US & World Daily Markets Financial Briefing 28-04-2009

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Currently, the Dow is up 32.41 at 8,057.41, the Nasdaq is up 8.04 at 1,687.45, and the S&P 500 is up 2.71 at 860.22.

The major U.S. index futures are pointing to a lower opening on Tuesday. The swine flu threat and the uncertainty surrounding the stress test results should keep investors on tenterhook and buying interest subdued. A report that appeared on the Wall Street Journal suggested that Citigroup (C) and Bank of America (BAC) were found wanting in capital following the conduct of stress tests by the government. Now traders are likely to wait with bated breath the release of the results of the stress tests by the government, due early next week.

Commodity prices have also come under pressure due to muted economic outlook. However, the earnings season has shaped up better than expected, with many companies beating lowered expectations due to stringent cost control. That said, unless demand recovers along with the recovery of the economy from the clutches of recession, a market revival is unlikely.

U.S. stocks opened Monday’s session notably lower, dragged down by fears of a further hit to the economy from the swine flu outbreak and due to a lack of clarity on the economic outlook. Although the major averages staged a recovery in late morning trading, they turned lower by the mid-session, plunging sharply before recouping some of their losses.

The Dow Industrials ended down 51.29 points or 0.64% at 8,025 and the S&P 500 Index receded 8.72 points or 1.01% to 858, while the Nasdaq Composite closed at 1,679, down 14.88 points or 0.88%.

Twenty-one of the thirty Dow components ended the session lower, with Alcoa (AA), American Express (AXP), Citigroup (C), DuPont (DD) and Disney (DIS) showing sharp declines. On the other hand, General Motors (GM) rallied 20.71% in reaction to the resuscitation measures announced by the company, as it strives to stay afloat. Pfizer (PFE) rose over 2%.

Among the sector indexes, the Dow Jones Transportation Average fell 4.69% and the Amex Airline Index slid 10.62%. Reflecting the continuing anxiety over the financial space, the KBW Bank Index declined 4.89%. The Philadelphia Oil Service Index lost 3.41% compared to a 2.10% drop by the Amex Oil Index. In the technology space, software, disk drive, networking and Internet stocks came under selling pressure.

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Resource Stocks Could Drag TSX Lower

Canadian stocks could see further weakness on Tuesday after closing notably lower in the previous session. Resource stocks could come under pressure with commodities moving lower on the NYMEX.

The gold and mining sectors could experience weakness as gold for June delivery has dropped $21.50 to $886.70 an ounce, while mining stocks could fall as copper dropped 7.05 cents to $1.915 a pound.

Energy stocks could fall as crude oil has dropped $1.06 to $49.08 per barrel. Investors also considered a slew of economic reports from the sector.

Petro-Canada reported first quarter operating earnings of C$111 million or C$0.23 per share, down significantly from C$899 million or C$1.86 per share in the last year comparable quarter.

Nexen reported first-quarter net income attributable to Nexen of C$135 million or C$0.26 per share, compared to net income of C$630 million or C$1.19 per share in the same quarter last year.

OPTI Canada reported first quarter net loss of C$97 million or C$0.50 per share, compared to restated net loss of C$6 million or C$0.03 per share last year.
 
Husky Energy reported net earnings of $328 million or $0.39 per share for the first quarter of 2009, down from $888 million or $1.05 per share in the prior-year quarter.

Héroux-Devtek announced that Lockheed Martin Aeronautics Company has awarded the aerostructure division of Héroux-Devtek (Progressive Inc.), another multi-year contract to manufacture complex structural machined parts and assemblies for the F-35 Lightning II aircraft.

QLT Inc. reported first quarter net income of US$1.30 million or US$0.02 per share, compared to a net loss of US$10.47 million or US$0.14 per share last year.

Across the border, the Federal Reserve will begin their two-day meeting today, although little is expected to come out of the meeting, as the interest rate has already been lowered to a near zero range.

Toronto stocks dropped sharply on Monday as worries over the swine flu raised fears of a slower global economic recovery. The S&P/TSX Composite Index fell 154.68 points or 1.61% to move at 9,394.80. The decline was the first in five days for Canada's main index.

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The major European averages are moving to the downside, with the French CAC 40 Index and the German DAX Index receding 2.30% and 3.06%, respectively, while the U.K.’s FTSE 100 Index is declining 2.16%.

In corporate news, BP (BP) reported that its first quarter profits declined to $2.56 billion from $7.1 billion last year, as lower oil prices exerted pressure on realizations. However, the decline was not as bad as some analysts had feared. The company increased its quarterly dividend by 4% to $0.14 per share.

Deutsche Bank (DB) reported a profit of 1.19 billion euros for its first quarter compared to a loss of 131 million euros a year-earlier, as the bank benefited from the sale of corporate bonds. The company recorded 1 billion euros in writedowns in the quarter.

German carmaker Daimler (DAI) reported a loss of 1.3 billion euros or 1.40 euros per share. The company also said it is willing to give up its remaining 19.9% stake in Chrysler, thereby going about a definitive separation.

The consumer confidence index rose to 26 in March from a record low of 25.3 in February. The reading came in below economists' expectations that called for a reading of 28. While the present situation index fell about 1 point, the expectations index rose 1.6 points, improving for the first time since November.

U.S. Economic Reports

The Federal Reserve Open Market Committee is scheduled to meet on Tuesday and Wednesday to discuss the near-term direction of monetary policy, and the monetary policy-setting arm of the Fed will make an announcement at 2:15 PM ET on Wednesday. The Federal Open Market Committee consists of seven Governors of the Federal Reserve Board and five Federal Reserve Bank Presidents.

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect an 18.7% year-over-year decline in the 20-city composite house price index for February.

The Conference Board is scheduled to release its consumer confidence report for April at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 29.9 in April.

Earnings

Corn Products (CPO) said its first quarter net income declined to 22 cents per share from 85 cents per share last year. Net sales declined 11% to $931 million. The company reduced its 2009 earnings per share forecast to $1.70-$2.10 from its earlier estimate of $2.10-$2.60, with the company blaming the toned down guidance to expectations of lower volumes in North America.

Office Depot (ODP) reported that its first quarter sales fell 19% to $3.2 billion. The company reported a net loss of 20 cents per share compared to a profit of 25 cents per share in the year-ago period. On an adjusted basis, the company’s earnings were 10 cents per share. The Street had estimated a loss of 10 cents per share on revenues of $3.26 billion.

Bristol-Myers Squibb’s (BMY) first quarter sales grew 3% to $5.06 billion. The company reported non-GAAP earnings per share from continuing operations of 48 cents per share compared to 39 cents per share in the year-ago period. The consensus estimates had called for earnings of 48 cents per share on revenues of $5.13 billion.

Coventry Health Care (CVH) reported that its first quarter net earnings fell sharply to 30 cents per share from 81 cents per share last year. Revenues rose 21.5% year-over-year to $3.57 billion. The consensus estimates had called for earnings of 25 cents per share on revenues of $3.39 billion.

Hospira (HSP) said its first quarter net sales fell 3.3% to $859.7 million. The company’s earnings per share rose 9.1% to 60 cents per share. Including the currency impact, the company expects sales for the year to remain flat.

Meanwhile, the results of the monthly consumer confidence survey conducted by the statistical office INSEE showed that the French sentiment indicator rose to minus 41 in April from a revised minus 42 in March. Economists had expected the indicator to come in at minus 43.

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Stock markets across the Asia-Pacific region closed sharply lower on Tuesday on renewed worries about the impact of the swine flu outbreak on global trade and consumer confidence after the World Health Organization raised its pandemic alert level to the highest level since the warning system was adopted in 2005. While hotel, airline and tourism-related stocks came under selling pressure for a second day, financials took a fresh hit on concerns U.S. banks may have to raise more capital.

The Japanese market plunged to close near the day's lows, weighed down by disappointing fiscal 2009 corporate earnings, renewed concerns over the U.S. financial system and the yen's advance against the U.S. dollar. Stocks fell almost across the board, but land transport and electricity and gas stocks bucked the declining trend. The benchmark Nikkei 225 index fell 233 points or 2.67% to 8,494, the lowest level since April 1, while the Topix index of all First Section issues on the Tokyo Stock Exchange closed at 812, down 21 points or 2.53%.

Shipping stocks extended their downtrend on dismal earnings and a bleak outlook. Mitsui O.S.K Lines plunged 7.48%, Nippon Yusen plummeted 8.27% and Kawasaki Kisen slumped 6.74%.

Automakers and other exporters also came under significant selling pressure as the Japanese yen hit the 95-yen level against the U.S. dollar. Steel stock JFE Holdings plummeted 6.77% and Nippon Steel tumbled 5.23% on analyst downgrades. Meanwhile, Chugai Pharmaceutical extended gains on expectations of strong sales of the Tamifu flu drug. East Japan Railway surged up 7.63% on announcing a share buyback.

The Australian market closed lower, weighed down by weakness in the banking sector. The benchmark S&P/ASX200 closed at 3,708, down 23 points or 0.62% and the broader All Ordinaries index fell 18 points or 0.5% to 3,672.

Big miners closed mixed amid decreases in metal prices overnight. While Rio Tinto rose 2.79%, its rival BHP Billiton fell 1.02% and Iluka Resources declined 0.90%. Gold miner Newcrest Mining fell 1.87% and Lihir Gold moved down nearly 3% due to falling gold price.

National Australia Bank tumbled 3.45% after the bank's first-half net profit fell slightly toA $2.66 billion on higher funding costs and rising provisions for bad loans. Commonwealth Bank closed down 0.76%, Westpac Banking moved down 1.50%, Macquarie Group slipped 0.69% and ANZ declined 1.31% ahead of its earnings announcement on Wednesday.

In the oil and gas sector, Woodside Petroleum and Oil Search slipped around 0.20% each and Santos moved down 1.86%. Retailers Woolworths and Harvey Norman Holdings also ended in the red.

The South Korean market tumbled on heavy institutional selling. The benchmark KOSPI fell 40 points or 2.95% to 1,300, the lowest closing level in about three weeks. Volume was significant at 746.19 million shares worth 7.52 trillion won (US$5.54 billion) and decliners outnumbered gainers by 737 to 142.

Shipbuilder Hyundai Heavy Industries tumbled 5.02% after its new orders plunged 83% in the first three months of this year due to decreased demand for new vessels. Samsung Heavy Industries fell 4.48% and Daewoo Shipbuilding slumped 6.93%

Asiana Airlines fell 3.25% and Korean Airlines moved down 2.38% on concerns that the industry would be hit hard by the swine flu outbreak. Tech stock Hynix Semiconductor plunged 8.79%, market heavyweight Samsung Electronics moved down 1.71%, LG Display LCD tumbled 4.32% and LG Electronics ended down 1.96%.

Hong Kong’s Hang Seng Index, which saw some strength in early trading, fell below the unchanged line in early afternoon trading. The index traded below the unchanged line for the remainder of the session to close down 285.31 points or 1.92% at 14,555.

Thirty-five of the forty-two index components ended the session lower, while three stocks ended unchanged. Shopping Property, Bank of East Asia, Sino Land, China Mercantile Holding, Citic Pacific, China Resources, FIH, Ping An and Chalco were among the notable decliners.

The Indian market tumbled as funds and retail investors squared their long positions ahead of the expiry of April series derivative contracts on Wednesday. The benchmark for the Indian market, the Sensex ended at 11,002, down nearly 370 points or 3.25% from the previous close.

Among the other markets in the region, China's Shanghai Composite index slipped 0.16%, Hong Kong's Hang Seng index fell 1.92%, Singapore's STI Straits Times index shed 0.56% and Taiwan's TWII Weighed index closed down nearly 2%.

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Gold Prices Drop More Than 2%

The price of gold dropped on Tuesday as swine flu worries continued to hinder commodity prices. The decline added to modest gains from the previous session.

June-stamped gold contracts dropped to $889.10, down $19.10 for the session. Prices dropped as low as $885.50 early in the session.

The greenback was little changed versus the euro in the early morning hours, drifting higher to 1.2994 compared to its overnight level of 1.3026. Late on Friday, the dollar slipped to its lowest level in just over a week against the Eurozone currency, reaching a level of 1.3298. The move came after the buck reached a monthly high of 1.2887 last Monday.

On the economic front, the S&P/Case-Shiller 20-City Composite Home Price Index fell at an annual rate of 18.6 percent in February, a modest deceleration from the 19.0 percent drop in prices that was reported for January.
 
Later this morning, traders will consider the result of a key consumer confidence survey for the month of April from the Conference Board, set to be released at 10 a.m. ET. Economists expect the index to edge up to 29.9 for the month of April from March's level of 26.0.

Additionally, the Federal Reserve will begin its two-day meeting today, although little is expected to come out of the meeting, as the interest rate has already been lowered to a near zero range.

June gold was closed at $908.20 an ounce, down $5.90. The drop was just the second in six sessions for the precious metal. Gold closed in the green four times in five sessions last week. Gold rallied $41.50 per ounce for the week - the first gain in five weeks for precious metal.

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