US & World Daily Markets Financial Briefing 10-02-2011

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After coming under pressure in early trading on Thursday, stocks have regained some ground over the course of the morning but remain mostly lower. Traders have largely shrugged off the lowest jobless claims number since July of 2008 amid disappointing earnings from Cisco Systems (CSCO).

The major averages have moved well off of their worst levels but currently remain in the red. The Dow is down 34.67 points or 0.3 percent at 12,205.22, the Nasdaq is down 7.82 points or 0.3 percent at 2,781.25 and the S&P 500 is down 3.15 points or 0.2 percent at 1,317.73.

Cisco is in traders' crosshairs this morning after reporting better than expected second quarter earnings but providing disappointing guidance.

The networking giant said it expects third quarter earnings of $0.35 to $0.38 per share, below analyst estimates for $0.40 per share. Cisco also said full year sales growth would be at the mid to low-end of its previous outlook.

In economic news released earlier, the Labor Department said that initial jobless claims fell by 36,000 to 383,000 in the week ended February 5th from the previous week's revised figure of 419,000. Economists had expected a much more modest decrease to 412,000.

However, the Labor Department indicated that the data was once again impacted by severe winter weather, which has contributed to significant volatility in the data in recent weeks.

Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak, said, "Bottom line, smoothing out the data, initial claims are back to the low 400k's which points to further improvement (decline) in the pace of firings."

Separately, the Commerce Department said wholesale inventories rose by 1.0 percent in December after revised data showed that inventories were unchanged in November. Economists had expected inventories to increase by 0.7 percent compared to the 0.2 percent drop originally reported for the previous month.

Sector News

Gold stocks are under considerable selling pressure in the early going, with the NYSE Arca Gold Bugs Index posting a 1.6 percent loss. The weakness comes amid the day's U.S. dollar strength, which has sent the price of gold tumbling by $12.60 to $1,352.20 an ounce.

Telecom and internet stocks are also under pressure following the gloomy forecast from Cisco, while computer technology and healthcare provider stocks are also seeing moderate losses.

Despite the steep loss by Cisco, other networking stocks are moving higher, with Alcatel Lucent (ALU) leading the way after reporting better than expected fourth quarter earnings. The company also said it expects strong profit growth and market improvement in 2011

Oil service and biotechnology stocks are also moving higher, helping to offset some of the aforementioned weakness.

Stocks Driven By Analyst Comments

Watts Water Technologies (WTS) is trading higher after Brean Murray upgraded the stock from Hold to Buy. The stock is up by 4.3 percent and is on target for its best close since July of 2007.

Meanwhile BioMed Realty (BMR) is posting a notable loss after Stifel Nicolaus dropped its rating on shares from Buy to Hold. The stock is seeing a loss of 1 percent after setting its lowest intraday price since late November earlier on.

Life Time Fitness (LTM) is also under pressure after a downgrade at KeyBanc Capital Markets from Buy to Hold. Shares are down by 1.4 percent, falling further away from a recently set three-year closing high.

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Bay Street stocks may open lower Thursday amid falling commodities prices and a mixed batch of earnings reports from major Canadian companies.

U.S. stock futures were pointing to a lower open. Meanwhile, first-time claims for unemployment benefits in the U.S., Canada's largest trading partner, showed a substantial decrease.

On Wednesday, the S&P/TSX Composite Index shed 108.23 points or 0.78 percent to 13,784.30.

The price of crude oil eased near $86 on stronger dollar and rising inventories. Wednesday during trading hours the EIA said U.S. crude oil inventories gained 1.90 million barrels and gasoline stocks moved up 4.70 million barrels in the week ended February 04. Analysts were expecting crude oil inventories to move up by 2.2 million barrels last week.

Earlier today, the International Energy Agency in its monthly Oil Market Report revised 2011 global oil demand up by 120,000 barrels per day to 89.3 million barrels per day (mbd). Separately, the OPEC in its monthly report released today said world oil demand forecast to grow by 1.4 mbd to 87.70 mbd in 2011, citing stronger industrial output in the US and China.

Crude for March was down $0.31 to $86.40 a barrel.

The price of gold moved down Thursday morning as the dollar was trading firm. Gold for April surrendered $12.20 to $13,53.30 an ounce.

In corporate news from Canada, Encana Corp. (ECA.TO) slipped in to the red, reporting fourth quarter net loss of $42 million or $0.06 per share compared with a profit of $636 million or $0.85 per share last year. Analysts were expecting the oil and gas producer to report earnings of $0.13 for the quarter. Yesterday, the company said it would sell 50 percent of interest in its Cutbank Ridge business assets in British Columbia and Alberta to PetroChina for C$5.4 billion.

Insurance services provider Fairfax Financial Holdings (FFH.TO) announced that it has completed its acquisition of First Mercury Financial Corp. (FMR).

Financial services provider Home Capital Group (HCG.TO) reported improved fourth quarter net income of C$50.4 million or C$1.45 per share compared to C$40.48 million or C$1.16 per share last year.

Transportation company Canadian National Railway (CNR.TO) announced plans to invest C$1.7 billion in 2011 to maintain its railway network.

Airlines operator Air Canada (AC_A.TO) swung to profit in fourth quarter, reporting net income of C$134 million or C$0.42 per share, compared to loss of C$56 million or C$0.25 per share last year. For the first quarter of 2011, Air Canada plans to increase its system ASM capacity by 7.5 to 8.5 percent compared to the first quarter of 2010.

Canada's largest phone company BCE Inc. (BCE.TO) said its first quarter net earnings improved to $439 million or $0.58 per share, from $350 million or $0.46 per share last year. Analysts were expecting the company to report earnings of $0.60 per share.

Communications services provider Wi-LAN Inc. (WIN.TO) posted fiscal 2010 preliminary adjusted earnings of C$5.0 million.

Telecommunications company Manitoba Telecom Services (MBT.TO) reported higher fourth quarter net income of $8.1 million or $0.12 per share compared to $6.7 million or $0.10 per share year ago. The company declared a quarterly cash dividend of $0.425 per share.

Fortis Inc. (FTS.TO) posted fourth quarter net earnings of C$85 million or C$0.47 per share, compared to C$81 million or C$0.46 per share last year.

News services provider Thomson Reuters (TRI.TO) fourth-quarter net earnings attributable to common shareholders increased to $224 million or $0.27 per share from $177 million or $0.21 per share last year. The company announced a $0.08 per share increase in the annual dividend to $1.24 per share. A quarterly dividend of $0.31 per share will be paid on March 15, 2011.

In economic news Statistics Canada said its New Housing Price Index (NHPI) rose 0.1 percent in December, following a 0.3 percent advance in November. Economists expected new home prices to rise 0.6 percent. Year-over-year, the NHPI was up 2.1 percent in December following a 2.3 percent increase in November. The year-over-year NHPI has been registering positive changes since January 2010.

From south of the border, the U.S. Labor Department said said initial jobless claims fell by 36,000 to 383,000 from the previous week's revised figure of 419,000. Economists had expected a much more modest decrease to 412,000 from the 415,000 originally reported for the previous week.

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The European markets are in negative territory in afternoon trading Thursday, led by banks, as corporate earnings fell short of market expectations. Sentiment was also influenced by weak cues from Asia and lower commodity prices.

In economic news, UK manufacturing output fell 0.1 percent on a monthly basis in December, the Office for National Statistics said. Economists were expecting a 0.4 percent rise following a 0.6 percent increase in November. Overall industrial production moved up 0.5 percent month-on-month, slightly down from November's 0.6 percent increase.

In France, industrial output rose 0.3 percent month-on-month in December, figures published by the statistical office Insee revealed. Economists were expecting it to fall by 0.3 percent in December. The unexpected growth came as a decline in construction was offset by growth in mining and transport equipment.

The UK's FTSE 100 opened at 6,052, flat with the prior close, and has been languishing in negative territory.

The German DAX edged down from the previous close of 7,321 to begin trading at 7,319. In spite of some positive momentum witnessed in early trading, the index has been in negative territory for most of the session.

The French CAC 40 began trading at 4,079, lower than the prior close of 4,091, and is trading below the central line.

Currently, the FTSE 100 is declining 0.86 percent, the DAX is retreating 0.45 percent and the CAC 40 is losing 0.92 percent.

In the UK, beverages firm Diageo is falling 3.9 percent after reporting a rise in first-half profit. Insurers Legal & General and Prudential are falling 2.4 percent and 2.2 percent, respectively.

Among miners, Randgold Resources, Xstrata and Antofagasta are trading between 2.3 percent and 1.9 percent. Rio Tinto is falling 1.6 percent after reporting a surge in full-year profit. However, Fresnillo is adding 1.7 percent.

Among banks, Barclays is losing 2.1 percent, HSBC Holdings is down 1 percent and Lloyds Banking Group is slipping 0.85 percent.

Medical technology firm Smith & Nephew is gaining 1.7 percent after reporting an increase in fourth-quarter earnings.

Software firm Autonomy, advertising company WPP and Essar Energy are seeing notable gains.

In Germany, Deutsche Bank and Commerzbank are falling about 1.8 percent each. Insurer Allianz is down 1.6 percent.

Deutsche Boerse is gaining 3.4 percent on reports of a merger with NYSE Euronext. HeidelbergCement and Fresenius Medical Care are notably higher.

Automakers Daimler and Volkswagen are gaining, while BMW is losing.

In France, banks Natixis, Societe Generale, BNP Paribas and Credit Agricole are losing between 3.1 percent and 1.4 percent.

Carmaker Renault is falling 3 percent after reporting a profit in fiscal 2010. Peugeot is down 0.6 percent.

Telecommunications equipment maker Alcatel Lucent is surging about 14 percent. The company reported a surge in fourth-quarter profit, driven by strong revenue growth in all geographic regions.

Credit Suisse is sliding 4.4 percent in Switzerland after cutting its target for annualized return on equity.

Stock markets in Asia closed mostly lower. Hong Kong's Hang Seng lost nearly 2 percent, India's BSE Sensex dropped 0.74 percent and Japan's Nikkei 225 retreated 0.11 percent. However, China's Shanghai Composite Index gained 1.6 percent and Australia's All Ordinaries added 0.13 percent.

In the U.S., futures point to a lower open on Wall Street. In the previous session, the Dow edged up 0.1 percent, while the Nasdaq slid 0.3 percent and the S&P 500 declined 0.3 percent.

In commodities, crude is lower by $0.30 at $86.41 per barrel and gold is slipping $7.2 to $1358.3 a troy ounce.

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The Indian market extended its slide on Thursday, as cautious investors cut long positions fearing further selling by foreign funds amid better investment opportunities elsewhere. However, data showing a drop in food inflation to its lowest level in nearly one-and-a half months helped the benchmark indexes close off their day's lows.

India's annual food inflation for the week ended January 29 dropped by nearly four percentage points to 13.07 percent from 17.05 percent in the previous week on moderating prices of fruits and vegetables, government data released today showed, offering some respite to the common man. December industrial production data due tomorrow may offer more clues at the future direction of monetary policy and the near-term investment outlook.

After falling to a low of 17,363 early in the session, the benchmark 30-share Sensex recouped some of its loss and ended down 130 points or 0.74 percent at 17,463, while the 50-share Nifty fell by a modest half a percent to 5,226. The BSE mid-cap and small-cap indexes eased 0.11 percent and 0.86 percent, respectively. Telecom, IT and realty stocks led the decliners, while auto, power and healthcare stocks witnessed selective buying.

Bharti Airtel, India's biggest mobile phone operator, fell nearly 3 percent and Idea Cellular lost 2.19 percent after sector regulator TRAI recommended a six-fold hike for a pan-India 2G licence with 6.2 Mhz spectrum.

In the banking sector, state-run lender SBI fell 3.64 percent and private sector lender HDFC Bank slipped 0.13 percent, while ICICI Bank rose 0.40 percent. Metal stocks such as Hindalco and Sterlite declined about 2 percent each. Heavyweight Reliance Industries ended down 1.33 percent. Among software exporters, bellwether Infosys fell 2.27 percent, Wipro shed 1.25 percent and TCS lost 0.67 percent after Federal Reserve Chairman Ben Bernanke expressed concern over U.S. economic recovery.

VST Tiller Tractors ended 0.38 percent lower despite posting robust Q3 earnings. Unitech plunged 5 percent as the 2G spectrum probe widened. State-run oil marketing firm IOC eased half a percent despite reporting an over two-fold rise in its quarterly net profit.

Manganese Ore India (down 3.60 percent) and Orbit Corporation (down 4.08 percent) closed subdued on disappointing results. Newly-listed Omkar Speciality rose to a high of Rs.101 before closing down 53 percent at Rs. 46.20 versus its initial public offering price of Rs.98 a share.

Meanwhile, Reliance Infrastructure climbed over 9 percent after the company announced a share buyback. Other group stocks such as Reliance Capital, Reliance Communication and Reliance MediaWorks rose between 2 percent and 5 percent after a free fall in the previous session, as chairman Anil Ambani denied ICAI probe reports and blamed a plunge in its group shares yesterday on a series of "baseless and motivated rumors" spread by rivals.

FMCG stocks such as Dabur India, Tata Global Beverages and Colgate Palmolive posted modest gains on defensive buying. Diversified business conglomerate ITC closed up 1.20 percent. State-run steel maker SAIL jumped 5.19 percent after it received government approval to extract iron ore from its Chiria mines in Jharkhand.

Engineering & construction giant Larsen & Toubro gained 0.62 percent after the company said it has formed a joint venture with Cassidian, the defence and security division of the European firm EADS, to manufacture and market systems in the field of defence electronics. Mahindra & Mahindra closed unchanged with a positive bias after the company said it would launch an open offer on April 6 to buy an additional 20 percent stake in micro-irrigation firm EPC Industries.

India Cements rose 2.34 percent despite reporting a 38 percent fall in its quarterly net profit. Gujarat Pipavav Port rallied nearly 4 percent after it signed a pact with Gulf Petrochem India to take land on lease at Pipavav port. Moser Baer India added a percent after it commenced operations of a plant that manufactures components for photovoltaic modules.

GMR Infrastructure soared 14 percent despite reporting a Rs.22.25-crore net loss for the quarter ended December versus a Rs.9.20-crore profit in the year-ago period. The company's operating margins could improve to over 40 percent after the fixation of tariff structure for the Delhi airport, group CEO Subbarao Amarthaluru was quoted as saying.

Elsewhere, most Asian stock markets succumbed to profit taking on Thursday after Federal Reserve chief Ben Bernanke indicated that recovery in the world's largest economy was still fragile. Japan's Nikkei posted a modest 0.11 percent loss, Hong Kong's Hang Seng dropped nearly 2 percent and South Korea's KOSPI fell 1.81 percent. However, China's Shanghai Composite average rose 1.62 percent, as property and banking issues bounced back after a sell-off in the previous session.

European stocks drifted lower after Air France issued a profit warning and Credit Suisse Group's earnings missed estimates. Trading in the U.S. index futures suggested that the Dow could fall 42 points at the opening bell later in the global day as worries grew that inflation is spreading.

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Cisco Systems (CSCO) reported second quarter non-GAAP earnings of 37 cents per share, down 8% year-over-year. The company’s net sales rose 6% to $10.4 billion. Analysts estimated earnings of 35 cents per share on revenues of $10.23 billion.

Akamai Technologies (AKAM) reported fourth quarter normalized net income of 40 cents per share, higher than 34 cents per share last year. Revenues rose 12% to $284.7 million. Analysts estimated earnings of 38 cents per share on revenues of $283.08 million.

Prudential Financial (PRU) reported that its fourth quarter after-tax adjusted operating income rose to $1.78 per share compared to $1.20 per share last year. Analysts estimated earnings of $1.48 per share. 

Peer MetLife (MET) said its fourth quarter earnings operating earnings rose to $1.14 per compared to 96 cents per share last year. Analysts estimated earnings of $1.10 per share. 

PepsiCo. (PEP) reported fourth quarter core earnings per share of $1.05, up 17%, while reported earnings fell to 85 cents per share from the year-ago’s 90 cents per share. The company’s revenues rose 37% to $18.16 billion. For 2011, the company expects 2011 core constant currency earnings per share growth of 7%-8%.

Sprint Nextel (S) reported a fourth quarter loss of 31 cents per share compared to a loss 34 cents per share last year. Sales rose to $8.3 billion from the year-ago’s $7.87 billion. Analysts estimated a loss of 30 cents per share on revenues of $8.15 billion.

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