, the Australian Bureau of Statistics revealed that new motor vehicle sales in the country rose by a seasonally adjusted 2.9% during September compared to the previous month. According to the report, total vehicle sales in the country totaled 77,744 during September.

Light sweet crude oil futures for November delivery ended at $78.65 a barrel in electronic trading, down $0.47 per barrel from previous close at $79.12 a barrel in New York on Tuesday.

Metals and mining stocks ended weaker following drop in commodity prices in the international market. BHP Billiton edged down 0.20%, Rio Tinto slipped 0.30%, Fortescue Metals declined 1.24%, Gindalbie Metals fell 1.08%, Iluka Resources shed 0.77% and Oz Minerals slumped 2.70%.

Mixed trading was witnessed among energy stocks. Woodside Petroleum added 0.47%, Santos gained 0.70% and Oil Search advanced 0.64%. However, Origin Energy bucked the trend and ended lower by 0.49%.
 
Gold stocks ended in negative territory. Lihir Gold declined 1.24%, Newcrest Mining slipped 0.66% and Sino Gold Mining edged down 0.14%.

Mixed trading was witnessed among the bank and financial stocks. Among the banks, Commonwealth Bank of Australia shed 0.86%, National Australia Bank slipped 0.32% and Westpac Banking fell 0.42%. However, ANZ Bank bucked the trend and ended higher with a gain of 0.21%. Investment banking company, Macquarie Group fell 1.04%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 66.85 points, or 0.30% to 22,318, as traders preferred to lock-in gains following recent rally and move to the sidelines awaiting further cues on the global economy. Weak closing on Wall Street in the previous session on weaker-than-expected economic data related to housing starts and producer prices and mixed earnings results from corporates impacted the market sentiment.

In South Korea, the KOSPI Index ended in negative territory with a minor loss of 5.29 points, or 0.32% at 1,654, as technology related stocks declined following weaker closing in Wall Street in the previous session on weak economic data related to housing starts and industrial prices. The market, having opened lower rose above the unchanged line in early trading but drifted lower as technology related stocks were sold on profit taking in relatively light trading session.

Intensive profit taking in frontline stocks dragged the Indian market sharply lower on Wednesday. The negative sentiment in the global markets also affected sentiment. As commodity prices slipped tracking a stronger dollar, the Asian markets ended mostly in the red, European stocks reversed earlier gains, and U.S. stock futures drifted lower, suggesting weakness on Wall Street Wednesday morning. The BSE Sensex closed at 17,009, down 214 points or 1.24% and the S&P CNX Nifty fell by 51 points or nearly a percent to 5,064.

All the other major markets in the region ended in negative territory as traders preferred to lock-in gains following recent rally. China's Shanghai Composite Index declined 13.86 points, or 0.45% to 3,071, Taiwan's Weighted Index shed 52.02 points, or 0.67%, to 7,701, Singapore's Strait Times Index fell 18.54 points, or 0.68% at 2,693 and Indonesia's Jakarta Composite Index lost 25.42 points, or 1.02% to close at 2,477.

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The major European markets have ignored a positive start and are trading notably lower. While the French CAC 40 Index and the German DAX Index are receding 1.25% and 0.89%, respectively, the U.K.’s FTSE 100 Index is moving down 0.95%.

In corporate news, Cadbury Schweppes (CBY), which has been pursued by Kraft Foods (KFT), reported that its third quarter revenues rose 7%. The company now expects full year revenue growth to be in the middle of the 4%-6% range compared to its earlier estimate for sales growth at the low-end of its 4%-6% range. The company also expects a 1.35 percentage point improvement in profit margin, higher than its earlier estimate of 80-100 basis points improvement.

In economic news, the minutes of the Bank of England’s October monetary policy meeting showed that the committee members voted unanimously to hold interest rates at 0.5% while also resolving to continue its asset purchase program totaling 175 billion pounds. However, there were differences of opinion among members of the committee on the balance of risks to the medium-term outlook for inflation and how it had shifted in recent months.

U.S. Economic News

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended October 16th at 10:30 AM ET.

In the week ended October 9th, gasoline inventories fell by 5.2 million barrels, but yet they were just above the upper limit of the average range.

Distillate fuel inventories fell by 1.1 million barrels, although they remained above the upper boundary of the average range. Meanwhile, crude oil inventories rose by 0.4 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 84% over the four weeks ended October 9th compared to 85.5% in the previous week.

The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

Boston Federal Reserve Bank President Eric Rosengren is due to open the Boston Fed's annual Cape Cod economic conference in Chatham, Massachusetts on re-evaluating regulatory and monetary policy at 4:30 PM ET.

Earnings

Altria reported third quarter earnings of 42 cents per share, flat with last year. The company’s adjusted earnings rose 4.3% to 48 cents per share. Net revenues rose 10.7% to $5.63 billion. The consensus estimate called earnings of 47 cents per share on revenues of $4.66 billion. The company narrowed its full year adjusted earnings per share from continuing operations guidance to $1.74-$1.77 from its earlier estimate of $1.72-$1.77 per share. Analysts estimate earnings of $1.76 per share.

Boeing said its third quarter revenues rose 9% to $16.7 billion. The company reported a loss of $2.23 per share, including a charge of $3.59 per share. Analysts estimated a loss of $2.12 per share on revenues of $17.16 billion. The company reaffirmed its 2009 revenue guidance of $68 billion to $69 billion, while it reduced its earnings per share forecast to $1.35-$1.55 from its earlier estimate of $4.70-$5 per share. The Street estimates earnings of $1.54 per share on revenues of $67.83 billion.

Eli Lilly’s third quarter adjusted earnings were $1.20 per share, ahead of the $1.02 per share consensus estimate. Revenues rose 7% to $5.56 billion. The company estimates full year adjusted earnings of $4.30-$4.40 per share compared to the $4.92 per share consensus estimate.

St. Jude reported third quarter net sales of $1.16 billion, up 7% year-over-year. On an adjusted basis, the company reported earnings of 59 cents per share. Analysts estimated earnings of 58 cents per share on revenues of $1.16 billion. The company expects fourth quarter earnings of 61-63 cents per share and full year earnings of $2.41-$2.43 per share. The Street estimates earnings of 66 cents per share for the fourth quarter and $2.44 per share for the full year.

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Yahoo could rally after it reported that its third quarter earnings rose to 13 cents per share from 4 cents per share last year. The earnings growth came despite a 12% decline in revenues to $1.58 billion. Excluding traffic acquisition costs, the company’s revenues were $1.12 billion, lower than $1.14 billion last year, but in line with the consensus estimate. For the fourth quarter, the company expects revenues of $1.6 billion to $1.7 billion and traffic acquisition costs to range between 26%-27% of the revenues.

Gilead Sciences is expected to trade higher after it reported third quarter adjusted earnings of 74 cents per share, as revenues rose 31% to $1.8 billion. Analysts estimated earnings of 67 cents per share on revenues of $1.75 billion.

SanDisk may also be in focus after it reported adjusted earnings of 75 cents per share for its third quarter compared to a loss of 59 cents per share last year. Revenues rose to $935.2 million from the year-ago’s $821.5 million. The consensus estimates had called for earnings of 26 cents per share on revenues of $787.9 million.

Seagate Technology could move to the downside after it reported that its first quarter net income declined to 35 cents per share from 12 cents per share last year. The recent quarter’s results included 23 cents per share in charges. Revenues declined to $2.66 billion from $3.03 billion in the year-ago period. The Street had estimated earnings of 47 cents per share on revenues of $2.62 billion.

Cymer is likely to move after it said its third quarter net income rose to 36 cents per share from 18 cents per share last year. Revenues fell to $92.33 million from $110.62 million last year. Analysts estimated earnings of 17 cents per share on revenues of $82.20 million. For the fourth quarter, the company expects revenues to be comparable to the third quarter, while analysts estimate revenues of $90.62 million.

Sallie Mae may also see activity after it reported third quarter net income attributable to common shareholders of 25 cents per share compared to a loss of 40 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 26 cents per share compared to the 4 cents per share consensus estimate.

Hanover Insurance Group may gain ground after it announced that its board has approved a 67% increase in its annual dividend to 75 cents per share. The board also authorized a change in the company’s dividend payment schedule to quarterly payments, beginning in fiscal year 2010.

STMicroelectronics  could also be in focus after it announced that its third quarter net revenues totaled $2.28 billion. On a non-GAAP basis, the company reported a loss of 17 cents per share compared to a profit of 15 cents per share last year. Analysts had estimated a loss of 9 cents per share on revenues of $2.25 billion.

Tupperware Brands may trade higher after it said its third quarter earnings rose to 50 cents per share from 43 cents per share last year. On an adjusted basis, the company’s earnings were 54 cents per share, ahead of the 42 cents per share consensus estimate. Revenues rose about 1% to $514 million and exceeded the mean analysts’ estimate of $486 million. The company raised its 2009 earnings estimate to $2.84-$2.89 per share from its earlier estimate of $2.59-$2.64 per share. The company’s 2010 earnings guidance was also above the consensus estimate.

Navistar is likely to see activity after it announced that it would offer $1 billion worth of senior notes due 2021 and $500 million worth of senior subordinated convertible notes due 2014.

IMS Health could move in reaction to its announcement that it is exploring a variety of strategic alternatives. Meanwhile, MDS may also be in focus after it said its shareholders have approved the sale of its MDS Analytical Technologies business to Danaher Corp. (DHR) for $650 million in cash.

South Financial Corp. could see weakness after it said it expects a loss of $1.95 per share for its third quarter, primarily due to credit provisions and related costs and a $200 million non-cash charge related to the recording of a valuation allowance for deferred tax assets. Analysts estimate a loss of 44 cents per share for the quarter.

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