US & World Daily Markets Financial Briefing 07-05-2009

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Traders May Shed Apprehensions Amid Further Evidence of Recovery

In recent trading, the major averages have moved well off their worst levels of the day, although they remain stuck in the red. The Dow is currently down 41.57 at 8,470.71, the Nasdaq is down 26.51 at 1,732.59 and the S&P 500 is down 2.42 at 917.11.

The major U.S. index futures are pointing to a higher opening on Thursday. The buoyancy in the financial space ignited a rally in Asia and Europe, laying the foundation for a solid start in the U.S. Traders are apparently pushing stocks higher on the relief that the damage identified in big banks aren’t severe as they had been fearing. There are other positive catalysts as well, including an unexpected decline in jobless claims and fairly decent chain store sales reported by the nation’s retailers.

Even as traders attempt to latch on to these positives, sentiment will remain subdued due to apprehensions over the government has to say when they release the results of the bank stress tests. Notwithstanding some stray positive evidence supporting expectations that the economy is on the road to recovery, concrete evidence pointing towards a revival is still not forthcoming. Therefore, markets could trade cautiously as traders contemplate their next move following recent strong run up.

U.S. stocks rallied at the open on Wednesday following the release of a private non-farm employment report that revealed a smaller-than-expected decline in jobs. Despite some selling emerging thereafter, buying interest picked back up in early afternoon trading, as traders were comforted by speculation that the U.S. bank stress test results did not unearth any serious problems. The Dow Industrials and the S&P 500 Index moved up amid some volatility to close with gains in excess of 1% each.

The Nasdaq Composite, which traded with a negative bias for the bias for the bulk of the session, managed to close above the unchanged line, ending up 4.98 points or 0.28% at 1,759. While the Dow Industrials ended up 101.63 points or 1.21% at 8,512, the S&P 500 Index gained 15.73 points or 1.74% to close at 920.

The S&P 500 Index has been on a tear since breaking above a key resistance around the 875 level. The index now remains poised to test its next resistance around the 935 level and if it is successful in breaching this mark, it could stop around its 200-day moving average of 958. According to S&P technical analysts, in a major bottoming process, the advance towards the 200-day moving average fails right near the average following which we may see a pullback or correction.

Financial stocks once again led from the front, contributing significantly to the Dow’s advance. Bank of America surged up 17.07%, Citigroup rallied 16.62% and JP Morgan rose 6.89%. Disney  climbed 11.75% in reaction to its quarterly results. Alcoa and Boeing gained more than 3% each. On the other hand, General Motors fell 10.27%.

Among the sector indexes, the KBW Bank Index rallied 11.47%, while the Amex Broker/Dealer Index was up a more modest 2.86%. The Amex Oil Index and the Philadelphia Oil Service Index moved up over 3% each, while the Amex Gold Bugs Index jumped 4.90%. Retail, housing and biotechnology stocks came under some degree of selling pressure.

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Canadian stocks look to carry over positive momentum Thursday morning

Insurer Sun Life Financial Inc. reported first-quarter common shareholders' net loss of C$213 million or C$0.38 per share, compared to common shareholders' net income of C$533 million or C$0.93 per share last year.

Net operating loss was C$186 million, compared with net operating income of C$533 million in the same period last year.
 
Internet gaming software provider CryptoLogic Ltd. reported a loss for the first quarter on sharp revenue declines, reflecting primarily challenging global economic conditions and unfavorable currency impact.

Posting a fourth consecutive quarterly loss, the casino software developer said it is on track to returning to profitability and cash generation in 2009, in line with prior guidance.

Husky Energy Inc. said on Wednesday that it has agreed to issue US$1.5 billion in senior unsecured notes.

The senior notes will be issued in two tranches: US$750 million at 5.90% maturing on June 15, 2014 and US$750 million at 7.25% maturing on December 15, 2019.

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The major European markets are trading higher on Thursday, with the French CAC 40 Index and the German DAX Index rising 1.83% and 1.38%, respectively, while the U.K.’s FTSE 100 Index is gaining 2.30%. Bank and commodity stocks are rallying, helping the markets in the region extend their gains.

In corporate news, French banking giant Societe Generale reported a first quarter loss of 278 million euros compared to a profit of 1.1 billion euros in the year-ago period. One-time items reduced earnings by 1.9 billion euros. The company announced the appointment of its CEO Frederic Oudea as its Chairman following the resignation of Daniel Bouton.

Consumer goods company Unilever reported a 43% decline in net profit for its first quarter at 803 million euros. On an adjusted basis, net profit before restructuring, disposal and other one-off items, was down 13% to 917 million euros. Sales were down about 1% to 9.51 billion euros.

Barclays reported first quarter earnings of 826 million pounds compared to 736 million pounds in the year-ago period. Revenues surged up 42% to 8.15 billion pounds. Additionally, the banks CFO revealed in a conference call that it does not intend to raise more capital.

In two key central bank decisions from the region, the Bank of England maintained their key interest rates unchanged, while the ECB reduced its by quarter basis points. The Bank of England said in a statement released following a 2-day Monetary Policy Committee that it has decided to retain interest rates at 0.5%. The committee also decided to continue its asset purchase program, increasing the size of its repurchase by 50 billion pounds to 125 billion pounds.

While noting that the world economy is still in a recession zone, the central bank also highlighted the recent signs that point towards a moderation in the pace of decline. The bank expressed confidence that the stimulus measures will lead to a gradual recovery.

As expected, the ECB lowered its benchmark interest rates by 25 basis points. Danske Bank had expected the ECB to cut the refinancing rate by 25 basis points to 1%, which it believed to be the end of the current cutting cycle. The firm premised its expectations on the fact that the ECB governing council members had expressed reluctance to go below 1%.

U.S. Economic Reports

On the economic front, the Labor Department reported that initial claims for unemployment benefits fell to 601,000 for the week ended May 2nd, down 34,000 from the previous week's revised figure of 635,000. Economists expected claims to increase to 635,000 from the originally reported figure of 631,000 for the previous week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations, declined 14,750 to a level of 623,500. The number of people receiving ongoing unemployment help, a statistic known as continuing claims, increased 56,000 to a level of 6.351 million in the week ended April 25th.

A separate preliminary report released by the Labor Department said non-farm productivity rose at a 0.8% sequential rate in the first quarter, while the consensus estimates called for a 0.6% increase in non-farm productivity. Productivity at the business sector as a whole rose 1.1%.

Unit labor costs of the non-farm business sector were up 3.3% quarter-over-quarter in the first quarter, faster than the 2.7% increase expected by economists. While real hourly compensation surged up 6.6%, hourly compensation was up 4.1%.

Treasury Secretary Timothy Geithner is scheduled to speak to the Chicago Fed's Conference on 'Bank Structure and Competition' in Chicago at 9 AM ET.

Federal Reserve Chairman Ben Bernanke is due to offer the opening keynote address at the Chicago Fed's Conference on 'Bank Structure and Competition' at 9:30 AM ET. Bernanke's address is to be followed by a speech by FDIC Chair Sheila Blair at 1:10 PM ET.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for March is likely to show a decline of $4 billion.

In February, consumer credit declined at an annual rate of 3.5%, with the revolving credit tied to credit card loans declining by 9.7%, while non-revolving credit rose by 0.2%.

Earnings

General Motors reported a first quarter loss of $9.78 per share compared to a loss of $5.80 per share in the year-ago period. On an adjusted basis, the company reported a net loss of $9.66 per share compared to a loss of 67 cents per share in the first quarter of last year. Revenues declined to $22.4 million from $42.4 million last year. Analysts estimated a loss of $11.05 per share on revenues of $20.19 billion.

Sara Lee said its third quarter net sales of $3 billion, down 6.6% from last year, while on an adjusted basis, net sales were up 2.1%. On an adjusted basis, net income was 25 cents per share compared to 22 cents per share in the year-ago period. Analysts estimated earnings of 18 cents per share on revenues of $3.05 billion. The company expects 2009 adjusted earnings per share of 75-81 cents per share on adjusted net sales of $12.8 billion to $13 billion. The consensus estimates call for earnings of 75 cents per share on revenues of $12.99 billion.

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The markets across the Asia-Pacific region ended higher on Thursday following the release of better-than-expected jobs reports from New Zealand, Australia and the U.S. and an assurance from U.S. Treasury Secretary Timothy Geithner that none of the country's biggest banks are insolvent.

The Japanese market rose to a 6-month high on broad-based buying amid hopes that the global economy may be bottoming. The market was closed Monday through Wednesday for the Golden Week national holidays.

The Nikkei 225 index rose 408 points or 4.55% to 9,386, its highest closing level since Nov. 5. Meanwhile, the Topix index of all First Section issues on the Tokyo Stock Exchange closed at 886, up 39 points or 4.61%.

Financials surged across the board as they caught up with gains among their peers in the global markets. Mitsubishi UFJ Financial Group soared 15.76%, Sumitomo Mitsui Financial Group climbed 10.73% Mizuho Financial Group jumped 13.04% and Resona Holdings rallied 8.40%. Sumitomo Mitsui is buying Nikko Cordial Securities and the underwriting divisions of Nikko Citigroup.

Shipping stock Mitsui O.S.K. Lines and Nippon Yusen jumped more than 8% each after the Baltic Dry Index closed higher by 8.9% overnight. Toyota Motor advanced 3.59% ahead of the release of its earnings report on Friday. Honda jumped 6.83%, Suzuki soared 11.23%, Nissan rose 2.55% and Mazda Motor rallied 5.20%.

The Australian market closed sharply higher, boosted by gains in the overseas markets and positive employment data for April. Official data showed that the jobless rate unexpectedly dropped to 5.4 percent in April from 5.7 percent in March. Economists had expected a jobless rate of 5.9 per cent.

The benchmark S&P/ASX200 index closed at 3,939, up 72 points or 1.85% and the broader All Ordinaries index rose 72 points or 1.9% to 3,912.

Miners closed stronger. BHP Billiton rallied 5.28%, its rival Rio Tinto advanced 2.79% and Iluka Resources closed up 0.86%. Fortescue Metals Group gained 3.3% and OZ Minerals surged up 7.33%.

News Corp. climbed 9.56% after the company maintained its guidance for fiscal 2009 operating earnings. Fairfax Media surged up 6.54%, Consolidated Media soared 9.69% and Seven Network closed up 0.68%. Banking stocks mostly closed higher.

The South Korean market closed a choppy session modestly higher. The benchmark KOSPI rose 8 points or 0.55% to 1,401, its highest closing since Oct. 2. While foreign funds picked up a net KRW226.6 billion worth of stocks, domestic financial institutions offloaded a net KRW436.4 billion.

Korea Exchange Bank surged up 11.18% on reports that the state-run Korea Development Bank was interested in acquiring the lender. Woori Finance rose 0.45% after reporting better-than-estimated first-quarter results. KB Financial, the holding firm of Kookmin Bank also moved up 2.09%.

Steel maker POSCO advanced 3.98% on higher commodity prices, Ssangyong Motor climbed further by around 12% on rescue hopes and market heavyweight Samsung Electronics closed up 0.18%. Hyundai Motor tumbled 3.48% and Kia Motors fell 2.20%

Among other notable stocks, telecom stock SK Telecom rose 1.11%, oil stock S-Oil advanced 3.67%, aviation stock Korean Air Line gained 0.84% and Asiana Air Line edged up 0.22%, but KT fell 1.50% and oil stock SK moved down 0.81%.

Hong Kong’s Hang Seng Index opened sharply higher before surrendering much of its gains by early afternoon trading. Buying interest picked up yet again in the afternoon, pushing the index higher, although it closed off its day’s high. At the close of trading, the index was up 383.32 points or 2.28% at 17,218.

Financial stocks climbed sharply, with index heavyweight HSBC Holdings leading the advance with a gain of 5.60%. Property and China-related stocks were also mostly higher. However, utility stocks came under selling pressure.

The Indian market closed a choppy session higher amid favorable global cues. Trading was extremely volatile due to profit taking by domestic financial institutions. The BSE Sensex closed at 12,117, up 164 points or 1.37% over the previous close. The broader market outperformed the benchmarks. While the broad-based BSE 500 index closed up 1.78%, the small-cap and the mid-cap indexes closed higher by around 2.7% each.

Among the other markets in the region, China's Shanghai Composite index ended up 0.19%, Singapore's STI Straits Times index gained 2.87% and Taiwan's TWII Weighed index edged up 0.09%.

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Gold Rises Above $920 An Ounce

The price of gold rose for a fourth straight session on Thursday as commodities moved higher across the board. Gold gained as traders bet recent government measures could spark inflation and the demand for a hedge investment.

Gold for June delivery moved to $922.70, up $12.90 for the session. Prices touched as high as $926.50 in the early going and have added more than $30 on the week.

Traders considered several key economic reports. The U.S. Labor Department said initial jobless claims, a closely-watched gauge of layoffs, dropped to 601,000 for the week ended May 2. This was down 34,000 from the previous week's revised total of 635,000.

A separate Labor Department report showed that productivity rose 0.8 percent in the first quarter following a revised 0.6 percent decrease in the fourth quarter. Economists had expected productivity to rise 0.6 percent compared to the 0.4 percent decrease originally reported for the previous quarter.
 
Investors also await the release of the results of the government's stress tests of leading financial institutions after the close of trading today.

The dollar saw mixed movement in trading with other majors. The greenback slipped against the euro and tested a recently-seen monthly low, but moved moderately higher against the yen and sterling.

Crude oil led commodities higher, surging above $58 for the first time since November. Light sweet crude for June moved to $57.75, up $1.47 on the session.

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Cisco Systems may gain ground after it reported that its third quarter earnings declined to 23 cents per share from 29 cents per share last year. On an adjusted basis, the company’s earnings were 30 cents per share, exceeding the 25 cents per share consensus estimate. Sales were down 17% to $8.2 billion compared to the mean analysts’ estimate of $8.1 billion. For the fourth quarter, the company expects a 17%-20% year-over-year decline in revenues.

THQ, Inc. is expected to react to its announcement that its fourth quarter revenues fell 9% to $170.3 million. On an adjusted basis, sales were down 29% to $154.3 million. On an adjusted basis, the company reported a profit of 54 cents per share. Analysts estimated earnings of 34 cents per share on revenues of $148.7 million.

Pacer International could be in focus after it reported that its first quarter revenues declined to $358.6 million from $502.8 million last year. The company’s bottom line results showed a loss of $5.11 per share compared to a profit of 38 cents per share last year. On an adjusted basis, the company reported a loss of 39 cents per share.

Kendle could also be in focus after it reported that its first quarter net income was 6 cents per share compared to 27 cents per share last year. On a pro forma basis, the company’s earnings rose to 47 cents per share from 38 cents per share last year. Total revenues fell to $108.10 million compared to the year-ago’s $114.12 million. The consensus estimates called for earnings of 30 cents per share on revenues of $103.43 million.

Sanofy-Aventis is likely to move to the upside after it revealed that the U.S. FDA has licensed its new influenza vaccine manufacturing facility. Anadarko Petroleum (APC) could also see some buying interest after it reported a first quarter loss of 53 cents per share on an adjusted basis compared to a loss of 62 cents per share estimated by economists. Revenues fell 46% to $1.6 billion.

Expeditors International may also move in reaction to its first quarter results, which showed a 10% decline in net revenues to $336.52 million and a decline in earnings per share to 27 cents per share from 30 cents per share last year. The consensus estimate had called for earnings of 29 cents per share.

Sunoco is likely to move to the upside after it reported first quarter net income available to shareholders of 10 cents per share compared to a loss of 50 cents per share last year. On an adjusted basis, the company reported a profit of 50 cents per share for the recent quarter. Analysts, on average, expected a profit of 50 cents per share for the quarter.

Murphy Oil may also be in the spotlight after it said its first quarter net income fell to 89 cents per share compared to $2.14 per share in the year-ago period. The company reported income from continuing operations of 37 cents per share. Revenues declined to $3.45 billion from $6.51 billion last year. The consensus estimates had called for earnings of 29 cents per share on revenues of $3.51 billion.

Tesoro receded in Wednesday’s after hours despite reporting a profit of 37 cents per share compared to a loss of 60 cents per share last year, which included a benefit related to a legal settlement. Revenues decline by a half to $3.28 billion. Analysts, estimated earnings of 37 cents per share on revenues of $5 billion.

Symantec is also likely to be in focus after it reported a first quarter loss of 30 cents per share compared to 22 cents per share last year. On an adjusted basis, the company reported earnings of 38 cents per share. Revenues were down 5% to $1.47 billion. The Street estimated earnings of 35 cents per share on revenues of $1.52 billion.

U.S. Airways may react to its announcement that it would offer stocks and notes aimed at raising $150 million. The company said it intends to issue 15.2 million new shares and $75 million in convertible senior notes due 2014.

Among retailers, Hot Topic reported April same store sales growth of 3.1% compared to a 2.5% decline in the year-ago quarter. Wholesaler Costco’s same store sales fell 8% from last year.

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