US & World Daily Markets Financial Briefing 25-06-2010

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Stocks Showing A Lack Of Direction Following Weak GDP Data

With traders digesting another downward revision to first quarter GDP growth and as financial reform legislation moves a step closer to passage, stocks are turning in a lackluster performance in morning trading on Friday. The major averages have been bouncing back and forth across the unchanged line.

The markets have not shown much reaction to a report from the Commerce Department showing an unexpected downward revision to first quarter GDP, with some traders likely seeing the data as old news.

The Commerce Department said that GDP increased at an annual rate of 2.7 percent in the first quarter compared to the 3.0 percent growth that was reported last month. The downward revision surprised economists, who had expected the pace of growth to be unrevised.

Paul Dales, U.S. economist at Capital Economics, said, "Overall, the U.S. economy may be performing much better than those in Europe, but this is still the weakest and longest economic recovery in U.S. post-war history."

"No wonder the equity market is struggling to move up and bond yields remain fairly close to 3%," he added.

Traders are also reacting to news that congressional negotiators have approved a final version of the financial regulatory-overhaul bill that envisages sweeping reforms. At the end of a 20-hour marathon meeting of a House-Senate conference committee, the bill passed on a party-line vote.

The proposed bill bans proprietary trading and limits hedge-fund investment while also strengthening oversight of derivatives and creating a consumer protection bureau at the Federal Reserve. The full financial regulatory bill will be put to a vote in the House and the Senate next week.

In corporate news, Oracle (ORCL) reported that its fourth quarter non-GAAP earnings climbed 30 percent to $0.60 per share on a 40 percent increase in revenues to $9.6 billion. The consensus estimates called for earnings of $0.54 per share on revenues of $9.50 billion.

The major averages are currently posting modest losses, although they are off their lows for the session. The Dow is down 21.27 points or 0.2 percent at 10,131.53, the Nasdaq is down 3.35 points or 0.2 percent at 2,214.07 and the S&P 500 is down 0.77 points or 0.1 percent at 1,072.92.

Sector News

Despite the lack of direction being shown by the broader markets, banking stocks are seeing considerable strength on the day following the news about the financial reform bill. The Kbw Bank Index is trading up by 1.7 percent after closing lower in each of the four previous sessions.

Within the banking sector, State Street (STT) is showing a notable upward move, advancing by 2.4 percent after ending the previous session at its worst closing level in over a year. After the close of trading on Thursday, the company appointed Nick Bonn to head its securities finance business.

Significant strength is also visible among gold stocks, which are benefiting from an increase in the price of the precious metal. With gold for August delivery up $10.80 at $1,256.70 an ounce, the NYSE Arca Gold Bugs Index is up by 2.5 percent.

While most of the other major sectors are showing only modest moves, a 6.9 percent loss by Research in Motion (RIMM) is helping to drag the wireless sector lower. RIM reported better than expected first quarter earnings, but its subscriber and shipments numbers were seen as a disappointment.

Airline, housing, and semiconductor stocks have also moved to the downside in recent trading, extending the downward move seen in recent sessions.

Stocks Driven By Analyst Comments

Shares of LSB Industries (LXU) have come under pressure in morning trading after Canaccord Genuity downgraded its rating on the stock to Hold from Buy and cut its price target to $16 from $21. The stock is currently down by 3.9 percent after hitting a four-month intraday low.

Amerisafe (AMSF) is also posting a notable loss after Oppenheimer lowered its rating on the insurance company to Perform from Outperform. Shares of Amerisafe are down by 1.5 percent, pulling back further off the seven-month closing high set on Wednesday.

On the other hand, shares of Tupperware (TUP) have shown a strong upward move after JP Morgan raised its rating on the stock to Overweight from Neutral. Tupperware is currently up by 4.4 percent, although it remains stuck in a recent trading range.

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TSX May Extend Losses Friday Amid Weak Global Cues

Canadian stocks may extend losses Friday morning as commodities prices were struggling to sustain gains. Also, the just released GDP data from the U.S., the country's largest trading partner, may dent sentiment. Traders were also speculating that the G20 summit might fail to agree on ways to tackle the euro zone crisis.

However, value buying at lower levels may support stocks during the day.

Meanwhile, stocks in Europe and Asia fell ahead of the G20 meeting in Toronto. Falling commodities prices dragged mining stocks, while shares of BP plc fell around 6% as the first tropical storm of the Atlantic hurricane season is likely to head into the Gulf of Mexico where BP is trying to clean up the worst U.S. oil spill.

On Thursday, the S&P/TSX Composite Index surrendered 137.32 points or 1.16% to 11,670.18, levels near where it started the calendar year 2010.

Crude for August delivery edged up $0.39 to $76.90 a barrel, amid cautious trade.

The price of gold rose $6.7 to $1,252.6 an ounce amid a weak euro, which fell on renewed worries over the euro zone debt situation. The euro slipped after the cost of protecting Greek government debt against default rose to a record high Friday.

In corporate news, blackberry maker Research In Motion reported higher first quarter net income of $ 1.38 a share, compared to $1.12 a share in the year ago period. The company, which exported 11.2 million handsets, said it will repurchase up to 31 million shares over the next 12 months. The company guided that it's earnings will be $1.33 to $1.40 per share in this quarter.

Gold mining companies, Apollo Gold and Linear Gold said that their shareholders approved the business combination of the two companies to form Brigus Gold Corp. The new company will have approximately 129 million common shares and 176 million fully diluted shares outstanding.

Silver and gold miner Genco Resources said James Anderson, the largest single shareholder of the company, will be the acting chief executive with immediate effect.

Diamond miner Harry Winston Diamond said it closed a senior secured revolving credit facility with Standard Chartered Bank for $100.0 million.

Office systems provider Inscape turned to profit in fourth-quarter, reporting net income of C$0.02 per share, compared with a net loss of C$0.07 per share in the prior year period.

In economic news, Statistics Canada said non-farm payroll employment rose for a third straight month, adding 35,600 in April and taking the total gains since August 2009 to 166,900

From the U.S., the Commerce Department said that GDP increased at an annual rate of 2.7% in the first quarter compared to the 3.0% growth that was reported last month. The downward revision came as a surprise to economists, who were expecting the pace of GDP growth to be unrevised.

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Asian Markets Slip On Weak Wall Street Cues

The markets in Asia ended in negative territory for the second successive session, Friday, on concerns about sustaining global economic recovery. Weak trading on Wall Street in the previous session amid weak economic reports and European concerns led to weaker sentiment across the markets in Asia. Traders stayed on the sidelines awaiting the results from the weekend G20 summit and other global cues for future direction.

In Japan, the benchmark Nikkei 225 Index lost 190.86 points, or 1.92% to 9,737, while the broader Topix index of all First Section issues dropped 12.47 points, or 1.42 percent, to 867.

On the economic front, inflation data released by the Ministry of Internal Affairs and Communications revealed that core inflation in the country was down 1.2% on year in May, falling for the 15th consecutive month. The data was roughly in line with analyst expectations for a 1.3% annual contraction following the 1.5% fall in April. Overall inflation eased 0.9% on year versus forecasts for a 1.1% decline after the 1.2% fall in the previous month. On a monthly basis, inflation added 0.1%.

Real estate stocks declined on concerns about economic recovery. Sumitomo Realty & Development plunged 3.53%, Mitsubishi Estate declined 3.41%, Mitsui Fudosan fell 3.30%, Tokyu Land Corp. lost 3.30% and Heiwa Real Estate slumped 4.02%.

Electric machinery stocks, relying on exports for bulk of their businesses, ended in negative territory on stronger local currency. Fanuc Ltd plunged 4.63%, Tokyo Electron slumped 5.61%, Canon Inc. declined 4.47%, TDK Corp. fell 2.29%, Kyocera Corp. slipped 1.31%, Advantest Corp. lost 3.71%, Sony Corp. shed 2.05% and Panasonic Corp. was down 2.10%.

Shipping related stocks also ended weaker on concerns about global recovery and its impact on demand. Mitsui OSK Lines fell 2.17%, Nippon Yusen slipped 1.45% and Kawasaki Kisen Kaisha lost 2.28%.

Glass and ceramic stocks also ended in negative territory. NGK Insulators declined 3.17%, Asahi Glass lost 3.26%, Tokai Carbon Co., plunged 4.39% and Nippon Sheet Glass slumped 4.53%.

Banking stocks also ended weaker on global economic conditions. Sumitomo Mitsui Financial slipped 0.67%, Mitsubishi UFJ Financial lost 1.43% and Mizuho Financial declined 1.29%. Resona Holdings, on the other hand, bucked the trend and ended in positive territory with a gain of 0.09%.

In Australia, the benchmark S&P/ASX200 Index declined 66.70 points, or 1.49% and closed at 4,413, while the All-Ordinaries Index ended at 4,439, representing a loss of 64.70 points, or 1.49%.

Banks ended in negative territory on global economic concerns. ANZ Bank declined 1.58%, Commonwealth Bank lost 1.61%, National Australia Bank plunged 2.38% and Westpac Banking Corp., was down 1.67%. Investment banker Macquarie Group was down 2.83%.

Mining stocks ended in negative territory on concerns about the resource super tax and global demand conditions. BHP Billiton declined 2.14%, Rio Tinto Ltd fell 2.97%, Fortescue Metals plunged 3.96%, Gindalbie Metals was down 3.60%, Macarthur Coal slipped 2.03%, Murchison Metals slumped 4.02% and Oz Minerals decreased 2.91%.

Gold related stocks ended in positive territory on higher gold prices in the international market. Lihir Gold advanced 1.60% and Newcrest Mining advanced 0.98%.

Oil related stocks ended weaker on lower crude oil prices in the international market. Woodside Petroleum fell 2.87%, Santos Ltd slipped 0.86%, Oil Search Ltd edged down 0.18% and Origin Energy lost 0.53%. ROC Oil Co, however, managed to end unchanged from previous close.

Mixed trading was witnessed among the major retailers. David Jones declined 1.59%, , JB Hi-Fi Ltd slipped 1.22%, Pacific Brands fell 1.62%, Wesfarmers plunged 2.52% and Woolworths was down 0.72%. However, Harvey Norman managed to end in positive territory with a nominal gain of 0.29%.

In Hong Kong, the benchmark Hang Seng Index ended in the negative territory with a marginal loss of 42.70 points, or 0.21% at 20,691, on weak cues from Wall Street where the major averages ended sharply lower and weaker than expected new home sales data and jobless claims. Fresh concerns about sustaining economic recovery and weak closing across other markets in the neighborhood also impacted market sentiment. Traders preferred to stay in the sidelines ahead of the G20 summit in Toronto over the weekend.

With global economic environment remaining uncertain and weekend profit taking putting additional pressure, India's benchmark 30-share BSE Sensex ended Friday's session down 0.88% or 156 points at 17,575. The 50-share Nifty also fell by about 52 points or 0.97% to 5,269, while the BSE small-cap and mid-cap indexes closed down 0.54% and 0.70%, respectively. Banking stocks like Axis Bank, SBI, ICICI and HDFC Bank fell between 1.20% and 3.10% on concerns that a spike in fuel-price inflation will spur the central bank to raise its policy rates before the the July 27 policy meet. Rate-sensitive realty stocks like DLF eased 0.88% and Unitech fell 1.28%.

Among the other major markets open for trading, China's Shanghai Composite Index declined 13.93 points, or 0.54%, and closed at 2,553 and Taiwan's Weighted Index lost 115.18 points, or 1.52%, to close at 7,472. However, Indonesia's Jakarta Composite Index bucked the trend and ended in positive territory with a gain of 32.93 points, of 1.13%, at 2,947 and so did Singapore's Strait Times Index with a gain of 4.03 points, or 0.14% at 2,852.

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The major European averages are receding on Friday following three straight sessions of losses that broke an 8-session unstinted winning run. The major averages in the region opened higher and experienced some volatility in early trading, falling into negative territory by early trading. Subsequently, the averages have rebounded, but they again turned lower.

In the afternoon, The French CAC 40 Index and the German DAX Index are moving 0.68% and 1.02%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.67%.

On the economic front, the German Federal Statistical Office reported that German import prices rose 8.5% year-over-year in May, faster than the 7.9% growth in the previous month and the 8% increase expected by economists. Meanwhile, exports also rose at a faster rate of 3.6%. On a monthly basis, however, import price growth slowed to 0.6% compared to 2% in the previous month. Export prices increased 0.5% month-over-month in May compared to 1% growth seen in April.

The revised first quarter GDP report released by French statistical office INSEE showed that the French economy grew at an unrevised rate of 0.1% compared to the previous quarter. Foreign trade contributed to the growth, while consumer spending and government spending were essentially flat. Gross fixed capital formation declined 0.9%.

U.S. Economic Reports

The Bureau of Economic Analysis released its revised first quarter GDP report, which showed that the U.S. economy expanded at a downwardly revised rate of 2.7% quarter-over-quarter. Economists had expected the preliminary GDP growth to be left unchanged at 3%.

The unexpected downward revision reflected a downward revision to consumer spending, which is now estimated to be up 3% compared to the 3.5% growth estimated initially.

The Reuters/University of Michigan's final report on the consumer sentiment index for June is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be left unchanged at 75.5.

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Oracle (ORCL) is likely to see some activity after it reported that its fourth quarter non-GAAP revenues rose 40% to $9.6 billion and its non-GAAP earnings climbed 30% to 60 cents per share. The consensus estimates had called for earnings of 54 cents per share on revenues of $9.50 billion.

Meanwhile, Tibco (TIBX) said its second quarter net income rose to 8 cents per share from 6 cents per share reported for the year-ago period. The company’s non-GAAP earnings were 15 cents per share, higher than last year’s 11 cents per share. Revenues rose 21% year-over-year to $173.3 million. The consensus estimates had called for earnings of 13 cents per share on revenues of $161.35 million.

Accenture (ACN) may also be in focus after it reported that its third quarter net revenues rose 8% year-over-year to $5.57 billion. The company’s earning rose 5 cents to 73 cents per share. The results were ahead of expectations For the fourth quarter, the company expects revenues of $5.15 billion to $5.35 billion, trailing the $5.40 billion consensus estimate.

H&R Block (HRB) could move in reaction to its announcement that its fourth quarter net income from continuing operations rose to $2.11 per share, while revenues declined 5.1%to $3.9 billion. Analysts estimated earnings of $2.04 per share on revenues of $2.34 billion.
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Vornado (VNO) could also be in focus after it said it would record its 32.7% share of Toys “R” Us in its first quarter results. The company said its results would include a net loss of 10 cents per share compared to a loss of 8 cents per share last year. Vornado’s share of negative FFO for the June quarter will be 5 cents per share compared to 2 cents per share last year.

Adobe Systems (ADBE) is likely to see some activity after it said it has entered into structured stock repurchase agreements with large third-party financial institutions for the purchase of $400 million of its common stock. The company clarified that the repurchase will be done as part of the $1.6 billion stock repurchase authorization announced on June 22, 2010.

Finish Line (FINL) came under selling pressure in Thursday’s after hours session despite reported first quarter earnings from continuing operations of 25 cents per share, notably higher than the year-ago’s 3 cents per share. Net sales rose 9% to $282.4 million. Analysts estimated earnings of 15 cents per share on revenues of $283.32 million. The company also said its comparable store sales rose 7% year-over-year in June, reversing the 12.5% drop in the year-ago period.

Research In Motion (RIMM) also receded in Thursday’s after hours session after reporting first quarter revenue growth of 24% to $4.24 billion, missing the consensus estimate of $4.35 billion. The company’s earnings rose 41% year-over-year to $1.38 per share, ahead of the $1.34 per share consensus estimate. The company’s board authorized the buyback of up to 31 million shares. For the second quarter, the company estimates earnings of $1.33-$1.40 per share on revenues of $4.4 billion to $4.6 billion. The consensus estimates call for earnings of $1.31 per share on revenues of $4.50 billion.

FuelCell (FCEL) may also move to the downside after it announced its intention to offer common stock in an underwritten public offering. The company also granted the underwriters a 30-day option to buy up to an additional 15% of common shares offered in the public offering to cover overallotments.

KB Home (KBH) is also expected to be in focus after it reported that its second quarter revenues totaled $374.1 million, down from $384.5 million in the year-ago quarter. The company reported a net loss of 40 cents per share compared to a net loss of $1.03 per share in the year-ago period. Analysts estimated a loss of 30 cents per share on revenues of $373.02 million.

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