US & World Daily Markets Financial Briefing 07-05-2010

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Stocks Posting Substantial Losses In Mid-Morning Trading

After a wildly volatile ride to start out the session, stocks are posting steep losses in mid-morning trading on Friday, as market concerns regarding Greece and the subsequent impact on European finances have overshadowed continued improvement on the U.S. economic front.

An hour before the start of trading, the Labor Department reported that U.S. employment increased by 290,000 jobs in April following an upwardly revised increase of 230,000 jobs in March. Economists had expected employment to increase by about 187,000 jobs compared to the addition of 162,000 jobs originally reported for the previous month.

Despite the increase in employment, the Labor Department said that the unemployment rate rose to 9.9 percent in March from an unrevised 9.7 percent in March. The increase came as a surprise to economists, who expected the unemployment rate to remain unchanged.

However, the unexpected increase in the unemployment reflected a substantial increase in the size of the labor force, which rose by 805,000.

Peter Boockvar, equity strategist for Miller Tabak, said, "Bottom line, the job growth was solid and we hope it continues but there is a belief that this is old news in that the world has changed over the past few weeks and global growth is now threatened."

Europe also remains in focus as Germany votes on its involvement in the joint bailout package for Greece from the European Union and the International Monetary Fund. The package totals 110 billion euros or the rough equivalent of $146 billion U.S. dollars.

Thursday, the Greek government passed an austerity bill that was the key requirement for receiving any financial aid, although the passage of the legislation was met with violence and civil unrest on the streets of Athens.

In the previous session, Greece weighed on the markets, as the Dow fell almost 1,000 points at its low for the session, briefly dipping below 10,000 for the first time since mid-February.

Reports have suggested that the sell-off in the markets may have been partly due to erroneous trades. The Nasdaq announced late Thursday that errant trades made between 2:40 p.m. and 3 p.m. New York time would be annulled.

The major averages have all seen some upside in recent dealing, moving off of their session lows. Nonetheless, the Dow remains down 134.52 points or 1.3 percent at 10,385.80, the Nasdaq is down 51.84 points or 2.2 percent at 2,267.80 and the S&P 500 is down 18.50 points or 1.6 percent at 1,109.65.

Sector News

Electronic storage stocks are some of the morning's worst performers, with the NYSE Arca Disk Drive Index posting a loss of 4.6 percent, testing yesterday's two-month intraday low that came amid heavy selling.

Semiconductor stocks are also under pressure, further reflecting the weakness in tech stocks. The Philadelphia Semiconductor Index is down by 3.8 percent, poised for its lowest close in just over two months.

Health insurance, biotechnology, oil service and defense stocks are also seeing heavy selling pressure, as stocks are continuing their downward move with little bright spots in the equity markets.

Meanwhile, the veracity of yesterday's intraday lows has been questioned market wide as officials scramble to find reasons for the sell-off.

Stocks Driven By Analyst Comments

Ormat Technologies (ORA) is moving notably lower after being downgraded at Citigroup to Sell from Hold, with the broker also cutting its price target on the stock to $22 from $36. Shares are currently down by 3 percent, on pace for a fresh monthly closing low.

Compass Minerals (CMP) is also under pressure after being downgraded by analysts at JP Morgan Chase to Neutral from Overweight. The stock is down by 1.9 percent, on target for its lowest closing level in just under three months.

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TSX May Open Higher As Employment Surges

Bay Street stocks may open higher Friday amid recovery in energy prices and after recent sell-offs that trimmed over 3% from the main index.

Encouraging jobs data from both sides of the border will also help lift sentiment. While Canada surprised markets by reporting jobs growth of over 5 times than consensus estimates, jobs creations in the U.S. came in much higher than economists' expectations.

However, lingering worries over the euro zone fiscal situation may weigh on sentiment, capping large gains.

On Thursday, the S&P/TSX Composite Index lost 32.70 points or 0.28% to 11,842.43, taking its cumulative losses in the past four days to over 3%. The index hit n 19-month high of

The price of crude oil edged up after falling in the past three sessions, eroding over 10%. Crude for June delivery was up $0.70 to $77.81 a barrel.

Gold stocks may be in play today amid firm gold prices and earnings reports from a host of gold mining companies. The price of gold was trading flat around $1,198 an ounce, holding on to its recent gains.

International gold firm Eldorado Gold reported that its first-quarter net income was $0.10 per share, up from $0.04 per share in the first quarter of 2009. Analysts were expecting the company to report earnings of $0.07 per share this quarter. The company also announced an annual dividend of C$0.05 per common share.

Gold producer Iamgold Corp. reported first-quarter net earnings of $0.16 per share, compared to $0.17 per share in the year ago quarter.

Precious and base metal explorer New Gold reported first-quarter net income of $17.5 million, compared to net income of $12.1 million in the prior year quarter. On a per share basis, net income was $0.04, down from $0.06 in the same quarter last year. Analysts were expecting the company to post income of $0.04 per share this quarter.

Gold mining company Richmont Mines said its first-quarter net earnings grew to C$0.07 per share from C$0.05 per share in the prior year period. The company said it will acquire an additional 30% of the issued and outstanding shares of Louvem Mines Inc.

Energy company Canadian Natural Resources reported improved first-quarter net earnings of C$1.60 per share, compared to C$0.56 per share in the same quarter last year. The company said it would subdivide its common shares on a two for one basis.

Food products company Premium Brands Holdings reported first quarter earnings of C$0.10 per share, compared to C$0.12 per share last year.

Information technology and business processing services provider CGI Group said it will acquire Stanley Inc. through a cash tender offer at $37.50 per share, representing an enterprise value of around $1.07 billion.

Real estate company MI Developments reported lower first-quarter funds from operations of$0.55 per share, compared to $0.75 per share last year. The company declared a dividend of $0.15 per share.

Gaming software solutions provider CryptoLogic reported wider first quarter loss of $0.25 per share, compared to $0.10 per share in the same quarter a year earlier.

LNG Energy said it acquired Kunagu Real Estate S.A., which helped it to increase its ownership from a 12% to 20% net interest in a shale gas exploration project in Poland.

In economic news, Statistics Canada said employment increased by 109,000 in April, recording the largest monthly gain in percentage terms since August 2002. The unemployment rate edged down 0.1% in April to 8.1%. Economists were expecting the economy would add about 20,000 jobs and the unemployment rate would remain unchanged at 8.2%.

From the U.S., the Labor Department said non-farm payroll employment increased by 290,000 jobs in April following an upwardly revised increase of 230,000 jobs in March. Economists were expecting a much more moderate increase by about 187,000 jobs compared to the addition of 162,000 jobs originally reported for the previous month. The Department added that the unemployment rose to 9.9% in March from an unrevised 9.7% in March. The increase came as a surprise to economists, who expected the unemployment rate to remain unchanged.

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Asian Markets Extend Losses On Weak US Clues, Crisis In Europe

The markets across Asia plunged on the last day of the week following weak cues from Wall Street where a glitch in trading resulted in an unprecedented almost 1,000-point plunge in intra-day trading before finally ending, after sharp recovery, deep in the red, amid increasing uncertainty over debt crisis in Greece and its contagion impact on other countries across the Atlantic.

In Japan, the benchmark Nikkei 225 Index plunged 331.10 points, or 3.10%, to 10,364, while the broader Topix index of all First Section issues was down 24.98 points, or 2.61%, to 932.

On the economic front, a report released by the Bank of Japan revealed that the monetary base in Japan was up 2.9% year-on-year to 98.38 trillion yen in April, beating economists' mean forecast for a 2.4% gain after adding an annual 2.1% in March. Banknotes in circulation were up an annual 0.9%, while coins in circulation eased 0.5%. Current account balances rose 14.6% on year, including a 14.7% annual spike in reserve balances. Seasonally adjusted, the monetary base jumped 18.1% in April to 96.5 trillion yen after a 3.0% increase in March.

Light sweet crude oil futures for June delivery ended at $77.05 a barrel in electronic trading, down $0.06 per barrel from previous close at $77.11 a barrel in New York on Thursday.

Among the major losers across the board, Fanuc Ltd plunged 6.81%, Fast Retailing slumped 5.98%, J Front Retailing fell 4.55%, Canon Inc. lost 3.95%, Sony Corp. shed 3.16% and Sharp Corp. was sharply down 6.39%.

Banking stocks also ended sharply weaker. Sumitomo Mitsui Financial declined 3.52%, Resona Holdings fell 3.71%, Mizuho Financial lost 2.30% and Mitsubishi UFJ Financial fell 2.54%.

In Australia, the benchmark S&P/ASX200 Index slumped 92.50 points, or 2.02% to close at 4,481, while the All-Ordinaries Index ended at 4,507, representing a loss of 91.20 points, or 1.98%.

On economic front, releasing the latest quarterly statement on monetary policy, the Reserve Bank of Australia revised up its growth forecast for the Australian economy for the next two years - 2011 and 2012. According to the central bank, the economy is expected to grow 3.75% in the year to June 2011, faster than the 3.50% forecast in February. Growth is expected to remain at the level up until mid-2012 before rising to 4.00% by December 2012. However, the central bank warned that growth could be crippled by a number of factors including a global fallout from the sovereign debt crisis in Europe. The bank also expects prices to rise faster than previously estimated.

Separately, a report released by the Australian Industry Group and Housing Industry Association revealed that activity in the construction sector picked up in April. As per the report, the Performance of Construction Index increased by 4.8 points from the previous month to a reading of 55.8. Readings above 50.0 indicate expansion of activity.

Light sweet crude oil futures for June delivery ended at $77.05 a barrel in electronic trading, down $0.06 per barrel from previous close at $77.11 a barrel in New York on Thursday.

Banks ended sharply lower amid concerns about the contagion effect of Greece crisis across other countries in Europe. ANZ Bank declined 2.45%, Commonwealth Bank of Australia plunged 3.93%, Investment banker Macquarie Group lost 2.95%, National Australia Bank slumped 4.95% and Westpac Banking Corp. fell 3.95%.

Metals and mining stocks also ended in negative territory, paring gains as intra-day rally petered out. BHP Billiton edged down 0.27%, Rio Tinto slipped 1.08%, Fortescue Metals shed 0.95%, Gindalbie Metals fell 2.24%, Iluka Resources lost 1.62%, Macarthur Coal declined 3.32% and Mineral Resource was down by 3.58%.

Gold stocks were the major gainers following spurt in gold prices in the bullion market. Lihir Gold gained 1.04% and Newcrest Mining rose 1.52%.

In Hong Kong, the benchmark Hang Sang Index continued its southward march and ended in negative territory with a loss of 213.12 points, or 1.06%, at 19,920, taking cues from Wall Street, where an unprecedented technical glitch resulted in nearly a 1,000 point drop in intra-day trading in Dow index in late afternoon trading and resulted in a final loss of more 3% amid increasing fears about the contagion effect of debt crisis in Greece spreading to other countries in Europe. Plunge across the markets in the region also impacted market sentiment.

A sell-off across global markets on worries about the seemingly never-ending Greek crisis triggered another steep fall in the Indian market on Friday. A rally in shares of Reliance Industries on the back of a favorable Supreme Court verdict in the gas-pricing dispute between the Ambani brothers also failed to lift the sagging market. The 30-share Sensex average plunged to a low of 16,684 before recouping some of its loss to finish at 16,769, down 218 points or 1.29%, with 26 of its components ending in the red. The 50-share Nifty also fell by about 73 points and 1.43%.

Among the other major markets open for trading, China's Shanghai Composite Index declined 51.32 points, or 1.87%, to close at 2,688, Indonesia's Jakarta Composite plunged 71.28 points or 2.54% to close at 2,739, Singapore's Strait Times Index lost 22.44 points, or 0.79%, to close at 2,817, and Taiwan's Weighted Index slipped 12.38 points, or 0.16%,to close at 7,567.

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The major European markets are also seeing weakness on the day, extending a recent downward move. The French CAC 40 Index is currently down 1.8 percent, while the German DAX Index and the U.K.'s FTSE 100 Index are down by 0.9 percent and 0.5 percent, respectively.

In economic news from the region, German industrial production rose 4% on a monthly basis in March, according to a report released by the Federal Ministry of Economics and Technology. The increase reflected a strong recovery following February's revised 0.2% fall. Economists had forecast 1.5% growth.

Meanwhile, British output price inflation accelerated more than expected in April, driven by an increase in prices of petroleum products.

The output price index for home sales of manufactured products rose 5.7% in April from a year earlier, faster than March's 5% rise, the Office for National Statistics said. This is the highest annual rate since October 2008, when the index rose 6.7%. Economists had forecast 4.8% growth.

The index climbed 1.4% month-on-month, the largest monthly increase since May 2008. Economists were looking for a 0.5% gain.

Additionally, data released by the French Customs Office said the French trade deficit widened to 4.73 billion euros in March from 3.6 billion euros in February.

U.S. Economic Reports

U.S. employment increased by much more than expected in the month of April, according to a report released by the Labor Department on Friday, although the report also showed an unexpected increase in the unemployment rate due to a sharp increase in the size of the labor force.

The report showed that non-farm payroll employment increased by 290,000 jobs in April following an upwardly revised increase of 230,000 jobs in March. Economists had expected employment to increase by about 187,000 jobs compared to the addition of 162,000 jobs originally reported for the previous month.

At the same time, the Labor Department said that the unemployment rate rose to 9.9 percent in March from an unrevised 9.7 percent in March. The increase came as a surprise to economists, who expected the unemployment rate to remain unchanged.

Philadelphia Federal Reserve Bank President Charles Plosser is due to address the Delaware State Chamber of Commerce Economic Outlook luncheon in Wilmington at 11:30 AM ET.

The U.S. Federal Reserve is due to release its monthly consumer credit report at 3 PM ET. Consumer credit for March is expected to show a decline of $3.9 billion.

Consumer credit fell by $11.5 billion in February following a $10.6 billion increase in January. Economists had expected a more modest $0.5 billion drop. Revolving credit tied to credit cards plunged by $9.4 billion, while non-revolving credit tied to auto loans fell $2.1 billion.

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SRX International may move in reaction to its announcement that its third quarter revenues rose 9% to $411 million. On an adjusted basis, the company reported net income of 36 cents per share compared to 29 cents per share last year. Analysts estimated earnings of 31 cents per share on revenues of $407.73 million.

For 2010, SRX expects revenues of $1.65 billion to $1.67 billion and adjusted earnings of $1.32-$1.36 per share. The consensus estimates call for earnings of $1.27 per share on revenues of $1.66 billion. Separately, the company said it has won a multi-year contract from the Department of Defense valued at $1.5 billion over 5 years, if all options are exercised.

Las Vegas Sands may also be in focus after reporting first quarter adjusted earnings of 7 cents per share, higher than 1 cent per share last year. Net revenues rose 23.7% to $1.33 billion. Analysts estimated a profit of 2 cents per share on revenues of $1.31 billion.

Sequenom fell sharply in Thursday’s after hours session despite reporting first quarter revenues of $10.6 billion, up 22% year-over-year. The company reported a loss of 27 cents per share compared to a loss of 29 cents per share last year. The consensus estimates call for a loss of 27 cents per share on revenues of $10.20 million.

National Fuel Gas firm may see weakness after it reported second quarter operating revenues that fell to $671.38 million from the year-ago’s $804.65 million. The company’s profits rose to 97 cents per share from the year-ago’s 92 cents per share. Analysts estimated earnings of 96 cents per share on revenues of $832.98 million. Looking ahead, the company narrowed its 2010 earnings per share guidance to $2.45-$2.70 from its earlier estimate of $2.40-$2.70 per share, while analysts estimate earnings of $2.64 per share.

Activision Blizzard could also be in focus after it reported first quarter non-GAAP revenues of $714 million and non-GAAP earnings of 9 cents per share. The consensus estimates called for earnings of 4 cents per share on revenues of $569.72 million. For 2010, the company expects non-GAAP revenues of $4.4 billion, while it raised its non-GAAP earnings guidance by 2 cents to 72 cents per share. Analysts estimate earnings of 73 cents per share on revenues of $4.52 billion.

Kraft Foods is likely to see some activity after it reported that its first quarter net revenues from continuing operations rose 26% to $11.3 billion. The company’s operating earnings climbed 19.5% to 49 cents per share. Analysts estimated earnings of 45 cents per share on revenues of $10.95 billion. For 2010, the company expects operating earnings of at least $2 per share compared to the $2.06 per share consensus estimate.

Hansen Natural Corp. could decline after it reported that its first quarter net sales fell 3% to $238.1 million and sad its net income declined to 35 cents per share from the year-ago’s 44 cents per share. Analysts estimated earnings of 46 cents per share on revenues of $257.24 million.

Harmonic receded in Thursday’s after hours session after it reported first quarter net sales that rose 25% to $67.8 million but missed the consensus estimate of $85.58 million. The company reported first quarter non-GAAP earnings of 6 cents per share compared to 4 cents per share last year, in line with the consensus estimate. Harmonic also said it expects combined net sales for the second and third quarters in a range of $180 to $190 million

Simon Property Group may see some activity after it raised its takeover bid for General Growth Properties (GGP) to $20 per share. The new offer includes an investment by Blackstone Group (BX) and is a counter bid to Brookfield Asset Management’s (BAM) offer, which seeks to split General Growth Properties into two publicly traded companies.

Leap Wireless could come under selling pressure after it reported a first quarter loss of 90 cents per share compared to a loss of 74 cents per share last year. Total revenues rose 13.8% to $584.8 million. Analysts estimated a loss of 66 cents per share on revenues of $655.11 million.

McAfee may react to its announcement that it has appointed Cisco veteran Jonathan Chadwick as its CFO, beginning June 14th.

Tibco Software is expected to gain ground after Standard & Poor’s announced that it would replace Brink’s Home Security Holdings in the S&P MidCap 400 Index after the close of trading on May 14th. The latter is being acquired by Tyco International.