US & World Daily Markets Financial Briefing 02-09-2009

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Economic Fears to Cast Shadow on Markets

The major U.S. index futures are pointing to a moderately lower opening on Wednesday. The release of the ADP’s unemployment report, which showed a bigger than expected decline in jobs, led to the futures squandering all their early gains. The Asian and the European markets suffered losses in Wednesday’s session, relaying the shaky confidence that the markets have been mustering following the release of some strong economic readings.

Energy prices may be important in the session, given the scheduled release of the weekly inventory later in the day. The markets may also closely watch the FOMC minutes as they attempt to decipher the nuances of the discussions among the committee members.

Although stocks climbed into positive territory after a weak start on Tuesday, encouraged by the fairly upbeat economic reports, they succumbed to weakness in the financial space. Consequently, the major averages all ended down about 2%.

The Dow Industrials fell 185.68 points or 1.96% to close at 9,311. Meanwhile, the Nasdaq Composite ended down 40.17 points or 2% at 1,967 compared to a 22.58 point or 2.21% drop by the S&P 500 Index to 998.

Twenty-nine of the thirty Dow components ended the session lower, with only Wal-Mart Stores (WMT) bucking the downtrend with a 0.20% gain. Bank of America (BAC) slid 6.42%, American Express slumped 5.44% and JP Morgan Chase (JPM) lost 4.12%. General Electric (GE) (down 4.03%) and Alcoa (AA) (down 3.82%) were among the other notable decliners.

Among the sector indexes, the NYSE Arca Airline Index fell 5.03%, the NYSE Arca Biotechnology Index moved down 2.57% and the Philadelphia Housing Sector Index declined 3.66%. The NYSE Arca Securities Broker/Dealer Index tumbled 5.36% compared to a 5.78% drop by the KBW Bank Index.

The Philadelphia Semiconductor Index receded 2.46%, the NYSE Arca Disk Drive Index declined 3.16% and the NYSE Arca Computer Hardware Index ended down 2.17%. The NYSE Arca Internet Index lost 2.42% and the NYSE Arca Networking Index slipped 2.91%.

However, treasury prices rose on Tuesday, pushing the yield on the 10-year note by 2.6 basis points to 3.375%.

On the economics front, the Institute for Supply Management’s manufacturing index rose to 52.9 in August from 48.9 in July, with the reading showing an expansion for the first time in a year and a half. Economists had estimated a reading of 50.5. . Eleven of the eighteen manufacturing industries showed expansion. The new orders index climbed to 64.9, its highest level since the end of 2004, and the production index rose 4 points to 61.9. Jumping 10 points to 65, the prices paid index moved to its highest reading in a year.

According to ISM, the August reading is consistent with an annual rate of real GDP growth of 3.7%. That said, the positive impact of the cash for clunkers-induced auto sales on orders and production creates some uneasiness due to the fact that auto sales may suffer in the coming months due to a pay back phenomena.

The National Association of Realtors said its pending home sales index rose 3.2% in July compared to the previous month, marking the sixth straight month of growth. The index, considered a leading indicator for existing home sales, should bode well for the measure.

Meanwhile, construction spending in July declined 0.2% month-over-month, in line with expectations. Spending on single-family home building climbed 7%, marking the sharpest advance since 1983, while multi-family construction spending declined 3.3%.

Private construction spending edged up 0.1% compared to a 0.7% drop in public construction spending. Going by the report and the downward revisions to the previous month’s numbers, it is likely that the second quarter GDP will be revised down by 0.1%. Additionally, the recent rebound in single-family construction spending may lead to a turnaround in residential construction, which has been acting as a drag on growth in each of the past 14 quarters.

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Canadian stocks could fall for a third straight session on Wednesday after a disappointing jobs report from the U.S. European stocks are also notably lower and U.S. futures are pointed down.

MDS Inc. said Wednesday that it will sell its MDS Analytical Technologies business to Danaher Corp. (DHR) for $650 million in cash. In addition, MDS said it now expects to report second-quarter net revenues of about $208 million versus previously reported net revenues of $257 million.

Superior Plus Corp. said it agreed to acquire certain assets which make up a retail heating oil and propane distribution business from Sunoco for an aggregate purchase price of about US$82.5 million in cash plus working capital.

Bombardier reported second-quarter net income of US$202 million, compared to restated earnings of US$259 million last year. Earnings per share declined to US$0.11 from restated earnings of US$0.14 a year ago.
 
Rogers Communications announced that it has agreed to purchase for cancellation 1.8 million of its outstanding Class B Non-Voting shares, or about 0.36% of the Class B shares outstanding on August 31.

Crude oil rose 13 cents to $68.18 per barrel and gold gained $8.50 to $965.00 per ounce. On the downside, copper fell 5.15 cents to $1.8272.

Across the border, Automatic Data Processing said that non-farm private employment fell by 298,000 jobs in August following a revised decrease of 360,000 jobs in July. Economists had expected a decrease of about 246,000 jobs compared to the loss of 371,000 jobs originally reported for the previous month.

On Tuesday, the S&P/TSX Composite Index fell 178.43 points or 1.64% to settle at 10,689.78. The market fell about 1% on Monday.

Crude oil moved into negative territory on Wednesday as a disappointing employment report added to recent demand worries. Investors awaited the government's inventory report later this morning.

Light sweet crude for October delivery fell to $67.62 per barrel, down 44 cents on the session. Prices had reached as high as $68.80 before later falling as low as $67.21.

Automatic Data Processing said that non-farm private employment fell by 298,000 jobs in August following a revised decrease of 360,000 jobs in July. Economists had expected a decrease of about 246,000 jobs compared to the loss of 371,000 jobs originally reported for the previous month.
 
The Energy Information Administration report will be released at 10:30 a.m. ET. Experts are looking for a drop of about 1.9 million barrels in the week ended August 28. Gasoline supplies are forecast to drop 1.4 million barrels and distillates are predicted to decline 600,000.

American Petroleum Institute reported late yesterday afternoon that crude oil stockpiles dropped 3.19 million barrels in the week ended August 28. The API and EIA reports move in the same direction about 75% of the time.

Light sweet crude for October delivery fell $1.91 on Tuesday after losing $2.78 on Monday.

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Asian Markets Drift Lower On Wall Street Cues

The Asian markets ended in the negative territory on Wednesday following weak cues from Wall Street where the major indices ended sharply lower despite better-than-expected economic data. Except the markets in China and Taiwan, all the other major markets ended in the negative territory. Traders preferred to lock in gains and move to the sidelines as the rally seems to be losing steam.

In Japan, the benchmark Nikkei 225 Index ended at 10,280, representing a loss of 249.60 points, or 2.40%, while the broader Topix index of all first section stocks fell 18.96 points, or 2%, to 949.

On the economic front, the Bank of Japan stated that the monetary base in the country rose 6.1% year-over-year in August to 93.3 trillion yen. Banknotes in circulation were up 0.5% on year, while coins in circulation eased 0.2% year-over-year.. Current account balances surged 64.6% on year, including a 56.2% reserve balance. Seasonally adjusted, the monetary base climbed 3.6% to 94.19 trillion yen - up from 93.91 trillion yen in July.

Financial stocks led the decline on concerns about the pace of recovery in the global economy. Mitsubishi UFJ Financial declined 2.52%, Mizuho Financial slumped 3.10%, Resona Holdings lost 1.26% and Sumitomo Mitsui Financial fell 2.74%.

Energy stocks also ended weaker following drop in crude oil prices in the international market on Tuesday. Nippon Oil Corp fell 2.22%, Nippon Mining Holdings lost 2.77% and Showa Shell lost 2.65%.

On the economic front, the Australian Bureau of Statistics revealed that the economy grew at a faster than expected pace in the second quarter, reflecting the recent optimistic outlook for the country's economy. The GDP rose a seasonally adjusted 0.6% on quarter in the second quarter, compared to the 0.4% growth reported in the first quarter. Economists had expected a more modest 0.2% growth. On a yearly basis, GDP was up 0.6% in the second quarter, exceeding analysts' expectation of a 0.3% increase.

Energy stocks declined the most following the sharp pull-back in crude oil prices in the international market on Tuesday. Woodside Petroleum declined 2.68%, Santos fell 2.15%, Oil Search slumped 3.48% and Origin Energy lost 2.71%.

Banks declined on expectations of interest rate hike following better than expected GDP numbers for the second quarter. ANZ Bank lost 3.73%, Commonwealth Bank of Australia declined 1.73%, National Australia Bank fell 3.05% and Westpac Banking shed 2.33%.

Metals and mining stocks also ended in negative territory following drop in commodity prices in the international market on Tuesday. BHP Billiton fell 1.74%, Fortescue Metals slumped 3.49%, Gindalbie Metals lost 2.48%, Oz Minerals shed 3.76% and Rio Tinto declined 2.20%.
 
Mixed trading was witnessed among the gold stocks. While Lihir Gold managed to end in positive territory with a modest gain of 0.72%, Newcrest Mining shed 0.57% and Sino Gold Mining declined 1.57%.

In Hong Kong, the Hang Seng Index ended in the negative territory with a loss of 350.30 points, or 1.76% at 19,522, following Wall Street cues where the major indices ended sharply lower despite positive economic data. Concerns about valuations of the stocks and sustainability of the recovery amid weak economic fundamentals made the traders pause for profit taking and move to sidelines awaiting further cues. Of the 42 components in the index, as many as 35 stocks ended in the negative territory.

In South Korea, the benchmark KOSPI Index ended at 1,613, down 9.90 points, or 0.61% as institutional investors dumped shares of blue-chips following cues from Wall Street where the major indices ended sharply lower despite positive economic data. Valuation concerns and worries about loss of steam in the rally impacted market sentiment.

The Indian market ended lower for the third straight session with relatively minor losses on Wednesday as weak opening of the European markets for the third straight session on renewed worries about the balance sheets of U.S. banks and apprehensions about stretched valuations weighed on market movement. The BSE Sensex ended at 15,467, down 84 points or 0.54% from its previous close, and the S&P CNX Nifty fell 17 points or 0.37% to 4,608.

Among the other major markets in the region, China's Shanghai Composite Index gained 1.16% or 31.25 points, to 2,715, and Taiwan's Weighted Index added 20.02 points, or 0.29% to close at 7,040. Indonesia's Jakarta Composite Index ended in the negative territory with a loss of 40.99 points, or 1.76% at 2,286 and Singapore's Strait Times Index lost 26.46 points, or 1.02% to close at 2,570.

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The major European markets are moving moderately lower, as weakness among bank stocks has generated selling pressure following the steep losses seen in the previous session. The French CAC 40 Index is receding 1.19% compared to a 1.03% drop by Germany’s DAX Index. At the same time, the U.K.’s FTSE 100 Index is moving down 0.67%.

On the economic front, Eurostat confirmed its flash estimate of second quarter GDP, which showed that the economy contracted 0.1% sequentially in the second quarter. On a year-over-year basis, GDP declined 4.7%, an upward revision from the 4.9% decline estimated earlier. In a separate report, Eurostat said the euro area’s producer price index fell 8.5% year-over-year in July compared to a 6.5% drop in the previous month. Economists estimated an 8.4% decline in prices. On a monthly basis, producer prices eased 0.8% following a 0.4% drop in June.

Meanwhile, a report released by Markit Economics and the Chartered Institute of Purchasing & Supply showed that their construction purchasing managers’ index came in at 47.7 in August, marking the slowest pace of contraction in 18 months.

U.S. Economic Reports

The ADP National Employment report, which sheds light on non-farm private employment, showed a loss of 298,000 jobs in the sector in August. Economists had expected the sector to have lost 246,000 jobs.

ADP noted that the month’s employment decline was the smallest since the September of 2008. Employment in the goods producing sector declined 152,000, with manufacturing employment falling 74,000, marking the smallest monthly decline since July 2008.

The final second quarter non-farm productivity report released by the Labor Department showed a 6.6% increase in productivity compared the previous quarter. Economists had expected a more modest 6.4% increase for the quarter. The reading represented an upward revision to the 6.4% increase originally reported.

ADP noted that the month’s employment decline was the smallest since the September of 2008. Employment in the goods producing sector declined 152,000, with manufacturing employment falling 74,000, marking the smallest monthly decline since July 2008.

The final second quarter non-farm productivity report released by the Labor Department showed a 6.6% increase in productivity compared the previous quarter. Economists had expected a more modest 6.4% increase for the quarter. The reading represented an upward revision to the 6.4% increase originally reported

Unit labor costs fell 5.9% sequentially, while output as well hours worked declined 1.5% and 7.6%, respectively.

The Commerce Department is due to release its report on factory goods orders for July at 10 AM ET. Orders for manufactured goods are likely to have increased 2.2% in the month.

A report on durable goods orders, which make up the bulk of factory goods orders, showed a 4.9% month-over-month increase in orders for July, with the climb better than the 3% growth expected by economists. The increase was mainly due to a 107.2% jump in orders for non-defense aircraft and a 0.9% increase in orders for vehicles and parts. Excluding transportation, new orders were up 0.8%. Non-defense capital goods orders, excluding aircrafts, a measure of capital spending fell 0.3% following increases in each of the two previous months. Shipments of durable goods rose 2%, while inventories fell by 0.8%.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

The previous weekly oil inventory data showed that crude oil stockpiles rose by 0.2 million barrels to 343.8 million barrels in the week ended August 21st. Inventories of crude oil were above the upper boundary of the average range.

Distillate stockpiles rose by 0.8 million barrels and remained above the upper boundary of the average range. Meanwhile, gasoline inventories fell by 1.7 million barrels, but they were still in the upper half of the average range. Refinery capacity utilization averaged 84% over the four weeks ended August 21st, even with the previous level.

The Federal Reserve is scheduled to release the minutes of its August 11th-12th meeting at 2 PM ET.

While toeing along the expected lines with respect to interest rates at its August meeting, the FOMC said in its post-meeting policy statement that economic activity is leveling out, an improvement from its previous opinion that the pace of contraction is slowing. There weren't any major changes to the references the committee made towards other measures.

Regarding its Treasury securities purchasing program, the central bank said the committee would gradually slow the pace of these transactions. The central bank anticipates the full amount of $300 billion to be purchased by the end of October. The FOMC reiterated its commitment to retain interest rates at exceptionally low levels for an extended period.

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Danaher may see weakness after it announced that it has signed a definitive agreement with MDS (MDZ) to acquire its Analytical Technologies division. The purchase will fetch Danaher a 50% stake in a joint venture between Applied Biosystems/MDS Sciex, a mass spectrometry business, and a 100% stake in the former Molecular Devices Corp. The company noted that the aggregate purchase price for the combined transaction is $1.1 billion, including assumed debt and net of cash. The company also announced restructuring activities, including the elimination of 3,000 jobs.

Take-Two  may react to its announcement that its third quarter loss was 66 cents per share on an adjusted basis. Revenues fell 68% year-over-year to $138.6 million. Analysts expected a loss of 68 cents per share on revenues of $125.3 million. The company expects a full year loss of 81-87 cents per share on revenues of $975 million to $1 billion. The consensus estimates call for a loss of 89 cents per share on revenues of $983.56 billion. Separately, the company announced that it has settled a class action lawsuit concerning allegations of the purported “Hot Coffee” content in the company’s Grand Theft Auto: San Andreas title and historical stock option granting practices. The settlement agreement calls for payment of $20.11 million into a settlement fund, of which $15.20 million will be paid by the company’s insurers and $4.92 million by the company.

Continental Airlines is likely to be in focus after it reported that its August load factor rose 1.9 percentage points to 85.8%. Traffic as measured by revenue passenger miles declined 3.9% year-over-year and capacity, as measured by available seat miles slipped 6%.

Tidewater could be in focus after it announced that it has reached an agreement with Aquanos AS for the purchase of Aquanos Enabler, a multi-purpose light construction vessel. The company noted that the vessel with a 100 ton active heave compensating crane, accommodation for 69 persons, firefighting equipment and a helideck is to be delivered in January 2010.

Bristol-Myers is likely to react to its announcement that it has completed its previously announced $2.4 billion acquisition of Medarex. Meanwhile, EMC could see some activity after it announced that it would acquire identification and classification software maker Kazeon Systems. The company expects the deal to be completed in the third quarter.

Donaldson could be in focus after it said its fourth quarter earnings fell to 30 cents per share from 60 cents per share last year. On an adjusted basis, the company’s earnings were 35 cents per share. Revenues fell to $421.3 million from the year-ago’s $607.4 million. Analysts, on average, estimated earnings of 30 cents per share on revenues of $407.5 million. For 2010, the company estimates adjusted earnings of $1.44-$1.64 on revenues of $1.65 billion to $1.75 billion. The consensus estimates call for earnings of $1.65 per share on revenues of $1.8 billion.

Applied Signal Technology may see weakness after it reported that its third quarter earnings of 25 cents per share trailed the 26 cents per share consensus estimate. Revenues fell to $49.5 million from $49.9 million, below the mean analysts’ estimate of $53.6 million.

ADC Telecommunications is expected to be in focus after it announced that its third quarter earnings from continuing operations fell to 6 cents per share compared to 11 cents per share in the year-ago period. On an adjusted basis, earnings from continuing operations were 17 cents per share. Net sales fell to $283.4 million from the year-ago’s $381.8 million.

CA, Inc. is also likely to be in focus after it announced that its CEO John Swainson would retire at the end of the year. The company also said Swainson would retire earlier if a successor is found before that time.

Verifone could move in reaction to its announcement that it posted a third quarter profit of 26 cents per share compared to a loss of 9 cents per share last year, even as revenues fell to $211.2 million from $258.7 million. Analysts estimated revenues of $202.2 million. For the full year, the company estimates adjusted earnings of 83-85 cents per share on revenues of $835 million to $842 million. The consensus estimates call for earnings of 70 cents per share on revenues of $821.3 million.

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