US & World Daily Markets Financial Briefing 22-06-2010

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Stocks Split Following Disappointing Existing Home Sales Data

Stocks are showing a lack of conviction in mid-morning trading on Tuesday as traders digest a disappointing existing home sales report for May. The major averages are near the unchanged line, although the tech-heavy Nasdaq is seeing a modest gain.

A short time ago, the National Association of Realtors reported that existing home sales showed an unexpected decrease in the month of May, with higher sales in the West and the South more than offset by a notable drop in sales in the Northeast.

Existing home sales fell 2.2 percent to an annual rate of 5.66 million units in May from an upwardly revised 5.79 million unit rate in April. Economists had expected sales to rise to a 6.10 million unit rate from the 5.77 million unit rate originally reported for the previous month.

Meanwhile, the Federal Housing Finance Agency said that its home price index increased by 0.8 percent in April following a downwardly revised 0.1 percent increase in March. Despite the monthly increase, the index is down 1.5 percent compared to the same month a year ago.

The Federal Reserve also begins its two-day interest rate-setting meeting today, culminating with the release of its interest rate decision and economic commentary Wednesday afternoon.

The announcement will garner significant market attention but more so for its economic commentary, as economists expect the Fed to leave rates unchanged.

In corporate news, Walgreen Co. (WAG) reported that its third-quarter net earnings declined to $0.47 per share from $0.53 per share in the same quarter last year. Wall Street analysts had expected the company to report earnings of $0.57 per share for the quarter.

Walgreen said its net sales for the quarter totaled $17.20 billion, up from $16.21 billion in the prior year quarter and also higher than revenues of $17.14 billion forecast for the period.

Meanwhile, any new developments in the BP Plc (BP) saga are likely to grab headlines, as the firm continues its struggle to cap the leaking oil well in the Gulf of Mexico. Yesterday, the firm announced that the cost of the oil cleanup has reached $2 billion.

The major averages have all seen choppy movement in recent dealing, looking for direction. While the Nasdaq is up 1.55 points or 0.1 percent at 2,290.64, the Dow is down 22.30 points or 0.2 percent at 10,420.11 and the S&P 500 is down 3.40 points or 0.3 percent at 1,109.80.

Sector News

Airline stocks are seeing heavy selling in mid-morning trading, as reflected by the 2.6 percent drop by the NYSE Arca Airline Index. Within the sector, Delta Airlines (DAL) is down by 4.7 percent, falling to a two-week intraday low.

Railroad and trucking stocks are also under pressure, further indicating today's weakness in the transportation sector.

Oil service, natural gas, utility and housing stocks are also markedly lower, with the weakness among housing stocks coming on the heels of the worse than expected existing home sales data.

Meanwhile, gains by brokerage, gold and software stocks are partially offsetting the downside in the other market segments.

Stocks Driven By Analyst Comments

Lincare (LNCR) is moving higher after being upgraded at Deutsche Bank from Hold to Buy. The stock has gained 6.7 percent, moving back toward the historic closing high set earlier this month.

On the other hand, PetroQuest Energy (PQ) is under pressure following a downgrade at Capital One Southcoast from Add to Neutral. Shares are down by 4.3 percent, pulling back off of yesterday's eighteen-month closing high.

Entergy (ETR) is also moving lower after being downgraded at Citigroup from Hold to Buy. The broker also trimmed its price target on the stock from $87 to $78. The stock is down by 3.2 percent but remains rangebound.

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TSX Poised For Lower Open Amid Easing Commodities, Inflation Data

Toronto stocks may open lower Tuesday amid easing commodities prices and data on consumer price index.

While commodities surrendered most of their previous session's gains, Canada's inflation eased on an year-over-year basis in May from the previous month but came in higher than consensus estimates.

Meanwhile, global stocks were mostly down as euro zone worries overshadowed the China's weekend move, which indicated an end to the yuan's fixed rate to the dollar. European stocks eased after rating agency Fitch downgraded its debt rating on the largest bank in the region by deposits, BNP Paribas SA, by one notch to 'AA-' from 'AA'

Also, uncertainty grew about how much China would allow its currency to appreciate and the longer-term impact that would have on its imports.

On Monday, the S&P/TSX Composite Index edged up 8.49 points or 0.07% to 11,936.08, after advancing to an intraday high of 12,077.

The price of oil moved down from its 6-week high ahead of weekly inventories data from the API and the U.S. housing data. Crude for July delivery slipped $0.63 to $77.19 a barrel.

The price of gold retreated from its all-time high of $1,266.50 hit intraday Monday. Gold for August was down $5.20 to $1,235.50 an ounce.

In corporate news, precious metals explorer Royal Gold said it would offer 6.5 million of its common stock pursuant to its shelf registration statement filed with the SEC and a shelf prospectus with Canadian Securities regulatory authorities.

Metals mining company Intrepid Mines announced that its board of directors has now withdrawn its support for the proposed sale of Paulsens mine to Northern Star Resources Ltd.

Energy storage systems company ISE Ltd. said its wholly-owned subsidiary, ISE CleanTech Inc. signed a 5-year exclusive supply agreement with Optare UK Ltd.

Mineral explorer Northern Tiger Resources has signed an Option Agreement to acquire the DEET Property, which has produced more than 14,000 ounces of placer gold since 1905.

In economic news, Statistics Canada said the consumer prices index (CPI) rose 1.4% year-over-year in May following a 1.8% increase in April. Economists were expecting CPI to rise to 1.3% year-over-year in May.

Energy prices rose 6.2% over the 12 months in May against a 9.8% increase for the year to April. Excluding energy, the CPI rose 1.0% in May, after rising 1.1% in the previous month. However on a seasonally adjusted monthly basis, the CPI eased 0.1% in May after remaining flat in the previous two months.

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Asian Markets End In Negative Territory

Asian markets ended the trading session on Tuesday in negative territory, as concerns about Europe resurfaced, dampening the market sentiment. Weak closing on Wall Street in the previous session, having pared all the early gains, amid apprehensions about China's currency move, also impacted market sentiment. Profit taking was witnessed among the markets as traders preferred to adopt a wait and watch attitude, awaiting more cues on global economy.

In Japan, the benchmark Nikkei 225 Index lost 125.12 points, or 1.22%, to 10,113, while the broader Topix index of all First Section issues was down 7.93 points, or 0.88%, to 895.

On the economic front, a statement released by the Cabinet Office revealed that it expects the Japanese economy to grow much faster than initially estimated in the current fiscal year. As per the statement, growth is now seen at 2.6% in the year to March 2011, up from the previous projection of 1.4%. For the fiscal 2011/12, the government estimate 2% growth. The upward projection was driven by rise in exports, especially to Asia. A recovery in capital spending as well as improving corporate profits also supported the revision. Further, consumer prices are forecast to stop declining in fiscal 2011.

Almost all the stocks, excluding banks, ended in negative territory on profit taking.

Among shipping stocks, Mitsui OSK Lines slipped 1.79%, Kawasaki Kisen Kaisha shed 0.78% and Nippon Yusen fell 1.65%.


Trading companies also ended in negative territory on profit taking. Mitsui & Co., declined 2.89%, Sumitomo Corp. fell 3.25%, Itochu Corp. lost 3.00%, Toyota Tsusho Corp. slipped 1.21%, Mitsubishi Corp. shed 0.59% and Marubeni Corp. was down 1.35%.

Banks however, bucked the trend and managed to end in positive territory with minor gains. Among the large banks, Sumitomo Mitsui Financial advanced 0.67%, Resona Holdings climbed 2.84%, and Mitsubishi UFJ Financial gained 0.70%. Mizuho Financial managed to end unchanged from previous close.

In Australia, the benchmark S&P/ASX200 Index .declined 54.30 points, or 1.18% and closed at 4,558, while the All-Ordinaries Index ended at 4,581, representing a loss of 51.40 points, or 1.11%.

On the economic front, a statement released by the Australian Bureau of Agricultural and Resource Economics, or ABARE, revealed that commodity export earnings for the country are set to rise by 23.4% in 2010/11 to A$202.5 billion. This compares to estimated earnings of A$164.1 billion in 2009/10. "Reflecting continued recovery in the world economy, we are expecting growth in export earnings from the farm sector as well as the minerals and energy sector in 2010/11." said ABARE deputy executive director Paul Morris.

Banks ended the session in negative territory. ANZ Bank declined 1.57%, Commonwealth Bank lost 1.39%, investment banker Macquarie Group fell 1.94%, National Australia Bank slipped 1.22% and Westpac Banking was down 2.14%.

Mining and metal stocks also ended weaker. BHP Billiton slipped 0.63%, Rio Tinto shed 0.32%, Fortescue Metals fell 1.53%, Gindalbie Metals declined 3.59%, Iluka Resources was down 3.33%, Macarthur Coal plunged 4.00%, Mincor Resources lost 2.05% and Oz Minerals decreased by 1.87%.

Gold related stocks declined sharply following drop in bullion prices in the international market. Lihir Gold declined 2.89% and Newcrest Mining lost 1.82%.

Oil stocks also ended weaker following drop in crude oil prices. Woodside Petroleum shed 0.77%, Santos declined 2.80%. Oil Search slipped 1.35% and Origin Energy shed 1.07%. However, ROC Oil Co. managed to end unchanged from previous close.

Among other companies, telecommunications company Telstra ended in negative territory with a loss of 2.40%.

In Hong Kong, the benchmark Hang Seng Index ended in negative territory with a loss of 93.10 points, or 0.45%, at 20,819, as traders preferred to lock in gains from the recent rally and moved to the sidelines awaiting more cues on global economic recovery. The euphoria related to China's currency move faded following weak closing on Wall Street in the previous session and debt concerns in Europe resurfaced. Weak trading across other markets in the region also impacted market sentiment.

Profit taking following recent sharp gains and negative global cues amid doubts about the genuinity of China's resolve to allow more flexibility in its currency's exchange rate weighed on the Indian market Tuesday. Many analysts remain skeptical over Beijing's announcement and see the yuan move as a mere strategy to ease international criticism ahead of the G20 meeting. The 30-share BSE Sensex ended near the day's low at 17,750, down 127 points or 0.71% and the 50-share Nifty fell 37 points or 0.69% to 5,317.

Among the other major markets open for trading, Indonesia's Jakarta Composite Index slipped 7.31 points, or 0.25% to close at 2,935, Taiwan's Weighted Index fell 22.88 points, or 0.30% to close at 7,613, and Singapore's Strait Times Index lost 13.34 points, or 0.46% to close at 2,872. However, China's Shanghai Composite Index bucked the trend and ended in positive territory with a marginal gain of 2.49 points, or 0.10%, at 2,589.

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The major European averages have retreated on Tuesday following eight straight sessions of gains. The French CAC 40 Index and the German DAX Index are retreating 0.94% and 0.49%, respectively, while the U.K.’s FTSE 100 Index is declining 1.05%.

On the economic front, survey results from the Ifo Institute showed that Germany’s business climate unexpectedly improved in June. The corresponding index rose to 101.8 in June from 101.5 in May. The current conditions climbed 1.7 points to 101.1, while the expectations index slid to 102.4 from 103.7.

U.S. Economic Reports

The Federal Reserve Open Market Committee is scheduled to begin its 2-day meeting on Tuesday. The FOMC is due to make an announcement regarding the near-term direction of monetary policy at 2:15 PM ET on Wednesday.

The National Association of Realtors is scheduled to release its report on existing home sales for May at 10 AM ET. Economists estimate existing home sales of 6.10 million for the month.

In April, existing home sales rose to a seasonally adjusted annual rate of 5.77 million units from 5.36 million units in March.

However, inventories measured in terms of months of supply rose to 8.4 months from 8.1 months. The median price of an existing home rose 4% year-over-year and was up 2.06% month-over-month to $173,100.

According to estimates by the National Association of Realtors, first time buyers bought 49% of the existing homes sold in April, while the share of investors buying homes fell to 15%.

The Federal House Finance Agency, or FHFA, is set to release its house price index for April at 10 AM ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. The house price index rose 0.3% month-over-month in March.

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Walgreen Co. (WAG) could move in reaction to its announcement that its third quarter sales rose 6.1% year-over-year to $17.2 billion. The company earned 47 cents per share, including charges amounting to 7 cents per share. This compares to 53 cents per share in the year-ago period, which included a charge of 6 cents per share. Analysts’ estimates, which exclude one-time items, called for earnings of 57 cents per share on revenues of $17.14 billion.

Forest Labs (FRX) is likely to be in focus after it said the FDA has approved NAMENDA, a dementia treatment developed by German firm Merz Pharma and has been licensed to Forest Labs to be marketed in the U.S. Forest Labs also said the 29 mg once-daily extended-release formulation of Namenda is used to treat moderate to severe dementia of the Alzheimer’s type.

Royal Gold (RGLD) is expected to see some weakness after it said it intends to offer 6.5 million shares in a public offering while also granting the underwriters a 30-day option to buy up to 975,000 additional shares to cover over-allotments, if any. The company said it would use the proceeds to repay debt and to fund acquisitions of additional royalty interests.

PPL Corp. (PPL) may also be in focus after it said it has reached an agreement with Local 1600 of the International Brotherhood of Electric Workers union on a new 4-year contract, providing wage increases for union employees in each year of the agreement. The contract period runs through May 11, 2014.

FMC Technologies (FTI) is expected to see some buying interest after it said it has signed an agreement with Statoil for the manufacture and supply of subsea production equipment to support the Pan Pandora field. The contract will generate $70 million in revenues for FMC Technologies.

PetSmart (PETM) may also move to the upside after it announced a 25% increase in its regular quarterly dividend to 12.5 cents per share from 10 cents per share, beginning in the second quarter of 2010. The company also said its board authorized a new $400 million share repurchase program that expires in January 2012, replacing its $350 million program approved by the board in 2009.

Sonic Corp. (SONC) is likely to be in focus after it reported that its third quarter net income fell to 18 cents per share from 27 cents per share last year. On an adjusted basis, the company earned 15 cents per share, lower than the year-ago’s 24 cents per share. Revenues fell 19% to $145.9 million. Analysts estimated earnings of 21 cents per share on revenues of $149.45 million. Citing the continued challenging economic and credit environment and based on its third quarter results, the company guided 2010 earnings to decline year-over-year to 50-55 cents per share, while analysts estimate earnings of 56 cents per share.

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