US & World Daily Markets Financial Briefing 29-01-2010

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Strong Fourth Quarter Growth May Give Reason to Bid Up Beaten Down Stocks

The major U.S. index futures are pointing to a higher opening on Friday, with stocks likely to get ample support from the strong fourth GDP growth reported by the government earlier in the day. The uneasiness experienced by the traders over the economic recovery manifested itself in the form a steep sell-offs in the markets in recent sessions. Consequently the major averages fell below the uptrending channel seen since March 2008.

Although the GDP data is not ‘the ultimate evidence’ that things are going to be alright going forward, it may temporarily remove some anxiety and prod traders to pick up stocks at their current oversold levels. Earnings have been encouraging, another factor that could help a revival in sentiment.

U.S. stocks opened Thursday’s session little changed, but they began steadily declining in early trading, as a smaller than expected increase in durable goods orders and a smaller than expected decline in the weekly jobless claims along with downbeat forecasts by some technology companies generated selling pressure. After bottoming out in early afternoon trading, the major averages snapped back some of their losses, but still closed notably lower.

The Dow Industrials ended down 42.41 points or 1.91% at a 2-1/2 month low of 10,121 and the S&P 500 Index fell 12.97 points or 1.18% to 1,085. Meanwhile, the Nasdaq Composite Index receded 42.41 points or 1.91% to end at 2,179, its lowest level since December 8th.

Twenty-four of the thirty Dow components ended the session lower, with American Express (AXP), Alcoa (AA), Caterpillar (CAT), Cisco Systems (CSCO), Hewlett-Packard (HPQ) and IBM (IBM) receding sharply. On the other hand, Procter & Gamble (PG) rose 1.43% on solid earnings, while Bank of America (BAC) and Boeing (BA) also gained over 1% each.

Among the sector indexes, the Dow Jones Transportation Average fell 2.33%, the NYSE Arca Airline Index declined 2.86% and the Dow Jones U.S. Basic Materials Average moved down 2.03%. The Philadelphia Index ended down 1.93%, while the Philadelphia Semiconductor Index, the NYSE Arca Disk Drive Index and the NYSE Arca Computer Hardware Index all lost over 3%.

On the economic front, the Commerce Department’s durable goods orders report showed a 0.3% month-over-month incrwase in December compared to expectations for a 2% increase. Excluding transportation, durable goods orders climbed 0.9%, beating forecasts for a 0.4% increase. Non-defense capital goods orders, excluding aircraft orders, increased 1.3%, suggesting that business investment in equipments may see strength in the first quarter. Machinery orders and orders for primary metals showed strong growth

TSX May Open Higher On GDP Numbers

Canadian stocks are likely to open higher Friday amid strong GDP numbers from both sides of the border. Statistics Canada said today that the country's economy grew in November for the third month in a row. Meanwhile, nation's biggest trading partner, the U.S. said its economy grew 5.7% in the fourth quarter. Bottom fishing after the main index fell over 4% in this year so far, could also help stocks gain.

U.S. stock futures also point to a higher opening.

Bay Street was struggling for direction in the past few session, after the main index lost nearly 3% in the previous week. The S&P/TSX Composite Index ended Thursday losing 69.91 points or 0.62% to 11,274.20, levels not sen in the last two months.

Technology shares may be in play after Microsoft reported 60% jump in its second quarter earnings. Technology shares were on the up move during this week, barring a small correction in the previous session.

Energy stocks could attract buyers as crude prices edged up, after drifting to a six-week low in the previous session. Crude oil for March was up $0.92 at $74.56, a barrel.

Meanwhile, the price of bullion was flat at $1,085, an ounce, after the U.S. dollar marginally strengthened against some of its counterparts.

In mining sector news, world's biggest miner, BHP Billiton said it chalked out $1.93 billion capital expenditure to cope up with rising demand for iron ore from China.
 
Coal miner SouthGopi Energy failed to attract Hong Kong investors on its debut, with the stock price falling over 10% in the Hong Kong stock market. The company had priced its offer at HK$126.04 a share and raised $439 million through its IPO. Today, the stock closed at HK$112 after dipping to an intraday low of HK$105.60.

Canadian Oil Sands Trust reported a 23% drop in its fourth quarter net profits at $0.20 per units, compared to $0.26 a unit in the year ago period.

Oil pipeline maker Enbridge Inc. plans C$250 million expansion to handle increased activities from Canadian oil sands.

Construction material dealer Norbord Inc. reported a narrower fourth-quarter loss of $0.25 per share compared to a loss of $1.88 per share last year.

Bringing an end to a prolonged acquisition drama, Canplats Resources announced that its shareholders have approved the previously announced acquisition of Canplats by Goldcorp.

Firstgold Corp. said that it has filed for Chapter 11 protection under the United States insolvency Code.

Mortgage insurer Genworth Mi Canada reported that its fourth quarter net income rose to C$0.74, per share from C$0.66 per share reported a year ago.

Zenn Motor Company reported narrower fourth quarter net loss of C$0.10 per share, compared to net loss of C$0.07 per share in the same quarter last year.

Semiconductor and electronics dealer DALSA Corp. reported fourth quarter net loss from continuing operations of C$0.06 per share, compared to a net income of or C$0.23 per share in the prior year.
 
Oil and gas explorer Stetson Oil and Gas announced the appointment of Ahmed Said as Interim President and Chief Executive Officer, after Bill Ward has tendered his resignation as President, CEO and a director effective immediately.

In economic news, Statistics Canada said Gross Domestic Product advanced in November by 0.4%, edging up for the third month. In another report, it said country's Industrial Product Price Index fell 0.1% and that of Raw Material Price index by 1.7% due to lower petroleum prices.

From across the border, the U.S. Commerce Department said its economy expanded 5.7% in the fourth quarter, the fastest pace in six years.

Commodity, Currency Markets

Crude oil futures are moving up $0.54 to $74.18 a barrel after receding $0.03 to $73.64 a barrel in Thursday’s session. Gold futures, which edged down $0.90 to $1,084.80 an ounce in the previous session, are currently moving down $0.60 to $1,084.20 an ounce.

Among currencies, the U.S. dollar is trading at 90.70 yen compared to the 89.9495 yen it fetched at the close of New York trading on Thursday. At the same time, the greenback is currently valued at $1.3964 against the euro compared to yesterday’s $1.3972.

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Asian Markets Decline On Concerns About Global Recovery

The markets across Asia, except India, ended in negative territory on Friday taking cues from Wall Street which ended in negative territory on concerns about the quality of economic recovery. Weak commodity prices amid lower demand from China and caution ahead of key economic data in the US also impacted market sentiment. The Indian market managed to end in positive territory, led by banks after the Reserve Bank of India hiked the cash reserve ratio of banks by 75 basis points, higher than mean expectations of a 50-basis point hike.

In Japan, the benchmark Nikkei 225 Index lost 216.25 points, or 2.1%, to 10,198, while the broader Topix index of all First Section issues dropped 13.20 points, or 1.4%, to 901.

On the economic front, data released by the Ministry of Internal Affairs and Communications revealed that the unemployment rate in the country came in at 5.1% in December, lower than 5.2% reported in the previous month. Economists expected the rate to tick up to 5.3% for the month. The data further noted that the job-to-applicant ration for the month of December ticked up to 0.46, in line with economists' expectations.
 
In a separate statement, the Ministry noted that the country's core consumer prices declined 1.3% year-over-year during December, compared to a 1.7% decline in the previous month. Economists expected a 1.7% drop in core CPI for the month. The Ministry further noted that on a monthly basis, core CPI dropped a seasonally adjusted 0.1% in December, compared to a 0.1% decline in the previous month.

A report released by the Japan Automobile Manufacturers Association or JAMA revealed that automobile production in the country increased 8.6% in December compared to the same period last year, to 788,067 units. The report further noted that automobile exports, in volume terms, declined for the 15th month during December by 5% year-over-year to 400,827 units.

A report released by the Ministry of Land, Infrastructure and Transport revealed that housing starts in the country dropped 15.7% annually in December, following a 19.1% decline in November. Economists expected a decline of 18.8% for December. The report further noted that annualized housing starts totaled 819,000 in December, higher than 792,000 reported in November.

Technology stocks led the decline. Advantest Corp. plunged 10.24%, Canon Inc. declined 3.94%, Tokyo Electron shed 2.30%, TDK Corp, slipped 1.35%, Sharp Corp. lost 2.95%, and Sony Corp. fell 2.43%.

Automotive stocks ended in negative territory. Toyota Motor declined 1.40%, Honda Motor lost 2.07%, Suzuki Motor fell 1.58%, Isuzu Motors shed 1.03% and Mitsubishi Motors slipped 0.79%.

Banking stocks also edged down. Sumitomo Mitsui Financial slipped 0.51%, Mitsubishi UFJ Financial lost 1.47% and Mizuho Financial fell 1.12%. However, Resona Holdings bucked the trend and ended in positive territory with a gain of 0.71%.

Mixed trading was witnessed among the shipping stocks. While Nippon Yusen fell 2.19% and Mitsui OSK Lines shed 1.05%, Kawasaki Kisen Kaisha managed to end in the green with a gain of 0.63%.

In Australia, the benchmark S&P/ASX 200 Index plunged 103.70 points, or 2.22% to close at 4,570, while the All-Ordinaries Index ended at 4,597, representing a sharp loss of 100.80 points, or 2.15%.

On the economic front, a report released by the Conference Board revealed that its Leading Economic Index for the country declined for a third straight month in November. According to the report, the Leading Index declined 0.3% for the month. The Board noted that negative contributions from the building approvals and inventory sales categories more than offset positive contributions from the yield spread, stock prices and rural goods exports.
 
In a separate statement, the Reserve Bank of Australia revealed that the value of credit extended to private sector recipients in the country increased a seasonally adjusted 0.3% in December compared to the previous month. The report further noted that housing credit increased 0.7% and other personal credit rose 0.7%, while business credit declined 0.2%.

Increasing concerns about the quality of global economic recovery, weakness across Europe led by credit concerns in Greece and Portugal, tightening measures from China to cool off its economy and weaker commodity prices including gold mpacted market sentiment, with nine out of 10 stocks ending in the red during the session.

Resource stocks led the decline following drop in commodity prices and slowdown in demand from China as a result of tightening measures. BHP Billiton lost 3.19%, Rio Tinto fell 4.82%, Fortescue Metals shed 2.57%, Gindalbie Metals slumped 5.00%, Iluka Resources declined 2.94%, Macarthur Coal plunged 7.89%, Minara Resources dropped 2.13% and Oz Minerals were down by 4.48%.

Gold stocks ended weaker on lower prices in the bullion market. Lihir Gold lost 4.15% and Newcrest Mining declined 1.87%.

Oil related stocks also ended in negative territory. Woodside Petroleum lost 3.09%, Santos edged down 0.15%, Oil Search fell 1.87% and Origin Energy slipped 0.50%.

Banks ended lower on concerns about global economic recovery. ANZ Bank lost 1.90%, Commonwealth Bank of Australia fell 3.39%, National Australia Bank shed 1.20% and Westpac Banking Group declined 2.93%. Investment bank Macqaurie Group slipped 1.69%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 234.38 points, or 1.15%, at 20,122, taking cues from Wall Street where the major averages ended in negative territory as concerns about the quality and pace of economic recovery resurfaced again despite positive earnings from major corporates. Weak trading across the other markets in the region also impacted market sentiment with resource stocks and banks dragging the index lower. Caution ahead of advance Q4 GDP data in the US and weekend also impacted trading.
 
In South Korea, the KOSPI Index ended weaker by 2.44% or 40.00 points, at 1,602, dragged down by unloading shares of blue-chip technology companies by foreign investors. Weak closing on Wall Street in the previous session on concerns about the quality of economic recovery and weakness in technology stocks impacted market sentiment.

The Indian market finished a volatile session moderately higher on Friday on relief there will not be a hike in lending rates immediately. Positive opening of the European markets and an intra-day recovery in the U.S stock futures before the release of GDP data later in the day also perked up sentiment to some extent. The Reserve Bank of India hiked the Cash Reserve Ratio by 75 basis points to 5.75%, to absorb Rs.36,000 crore of excess liquidity from the system. The benchmark Sensex opened weak in line with the subdued global cues and later nosedived by 325 points, minutes after the CRR hike announcement, before reversing its direction to end higher by 51 points or 0.31% at 16,358. The Nifty also ended higher by 15 points or 0.30% at 4,882.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index slipped 8.77 points, or 0.33% to close at 2,611, Taiwan's Weighted Index shed 54.14 points, or 0.70% to close at 7,640, Strait Times Index in Singapore lost 12.33 points, or 0.45%, to close at 2,745 and China's Shanghai Composite Index declined 4.85 points, or 0.16%, to close at 2,989.

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The major European markets are trading higher on Friday after seeing weakness in the two previous sessions. The French CAC 40 Index and the German DAX Index are moving up about 1.50% each, while the U.K.’s FTSE 100 Index is advancing 1.33%.

In corporate news, Infineon Technologies reported a profit of 66 million euros for its first quarter on sales of 941 million euros. The company raised its 2010 guidance, with the company now expecting sales growth in excess of 20% along with a high single-digit combined result margin.

On the economic front, the Nationwide Building Society said the U.K. house prices rose 1.2% month-over-month in January following a 0.5% increase in December. Economists had forecast a smaller 0.3% increase. Meanwhile, consumer confidence in the U.K. improved modestly from depressed levels. The GfK NOP’s U.K. consumer confidence rose to –17 in January from –19 in the previous month.

U.S. Economic Reports

The Bureau of Economic Analysis’ advance estimates revealed that the U.S. GDP rose at a better than expected annual rate of 5.7% in the fourth quarter compared to the previous quarter. Economists had expected a more modest 4.7% GDP growth. The growth was the biggest in about six years.

The increase in GDP reflected positive contributions from private inventory investment, exports and personal consumption expenditures. Consumer spending rose at a 2% rate and a smaller rate of decline in inventories contributed notably to growth.

The Labor Department’s employment cost index for the fourth quarter showed that the employment cost index rose 0.5% sequentially in the fourth quarter. The consensus estimates had called for a more modest 0.4% increase. Both wages and salaries as well as benefits rose at a 0.5% rate.

The results of the Institute for Supply Management-Chicago's business survey for January are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 57.2.

The institute's index of manufacturing activity rose to 60 in December from 56.1 in November, with a reading above 50 indicating growth in the sector. The increase came as a surprise to economists, who had been expecting the index to edge down to a reading of 55.1.

A turnaround in employment contributed to the improvement in the sector, with the employment index jumping to 51.2 in December from 41.9 in November.

The Reuters/University of Michigan's final report on the consumer sentiment index for January is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be revised up to 73 from the mid-month of reading of 72.8.

Earnings

Arch Coal (ACI) reported fourth quarter revenues of $725.5 million, down from $729.9 million last year. The company’s earnings fell to 1 cent per share from 44 cents per share last year. On an adjusted basis, the company reported net income of 11 cents per share. Analysts estimated 17 cents per share on revenues of $728.37 million.

Honeywell’s (HON) fourth quarter earnings per share fell to 91 cents per share from 97 cents per share last year. Sales declined to $8.1 billion from the year-ago’s $8.7 billion. The consensus estimates called for earnings of 90 cents per share on revenues of $8.15 billion. The company reaffirmed its 2010 sales guidance of $31.3 billion to $32.2 billion and earnings per share estimate of $2.20-$2.40 per share. Analysts estimate earnings of $2.41 per share on revenues of $31.82 billion.

Mattel (MAT) reported that its fourth quarter earnings of 89 cents per share on revenues of $1.96 billion. The consensus estimates had called for earnings of 68 cents per share on revenues of $1.98 billion.

Newell Rubbermaid (NWL) said its fourth quarter sales fell 2% to $1.42 billion. The company’s normalized earnings were 27 cents per share, higher than 11 cents per share last year. Analysts estimated earnings of 27 cents per share on revenues of $1.41 billion. The company expects core sales growth in the low single digits in 2010 and normalized earnings of $1.35-$1.45 per share, while analysts estimate earnings of $1.47 per share.

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Microsoft (MSFT) could be in focus after it reported second quarter revenues of $19.02 billion, up 14% year-over-year. The company’s earnings per share were 74 cents per share, up 57% from last year and adjusted earnings per share rose 28% to 60 cents per share. Analysts estimated earnings of 59 cents per share on revenues of $17.84 billion.

Amazon (AMZN) is likely to move to the upside after it said its fourth quarter sales rose 42% to $9.52 billion. Net income rose to 85 cents per share from 52 cents per share in the year-ago period. Analysts estimated earnings of 72 cents per share on revenues of $9.04 billion. For the first quarter, the company estimates net sales of $6.45 billion to $7 billion. The consensus estimates call for revenues of $6.36 billion.

Airgas (ARG) is likely to come under selling pressure after it reported third quarter adjusted earnings of 65 cents per share compared to 76 cents per share in the year-ago period. Sales fell 13% year-over-year to $942 million. Analysts estimated earnings of 69 cents per share on revenues of $960.71 million. For 2010, the company estimates earnings of $2.66-$2.70 per share, a reduction from its earlier estimate of $2.70-$2.80 per share. The consensus estimates call for earnings of $2.77 per share on revenues of $3.93 billion. Separately, the company announced an increase in its cash dividend by 22% to 22 cents per share.

Juniper Networks (JNPR) could gain ground after it reported preliminary fourth quarter results, predicting revenues of $941.5 million, up 2% from last year, and non-GAAP earnings of 32 cents per share, flat with last year. The Street estimates earnings of 26 cents per share on revenues of $884.81 million.

Among semiconductor equipment makers, Varian Semiconductor Equipment (VSEA) rose in Thursday’s after hours session after it said its first quarter revenues rose to $141.30 million from $107.4 million. The company’s net income rose to 22 cents per share from 19 cents per share last year. Analysts estimated earnings of 19 cents per share on revenues of $140.92 million.

On the other hand, KLA-Tencor (KLAC) moved lower in Thursday’s after hours session after it reported second quarter non-GAAP net income of 28 cents per share compared to a loss of 12 cents per share last year. Revenues rose to $440 million from the year-ago’s $397 million. Analysts estimated earnings of 27 cents per share on revenues of $437.88 million.

In the chip sector, Maxim Integrated (MXIM) could gain ground after it reported that its second quarter revenues rose 15% to $473.5 million. The company’s GAAP earnings were 19 cents per share, including a charge of 5 cents per share. The consensus estimates called for earnings of 18 cents per share on revenues of $459.44 million. For the second quarter, the company expects revenues of $500 million to $520 million compared to the $448.77 million expected by analysts.

Lattice Semiconductor (LSCC) may gain ground after it said its fourth quarter revenues rose 12.2% to $55.1 million. The company reported non-GAAP net income of 5 cents per share compared to break-even results in the year-ago quarter. Analysts estimated 4 cents per share on revenues of $54.87 million. The company said it expects continued profitability in the first quarter and sequential revenue growth of 8%-12%. Analysts expect a profit of 3 cents per share on a slight sequential decline in revenues.

However, Applied Micro Circuits (AMCC) saw weakness in Thursday’s after hours session after it reported that its third quarter non-GAAP net income from continuing operations was 4 cents per share on revenues of $53.7 million. Analysts estimated earnings of 4 cents per share on revenues of $52.75 million.

CA (CA) is likely to see some activity after it reported third quarter non-GAAP net income of 43 cents per share, flat with last year, and revenues of $1.13 billion, up 8% year-over-year. The results were ahead of the consensus estimates. For 2010, the company estimates revenues of $4.3 billion to $4.4 billion and non-GAAP earnings of $1.60-$1.71 per share. Analysts estimate earnings of $1.68 per share on revenues of $4.33 billion. The company also announced the election of William McCracken as the company’s new CEO.

SanDisk (SNDK) could move in reaction to its announcement that its fourth quarter revenues rose 44% year-over-year to $1.24 billion. The company reported a non-GAAP profit of $1.18 per share compared to a loss of $1.59 per share last year. Analysts estimated a profit of 69 cents per share on revenues of $1.16 billion.

PMC-Sierra (PMCS) could rally after it said its fourth quarter revenues rose to $139.5 million from $120.8 million last year. On a non-GAAP basis, net income more than doubled to 17 cents per share. Analysts estimated earnings of 15 cents per share on revenues of $136.80 million.

Rambus (RMBS) is likely to see some activity after it reported that its fourth quarter revenues fell 18.1% year-over-year to $30.8 million, as the year-ago revenues included a receipt of the previously withheld royalties related to the now vacated FTC order. The company’s net loss widened to 22 cents per share from 15 cents per share last year.

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