US & World Daily Markets Financial Briefing 25-06-2009

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Stocks Turn Higher After Seeing Initial Weakness

After moving modestly lower in early trading, stocks have shown a notable rebound over the course of morning trading on Thursday. The major averages have all moved into positive territory after ending the previous session mixed.

Some of the early selling pressure was prompted by a report from the Labor Department showing that initial jobless claims for the week ended June 20th came in at 627,000, up from last week's revised figure of 612,000.

The increase in jobless claims surprised economists, who had expected the number to edge down to 600,000 from the 608,000 originally reported for the previous week.

Separately, the Commerce Department revealed its final revision to the first quarter gross domestic product. The report indicated that first quarter GDP contracted by a revised 5.5 percent compared to the 5.7 percent decrease that had been reported.

In other news, Federal Reserve Chairman Ben Bernanke is testifying before the House Oversight Committee in connection with the purchase of Merrill Lynch by Bank of America last year.

On the earnings front, Bed Bath & Beyond (BBBY) said its first-quarter net income rose to $0.34 per share from $0.30 per share in the same quarter last year, while analysts expected the firm to earn $0.25 per share for the quarter.

While Nike (NKE) reported adjusted fourth quarter net income of $0.99 per share, which beat Wall Street expectations of $0.96 per share, the firm said worldwide future orders scheduled for delivery from June 2009 through November 2009 are down 12 percent from a year ago.

Additionally, Lennar (LEN) reported a second-quarter net loss of $0.76 per share, unchanged from the same period last year. Wall Street analysts had expected the homebuilder to report a loss of $0.64 per share for the quarter.

In the past few minutes, the major averages have pulled back off their highs for the session, although they continue to post strong gains. The Dow is currently up 52.75 at 8,352.61, the Nasdaq is up 19.75 at 1,812.09 and the S&P 500 is up 7.51 at 908.45.

Sector News

Early strength is visible in the retail sector, as reflected by the 2.8 percent gains being shown by the S&P Retail Index. The day’s gain has helped the index moved further off of the two-month closing low set on Tuesday.

Bed Bath & Beyond is helping to lead the sector higher, with shares of the home furnishings retailer currently up 10 percent. With the gain, the stock has risen to its best intraday level in just over two months.

Healthcare-related stocks are also turning in strong performances, with the Morgan Stanley Healthcare Payor Index and the Morgan Stanley Healthcare Provider index rising by 3 percent and 2.8 percent, respectively. The day’s move is helping the indices to offset recent losses.

Considerable strength is also visible among housing, airline and oil service stocks, reflecting the day’s broad based gains.

Notably, the Philadelphia Housing Sector Index is up by 2.6 percent, extending its gains for a third straight session. The index is also continuing to move up from its lowest closing level in well over two months, set on Monday.

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Toronto Stocks Look For Third Straight Day Of Gains

Canadian stocks look to move in the green for a third straight session on Thursday as the market continues to climb back from Monday's sharp decline. Investors will consider employment data from both sides of the border and the U.S. gross domestic product report.

Statistics Canada revealed non-farm payrolls dropped 51,400 in the month of April, down 0.4% from the previous month. In the U.S., a Labor Department report showed that initial jobless claims rose to 627,000 from the previous week's revised figure of 612,000.

Also across the border, a Commerce Department report showed that gross domestic product fell at an annual rate of 5.5 percent in the first quarter compared to the 5.7 percent decrease that had been reported. The revision came as a surprise to economists, who had expected the drop in GDP to be unchanged at 5.7 percent.

Crude oil prices are slightly higher, adding 18 cents to $68.85 in electronic trading. Gold and copper are little-changed in early trading.
 
In corporate news, SIR Royalty Income Fund said that SIR Corp., has filed its financial results for the third quarter ended May 10. The company reported net earnings for the third quarter of C$100,000, compared to a net loss of C$300,000 in the same quarter a year-ago.

Mad Catz Interactive reported a fourth-quarter net loss of US$3.7 million or US$0.07 per share, compared to a loss of US$0.8 million or US$0.02 per share in the same quarter last year. Net sales for the fourth quarter were US$22.8 million, up 3.9% from US$21.9 million in the comparable quarter last year.

Liquidation World appointed Daniel Ardila as chief financial officer and senior executive vice president of finance.

On Wednesday, the S&P/TSX Composite Index has added 204.21 points or 2.06% to move at 10,100.93. The index posted a second straight positive close after a sharp sell-off on Monday.

Crude oil futures are rising $0.71 to $69.38 a barrel after receding $0.57 to $68.67 a barrel. Yesterday’s retreat came amid the release of a weekly inventory report that showed that crude oil inventories declined by 3.8 million barrels to 353.9 million barrels in the week ended June 19th, but they were still above the upper boundary of the average range.

Gasoline and gasoline stockpiles increased by 3.9 million barrels and 2.1 million barrels, respectively. While gasoline inventories were in the lower half of the average range, distillate inventories were above the upper boundary of the average range. Refinery capacity utilization averaged 86.3% over the four-weeks ended June 19th compared to 85.8% in the previous week.

Gold futures, which rose $10.10 to $934.40 an ounce in the previous session, are trading at $937.70 an ounce, representing a gain of $3.30.

On the currency front, the U.S. dollar is trading at 96.087 yen compared to the 95.6648 yen it fetched at the close of trading on Wednesday. Against the euro, the greenback is trading at $1.3937.

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The major Asian markets ignored a lackluster lead from Wall Street and closed mostly higher, benefiting from a rally in commodity prices. The major averages in Hong Kong, Indonesia, Japan and South Korea closed up over 2% each, while the Indian market bucked the uptrend and ended lower.

Japan’s Nikkei 225 average opened higher and saw further upside throughout much of the session before flattening in late trading to close up 205.76 points or 2.15%. Export stocks rallied strongly, as the yen weakened. Financial stocks also saw some strength.

Australia’s All Ordinaries also advanced steadily throughout the session, aided by a rally in resource and financial stocks. The index ended up 49.30 points or 1.30% at 3,852. However, the upside came amid thin volumes, reflecting caution among traders.

Hong Kong’s Hang Seng Index opened sharply higher and moved sideways throughout much of the morning session before legging up further. The index went about a consolidation move in the afternoon to close up 382.88 points or 2.14% at 18,275. Thirty-four of the forty-two index components ended higher. Property stocks led from the front, with Shopping Property, Henderson Land and New World Development advancing solidly.

After trading higher till the mid-session on the back of positive Asian cues and short covering on the last day of monthly derivatives contracts, the Indian market fell sharply in the afternoon amid fears about stretched valuations and a delay in monsoon rains for the June-September season, which could hurt an already slowing gross economy.

However, the market cut its loss significantly in late trading, helped by reports that the monsoon would catch up by the first or second week of July and the shortfall so far can be made up in July, if the timing and distribution are good. After rising to the day's high of 14,578 in the morning, the BSE Sensex hit a low of 14,261 in the afternoon before finishing at 14,346, down 77 points or a modest 0.53%.

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The major European markets are moving to the downside on Thursday after they rallied sharply yesterday on the back of strong U.S. durable goods orders. The French CAC 40 Index is trading down 2.05% and the U.K.’s FTSE 100 Index is moving down 1.37%, while the German DAX Index is receding 2.20%.

In corporate news, BP (BP) announced the appointment of Carl-Henric Svanberg, the CEO of Ericsson (ERIC), as its Chairman, replacing Peter Sutherland. The company also said it has agreed to sell its wholly-owned subsidiary BP West Java Ltd. to Indonesian state-owned oil firm PT Pertamina.

U.K.-based consumer electronics retailer DSG International reported underlying earnings of 0.7 pence per share for its fiscal year ended May 2nd, 2009 compared to 7.2 pence per share last year, as revenues fell to 8.36 billion pounds from 8.49 billion pounds a year-ago. The company said it expects the difficult economic environment to continue in many of its markets this year.

On the economic front, Eurostat said the euro area’s industrial new orders declined 1% month-on-month in April compared with a 0.2% drop in March. Economists had expected a flat reading for April. On a year-on-year basis, industrial new orders decreased 35.5% in April after falling 26.5% in March.

U.S. Economic Reports

According to the final first quarter GDP report released by the Bureau of Economic Analysis, U.S. GDP shrank at a 5.5% rate compared to a 6.3% GDP decline in the previous quarter. The contraction was smaller than the 5.7% decline estimated initially. On a year-over-year basis, the first quarter GDP declined by 2.5% compared to 0.8% decline in the fourth quarter.

The decline in fourth quarter GDP compared to the previous quarter reflected negative contributions from exports, private inventory investment, equipment and software, non-residential structures and residential fixed investment. The weakness was offset to some extent by positive contributions from personal consumption expenditures. Imports, which are a deduction from GDP calculations, declined

A Labor Department report showed that initial jobless claims rose 15,000 to 627,000 in the week ended June 20th from an upwardly revised figure of 612,000 for the previous week. Economists expect a decline in claims to 600,000 from the initially estimated figure 608,000 for the previous week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, rose 500 to 617,250. Continuing claims, which measures people receiving ongoing unemployment help, rose 29,000 in the week ended June 13th to 6.738 million.

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Watson Pharma may see some strength after it said it has received FDA approval for its ANDA for levonorgestrel tablets, used to prevent pregnancy. The company said it intends to market the product under the trade name Next Choice and plans to launch the product shortly.

CKE Restaurants may see some buying interest after it reported first quarter adjusted earnings of 29 cents per share, ahead of the 25 cents per share consensus estimate. Revenues declined 4% to $446.8 million compared to the $449.5 million consensus estimate.

Bed Bath & Beyond is also likely to gain ground after it said its first quarter earnings climbed to 34 cents per share from 30 cents per share in the year-ago period, as sales rose 2.8% to $1.69 billion. The consensus estimates had called for earnings of 25 cents per share on revenues of $1.68 billion.

Nike could be in focus after it said its fourth quarter earnings fell to 70 cents per share from 98 cents per share last year. Excluding restructuring charges, the company reported earnings of 99 cents per share, 3 cents ahead of the average analysts’ estimate. Revenues were down 7% to $4.7 billion, almost in-line with the consensus estimate of $4.72 billion. The company said it expects fiscal year 2010 revenues to be flat to be down on a constant currency basis, while it also suggested that orders for the next several months are down 12% year-over-year.

Seagate Technologies may trade higher after it lifted its revenue outlook for the fourth quarter to $2.2 billion to $2.3 billion, higher than its initial guidance of $1.9 billion to $2.2 billion. The consensus estimates call for revenues of $2.09 billion. For the fiscal first quarter, the company expects revenues of $2.35 billion to $2.5 billion, above the mean analysts’ estimate of $2.27 billion. The company attributed the upside to improving demand and favorable pricing.

Paychex may see weakness after it reported that its fourth quarter earnings fell to 32 cents per share from 38 cents per share last year. Revenues declined 4% year-over-year to $495.9 million. Analysts estimated earnings of 33 cents per share on revenues of $510.5 million.

Jeffries is expected to move to the upside after it said it expects its second quarter net income and revenues to exceed $50 million and $500 million, respectively. The guidance was above the consensus estimate that calls for revenues of $341.2 million.

Herman Miller may also be in focus after it reported fourth quarter adjusted earnings of 20 cents per share compared to 18 cents per share estimated by analysts. Revenues were down 38% year-over-year to $319.9 million, shy of the mean analysts’ estimate of $339 million. Separately, the company said it has completed the acquisition of Nemschoff for $32 million in cash and the issuance of 2.04 million Herman Miller shares.

Earnings

ConAgra said its adjusted fourth quarter earnings from continuing operations were 41 cents per share, up from 18 cents per share in the year-ago period. Sales rose 7.5% to $3.30 billion. Analysts, on average, estimated earnings of 42 cents per share on revenues of $3.33 billion. For 2010, the company expects adjusted earnings per share from continuing operations of $1.63-$1.66 compared to the consensus estimate $1.63 per share.

Christopher & Banks reported first quarter earnings from continuing operations of 5 cents per share, sharply lower than 33 cents per share in the year-ago period. Sales fell to $120.37 million from $155.40 million in the year-ago quarter.

Lennar’s second quarter revenues declined 21% year-over-year to $891.9 million. The company reported a loss of 76 cents per share, including a 38 cent per share related to valuation adjustments and other write-offs and a 27 cent per share charge related to a non-cash deferred tax asset valuation allowance.

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