US & World Daily Markets Financial Briefing 03-06-2010

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Stocks Mostly Higher Following Slew Of Economic Data

Stocks are mostly trading on the upside in mid-morning trading on Thursday, as the markets are seeing subdued reaction to the day's largely upbeat economic data. Trading activity is relatively light ahead of tomorrow's landmark jobs report.

The Institute for Supply Management revealed that economic activity in the service sector expanded for the fifth consecutive month in May, with the pace of growth in the sector holding steady for the third straight month.

The index of activity in the service sector came in at 55.4 in May, matching the readings seen in both April and March. While a reading above 50 indicates continued growth in the sector, economists had expected the index to edge up to a reading of 55.6.

At the same time, the Commerce Department released data showing that factory orders increased by 1.2 percent in April following an upwardly revised 1.7 percent increase in March. Economists had expected orders to increase by 1.7 percent compared to the 1.3 percent increase originally reported for the previous month.

Earlier this morning, the Labor Department reported that initial jobless claims fell by 10,000 to 453,000 for the week, while economists had forecast the figure to come in at 450,000. Continuing claims, a statistic that measures the number of people receiving ongoing unemployment help, edged up to 4.666 million.

Separately, Automatic Data Processing, Inc. (ADP) reported that private sector employment increased by 55,000 jobs in May following an upwardly revised increase of 65,000 jobs in April. Economists had expected employment to increase by about 60,000 jobs compared to the increase of 32,000 jobs originally reported for the previous month.

Same-store sales figures for May from major U.S. retailers are also in focus today, as the markets attempt to further gain insight on the health of consumer spending. Saks (SKS) reported that May sales increased by 5.8 percent, while Nordstrom (JWN) sales rose by 3.7 percent and J. C. Penney (JCP) sales slid by 1.8 percent.

Earlier, Target (TGT) said its May sales rose by 1.3 percent, BJ's Wholesale Club (BJ) reported that its sales rose by 6.8 percent and Kohl's (KSS) said it sales increased by 3.5 percent.

Meanwhile, BP Plc (BP) continues its attempt to cap the ongoing oil spill in the Gulf of Mexico, which is now in its sixth week. The firm said it will now pay for sand barriers for the Louisiana coastal area to stem the spread of oil.

The major averages have seen some downside in recent dealing, pulling back well off of their highs for the session. The Dow is up 18.97 points or 0.2 percent at 10,268.51, the Nasdaq is up 7.74 points or 0.3 percent at 2,288.81 and the S&P 500 is up 1.82 points or 0.2 percent at 1,100.20.

Sector News

Health insurance stocks are some of the morning's best performers, driving the Morgan Stanley Healthcare Payor Index up by 1.3 percent. The upward move has boosted the index up to a one-month intraday high.

Transportation, utility and tobacco stocks are also seeing some strength, while selling pressure among steel, gold and commercial real estate stocks is limiting the upside for the markets.

Notably, the NYSE Arca Steel Index is down by 1.9 percent, pulling back off of yesterday's two-week closing high.

Stocks Driven By Analyst Comments

Alexion Pharma (ALXN) is posting a notable gain after being upgraded by analysts at Oppenheimer from Perform to Outperform. The stock has gained 2 percent, setting a three-week intraday high.

Charles Schwab (SCHW) is also on the upside after FBR Capital Markets upgraded the stock from Perform to Outperform. The broker also raised its target on the stock from $16 to $20. Shares are currently up by 1.3 percent after reaching a two-week intraday high in earlier dealing.

On the other hand, American Capital (ACAS) is sliding after being downgraded at Stifel Nicolaus from Hold to Sell. The stock has fallen by 8 percent and is heading back towards last month's two-month closing low.

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Bay Street stocks may open higher amid recovering energy prices and economic data from south of the border. Private employment in the U.S. increased for a fourth straight month and first time employment claims fell marginally.

Meanwhile, traders may turn cautious ahead of the release of May employment data for the U.S. and Canada on Friday.

On Wednesday, the S&P/TSX Composite Index gained 208.70 points or 1.80% to 11,780.67.

The price of crude oil moved up on hopes of demand pickup after recent data from the API and EIA revealed draw-downs in U.S. gasoline inventories. Crude for July added $0.23 to $73.09 a barrel.

The price of gold was lingering below the $1,220-mark amid a marginal recovery in the U.S. dollar. Gold for August edged down $3.6 to $1,219 an ounce.

In corporate news, TD Bank said it would issue of 3.52 million common shares at a price of C$71.00 per share to raise gross proceeds of C$250 million. The issue will qualify as Tier 1 capital for the company and the net proceeds would be used for general corporate purposes.

Agriculture and construction equipments dealer Rocky Mountain Dealership said it will buy certain assets of a form equipment dealership for about $2.5 million in a stock and cash deal.

Oil explorer Southern Pacific Resource was removed from the S&P/TSX Venture Composite Index after the close of trading on June 2 and graduate to TSX, under the same ticker symbol.

Software services provider Enghouse Systems reported improved second-quarter net income of C$0.07 per share, compared to net income of C$0.04 per share in the same quarter last year. The company declared a quarterly dividend of C$0.04 per share and also said it acquired intellectual property of Telrex LLC and Mettoni Inc.

Specialty pharmaceutical company BioSyent Inc. announced that it initiated a voluntary recall of all lots of the Ciprofloxacin Injection as a precautionary measure. Wednesday, the stock plummeted nearly 8% to C$0.060.

In economic news form the U.S., the Automatic Data Processing, Inc. said that non-farm private employment increased by 55,000 jobs in May following an upwardly revised increase of 65,000 jobs in April. Economists were expecting employment to increase by about 60,000 jobs compared to the increase of 32,000 jobs originally reported for the previous month.

In another report, the U.S. Labor Department said people filing first-time unemployment claims fell 10,000 to 453,000 last week. Meanwhile, continuing claims, a statistic that measures the number of people receiving ongoing unemployment help, edged up to 4.666 million.

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Indian Market Rallies

The Indian market rallied on Thursday mirroring strong global cues after upbeat economic data on the U.S housing market and car sales bolstered hopes of a sustained recovery in the world's largest economy.

An uptick in commodity prices and the strengthening of the Indian rupee against the dollar amid gains in the euro for a second straight session also helped lift sentiment.

The 30-share Sensex opened on a firm note, thanks to solid gains posted by the other Asian peers, and rose steadily to a high of 17,073 in late afternoon before paring its gain to end about 280 points or 1.7% higher at 17,022.

European stocks rallied between 1.4% and 2.2% to fresh two-week highs and futures on the Dow index were up 53 points, as investors look ahead to the weekly jobless claims report scheduled to be released later in the day before Friday's jobs report.

Closer home, the 50-share Nifty also jumped by 91 points or 1.8% and the broader market indexes such as BSE mid-cap and small-cap indexes closed up about a percent each. Gainers outnumbered decliners by 1905 to 931 shares on the BSE. Sector-wise, banking, telecom, oil/gas, IT, capital goods and auto stocks saw substantial gains.

Banking stocks rallied amid signs of pick up in credit demand. ICICI Bank, SBI, Bank of India, Punjab National Bank, IDBI Bank, Canara Bank, HDFC Bank, Axis Bank, Bank of Baroda, Yes Bank and Union Bank of India rose between 1% and 8%.


In the metal sector, Tata Steel edged up 0.35%, Hindalco Industries gained 2.3%, Sterlite Industries advanced 2.5% and Hindustan Zinc closed up 3.30%.

Among telecom stocks, Reliance Communication soared 6.37% on speculation over a likely deal with MTN or Etisalat. Bharti Airtel rose 1.22%, Idea Cellular gained 4.5% and Tata Teleservices added 2.75%.

Tata Motors, which started commercial production of the world's cheapest car Nano at Sanand on Wednesday, closed up over 3%. Other automakers such as Mahindra & Mahindra, Maruti Suzuki and Ashok Leyland rose by 1.5%-5.4%.

Heavyweight Reliance Industries rose about 2% amid reports that it may start work on a multibillion-dollar chemical plant. Drug maker Sun Pharma rose 1.05% after it turned down a third-party offer to buy out its stake in Israeli drug maker Taro for a higher price. Personal care products manufacturer Godrej Consumer Products rose 1.86% after it agreed to buy Argentinian hair care company Argencos.

United Phosphorus gained 1.14% after it bought DuPont's non-mixture mancozeb fungicide business. Shree Renuka Sugars fell over 2% after it proposed to renegotiate the terms of its acquisition of Brazilian company Equipav S.A. Acucar e Alcool.

In economic news, India's annual food inflation for the week ended May 22 rose to 16.55% from 16.23% in the previous week, driven by higher prices of pulses, fruits and vegetables, government data released on Thursday showed. The fuel group inflation for the week rose to 14.14% from 12.08% a week earlier.

Separately, business activity among Indian services firms expanded for the 13th straight month in May, although the momentum slowed compared to the previous month, a survey showed. The HSBC-Markit Purchasing Managers' Index (PMI), based on a survey of 400 firms, stood at 58.2 in May versus 62.1 in April, with a reading above 50 indicating expansion.

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The major European markets are advancing strongly on Thursday after the previous session’s marginal declines. The French CAC 40 Index and the German DAX Index are rising 2.08% and 1.57%, respectively, while the U.K.’s FTSE 100 Index is climbing 1.59%.

On the economic front, the Nationwide Building Society reported that the U.K.’s house prices rose 0.5% month-over-month in May following a 1.1% increase in April. House prices have risen in 12 of the past 13 months on a monthly basis, with the pace of growth consistent in almost all months.

The very low level of sales by historical standards suggests that a shortage of supply has pushed up prices. Since reaching a trough in February 2009 following a drop of 19.3% from their October 2007 peak, house prices have risen by 12.2% and are now just 9.5% below the October 2007 peak.

Services activity in France continued to expand in May, with Markit Economics’ services purchasing managers’ index rising to 61.4 from the month-ago’s 59.2. The U.K. service sector expanded for a thirteenth consecutive month in May, with the headline seasonally adjusted business activity index coming in at 55.4 in May, slightly higher than April's 55.3. Economists had expected a reading of 55.7.On the other hand, the German services purchasing managers’ index fell to 54.8 in May from 55.2 in April.

Separately, Eurostat reported that retail sales in the eurozone decreased by 1.2% in April compared with March. Economists had forecast a 0.1% increase in sales. In March, retail sales had risen 0.5%.

U.S. Economic Reports

The ADP National private Employment report showed that the private sector in the U.S. added 55,000 jobs in May, slightly lesser than the 60,000 job gains forecast by economists. ADP also said the estimated change in employment from March to April was revised to an increase of 65,000 from the 32,000 increase estimated earlier.

The service providing sector added 78,000 jobs, while the goods producing sector lost 23,000 jobs. Manufacturing employment rose for the fourth straight month and was up 23,000 in May.

Meanwhile, the Labor Department said the number of people filing first-time unemployment claims edged down last week, though the figure came in slightly above what economists were predicting.

Initial jobless claims fell 10,000 to 453,000 for the week. Economists had expected claims to be around 450,000. Continuing claims, a statistic that measures the number of people receiving ongoing unemployment help, edged up to 4.666 million.

The Labor Department’s revised first quarter productivity report showed that non-farm productivity was downwardly revised to 2.8% from the 3.6% rate estimated initially. Economists had expected a more modest downward revision to 3.3%.

Additionally, unit labor costs fell by 1.3%, less severe than the 1.6% drop estimated earlier. The revision surprised economists, who had expected the drop in labor costs to be unrevised.

The Commerce Department is due to release its report on factory goods orders for April at 10 AM ET. Orders for manufactured goods are likely to have increased 1.7% in the month.

In March, new orders for manufactured durable goods rose 1.3%. Meanwhile durable goods orders for April, released last week, showed a 2.9% month-over-month increase. Durable goods orders make up the bulk of orders made for factory goods. On the other hand, excluding transportation, durable goods orders fell 1% compared to the 0.7% increase estimated by economists. Non-defense capital goods orders, excluding aircraft, fell 2.4% following strong gains in the two previous months.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 55.6 for May.

The non-manufacturing index remained unchanged at 55.4 in April, while economists expected a modest increase to 56. The employment index eased 0.3 points to 49.5, with the index continuing to languish below the '50' level since December 2007. The new orders index slipped 4.1 points to 58.2, while the business activity index rose slightly to 60.3.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 28th at 10:30 AM ET.

The oil inventory report for the week ended May 21st showed a 2.4 million barrel increase in crude oil stockpiles to 365.1 million barrels. Inventories remained above the upper limit of the average range for this time of the year.

Gasoline inventories fell by 0.2 million barrels but remained above the upper limit of the average range. Distillate fuel inventories also declined, dropping by 0.3 million barrels, and were above the upper boundary of the average range. Refinery capacity utilization averaged 88.4% over the four-weeks ended May 21st compared to 88.7% in the previous week.

Kansas City Federal Reserve Bank President Thomas Hoenig is due to speak to the Bartlesville (Oklahoma) Chamber of Commerce at 1:15 PM ET.

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Alaska Air Group (ALK) may be in focus after it announced monthly traffic results for its subsidiaries Alaska Airlines and Horizon Air. Alaska’s traffic rose 10.7% and its capacity increased 4.6% in May, resulting in a 4.6-point increase in load factor to 81.4%. Meanwhile, Horizon’s load factor improved by 1.4 points to 73.1%.

Copart (CPRT) is likely to see some activity after it announced that its third quarter revenues rose 11.7% year-over-year to $220.3 million. The company reported income from continuing operations of 52 cents per share compared to 48 cents per share last year. Analysts estimated earnings of 50 cents per share on revenues of $207.53 million.

ABM Industries (ABM) could move in reaction to its announcement that its second quarter revenues remained almost flat at $855.5 million. The company’s adjusted earnings from continuing operations fell to 23 cents per share from 32 cents per share last year. The consensus estimates had called for earnings of 26 cents per share on revenues of $867.27 million. For the full year, the company estimates adjusted earnings from continuing operations of $1.35-$1.45 per share, while analysts estimate earnings of $1.36 per share.

AstraZeneca (AZN) is likely to see some activity its unit MedImmune announced that a FDA committee has voted 14 to 3 to recommend that MedImmune’s motavizumab should not be licensed for marketing regarding the prevention of serious respiratory syncytial virus disease in high-risk infants.

Hovnanian Enterprises (HOV) may also be in focus after it announced that its second quarter revenues fell to $318.6 million from the year-ago’s $398 million. However, the company’s loss narrowed significantly to 36 cents per share from $1.50 per share in the year-ago period. Analysts estimated a loss of 64 cents per share on revenues of $351.95 million.

Cephalon (CEPH) could come under selling pressure after it announced that the primary endpoint was not met in a Phase II clinical trial with NUVIGIL tablets as an adjunctive therapy for the treatment of the negative symptoms of schizophrenia.

Immucor (BLUD) is expected to see some activity after it forecast 2011 revenues of $345 million to $355 million and full year earnings of $1.23-$1.29 per share, up 8%-11% from its 2010 guidance range of $1.14-$1.16 per share. Analysts estimate earnings of $1.26 per share on revenues of $354.37 million.

Coldwater Creek (CWTR) could also be in focus after it reported that its first quarter net sales rose to $243.1 million from $228.4 million last year. The company reported net income of 3 cents per share compared to a loss of 8 cents per share last year. The consensus estimates called for a loss of 4 cents per share on revenues of $246.16 million.

For the full year, Coldwater Creek estimates earnings of 8-12 cents per share, while it continues to expect a loss for the second quarter, although an improvement from the year-ago loss of 5 cents per share. Analysts estimate break-even results for the second quarter and a profit of 6 cents per share for the year.

SonicWALL (SNWL) is expected to see heightened activity after it announced that it has agreed to be acquired by an investor group led by Thoma Bravo in a deal valued at $717 million.

Among retailers, Zumiez (ZUMZ) reported that its May comparable store sales rose 7.1% year-over-year. Teen retailer Hot Topic (HOT) said its same store sales for May were down 9% on top of the 6.4% drop in the year-ago period. Costco Wholesale (COST) reported a 9% increase in comparable store sales in May compared to the year-ago period.

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