US & World Daily Markets Financial Briefing 07-04-2009

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Major Averages Move Sharply Lower At The Open

After ending the previous session mostly lower, stocks saw some further downside at the start of trading on Tuesday. The major averages all moved firmly into negative territory, pulling back further off the highs set last week.

The initial downward move by the major averages reflects significant weakness in a variety of sectors, with housing, health insurance, and transportation stocks turning in some of the market's worst performances in early trading.

The major averages have continued to move lower in the past few minutes, pulling back to new lows for the session. The Dow is currently down 146.79 at 7,829.06, the Nasdaq is down 27.03 at 1,579.68 and the S&P 500 is down 17.60 at 817.88

With yesterday’s retreat, the Dow Industrials closed below the 8,000 level. The moving averages do not suggest a trend reversal, as the shorter period 50-day moving average is trading below the 200-day moving average. The index has to convincingly break above the 8,028 level to leg up and move into the next trading range of 9,026-8,028. Earnings could be the catalysts that traders look at as they determine their course of action. Although corporate earnings could continue to sag, very low expectations should help some of the companies to spring positive surprises.

Twenty of the thirty Dow components ended Monday’s session lower. Alcoa (down 3.18%), Citigroup (C) (down 4.56%) and JP Morgan Chase (JPM) (down 3.69%) were among the notable decliners. On the other hand, General Motors (GM) surged up 8.10% and General Electric (GE) rallied 2.29%.

Among the sector indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index fell 3.35% and 3.83%, respectively. The Philadelphia Housing Sector Index fell close to 2%, while the Amex Oil Index lost 2.26% and the Philadelphia Oil Sector Index declined 2.97%. The Amex Gold Bugs Index tumbled 4.06%. The Philadelphia Semiconductor Index receded 2.25% compared to a 2.84% slippage by the Amex Disk Drive Index and a 4.23% drop by the Amex Computer Hardware Index. The Amex Networking Index ended down 2.61%. On the other hand, the Amex Airline Index rallied 2.72%.

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Bay Street Set For Lackluster Open Ahead Of Alcoa Results

Canadian stocks may struggle to put an end to a two-day losing streak Tuesday morning, with Bay Street bracing for the start of earnings seasons, which kicks off when bellwether aluminum giant Alcoa (AA) releases its quarterly results.

Toronto stocks closed lower for a second straight session on Monday as lower metal prices led to weakness in the gold, materials and mining sectors. The S&P/TSX Composite Index lost 49.59 or 0.54% to finish at 9,016.17.

Still, its been a great few weeks for the Canadian market, which has made efforts to stabilize following a brutal start to 2009. However, with Wall Street futures indicating a pullback, Canadian stocks could be on the defensive Tuesday.

In corporate news, Garda Security Group said that CATSA and Garda have successfully negotiated a two-year extension to all of Garda's existing contracts for passenger and baggage security screening operations at 26 airports in Canada.

Homeland Energy Group Ltd. said it appointed Andrew Gottwald as chief financial officer, effective April 15, 2009.
 
The company noted that Gottwald's appointment follows the resignation of Stephen Woodhead as chief financial officer.

Supermarket chain Loblaw Companies Ltd. said Monday it has been authorized the repurchase of up to 13,708,678 of its Common Shares, representing 5% of the 274,173,564 Common Shares currently outstanding, by way of a normal course issuer bid.

On the earnings front, Alcoa, the litmus test for the season, has said its first-quarter results would continue to be callously encroached by the global meltdown that has adversely affected pricing and demand for aluminum, alumina and aluminum products.

Analysts polled by Thomson Reuters expect the company to report a loss of $0.52 per share on revenues of $4.08 billion for the quarter. Analysts' estimates typically exclude special items. In the year-ago period, the company posted earnings of $0.37 per share on revenues of $7.38 billion.

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The major European markets are trading lower, with the French CAC 40 and the German DAX Index receding 1.27% and 1.34%, respectively, while the U.K.’s FTSE 100 Index is moving down 1.81%.

On the economic front, the U.K. Office of National Statistics reported that the U.K.’s industrial production slid by about 1% month-over-month in February following a 2.7% drop in the previous month.

Manufacturing output fell by 0.9% in February, marking a significant slowdown in the pace of decline.

February’s decline was due to a 3.7% slump in the output of transportation equipment industries, a 3.7% drop in the output by non-metallic mineral product industries and a 1.6% slippage in the production of basic metal and metal products.

The second estimate of fourth quarter GDP released by Eurostat showed that the euro area’s GDP declined by 1.6% in the fourth quarter compared to the previous quarter.

In the third quarter as well as the second quarter, the economy contracted by 0.3% each. The annual GDP decline was revised to a 1.5% drop from the initially estimated 1.3% decline.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET on Tuesday. Consumer credit for February is likely to show a decline of $1.5 billion.

In January, consumer credit rose by $1.8 billion to $2.56 trillion, as revolving credit rose by $0.9 billion to $0.96 trillion and non-revolving credit rose by $0.8 billion to $1.6 trillion.

Earnings

Chattem (CHTT) reported first quarter revenues of $116.1 million, down 3.9% from last year. The company’s net income rose to 99 cents per share from 75 cents per share last year. On an adjusted basis, the company’s earnings rose 6% to $1.07 per share. Analysts, on average, estimated earnings of $1.13 per share on revenues of $126.17 million. The company expects 2009 earnings per share, excluding stock options, of $4.80-$4.90.

Pier 1 Imports (PIR) said its fourth quarter loss was 33 cents per share compared to a net income of 16 cents per share last year. Sales fell to $389 million from $437 million in the year-ago period.

Stocks in Focus

Immucor (BLUD) is likely to see some buying interest after it reported that its third quarter profit per share remained unchanged at 27 cents per share yet came ahead of the consensus estimate of 22 cents per share. Revenues rose 12% to $75.3 million and exceeded the mean analysts estimate of $73.2 million. The company said it expects 2009 earnings to come at high end or above its previous estimate of 97 cents per share to $1.02 per share, while it reiterated its revenue estimate of $292 million-$300 million.

Caterpillar (CAT) and Navistar (NAV) are likely to be in focus after they announced a definitive agreement to produce Caterpillar heavy-duty vocational trucks for sale in North America and form a 50/50 joint venture that will pursue global commercial truck opportunities outside of North America. The companies did not divulge the financial terms of the deal.

Harley-Davidson (HOG) could react to its announcement of the appointment of Keith Wandell as its CEO. Wandell will replace James Ziemer, who is retiring after a 40-year stint at the company.

Ventas (VTR) is likely to see some weakness after the company announced that it is offering 8.5 million shares and $200 million of senior notes, as it strives to strengthen its balance sheet. The company said it will use the proceeds to repay debt and for general corporate purpose. Although the transaction is expected to be modestly dilutive to its funds from operations per share, the company reaffirmed its normalized funds from operations guidance for 2009 at $2.55-$2.65 per share.

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The major markets across the Asia-Pacific region ended mostly lower on Tuesday, mirroring the sentiment on Wall Street, where the major indices ended lower on profit taking.

The benchmark Nikkei 225 Index, having opened weaker at 8,834 compared to its previous close of 8,858, ended down 25.28 points, or 0.28%, at 8,832, while the broader Topix index of all First Section Issues edged up 1.63 points to close at 833.

The market did not react significantly to the Bank of Japan’s decision to leave the overnight lending rate at 0.1%. The bank, in an effort to ease credit, has decided to accept loans on deeds to municipal government as eligible collateral security from lenders.

Financial stocks were mostly lower, with the stocks pulling back in reaction to the negative views issued by an analyst on the U.S. financial sector. Mitsubishi UFJ dropped 1.17%, Mizuho Financial fell 2.45%, and Sumitomo Mitsui slipped 1.11%. However, Resona Holdings edged up 0.45%.

Oil stocks showed weakness on lower crude oil prices. Inpex fell 2.41%, Showa Shell lost 2.57%, and Nippon Oil decreased 4.07%.

Exporters ended mixed. While Canon lost 64% and Sharp fell 0.80%, Sony remained unchanged. However, trading houses moved to the upside. Mitsubishi Corp. advanced 0.48%, Sumitomo Corp. moved up 0.54% and Itochu gained 1.53%. Automakers showed notable strength.

In Sydney, the benchmark S&P/ASX200 index declined 50.3 points, or 1.34%, to 3706.3, and the broader All Ordinaries index lost 47.9 points or 1.3% to close at 3648.5.

At its rate setting meeting on Tuesday, the Reserve Bank of Australia decided to lower cash rate by 25 basis points to a 49-year low of 3%, effective 8 April 2009. The decision was taken against the backdrop of some signs of stabilization in several countries and on the belief that the stimulus measures adopted by most countries should be able to contain the downturn over the rest of the year.

The central bank is of the view that inflation is likely to be lower than in the past two years due to falling capacity utilization, weakening demand for labor and the likelihood of a drop in the growth of labor costs. The RBA deemed it necessary that a modest adjustment to the cash rate along with substantial fiscal initiative will support demand over the period ahead.

Financial and resource stocks led the declines as investors preferred to take profits ahead of the U.S. earnings season.

Among financial stocks, ANZ Banking Group lost 1.16%, Commonwealth Bank shed 1.36%, National Australia Bank declined 2.29% and Westpac Banking slipped 1.93%. Investment bank Macquarie Group fell 4.87%

In the resources sector, index leader BHP Billiton declined 3.83%, and Rio Tinto plunged 10.02% in reaction to reports that the company may come out with a rights offering. Gold miners ended mixed. While Lihir Gold gained 1.03%, Sino Gold lost 2.29%, and Newcrest Mining dropped 1.61%.

Among energy stocks, Woodside slipped 0.63%, Oil Search fell 3.45%, and Santos declined 1.45%. Telephone company Telstra Corp Ltd rose 4.36% after the government announced plans to build a new A$43 billion national high-speed fiber-optic broadband network. Prime Minister Kevin Rudd said the government would ask private companies to join a new private-public firm to build the network. The project will support 37,000 jobs.

The benchmark Hang Seng Index ended lower at 14,929, down 69.07 points, or 0.46%, as property stocks receded on profit taking. Henderson Land declined 2.84%, Wharf Holdings lost 4.78%, SHK Properties fell 1.84%, New World Development slipped 2.63% and Hang Lung Property moved down 1.42%.

Banking stocks ended mixed. HSBC Holdings dropped 1.63% and BOC Hong Kong lost 1.28%, while Bank of Communications gained 1.67%, Bank of East Asia advanced 3.93% and ICBC added 1.67%. China-related stocks showed mixed sentiment. While China Resources gained 1.35%, China Mercantile Holdings lost 4.64% and China Overseas edged down 0.92%.

In South Korea, the benchmark KOSPI Index ended higher by 2.25 points, or 0.17% at 1,300. Financials declined on concerns about losses on equity investments and profit taking. KB Financial Group fell 2.24% and Shinhan Financial lost 2.86%. However, Woori Finance gained 0.95%.

Shipbuilders also ended lower on profit taking. Hyundai Heavy Industries declined 2.29%, Samsung Heavy Industries slipped 1.08%, and Daewoo Shipping edged down 0.43%. While automakers advanced, technology stocks ended on a mixed note.

Among the other major markets in the region, China's Shanghai Composite Index gained 19.40 points, or 0.80% to close at 2,439 and Taiwan's Weighted Index advanced 20.63 points or 0.37% to 5,577. However, Indonesia's Jakarta Composite Index fell 25.78 points, or 1.70% to close at 1,491, and Singapore's Strait Times Index lost 48.52 points, or 2.63% to close at 1,799.

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Gold Prices Edge Above $880 Again

The price of gold edged higher on Tuesday morning, reclaiming some of its recent losses. The metal had been trending sharply lower since the middle of last week.

Gold for June delivery traded at $880.70, up $7.90 for the session. A gain would be the first in four sessions.

Gold plummeted to its lowest level in 2 1/2 months as traders continued to drift away from the safety investment amid hopes the economy could be on the mend. The metal lost nearly $55 an ounce in a three-day slump.
 
While the economic calendar remains light today, the U.S. Federal Reserve is scheduled to release its monthly consumer credit report at 3 pm ET. Consumer credit for February is likely to show a decline of $1.5 billion.

Things will pick up on that front later in the week as Wednesday will bring wholesale trade data while import and export prices will be announced on Thursday.

The dollar rallied versus the euro and sterling Tuesday morning in New York as risk averse traders expressed concerns about the start of earnings season, which kicks off today with quarterly results from Alcoa. The buck also gained on the pound, but eased versus the yen.

Crude oil futures are trading down $0.77 at $50.28 a barrel. On Monday, the commodity fell $1.46 to $51.05 a barrel. Gold futures, which fell $24.50 to $872.80 an ounce in the previous session, are currently moving up $3 to $875.80 an ounce.

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