US & World Daily Markets Financial Briefing 28-05-2010

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Stocks Mostly Lower Following Mixed Batch Of Economic Data

Stocks are mostly on the downside in mid-morning trading on Friday amid reaction to a mixed batch of economic data and light trading ahead of the holiday weekend. The major averages are all in negative territory by modest margins, partly offsetting yesterday's strong gains.

On the economic front, Reuters and the University of Michigan released their final report on consumer sentiment in the month of May, showing an unexpected upward revision to their consumer sentiment index for the month.

The consumer sentiment index for May was upwardly revised to a reading of 73.6 from the mid-month reading of 73.3. The upward revision, which pushed the index well above the final April reading of 72.2, came as a surprise to economists, who had expected the index to be downwardly revised to 73.2.

The Institute for Supply Management - Chicago released a separate report showing that manufacturing activity in the Chicago-area expanded for the eight consecutive month in May, although the pace of growth showed a notable slowdown compared to the previous month.

The ISM Chicago said its index of regional manufacturing activity fell to 59.7 in May from 63.8 in April, but a reading above 50 indicates continued growth in the sector. Economists had expected the index to slip to a reading of 60.0.

Before the opening bell, the Commerce Department reported that personal income increased by 0.4 percent in April, matching the upwardly revised increase seen in the previous month. Economists had expected income to increase by 0.4 percent compared to the 0.3 percent growth originally reported for March.

On the other hand, the Commerce Department also said that personal spending came in unchanged in April after surging up by 0.6 percent in March. The lack of growth came as a surprise to economists, who had expected spending to increase by 0.3 percent.

On the corporate front, BP Plc (BP) is continuing its "top-kill" measure to plug the leaking oil well in the Gulf of Mexico, with disaster costs eclipsing the $900 million mark thus far.

Royal Dutch Shell Plc (RDS-A) also announced that it has agreed to buy East Resources Inc., a privately-held U.S. natural-gas explorer, for $4.7 billion in cash.

The major averages have all seen choppy movement in recent dealing, looking for direction since coming off of their session lows. The Dow is down 33.33 points or 0.3 percent at 10,225.66, the Nasdaq is down 4.44 points or 0.2 percent at 2,273.24 and the S&P 500 is down 2.78 points or 0.3 percent at 1,100.28.

Sector News

Oil service stocks are some of the morning's weakest performers, with the Philadelphia Oil Service Sector Index slipping by 3.3 percent, offsetting some of yesterday's advance.

The weakness among oil service stocks may be partly due to President Barack Obama's announcement on Thursday that his administration is extending a moratorium on new deepwater drilling due to the massive oil spill in the Gulf of Mexico

Tobacco stocks are also markedly lower, driving the NYSE Arca Tobacco Index down by 1.9 percent. Shares of Universal (UVV) are leading the sector lower, sliding by 9.9 percent to their lowest intraday price in nearly seven months.

Semiconductor, networking and banking stocks are also moving lower, while modest strength among natural gas and utility stocks is helping to soften the losses by the broader markets.

Stocks Driven By Analyst Comments

Despite the weakness in the broader markets, Ulta Salon (ULTA) is moving notably higher after being upgraded by Robert W. Baird from Neutral to Outperform. The stock has gained 4.8 percent, jumping to a two and a half year intraday high.

On the other hand, JA Solar Holdings Co. (JASO) is under pressure after analysts at Barclays Capital downgraded the stock to Equal Weight from Overweight. Shares are down by 3.3 percent, heading back towards Tuesday's two-month closing low.

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TSX May Open Higher As Energy Prices Surge

Bay Street stocks may extend their gains Friday morning amid recovery in energy prices and upsurges in global equities. Also, the euro extended gains as worries over the euro zone appeared to have eased, at least for now, after China denied a report it was looking to cut its euro zone sovereign debt holdings.

On Thursday, the S&P/TSX Composite Index gained 205.23 points or 1.78% to 11,749.12. The price of oil moved up for a third session, with crude for July adding $0.70 to $75.25 a barrel. The price of gold was trading almost flat at around $1,213 an ounce.

In a major oil and gas industry deal, Europe's largest energy producer, Royal Dutch Shell Plc, said it will acquire closely-held US-based East Resources Inc stock for $4.7 billion. The acquisition is the second-largest oil and gas deal this year after BP's acquisition of deep-water assets from Devon Energy Corp. for $7 billion.

In corporate news, National Bank of Canada reported second-quarter net income of $1.50 per share, compared with $1.41 per share in the prior year period.

International semiconductor product supplier Zarlink Semiconductor reported fourth-quarter net income of $0.05 per share, compared to a loss of $0.41 per share in the same quarter last year. On a non-GAAP basis, net income was $0.05 per share, compared to non-GAAP net income of $0.01 per share in the prior year quarter. The company declared a quarterly dividend of C$0.50 per share and guides revenue in the range of $57.0 million - $58.5 million with earnings in the range of $0.07 - $0.09 per share.

Aerospace and industrial components maker Héroux-Devtek Inc. reported lower fourth-quarter net income of C$0.14 per share, compared to C$0.20 per share last year.

Therapeutic products maker Amorfix Life Sciences said it entered into agreement with Aragen Bioscience, Inc. to develop high-affinity monoclonal antibodies against a number of targets for cancer.

Video surveillance security services provider LOREX Technology reported second quarter earnings of $36 thousand or breakeven per share, compared to $157 thousand or $0.01 per share in the year-ago quarter.

Residential and commercial construction services provider Boyuan Construction Group said its third-quarter net income increased 86% to $2.16 million from $1.16 million last year. Earnings per share for the latest quarter were $0.09, higher than $0.05 per share in the prior year.

Industrial equipments rentals services provider Canadian Equipment Rental Fund Limited Partnership said its first-quarter net income slipped to C$0.08 per unit from C$0.15 per unit a year ago. Natural resources company Petromanas Energy closed brokered private placement of 187.50 million units at a price of C$0.40 per unit for aggregate gross proceeds of C$75 million.

Automobile parts maker ZENN Motor Company reported a wider second-quarter net loss of $2.01 million, compared to $1.97 million in the prior year period. However, on a per share basis, net loss was $0.05 compared with $0.06 in the same quarter last year.

Mineral explorer Wescan Goldfields reported a first-quarter net loss of $0.18 million, compared to a net loss of $0.16 million in the same quarter last year.

In economic news, Statistics Canada said the deficit on current transaction, on a seasonally adjusted basis, with rest of the world narrowed to C$7.8 billion in the first quarter. This was down from a current account deficit of C$10.2 billion in the previous quarter. Economists were expecting a deficit of C$9 billion.

From the U.S., the Commerce Department said personal income increased by 0.4% in April, matching the upwardly revised increase seen in the previous month. Economists were expecting income to increase by 0.4% compared to the 0.3% growth originally reported for March. On the other hand, the personal spending came in unchanged in April after surging up by 0.6% in March, belying economists' expectations for an increase of 0.3%.

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Asian Markets Extend Gains

The markets across Asia open for trading on last day of the week ended in positive territory taking cues from Wall Street where the major averages ended the previous session with smart gains led by financial and technology stocks. Higher prices of commodities and oil prices also lifted market sentiment as concerns about Europe debt crisis showed signs of easing a little for the present.

In Japan, the benchmark Nikkei 225 Index gained 123.26 points, or 1.3%, to 9763, while the broader Topix index of all First Section issues also rose 8.63 points, or 1.0%, to 879.

On the economic front, a report released by the Ministry of Internal Affairs and Communications revealed that core consumer prices in the country declined 1.5% on year in the month of April, compared to the mean expectations for a drop of 1.4% in prices, following the 1.2% decline in the previous month.

A report released by the Ministry of Economy, Trade and Industry revealed that retail sales in the country increased 4.9% on year in April to 11.401 trillion yen, sharply higher economists' forecast for a 3.3% annual increase, following the 4.7% increase in the previous month. The report further noted that on a monthly basis, retail sales added 0.5%, defying expectations for a 1.0% decline after adding 0.8% in March.

In a separate report, the Ministry of Internal Affairs and Communications revealed that the unemployment rate in the country inched higher in April, having come in at a seasonally adjusted 5.1%. Economists, on the other hand, had expected employment rate to be flat at 5.0% as reported for March. As per the report, the number of unemployed persons in April was 3.56 million, an increase of 100 thousand or 2.9 percent from the previous year.

Light sweet crude oil futures for July delivery ended at $74.58 a barrel in electronic trading, up $0.03 per barrel from previous close at $74.55 a barrel in New York on Thursday.

Insurance stocks ended in positive territory. T&D Holdings gained surged up 4.55%, Tokio Marine Holdings climbed 2.63%, MS &AD Insurance rose 2.61% and NKSJ Holdings gained 2.96%.

Trading companies continued to extend gains from previous session. Mitsubishi Corp. advanced 1.37%, Mitsui & Co. added 1.38%, Marubeni Corp. gained 1.18%, Itochu Corp. was up 0.93% and Toyota Tsusho Corp. increased 1.44%.

Exporters also ended in positive territory. Canon Inc. gained 1.63%, Sony Corp. advanced 0.82%, Panasonic Corp. rose 1.65%, Sharp Corp edged up 0.20% and Fanuc Ltd climbed 4.44%.

Mixed trading was witnessed among banks. Sumitomo Mitsui Financial added 0.40% and Mizuho Financial remained unchanged from previous close. However, Mitsubishi UFJ Financial edged down 0.22% and Resona Holdings fell 1.03%.

In Australia, the benchmark S&P/ASX200 Index climbed 78.30 points, or 1.79% and closed at 4,457, while the All-Ordinaries Index ended at 4,479, representing a gain of 79.90 points, or 1.82%.

Light sweet crude oil futures for July delivery ended at $74.58 a barrel in electronic trading, up $0.03 per barrel from previous close at $74.55 a barrel in New York on Thursday.

Financial stocks led the gains on the market following gains in the US in the previous session. ANZ Bank gained 1.95%, Commonwealth Bank of Australia climbed 2.74%, National Australia Bank surged up 2.61% and Westpac Banking rose 2.99%. Investment banker Macquarie Group increased 1.89%.

Resource related stocks also ended in positive territory. BHP Billiton added 0.31%, Rio Tinto climbed 1.75%, Fortescue Metals surged up 4.75%, Gindalbie Metals soared 4.85%, Iluka Resources remained unchanged from previous close, Mineral Resource rose 5.85%, Murchison Metals was higher by 2.08% and Oz Minerals increased 2.35%.

Oil related stocks also ended in positive territory. Woodside Petroleum gained 1.95%, Santos rose 1.47%, ROC Oil firm also rose 1.47%, Oil Search advanced 0.36% and Origin Energy was higher 1.08%.

Gold stocks, however, ended in negative territory. Lihir Gold slipped 1.25% and Newcrest Mining lost 1.08%.

Retail stocks ended in positive territory on bargain hunting at lower levels. David Jones gained 3.77%, Harvey Norman rose 3.29%, JB Hi-Fi Ltd advanced 0.75%, Myer Holdings climbed 3.88%, Reject Shop surged up 3.49%, and Wesfarmers increased 4.29%. However, Woolworths bucked the trend and ended in negative territory with a loss of 0.45%.

In Hong Kong, the benchmark Hang Sang Index extended gains for the second successive session and ended in positive territory with a gain of 335.34 points, or 1.73%, at 19,767, taking cues from strong gains on Wall Street in the previous session and positive trading across the markets in Asia. Higher commodity prices and bargain hunting at lower levels also lifted market sentiment.

Firm global cues and higher commodity prices amid receding worries about Europe's debt crisis helped the Indian market end sharply higher for a third straight session Friday. However, intra-day profit taking and uncertainty among investors about the near-term market outlook resulted in some choppy trading until the mid-session. After trading in a range of 16,891-16,693, the 30-share Sensex average ended up 197 points or 1.18% at 16,863 and the 50-share Nifty rose by 63 points or 1.27% to 5,067.

Among the other major markets open for trading, China's Shanghai Composite Index bucked the trend and ended flat with a marginal loss of 0.15 points, or 0.01% at 2,656, while the Taiwan's Weighted Index ended in positive territory with a gain of 52.16 points or 0.72% at 7,7,295. The markets in Indonesia, Singapore and Malaysia were closed for holidays.

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The major European averages are also moving higher on Friday, although the gains are much more modest than in the previous two sessions. The French CAC 40 Index and the German DAX Index are moving up 0.14% and 0.41%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.33%.

On the economics front, a reading on U.K. consumer confidence index dropped to minus 18 in May from minus 16 in April, a survey by GfK NOP revealed. Economists had expected the reading to stay at the previous month's level. It is the lowest reading since December 2009. The index has fallen off from February's minus 14, but remains well above its year-ago reading of minus 27. Out of the five measures comprising the index, three decreased in May. The annual moving average of the index, however, increased to minus 19.

Consumer sentiment is now similar to the level of early 2008, when the embattled mortgage lender Northern Rock was nationalized, the market research group noted. The collapse of the lender in mid-2007 led to a bank run in the U.K., the first in many decades.

U.S. Economic Reports

While the Commerce Department released a report showing another modest increase in personal income in April, the report unexpectedly showed that personal spending came in unchanged compared to the previous month.

The report showed that personal income increased by 0.4% in April, matching the upwardly revised increase seen in the previous month. Economists had expected income to increase by 0.4% compared to the 0.3 percent growth originally reported for March.

On the other hand, the Commerce Department also said that personal spending came in unchanged in April after surging up by 0.6% in March. The lack of growth came as a surprise to economists, who had expected spending to increase by 0.3 percent.

The results of the Institute for Supply Management-Chicago's business survey for May are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 60.

In April, the manufacturing purchasing managers' index, reflecting conditions in the Mid-western region, rose to 63.8 in April from 58.8. The index climbed to its highest level since April 2005. Economists had expected a more modest improvement to 60. The new orders index rose by 3.4 points to 65.2 and the order backlogs index climbed by 7 points to 61.4. On a more optimistic note, the employment index rose 4 points to 57.2. However, the inventories index declined 2.3 points to 52.4.

The Reuters/University of Michigan's final report on the consumer sentiment index for May is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be revised slightly downwards to 73.2 from the mid-month of reading of 73.3.

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Lawson Software (LWSN) showed some strength in Thursday’s after hours trading after it reaffirmed its fourth quarter revenue and non-GAAP earnings guidance of $196 million to $200 million in revenues and 10-12 cents per share in earnings. Analysts estimate earnings of 11 cents per share on revenues of $198.98 million. The company updated its GAAP earnings guidance for the quarter to include an estimated impact of foreign exchange rates through May 16th.

Bunge Ltd. (BG) is expected to see some buying interest after it announced that it has successfully completed its previously announced sale of its Brazilian fertilizer nutrients assets in Brazil to Vale S.A (VALE). The company noted that net proceeds of the transaction are about $3.5 billion.

Guess?, Inc. (GES) receded sharply in Thursday’s after hours session after the company forecast second quarter revenues of $560 million to $575 million and earnings of 65-68 cents per share. The guidance trailed the Street expectations, which called for earnings of 78 cents per share on revenues of $592.05 million. For the full year, the company expects net revenues of $2.35 billion to $2.4 billion and earnings of $2.80-$2.85 per share. The company also reported first quarter net earnings of 54 cents per share compared to 35 cents per share last year. The recent quarter’s results included 4 cents per share in charges. Net revenues rose 22% to $539.3 million. Analysts estimated earnings of 49 cents per share on revenues of $507.19 million.

Blue Coat Systems (BCSI) may also be in focus after it reported that its fourth quarter net revenues rose 17% to $132.6 million. On a non-GAAP basis, the company reported net income of 40 cents per share compared to 19 cents per share last year. The consensus estimates called for earnings of 40 cents per share on revenues of $132.67 million. For the first quarter, the company expects non-GAAP earnings of 35-40 cents per share on revenues of $121 million to $126 million. The Street estimates earnings of 40 cents per share on revenues of $132.10 million.

Novell (NOVL) may also be in focus after it reported that its second quarter net revenues fell to $204 million from the year-ago’s $216 million. On a non-GAAP basis, the company earned 7 cents per share compared to 8 cents per share in the year-ago period. Analysts estimated earnings of 7 cents per share on revenues of $204.85 million. For the third quarter, the company expects revenues of $205 million to $210 million, while analysts estimate revenues of $210.1 million.

J. Crew Group (JCG) is likely to be react to its announcement that its first quarter revenues rose 20% to $413.9 million. The company’s net income rose to 68 cents per share from 32 cents per share last year. Analysts estimated earnings of 57 cents per share on revenues of $394.24 million. The company upwardly revised its 2010 earnings per share estimate to $2.35-$2.45 from its earlier estimate of $2.20-$2.30 per share, while it expects second quarter earnings of 40-45 cents per share. Analysts expect full year earnings of $2.34 per share and second quarter earnings of 44 cents per share.