US & World Daily Markets Financial Briefing 23-04-2010

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Reduced Visibility into Recovery May Keep Sentiment Subdued

The major U.S. index futures are pointing to a slightly higher opening on Friday, with sentiment likely to alternate between hope and despair. Greece has finally thrown in the towel and has sought the rescue package extended by the European Union and the IMF. The euro is continuing to see weakness amid the development, sending the dollar higher and commodities lower. Meanwhile, a report released earlier in the day showed that durable goods orders unexpectedly fell in March, weighed down by weakness in transportation orders.

However, excluding transportation orders, order growth remained fairly strong. The new home sales report to be released later in the day may also impact market movement. New home sales are likely to show an increase following recent weakness, in line with the sentiment relayed by existing home sales.

U.S. stocks opened Thursday’s session notably lower amid nervousness about a deterioration in Greece’s fiscal situation even as the Mediterranean nation is holding talks with the European Union and the IMF for a possible financial assistance. However, with earnings and economic data remaining supportive, the weakness waned over the course of the session. The major averages bounced well off their worst levels of the day, climbing above the unchanged line in late trading to close modestly to moderately higher.

The Dow Industrials ended the session up 9.37 points or 0.08% at 11,134 and the S&P 500 Index rose 2.74 points or 0.23% to end at 1,209. Meanwhile, the tech-heavy Nasdaq Composite Index showed a more notable advance, climbing by 14.46 points or 0.58% to 2,519.

Seventeen of the thirty Dow components closed the session higher, with Boeing (BA) (up 1.93%), Travelers Co. (TRV) (up 1.88%), American Express (AXP) (up 1.70%) and Bank of America (BAC) (up 1.42%) showing notable gains. On the other hand, Merck (MRK) declined sharply for the second straight day, dropping 2.79%. Johnson & Johnson (JNJ), Pfizer (PFE) and JP Morgan Chase & Co. (JPM) closed notably lower.

Among the sector indexes, the Philadelphia Oil Service Index gained 1.45%, the S&P Retail Index climbed 2.12% and the Philadelphia Housing Sector Index rallied 3.13%. The Philadelphia Semiconductor Index resumed its climb after yesterday’s slide and rose 1.92%, while the NYSE Arca Disk Drive Index moved up 2.57%.

On the economic front, the Labor Department said initial jobless claims declined to 456,000 in the week ended April 16th from 480,000 in the previous week. However, the four-week moving average increased to 460,000 from 458,000. The number of people receiving extended benefits and those receiving emergency unemployment compensation fell sharply.

Meanwhile, producer prices rose 0.7% month-over-month in March compared to expectations for a 0.5% increase. Core prices rose by 0.1%, in line with expectations. Food prices and energy prices, which together make up about 40% of the producer price index, rose by 2.4% and 0.7%, respectively. The annual rate of the headline producer price index was 6% in March compared to 4.4% in February, but the annual rate of core producer price inflation edged down one-tenth of a percentage point to 0.9%. The tame trend seen in core producer prices points towards benign core consumer price inflation in the near to medium term.

According to a report released by the National Association of Realtors, existing home sales rose to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million units in February, snapping a three-month losing streak. First time buyers accounted for about 44% of the total buyers, strong evidence of the success of the first time homebuyers’ credit, which is due to expire at the end of April.

Inventories of existing homes in terms of the months of supply slid to 8 in March from 8.5 in the previous month. However, in absolute numbers, existing home inventories rose to 3.58 million from the previous month’s 3.53 million. The median price of an existing home rose 3.7% month-over-month.

However, the Federal Housing Finance Agency’s survey did not confirm the optimism in the housing sector, with the agency’s house price index edging down 0.2% in February. Compared to the same month last year, prices declined 3.4%.

Currency, Commodity Markets

Crude oil futures are slipping $0.44 to $83.26 a barrel after edging up $0.02 to $83.70 an ounce on Thursday. Gold futures are seeing incremental weakness, trading down $0.70 at $1,142.20 an ounce. The precious metal declined $5.90 to $1,142.90 an ounce in the previous session.

On the currency front, the U.S. dollar is trading at 94.094 yen compared to the 93.485 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is currently valued at $1.3276 compared to yesterday’s $1.3294.

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TSX Poised For Lackluster Session Amid Inflation, Retail Sales Data

Bay Street stocks may move in a narrow range Friday amid flat commodities prices. Traders were digesting the just released data, which revealed the country's annual inflation unexpectedly slowed in March.

However, sentiment in early trading may be lifted on news that Greece opting for bailout loans from the euro zone and the IMF.

On Thursday, the S&P/TSX Composite Index rose a marginal 26.31 points or 0.22% to 12,160.87, after briefly dipping below the 12,000-mark in early trading.

The price of oil was almost flat at $83.58 a barrel and the price of gold was little changed at $1,142 an ounce in morning deals.

In corporate news, International Forest Products reported a narrower first quarter loss of C$0.07 per share, compared to a loss of C$0.29 in the year ago period.

Sears Holdings said it will buy another 17.3% stake in merchandising company Sears Canada by purchasing 18.7 million shares at C$30 each. This would take up its total stake to 90.4%.

Copper miner Lions Gate Metals and AusNiCo said they will terminate the proposed merger agreement, due to lengthy due diligence and regulatory delays, a blockade at LGM's proposed drill program site and market volatility.

Sterling Shoes Income Fund announced that Jeremy Horwitz has resigned as President and Chief Executive Officer effective Thursday for personal reasons.

Gold producer OceanaGold Corp. announced that it has appointed Bill Myckatyn to Board of Directors

In economic news, Statistics Canada said the country's annual inflation rate slowed to 1.4% in March from 1.6% the previous month. The agency noted that gasoline prices exerted the most upward pressure on the all-items consumer price for a fifth straight month.

In other report released today, the agency said retail sales in Canada were up 0.5% in February from the previous month, following January's 0.9% increase. Excluding auto, retail trade slipped 0.1% on a monthly basis compared to the consensus forecast of 0.8% increase.

From the U.S., the Commerce Department said durable goods orders fell by 1.3% in March following an upwardly revised 1.1% increase in February. Economists were expecting orders to edge up by 0.1% compared to the 0.9% increase that had been reported for the previous month

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Asian stock markets are mostly down in the red on Friday with investors indulging in some selling in a few blue chips from stocks across various sectors amid a lack of prominent triggers. The overnight flat close on Wall Street and lower commodity prices appear to be dragging down stock prices. Concerns about Greece's debt worries are also hurting sentiment to an extent.

The benchmark S&P/ASX 200 index, which declined to around 4,876, is trading at 4,888, down 19.4 points or 0.4% from its previous close. The broader All Ordinaries index is down 17.8 points or 0.3% at 4,919.

Among key bank stocks, Commonwealth Bank of Australia is down by over 1%, ANZ Bank is trading lower by 0.5% and Westpac Banking Corporation is down marginally, while National Australia Bank is in positive territory with a modest gain. Diversified financials stock Macquarie Group is trading lower by about 1%.

Top miners BHP Billiton and Rio Tinto are trading lower by 0.6% and 0.4% respectively. Newcrest Mining is gaining about 0.7%. Bluescope Steel and Incitec Pivot are trading marginally higher, while Fortescue Metals and Orica are exhibiting weakness.

Lihir Gold Ltd has lifted the full year production guidance for the year to a range of 1 million-1.1 million ounces. In its first-quarter production report, Lihir Gold reported production of 229,757 ounces in the quarter, down 17% on the previous three-month period. Production for the March quarter was down 26.43% on the equivalent period a year earlier. Shares of Lihir Gold are trading modestly higher.

Energy stock Woodside Petroleum is down more than a percent after the company reported a 7% drop in production in the first quarter of 2010, despite record LNG production from the North West Shelf. Woodside posted a production of 19.2 million barrels of oil equivalent in the quarter ended March 31, down from 20.6 mmboe in the prior corresponding quarter in 2009. Woodside said sales revenue of US$1.028 billion was down 10% on the December quarter, but up 43% on the prior corresponding quarter ending March 31, 2009.

Santos, Oil Search and Origin Energy are also trading weak. Oil Search Ltd says it expects to produce 7.2 million-7.4 million barrels of oil equivalent this year, and will reinvest a big portion of its earnings from the ExxonMobil-led Papua New Guinea liquefied natural gas project into growth opportunities.

The Federal Court has upheld an appeal from CSR Ltd against an earlier rejection of its proposal to demerge its sugar business. The plan will see the split of CSR's sugar and renewable energy business and its listing on the Australian Securities Exchange as Sucrogen. CSR's building products operations will remain under the CSR name, and be the sole carrier of the company's asbestos liabilities. The CSR stock is up nearly 9% now.

In the currency market, the Australian dollar opened marginally lower amid worries about Greece defaulting on its sovereign debt. In early trades, the Aussie was quoting at US$0.9277-US$0.9280, down slightly from Thursday's close of US$0.9283-US$0.9286. The Australian dollar is trading at 0.9256 to the U.S. dollar.

The Japanese stock market is trading weak with investors not showing any keen interest in picking up stocks amid concerns about Greece's debt woes. The market did bounce back into positive territory after early weakness, but has faltered again due to lack of support at higher levels.

The benchmark Nikkei 225 index, which rebounded to 10,967 after early weakness, was down 34.26 points or 0.31% at 10,914.83 at the end of the morning session.

Shares of Honda Motor Co. traded higher on reports the firm's group operating profit likely expanded about 90% year on year to around 360 billion yen in the year ended March.

Nippon Light Metals, Daiichi Sankyo, Mitsui OSK Lines, Nippon Sheet Glass, Nippon Yusen, Seven & I Holdings, Mitsubishi Chemicals, Kobe Steel and Sumitomo Chemicals are trading notably lower

Banking stocks Shinsei Bank, Bank of Yokohama, Shizuoka Bank and Mitsubishi UFJ Financial are exhibiting weakness.

Yahoo Japan Corp., Pioneer Corp., Aeon, Mitsui & Co., Kawasaki Heavy Industries, Mitsubishi Estates, Sumco and Pacific Metals are trading firm.

JFE Holdings Inc. shares are trading higher on reports JFE Steel Corp. will propose a new steel pricing system.

In the currency market, the U.S. dollar traded in the mid-93 yen level in early deals in Tokyo. The yen is trading at 93.46 to the U.S. dollar.

After an early surge, the South Korean market drifted lower and is currently down in the red amid cautious trades.

The benchmark KOSPI index, which edged up to 1,748.5 in early trading, is currently down 4.5 points or 0.26% at 1,735.

Among bank stocks, Korea Exchange Bank and KB Financial are trading modestly lower, while Woori Finance is down with a loss of 1.4%. Shinhan Financial, however, is up in positive territory with a modest gain.

In the technology space, LG Display LCD is up 2.75%, LG Electronics is gaining about 0.5% and Hynix Semiconductor is up marginally, while heavyweight Samsung Electronics is trading lower by about 1%.

Shipping stocks Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding are trading lower by 1.5%-2.5%. STX Pan Ocean is trading flat.

Among automobile stocks, Kia Motor is trading flat, Hyundai Motor is up 2% and Ssangyong Motor is trading lower by about 1%. Airliners Korean Air and Asiana Airlines are down 0.8% and 1.3% respectively.

Among steelmakers, Hyundai Steel is up 2.4%, while POSCO is down with a loss of 0.7%. Oil and telecommunications stocks are also exhibiting a mixed trend.

Among other markets in the Asia-Pacific region, Hong Kong, Shanghai, Indonesia and Singapore are trading weak, while Malaysia, New Zealand and Taiwan are trading higher. Markets across the region ended mostly lower on Thursday.

On Wall Street, stocks rebounded after initial weakness and finished with moderate gains on Thursday, as reassuring comments from President Barack Obama regarding financial regulatory reform prompted a recovery. The major averages all finished in positive territory, with the Nasdaq climbing to its best closing level since June of 2008.

The Dow gained 9.4 points or 0.1% to end at 11,134.3, the Nasdaq advanced by 14.5 points or 0.6% to 2,519.1 and the S&P 500 edged up 2.7 points or 0.2% to 1,208.7.

Major European markets closed on the downside on Thursday. The U.K.'s FTSE 100 and the German DAX index both slid by 1%, while the French CAC 40 index ended lower by 1.3%.

Oil prices recovered from early lows and ended flat on Thursday, as traders weighed a batch of mostly encouraging economic data against a stronger dollar and continuing worries about Greece's debt situation.

Crude oil for June delivery settled up US$0.02 at US$83.70 a barrel on the New York Mercantile Exchange. The prices rallied over 20% since early February to an 18-month high above US$87 early this month, and have struggled for direction since then.

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Helped by positive economic data, the major European markets are advancing. The Ifo Institute released the results of its business confidence survey, showing an increase in German business confidence to a near 2-year high. However, first estimate of first quarter GDP released by the U.K. statistical office showed weaker-than-expected 0.2% quarterly growth.

U.S. Economic Reports

Orders for manufactured durable goods unexpectedly showed a notable decrease in the month of March, according to a report released by the Commerce Department, with the decline largely due to a steep drop in orders for commercial aircraft.

The report said durable goods orders fell by 1.3 percent in March following an upwardly revised 1.1 percent increase in February. The decrease surprised economists, who had expected orders to edge up by 0.1 percent compared to the 0.9 percent increase that had been reported for the previous month.

The Commerce Department is also due to release its new home sales report for March at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 330,000.

New home sales fell to a record low annual rate of 308,000 in February compared to 315,000 in the previous month. New home inventories measured in terms of months of supply rose to 9.2 months from 8.9 months in the previous month. Meanwhile, the median sales price of a new home rose 5.2% year-over-year.

Earnings

Schlumberger (SLB) said earlier in the day that its first quarter adjusted earnings from continuing operations fell to 62 cents per share from 78 cents per share in the year-ago period. Revenues also fell to $5.60 billion from $6 billion last year. Analysts estimated earnings of 61 cents per share on revenues of $5.69 billion for the quarter.

Travelers Co. reported that its first quarter earnings rose to $1.25 per share from $1.11 per share last year. On an adjusted basis, the company reported earnings of $1.22 per share, below the consensus estimate of $1.36 per share. Revenues rose 6.7% to $5.4 billion.

Xerox (XRX) said its first quarter adjusted earnings were 18 cents per share compared to 8 cents per share last year. The company’s revenues rose 33% to $4.72 million. The consensus estimates called for earnings of 13 cents per share on revenues of $4.65 billion. The company said it expects adjusted earnings of 20-22 cents per share for the quarter and 75-85 cents per share for the year. Analysts estimate earnings of 18 cents per share for the quarter and 81 cents per share for the year.

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Microsoft (MSFT) receded in Thursday’s after hours session despite reporting third quarter revenues of $14.50 billion, up 6% year-over-year. The company’s net income increased 36% to 45 cents per share. Analysts estimated earnings of 42 cents per share on revenues of $14.38 billion.

Eastman Chemical (EMN) could rally after it reported first quarter adjusted earnings of $1.37 per share compared to 25 cents per share last year. Sales rose to $1.56 billion from $1.13 million last year. Analysts estimated earnings of $1.15 per share on revenues of $1.29 billion. The company expects earnings of $1.50-$1.60 per share for the second quarter and $5-$5.25 per share for the year. The guidance is ahead of the Street expectations.

STMicroelectronics (STM) receded in Thursday’s after hours session after it reported that its first quarter net revenues rose 40.1% to $2.33 billion, with the increase partly reflecting a contribution from ST-Ericsson, its joint venture with Ericsson (ERIC). On an adjusted basis, the company reported earnings of 7 cents per share. The consensus estimates called for earnings of 8 cents per share on revenues of $2.39 billion. The company expects a 24%-31% year-over-year increase in its second quarter revenues.

Western Digital (WDC) is likely to be in focus after it reported that its third quarter revenues rose to $2.6 billion from the year-ago revenues of $1.6 billion. The company’s net income rose to $1.71 per share from 22 cents per share last year. The Street estimated earnings of $1.55 per share on revenues of $2.54 billion.

Synaptics (SYNA) could rally after it reported that its third quarter net revenue rose 16% to $116.2 million. On a non-GAAP basis, the company reported net income of 46 cents per share compared to 38 cents per share last year. The consensus estimates called for earnings of 41 cents per share on revenues of $112.87 million.

Cheesecake Factory (CAKE) receded in Thursday’s after hours session despite reporting first quarter revenues that rose to $405.4 million from $392.8 million in the year-ago period. The company’s earnings were 31 cents per share, higher than 17 cents per share last year. Analysts estimated earnings of 26 cents per share on revenues of $399.59 million.

American Express (AXP) may gain ground after it reported that its first quarter earnings rose to 73 cents per share from 31 cents per share in the year-ago period. Revenues, net of interest expense, rose to $6.61 billion from the year-ago’s $5.93 billion. The consensus estimated had called for earnings of 64 cents per share on revenues of $6.34 billion.

Capital One Financial (COF) is likely to see buying interest after it reported that its first quarter revenues climbed to $4.29 billion from $2.88 billion in the year-ago period, coming in above the $4.13 billion consensus estimate. The company’s earnings rose to $1.40 per share from 44 cents per share last year, exceeding the 58 cents per share consensus estimate.

Rambus (RMBS) could gain ground after it announced that its first quarter revenues rose to $161.9 million from $30.8 million in the year-ago period. The revenue growth was aided by settlement agreements signed with Samsung during the first quarter of 2010, which calls for the payment of $900 million by the Korean company over a 5-year period. The company reported a profit of $1.28 per share compared to a loss of 17 cents per share last year.

PMC-Sierra (PMCS) may be in focus after it reported that its first quarter net revenues rose 49% year-over-year to $152.8 million, also exceeding the $149.94 million mean analysts’ estimate. On a non-GAAP basis, the company reported a profit of 19 cents per share compared with a profit of 6 cents per share last year and ahead of the 17 cents per share consensus estimate.

Amazon (AMZN) moved lower in Thursday’s after hours session despite reporting first quarter sales growth of 46% year-over-year to $7.13 billion. The company’s earnings rose to 66 cents per share from 41 cents per share last year. Analysts estimated earnings of 61 cents per share on revenues of $6.87 billion. For the second quarter, the company expects net sales of $6.1 billion to $6.7 billion compared to the $6.43 billion consensus estimate.

Pfizer (PFE) is likely to see some activity after it said it had discontinued a late stage study of Suntent in advanced hepatocellular carcinoma or liver cancer. The company noted that the decision follows a review by the independent Data Monitoring Committee, which found that the treatment caused a higher incidence of serious adverse events.

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