US & World Daily Markets Financial Briefing 25-09-2009

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Weak Data May Lead To Renewed Economic Concerns

After posting notable loses in the two previous sessions, stocks are likely to see some further downside in early trading on Friday. The major index futures are currently indicating a moderately lower open, with the Dow futures down 17 point. The downward momentum for the markets is partly due to the release of some disappointing economic data, as the Commerce Department has released a report showing that durable goods orders unexpectedly decreased in the month of August.

The Nasdaq Composite Index underperformed, recording a loss of 23.81 points or 1.12% at 2,108 and the S&P 500 Index fell 10.09 points or 0.95% to 1,051, while the Dow Industrials ended down 41.11 points or 0.42% at 9,707.

Twenty of the thirty Dow components ended the session lower, with Alcoa (AA) (down 4.46%), General Electric (GE) (down 2.47%), DuPont (DD) (down 2.60%), Bank of America (BAC) (down 2.97%) and Caterpillar (CAT) (down 2.43%) recording sharp losses. On the other hand, McDonald’s (MCD) and Procter & Gamble (PG) were up over 1% each.

Since March of this year, the Dow has been rallying without any major correction, and in the year-to-date period, the index has gained 10.1%. The Dow is up a sharper 48.3% from its March lows of 6,547. With the momentum indicator of the relative strength index suggesting overbought levels, one must be wary of key downside support levels around 9,513, 9,120, 8,761 and 8,075.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average fell 2.20% on Thursday, the NYSE Arca Oil Index receded 1.81%, the Philadelphia Oil Service Index declined 2.75% and the NYSE Arca Gold Bugs Index moved down 2.31%. The Dow Jones Transportation Average receded 1.58%, the NYSE Arca Biotechnology Index lost 1.71% and the Philadelphia Housing Sector Index slumped about 5%. The NYSE Arca Securities Brokers/Dealers Index fell 4.05% compared to a 2.08% drop by the KBW Bank Index.

In the technology space, the Philadelphia Semiconductor Index slipped 2.42%, the NYSE Arca Disk Drive Index fell 2.56%, the NYSE Arca Computer Hardware Index lost 1.20%, the NYSE Arca Internet Index declined 1.15% and the NYSE Arca Networking Index receded 1.69%.

On the economic front, initial jobless claims fell to 530,000 in the week ended September 19th from an upwardly revised reading of 551,000 in the previous week. Continuing claims also declined for the week ended September 12th. However, noting that the extended benefits rose by 3,000 and emergency unemployment compensation advanced by 82,000 to a fresh record, Peter Boockvar from Miller Tabak said that the trend showing a slowdown in the pace of firing and reluctance on the part of the businesses to hire continues.

The National Association of Realtors reported that existing home sales fell 2.7% month-over-month to a seasonally adjusted annual rate of 5.1 million units in August compared to 5.24 million in July. However, annually, existing home sales were 3.4% higher. About 30% of the buyers were first time buyers and 31% of the sales were distressed.

The median sales price of an existing home was at $177,700, down 12.5% year-over-year and 2.1% lower than in the previous month. Inventories measured in terms of months supply fell to 8.5 in August from 9.3 in the previous month, with the metric now at its lowest levels since April 2007

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RIM, Resource Stocks Likely To Drag TSX Lower

Bay Street stocks are looking at another decline to start Friday morning trading, taking the main index further from a multi-month low. A gloomy revenue forecast by Research in Motion and falling commodity prices are likely to weigh on the market.

Crude oil prices are down 63 cents to $65.26 per barrel, extending recent weakness. Gold has dropped $9.40 to $989.50 per ounce and copper lost 1.35 centst o $2.696 per pound.

Research in Motion is likely to open notably lower after the company said it expects third quarter revenue will in the range of $3.60-$3.85 billion, compared to the $3.92 billion expected by analysts.

The Blackberry-maker reported second quarter net income of $475.6 million or $0.83 per share, compared to $495.5 million or $0.86 per share a year ago.
 
Noveko International reported fourth-quarter net loss of C$12.64 million or C$0.19 per share, compared to a loss of C$9.41 million or C$0.17 per share in the same quarter last year.

YM BioSciences reported that its fourth-quarter net loss was C$3.3 million or C$0.06 per share, compared to a loss of C$3.0 million or C$0.05 per share in the same quarter last year. Total revenue for the fourth quarter was C$0.8 million, compared to C$2.0 million for the fourth quarter of fiscal 2008.

Western Canadian Coal Corp. said that it has entered into an agreement to sell AGD Mining Pty Ltd. to Mandalay Resources Corp.

The S&P/TSX Composite Index plunged 231.78 points or 2.01% to move at 11,285.76. The decline was the second straight and fifth in six sessions for the market.

Gold Slips Further Below $1,000

Gold moved lower again on Friday as the U.S. dollar remain near highs against major rivals. With the drop, the metal slid further below the key $1,000 per barrel mark.

December gold declined to $991.00, down $7.90 on the session. Prices touched as low as $985.50 earlier in the session.

The greenback lingered near a 10-day high against the euro after climbing away from a yearly low earlier in the week. The dollar hovered near a 2 1/2-month high against the pound. Gold often moves opposite the dollar because of the precious metal's hedge value.
 
In economic news, a Commerce Department report showed that orders for durable goods fell 2.4 percent in August following a revised 4.8 percent increase in July. The decrease surprised economists, who had expected orders to edge up 0.4 percent compared to the 5.1 percent increase that had been reported for the previous month.

The University of Michigan/Reuters consumer sentiment report is expected a little before 10 a.m. ET. A reading of 70.5 is forecast for September, compared to a 70.2 in the prior month.

New home sales data is due at 10am ET. Sales of 440,000 is expected for August, compared to 433,000 in July.

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Asian Markets End In Negative Territory

The major Asian markets ended in negative territory on Friday taking cues from Wall Street where the major averages ended in the red on concerns about the pace of economic development. Traders also preferred to move to the sidelines awaiting the outcome of the G20 meeting where leaders are expected to take stock of the global economic condition.

In Japan, the benchmark Nikkei 225 Index ended at 10,266, representing a loss of 278.24 points, or 2.64%, while the broader Topix index of all first section stocks was down 27.53 points, or 2.90%, to 922.67.

On the economic front, the Bank of Japan released the minutes of the August 10-11 meeting which revealed that the board members expressed confidence that the Japanese economy was finally starting to show signs of bottoming out. "Financial conditions, while remaining generally tight, had continued to show signs of improvement," the minutes said.

In a separate statement, the Bank of Japan revealed that an index measuring corporate service prices in the country was down 3.5% on year in August, posting a score of 92.2. That was exactly in line with analyst expectations following the 3.4 percent annual contraction in July.

Light sweet crude oil futures for November delivery ended at $66.35 a barrel in electronic trading, up $0.46 per barrel from previous close at $65.89 a barrel in New York on Thursday.

Securities stocks led the declines after Nomura Holdings revealed that it is planning a second round of massive public share offerings. Following the news, the stock plunged more than 15.5%. Among other securities stocks, Daiwa Securities lost 6.25%, Mizuho Securities fell 5.70% and Matsui Securities shed 3.20%.
 
Financial stocks also ended weaker on concerns that the new government might import strict capital standards, in addition to Finance Minister's proposal to grant moratorium from loan repayments for small companies for three years.

Sumitomo Mitsui Financial Group slumped 5.45%, Resona Holdings declined 5.58%, Mitsubishi UFJ Financial dropped 8.45% and Mizuho Financial fell 4.86%.

Almost all the other stocks ended in the negative territory with as many as 215 of the 225 stocks in the index closing in the red.

In Australia, the benchmark S&P/ASX200 Index gained 0.26% or 12.10 points to close at 4,713, while the All-Ordinaries Index ended at 4,715, representing a gain of 6.80 points, or 0.14%.

Light sweet crude oil futures for November delivery ended at $66.35 a barrel in electronic trading, up $0.46 per barrel from previous close at $65.89 a barrel in New York on Thursday.

Banking sector lifted the market indices above the unchanged line in late afternoon session following news that ANZ Bank announced that it would buy the other half of its wealth management and life insurance joint venture with ING for $1.9 billion. ANZ Bank further stated that it would fund the acquisition from the internal capital.

ANZ Bank gained 1.28%, Commonwealth Bank of Australia rose 2.60%, National Australia Bank advanced 1.84% and Westpac Banking climbed 2.39%.

Energy related stocks ended mixed. Woodside Petroleum added 1.33%, Oil Search edged up 0.31% and Origin Energy advanced 1.57%. However, Santos Ltd ended in negative territory with a loss of 0.73%.

Retail stocks also ended mixed. David Jones gained 3.12%, Harvey Norman rose 3.84% and Wesfarmers added 0.76%. However, Woolworths bucked the trend and ended in negative territory with a loss of 0.21%.

Metals and mining stocks ended weaker following drop in commodity prices in the international market on Thursday.
 
BHP Billiton slipped 0.45%, Rio Tinto lost 1.59%, Fortescue Metals fell 1.94%. Gindalbie Metals shed 3.30%, Minara Resources slumped 5.94% and Oz Minerals declined 2.74%.

Gold related stocks ended in negative territory following drop in bullion prices in the international market. Lihir Gold declined 1.99%, Newcrest Mining slipped 0.57% and Sino Gold Mining slumped 4.53%.

In Hong Kong, the Hang Seng Index ended in the negative territory with a marginal loss of 26.33 points, or 0.13%, to 21,024. The stocks after opening sharply lower on Wall Street cues in early trading recovered most of the losses led by property related stocks on bargain hunting at lower levels. China-related stocks also ended higher.

In South Korea, the benchmark KOSPI Index ended in the negative territory with a minor loss of 2.4 points, or 0.14% at 1,691, as foreign institutional investors turned sellers for the second day on weak clues from Wall Street where the major indices drifted into negative territory. Volumes were relatively lower as traders preferred to move into sidelines ahead of weekend and G20 summit.

Profit taking ahead of the long weekend pulled down the Indian market lower on the first day of October series in the derivative segment. To add to the woes, global cues were negative on concerns the U.S. Federal Reserve would start unwinding some stimulus measures soon. A recovery in the afternoon proved short lived as the European markets reversed their early gains. The BSE Sensex finished at 16,693, down 88 points or 0.53% and the S&P CNX Nifty fell 28 points or 0.55% to 4,959.

Among the other major markets in the region, China's Shanghai Composite Index slipped 14.71 points or 0.52% to close at 2,839, Indonesia's Jakarta Composite Index ended at 2,445, representing a loss of 24.32 points, or 0.98%, and Singapore's Strait Times Index declined 0.17% or 4.61 points, to close at 2,663. However, Taiwan's Weighted Index bucked the trend and ended higher with a gain of 21.00 points, or 0.29% at 7,345.

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Orders for goods meant to last for at least three years unexpectedly showed a notable decrease in the month of August, according to a report released by the Commerce Department on Friday, although the drop was largely due to a steep decline in orders for transportation equipment.

The report showed that orders for durable goods fell 2.4 percent in August following a revised 4.8 percent increase in July. The decrease surprised economists, who had expected orders to edge up 0.4 percent compared to the 5.1 percent increase that had been reported for the previous month.

A notable decrease in orders for transportation equipment contributed the unexpected drop in durable goods orders.

Orders for transportation equipment fell by 9.3 percent in August after surging up by 17.7 percent in July. The pullback was largely due to a steep drop in orders for aircraft and parts.

Excluding the decline in orders for transportation equipment, durable goods orders were nearly unchanged in August compared to a revised 0.9 percent increase in the previous month.

The Commerce Department is also due to release its new home sales report for August at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 440,000.

New home sales rose to a seasonally adjusted annual rate of 433,000 in July, up 9.6% from a revised 395,000 rate in June, with gains witnessed in the Northeast, South and West. New home sales were at their highest level since September 2008. The months supply of new homes fell to 7.5 in July from 8.5 in the previous month, with new home inventories declining by 9,000 to 271,000. The median price of new homes was down 11.5% year-over-year.

The Reuters/University of Michigan's final report on the consumer sentiment index for September is scheduled to be released at 9:55 AM ET. Consumer confidence is expected to edge up in the month, with economists forecasting an increase in the index to 70.5 from the mid-month reading of 70.2 and July's reading of 65.7.

Federal Reserve Board Governor Kevin Warsh is due to deliver the keynote address to the Chicago Federal Reserve Bank's International Banking Conference in Chicago at 1:15 PM ET.

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Research In Motion is likely to come under selling pressure after it reported sales of $3.53 billion for its second quarter, below the $3.62 billion consensus estimate. The company reported adjusted earnings of $1.03 per share compared to 86 cents per share last year and the $1 per share consensus estimate. The company expects sales of $3.6 billion to $3.85 billion for its third quarter, while analysts estimate sales of $3.9 billion.

Finish Line could trade lower after it reported a loss of 2 cents per share for its second quarter compared to a profit of 24 cents per share last year. The company’s operating profit, excluding the discontinued Man Alive business, was 23 cents per share, in line with the consensus estimate. Revenues fell 11.4% to $298.7 million, below the consensus estimate of $305.6 million.

On the other hand, Tibco Software is likely to see buying interest after it reported that its third quarter earnings rose to 9 cents per share from 6 cents per share last year, even as revenues fell 7% to $150.3 million. On an adjusted basis, the company reported a profit of 13 cents per share, ahead of the 11 cents per share consensus estimate. Revenues declined 7% year-over-year to $162.3 million, also exceeding the $144.5 million mean analysts’ estimate.

Christopher & Banks is likely to be in focus after it announced that its second quarter loss was 6 cents per share, smaller than the 14 cents per share loss expected by economists. Revenues declined to $101.2 million from the year-ago’s $128.5 billion and also trailed the consensus estimate of $103.6 million.

Pfizer is expected to react to its announcement that its agreement with Eisai to provide Aircept to patients suffering from Alzheimer’s disease will continue without interruption following the resolution of a previously disclosed dispute.

First Niagara may see weakness after it announced that it has entered into an underwriting agreement for the sale of 33.34 million shares of common stock at $12 per share. The offer is expected to fetch the company gross proceeds of $400.1 million. The company said the transaction would close on or about September 30th, 2009.

Solera (SLH) is likely to gain ground after Standard & Poor’s announced that the company would replace Metavante Technologies (MV) in the S&P MidCap 400 Index after the close of trading on Thursday, October 1st. Metavante is due to be acquired by Fidelity National Information Services on about that date. Meanwhile, EZCorp. is also likely to trade higher, as it will replace SPSS in the S&P SmallCap 600 Index.

Viacom could be in focus after it announced that it has agreed to sell $250 million in aggregate principal amount of 4.250% senior notes due 2015 at a price equal to 99.814% of the principal amount and $300 million in aggregate principal amount of 5.625% senior noted due 2019.

FMC Technologies may see activity after it announced that it would buy Multi Phase Meters based in Stavanger, Norway. The company expects to acquire a 100% stake in Multi Phase Meters with an initial cash payment of about $30 million and two earn-out payments based on 6.6 times 2012 and 2013 EBITDA. The company expects the deal to close in the fourth quarter and be accretive in 2011.

Lockheed Martin is likely to trade higher after it announced that its board has authorized the purchase of up to an additional 20 million shares under its existing share repurchase program. Another stock that could see upside due to an increase in its share repurchase program could be Hanover Insurance Group (THG), which said its board has authorized a $100 million increase to its existing share repurchase program.

McDonald’s may also gain ground after it announced that it has upwardly revised its quarterly dividend by 10% to 55 cents per share. The dividend is to be paid on December 10th to shareholders of record as of December 1st.

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