US & World Daily Markets Financial Briefing 31-03-2010

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Stocks Modestly Lower As Markets Absorb Disappointing Data

Stocks are posting modest losses in mid-morning trading on Wednesday, as disheartening data on Chicago-area business activity and the private jobs sector has weighed on market sentiment. The major averages are all in negative territory, partly offsetting the gains posted over the course of the first two trading days of the week.

The Institute for Supply Management - Chicago released a report showing the sixth consecutive month of growth in regional manufacturing activity in March, although the index of activity in the sector fell by much more than economists had been expecting.

The ISM - Chicago business barometer fell to 58.8 in March from 62.6 in February, but a reading above 50 still indicates an increase in manufacturing activity. Economists had been expecting a more modest decrease to a reading of 61.0.

Earlier this morning, payroll processor Automatic Data Processing, Inc. (ADP) reported that non-farm private employment fell by 23,000 jobs in March following a revised decrease of 24,000 jobs in February. The loss of jobs surprised economists, who had expected an increase of about 40,000 jobs compared to loss of 20,000 jobs originally reported for the previous month.

Meanwhile, the Commerce Department provided a silver lining in today's economic news, releasing a report showing that factory orders increased by 0.6 percent in February following an upwardly revised 2.5 percent increase in January. Economists had expected orders to increase by 0.5 percent compared to the 1.7 percent growth originally reported for the previous month.

On the corporate front this morning, Honeywell International Inc. (HON) raised its first quarter earnings outlook, citing both stronger orders and sales in several short cycle end markets as well as continued execution of tighter cost controls.

The company said it now expects first quarter earnings to be in the range of $0.45 to 0.49 per share, compared to its prior guidance of $0.40 to 0.45 per share.

The major averages have moved well off their worst levels in recent trading, but they currently remain below the unchanged line. The Dow is down 34.39 points or 0.3 percent at 10,873.03, the Nasdaq is down 1.97 points or 0.1 percent at 2,408.72 and the S&P 500 is down 2.31 points or 0.2 percent at 1,170.96.

Sector News

Healthcare provider stocks are some of the morning's worst performers, with the Morgan Stanley Healthcare Provider Index posting a loss of 0.8 percent, pulling further away from last week's all-time closing high.

Railroad stocks are also down by notable margins, as reflected by the 0.7 percent loss being shown by the Dow Jones Railroads Index. Canadian National Railway Company (CNI) is weighing on the sector, falling by 1.1 percent. The loss is pulling the stock down off of the historic closing high set on Tuesday.

Biotechnology, semiconductor and utility stocks are also moving lower, while gold and oil service stocks are posting strong gains amid increases in their respective commodity prices.

The NYSE Arca Gold Bugs Index and the Philadelphia Oil Service Sector are up by 1.7 percent and 1.3 percent, respectively, as fold for April delivery is up by $12.10 to $1,116.60 an ounce and oil for May delivery is up by $1.04 to $83.41 a barrel.

Stocks Driven By Analyst Comments

Aerospace firm SAIC Inc. (SAI) is moving lower after being downgraded at Wells Fargo from Outperform to Market Perform. The stock has dipped by 7.3 percent, sliding to a three and a half month intraday low.

Psychiatric Solutions (PSYS) is also under pressure following a downgrade at Piper Jaffray from Neutral to Underweight. Shares are currently down by 2.1 percent but remain in a range near this month's sixteen-month closing high.

On the other hand, Kohlberg Capital (KCAP) is moving higher after an upgrade by Stifel Nicolaus from Sell to Hold. The stock is up by 3.2 percent, bouncing around near this month's five-month closing high.

TSX May Extend 18-Month Highs As Economic Comeback Continues

Canadian stocks may open higher Wednesday morning and will likely to challenge new yearly highs. Rising commodities prices and an  encouraging GDP data released today may help lift sentiment. However, a surprise fall in U.S. non-farm private employment and profit taking at higher levels may cap gains.

On Tuesday, the S&P/TSX Composite Index added 14.49 points or 0.12% to 12,044.21. On March 17, the main index hit an 18-month high of 12,100.

The price of crude oil was up $0.75 to $83.12 a barrel. The price of gold edged up $7.40 to $1,111.90 an ounce.

Technology stocks may be in play as Research In Motion is scheduled to announce its quarterly earnings after the markets close for trading today.

In corporate news, privately-held Canadian energy company Athabasca Oil Sands Corp. or AOSC, announced Tuesday the pricing for its initial public offering to generate gross proceeds of C$1.35 billion, which is scheduled to close on April 8, 2010.

Food products maker Premium Brands Holdings announced the acquisition of an 80% interest in Duso's Enterprises Ltd. for approximately C$5.6 million.

Telecommunications industry services provider EXFO Inc. reported a lower second quarter net earnings of $0.02 per share, compared to $0.04 per share in the last year quarter. Analysts expected the company to report earnings of $0.07 per share.

Drilling and production services provider Peak Energy Services Trust reported a wider fourth-quarter net loss of C$0.18 per unit, an compared to a net loss of C$0.01 per unit in the prior year period.

Base metals explorer Iberian Minerals reported a fourth quarter net loss of C$0.20 per share, compared to a loss of C$0.06 per share in the same period last year.

Base metals miner Ivernia Inc. swung to profit, reporting fourth quarter net income of $0.01 per share, compared with a net loss of $0.41 per share in the same period last year.

Exploration industry services provider Norex Exploration Services reported narrower net loss for the fourth quarter at C$0.02 per share, compared to a net loss of C$0.21 per share in the year ago period.

Food products maker GLG Life Tech turned to profit reporting fourth-quarter net income of C$0.02 per share, compared to net loss of C$0.40 per share last year.

Toys and stationery company MEGA Brands reported narrower fourth-quarter net loss of $0.60 per share compared to $8.83 per share in the prior year period.

 In brokerage update, UBS hiked its price target on Teck Resources to C$50.50 from C$44.

In economic news, Statistics Canada said the country's real gross domestic product advanced for a fifth straight month, rising 0.6% in January. It added that manufacturing increased 1.9% in January after an 1.2% advance in December.

From the U.S., the Automatic Data Processing, Inc. said today that non-farm private employment fell by 23,000 jobs in March following a revised decrease of 24,000 jobs in February. Economists were expecting an increase of about 40,000 jobs compared to loss of 20,000 jobs originally reported for the previous month.

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Asian Markets Slip On Profit Taking

The markets across Asia ended the last trading session of the first quarter on Wednesday in a weak note as traders locked in profits from the recent rally and preferred to move to sidelines ahead of key economic data slated for release in the next two days.

In Japan, the benchmark Nikkei-225 Index fell 7.20 points, or 0.06%, from Tuesday to 11,090, while the broader Topix index of all First Section issues lost 0.77 point, or 0.08%, to 979.

On the economic front, a report released by the Ministry of Land, Infrastructure and Transport revealed that housing starts in Japan declined 9.3% on annual basis in February, following 8.1% decline in the previous month. Economists expected a modest 1% decline in housing starts for February. The report further noted that the annualized housing starts stood at 794,000 in February compared to 863,000 in the previous month. Consensus forecast was for 865,000.

Separately, the results of the Nomura/JMMA Manufacturing Purchasing Managers' Index revealed that manufacturing activity in the country declined slightly in March, the first such decline in the past three months. The Index had a score of 52.4 in March, slightly down from a score of 52.5 reported for the previous month.

Data released by the Ministry of Health, Labor and Welfare revealed that total cash earnings of employees in Japanese establishments with five or more employees slid 0.6% year-on-year to JPY 264,500 in February, faster than the downwardly revised 0.2% decline in the previous month. Analysts had forecast a marginal 0.1% decrease in cash earnings.

Securities stocks declined on profit taking. Nomura Holdings shed 1.85%, Daiwa Securities Group slipped 1.20% and Matsui Securities Co., fell 0.60%. However, Mizuho Securities bucked the trend and ended in positive territory with a modest gain of 0.68%.

Pulp & Paper related stocks also ended in negative territory. Nippon Paper Group declined 1.19%, Oji Paper Co., slipped 0.97% and Mitsubishi Paper Mills Ltd., shed 0.88%.

Banks also ended weaker on profit taking. Sumitomo Mitsui Financial lost 1.44%, Resona Holdings slipped 0.76%, Mitsubishi UFJ Financial fell 1.41% and Mizuho Financial shed 0.54%.

Mixed trading was witnessed among real estate stocks. Heiwa Real Estate remained unchanged from previous close. Mitsubishi Estate advanced 0.86% and Tokyu Land Corp. climbed 2.29%. However, Mitsui Fudosan slipped 0.31% and Sumitomo Realty & Development edged down 0.17% on profit taking.

Sea transport stocks and warehousing stocks ended in positive territory on speculation that the economy will continue to sustain recovery going into a new fiscal year starting from tomorrow. Among sea transport stocks, Kawasaki Kishen Kaisa advanced 1.91%, Mitsui OSK Lines climbed 3.55% and Nippon Yusen rose 2.22%. In warehousing space, Mitsubishi Logistics Corp. gained 1.13%.

In Australia, the benchmark S&P/ASX 200 Index declined 41.30 points, or 0.84% to close at 4,876, while the All-Ordinaries Index ended at 4,893, representing a loss of 33.70 points, or 0.68%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that retail sales were down a seasonally adjusted 1.4% month-on-month to A$19.83 billion in February. This came in contrast to analyst expectations for a 0.3% increase after the 1.1% growth in the previous month. The report noted that department store sales dropped 3.9% in February compared to January, while sales of clothing, footwear & other personal accessories, and food retailing fell 3.9% and 1.7%, respectively. Household goods retailing was down 1.3%. On the other hand, sales in cafes, restaurants & takeaway food services registered the only increase, up 1.8%.

A separate report from the statistics bureau showed that building approvals slid a seasonally adjusted 3.3% to 13,900 in February compared to January - well off expectations for 2.1% growth after the 5.5% decrease in the previous month. The number of private sector houses approved during February fell 0.9% following rises in the previous two months, and the number of private sector other dwellings approved fell 10.9%.

A report released by RP Data and Rismark revealed that home prices in Australia's capital cities increased 1.4% month-on-month in February, following the 2% growth in January. According to the data, the national city median dwelling price is now A$455,000. In the 12 months to February, Australian capital city home values increased 12.7%.

Retailers ended in negative territory following drop in retail sales for February. David Jones lost 2.09%, Harvey Norman fell 1.09%, JB Hi-Fi Ltd shed 1.93%, Myer Holdings shed 0.59%, and Woolworths slipped 0.85%. However, Wesfarmers bucked the trend and ended in positive territory with a gain of 0.22%.

Resource stocks also ended weaker on profit taking following recent gains. BHP Billiton shed 1.93%, Rio Tinto slipped 1.07%, Fortescue Metals declined 1.21%, Iluka Resources fell 0.68%, Mincor Resources was down 1.95% and Oz Minerals lost 2.55%.

Macarthur Coal, which has rejected the unsolicited acquisition offer from PeaBody Energy for $3.3 billion citing reasons that it is not in best interests of the company, surged up 16.21%. The other notable gainer in resource stocks is Gindalbie Metals which gained 5.51%.

Oil related stocks ended in negative territory. Woodside Petroleum declined 0.21%, Santos shed 0.34% and Origin Energy lost 0.54%. Oil Search, however, remained unchanged from previous close.

Banking stocks also ended in negative territory on profit taking. ANZ Bank shed 0.35%, Commonwealth Bank of Australia slipped 0.85%, National Australia Bank lost 0.65% and Westpac Banking fell 1.00%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 135.44 points, or 0.63%, to close at 21,239, as traders preferred to take profits and move to the sidelines ahead of key economic data and extended weekend on the eve of Good Friday on 2 April. Weak trading across other markets in the region also impacted market sentiment.

The Indian market ended a volatile session in the red for a second straight session on Wednesday, thanks to continued year-end profit taking and lackluster global cues. While IT stocks fell for a third day in a row, select healthcare, power, public sector and auto stocks ended with modest gains. After rising notably in early trading, the 30-share Sensex average gradually pared its gain and slipped into the red before closing near the day's lows at 17,528, down 62 points or 0.35%, while the 50-share Nifty ended down 13 points or 0.25% at 5,249.

Among the other major markets, Indonesia's Jakarta Composite Index declined 20.97 points, or 0.75%, and closed at 2,777, Singapore's Strait Times Index lost 45.93 points, or 1.57%, to close at 2,887, China's Shanghai Composite Index fell 19.36 points, or 0.62%, to close at 3,109, and Taiwan's Weighted Index declined 42.16 points, or 0.53% to close at 7,920.

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After a weak close on Tuesday and a weak start Wednesday morning, the major European averages showed volatility and are currently seen trading with moderate losses. While the French CAC 40 Index and the German DAX Index are moving down 0.68% and 0.08%, respectively, the U.K.’s FTSE 100 Index is receding 0.05 %.

In corporate news, caterer Compass said it expects its organic revenue to rise 1.5% in the second quarter compared to the 1.7% growth in the previous quarter. Additionally, in its trading update, the company said it expects organic revenue growth in the first half of the year to be broadly flat. Pub operator Enterprise Inns said in its trading update that trading had been relatively stable since January.

In economic news, a survey by GfK NOP showed that consumer confidence in the U.K. took a step back in March, with the consumer confidence index dipping to –15 from –14 in February. The index measuring personal finances dipped 2 points to –15, while the index measuring the economic outlook declined 4 points to 0.

Meanwhile, French statistical agency INSEE reported that the French producer price index rose 0.1% month-over-month in February compared to the 0.6% increase in January. The increase was in line with expectations. Annually, producer prices rose a slightly lower than anticipated rate of 1%.

Employment data from Germany showed that the number of unemployed people in Germany declined by 31,000 in March in contrast to the increase of 7,000 expected by economists. The jobless rate fell to a seasonally adjusted 8% in March from 8.1% in the previous month.

A flash estimate released by Eurostat showed that the euro zone’s annual inflation rate for March came in at 1.5% compared to the 1.1% rate forecast by economists. In February, the inflation was tamer at 0.9%. A separate report released by Eurostat showed that the euro area’s unemployment rate rose to 10% in February compared to 9.9% in January. In the year-ago period, the unemployment rate was at 8.8%.

U.S. Economic Reports

Private sector employment unexpectedly showed a continued decrease in March, according to a report released by payroll processor ADP, although the drop still marked the smallest since employment began falling in February of 2008.

ADP said non-farm private employment fell by 23,000 jobs in March following a revised decrease of 24,000 jobs in February. The loss of jobs surprised economists, who had expected an increase of about 40,000 jobs compared to loss of 20,000 jobs originally reported for the previous month.

The results of the Institute of Supply Management-Chicago's business survey for March are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 61.

The index rose to 62.6 in February from 61.5 in January, with the index reaching at its highest level since April 2005. The new orders index declined 4.2 points to 62.2, while the backlog orders index rose 4.2 points to 58.5. However, the inventories index and the employment index moved down 6.3 points and about 7 points to 42.4 and 53, respectively.

The Commerce Department is due to release its report on factory goods orders for February at 10 AM ET. Orders for manufactured goods are likely to have increased 0.5% in the month.

In January, factory goods orders rose 1.7% month-over-month following a 1.5% increase in December. Excluding transportation, new orders were up a mere 0.1%. Shipments, inventories and unfilled orders also showed increases in the month. Meanwhile the durable goods orders report for February released last week showed a 0.5% month-over-month increase, with the increase coming in almost in line with expectations for a 0.6% increase.

Excluding transportation, orders rose a healthy 0.9%. The previous month's order growth was upwardly revised to 3.9% from the previously published 2.6% increase. Inventories rose for a second straight month, while non-defense capital goods orders, excluding aircraft, also increased. Shipments of this category of goods also edged up in the month.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 26th at 10:30 AM ET.

The inventory report for the week ended March 19th showed a 7.3 million barrel increase in crude oil stockpiles to 351.3 million barrels. Oil inventories remained above the upper limit of the average range for this time of the year.

Gasoline stockpiles fell by 2.7 million barrels but were still above the upper limit of the average range. Distillate fuel stockpiles also declined, dropping by 2.4 million barrels, and remained above the upper boundary of the average range. Refinery capacity utilization averaged 81.1% over the four weeks ended March 19th, the same as in the previous week.

Atlanta Federal Reserve Bank President Dennis Lockhart is due to speak on the economic outlook to a business leaders lunch in Hartford, Connecticut, at 12:30 PM ET.

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Dollar General (DG) is expected to be in focus after it reported an adjusted profit of 51 cents per share for its fourth quarter compared to 25 cents per share last year. Sales rose 11.9% to $3.19 billion. Analysts estimated earnings of 43 cents per share on revenues of $3.10 billion. For 2010, the company expects 8%-10% sales growth, including 4%-6% same sales growth, and earnings per share of $1.55-$1.63. The consensus estimates call for sales growth of 9.8% and earnings of $1.56 per share for the year.

Peabody Energy (BTU) could be in focus after it said it has made a 3.3 billion Australian dollar or 15 Australian dollar per share offer for Australia’s Macarthur Coal. Subsequently, Macarthur, which late last year made an offer for Gloucester Coal Ltd. and has been negotiating with the latter’s largest shareholder Noble, announced that it has rejected Peabody’s proposal.

BJ Services (BJS) and Baker Hughes (BHI) are likely to see activity after the companies said they have reached a general understanding with the anti-trust division of the U.S. Department of Justice regarding divestitures that will be required as a condition for governmental approval of the pending merger between the two companies. Baker Hughes will have to divest two stimulation vessels and certain other assets used to perform sand control services in the U.S. Gulf of Mexico region.

Tesoro (TSO) may react to its announcement that Greg Goff has been elected as the company’s president and CEO, effective May 1st, 2010. He will replace Bruce Smith, who is retiring from both positions.

Chevron (CVX) could gain ground after it said an international arbitration tribunal has ruled in favor of the company in a claim against Ecuador related to past oil operations by its subsidiary Texaco Petroleum Co. The tribunal concluded that Ecuador violated the U.S.-Ecuador bilateral investment treaty and therefore is liable to pay $700 million in principal damages and interest as of December 22nd, 2006.

H.B. Fuller (FUL) traded higher in Tuesday’s after hours session after it reported that its first quarter adjusted net income rose to 38 cents per share from adjusted net income of 14 cents per share last year. Revenues climbed 11.1% to $309.4 million. Analysts estimated earnings of 28 cents per share on revenues of $295.6 million. The company expects 2010 net revenues to rise by 9% to 11%, while the consensus estimate calls for 5.3% growth.

SRA International (SRX) is expected to move to the upside after it announced that it has been awarded a blanket purchase agreement from the U.S. General Services Administration’s Federal Systems Integration and Management Center for SAP implementation across the U.S. Department of Agriculture. The company noted that the contract value is $500 million over a 7-year period.

Honeywell (HON) is likely to move in reaction to its announcement that it expects first quarter earnings of 45-49 cents per share, higher than its earlier estimate of 40-45 cents per share. The company attributed the optimism to stronger orders and sales in several short cycle end markets, including its Turbo Technologies and select Automation and Controls Solutions Products businesses, as well as cost controls. Analysts currently estimate earnings of 44 cents per share.

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