US & World Daily Markets Financial Briefing 27-05-2010

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Stocks Stage Substantial Rally In Morning Trading

Stocks are up by sharp margins in mid-morning trading on Thursday, as easing worries regarding investing in Europe and innocuous U.S. jobs and GDP data have driven buying interest. The major averages are all firmly in positive territory, moving off of the roughly three-month closing lows set in the previous session.

Earlier, China's State Administration of Foreign Exchange quelled rumors that it will be selling its stake in euro-bonds and reiterated that it remains a long term investor in Europe, relieving the markets.

"The European markets in the past, the present and the future are one of the most important investment markets for foreign exchange reserves," SAFE said.

On the economic front in the U.S., the Labor Department reported that first-time claims in the week ended May 22nd fell to 460,000 from the previous week's revised figure of 474,000. Economists had been expecting jobless claims to fall to 455,000 from the 471,000 originally reported for the previous week.

In a separate report, the Commerce Department's second estimate on gross domestic product in the first quarter showed that GDP increased by 3.0 percent, a downward revision from the advance estimate of 3.2 percent growth. The downward revision surprised economists, who had expected GDP growth to be revised up to 3.3 percent.

Commenting on the economic data released this morning, Chris Low, chief economist at FTN Financial, said, "Like yesterday's economic news, the most important takeaway is that this morning's figures are close enough to expectations to allow investors to forget about them and focus on market internals."

On the corporate front, BP Plc (BP) is coming closer to concluding its "top-kill" measure to plug the leaking oil well in the Gulf of Mexico. More conclusive details are expected to be known sometime today.

In earnings news, H.J. Heinz Co. (HNZ) reported fourth-quarter net income that topped estimates, while its revenues missed the mark. Tiffany & Co. (TIF) announced first-quarter net earnings and revenues that beat projections.

Earlier in the day, Costco Wholesale Corp. (COST) reported third quarter net income that edged out estimates, while its sales missed the expected mark.

The major averages have seen some further upside in recent trading, reaching new highs for the session. The Dow is up 201.55 points or 2 percent at 10,176.00, the Nasdaq is up 58.11 points or 2.7 percent at 2,253.99 and the S&P 500 is up 24.29 points or 2.3 percent at 1,092.24.

Sector News

Electronic storage stocks are some of the day's best performers, driving the NYSE Arca Disk Drive Index up by 5.6 percent.

The index is being led higher by NetApp (NTAP), which has surged by 16.2 percent after forecasting better than expected first quarter results. The stock has jumped to a three-year intraday high.

Steel stocks are also markedly higher, with the NYSE Arca Steel Index posting a gain of 5.2 percent. AM Castle (CAS) is one of the sector's best performers, rising by 6.6 percent, and is on pace for a one-month closing high.

Oil service, semiconductor, natural gas and banking stocks are also seeing notable upside, among others, contributing to today's broad-based market rally.

Stocks Driven By Analyst Comments

Microsoft Corporation (MSFT) is moving sharply higher after being upgraded at FBR Capital from Market Perform to Outperform. The stock has gained 5.1 percent, bouncing off of the nearly eight-month closing low set on Wednesday.

Fluor (FLR) is also seeing strength after analysts at Goldman Sachs upgraded the stock to Buy from Neutral. Shares are currently up by 6.6 percent after ending the previous session at a two and a half month closing low.

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TSX Poised For Higher Open As Oil Rebounds

Bay Street stocks may open higher Thursday as the price of oil rebounded from a 10-month low. Also, recovery in the global markets may help lift sentiment.

Meanwhile, financial stocks may witness a mixed response as a host of Canadian banks recorded impressive growth in earnings but have missed consensus estimates. Yesterday, Bank of Montreal reported a more than two-fold growth in its net income, beating estimates.

On Wednesday, the S&P/TSX Composite Index added 25.82 points or 0.22% to 11,543.90. The price of oil moved up for a second session amid a host of economic data. Crude for July delivery was up $1.51 to $73.02 a barrel.

Meanwhile,the price of gold edged down amid a easing dollar. Gold for June was down $6.10 to $1,207.30 an ounce.

In corporate news, RBC turned to profit in second quarter, reporting net income of C$1.33 billion or C$0.88 per share, compared to a loss of C$50 million or C$0.07 per share in the year-ago quarter. Last year's loss was primarily due to a hefty goodwill impairment charge. Analysts were expecting the bank to post net income of C$1.08 per share.

CIBC swung to profit in second-quarter, reporting net income of C$660 million, compared to a net loss of C$51 million for the same period last year. Earnings per share were C$1.59, compared to a loss per share of C$0.24 a year ago. Excluding certain items, net income was C$1.46 per share, as against consensus estimates for C$1.50 per share. CIBC declared a dividend of C$0.87 per share on common shares for the quarter ending July 31, 2010.

TD Bank Financial Group, comprised of Toronto-Dominion Bank and its subsidiaries, reported higher second-quarter net income of C$1.176 billion, up from C$545 million last year. Reported earnings per share were C$1.30, compared with C$0.59 last year. Analysts were expecting the bank to record net income of C$1.40 per share.

Property and casualty insurer Kingsway Financial Services said JJR Capital's subsidiary JJR VI Acquisition Corp. will acquire its US specialty commercial auto insurance divisions for about $80 million.

Broadband multimedia services provider International Datacasting Corp announced that Susan Robbins Parsons has tendered her resignation as CFO and Corporate Secretary, effective June 11.

Healthcare services provider Northstar Healthcare announced that it has received an unsolicited takeover bid from Donald Kramer, a former director of the company, to acquire all the issued and outstanding common shares for C$0.95 per common share. On Wednesday, the stock closed at C$0.920, gaining C$0.030 or 3.37%.

Silver explorer Silver Standard Resources said it has appointed John Smith as CEO, effective August 6.Specialized communications equipments maker RuggedCom Inc. reported full year 2101 net income of C$0.35 per share, compared with C$1.05 per share in 2009.

Oil and gas industry services provider IROC Energy Services posted first-quarter net income of C$524 thousand, compared with C$82 thousand in the same quarter last year. On a per share basis, the company reported current quarter earnings of C$0.01.

Liquid bulk storage and transportation services provider World Point Terminals Inc. said World Point Holdings Inc. increased its stake in the company to 93% by acquiring a further 12.25 million common shares or 48% from Novelly Dynasty Trust, in exchange for equivalent number of World Point Holdings shares.

News provider Thomson Reuters announced that it has agreed to acquire Point Carbon A/S.

Open ended real-estate investment trust company Temple Real Estate Investment Trust posted lower first-quarter funds from operations of C$0.04 per unit, compared with C$0.22 per share in the same quarter last year.

Data software solutions provider VIQ Solutions reported a net loss for the first quarter of C$0.01 per share, compared to breakeven in the year ago quarter.

Energy focused investment company Brownstone Ventures turned to profit in third-quarter, reporting net income of C$0.05 per share, compared with a net loss of C$0.04 per share in the same quarter last year.

In economic news from the U.S., the Commerce Department said that GDP increased at an annual rate of 3.0% in the first quarter, a downward revision from the advance estimate of 3.2% growth. The downward revision surprised economists, who had expected GDP growth to be revised up to 3.3%.

In another report, the U.S. Labor Department said initial jobless claims fell to 460,000 from the previous week's revised figure of 474,000. Economists were expecting jobless claims to fall to 455,000 from the 471,000 originally reported for the previous week.

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Asian Markets End In Positive Territory

The markets across Asia ended in positive territory on Thursday notwithstanding the weak cues from Wall Street, as the euro rebounded from depressed levels. Short covering and selective buying at lower levels on expectation that the concerns in Europe are easing lifted the indices across the region.

In Japan, the benchmark Nikkei 225 Index rose 117.06 points, or 1.2%, to 9640 while the broader Topix index of all First Section issues was up 10.89 points, or 1.3%, to 870.

On the economic front, a report released by the Ministry of Finance in Japan revealed that the country registered a merchandise trade surplus of 742.262 billion yen in April, topping forecasts for a surplus of 700.5 billion yen, following 948.9 billion yen surplus recorded in March. On an annual basis, trade surplus was up by 1,415.2% over surplus of 48.988 billion yen reported in the same month last year. The report further revealed that exports surged 40.4% on year to 5.889 trillion yen - beating forecasts for a 38.3% annual increase after jumping 43.5% in the previous month. Imports were up 24.2% on year to 5.147 trillion yen, again topping expectations for a 23.3% annual gain after reporting a revised 20.6% surge a month earlier.

Light sweet crude oil futures for July delivery ended at $72.12 a barrel in electronic trading, up $0.61 per barrel from previous close at $71.51 a barrel in New York on Wednesday.

Exporters advanced after the local currency Japanese yen weakened against the US dollar and the Euro. Fanuc Ltd surged up 3.28%, Tokyo Electron gained 2.30%, Kyocera Corp. advanced 1.28%, Canon Inc. climbed 2.08%, Sony Corp. rose 2.09%, Panasonic Corp. increased 2.04% and Sharp Corp. was higher by 2.78%.


Trading companies ended in positive territory. Mitsubishi Corp. surged up 3.70%, Mitsui & Co. climbed 4.16%, Itochu Corp. rose 3.73%, Sumitomo Corp. advanced 1.99%, Marubeni Corp. gained 2.01% and Toyota Tsusho Corp. added 0.72%.

Banking stocks also advanced on weaker local currency. Sumitomo Mitsui Financial gained 1.19%, Resona Holdings surged up 5.25%, Mitsubishi UFJ Financial gained 1.14%,and Mizuho Financial rose 1.22%.

Among pharmaceutical stocks, branded drugmakers ended in negative territory amid concerns about increased competition from smaller players. Astellas Pharma declined 1.37%, Chugai Pharmaceutical Co., fell 2.02%, Eisai Co shed 0.60% and Daiichi Sankyo Co., slipped 0.70%.

In Australia, the benchmark S&P/ASX200 Index advanced 72.00 points, or 1.67% and closed at 4,379, while the All-Ordinaries Index ended at 4,399, representing a gain of 68.70 points, or 1.59%.

On the economic front, data released by the Australian Bureau of Statistics revealed that capital spending by private sector companies in the country recorded a small decrease between January and March. Further, the report noted that most companies have also toned down their investment spending plans for the rest of the financial year, suggesting that the economic recovery may be less robust than previously thought. As per the report, private sector industries' capital expenditure between January and March fell a seasonally adjusted 0.2% compared to the preceding quarter. It follows a 6.1% increase in the previous quarter. Total capital expenditure amounted to A$27.70 billion during the three-month period.

A report released by the Conference Board revealed that its leading economic indicator climbed 0.3% in March compared to February. As per the report, the index rose to 115.1 from 114.7. This follows a 0.1% decrease in the previous month. The report further noted that six of the seven components in the leading index increased in March. Positive contributions came from money supply, yield spread, share prices, sales-to-inventories ratio, rural goods exports, and gross operating surplus. Building approvals declined during the month.

Light sweet crude oil futures for July delivery ended at $72.12 a barrel in electronic trading, up $0.61 per barrel from previous close at $71.51 a barrel in New York on Wednesday.

Resource stocks led the gains on speculation that the government might consider amending the super profits tax. BHP Billiton surged up 4.27%, Rio Tinto climbed 4.82%, Mincor Resources soared 13.84%, Mineral Resource rose 4.50% and Panaromic Resources was up by 14.24%. Among other stocks, Fortescue Metals climbed 5.82%, Gindalbie Metals gained 5.10%, Iluka Resources rose 4.44%. Macarthur Coal advanced 2.20%, Murchison Metals increased 4.05% and Oz Minerals edged up 0.47%.

Gold stocks also ended in positive territory. Lihir Gold gained 1.27% and Newcrest Mining rose 1.70%.

Oil stocks also posted modest gains following rise in crude oil prices in the international market. Woodside Petroleum gained advanced 1.26%, Santos Ltd gained 2.25%, ROC Oil Co., climbed 3.03%, Oil Search Ltd rose 2.21% and Origin Energy increased by 3.29%.

Mixed trading was witnessed among banking stocks.. ANZ Bank added 1.01%, National Australia Bank gained 2.21% and Westpac Banking climbed 3.37%. Investment banker Macquarie Group alos rose 1.52%. However, Commonwealth Bank of Australia bucked the trend and ended in negative territory with a loss of 0.10%.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a gain of 234.92 points, or 1.22% at 19,431, taking cues from other Asian markets which were trading in positive territory, notwithstanding the weak cues from Wall Street where the major averages ended in negative territory, paring all the gains in early trading session.

Positive sentiment in global markets, China's denial that it is considering cutting its holdings of European government bonds, and the perception that the recent sell-off on eurozone debt fears was overdone helped Indian equities end sharply higher on Thursday for a second straight session. The rally was also partly due to short covering on the last day of May series derivative contracts. The 30-share Sensex average closed near the day's high at 16,666, up about 280 points or 1.70% and the 50-share Nifty ended up 86 points or 1.74% above the crucial 5,000 mark.

Among the other major markets open for trading, China's Shanghai Composite Index advanced 30.12 points, or 1.15%, to close at 2,656, Singapore's Strait Times Index gained 43.68 points, or 1.62%, to close at 2,740, Taiwan's Weighted Index surged up 75.81 points or 1.06% to close at 7,243, and Indonesia's Jakarta Composite Index added 17.14 points, or 0.64% to close at 2,714.

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The major European averages are also trading higher for the second straight session. The French CAC 40 Index and the German DAX Index are moving up 1.96% and 1.99%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.68%.

On the economic front, French statistical agency INSEE reported that its consumer confidence index fell to –38 in May from –37 in April. The reading was in line with expectations. The gauge measuring consumer views on the outlook for the French economy slid to -53 from –48 and the indicator assessing consumers' own financial outlook dropped to -19 from -16.

U.S. Economic Reports

While the Commerce Department's second estimate on gross domestic product in the first quarter continued to indicate the third consecutive quarter of economic growth, the revised estimate showed that the pace of growth was slower than previously estimated.

The Commerce Department said that GDP increased at an annual rate of 3.0 percent in the first quarter, a downward revision from the advance estimate of 3.2 percent growth. The downward revision surprised economists, who had expected GDP growth to be revised up to 3.3 percent.

The unexpected downward revision reflected an upward revision to imports, which are a subtraction in the calculation of GDP, and a downward revision to consumer spending.

First-time claims for unemployment benefits saw a modest decrease in the week ended May 22nd, according to a report released by the Labor Department, although economists had expected a somewhat steeper decline.

The report showed that initial jobless claims fell to 460,000 from the previous week's revised figure of 474,000. Economists had been expecting jobless claims to fall to 455,000 from the 471,000 originally reported for the previous week.

St. Louis Federal Reserve Bank President James Bullard is due to speak on central bank policy challenges after the crisis to the Swedbank Economic Outlook Conference in Stockholm at 2:30 PM ET.

Earnings

Big Lots (BIG) reported first quarter income from continuing operations of 68 cents per share compared to 44 cents per share last year. Net sales rose 8.2% to $1.24 billion. The consensus estimates called for earnings of 67 cents per share on revenues of $1.23 billion. The company upwardly revised its 2010 comparable sales growth forecast to 3.5%-4.5% from its earlier estimate of 3%-4%, while it expects second quarter income from continuing operations of 44-49 cents per share. Analysts estimate earnings of 44 cents per share.

Costco (COST) said its third quarter net sales rose 10% to $52.66 billion and net income increased to 68 cents per share from 48 cents per share last year. Analysts estimated earnings of 66 cents per share on revenues of $17.63 billion.

Heinz (HNZ) reported that its fourth quarter sales rose to $2.72 billion and earnings from continuing operations rose to 60 cents per share from 56 cents per share last year. Analysts estimated earnings of 59 cents per share on revenues of $2.75 billion. For 2011, the company expects sales growth of 3%-7% and earnings per share growth of 7%-10%. Analysts estimate sales growth of 2.20%. The company also announced an increase in its common stock dividend by 12 cents per share.

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Stocks May Take Heart From China’s Faith in Euro Investments

Jo-Ann Stores (JAS) is expected to see some strength after it reported first quarter net income of 66 cents per share compared to adjusted net income of 30 cents per share last year. Net sales rose 4.4% year-over-year to $480.3 million. Analysts estimated earnings of 44 cents per share on revenues of $479.67 million. The company raised its full year earnings per share guidance to $2.95-$3.10 from its earlier estimate of $2.75-$2.90, while analysts estimate earnings of $2.95 per share.

NetApp (NTAP) could be in focus after it reported that its fourth quarter non-GAAP net income rose to 50 cents per share from 31 cents per share last year. Revenues climbed to $1.17 billion from the year-ago’s $880 million. The results were ahead of the estimates. The company expects first quarter revenues of $1.10 billion to $1.14 billion and non-GAAP earnings of 43-47 cents per share. Analysts expect earnings of 37 cents per share on revenues of $1.04 billion.

Bob Evans Farms (BOB) may see some buying interest after it announced that its board has authorized a stock repurchase program of up to $25 million. AutoNation (AN) could also trade higher after it announced the authorization of the repurchase of an additional $250 million worth of shares.

McKesson (MCK) receded in Wednesday’s after hours session despite announcing that it is raising the amount of its regular quarterly dividend by 50% to 18 cents per share.

Coinstar (CSTR) also moved lower in Wednesday’s after hours session after it updated its second quarter and full year guidance to reflect the impact of its proposed sale of its electronic payment services business to InComm Holdings for $40 million, subject to a post-closing networking capital adjustment.

Coinstar expects second quarter revenues of $363 million to $383 million and earnings from continuing operations of 28-32 cents per share. Analysts estimate earnings of 35 cents per share on revenues of $386.48 million. For the full year, the company expects revenues of $1.51 billion to $1.60 billion and earnings per share from continuing operations of $1.74-$1.86. The consensus estimates call for earnings of
$1.84 per share on revenues of $1.58 billion.

Semtech (SMTC) rallied in Wednesday’s after hours session after it reported that its first quarter net revenues rose 69.6% to $101.9 million. On a non-GAAP basis, the company reported earnings of 35 cents per share, higher than 15 cents per share last year. Analysts estimated earnings of 28 cents per share on revenues of $94.64 million. For the second quarter, the company estimates 6%-10% sequential sales growth and non-GAAP earnings of 37-39 cents per share. The consensus estimates call for earnings of 29 cents per share on revenues of $97.70 million.

Dress Barn (DBRN) may see some activity after it reported third quarter non-GAAP earnings of 60 cents per share compared to 38 cents per share last year. Net sales rose 77% to $665.5 million. Analysts estimated earnings of 59 cents per share on revenues of $645.83 million.

99 Cents Only (NDN) is likely to move in reaction to its announcement that its fourth quarter net sales rose 3.1% to $339.3 million and its net income rose to 24 cents per share from 10 cents per share last year. Analysts estimated earnings of 17 cents per share on revenues of $340.32 million.

Verifone (PAY) moved to the upside in Wednesday’s after hours session after it reported that its second quarter net revenues rose to $240.7 million from the year-ago’s $201.6 million. On a non-GAAP basis, the company said earnings rose to 29 cents per share from 17 cents per share in the year-ago period. Analysts estimated earnings of 26 cents per share on revenues of $227.36 million. For the full year, the company expects non-GAAP net income of $1.12-$1.15 per share on revenues of $960 million to $970 million. The consensus estimates call for earnings of $1.09 per share on revenues of $930.33 million.