US & World Daily Markets Financial Briefing 24-02-2010

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Stocks Moving To The Upside Amid Bernanke Testimony

Stocks are seeing notable strength in mid-morning trading on Wednesday, as traders focus on comments from Federal Reserve Chairman Ben Bernanke while shrugging off disappointing new home sales data.

Bernanke, who is presenting his semi-annual monetary policy report before the House Financial Services Committee, stated that tightening policy will be put in place when necessary to prevent runaway inflation, calming market sentiment after the day's disappointing news on the housing front.

Markets were presented with news from the Commerce Department showing an unexpected drop off in new home sales in the month of January, with sales falling for the third consecutive month to a new record low.

New home sales fell 11.2 percent to an annual rate of 309,000 in January from the revised December rate of 348,000. Economists had expected sales to rise to 354,000 from the 342,000 originally reported for the previous month.

With the unexpected decrease, new home sales fell to their lowest level on records going all the way back to 1963.

Also on Capitol Hill this morning, Toyota CEO Akio Toyoda will testify before the House Oversight and Government Reform Committee at 11 a.m. The president of Toyota's U.S. operations, James Lentz, testified yesterday, explaining the shortcomings of the firm in the wake of its massive vehicle recalls.

In earnings news, homebuilder Toll Brothers (TOL) reported a first-quarter net loss of $0.25 per share, beating expectations that called for a loss of $0.35 per share. Revenues for the first quarter decreased to $326.70 million but still topped estimates.

Design software maker Autodesk Inc. (ADSK) reported a profit for the fourth quarter compared year-ago loss, when results were weighed down by hefty goodwill impairment and restructuring charges.

The company's quarterly earnings per share, excluding items, came in above analysts' expectations. At the same time, Autodesk forecast first quarter earnings and revenues in line with analysts' estimates.

The major averages have shown a strong move to the upside in the past few minutes, moving firmly into positive territory. The Dow is currently up 76.11 points or 0.7 percent at 10,358.52, the Nasdaq is up 19.57 points or 0.9 percent at 2,233.01 and the S&P 500 is up 7.53 points or 0.7 percent at 1,102.13.

Sector News

Semiconductor and biotechnology stocks are seeing notable strength in mid-morning trading, with the Philadelphia Semiconductor Index and the NYSE Arca Biotechnology Index up by 1.7 percent and 1.4 percent, respectively.

Banking, trucking and software stocks are also moving notably higher, while steep losses are visible among housing stocks after the day's disheartening new home sales report. The Philadelphia Housing Sector Index is down by 1.2 percent.

Electronic storage and healthcare-related stocks are also under pressure, limiting the gains by the major averages.

Stocks Driven By Analyst Comments

Despite the upside in the markets, Kindred Healthcare (KND) is moving lower after being downgraded at RBC Capital Markets from Outperform to Sector Perform. With a 4.9 percent drop, the stock is pulling back further off of the nearly two-month closing high set on Monday.

Meanwhile, FPL Group (FPL) is on the rise after being upgraded at Credit Suisse from Neutral to Outperform, with a price target set at $56. The stock is currently up 1.6 percent after setting a two-week intraday high in earlier dealing.

TSX Set To Open Lower For A Third Day

Bay Street may open lower for the third day in a row, as commodity prices remain in the red which could sustain the pressure on resource stocks.

The US stock futures also point to a weaker opening. Traders are awaiting Fed Chairman Bernanke's semiannual testimony on monetary policy.

Toronto's main index suffered triple-digit losses Tuesday, as downbeat consumer confidence data from the US brought about selling pressure across most of the sectors and injected some caution in the market.

The S&P/TSX Composite Index ended lower 108.04 points or 0.93% to 11526.71 on Tuesday, its lowest closing level since February 12. April Gold was down $9.6 to $1093.6 a troy ounce, and oil prices kept below $79 a barrel.

In corporate announcements, Thomson Reuters Corp. reported a fall in fourth-quarter net earnings attributable to common shareholders to US$177 million from US$560 million.

Apparel retailer West 49 Inc. announced that it received a $25 million asset-based credit facility from the Bank of Montreal, for financing general operations and capital spending.
 
Miranda Technologies Inc. reported fourth-quarter net income of $2.1 million compared to $7.4 million for the prior-year quarter.

Non-alcoholic beverage company Cott Corporation reported a turnaround to profit in fourth-quarter 2009, with net earnings of $14.0 million compared to a net loss of $12.1 million last year.

Real estate services provider FirstService Corporation reported loss from continuing operations of $0.40 per share in the fourth-quarter, compared to a loss of $0.74 per share in the year-ago quarter.

Halo Resources Ltd. announced receiving approval from HudBay Minerals Inc. for drill programs at its Cold and Lost deposits in Manitoba.

Among economic releases, Statistics Canada will report corporate profits in the last quarter of 2009. From across the border, the Commerce Department will release its report on new home sales for January at 10:00 a.m. ET.

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Asian Markets End In Negative Territory On Global Economic Concerns

The markets across Asia ended in negative territory on Wednesday amid fresh concerns about sustaining global economic recovery after consumer confidence index in the world's largest economy unexpectedly declined and missed economists' expectations. Wall Street ended in negative territory in the previous session. Commodity prices also ended softer dragging the markets in the region lower.

In Japan, the benchmark Nikkei 225 Index fell 153.27 points, or 1.5%, to 10,199, while the broader Topix index of all First Section issues fell 11.68 points, or 1.3%, to 896.

On the economic front, the Ministry of Finance revealed that Japan posted merchandise trade balance of 85.2 billion yen for January, following 545.3 billion yen surplus reported for December. Economists expected the trade balance to report a deficit of 135.8 billion yen for the month. The report further noted that exports surged 40.9% year-over-year during January, following 12.1% annual growth in December. Economists expected exports to rise 40% during January. Imports were up 8.6% on year versus forecasts for an 11.5% annual increase after the 5.5% decline a month earlier.

Speaking at a meeting with business leaders in Kagoshima, Bank of Japan Deputy Governor Hirohide Yamaguchi said that the central bank will continue to make the contributions to overcome deflation and return to a sustainable growth path with price stability. The central banker said the pace of Japan's recovery is likely to slow down in the coming months as the stimulus measures taken at home and abroad begin to gradually lose their impact. He expects the economy to regain momentum from the summer of this year led by higher exports to emerging economies.
 
Light sweet crude oil futures for April delivery ended at $79.31 a barrel in electronic trading, up $0.45 per barrel from previous close at $78.86 a barrel in New York on Tuesday.

Exporters declined following strengthening of the local currency against the US dollar, as a stronger local currency reduces the export realizations in local currency terms,and impacts top and bottom lines. Sony Corp., declined 2.51%, Sharp Corp. fell 2.05% and Canon Inc plunged 2.75%.

Trading companies also ended in negative territory. Mitsubishi Corp. shed 1.86%, Sumitomo Corp. lost 2.06%, Mitsui & Co., shed 2.86%, Toyota Tsusho declined 1.84% and Marubeni Corp. slipped 1.51%.

Among oil companies, Showa Shell Sekiyu plunged 9.89% despite projecting return to profitability, as traders sold-off heavily amid concerns that the company will cut the halve the annual dividend payment Nippon Oil Corp slipped 0.64% and Nippon Mining Holdings edged down 0.23%.

Automotive stocks also ended lower. Toyota Motor declined 1.50%, Suzuki Motor fell 1.29%, Honda Motor slipped 0.48%, Isuzu Motor plunged 3.57%, and Nissan Motor decreased 3.36%.

In Australia, the benchmark S&P/ASX 200 Index declined 69.80 points, or 1.48% to close at 4,648, while the All-Ordinaries Index ended at 4,666, representing a loss of 65.10 points, or 1.38%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that overall wages in Australia increased by 0.7% for the fourth quarter of 2009 compared to the previous quarter. The Statistics Bureau further noted that its wage index rose 2.9% for the year 2009. In trend terms, the wages index advanced 0.6% for the fourth quarter and 3.0% for the year.

In a separate report, the Statistics Bureau revealed that the value of housing construction done in the country in the fourth quarter of 2009 was down 2.9% from the preceding quarter and 6.2% from the same period last year, in seasonally adjusted terms. The report further noted that residential construction value totaled A$10.42 billion for the quarter.

Light sweet crude oil futures for April delivery ended at $79.31 a barrel in electronic trading, up $0.45 per barrel from previous close at $78.86 a barrel in New York on Tuesday.

Resource stocks declined on softer commodity prices. BHP Billiton lost 2.92%, Rio Tinto fell 3.23%, Fortescue Metals declined 2.89%, Gindalbie Metals shed 1.47%, Iluka Resources edged down 0.27%, Minara Resources plunged 4.05%, Murchison Metals slipped 2.02% and Oz Minerals decreased 2.78%.
 
Gold stocks declined on lower bullion prices in the international market. Lihir Gold plunged 3.93% and Newcrest Mining declined 2.54%.

Oil stocks also ended in negative territory. Woodside Petroleum slipped 2.45%, Santos plunged 3.70%, Oil Search fell 2.22% and Origin Energy edged down 0.36%.

Banks also slipped on concerns about economic recovery, profit taking. ANZ Bank slipped 0.92%, Commonwealth Bank of Australia shed 1.01%, National Australia Bank lost 2.53% and Westpac Banking fell 2.23%. Investment banker Macquarie Group decreased 2.57%.

Mixed trading was witnessed among retail stocks. David Jones and Harvey Norman remained unchanged from previous close. JB Hi-Fi Ltd added 0.30% and Reject Shop advanced 0.58%. However, Wesfarmers ended in negative territory with a loss of 1.27% and Woolworths fell 0.54%.

In Hong Kong, the Hang Seng Index ended in the negative territory for the first time in three days, following two days of gain, with a loss of 155.26 points, or 0.75%, at 20,468, as traders resorted to profit booking. Weak closing on Wall Street in the previous session on weaker than expected consumer confidence index, softer commodity prices and lack of direction in the global markets trigged profit taking, as investors preferred to move to sidelines ahead of key testimony from US Fed Reserve Chairman Bernanke on semi-annual monetary policy. Concerns over sustaining the pace of economic recovery also impacted market sentiment.

In South Korea, the KOSPI Index ended in negative territory with a loss of 16.07 points or 0.99% at 1,613 as traders were worried about fresh concerns on sustaining the pace of global economic recovery after consumer confidence index in the world's largest economy unexpectedly declined. Weak closing on Wall Street in the previous session on economic data, softer commodity prices and unresolved issues about sovereign debt crisis in Greece resulting in downgrading also impacted market sentiment.

The Indian market ended another lackluster session modestly lower on Wednesday ahead of Thursday's F&O expiry. Gains in realty and IT stocks were more than offset by losses in consumer durables, healthcare and auto stocks. The benchmark Sensex closed at 16,256, down 30 points or 0.19% and the Nifty fell by 11 points or 0.24% to 4,859.

Among the other major markets, Indonesia's Jakarta Composite Index declined 4.24 points, or 0.16%, to close at 2,579, Singapore's Strait Times lost 20.41 points, or 0.73% to 2,762, and Taiwan' s Weighted Index fell 67.77 points, or 0.89%, to close at 7,530. China's Shanghai Composite Index, however, bucked the trend and ended in positive territory with a gain of 39.60 points, or 1.33%, at 3,022.

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The major European markets are seeing volatility on Wednesday following two straight sessions of declines. Currently, the French CAC 40 Index and the German DAX Index moving up 0.16% and 0.08%, respectively. The U.K.’s FTSE 100 Index is advancing 0.31%.

On the economic front, Germany’s GfK Group released the results of its consumer confidence survey, showing a decline in its forward - looking consumer sentiment indicator to 3.2 for March from 3.3 in February. Economists had expected a steeper decline to 3. The sub-components pertaining to February worsened compared to the month-ago level. The gauge of consumers' economic expectations slid to minus 5.6 in February from 1.5 in January, while the income expectations sub-index eased to 12 from 12.5. The sub-index measuring the buying propensity of consumers fell to 24.2 from 25.4.

Meanwhile, the German Federal Statistical Office confirmed its earlier estimate of growth stalling in the fourth quarter. The final report showed that fourth quarter GDP remained unchanged compared to the previous quarter. In the third quarter, GDP rose 0.7%. Annually, GDP fell 2.4% in the fourth quarter, slower than the 4.8% drop in the third quarter.

Eurostat reported that the euro zone’s industrial new orders rose 0.8% month-over-month in December compared to the 2.7% growth in the previous month. Economists estimated 1% growth. On a year-over-year basis, industrial orders rose 9.5%, reversing the 0.6% drop in the previous month. Economists had been expected orders to increase by 7.6% compared to a year ago.

U.S. Economic Reports

Bernanke is due to present his semi-annual monetary policy report to the House Committee on Financial Services at 10 AM ET.

The Commerce Department is also due to release its new home sales report for January at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 354,000.

In December, new home sales declined to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 rate in November. Economists had estimated new home sales of 366,000 for the latest month. Inventories measured in terms of months of supply rose to 8.1 from 7.6 in November, rising to the highest level since June 2009, while in absolute terms new home inventories fell to their lowest level since 1971. The median sales price of a new home declined 3.6% compared to the year-ago period, while it rose 5.2% from the previous month to $221,300.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 19th at 11 AM ET.

The oil inventory report for the week ended February 12th showed a 3.1 million barrel increase in crude oil stockpiles to 334.45 million barrels. Inventories remained above the upper limit of the average range.

Gasoline inventories also increased, rising by 1.7 million barrels in the recent reporting week, with stockpiles above the upper limit of the average range. However, distillate inventories declined by 2.9 million barrels but were above the upper boundary of the average range. Refinery capacity utilization averaged 78.8% over the four weeks ended February 12th compared to 78.4% in the previous week.

Earnings

Toll Brothers (TOL) reported a first quarter net loss of 25 cents per share compared to a net loss of 55 cents per share in the year-ago period. The recent quarter’s results included pre-tax write-downs totaling $33.4 million, while the year-ago results included pre-tax write-downs totaling $156.6 million. Revenues fell to $326.7 million from $409 million in the year-ago period. Analysts estimated a loss of 35 cents per share on revenues of $324.90 million.

J.M. Smucker (SJM) said its third quarter net sales rose 2% to $1.21 billion. The company reported earnings of $1.14 per share compared to 68 cents per share last year. On a non-GAAP basis, the company reported earnings of $1.17 per share, higher than 87 cents per share last year. The consensus estimates called for earnings of $1.05 per share on revenues of $1.16 billion. The company raised its 2010 adjusted earnings guidance to $4.02-$4.07 per share from its earlier estimate of $3.95-$4.05 per share, while it expects net sales of $4.5 billion to $4.6 billion. Analysts estimate earnings of $4.09 per share on revenues of $4.57 billion.

American Tower Corp. (AMT) reported fourth quarter revenues that rose 9.7% to $448 million. The company reported income from continuing operations of 16 cents per share compared to 20 cents per share last year. The consensus estimates called for earnings of 18 cents per share on revenues of $445.19 million.

Garmin’s (GRMN) fourth quarter revenues rose 1% to $1.059 billion. The company’s pro forma earnings climbed to $1.43 per share from the year-ago’s 93 cents per share. The consensus estimates had called for earnings of 95 cents per share on revenues of $955.66 million. For 2010, the company expects pro forma earnings per share of $2.75-$3.15 on revenues of $2.9 billion to $3.1 billion.

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DreamWorks Animation (DWA) may move in reaction to its announcement that its fourth quarter revenues fell to $194.22 million from $199.83 million last year. The company’s earnings declined to 50 cents per share from the year-ago’s 58 cents per share. The consensus estimates had called for earnings of 37 cents per share on revenues of $176.95 million.

Autodesk (ADSK) is likely to gain ground after it reported that its fourth quarter non-GAAP earnings fell to 30 cents per share from 31 cents per share last year but exceeded the 23 cents per share consensus estimate. Revenues fell 7% to $456 million but came in above the mean analysts’ estimate of $432.02 million. For the first quarter, the company expects non-GAAP earnings of 18-23 cents per share on revenues of $420 million to $440 million. Analysts estimate earnings of 20 cents per share on revenues of $429.53 million.

R.R. Donnelley (RRD) could be in focus after it said its fourth quarter non-GAAP net earnings fell to 46 cents per share from 63 cents per share last year. Net sales fell to $2.58 billion from the year-ago’s $2.80 billion. The consensus estimates called for earnings of 43 cents per share on revenues of $2.51 billion. Separately, the company revealed a deal to buy Bowne Co. (BNE) for $481 million or $11.50 per share. The company expects the deal to be accretive to its earnings in the first full year after the closing of the deal.

Papa John’s (PZZA) traded higher in Tuesday’s after hours session after it reported fourth quarter adjusted earnings of 41 cents per share, higher than the 37 cents per share consensus estimate, but lower than the 48 cents per share earned last year. Revenues rose to $280.5 million from the year-ago’s $279.6 million, also ahead of the $279.04 million mean analysts’ estimate. The company reaffirmed its 2010 adjusted earnings per share estimate of $1.70-$1.90. Analysts estimate earnings of $1.81 per share on revenues of $1.10 billion.

Dycom Industries (DY) could come under selling pressure after it reported second quarter contract revenues that fell to $216.33 million from $245.52 million last year. The company reported a non-GAAP loss from continuing operations of 10 cents per share, wider than the loss of 4 cents per share last year. The consensus estimates had called for a loss of 2 cents per share on revenues of $228.24 million.

Northeast Utilities (NU) is expected to be in focus after it reported fourth quarter earnings of 48 cents per share compared to 46 cents per share last year. Operating revenues fell to $1.32 billion from the year-ago’s $1.45 billion. The consensus estimates had called for earnings of 41 cents per share on revenues of $1.63 billion. The company affirmed its 2010 earnings guidance of $1.80-$2 per share, while analysts estimate earnings of $1.93 per share.

Pactiv (PTV) may react to its announcement that it has agreed to acquire the stock of PWP Industries for $200 million. The target company generated sales of $140 million in 2009. Pactiv clarified that the deal is expected to be modestly accretive to earnings per share and free cash flow in 2010 and generate a return in excess of Pactiv’s cost of capital within 2 to 3 years. Separately, the company also announced a 10 million share increase in its share repurchase authorization.

Greatbatch (GB) could also be in focus after it reported that its fourth quarter revenues declined 14% to $125.81 million, while its adjusted earnings per share slipped to 40 cents per share from 50 cents per share. Analysts estimated earnings of 34 cents per share on revenues of $126.22 million.

Psychiatric Solution (PSYS) could react to its announcement that its fourth quarter revenues rose 8.1% to $463 million. The company’s income from continuing operations rose 23.3% to 53 cents per share. Analysts estimated earnings of 52 cents per share on revenues of $464.43 million. The company also issued 2010 guidance, forecasting earnings from continuing operations of $2.27-$2.31 per share. The consensus estimates call for earnings of $2.31 per share on revenues of $1.93 billion.

Blue Coat Systems (BCSI) is likely to see some activity after it reported third quarter net revenues that rose 16% to $127.1 million, ahead of the $124.54 million consensus estimate. On a non-GAAP basis, the company reported earnings of 37 cents per share compared to 21 cents per share in the year-ago period, in line with the consensus estimate. For the fourth quarter, the company expects non-GAAP earnings of 36-41 cents per share on revenues of $129 million to $134 million. Analysts estimate earnings of 38 cents per share on revenues of $129.47 million.

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