US & World Daily Markets Financial Briefing 27-10-2009

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Markets Wait for Read on Consumer Pulse Following Recent Downtrend

The major U.S. index futures are pointing to a mixed opening on Tuesday, with sentiment expected to seesaw between optimism over a recovery underway and pessimism stemming from the fact that the recovery may be long drawn out and painful. Given the fact that S&P has broken a short-term uptrend, any negative tidings could drag it further lower. The markets may closely watch the results of the Conference Board's consumer confidence survey and the prices of commodities, as uncertainty continues to weigh on them.

After showing a strong upward move in morning trading on Monday amid some earnings optimism, the major averages fell sharply in early afternoon trading, as the continued climb in the value of the dollar exerted downward pressure on oil prices. Thereafter, the indexes traded sideways before closing notably lower.

The Dow Industrials ended down 104.22 points or 1.05% at 9,868 and the Nasdaq Composite closed at 2,142, representing a decline of 12.62 points or 0.59%. Meanwhile, the S&P 500 Index receded 12.65 points or 1.17% to 1,067.

Twenty-seven of the thirty Dow components ended the session lower, with Boeing (down 3.21%), Bank of America (down 5.06%), JP Morgan Chase (down 3.12%) and Dupont (down 2.44%) declining sharply in the session. On the other hand, Microsoft rose 2.36%.

Among the sector indexes, the NYSE Arca Airline Index slipped 2.38% and the Dow Jones U.S. Basic Materials Average declined 2%. The KBW Bank Index slumped 4.09% and the Philadelphia Housing Sector Index moved down 2.94%. The NYSE Arca Biotechnology Index, the NYSE Arca Securities Broker/Dealer Index and the Dow Jones Utility Average fell over 1% each.

In the resource space, the NYSE Arca Oil Index fell 1.46% compared to a 2.27% drop by the Philadelphia Oil Service Index, while the NYSE Arca Gold Bugs Index lost 4.29%. Among technology sub indexes, the NYSE Arca Networking Index and the NYSE Arca Hardware Index fell 2.75% and 1.05%, respectively. On the other hand, the NYSE Arca Disk Drive Index gained 1.37%.

Weakness in recent sessions has brought the relative strength index of the S&P 500 Index to more neutral levels. The index has violated a key near-term support level around 1,074 levels, although the long-term uptrend is still intact. Even if the lean phase continues, the index has support around its 50-day moving average of 1,048.

Volatility may be returning to Wall Street after a period of relative calm, when the markets rode on the back of positive earnings expectations and fairly upbeat economic reports. The CBOE Volatility index, which is the fear gauge of the market, closed higher for the second straight session on Monday, with index rising 9.2% to close at 24.31. Going by the trend, one can expect a near term pullback. Earnings and the week's economic numbers could determine if the pullback materializes or whether it is merely a blip on the radar.

Meanwhile, the results of the Treasury auction of 5 year TIPS showed higher demand for the security, with the yield coming in line with expectations and the bid-to-cover ratio coming in at 3.10.

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Bay Street Stocks Drop Amid Earnings Reports

Canadian stocks are moderately lower on Tuesday as some disappointing earnings results have weighed on the market. With the decline, the main index extended notable losses from yesterday.

The S&P/TSX Composite Index has lost 58.63 points or 0.52% to move at 11,176.33.

Mining stocks are down 2.9%. Inmet has dropped 5.1% after the company reported third quarter net income of C$61.55 million or C$1.10 per share, compared to C$75.06 million or C$1.55 per share last year.

Industrials are off 1.4%. Canadian Pacific Railway Limited has lost 2.2% after the company announced third-quarter net income of C$195.4 million or C$1.16, up from C$170.7 million or C$1.10 a year earlier.

In other corporate news, QLT is down 0.5% after the company reported its third-quarter net income plummeted to $8.92 million or $0.16 per share from $146.93 million or $1.97 per share last year.

Rogers Communications has added 3.3% after the company reported third quarter net income of C$485 million or C$0.79 per share, compared to C$495 million or C$0.78 per share in the prior year quarter.

Vitran Corp. is down 0.2% after the company reported third-quarter net income of US$0.3 million or US$0.02 per share, compared to net income of US$2.1 million or US$0.15 per share in the year ago quarter. Net Interest expense for the quarter increased to US$2.58 million,from US$2.16 million in the same quarter last year.

Globex Mining Enterprises has lost 6% after the company said it has acquired the Raymor "A" Gold Zone located in Dalquier township Quebec, around 8 kms north of the town of Amos.

Kinross has lost 4.75% after the company lowered its 2009 production expectations to 2.2 million gold ounces.

In economic news, data from Stats Canada showed the number of Canadians receiving regular Employment Insurance benefits in August fell 2.4% from July, the second consecutive monthly decline.

On Monday, the S&P/TSX Composite Index dropped 147.25 points or 1.29% to settle at 11,234.88. Earlier, the main index jumped above the 11,500 mark and challenged a monthly high.

Currency, Commodity Futures

Crude oil futures are edging up $0.18 at $78.86 a barrel after receding $1.82 to $78.68 a barrel on Tuesday. Gold futures, which fell $13.60 to $1,042.80 an ounce in the previous session, are currently trading down $3.20 to $1,039.60 an ounce.

Among the currencies, the U.S. dollar is trading at 92.08 yen compared to the 92.19 yen it fetched at the close of New York trading on Monday. Against the euro, the greenback is valued at $1.4868 after rising to $1.4876 yesterday.

Although the dollar strengthened yesterday, it doesn’t suggest a trend reversal, with the downtrend remaining fully in place. The move may have been triggered by a short squeeze, as dollar shorts started covering their positions.

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The major Asian markets ended lower across the board on Tuesday, impacted by the negative lead from Wall Street. The Chinese Shanghai Composite Index led the losses from the region, showing a decline of 2.83%. Weakness in the commodity space also weighed on the averages.

Japan's Nikkei 225 average opened down with a gap of 80 points and declined further in the morning. Thereafter, the index moved sideways to close the session down 150.16 points or 1.45% at 10,213.

A majority of stocks declined on Tuesday, with Astellas Pharma, Dowa Holdings, Hitachi Construction Materials, Isuzu Motors, Jtekt, Kawasaki Kisen, Mitsubishi Corp, Mitsui & Co., Nippon Oil, Pac Metals, Shin-Etsu Chemicals, Toho Zinc, Unitika, Mitsui Mining and Smelting and Mitsui Fudosan declining sharply in the session.

Honda Motors fell 1.90% ahead of the release of its results, showing basic earnings per share attributable to the company of 29.78 yen compared to 67.96 yen in the year-ago period. Net sales fell 27.2% to 2.056 billion yen. On a positive note, the company raised its full year net income estimate to 155 billion yen compared to its earlier estimate of 55 billion yen, while it also increased its global vehicle sales forecast for the year by 3.2% to 3.4 million.

Australia's All Ordinaries opened lower and fell further in early trading before moving sideways. Going into the final hour of trading, the market witnessed additional selling pressure, closing down 77.70 points or 1.61% at 4,755. For the second straight session, the market witnessed broad based weakness, with material and oil stocks tumbling in the session.

Hong Kong's Hang Seng Index, which opened after yesterday's holiday, opened notably lower. Some buying interest that emerged thereafter helped the index snap back some of its losses by early trading. The index moved sideways thereafter, ending down 420.14 points or 1.86% at 22,170. Barring some energy stocks, most others ended below the unchanged line.

A hawkish monetary policy statement by India's central bank, weak global cues and intensive profit taking pulled the Indian market sharply lower on Tuesday. The Sensex opened lower at 16,699 and fell to a low of 16,311 before finishing at 16,353, down 387 points or 2.31%.

Although the Reserve Bank of India did not change its key policy rates, the underlying tone of the monetary policy statement was hawkish. In its second quarter review of its monetary policy, the bank kept the cash reserve ratio, the repo rate and the reverse repo rate unchanged, but it raised the statutory liquidity ratio by a percent to 25%.

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After opening higher on Tuesday, the major European averages saw some indecision in early trading. However, buying interest has picked up over the course of the session. The French CAC 40 Index and the German DAX Index are rising 0.40% and 0.18%, respectively, while the U.K.'s FTSE 100 Index is moving up 0.42%. Oil and technology stocks are showing strength, while the financial space is acting as a drag.

In corporate news, oil giant BP reported that its third quarter replacement cost profit, excluding unrealized gains or losses related to changes in the value of fuel inventories, was $4.98 billion, while excluding one-time items, earnings were $4.67 billion, down 47% year-over-year.

On the economic front, French statistical agency INSEE reported that its consumer confidence indicator for October came in at –35, an improvement from –36 in the previous month. The increase was in line with economists' expectation.

A separate report released by INSEE showed that French manufacturers expect conditions to improve further in the fourth quarter. The balance of opinion regarding recent changes in total demand stood at minus 15 in the third quarter and for the expected change, the balance of opinion was minus 9. Meanwhile, the balance on recent change in export demand increased to 1 and the balance on expected change moved up to zero.

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Kilroy Realty may gain ground after it announced that its third quarter funds from operations per share were 66 cents, lower than 95 cents in the year-ago period. Revenues from continuing operations declined to $68.5 billion from $76.9 million last year. Analysts estimated earnings of 59 cents per share on revenues of $67.17 million.

Cabot Oil & Gas may be in focus after it reported third quarter adjusted earnings of 41 cents per share, lower than 58 cents per share last year. Revenues fell to $207.02 billion compared with $244.82 million in the year-ago period. The consensus estimates had called for earnings of 36 cents per share on revenues of $205.30 million.

Prosperity Bancshares is likely to move to the upside after it announced an increase in its regular cash dividend to 62 cents per share per year. The company noted that its fourth quarter cash dividend of $0.155 represents a 12.7% increase.

lululemon athletica may see buying interest after it announced an increase in its third quarter earnings guidance to 17-19 cents per share from its previous guidance of 11-13 cents per share. The company attributed the optimism to stronger than expected net revenues for the quarter. The company also upwardly revised its revenue guidance to $110 million to $112 million from its previous estimate of $95 million to $100 million. The Street had estimated earnings of 14 cents per share on revenues of $98.93 million.

CIT Group could be in focus after it announced that it has modified its amended Offering Memorandum dated October 16, 2009 with an objective of gaining additional bondholder support. The amendments include an extension of the expiration date of the offers and the solicitation of acceptances of the Plan of Reorganization only with respect to offers made between October 29, 2009 and November 5, 2009 and an increase in interest rate payable on the series B notes to 10.25% per annum from 9%.

Crane traded higher in Monday's after hours session after it reported third quarter net income attributable to common shareholders of 60 cents per share, flat with last year. Sales fell 14% to $551 million. Analysts estimated earnings of 48 cents per share on revenues of $542.20 million. The company maintained its 2009 sales guidance of $2.2 billion, while it raised the low-end of its GAAP earnings per share guidance to $1.90 from its previous estimate of $1.75. On an adjusted basis, the company expects earnings of $2.05-$2.20 per share. The consensus estimates call for earnings of $1.89 per share on revenues of $2.18 billion.

Baidu is expected to come under selling pressure after it said it expects total revenues of $174 million to $180 million for its fourth quarter, with the company attributing the moderate growth estimated for the quarter to the temporary negative impact from the proposed discontinuation of its Online Marketing Classic Edition. The Street estimates revenues of $202.90 million for the quarter. The company's third quarter revenues grew 39.1% year-over-year to $187.3 million. Excluding stock-based compensation expenseS, the company reported net income of $2.16 per ADS. Analysts estimated earnings of $1.81 per share on revenues of $187.79 million.

Meritage Home is likely to see some activity after it reported a third quarter loss of 56 cents per share compared to a loss of $4.69 per share last year. Total closing revenues fell to $231.82 million from the year-ago's $374.77 million. The consensus estimates had called for a loss of 63 cents per share on revenues of $233.41 million.

Owens & Minor could also be in focus after it reported that its third quarter revenues rose 13.9% to $2.03 billion. The company's earnings from continuing operations rose to 83 cents per share from 61 cents per share last year. The consensus estimates call for earnings of 71 cents per share on revenues of $2.03 billion. For 2009, the company said it continues to expect revenue growth in the upper end of the 8%-12% growth range and income from continuing operations in the range of $2.55-$2.70 per share. Analysts estimate 11.4% revenue growth and earnings of $2.69 per share.

Winn-Dixie Stores may see weakness after it announced that its first quarter sales fell 2% to $1.6 billion, slightly below the consensus estimate of $1.64 billion. The company reported a net loss of 15 cents per share, including an impairment charge of 6 cents per share, compared to a net loss of 4 cents per share last year. The company reduced its fiscal year 2010 expectations, citing challenges in its business and the current sales trend.

Limited Brands is expected to see weakness after it lowered its October same store sales growth forecast to be in the negative low to mid-single digits compared to its previous estimate of roughly flat growth. However, the company raised its third quarter earnings per share estimate to be in the range of $0.00 to a loss of 4 cents per share from its previous estimate for a loss of 7 cents to 12 cents per share.

Rent-A-Center could also recede after it said its third quarter revenues fell to $671.3 million from $708.8 million last year. Net earnings rose to 55 cents per share from 44 cents per share in the year-ago period. Analysts estimated earnings of 51 cents per share on revenues of $677.82 million. For the fourth quarter, the company expects revenues of $664 million-$677 million and for the full year, it expects revenues of $2.736 billion to $2.796 billion. Analysts estimate fourth quarter revenues of $692.25 million and $2.77 billion for the year.

Waste Connections could see some strength after it announced an increase in its stock buyback program by $300 million. The company also reported that its third quarter earnings rose to 43 cents per share from 40 cents per share in the year-ago period. Revenues rose 16% to $316 million. Analysts estimated earnings of 41 cents per share on revenues of $314.2 million.

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