US & World Daily Markets Financial Briefing 06-05-2009

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Comforting Jobs Data May Reinforce Recovery Hopes

The major averages have moved roughly sideways in recent trading, stuck on opposite sides of the unchanged line. While the Nasdaq is currently down 14.61 at 1,739.51, the Dow is up 22.30 at 8,432.95 and the S&P 500 is up 2.93 at 906.73.

The major U.S. index futures are pointing to a modestly higher opening on Wednesday. The futures, which were earlier weighed down by the news that Bank of America may have to raise about $34 billion in new capital, have turned higher after the ADP employment report showed that the private sector in the U.S. lost a fewer jobs than anticipated. Market sentiment may also stay focused on the stress test results of the banks to be released later in the day.

After seeing some indecision in Tuesday’s early trading, U.S. stocks moved decisively into negative territory, as traders did some profit taking due to apprehensions about the bank stress test results. Thereafter, the major averages remained below the unchanged line before recouping some of their losses in late trading.

The Dow Industrials ended down 16.09 points or 0.19% at 8,411 and the Nasdaq Composite fell 9.45 points or 0.54% to 1,754, while the S&P 500 Index receded 3.44 points or 0.38% to 904.

Dow components Alcoa, American Express, Intel, JP Morgan Chase, Microsoft and Procter & Gamble (PG) were all down about 2% each. On the other hand, Kraft Foods climbed 3.98% in reaction to its earnings. Bank of America and Citigroup gained 4.43% and 3.44%, respectively. Caterpillar, Boeing, General Motors and Pfizer were among the other notable gainers.

Among the sector indexes, the KBW Bank Index ended down 1.60% and the Amex Oil Index fell 1.14%. The Philadelphia Semiconductor Index receded 1.33% compared to a 2.14% decline by the Amex Disk Drive Index. On the other hand, the Amex Airline Index rallied 4.88% and the Amex Internet Index rose 1.88%.

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Canadian Building Permits Jump 23.5% in March

Canadian contractors took out $4.5 billion in building permits in March, up 23.5% from February, halting five consecutive monthly declines, according to Statistics Canada. March's increase came mainly from the non-residential sector in Ontario, Quebec and Alberta.

Intentions in the non-residential sector rose 47.9% to $2.3 billion, in the wake of increases in the commercial and institutional components in Ontario, Quebec and Alberta.

In the residential sector, the value of permits advanced 5.0% to $2.2 billion. This increase was the result of higher construction intentions in both multi-family and single-family permits.
 
Following a 30.0% decrease in February, the value of the non-residential sector increased in six provinces, mainly as a result of gains in the commercial and institutional components.

In the commercial component, the value of permits increased 45.6% to $1.4 billion. This increase came mostly from higher construction intentions for office buildings in Ontario.

Permits in the institutional component increased 89.2% to $722 million, following a 54.2% decline in February. This increase was largely the result of higher construction intentions for medical buildings in British Columbia and government and education buildings in Ontario.

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The major European markets are trading higher on Wednesday, with the French CAC 40 Index and the U.K. FTSE 100 Index rising 2.32% and 1.64%, respectively, while the German DAX Index is advancing 1.34%. The strength visible in the markets is primarily due to the banks being able to sustain their positive momentum despite the uncertainty surrounding the financial sector.

A report released by the Eurostat showed that retail sales fell a record 4.2% year-on-year in March. Economists had expected a 2.6% drop after a 4% decline in February. On a monthly basis, sales were down 0.6% after a revised 0.3% contraction in February.

Shop price inflation in Great Britain contracted in April compared to March, while inflation in food prices eased for the first time this year, according to the survey results of the British Retail Consortium. BRC’s shop price index declined 0.5 percent month-over-month in April following a 0.4% increase in March.

Meanwhile, the Nationwide Building Society said that household confidence in the U.K. rose at the fastest pace in almost two years in April as global equity markets showed strong recovery and the country's housing market displayed some tentative signs of improvement. The consumer confidence index rose eight points to 50 in April, marking the largest single monthly rise in nearly two years. Economists had expected a slight increase to 43 from 42 in March.

U.S. Economic Reports
Private sector employment showed another notable decline in the month of April, according to a report released by Automatic Data Processing, although the decrease in jobs was much smaller than economists had expected.

The report showed that non-farm private employment fell by 491,000 jobs in April following a revised decrease of 708,000 jobs in March. Economists had expected a decrease of 645,000 jobs compared to the loss of 742,000 jobs originally reported for the previous month.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 1st at 10:30 AM ET.

The report for the week ended April 24th showed that crude oil inventories rose by 4.1 million barrels to 374.7 million barrels and were above the upper half of the average range.

Distillate inventories increased by 1.8 million barrels and were above the upper boundary of the average range. Notwithstanding a 4.7 million barrel-decline in gasoline stockpiles, they stayed in the upper half of the average range. Refinery capacity utilization averaged 82.1% over the four-weeks ended April 24th compared to 81.8% in the previous week.

San Francisco Federal Reserve Bank President Janet Yellen is scheduled to speak via satellite at an Australian Business Economists meeting in Sydney at 5:30 PM ET.

Earnings

R.R. Donnelley said its first quarter earnings fell to 7 cents per share from 85 cents per share last year. On an adjusted basis, the company reported a profit of 24 cents per share compared to 69 cents per share last year. Analysts estimated earnings of 38 cents per share.

Devon Energy reported a loss of $8.92 per share for the first quarter compared to earnings of $1.66 per share in the year-ago period. On an adjusted basis, the company reported a profit of 48 cents per share.

Transocean said its first quarter net income attributable to controlling interest was $2.93 per share compared to $3.58 per share last year, as revenues rose slightly to $3.12 billion from $3.11 billion last year. The recent quarter’s results included charges amounting to 82 cents per share. Analysts’ estimates, which typically exclude one-time items, call for earnings of $3.51 per share on revenues of $3.10 billion.

Garmin reported a profit of 24 cents per share, lower than 67 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 25 cents per share. Sales fell 34% to $437 million. The consensus estimates called for earnings of 42 cents per share on revenues of $531.6 million.

Marsh & McLennan said its first quarter profits were 33 cents per share compared to a loss of 40 cents per share last year. On an adjusted basis, the company reported a profit of 40 cents per share. Revenues fell 13% to $2.63 billion. The consensus estimates had called for earnings of 43 cents per share on revenues of $2.95 billion.

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Asian stocks closed mixed on Wednesday, as investors took a breather after recent strong gains. While better-than-expected corporate results and economic indicators encouraged investors do some stock-specific buying, the underlying mood remained cautious ahead of the release of U.S. bank stress test results. Reports that Bank of America will need an additional $35 billion in new capital kept investor sentiment subdued. The Japanese market was closed for a public holiday.

The Australian market closed lower, as investors cut their long positions ahead of the release of bank stress tests results on Thursday. The benchmark S&P/ASX200 closed at 3,867, down 23 points or 0.6% and the broader All Ordinaries index fell 22 points or 0.57% to 3,840.

In the resources sector, BHP Billiton fell 1.68%, its rival Rio Tinto declined 2.63% and Iluka Resources closed down 0.85% after copper futures for July delivery dropped 2.9% to $2.0825 a pound. Gold miner Lihir Gold slipped 0.34% after saying that it has its sights fixed on producing more than 1.5 million ounces of the precious metal annually in coming years.

Oil and gas supplier Santos declined 2.19% even as it maintained its production guidance for 2009. Woodside Petroleum also closed down 0.31%, but Oil Search edged up 0.38%.

In the banking sector, Westpac Banking added 2.36% despite reporting a 15% drop in its first-half profit. National Australia Bank rose 0.55% and ANZ gained 0.54%, but Commonwealth Bank slipped 0.55% and investment bank Macquarie Group fell 2.49%.

Department store chain David Jones lost 1.20% after the company reported a 9.2% fall in its third-quarter sales. Woolworths slipped 0.34%, Wesfarmers, which owns Coles, tumbled 5.38% and Harvey Norman Holding fell 3.90%.

The South Korean market fell modestly on profit taking after remaining closed on Tuesday for a public holiday. While foreign funds extended their buying spree for the fourth day in a row, domestic institutions locked in profits from recent gains.

The benchmark KOSPI closed at 1,393, down 4 points or 0.32% and volume was significant at 727.7 million shares worth 9.66 trillion won (US$7.56 billion). Gainers outnumbered losers by 412 to 405.

Steel maker POSCO gained 2.60% on hopes of seeing an improvement in demand in China. Among shipbuilders, Hyundai Heavy Industries gained 1.21% and Samsung Heavy Industries closed up 0.48%, but Daewoo Shipbuilding moved down 0.42%

Ssangyong Motor surged up nearly 15% after a study of Ssangyong's value by Samil Pricewaterhouse Coopers showed that the company could be rescued. On the other hand, Hyundai Motor and Kia Motor closed unchanged.

Among other notable stocks, technology stock Hynix Semiconductor drifted down 1.34%, market heavyweight Samsung Electronics fell 2.92%, energy stock KEPCO tumbled 3.71%, oil stock SK declined 1.65% and telecom stock KT fell 1.87%, while
LG Electronics closed flat.

The Chinese market extended its upward momentum for the fifth straight day, led by banking and coal stocks. The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, closed at 2,593, up 25 points or 0.98% after moving in a range of 2,597-2,553.

Hong Kong’s Hang Seng Index, which showed weakness in the morning, recovered thereafter. The buying interest picked up significantly in the afternoon, with the Hang Seng Index closing up 404.49 points or 2.46% at 16,835.
Thirty-one of the forty-two index components ended the session higher, with HSBC Holdings leading the way with a gain of more than 6%. Financial and property stocks were responsible for much of the upside.

The Indian market was choppy due to a significant amount of profit taking following mixed global cues and uncertainty on the political front. The benchmark BSE Sensex was last trading at 11,953, down 178.33 points or 1.47% compared to the previous close.

Among the other markets in the region, Singapore's STI Straits Times index surged up 5.19% and Taiwan's TWII Weighed index advanced 2.93%.

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Gold Higher For Third Straight Day

Gold has headed higher on Wednesday on a strong morning across the board for commodities. The metal is up for a third straight session after a sharp drop last week.

June-dated gold climbed to $906.70, up $3.10 on the session. The metal hit as high as $912.80 in the early going. For the week, gold is up about $20.

The dollar fell against most of the other majors on Wednesday in New York, giving back last night's gains against both the euro and sterling. Usually, gold moves opposite the greenback because of the precious metal's hedge appeal.

On the economic front, the Automatic Data Processing report showed that non-farm private employment fell by 491,000 jobs in April following a revised decrease of 708,000 jobs in March. Economists had expected a decrease of 645,000 jobs compared to the loss of 742,000 jobs originally reported for the previous month.

The employment report was the first of three this week. The weekly initial jobless claims report is expected tomorrow while the Labor Department's monthly employment report due to be released on Friday.
 
Economists currently expect the Labor Department report, which includes government jobs, to show that employment fell by 620,000 jobs in April following a decrease of 663,000 jobs in March. The unemployment rate is expected to rise to a fresh 25-year high of 8.9 percent.

Traders also await the release of the results of the government's stress tests of leading financial institutions after the close of trading on Thursday.

The metal pared most of its daily gains Tuesday but still closed in positive territory for a second straight day. June-dated gold finished at $904.30 per ounce, a gain of $2.10 for the session. Prices touched as high as $916.70 earlier in the day.

The price of gold gained $14 on Monday and topped the $900 an ounce mark again. The metal's hedge appeal was boosted by a weaker dollar as traders turned to higher-yielding currencies

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Disney may move to the upside after it reported that its second quarter adjusted net income came in at 43 cents per share, above the 40 cents per share consensus estimate. Revenues declined 7% to $8.09 billion, slightly lower than the mean analysts’ estimate of $8.15 billion.

Dean Foods is likely to be in focus after it announced that it has priced its public offering of 22.5 million shares at $18.25 per share. The company expects to collect net proceeds of $394 million, which it intends to use for the repayment of its $122.8 million in senior notes due May 15th and to pay off debt under a receivables-backed agreement.

PepsiCo. may see buying interest after it said its board has authorized a 6% increase in its annual dividend to $1.80 per share. Pioneer Natural Resources is expected to move in reaction to its first quarter results, which showed a loss of 13 cents per share compared to a profit of $1.07 per share. Revenues fell 17.3% to $484.2 million. On an adjusted basis, the company reported a loss of 2 cents per share. Analysts, on average, estimated a loss of 26 cents per share on revenues of $349.2 million.

Jack Henry & Associates may also be in focus after it reported third quarter revenues of $180.4 million, down from $187.5 million last year. Notwithstanding a modest dip in net income, earnings per share remained flat at 30 cents per share. Analysts estimated earnings of 31 cents per share on revenues of $193.10 million.

D.R. Horton could react to its announcement that it intends to offer about $400 million in aggregate amount of convertible senior notes due 2014. The company said it would use the net proceeds for general corporate purpose, including repayment or repurchase of outstanding indebtedness. Another stock that could move in reaction to an offering is Goodyear Tire & Rubber Co. which said it would offer $500 million worth of 7 year senior unsecured notes for the repayment of $500 million in senior floating rate notes due December 1st. Meanwhile, Bank of New York Mellon said it has completed the sale of a $1.5 billion non-guaranteed senior debt offering.

Papa John’s International is also likely to be in focus after it said its first quarter revenues fell 1.4% to $285 million. On an adjusted basis, the company reported a decline in earnings to 43 cents per share from 50 cents per share last year. Analysts estimated earnings of 34 cents per share on revenues of $279.01 million. The company reaffirmed its 2009 earnings per share guidance in the range of $1.36-$1.44, which includes a 30-35 cents per share charge.

Pulte Homes may trade higher after it said its first quarter loss narrowed to $2.02 per share from $2.75 per share in the year-ago period. Revenues fell sharply to $587.4 million, below the mean analysts estimate of $604.8 million.

Las Vegas Sands is expected to see weakness after it reported a loss of 14 cents per share for its first quarter, wider than the loss of 3 cents per share reported last year. On an adjusted basis, the company reported a loss of 1 cent per share, bigger than the 2 cents per loss estimated by analysts.

Beazer Homes may trade higher after it said it has reached a settlement with lead plaintiffs to settle the securities class-action lawsuit filed in March 2007 by paying $30.5 million in exchange for a release from all claims asserted against them in the litigation.

Electronic Arts could see some weakness after it reported a fourth quarter loss of 13 cents per share compared to a loss of 30 cents per share last year. On an adjusted basis, the company’s loss was 37 cents per share. Revenues declined 24% to $860 million. Excluding a deferred revenue benefit, the company reported non-GAAP net revenue of $609 million. Analysts estimated a loss of 43 cents per share on revenues of $631.9 million.

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