US & World Daily Markets Financial Briefing 29-06-2010

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Stocks Sharply Lower After Alarming Drop In Consumer Confidence

Stocks are posting steep losses in mid-morning trading on Tuesday, as a plunge in June consumer confidence further justified the initial sell-off in equities. Questions regarding China's economic growth and the general sustainability of the global economic recovery were largely responsible for the steep drop seen at the outset of the session.

After reporting three consecutive monthly increases in consumer confidence, the Conference Board released a report showing a much steeper than expected drop in consumer confidence in the month of June.

The Conference Board said that its consumer confidence index fell to 52.9 in June from a downwardly revised 62.7 in May. Economists had expected a much more modest decrease to a reading of 62.0 from the 63.3 originally reported for the previous month.

The initial weakness on Wall Street came as the global markets fell sharply in reaction to a correction issued by the Conference Board, which downwardly revised its April leading indicators index for China to show a paltry 0.3 percent increase compared to the previously reported 1.7 percent growth.

Earlier this morning, Standard and Poor's said the S&P/Case-Shiller 20-City Composite Home Price Index increased at an annual rate of 3.8 percent in April compared to the 2.3 percent growth that was reported for March. Economists had expected the index to increase by 3.4 percent.

On a monthly basis, the 20-City Composite Home Price Index increased by 0.8 percent, reflecting growth in eighteen of the Metropolitan Statistical Areas.

In corporate news, BP Plc (BP) is likely to face additional challenges in its oil cleanup efforts in the Gulf of Mexico as Tropical Storm Alex is forecast to ramp up to hurricane strength today. The storm is expected to hamper the efficiency of the cleanup and spread oil further along the coast.

Electric car maker Tesla Motors, Inc. (TSLA) is set to begin trading on the Nasdaq today after having priced its initial public offering of 13.3 million common shares at $17.00 per share, above its estimated offering price range.

After the markets closed in the previous session, memory chip maker Micron Technology (MU) reported a third quarter profit compared to loss in the same period last year, helped by sharply higher sales and a hefty accounting gain related to its acquisition of Numonyx.

The major averages have continued to move lower in recent trading, once again falling to new lows for the session. The Dow is down 283.63 points or 2.8 percent at 9,854.89, the Nasdaq is down 76.00 points or 3.4 percent at 2,144.65 and the S&P 500 is down 29.58 points or 2.8 percent at 1,044.99.

Sector News

Semiconductor stocks are some of the morning's worst performers, further reflecting the pessimistic outlook for growth following the day's news. The Philadelphia Semiconductor Index is down by 4.8 percent, setting a three-week intraday low.

Steel stocks are also markedly lower, with the NYSE Arca Steel Index registering a 5.1 percent loss thus far on the day. The index has also slipped to its lowest intraday level in three weeks.

Networking electronic storage, transportation and housing stocks are also substantially lower, among others, further indicative of the day's broad-based selling pressure.

Stocks Driven By Analyst Comments

Ethan Allen (ETH) is notably lower after being downgraded by analysts at KeyBanc Capital Markets from Hold to Underweight. The stock is down by 7.4 percent, slipping to a four and a half month intraday low.

American Eagle (AEO) is also seeing heavy selling following a downgrade at Brean Murray from Hold to Sell. Shares are currently down by 5.3 percent, setting a fifteen-month intraday low.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed sharply lower on Tuesday. Japan's benchmark Nikkei 225 Index fell by 1.3 percent and Hong Kong's Hang Seng Index declined by 2.3 percent.

The major European markets have extended their already steep losses. The U.K.'s FTSE 100 Index and the German DAX Index are down by 2.6 percent and 2.7 percent, respectively, while the French CAC 40 Index is down by 3.7 percent.

In the bond markets, treasuries are showing strong gains amid the weakness on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.971 percent, posting a loss of 6.1 basis points.

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Canadian Stocks May Extend Losses Amid China, Euro Worries

Bay Street stocks are poised to extend losses Tuesday morning amid falling commodities prices and resurfaced worries over the euro zone debt situation. Also, concerns that China's economy is growing at a slower pace than estimated may weigh on sentiment.

Meanwhile, the stock markets in Asia and Europe fell on fears over the sustainability of economic growth in China and Japan.

On Monday, the S&P/TSX Composite Index lost 100.85 points or 0.86% to 11,607.00, moving near its 3-week low.

Today, the Conference Board said leading economic indicator for China rose 0.3% in April, less than the 1.7% gain reported earlier in June. The previous release contained a 'calculation error', the New York-based research group said.

Meanwhile, Japan's industrial production fell in May while the nation's jobless rate rose, government data showed today.

The price of oil moved down for a second session as forecasts revealed Tropical Storm Alex will not hit production areas in the Gulf of Mexico. Also, worries over economic growth in China, the second largest consumer, dented sentiment. Crude for August slipped $2.02 to $76.23 a barrel.

The price of gold was trading almost flat after witnessing volatile moves in the previous session. Yesterday, gold rose as high as $1,263- near its all-time high - but slipped to settle at $1,238.60 an ounce. Gold for August eased $3.30 to $1,235.30 an ounce.

Mining stocks may be in play after big names such as Rio Tinto and BHP Billiton fell around 4% each in London, amid discouraging economic data from China. Meanwhile today, Teck Resources reported an explosion in its Greenhills coal mine in British Colombia.

In corporate news, pipeline company Enbridge Inc. said it will undertake a $386.80 million expansion plan at its Waupisoo pipeline in Alberta to accommodate shipper commitments. The expansion would provide an additional capacity of 65,000 barrels per day by the second half of 2012 and around 190,000 barrels per day by the second half of 2013, when fully operational.

Nutrient and compound fertilizer company Hanfeng Evergreen said it has expanded its exclusive sales and distribution agreement with FBSciences Inc. for its CarbonPower, a next generation proprietary technology.

Fertilizer maker Migao Corp. said it would double its potassium sulphate output in China. The new 40,000 tons per year potassium sulphate production facility is scheduled for completion in the fourth quarter of 2011.

Lithium and potassium company Orocobre Ltd. revealed the resignation of Jack Tan as Non-Executive Director.

Precious metals miner Brigus Gold announced the appointment of Richard Allan as its Chief Operating Officer and Vice President, effective July 5, 2010.

In economic news, Statistics Canada said Industrial Product Price Index edged up 0.3% in May, largely due to that month's relative weakness in the Canadian dollar against its U.S. counterpart. Economists expected industrial product prices to slip 0.2% in May. The IPPI had advanced 0.4% in April, continuing its uptrend that started in November 2009. Meanwhile, the Raw Materials Price Index dipped 7.2%, mainly due to lower crude oil prices.

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Asian Markets Slump On Concerns About China's Economy

The markets across Asia ended trading session Tuesday sharply lower taking cues from China's Shanghai Market, where the index plunged more than 4% after the Conference Board stated that the leading indicators' index for April, released earlier on June 15, has been revised downwards to a gain of 0.3% against 1.7% growth reported in the earlier report. Concerns that the Chinese economy might face headwinds in near future, unable to sustain the growth momentum, also impacted markets across the region, leading to sharp declines.

In Japan, the benchmark Nikkei 225 Index lost 123.27 points, or 1.27%, to 9,571 while the broader Topix index of all First Section issues slipped 8.61 points, or 1.00%, to 852.

On the economic front, a report released by the Ministry of Economy, Trade and Industry revealed that an index measuring industrial production in the country slipped a seasonally adjusted 0.1% in May compared to the previous month, posting a score of 95.9. That was below expectations for a flat reading following the 1.3% increase in April. On an annual basis, industrial output jumped 20.2% - roughly in line with expectations for a 20.3% increase following the 25.9% spike in the previous month.

A report released by the Ministry of Internal Affairs and Communications revealed that the unemployment rate in Japan rose to a seasonally adjusted 5.2% in May, with 3.47 million individuals seeking jobs. That was slightly higher than forecasts for 5.0% following the 5.1% rate in April. As per the report, the jobs-to-applicant ratio climbed to 0.50, beating expectations for 0.49 after several months at the record low of 0.48. The number of employed persons eased 0.7% on year to 62.95 million.

In a separate report, the Ministry of Internal Affairs and Communications revealed that real household spending in the country declined 0.7% on year in May to 280,714 yen. That was well below analyst expectations for a 0.3% annual increase following the 0.7% fall in April. The propensity to consume added 1.8 points on year to 94.6 percent, the data showed, while wage-earner household spending was down 3.4 percent on year. The report further noted that the average of monthly income per household stood at 421,413 yen, down 2.4% in real terms from the previous year.

Nearly 9 out of every 10 stocks in the Nikkei-225 index ended in negative territory. Exporters and machinery manufacturers were the major losers following strength of the local currency against the euro and the US dollar. Fanuc Ltd fell 2.17%, Canon Inc. plunged 2.72%, Advantest Corp. lost 2.00%, Sharp Corp. shed 2.05%, Panasonic Corp. slumped 4.32% and TDK Corp. was down 1.37%.

Banks also ended in negative territory. Sumitomo Mitsui Financial shed 1.27%, Resona Holdings slipped 0.55%, Mitsubishi UFJ Financial shed 0.97% and Mizuho Financial fell 1.34%.

In Australia, the benchmark S&P/ASX200 Index shed 38.80 points, or 0.88% and closed at 4,346, while the All-Ordinaries Index ended at 4,371, representing a loss of 39.10 points, or 0.89%.

Gold stocks declined the most following the sharp drop in gold prices in the international market. Lihir Gold fell 2.04% and Newcrest Mining lost 1.75%.

Banks also ended in negative territory amid concerns about global economic recovery. ANZ Bank shed 1.88%, Commonwealth Bank fell 1.14%, National Australia Bank shed 0.55% and Westpac Banking lost 1.21%. Investment banking company Macquarie Group was down 2.23%.

Retail stocks were also lower on recovery concerns. David Jones fell 1.39%, Harvey Norman slipped 0.30%, JB Hi-Fi Ltd shed 0.77%, Pacific Brands was down 0.56%, Reject Shop declined 1.20%, Wesfarmers lost 1.10% and Woolworths ended weaker by 1.57%.

Mixed trading was witnessed among oil and energy stocks. Woodside Petroleum fell 1.64%, Santos Ltd slipped 0.55%, Oil Search lost 2.27% and Origin Energy shed 1.27%. However, ROC Oil Co bucked the trend and ended in the green with a gain of 1.52%.

In Hong Kong, the benchmark Hang Seng Index lost 477.78 points, or 2.31%, and closed at 20,249, following sharp decline in mainland China amid concerns that the Chinese economic growth might slow down after the Conference Board revised its leading indicators index for April from 1.7% rise earlier reported to a rise of just 0.3%. Pricing of shares by Agricultural Bank of China at lower than expected price also raised speculation that growth in mainland China's economy might slow down, which might impact global economic recovery. All the 42 components of the index ended in negative territory.

A sell-off in world equities on concerns about the outlook for China's economy and funding concerns in the eurozone dragged the Indian market sharply lower on Tuesday. The 30-share Sensex average ended down 240 points or 1.35% at 17,534, with 27 of its components ending in the red. Larsen & Toubro, Bharti Airtel and ONGC posted modest gains. The 50-share Nifty fell by 77 points or 1.45% to 5,256.

Among the other major markets open for trading, China's Shanghai Composite Index plunged 108.22 points, or 4.27%, to 2427, Taiwan's Weighted Index declined 77.22 points, or 1.03%, to close at 7,424, Indonesia's Jakarta Composite Index fell 62.36 points, of 2.11%, to 2,893 and Singapore's Strait Times Index slipped 39.65 points, or 1.38% to close at 2,870.

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After yesterday’s rebound, European stocks are languishing in the red on Tuesday. The French CAC 40 Index and the German DAX Index are trading down 2.64% and 2.16%, respectively, while the U.K.’s FTSE 100 Index is moving down 2.16%.

On the economic front, French statistical agency INSEE reported that France’s consumer confidence index fell to –39 in June from –38 in May, reaching its lowest level since April 2009.

The results of survey done by European Commission showed that the euro area’s economic sentiment index rose to 98.7 in June from 98.4 in May. Economists had expected a reading of 98.1

U.S. Economic Reports

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 a 3.4% year-over-year increase in the 20-city composite house price index for April. In March, the index rose 2.35%.

The Conference Board is scheduled to release its consumer confidence report for June 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 fell to 62 in June.

In May, the consumer confidence index rose to 63.3 from 57.7 in April, with the latest month's reading the highest since March 2008. The upside reflected the improvement seen in consumers’ appraisal of the labor market, with those saying jobs were hard to get falling 1.2 points to the lowest since January 2009. The expectations index climbed 7.9 points to 85.3, its highest level since August 2007, while the current conditions index rose 1.4 points, reaching its highest level since December 2008.

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Barnes & Noble (BKS) receded in Monday’s after hours session after it reported an adjusted fourth quarter loss of 89 cents per share on sales that rose 19% to $1.3 billion. Analysts expected a loss of 81 cents per share on revenues of $1.28 billion. For fiscal 2011, the company expects sales growth of 20%-25%, while analysts call for revenue growth of 14.90% to $6.72 billion.

Republic Services (RSG) is likely to move in reaction to its announcement that pursuant to the retirement of its CEO James O’Connor on January 1, 2011, Donald Slager will assume the role of president and CEO of the company.

Forest Labs (FRX) moved to the downside in Monday’s after hours session after it announced that the top-line results from a Phase II study of its investigational compound, radiprodil, to treat neuropathic pain showed no statistical significance or clinically meaningful reductions in mean daily pain scores. The company also said it would review the database along with its partner Gedeon Richter before determining the appropriate next steps.

Micron Technology (MU) declined sharply in Monday’s after hours session after it reported third quarter earnings of 92 cents per share compared to a loss of 37 cents per share last year. Sales rose to $2.29 billion from $1.11 billion last year. The consensus estimates called for earnings of 42 cents per share on revenues of $2.08 billion. Analysts’ estimates typically exclude one-time items.

CLARCOR (CLC) also retreated in Monday’s after hours session after it announced the appointment of Christopher Conway as its president and COO, effective immediately. Conway will report to Norm Johnson, who will remain the company’s chairman and CEO.

General Mills (GIS) is likely to react to its announcement that its board has approved an increase in its quarterly dividend to 28 cents per share, which will render the annualized dividend rate at $1.12 per share, up 17% from what was paid in 2010. The company’s board also authorized the repurchase of up to $100 million shares, with no expiration date.