US & World Daily Markets Financial Briefing 26-02-2010

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Stocks Turning In Lackluster Performance Following Mixed Data

Stocks are lacking direction in mid-morning trading on Friday, as the markets are digesting a widely mixed batch of economic reports. The major averages are lingering near the unchanged line, bouncing between gains and losses.

Kicking off today's deluge of economic data was news from the Commerce Department revealing that U.S. gross domestic product increased at an annual rate of 5.9 percent in the fourth quarter compared to the advance estimate of 5.7 percent growth. Economists had expected the pace of GDP growth to be unrevised.

Further, the Institute for Supply Management - Chicago said its business barometer index rose to 62.6 in February from 61.5 in January, with a reading above 50 indicating growth in the manufacturing sector. The increase came as a surprise to economists, who had expected the index to slip to 59.7.

On the other hand, Reuters and the University of Michigan reported that their consumer sentiment index was downwardly revised to a reading of 73.6 from the previous estimate of 73.7. Economists had been expecting the index to be revised up to a reading of 73.9. The index came in at 74.4 in January.

Additionally, the National Association of Realtors revealed that sales of previously owned homes fell 7.2 percent in January compared to the previous month. The figure came in at a seasonally adjusted annual rate of 5.05 million units - its lowest level in seven months.

While the month-to-month figure showed a decline, sales did rise from the same period in 2009. Compared to last year, January's figure represented an 11.5 percent improvement.

In earnings news, American International Group Inc. (AIG) reported a loss of $65.51 per share for the fourth-quarter and a loss of $53.23 per share on an adjusted basis. The stock has come under pressure as the firm indicated that it may need additional government assistance as its debt liabilities mature.

After the markets closed for trading in the previous session, software solutions provider Novell Inc. (NOVL) reported a higher profit in its first quarter, helped by lower operating expenses. Earnings for the quarter were in line with estimates, but revenues fell short. Looking ahead to the second quarter, Novell expects revenues to be flat sequentially.

The major averages have moved to the upside in recent trading, climbing modestly above the unchanged line. The Dow is currently up 25.92 points or 0.3 percent at 10,346.95, the Nasdaq is up 5.66 points or 0.3 percent at 2,239.88 and the S&P 500 is up 3.25 points or 0.3 percent at 1,106.18.

Sector News

Most the major sectors are showing only modest moves, contributing to the lackluster market performance.

Health insurance stocks are some of the day's best performers, pushing the Morgan Stanley Healthcare Payor Index up by 1.5 percent. Despite the gain, the index remains rangebound following a series of lackluster outings.

Cigna (CI) is helping to lead the sector higher, posting a 2.4 percent gain. The advance has lifted the stock to a three-week intraday high.

Airline, healthcare provider and gold stocks are also seeing buying interest, while steel, railroad, tobacco and electronic storage stocks are moving lower, limiting the upside for the major averages.

Stocks Driven By Analyst Comments

Dynegy (DYN) is moving lower in mid-morning trading after being downgraded at Citigroup from Buy to Hold. The stock has dropped by 4.6 percent, setting an eleven-month intraday low.

Turkcell (TKC) is also under pressure following a downgrade at UBS from Neutral to Sell. Shares are currently down by 2.2 percent, slipping to a seven-month intraday low.

On the other hand, Hersha Hospitality Trust (HT) is moving higher after being upgraded at Oppenheimer from Perform to Outperform. The stock has gained 2.8 percent, jumping to its best intraday price in nearly sixteen months.

Positive Opening Likely For TSX

Canadian stocks are set to extend the previous session's gains in Friday morning trade, with the sentiment likely to improve slightly as traders digest data showing an upward revision to the US economic growth in fourth-quarter, and narrowing of the Canadian current account deficit. Firm gold and crude oil prices could buoy the resource stocks.

The S&P/TSX Composite Index closed higher 109.31 points or 0.95% to 11631.14 Thursday, in its first gaining session in four days, erasing more than half of the cumulative loss of 187 points incurred during the initial three days of the week.

Gold stocks and financials were the top performers of Thursday. While impressive quarterly profits reported by Canadian Imperial Bank of Commerce and National Bank of Canada lifted the financials sector, gold stocks benefited from an upswing in bullion prices.

Statistics Canada reported the nation's fourth-quarter current account deficit narrowed to C$9.8 billion from the revised C$13.8 billion for the previous quarter.

A report from the Bureau of Economic Analysis revealed the US gross domestic product grew at an annual rate of 5.9% in the fourth quarter of 2009, compared to the advance estimate of a 5.7% increase.

More economic reports are due for release from across the border Friday, including the results of the Institute of Supply Management-Chicago's business survey for February, the Reuters/University of Michigan's final report on the consumer sentiment index for February and existing home sales data for January from the National Association of Realtors.
 
Gold April was up $4.4 to $1112.9 a troy ounce, and Crude oil April added $0.62 to $78.79 a barrel in the New York Mercantile Exchange.

In corporate announcements, Gold producer Red Back Mining Inc. reported net income of $109 million for the year ended December 31, 2009. The company reported a 31% increase in gold production during the period, and has projected a 42 - 54% increase in the next fiscal year.

FNX Mining Company Inc. reported a turnaround to profit in the fourth-quarter 2009, with net earnings of C$32.12 million compared to a loss of C$397.40 million in the corresponding period last year.

Mineral explorer Centamin Egypt Ltd. reported Friday its loss narrowed to US$542 thousand in the half-year ended December 31, 2009, from US$24.43 million in the comparable period.

Packaging products company Cascades Inc. reported its fourth-quarter net loss widened to C$41 million from C$18 million in the prior-year quarter.

Prestige Telecom Inc. said its third-quarter net loss narrowed to C$0.6 million from C$1.9 million for the year-ago quarter, aided by a 92% growth in sales.

Mobile personalization company Bridgewater Systems reported an increase in its full-year net earnings to $11.2 million from $2.8 million in 2008.

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Asian Markets End Higher On Optimism About Recovery

The markets across Asia ended in positive territory on Friday on increasing optimism about sustaining global recovery after Japan reported better than expected economic data. Wall Street's resilience, which cut its losses despite the weaker than expected jobless claims report and Greece concerns, reignited optimism about global economic recovery as investors resorted to bargain hunting at lower levels.

In Japan, the benchmark Nikkei 225 Index closed up 24.07 points, or 0.24% at 10,126, while the broader Topix index of all First Section issues gained 2.69 points, or 0.3%, to 894.10.

On the economic front, a report released by the Ministry of Economy, Trade and Industry revealed that retail sales in the country unexpectedly climbed 2.6% year-over-year during January, first increase in the past 17 months, surprising economists who expected a nominal 0.2% decline for the month on annual basis. The report further noted that, on a monthly basis, retail sales surged by a seasonally adjusted 2.9% versus forecasts for a 0.3% increase after the 1.1% contraction in December.

In another report, the Ministry of Economy, Trade and Industry revealed that industrial output in the country increased a seasonally adjusted 2.5% month-on-month in January, higher than the 1% growth expected by the economists. This is the 11th consecutive month of increases in industrial output in the country.

Separately, the Ministry of Internal Affairs and Communications revealed that core consumer prices in the country declined 1.3% year-over-year in January, marking the 11th consecutive month of declines and reinforcing deflationary fears. On a monthly basis, core consumer prices eased 0.2% during January, the report noted.
 
The Ministry of Land, Infrastructure and Transport, in a statement, revealed that housing starts in the country decreased 8.1% year-on-year in January, better than economists expectation for a 11.6% decline during the month.

Light sweet crude oil futures for April delivery ended at $78.49 a barrel in electronic trading, up $0.32 per barrel from previous close at $78.17 a barrel in New York on Thursday.

Among the major gainers, tire company Bridgestone Corp., gained 2.84%.

Oil and coal products also ended higher. Showa Shell Sekiyu advanced 1.45%, Nippon Oil gained 1.93% and Nippon Mining Holdings climbed 2.31%.

Securities stocks also ended in positive territory. Nomura Holdings gained 1.55%, Daiwa Securities Group rose 1.62%, Matsui Securities added 0.17% and Mizuho Securities climbed 1.15%.

Gas related stocks ended in negative territory. Osaka Gas Co. slipped 0.62% and Tokyo Gas Co. fell 1.28%.

Mixed trading was witnessed among insurance stocks. T&D Holdings declined 1.99%, Tokio Marine Holdings slipped 0.52% and Sompo Japan Insurance shed 0.49%. However, Mitsui Sumitomo Insurance managed to end in positive territory with a gain of 0.93%.

In Australia, the benchmark S&P/ASX 200 Index advanced 43.60 points, or 0.95% to close at 4,638, while the All-Ordinaries Index ended at 4,651, representing a gain of 36.20 points, or 0.78%.

On the economic front, a report released by the Reserve Bank of Australia revealed that the amount of credit extended to private sector recipients in the country increased 0.4% in January 2010 compared to the previous month. On an annual basis, the credit extended to private sector recipients increased 1.3%, the report noted.

Light sweet crude oil futures for April delivery ended at $78.49 a barrel in electronic trading, up $0.32 per barrel from previous close at $78.17 a barrel in New York on Thursday.

Banks ended in positive territory on optimism about economic recovery. ANZ Bank provided a better-than-expected trading update for the first quarter, that lifted the market sentiment. The stocks surged up 4%. Among other banks, Commonwealth Bank of Australia rose 1.39%, National Australia Bank climbed 3.04% and Westpac Banking gained 1.71%. Investment banker Macquarie Group edged up 0.13%.
 
Among retail stocks, Harvey Norman reported nearly 60% rise in first half profit. The stock gained 1.59%. Woolworths surged up 5.46% after announcing a share buy-back program. However, the other retail stocks ended in negative territory. David Jones lost 2.47%, JB Hi-Fi Ltd slipped 1.52% and Wesfarmers edged down 0.10%.

Resource stocks ended in positive territory. BHP Billiton gained 1.61%, Rio Tinto rose 1.59%, Fortescue Metals advanced 1.53%, Gindalbie Metals climbed 1.52% and Oz Minerals increased 0.98%.

Gold stocks also ended in positive territory on higher bullion prices in the international market. Lihir Gold gained 2.71% and Newcrest Mining rose 1.92%.

Mixed trading was witnessed among oil stocks. While Woodside Petroleum gained 0.63% and Origin Energy rose 1.88%, Oil Search ended in negative territory with a loss of 1.14% and Santos slipped 0.38%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 209.13 points, or 1.03%, at 20,609, as traders evinced fresh buying interest in stocks on increasing optimism about economic global economic recovery, following better than expected economic data in Japan. The major averages in Wall Street cut back losses, despite ending in negative territory, displaying resilience despite weak employment data and crisis in Greece. Positive trading across other markets in the region also lifted market sentiment with 37 out of 42 components in the market ending higher.

 In South Korea, the KOSPI Index ended in positive territory with a gain of 7.07 points, or 0.45%, at 1,595, as traders, optimistic about sustaining global economic recovery, evinced fresh buying interest in stocks at bargain hunting. Positive economic data in Japan and trading in markets across the region also lifted market sentiment.

In India, the benchmark Sensex opened flat at 16,255 and rose to a high of 16,669 before finishing off the day's high at 16,430, up 175 points or 1.08%, while the Nifty rose by 63 points or 1.29% to 4,922. Broader markets also saw significant buying with the BSE mid-cap and small-cap indexes ending up by over a percent each. The absence of negative surprises in the budget and a proposal to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws also boosted investor sentiment.

Among the other major markets, Singapore's Strait Times added 1.71 points, or 0.06% to 2,751, and Taiwan' s Weighted Index advanced 9.14 points, or 0.12%, to close at 7,436. China's Shanghai Composite Index, however, bucked the trend and ended in negative territory with a loss of 8.68 points, or 0.28%, at 3,052.

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The major European averages are advancing on Friday after yesterday’s sharp declines. While the French CAC 40 Index and the German DAX Index are moving up 0.52% and 0.28%, respectively, the U.K.’s FTSE 100 Index is advancing 0.57%.

The U.K. Office for National Statistics released its revised report on U.K. fourth quarter GDP showing a quicker than estimated GDP growth. The U.K. expanded at a 0.3% rate compared to the 0.1% growth estimated earlier. The expansion follows six straight quarters of contraction.

On the economic front, the Nationwide Building Society reported that the U.K.’s house prices fell 1% month-over-month in February, marking the first decline in 10 months. Economists had expected a 0.4% increase for the month. On a year-over-year basis, house prices rose 9.2%, stronger than the 8.6% increase in the previous month, but weaker than the 11% increase expected by economists.

At the same time, U.K. consumer confidence rose for the second straight month in February, with a survey by GfK NOP showing that its consumer confidence index improved to –14 in February from –17 in the previous month.

Inflation in the euro zone region rose 1% year-over-year in January, faster than the 0.9% increase in December, according to a revised report released by Eurostat. In the year-ago period, the inflation rate was 1.1%.

U.S. Economic Reports

The Bureau of Economic Analysis released its revised report on fourth quarter GDP, showing a better than estimated GDP growth of 5.9%. Economists had expected a more modest 4.7% GDP growth, unrevised from the previous estimate.

The increase in GDP reflected positive contributions from private inventory investment, exports and personal consumption expenditures. Consumer spending rose at a 1.7% rate and a smaller rate of decline in inventories contributed notably to growth.

The results of the Institute of Supply Management-Chicago's business survey for February are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 59.7.

In January, the business barometer index rose to 61.5 from 58.7 in December. The production index rose 2.4 points to 66.6 and the new orders index increased 2 points to 66.4. The index of order backlogs also climbed, advancing 2.3 points to 54.3. Reflecting the pick up in the pace of inventory rebuilding, the inventories index rose about 10 points to 48.7. The employment index increased 12.2 points to 59.8, rising to its highest level in about 5 years.

The Reuters/University of Michigan's final report on the consumer sentiment index for February is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be revised up to 73.9 from the mid-month of reading of 73.7.

The National Association of Realtors is scheduled to release its report on existing home sales for January at 10 AM ET. Economists estimate existing home sales of 5.50 million for the month.

Existing home sales fell 16.7% month-over-month to a seasonally adjusted annual rate of 5.45 million units in December compared to 6.54 million units in November. Economists had estimated a more modest decline to 5.90 million units. Inventories as measured by months of supply rose to 7.2 months from 6.5 months. The median sales price of an existing home rose 1.5% year-over-year and moved up 4.9% month-over-month to $178,300.

Chicago Fed President Charles Evans and Fed Governor Daniel Tarullo are due to speak at an annual U.S. Monetary Policy Forum in New York.

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ArvinMeritor (ARM) receded in Thursday’s after hours session after announcing an increase in the size of its previously announced common stock offering to 17.35 million shares from 15 million shares. The company had priced the shares at $10.50 per share.

Savient Pharma (SVNT) could be in focus after it reported a fourth quarter loss of $0.2 million compared to a net loss of $90.9 million last year. On a per share basis, the company reported break-even results compared to a loss of $1.51. On a non-GAAP basis, the net loss narrowed to 19 cents per share from 45 cents per share last year, while analysts estimated a loss of 29 cents per share. Revenues slipped to $0.9 million from the year-ago’s $3 million.

Rambus (RMBS) is likely to gain ground after it announced that its board has approved a new share repurchase program authorizing the purchase of up to 12.5 million shares.

Bemis (BMS) may see some activity after it announced that the U.S. District Court of the District of Columbia has approved the company’s acquisition of the Food Americas operations of Alcan Packaging, a unit of Rio Tinto (RTP). Bemis expects the deal to close as soon as possible.

Diamond Foods (DMND) could be in focus after it announced that its second quarter non-GAAP earnings rose 30% year-over-year to 48 cents per share and its net sales climbed 22% to $184.2 million. Analysts estimated earnings of 47 cents per share on revenues of $169.44 million. The company raised its 2010 revenue guidance to $595 million to $610 million from its earlier estimate of $585 million to $605 million, while it also upwardly revised the low end of its earnings per share guidance by 4 cents to $1.79 and maintained the high-end of the guidance at $1.83 per share. The consensus estimates call for earnings of $1.83 per share on revenues of $597.28 million. Separately, the company announced a deal to buy Kettle Foods for $615 million in cash.

BlackRock (BLK) may trade higher after it announced that its board has authorized an increase in its quarterly cash dividend by 28% to $1 per share.

Live Nation Entertainment (LYV) showed a modest loss in Thursday’s after hours session after it reported fourth quarter revenues of $854.3 million, lower than $896.7 million last year. The company’s operating loss narrowed to $64 million from $323 million last year. Meanwhile, Ticketmaster, which has been merged with Live Nation, reported revenue growth of 7% to $409 million.

Weight Watcher’s (WTW) could recede after it reported that its fourth quarter net revenues fell to $311.3 million from $346.2 million last year. On an adjusted basis, the company’s earnings rose to 57 cents per share from the year-ago’s 54 cents per share. Analysts estimated earnings of 52 cents per share on revenues of $303.88 million.

Hansen Natural (HANS) may gain ground after it reported that its fourth quarter net sales rose 14.4% to $290.9 million. The company reported earnings of 57 cents per share compared to a loss of 25 cents per share last year. Analysts estimated earnings of 53 cents per share on revenues of $272.32 million.

Sonus Networks (SONS) could come under selling pressure after it reported fourth quarter revenues of $68.7 million compared to $56.2 million last year. The company reported a loss of 4 cents per share compared to a loss from continuing operations of 37 cents per share last year. Analysts expected break-even results on revenues of $60.67 million.

Wynn Resorts (WYNN) is likely to move to the downside after it reported fourth quarter net revenues of $809.3 million compared to $614.3 million last year. The company’s adjusted earnings were 8 cents per share compared to 7 cents per share last year. The consensus estimates called for earnings of 13 cents per share on revenues of $784.65 million.

Fluor (FLR) slid sharply in Thursday’s after hours session after the company reduced its earnings per share guidance for the year 2010 to $2.80-$3.20 from its earlier estimate of $3.20-$3.60. Analysts estimate earnings of $3.42 per share for the year. The company reported fourth quarter earnings of 82 cents per share, lower than $1.03 per share last year. Revenues slid to $5.58 billion from $6.072 billion last year. The consensus estimates had called for earnings of 88 cents per share on revenues of $5.48 billion.

Gap (GPS) may also be in focus after it reported fourth quarter earnings of 51 cents per share compared to 34 cents per share last year, as net sales rose 4% to $4.24 billion. Analysts estimated earnings of 50 cents per share on revenues of $4.23 billion. The company also announced an 18% increase in its annual dividend. The board also authorized an additional $1 billion share repurchase. Separately, the company also announced that it would enter the Italian market in 2010.

Novell (NOVL) is expected to see activity after it reported that its first quarter non-GAAP net income remained flat at 7 cents per share. Net revenues fell to $202.37 million from $214.87 million in the year-ago quarter. Analysts estimated earnings of 7 cents per share on revenues of $207.64 million. The company expects second quarter net revenue to be flat with that of the first quarter, while analysts estimate revenues of $207.64 million.

Deckers Outdoor (DECK) may rally after it reported that its fourth quarter sales rose 17.9% to $813.2 million. The company reported non-GAAP earnings per share of $4.05. Analysts estimated earnings of $4.28 per share on revenues of $320.90 million. For 2010, the company estimates revenue growth of 11% and non-GAAP earnings of $8.94 per share. The consensus estimates call for 7% revenue growth and earnings of $8.38 per share.

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