US & World Daily Markets Financial Briefing 10-02-2010

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Stocks Seeing Moderate Weakness In Mid-Morning Trading

After turning in a strong performance in the previous session, stocks are moderately lower in mid-morning trading on Wednesday, as traders digest comments from Federal Reserve Chairman Ben Bernanke. The major averages are all in negative territory, offsetting a part of yesterday's rally.

While Bernanke's testimony before the House Financial Services Committee was postponed amid the snowstorms that have hit the Washington, D.C. area, the Fed Chief's prepared remarks regarding unwinding the Fed's emergency liquidity programs have been released to the public.

Bernanke said the Fed would boost the discount rate "before long" in an effort to continue to normalize lending, but he stressed that the move does not signal any change in monetary policy and that the Fed funds rate will remained unchanged for "an extended period".

The Fed Chairman's remarks also revealed that the Fed is considering interest paid on reserves as an alternative to the fed funds rate.

Market focus also remains on Europe, as traders are looking for any forthcoming details from the euro zone regarding a prospective bailout for debt-riddled Greece, with Germany said to be spearheading the effort.

On the economic front, the Commerce Department reported that the U.S. trade deficit unexpectedly widened to $40.2 billion in December from $36.4 billion in November. The wider deficit came as a surprise to economists, who had expected the deficit to narrow to $35.8 billion.

As earnings season continues to wind down, Walt Disney Co. (DIS) reported first quarter net income of $0.44 per share and saw its revenues for the quarter tick up by 1 percent to $9.74 billion. On average, analysts expected the company to earn $0.38 per share on revenues of $9.66 billion.

Sprint Nextel (S) said its fourth quarter net loss narrowed to $0.34 per share from $0.57 per share in the prior year period. Analysts had forecast a loss of $0.19 per share for the quarter. Net operating revenues for the quarter came in at $7.87 billion, short of the $8.03 billion projected by analysts.

The major averages have moved well off their lows for the session in recent trading, although they remain firmly in the red. The Dow is currently down 63.64 at 9,995.00, the Nasdaq is down 14.32 at 2,136.55 and the S&P 500 is down 7.53 at 1,062.99.

Sector News

Health insurance stocks are some of the morning's weakest performers, as reflected by the 2.4 percent decline by the Morgan Stanley Healthcare Payor Index. The loss extends a recent downward move by the index, which has moved lower for much of the past month.

The index is being dragged lower by shares of Wellpoint (WLP), which are down by 3.3 percent. With the decline, the stock has fallen to its worst intraday price in roughly six weeks.

Steel, gold, natural gas and oil service stocks are also moving to the downside, reflecting weakness in the resource sector. The pullback comes as commodities prices are giving back some ground after showing a strong upward move in the previous session.

Airline, housing, semiconductor and utility stocks are also moving markedly lower, while some banking and brokerage stocks are eking out gains. The NYSE Arca Securities Broker/Dealer Index is up 0.8 percent, while the Kbw Bank Index is up 0.5 percent.

Stocks Driven By Analyst Comments

Energy Conversion Devices Inc. (ENER) is retreating in mid-morning trading after UBS downgraded its rating on the company's stock from Neutral to Sell. The stock is down by 4.1 percent, sinking to six-year intraday low.

Parkway Properties (PKY) is also moving lower after being downgraded by Wells Fargo from Market Perform to Underperform. The stock is currently down by 3.4 percent, falling to its lowest intraday price in over three months.

On the other hand, Apollo Investment (AINV) is on the rise after Wells Fargo upgraded the stock from Market Perform to Outperform. Shares have gained by 4.4 percent, although they remain stuck in a range.

Bay Street Stocks Face Lackluster Open Wednesday

Canadian stocks may struggle to extend their strong gains from the previous session Wednesday morning in Toronto, with markets on both sides of the border trying to make sense of conflicting reports on the Greek debt situation.

The main index witnessed a decent run up in the previous sessions on speculation that problems in the Greece will be solved by the European nations. However, with German officials saying nothing has been settled, traders may be hesitant to build positions in equities.

The S&P/TSX Composite Index rallied 158.94 points or 1.43% to close Tuesday's session at 11,274.24, after losing nearly 3% in the earlier four sessions.

The U.S stock futures point to a mixed opening.

The price of oil edged down $0.05 to $73.70 a barrel and the price of bullion was little changed at $1,078 an ounce

In corporate news, Suncor Energy said that it has reached an agreement with Progress Energy Resources Corp. to sell certain natural gas properties for about C$390 million.

Oil and natural gas explorer Talisman Energy slipped to loss reporting fourth quarter net loss of C$0.11 per share, compared to net income of C$1.17 per share last year.
 
Mineral explorer New World Resources has decided to withdraw its proposed offering of EUR 700 million equivalent senior secured notes due to prevailing market conditions.

Mining and metals company First Quantum Minerals announced the finalization of the acquisition of the Ravensthorpe Nickel Operation in Western Australia.

ARC Energy Trust reported net income for the fourth quarter of C$0.28 per unit, lower than C$0.38 per unit in the prior year quarter.

Canadian stock market operator TMX Group reported fourth quarter net loss of C$0.36 per share, compared to net income of C$0.65 per share last year.

Air Canada reported a narrower fourth-quarter net loss of C$0.25 per share, down from a loss of C$7.27 per share in the year ago quarter. Further, the airline operator said it plans to increase its full year 2010 system capacity, by 4% to 6% from the full year 2009 level. Separately, it said that it has tied up with a group of lenders to increase its term credit facility by C$100 million

Apparel maker Gildan Activewear reported first quarter net earnings of 0.23 per share, compared to US$4.4 million or US$0.04 per share in the prior year quarter.

Financial services provider Home Capital Group reported fourth quarter net income of C$1.16 per share, compared to C$0.84 per share last year. In addition, the company said its per share earnings will grow 15-20% for 2010.

Building products distributor Taiga Building Products reported third quarter net earnings of C$0.03 per share, compared to a loss C$0.08 per share in the previous year.

Interactive network and media services provider Axia NetMedia Corp. reported second quarter net income of C$0.1 million or breakeven per share, compared to C$0.9 million or C$0.01 per share in the year-ago quarter.

Animal nutrition maker Ridley Inc. reported second quarter net earnings of $0.37 per share, compared to $0.05 per share in the same period last year.
 
In brokerage updates, Raymond James ups Canadian National Railway rating to an 'outperform' from a 'market perform'. RBC cuts Suncor Energy to 'sector perform' from a 'market perform'.

In economic news, Statistics Canada said today that the country's exports and imports both advanced in December, resulting Canada's trade deficit with the world to widen to $246 million from $201 million in November.

Commodity, Currency Markets

Crude oil futures are edging down $0.09 to $73.66 a barrel after advancing $1.86 to $73.75 a barrel on Tuesday. Gold futures, which rose $11 to $1,077.20 an ounce, are currently sliding $0.70 to $1,076.50 an ounce.

On the currency front, the U.S. dollar is trading at 89.366 yen compared to the 89.6945 yen it fetched at the close of New York trading on Tuesday. Against the euro, the greenback is valued at $1.3740 compared to yesterday’s $1.3797. In the previous session, the euro rebounded by 1%, recording its biggest one-day gain since November 25th, 2009, primarily on hopes that the Greek debt crisis may be drawing to a close.

Even after the recovery, the euro did not break above its 10-day moving average. While noting that the euro is restrained by the upper bound of a down trending channel seen since mid-January, DBS Research Group commented that the upside could be nothing more than short covering. Looking ahead, the firm sees the possibility of either the resumption in the euro selling or a consolidation such as the one witnessed between late December and mid-January.

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Asian Markets Extend Gains As Concerns In Europe Show Signs Of Easing

The markets across Asia extended gains for the second successive day on Wednesday, following the positive closing on Wall Street in the previous session on increasing optimism that the sovereign debt crisis in Greece will be resolved with the assistance of the member of countries in the region including Germany. Buying interest at lower levels also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index ended at 9,963.99, up 31.09 points or 0.31%, while the broader Topix index of all First Section issues gained 1.93 points, or 0.22%, to 883.

On the economic front, a statement released by the Bank of Japan revealed that an index measuring domestic corporate goods prices in the country rose 0.3% in January to a score of 102.4, compared to the previous month. Economists expected the index to increase 0.1% following flat reading in the previous month. The statement further noted that, on an annual basis, the corporate goods index, however, declined 2.1% for the month, following a 3.9% contraction in the previous month. Analysts expected the index, on annual basis, to decline 2.3% for the month.

In a separate report, the Cabinet Office in Japan revealed that private sector machinery orders in the country increased by a seasonally adjusted 20.1% in January, compared to the previous month. Economists were expecting a modest 8% gain in machinery orders for the month.

Shipping stocks ended in positive territory. Mitsui OSK Lines gained 2.77%, Nippon Yusen rose 2.76% and Kawasaki Kisen Kaisha advanced 1.68%.
 
Glass and ceramic stocks also ended higher on optimism about recovery. Asahi Glass climbed 2.79%, Tokai Carbon surged up 3.23%, NGK Insulators added 0.60% and Nippon Sheet Glass rose 2.22%.

Mixed trading was witnessed among trading companies. Mitsubishi Corp. advanced 0.89%, while Toyota Tsusho Corp. and Sojitz Corp. remained unchanged from previous close. However, Sumitomo Corp. slipped 0.50% and Mitsui & Co., fell 1.08%.

Automotive stocks also ended mixed. Toyota Motor added 0.30%, Nissan Motor rose 1.64% and Hino Motors gained 1.51%. Isuzu Motors and Mitsubishi Motors remained unchanged from previous close. However, Honda Motor lost 1.63% and Suzuki Motor slipped 1.29%.

Banks also ended mixed. Sumitomo Mitsui Financial advanced 0.95%. However, Mizuho Financial slipped 1.14%, Mitsubishi UFJ Financial edged down 0.66% and Resona Holdings lost 1.85%.

In Australia, the benchmark S&P/ASX 200 Index added 8.30 points, or 0.18% to close at 4,513, while the All-Ordinaries Index ended at 4,533, representing a gain of 12.30 points, or 0.27%.

On the economic front, survey results published by Westpac Bank and the Melbourne Institute reveal that consumer confidence in the country declined in February for the third time in four months. The group's consumer sentiment index declined 2.6% during February to a reading of 117 points.

In a separate release, the Australian Bureau of Statistics revealed that the number of home loans extended in the country during December declined by a seasonally adjusted 5.5%. The report further noted that, on a seasonally adjusted basis, the number of loans extended to owner-occupied houses declined 2.3% for the month.

Metals and mining stocks advanced following rise in commodity prices in the international market. BHP Billiton, which reported strong quarterly results, edged up 0.08%, Rio Tinto gained 1.42%, Fortescue Metals advanced 0.65%, Gindalbie Metals surged up 4.02%, Iluka Resources added 0.12%, Macarthur Coal rose 3.19%, Murchison Metals soared 6.83% and Oz Minerals increased 3.05%.

Mixed trading was witnessed among oil stocks. While Woodside Petroleum lost 1.07% and Oil Search slipped 0.39%, Santos edged up 0.15% and Origin Energy added 0.50%.

Gold stocks also ended mixed. While Newcrest Mining ended in positive territory with a gain of 1.12%, Lihir Gold ended in the red with a loss of 0.70%.
 
Commonwealth Bank of Australia reported strong results for the first half, which was in line with estimates. However, the stock ended in negative territory with a loss of 1.69%. Among other banks, ANZ Bank lost 1.80%, National Australia Bank fell 2.31% and Westpac Banking slipped 0.61%.

Retail stocks managed to end in positive territory. David Jones added 0.21%, Harvey Norman gained 1.08%, JB Hi-Ii Ltd advanced 0.41%, Wesfarmers gained 0.61% and Woolworths Ltd rose 0.75%.

In Hong Kong, the Hang Seng Index extended gains for the second day rising 131.94 points, or 0.67%, to close at 19,922, taking cues from Wall Street where the major averages ended in positive territory scrapping the recent losses as sovereign debt concerns in Greece appear to be easing. Positive trading in mainland China also lifted market sentiment. China resource stocks led the gains in the session.

In South Korea, the KOSPI Index ended flat with a minor loss of 0.37 points, or 0.02%, at 1,570, as gains in steel stocks were more than offset by profit taking in automotive stocks. Taking cues from positive closing on Wall Street in the previous session, investors evinced fresh buying interest in technology stocks on increasing optimism that the sovereign debt crisis will be eased and global economic recovery might be sustained. However, profit taking in automotive stocks offset the gains.

After finishing higher in the past three sessions, the Indian market succumbed to selling pressure on Wednesday, weighed by profit taking near key resistance levels. As debt woes in Greece eased, the benchmark Sensex opened on a positive note and rose to a high of 16,141 before paring gains and ending lower near the day's lows at 15,922, down 120 points or 0.75%. Likewise, the Nifty fell 35 points or 0.74% to 4,757.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index slipped 6.05 points, or 0.24% to close at 2,483, and Strait Times Index in Singapore declined 10.63 points, or 0.39%, to close at 2,734, on profit taking. However, China's Shanghai Composite Index gained 33.66 points, or 1.14%, to close at 2983, and Taiwan's Weighted Index rose 80.80 points, or 1.10% to close at 7,442,

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The major European averages are trading firm on Wednesday, with the French CAC 40 and the German DAX Index rising 0.93% and 0.91%, respectively. The U.K.’s FTSE 100 Index is rising 0.73%.

The Bank of England’s quarterly inflation report released today showed that the central bank is now less optimistic about growth now. The central bank now expects the year-over-year growth to be around 3.5% by the end of 2010 compared to its earlier estimate of 4% growth. The central bank also said it expects inflation to peak at about 3.5% this year before retreating below the 2% target level.

The report also suggested that the growth outlook remains highly uncertain, as the outlook for growth is underpinned by the considerable stimulus from the easing in monetary policy, and supported by global growth and the past depreciation of sterling.

A report released by the U.K. Office for National Statistics showed that the U.K.’s industrial production rose 0.5% month-over-month in December, helped by a 0.9% increase in manufacturing output. The increase was unexpected, as economists had estimated a 0.2% decline. However, on a year-over-year basis, industrial output fell 3.6% compared to the 4.1% drop expected by economists.

Meanwhile, INSEE reported that French industrial output declined 0.8% month-over-month in December compared to the downwardly revised increase of 0.8% in November. Economists expected a 0.2% increase for the month. Meanwhile, a government report showed that France’s current account deficit widened to 3.6 billion euros from a revised deficit of 3.4 billion euros for November, with the widening reflecting a wider trade deficit.

U.S. Economic Reports

The U.S. trade deficit unexpectedly widened in the month of December, according to a report released by the Commerce Department, with the wider deficit coming as the value of imports increased at a faster pace than the value of exports.

The Commerce Department said that the trade deficit widened to $40.2 billion in December from $36.4 billion in November. The wider deficit came as a surprise to economists, who had expected the deficit to narrow to $35.8 billion.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $46 billion for January.

Earnings

Coca-Cola Enterprises (CCE) reported that its fourth quarter comparable earnings remained flat at 22 cents per share. Net operating revenues fell 2.5% to $5.12 billion. Analysts estimated earnings of 20 cents per share on revenues of $5.28 billion. The company expects 2010 comparable earnings per share growth at a low single-digit rate, while it reaffirmed its revenue growth guidance of low single digit growth.

Elan (ELN) reported a fourth quarter loss of 10 cents per share compared to a profit of 36 cents per share in the year-ago period. Total revenues rose to $300 million from the year-ago’s $149.6 million. The consensus estimates called for a loss of 8 cents per share on revenues of $296.25 million. The company said it expects to report operating profits before times for the first time in several years.

Marsh & McLennan (MMC) said its fourth quarter consolidated revenues rose 3% to $2.7 billion. On an adjusted basis, the company reported earnings of 38 cents per share, higher than 36 cents per share in the year-ago period. Analysts estimated earnings of 37 cents per share on revenues of $2.56 billion.

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Disney  is likely to be in the spotlight after it said it earned 44 cents per share in its fiscal first quarter on 1% revenue growth to $9.74 billion. On an adjusted basis, the company reported earnings of 47 cents per share. The consensus estimates had called for earnings of 39 cents per share on revenues of $9.65 billion.

Baidu (BIDU) may move in reaction to its announcement that its fourth quarter revenues rose 39.8% to $184.7 million and its non-GAAP earnings came in at $1.88 per share. Analysts estimated earnings of $1.68 per share on revenues of $180 million. For the first quarter, the company expects revenues of $176 million to $181 million compared to the $170.2 million consensus estimate.

Airline stocks could be in focus after some of the airlines such as JetBlue (JBLU) and Continental Airlines (CAL) reported that they would be reducing scheduled service for January 10th, 2010 due to winter storms.

Micron Technology (MU) may see some activity after it said it has agreed to acquire private-held Numonyx Holdings, which is jointly owned by STMicroelectronics (STM), Intel (INTC) and Francisco Partners for about $1.27 billion. Micron will also pay up to 10 million additional shares issued pro rata to Numonyx shareholders to the extent the volume weighted average share price of Micron ranges between $7 and $9 for 20 days ending 2 days prior to the closure of the deal.

EOG Resources (EOG) is likely to be in focus after it said its fourth quarter net income available to common shareholders fell to $1.58 per share from $1.84 per share last year. On an adjusted basis, the company reported non-GAAP earnings of 92 cents per share compared to 74 cents per share last year. Net operating revenues rose to $1.76 billion from $1.63 billion last year. Analysts estimated earnings of 98 cents per share on revenues of $1.33 billion. The company announced an increase in its cash dividend by 75 to $0.155 per share.

Delta (DAL) and U.S. Airways (LCC) are expected to move in reaction to their response to a Department of Transportation ruling seeking divestment of 20 of the 125 slot pairs involved at New York-LaGuardia and 14 of the 42 slot pairs at Washington-National. The airlines expressed disappointment over the DOT’s decision and are of the view that the decision, if implemented, will negatively impact consumer and economic benefits created by the proposed merger of these two airlines.

Tessera Technologies (TSRA) may gain ground after Standard & Poor’s announced that the company would replace Financial Federal (FIF) in the S&P SmallCap 600 Index after the close of trading on Thursday, February 18th. Financial Federal is being acquired by People’s United Financial (PBCT).

3M Co. (MMM) is likely to see buying interest after it announced that its board has approved a 3% increase in its dividend. Meanwhile, Kensey Nash (KNSY) could gain ground after it announced that its board has approved the buyback of an additional $30 million shares.

IMS Health (RX) could be in focus after it reported fourth quarter revenues of $599.2 million, up 3% year-over-year. The company reported non-GAAP earnings of 52 cents per share, higher than 50 cents per share in the year-ago period. Analysts estimated earnings of 36 cents per share on revenues of $526.24 million.

Netgear (NTGR) is likely to move in reaction to its announcement that its fourth quarter net revenue rose to $218.8 million from $161.4 million in the year-ago period. The company reported non-GAAP earnings of 35 cents per share compared to a loss of 7 cents per share last year. The consensus estimates had called for earnings of 25 cents per share on revenues of $175.76 million. For the first quarter, the company expects net revenues of $195 million to $205 million and non-GAAP operating margin in the range of 10%-11%. Analysts estimate revenues of $172.19 million.

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