US & World Daily Markets Financial Briefing 28-01-2010

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Stocks Under Pressure Following News Of U.K. Credit Concerns

Stocks are notably lower in mid-morning trading on Thursday after Standard & Poor's expressed concerns over the U.K.'s credit worthiness amid continued economic difficulties. The major averages are all in negative territory, continuing their zigzag movement on the week.

S&P issued a negative outlook on the U.K.'s AAA rating, citing apprehensions over the country's ability to recover from its current debt levels and the condition of its banking industry, driven to the brink by the global recession.

Early on, reaction to President Barack Obama's State of the Union address dominated market headlines. The President said the main focus of 2010 would be on jobs, though he also called for continued efforts to pass health care reform and revealed plans to reduce the deficit, to improve education and to encourage clean energy development.

As part of the government's continued efforts to stimulate the economy, the President proposed a job-stimulus package that included money to help community banks make loans to small businesses and tax breaks that would encourage companies to hire.

On the economic front today, the Labor Department issued a report showing that first time claims for unemployment benefits in the week ended January 23rd slipped to 470,000 from the previous week's revised figure of 478,000. Economists had been expecting jobless claims to fall to 450,000 from the 482,000 originally reported for the previous week.

In a separate report, the Commerce Department said that durable goods orders edged up by 0.3 percent in December after falling by a revised 0.4 percent in November. Economists had been expecting orders to increase by about 2.0 percent compared to the 0.7 percent decrease originally reported for the previous month.

In earnings news, 3M (MMM) reported fourth quarter net income of $1.30 per share, topping the expected $1.21 per share. Net sales grew to $6.12 billion from $5.5 billion in the same quarter last year, beating forecasts for revenues of $5.88 billion.

The firm also boosted 2010 GAAP per-share expectations to a range of $4.90 to $5.10 versus the prior expected range of $4.85 to $5.00. Analysts expect the company to earn $5.02 per share.

Procter & Gamble Co. (PG) recorded second quarter net earnings at $1.49 per share, exceeding estimates for $1.43 per share. Net sales for the quarter came in at $21.03 billion, just short of the $21.07 billion projected for the quarter.

Ford Motor Co. (F) said it earned $0.25 per share in the fourth quarter, compared to a loss of $2.51 per share in the same quarter last year. Analysts expected the company to report earnings of $0.26 per share.

Revenues for the quarter totaled $35.4 billion, compared to $29.0 billion in the prior year quarter, besting estimates for $32.60 billion for the quarter.

The major averages have moved well off their worst levels of the day in recent trading, although they remain firmly in the red. The Dow is currently down 60.99 at 10,175.17, the Nasdaq is down 24.60 at 2,196.81 and the S&P 500 is down 5.54 at 1,091.96.

Sector News

Telecommunication stocks are some of the morning's worst performers, pulling the NYSE Arca Telecommunications Index down by 5.5 percent. The decline has dragged the index to its worst intraday level in nearly three months.

Qualcomm (QCOM) is one of the worst performing stocks in the sector after issuing second-quarter earnings and revenue guidance that fell short of estimates. The stock is down by 12.5 percent after slipping to a three-month intraday low in earlier dealing.

Trucking stocks are also showing notable weakness, with the Dow Jones Trucking Index posting a loss of 2.9 percent. The index has dipped to its lowest level in nearly two months.

Semiconductor, computer hardware, gold and airline stocks are also posting steep losses, while health insurance stocks are on the rise along with some banking stocks.

Stocks Driven By Analyst Comments

Mariner Energy (ME) is moving lower in mid-morning trading after being downgraded at BMO Capital Markets from Outperform to Market Perform with a target price of $17. The stock has fallen by 4.6 percent, pulling back sharply off of yesterday's three month closing high.

Kirby Corp. (KEX) is also retreating following a downgrade at Stifel Nicolaus from Buy to Hold. Shares are down by 8.5 percent, sinking to six-month intraday low.

On the other hand, SunTrust Banks (STI) is on the rise after Goldman Sachs upgraded the stock from Neutral to Buy, citing the possibility of improved margins if credit conditions improve. The stock is up 2 percent after reaching its best intraday price in over a year in earlier trading.

Bay Street May Open Higher After 3 Flat Sessions

Canadian stocks are likely to open higher Thursday as commodity prices trimmed recent losses. Stocks have been struggling to sustain any direction, with the main index closing flat in the past three sessions. U.S. stock futures point to a higher opening.

However, lackluster earnings results from Potash Corp. and Canadian Pacific Railways may weigh on investors' sentiment.

The S&P/TSX Composite Index ended almost flat Wednesday, easing 17.08 points or 0.15% to 11,344.11. The price of oil was up $0.45 to $74.12, a barrel and that of bullion edged up $4.20 to $1,088.70, an ounce.

Energy stocks may be in play after an industry group predicted that oil and natural gas drillers in Canada will be busier this year. The Petroleum Services Association of Canada hiked its own growth expectations by 12% and said it expects that 9,000 wells will be drilled in 2010.

In corporate news, Potash Corp. reported a huge dip in its fourth-quarter net income to $0.80 per share, compared to net income of $2.56 per share in the same quarter last year. It guides net income for the first quarter in the range of $0.70 - $1.00 per share. For the full year 2010, the company expects net income in the range of $4.00 - $5.00 per share.

Toronto Dominion Bank said its UK unit TD Waterhouse will acquire UK Customer base of ETrade, which would help increase the customer base by 24,000.
 
Canadian Natural Resources said it along with North West Upgrading has submitted a joint proposal to the Alberta Government to construct and operate a bitumen refinery near Redwater, Alberta.

Bombardier Inc. plans to invest in train projects in Brazil and will reactivate and expand a plant in Hortolandia, according to Brasil Economico newspaper.

Canadian Pacific Railway said its fourth-quarter net income increased to C$194.1 million from C$188.1 million last year. However, earnings per share declined to C$1.15 from C$1.21 a year ago.

Athabasca Potash and BHP Billiton Canada Inc. announced that they have entered into a definitive agreement whereby BHP Billiton will offer to acquire all of the issued and outstanding common shares of API at a price of C$8.35 cash per common share.

Contract electronic manufacturer Celestica reported fourth quarter net income of $0.21 per share and guides it first quarter net income of $0.15 to $0.21.

Merchant banker Bancorp said it continues to be actively engaged in strategic review process and advised its shareholders not to tender to Maxam offer.

Gold miner New Gold announced the signing of an agreement to sell its Brazilian subsidiary Mineracao Pedra Branca do Amapari Ltda., which holds the Amapari mine and other related assets, to Beadell Resources Ltd. for $63 million.

Exco Technologies reported first quarter net income of C$0.05 per share, compared to a loss of C$0.06 per share in the previous year.

Methanol prodcuer Methanex Corp. reported fourth quarter net income of $0.28 per share, compared to a loss of $0.04 per share last year.
 
Cleanfield Alternative Energy reported second quarter net loss of C$0.01 per share, compared to a net loss of C$0.04 per share in the year-ago quarter.

From across the border, the U.S. Labor Department said first time jobless claims dipped by 8,000 to a seasonally adjusted 470,000, indicating a weak job market.

Wednesday, the US Federal Open Market Committee announced it would hold the overnight interest rate steady in the range zero to 0.25%. While the U.S. central bank said that it believes 'economic activity has continued to strengthen' since its last meeting in December.

Commodity, Currency Markets

Crude oil futures are trading up $0.33 at $74 a barrel after receding $1.04 to $73.67 a barrel on Wednesday. Yesterday, the weekly oil inventory report revealed that crude oil stockpiles fell by 3.9 million barrels to 326.7 million barrels in the week ended January 22nd, 2010. Despite the decline, crude oil inventories remained above the upper limit of the average range.

Distillate fuel inventories rose by 0.4 million barrels, remaining above the upper boundary of the average range. Gasoline stockpiles also rose, advancing by 2 million barrels, and remained above the upper limit of the average range. Refinery capacity utilization averaged 79.5% over the four-weeks ended January 22nd compared to 80% in the previous week.

Gold futures are trading $6.10 higher at $1,091.80 an ounce. In the previous session, the precious metal fell $13.80 to $1,085.70 an ounce.

On the currency front, the U.S. dollar is trading at 90.023 yen compared to the 90.005 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is currently valued at $1.3996.

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The markets across Asia snapped their recent losses and ended in positive territory on Thursday, taking cues from Wall Street, where the major averages ended in the green on positive comments about the economy from the Federal Reserve. Obama's State of the Union address also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index gained 162.21 points, or 1.58% to 10,414, while the broader Topix index of all First Section issues advanced 6.65 points, or 0.73%, to 914.

On the economic front, a report released by the Ministry of Economy, Trade and Industry revealed that retail sales in the country declined 0.3% year-on-year in December, at 12.995 trillion yen. Economists had expected the sales to have gained 0.3% year-over-year in December. The report further noted that on a seasonally adjusted basis, retail sales declined 1.2% in December following a 0.2% gain in the previous month. Economists expected retail sales to decline 0.2% for the month. For the fourth quarter, retail sales in the country declined 0.8% year-over-year to 34.848 trillion yen.

Glass and ceramic stocks advanced on optimism about recovery. NGK Insulators gained 2.00%, Asahi Glass climbed 2.65%, Toto Ltd rose 2.95%, Tokai Carbon advanced 2.83% and Nitto Boseki Co added 1.03%.

Electric machinery stocks gained on expectation that economic growth will gain momentum. Kyocera Corp. surged up 4.72%, Fanuc Ltd climbed 3.15%, Tokyo Electron rose 3.48%, TDK Corp gained 3.30%, Panasonic Corp. advanced 2.24% and Mitsubishi Electric Corp. increased 3.31%.
 
Canon, which stated that it expects full year 2010 net profit to rise 52%, gained 1.80%. Sony Corp. surged up 4.93% and Sharp Corp. added 0.90%.

Mixed trading was witnessed among bank stocks. Sumitomo Mitsui Financial gained 1.79%, Resona Holdings advanced 1.26% and Mitsubishi UFJ Financial added 0.42%. However, Mizuho Financial ended in negative territory with a loss of 3.26%.

Iron and steel stocks ended mixed after Nippon Steel revised its profit forecast for fiscal 2009. The stock slumped 3.75% on huge volumes. Among other steel stocks, JFE Holdings declined 1.72%and Kobe Steel fell 2.35%. However, Pacific Metals Co. managed in positive territory with a gain of 0.65%.

Mixed trading was witnessed among automotive stocks. Toyota Motor plunged 3.91% after ordering recall of defective vehicles from the US market, while Suzuki Motor shed 1.23%. However, weakening of the local currency attracted buying interest in other automotive stocks. Honda Motor climbed 3.29%, Nissan Motor rose 2.83% and Mazda Motor gained 3.08%.

In Australia, the benchmark S&P/ASX 200 Index advanced 28.70 points, or 0.62% to close at 4,673, while the All-Ordinaries Index ended at 4,698, representing a gain of 27.70 points, or 0.59%.

On the economic front, data released by the Australian Bureau of Statistics revealed that about 1.7 million tonnes of grapes were crushed during the 2008/09 financial year, 5.4% lower than the previous year. The report further noted that crush produced 1.2 billion liters of wine for the year, down 5.9% from last year. Production of red/rose wine during the year declined 6.8% while white wine production fell 4.5%.

In his address, President Barack Obama reiterated that the worst of the crisis is over for the economy, but the trails of the devastation are still there. Obama laid more stress on jobs creation and also proposed a 3-year freeze on government spending to tackle deficits and lead US economy to recovery.

Banks ended in positive territory. ANZ Bank added 0.87%, Commonwealth Bank of Australia advanced 0.86%, National Bank of Australia gained 1.48% and Westpac Banking Corp. rose 1.03%, Investment banker Macquarie Group, however, bucked the trend and ended in negative territory with a loss of 0.62%.

Mining and metal stocks also advanced on optimism about recovery. BHP Billiton advanced 0.99%, Fortescue Metals climbed 2.20%, Iluka Resources gained 2.72%, Macarthur Coal added 0.79%, Minara Resources surged up 3.68% and Rio Tinto increased 2.20%. However, Gindalbie Metals declined 0.99% and Oz Minerals declined 1.33%.
 
Mixed trading was witnessed among oil stocks. Woodside Petroleum advanced 1.58% and Santos added 0.46%. However, Oil Search declined 1.11% and Origin Energy lost 0.98%.

Retail stocks also ended mixed. David Jones added 0.21%, Harvey Norman climbed 3.51% and JB Hi-Fi Ltd rose 1.50%. However, Wesfarmers declined 1.40% and Woolworths lost 2.28%.

Gold stocks ended in negative territory on weaker gold prices. Lihir Gold shed 1.03% and Newcrest Mining slipped 0.53%.

In Hong Kong, the Hang Seng Index snapped its recent losses and ended in positive territory with a gain of 323.30 points, or 1.61%, at 20,356, as traders resorted to bargain hunting at lower levels taking cues from Wall Street where the major averages ended in positive territory on Fed's positive comments about the economy. Positive trading across other markets in the region also lifted market sentiment. Banks, property stocks and china-related stocks advanced as traders evinced fresh buying interest at lower levels. As many as 32 of the 42 components of the index ended in positive territory led by banks.

 In South Korea, the KOSPI Index ended in positive territory with a gain of 16.95 points, or 1.04%, at 1,642, taking cues from Wall Street where the major averages ended in positive territory in the previous session lifted by positive comments from Federal Reserve at the conclusion of its 2-day FOMC meeting. President Barack Obama's speech at his State of Union Address, where he pledged to create more jobs, and positive trading across other markets in the region also lifted market sentiment, as traders went on bargain hunting at lower levels.

The Indian market finished Thursday's volatile session flat, although with a positive bias. While short covering on account of January series F&O expiry and strong global cues offered support, the market pared gains in the second half of the session ahead of Friday's interest rate decision. With the market breadth remaining extremely weak, analysts termed the modest rise as a technical bounce back. The benchmark Sensex moved between 16,525 and 16,182 before finishing at 16,307, up 17 points or 0.10% and the Nifty rose 14 points or 0.29% to 4,867.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index gaomed 55.01 points, or 2.15% to close at 2,620, Taiwan's Weighted Index climbed 134.55 points, or 1.78% to close at 7,695, Strait Times Index in Singapore rose 51.42 points, or 1.90%, to close at 2,758 and China's Shanghai Composite Index added 7.54 points, or 0.25%, to close at 2,994.

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After opening Thursday’s session sharply higher, encouraged by the optimism relayed by Obama’s address, the major European averages have pared some of their gains and are trading modestly higher.

The French CAC 40 Index and the German DAX Index are trading up 0.45% and 0.40%, respectively, while the U.K.’s FTSE 100 Index is adding 0.46%.

On the economic front, the European Commission reported that economic sentiment for the euro zone region rose for the tenth straight month in January. The economic confidence index came in at 95.7 in January compared to a revised reading of 94.1 in the previous month. Economists expected a reading of 92.3. Industrial and services sentiment improved by a better than expected 2 points each to minus 14 and minus 1, respectively. Meanwhile, the consumer sentiment index was unchanged at –16.

A report released by the German Federal Labor Agency showed that the number of unemployed in Germany rose by 6,000 to 3.43 million. Economists estimated an increase of 15,000 for the month. The jobless rate rose a seasonally adjusted 8.2% in January from 8.1% in the previous month.

U.S. Economic Reports

The Commerce Department’s durable goods orders report showed that orders for goods that are designed to last for more than 3 years rose 0.3% month-over-month in December. Economists had estimated a 2% increase. Excluding transportation orders, new orders were up 0.9%.

On an encouraging note, machinery orders climbed 6% and has the biggest increase. Non-defense capital goods orders, excluding aircrafts, rose 1.3% following a 3.1% increase in the previous month. Shipments of this category of goods also rose, climbing 2.2%.

First time claims for unemployment benefits showed a modest decrease in the week ended January 23rd, although economists had been expecting a more substantial decrease.

The report showed that initial jobless claims slipped to 470,000 from the previous week's revised figure of 478,000. Economists had been expecting jobless claims to fall to 450,000 from the 482,000 originally reported for the previous week

Earnings

Colgate-Palmolive reported fourth quarter earnings of $1.21 per share compared to 94 cents per share in the year-ago period. Sales rose 11.5% to $4.081 billion. Analysts estimated earnings of $1.18 per share on revenues of $4.08 billion.

Procter & Gamble said fourth quarter core earnings per share rose 22% to $1.10 per share. Net sales rose 6% to $21 billion. Analysts estimated earnings of $1.43 per share on revenues of $21.70 billion. The company increased its fiscal 2010 core earnings per share guidance to $3.53-$3.63, while analysts estimated earnings of $4.15 per share.

AT&T reported fourth quarter revenues of $30.9 billion, down from $31.1 billion last year. The company reported net income attributable to the company of 51 cents per share compared to 41 cents per share in the year-ago period. The recent quarter’s results included a charge of 4 cents per share and a gain of 4 cents per share, while the year-ago results included charges of 8 cents per share. Analysts estimated earnings of 51 cents per share on revenues of $30.86 billion.

3M Co. said its fourth quarter earnings were $1.30 per share and sales were $6.1 million. Analysts estimated earnings of $1.21 per share on revenues of $5.88 billion. The company raised its 2010 GAAP earnings per share guidance to a range of $4.90-$5.10 per share from a range of $4.85-$5 per share, while it expects organic sales volume growth of 5%-7%. Analysts’ estimates, which typically exclude one-time items, call for earnings of $5.02 per share on revenues of $22.83 billion.

Motorola’s fourth quarter adjusted earnings were 9 cents per share, ahead of the 8 cents per share consensus estimate. Sales were $5.7 billion, below the $5.9 billion mean analysts’ estimate. For the first quarter, the company estimates an adjusted loss of 1-3 cents per share, while analysts estimate a profit of 3 cents per share.

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Qualcomm may move to the downside after it reduced its 2010 revenue guidance to a range of $10.40 billion to $11 billion from the earlier estimated $10.50 billion to $11.30 billion, although it reaffirmed its pro forma earnings estimate at $2.10-$2.30 per share. The consensus estimates call for earnings of $2.26 per share on revenues of $11.06 billion. The company’s first quarter revenues rose 6% year-over-year to $2.67 billion. First-quarter earnings rose 100% year-over-year to 62 cents per share. Analysts estimated earnings of 56 cents per share on revenues of $2.70 billion.

However, Netflix advanced sharply in Wednesday’s after hours session after it reported fourth quarter revenues of $444.5 million, up 24% year-over-year and higher than the mean analysts’ estimate of $445.6 million. On a non-GAAP basis, net income rose to 59 cents per share from 41 cents per share last year, ahead of the 45 cents per share consensus estimate. The company ended the quarter with 12.27 million total subscribers, while net subscriber addition was an increase of 1.16 million compared to 718,000 in the year-ago period. For the full year, the company estimates GAAP earnings of $2.28-$2.50 per share and revenues of $2.05 billion to $2.11 billion.

Among other technology earnings, Citrix reported fourth quarter revenues of $451 million, up from $416 million last year. On a non-GAAP basis, net income rose to 66 cents per share from 48 cents per share in the year-ago period. Analysts estimated earnings of 52 cents per share on revenues of $431.52 million. For the first quarter, the company estimates non-GAAP earnings of 39-40 cents per share on revenues of $405 million to $410 million.

BMC Software could be in focus after it reported third quarter non-GAAP earnings of 76 cents per share on revenues of $508 million, up 4% year-over-year. Analysts estimated earnings of 68 cents per share on revenues of $493.13 million. The company raised its 2010 non-GAAP earnings per share guidance to $2.64-$2.72, while analysts estimate earnings of $2.61 per share.

Security software maker Symantec is likely to see some activity after it reported a non-GAAP profit of 40 cents per share for its third quarter, while non-GAAP revenues were $1.55 billion, up 1% year-over-year. The Street estimated earnings of 37 cents per share on revenues of $1.51 billion. For the fourth quarter, the company estimates non-GAAP revenues of $1.51 billion to $1.53 billion and non-GAAP earnings of 36-37 cents per share. The consensus estimates call for earnings of 37 cents per share on revenues of $1.52 billion.

Teradyne moved higher in Wednesday’s after hours session after it reported fourth quarter revenues of $267 million. The company’s non-GAAP earnings from continuing operations were 17 cents per share. Analysts estimated earnings of 15 cents per share on revenues of $266.19 million. For the first quarter, the company expects non-GAAP earnings of 20-26 cents per share on revenues of $290 million to $310 million, which are above the consensus estimates.

Among printed circuit board makers, Celestica reported fourth quarter revenues of $1.66 billion compared to $1.94 billion last year, while adjusted net earnings fell to 21 cents per share from 28 cents per share last year. For the first quarter, the company estimates non-GAAP earnings of 15-21 cents per share on revenues of $1.45 billion to $1.60 billion. Despite the decline, the company’s results as well as the guidance were above estimates.

Flextronics reported an increase in third quarter adjusted earnings to 17 cents per share on revenues of $6.56 billion. Analysts estimated earnings of 15 cents per share on revenues of $6.29 billion. The company guided fourth quarter earnings to 13-16 cents per share on revenues of $5.8 billion to $6.2 billion, with the low end of the estimates coming in line with the consensus estimates.

Amylin Pharma could see weakness after it reported fourth quarter revenues of $185.5 million and an adjusted non-GAAP loss of 32 cents per share. Analysts estimated a loss of 30 cents per share on revenues of $219.38 million.

Varian Medical Systems is likely to move to the upside after it reported first quarter earnings from continuing operations of 63 cents per share, up from 56 cents per share last year on 6% revenue growth to $541 million. The results were ahead of estimates. The company expects 2010 revenues to rise 6% and annual net earnings to be in the range of $2.76-$2.83 per share. Analysts estimate 4.4% revenue growth and earnings of $2.73 per share.

However, Covance may see weakness after it reported a 10% decline in earnings to 64 cents per share despite net revenues rising 10.6% to $485.1 million. Analysts estimated earnings of 65 cents per share on revenues of $480.98 million. The company expects full year revenue growth of 10% and earnings per share in the range of $2.50-$2.75.

Cabot could be in focus after it reported first quarter sales of $679 million, higher than $652 million last year. The company’s adjusted earnings rose to 65 cents per share from 8 cents per share last year. Analysts estimated earnings of 27 cents per share on revenues of $619.50 million.

Noble Corp. is likely to see some activity after it reported fourth quarter revenues of $940.13 million and earnings per share of $1.72 per share. Analysts estimated earnings of $1.58 per share on revenues of $896.40 million.

Murphy Oil is expected to move in reaction to its preliminary fourth quarter results showing estimated earnings of $318.8 million or $1.65 per share, including a $185.3 million after-tax benefit. For the first quarter, the company estimates earnings of 80-95 cents per share compared to the $1.20 per share consensus estimate.

Transportation stocks may be in focus following the release of results by railroad operator Norfolk Southern and trucking companies Knight Transportation (KNX) and Landstar System. Norfolk Southern reported a decline in fourth quarter net income to 82 cents per share on a drop in revenues to $2.11 billion. The decline was more severe than what analysts had estimated. Landstar also reported a decline in earnings and revenues for the fourth quarter. The company’s earnings of 37 cents per share were below the consensus estimate of 41 cents per share, while revenues of $547.7 million exceeded the $523.47 million mean analysts’ estimate.

Knight Transportation’s fourth quarter revenues fell to $167.79 million, while its earnings declined to 16 cents per share from 19 cents per share. Analysts estimated earnings of 16 cents per share on revenues of $172.37 million.

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