US & World Daily Markets Financial Briefing 26-05-2010

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Stocks Posting Strong Gains In Mid-Morning Trading

Stocks are up by substantial margins in mid-morning trading on Wednesday, as a mix of bargain hunting and reaction to upbeat data on new home sales has driven the markets higher. Overseas worries, meanwhile, have taken a back seat to the action amid a lack of major news.

The Commerce Department released a report showing another substantial increase in new home sales in the month of April, with the increase lifting new home sales to their highest annual rate in almost two years amid the expiring tax credit.

New home sales surged up by 14.8 percent to an annual rate of 504,000 in April from the upwardly revised March rate of 439,000. Economists had been expecting new home sales to edge up to 425,000 from the 411,000 originally reported for the previous month.

In a separate report released earlier, the Commerce Department said that durable goods orders rose by 2.9 percent in April, while orders for March were upwardly revised to show only a slight decrease. Economists had expected orders to increase by 1.5 percent compared to the 0.6 percent drop that had been reported for the previous month.

Excluding a 16.1 percent increase in orders for transportation equipment, however, durable goods orders actually fell 1.0 percent in April compared to a 4.8 percent increase in the previous month. The decrease surprised economists, who had expected a 0.7 percent increase.

On the corporate front, BP Plc (BP) is set to begin its "top-kill" maneuver in an effort to curb the oil spill in the Gulf of Mexico, with the process expected to take two days to complete. The firm said that the oil spill and subsequent cleanup has cost roughly $800 million thus far.

In earnings news, American Eagle Outfitters Inc. (AEO) reported adjusted first-quarter net income that was in-line with estimates, while the retailer's second quarter profit estimates were well short of expectations.

Toll Brothers Inc. (TOL) reported a second-quarter net loss that was narrower than in the same period last year but still wider than forecasts. While revenues also fell short of estimates, the company said net signed contracts jumped 41 percent to 820 units.

The major averages have seen some further upside in recent trading, rising to new highs for the session. The Dow is up 130.67 points or 1.3 percent at 10,174.42, the Nasdaq is up 44.51 points or 2 percent at 2,255.46 and the S&P 500 is up 15.93 points or 1.5 percent at 1,089.96.

Sector News

Airline stocks are some of the market's best performers in mid-morning trading, with the NYSE Arca Airline Index up by 5.1 percent. With the gain, the index is extending the notable upward move seen over the course of the previous session.

Housing stocks are also seeing strong gains following today's new home sales figures, lifting the Philadelphia Housing Sector Index up by 3.3 percent. Within the sector shares of Lennar (LEN) are up by 4.1 percent, moving off of a six-week closing low set in the previous session.

Steel, electronic storage, health insurance and semiconductor stocks are also seeing strong gains amid a broad-based rally that is offsetting part of the recent correction.

Stocks Driven By Analyst Comments

Concur Tech (CNQR) is notably higher after being upgraded by analysts at RBC Capital Markets from Sector Perform to Outperform. The stock also saw its target price raised by the broker from $40 to $50. The stock is up by 7 percent, bouncing off of yesterday's three-month closing low.

Arkansas Best (ABFS) is also on the upside following an upgrade by Robert W. Baird from Underperform to Neutral. Shares are currently up by 3.8 percent, recovering from the three and a half month closing low set in the previous session.

On the other hand, Dreamworks Animation (DWA) is moving lower after being downgraded at Jefferies from Buy to Hold. The broker also lowered its price target on the stock from $49 to $28. The stock has sunk by 4 percent and is on pace for a ten-month closing low.

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TSX Poised For Higher Opening Amid Recovering Commodities

Bay Street stocks may open higher Wednesday as the prices of commodities were rebounding from their lows amid recovering global equity markets. Most major stock markets in Asia and Europe moved higher on bargain hunting amid speculation that recent sell-offs were overdone.

Meanwhile, lingering worries over the euro zone sovereign debt situation and escalating tension between North and South Korea may keep a lid on major gains during the day.


On Tuesday, the S&P/TSX Composite Index ended almost flat, edging down 3.26 points or 0.03% to 11,518.08.

The price of oil rebounded from a fresh 10-month low hit Tuesday, with crude for July delivery adding $1.93 to $70.68 a barrel.

The price of gold rose for a third session, with gold for June gaining $15.10 to $1,213.10 an ounce.

Financial stocks may be in play after the country's fourth biggest lender Bank of Montreal bet consensus estimates, reporting higher second-quarter net income of C$1.26 per share, compared to C$0.61 per share in the year ago quarter. Analysts were expecting the bank to post C$1.08 per share this quarter. The bank declared a quarterly dividend of C$0.70 per share.


Independent electric power producer Atlantic Power will soon commence trading on the NYSE, which would broaden the U.S. retail investor interest and increase overall North American liquidity.

Oil and gas industry services provider CanElson Drilling announced that it will acquire all of the issued and outstanding shares of Totem Drilling Ltd., a private corporation for around C$40 million.

Oil and gas explorer Kierland Resources announced that it has closed the purchase of 100% of the shares of QMAC Ventures Inc. on April 1, 2010.

Energy industry services provider Leader Energy Services reported first-quarter net income of C$2.21 million or C$0.15 per share, compared to C$630 thousand or C$0.05 per share last year.

Texada Software reported higher first quarter net income of C$139,000 or C$0.016 per share, compared to C$28,000 or C$0.003 per share in the year-ago period.

Agriculture plantation company Bevo Agro reported improved third quarter net earnings of C$499 thousand or C$0.02 per share, compared to C$296 thousand or C$0.01 per share last year.

In economic news from the U.S., the Commerce Department said durable goods order rose by 2.9% in April, while orders for March were upwardly revised to show only a slight decrease. Economists were expecting orders to increase by 1.5% compared to the 0.6% drop that had been reported for the previous month. Excluding a 16.1% increase in orders for transportation equipment, durable goods orders actually fell 1.0% in April compared to a 4.8% increase in the previous month, belying consensus estimates for a 0.7% increase.

In another report, the Mortgage Bankers Association said that its market composite index - a measure of overall mortgage demand - rose 11.3% on a seasonally adjusted basis for the week ended May 21.

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Asian Markets End Higher On Bargain Hunting As War Fears Recede

The markets across Asia recovered smartly on Wednesday from the sharp plunge in the previous session taking cues from Wall Street where the major averages recovered most of the early losses and in afternoon session and ended mixed at the close. Bargain hunting at lower levels across the stocks in all markets lifted market sentiment from one that of gloom and concern to that of optimism about market fundamentals. Higher commodity and oil prices also impacted market sentiment .

In Japan, the benchmark Nikkei 225 Index rose 62.77 points, or 0.66%, to 9,523; however, the broader Topix index of all First Section issues was down 0.82 point, or 0.10%, to 859.

On economic front, a report released by Shoko Chukin Bank revealed that Japanese small business confidence fell to 46.7 in May from 46.8 recorded in April. A reading below 50 indicates pessimists outnumber optimists. Confidence among manufacturers slipped 0.7 points to 47.4. Meanwhile, sentiment among non-manufacturers moved up 0.3% points to 46. The survey was conducted among 1000 companies.

Minutes of the recent policy board meeting held of April 30 of Bank of Japan Policy Board revealed that members agreed the deflationary troubles plaguing that country may come to an end by the next fiscal year. The board predicted that deflation will end in the next fiscal year in its latest semi-annual outlook for economic growth and prices report, with consumer prices forecast to rise 0.1% for the year ending March 2012. Previously, the board saw a 0.2% decline for 2011/12. Prices are tipped to fall 0.5% in the current fiscal year.

Shipping stocks ended in positive territory on bargain hunting. Nippon Yusen gained 3.21%, Kawasaki Kishen Kaisa surged up 4.27% and Mitsui OSK Lines climbed 5.00%.


Trading companies also advanced. Toyota Tsusho Corp. gained 1.97%, Sumitomo Corp. added 0.74%, Mitsubishi Corp. climbed 3.08%, Itochu Corp. edged up 0.42% and Marubeni Corp. rose 2.47%.

Large banks also ended higher on bargain hunting. Sumitomo Mitsui Financial gained 1.51%, Resona Holdings climbed 2.22%, Mizuho Financial advanced 0.61% and Mitsubishi UFJ Financial rose 0.61%.

In Australia, the benchmark S&P/ASX200 Index gained 41.90 points, or 0.98% and closed at 4,307, while the All-Ordinaries Index ended at 4,330, representing a modest gain of 44.10 points, or 1.03%.

Mining and metal stocks led the gains on bargain hunting at lower levels.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a gain of 210.95 points, or 1.11%, at 19,196, taking cues from other markets in the region as well as smart recovery on Wall Street in the previous session. Bargain hunting at lower levels in china-related stocks, commodities and resource stocks led the market higher even as concerns about the problems in Europe continue to haunt investors' sentiment..

Firm Asian and European cues and extensive short covering in the oversold market a day before the expiry of current month derivative contracts helped Indian equities bounce back sharply on Wednesday after a sell-off in the previous session. The European markets rebounded from eight-month lows and were up between 1.5% and 3% on Wednesday, helped by higher commodity prices and Wall Street's late-session rebound overnight. Closer home, the 30-share Sensex closed near the day's high at 16,388, up 365 points or 2.28% and the 50-share Nifty jumped by 111 points or 2.30% to 4,917.

Among the other major markets open for trading, China's Shanghai Composite Index edged up 3.16 points, or 0.12%, to close at 2,626, Singapore's Strait Times Index gained 45.41 points, or 1.71%, to close at 2,696, Taiwan's Weighted Index surged up 80.98 points or 1.14% to close at 7,167, and Indonesia's Jakarta Composite Index soared up 182.66 points, or 7.27% to close at 2,697.

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The major European markets are rising strongly on Wednesday following yesterday’s sharp declines. The French CAC 40 Index and the German DAX Index are advancing 3.12% and 2.12%, respectively, while the U.K.’s FTSE 100 Index is moving up 2.34%.

In corporate news, U.K.-based Cable & Wireless reported a 32% increase in its full year adjusted profits to 431 million pounds, while revenues remained flat at 2.26 billion pounds. Meanwhile, Telefonica and Portugal Telecom are locked in a hostile takeover battle over their joint venture in Brazil.

On the economic front, a report released by the Gfk Institute showed that German consumer confidence is set to take a dip in June, as the sovereign debt crisis is threatening the fledgling growth in the region. The institute’s forward - looking consumer sentiment indicator for June fell to 3.5 from a revised reading of 3.7 for May. Economists had expected a reading of 3.6.

French statistical agency INSEE reported that French consumer spending fell 1.2% month-over-month in April following a revised 1.6% increase in March. Economists expected a more modest 0.5% drop. Annually, spending rose 1.1% on top of the 2.4% increase in March.

Meanwhile, INSEE also said its index of French manufacturers’ sentiment rose to 97 in May from 96 in April and came in line with expectations. The general production outlook, which indicates business leaders' opinion on French industry as a whole, came in at -3 compared to +8 in April. The personal production outlook for the next month is still near its long-term average despite dropping to 4 from 6 in the previous month.

U.S. Economic Reports

The Commerce Department reported that new orders for durable goods rose 2.9% month-over-month in April following no growth in the previous month. The increase was better than the 1.5% growth expected by economists. Excluding transportation orders, new orders fell 1%.

Transportation orders accounted for the bulk of the increase in the headline number, jumping 16.1%. Shipments of durable goods rose 1.4% compared to a 0.4% increase in unfilled orders. Inventories also increased, rising 0.7%. Non-defense capital goods orders, excluding aircrafts and parts fell 2.4% following a 6.5% jump in March.

The Commerce Department is also due to release its new home sales report for April at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 425,000.

New home sales rose by 26.9% month-over-month in March to an 8-month high of 411,000, with the increase marking the biggest ever jump. Inventories of new homes fell 2.1%, the first decline since December, while in terms of months of supply inventories fell to 6.7 from 8.7 in the previous month. The median selling price of a new home rose 4.3% year-over-year.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 21st at 10:30 AM ET.

Crude oil stockpiles edged up by 0.2 million barrels in the week ended May 14th, with inventories remaining above the upper limit of the average range. On the other hand, gasoline stockpiles fell by 0.3 million barrels but remained above the upper limit of the average range. Although distillate inventories fell by 1 million barrels, they remained above the upper boundary of the average range. Refinery capacity utilization averaged 88.7% over the four weeks ended May 14th compared to 88.2% in the previous week.

Richmond Federal Reserve Bank President Jeffrey Lacker is due to speak on financial regulation at a conference at the Institute for International Economic Policy in Washington at 4:15 PM ET.

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Fidelity National Information (FIS) is likely to react to its announcement that its board has authorized a leveraged recapitalization plan pursuant to which it will buy up to $2.5 billion of its shares at a price between $29 and $31 through a modified Dutch auction tender offer.

The company expects to raise $2.5 million meant for the buyback through debt raised in the form of additional term loans and long-term bonds.

Brown Shoe (BWS) is likely to see some activity after it reported that its first quarter sales rose 10.9% to $597.7 million.

On an adjusted basis, the company reported earnings of 26 cents per share compared to a loss of 14 cents per share last year. Analysts estimated earnings of 13 cents per share on revenues of $582.94 million.

For the full year, Brown Shoe expects net sales geowth in the high single to low double-digit range, with second quarter sales expected to increase in the low to mid-teens range. Analysts estimate sales growth of 6.30% for the year and 8.70% for the second quarter.

Fred’s (FRED) could move in reaction to its announcement that its first quarter earnings came in flat at 21 cents per share. Net sales rose 2.9% to $471.65 million. The consensus estimates called for earnings of 20 cents per share on revenues of $468.90 million.

Toll Brothers (TOL) may also be in focus after it reported a loss of 24 cents per share for its second quarter compared to a loss of 52 cents per share last year. Revenues fell 22% to $311.3 million. Analysts estimated a loss of 23 cents per share on revenues of $321.94 million.

American Eagle Outfitters (AEO) is expected to show activity after it reported first quarter adjusted earnings of 17 cents per share compared to earnings of 11 cents per share last year. Net sales rose to $659.45 million from the year-ago’s $611.99 million.

Analysts estimated earnings of 17 cents per share on revenues of $656.26 million. For the second quarter, the company expects adjusted earnings of 12-16 cents per share, while analysts estimate earnings of 21 cents per share.