US & World Daily Markets Financial Briefing 10-07-2009

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Market Mood Cautious as Economy Traverses Through Long Recession

The major U.S. index futures are pointing to a lower opening on Friday. Economic uncertainty is driving down commodity prices and is exerting upward pressure on safe haven currencies such as the dollar and the yen. Among the two economic reports released earlier in the day, the Commerce Department said the trade deficit unexpectedly narrowed in May due to an improvement in exports, while nudged higher by rising oil prices, import prices rose in June.

Global cues are negative, with the Asian markets closing mostly lower, while the European markets are seeing losses after yesterday’s rebound. A few negative tidings from companies should increase anxiety about the impending reporting season and what companies may say about the future. Market sentiment, although is expected to be dour, may also hinge on the consumer sentiment report released shortly after the markets open.

After Alcoa’s (AA) positive earnings and an encouraging jobless claims report gave a solid start to U.S. stocks on Thursday, the major averages went on a roller coaster ride, reflecting the wavering sentiment of traders. The Dow Industrials moved back and forth across the unchanged line before closing up 4.76 points or 0.06% at 8,183.

The Nasdaq Composite Index and the S&P 500 Index held above the unchanged line for most of the session, although they did show volatility, before ending modestly higher. While the former ended up 5.38 points or 0.31% at 1,753, the latter gained 3.12 points or 0.35% to close at 883.

Sixteen of the Thirty Dow components ended the session higher, with Bank of America, DuPont, Walt Disney, General Electric, IBM and JP Morgan Chase showing strength. However, Alcoa slid 2.43% despite advancing over 6% in early trading. Merck and Pfizer ended down 3.67% and 2.19%, respectively.

Among the sector indexes, the Dow Jones U.S. Basic Materials Index rose 1.38%, while the Philadelphia Oil Service Index and the NYSE Arca Oil Index rose 1.68% and 1.12%, respectively. The Philadelphia Housing Sector Index ended up 2.66%. The KBW Bank Index and the NYSE Arca Securities Broker/Dealer Index rose 1.91% and 1.63%, respectively.

In the technology space, the Philadelphia Semiconductor Index gained 2.79% and the NYSE Arca Computer Hardware Index rose 1.04%, while the NYSE Arca Software Index and the NYSE Arca Internet Index gained close to 1% each.

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Gold Turns Lower As Dollar Moves Higher

Gold turned back to the downside in early trading and after moving off of a two-month low in the previous session. A stronger dollar and lower crude oil prices reduced gold's hedge appeal.

August gold fell to $909.20, down $7 for the session. Prices hit as low as $906.60, testing the multi-month low of $904.80 from Wednesday.

The dollar moved back toward 1.3900 against the euro, rising away from a weekly low reached yesterday. The greenback also edged higher against the British pound.

President Barack Obama it is premature to unwind economic stimulus plans as he spoke after a what was termed a "very productive" G8 Summit in L'Aquila, Italy on Friday.
 
In economic news, a Labor Department report showed that import prices jumped 3.2 percent in June following a 1.4 percent increase in May. The increase was largely due to a 20.3 percent increase in the prices of petroleum imports, which rose 9.3 percent in the previous month.

A Commerce Department report showed that the trade deficit narrowed to $26.0 billion in May from a revised $28.8 billion in April. Economists had been expecting the deficit to widen to $30.0 billion from the $29.2 billion originally reported for the previous month.

Silver for September delivery fell to $12.57 per ounce, down 36.5 cents on the session, while September copper dropped 3.85 cents to $2.199.

Crude oil plunged to $59.10 per barrel, down $1.31 on the session.

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The major Asian markets ended mostly lower on Friday, with the exception of the Taiwanese and Australian markets, weighed down by another lackluster lead from Wall Street amid the uncertain economic environment.

Japan’s Nikkei 225 average opened higher, as traders tried to focus on the positives and do some bargain hunting following seven straight sessions of declines. However, the gains could not be sustained and consequently, the Nikkei declined below the unchanged line in early afternoon trading. Although the index showed volatility and was confined in a narrow range on either side of the unchanged line, it closed down 3.78 points or 0.04% at 9,287, marking the eight straight session of declines.

Economic reports from Japan weren’t inspiring enough, as the Bank of Japan said the nation’s corporate goods price index declined at the steepest year-over-year pace on record in June, mainly due to a dip in petroleum and coal prices and the prices of scrap and waste products. The corporate goods price index fell 6.6% annually following a revised 5.5% decline in the previous month.

Shipping stocks came under significant selling pressure in reaction to a drop in the shipping rates. Nippon Yusen and Mitsui O.S.K. Lines were among the major decliners. All Nippon Airways tumbled on 5.78% on short selling. Power generating systems and equipment maker Meidensha tumbled over 8% and Pioneer ended down mote than 6%. On the other hand, automakers ended mostly higher.

Australia’s All Ordinaries opened unchanged, but it rose sharply in early trading. Although the index pared some of its gains by early afternoon trading, the index held its ground and rose further on another spurt of buying interest. The index closed near the day’s high at 3,791, representing a gain of 29.20 points or 0.78%. The buying interest was moderate, although the rally had breadth. Miners and financial stocks advanced in the session.

Hong Kong’s Hong Seng Index remained below the unchanged line for most of the session before closing down 82.17 points or 0.46% at 17,708. China-related stocks and most financial and property stocks also showed weakness.

Notwithstanding the Bank of Korea expressing confidence about a revival, South Korea’s Kospi surrendered its gains and fell below the unchanged line. Thereafter, the index traded mostly lower before closing off the lows of the session. At the close of trading, the index was down 2.27 points or 0.16% at 1,429. Technology stocks receded after their recent strong run up. However, the financial and retail spaces showed some strength.

Boosted by stimulus spending, the prevailing low interest rate environment and signs of stabilization emerging in global economic conditions, the South Korean economy is expected to fare better than initially thought, according to Bank of Korea's latest estimates. In a communiqué, the central bank said Friday that South Korea's GDP is expected to decline by 1.6% in 2009, with the economy expected to rebound in 2010 to show 3.6% growth.

The latest projections compare to the bank's earlier estimate for a 2.4% GDP decline in 2009 and 3.5% growth in 2010. The emerging Asian economy grew at a 2.2% rate in 2008.

Institutional selling in late trading dragged down India’s benchmark Sensex to its lowest closing levels since May 15. For the week, the benchmark indexes corrected nearly 10% following the disappointment over the Union Budget.

The Sensex opened modestly higher on the back of better-than-expected results from Infosys. After trading choppily for most of the day, the index rose sharply in the afternoon following improved May industrial production numbers. However, the recovery proved short lived, as a huge sell off across all the sectors with the exception of IT stocks dragged the market sharply lower in the last hour, with the index ending at 13,504, down 253 points or 1.84%.

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The major European markets are seeing weakness on Friday after they advanced in the previous session. The French CAC 40 Index and the German DAX Index are moving down 0.72% and 0.78%, respectively, while the U.K.’s FTSE 100 Index is receding 0.67%.

On the economics front, German wholesale prices fell 8.8% year-over-year in June following 8.9% growth in the previous month, with the latest price decline marking the eighth consecutive monthly declines. At the same time, wholesale prices rose 0.9% month-over-month.

The French National Institute for Statistics and Economic Studies reported today that France’s industrial output rose 2.6% month-over-month in May, an unexpected improvement, as economists had forecast a 0.2% decline. Manufacturing output rose 2.6%.

U.S. Economic Reports

The Commerce Department released a report on Friday showing that the U.S. trade deficit unexpectedly narrowed in the month of May, as the value of exports showed a notable increase and the value of imports edged lower.

The report showed that the trade deficit narrowed to $26.0 billion in May from a revised $28.8 billion in April. Economists had been expecting the deficit to widen to $30.0 billion from the $29.2 billion originally reported for the previous month.

Meanwhile, the Labor Department said import prices rose 3.2% month-over-month in June compared to a upwardly revised 1.4% growth in the previous month. The increase reflected a 20.3% increase in petroleum import prices, while non-petroleum import prices were up a mere 0.2%. On a year-over-year basis, import prices were down 17.4%.

Export prices rose at a 1.1% rate in June compared to a downwardly revised 0.5% growth in May. Agricultural export prices climbed 4.8% compared to 0.8% growth in export prices of non-agricultural commodities. On a year-over-year basis, export prices declined 6.4%.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for July is scheduled to be released at 9:55 AM ET. Consumer sentiment is expected to edge down slightly, with economists forecasting a value of 70 compared to the previous month's 70.8.

Treasury Secretary Tim Geithner is due to testify before a joint hearing of the House Financial Services and Agriculture Committees on derivatives regulation at 10 AM.

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Chevron declined in Thursday’s after hours session after it issued its interim update. The company said upstream earnings for the second quarter are likely to be better than in the first quarter due to the higher crude oil prices. However, the company cautioned that downstream results are likely to be significantly lower than in the first quarter.

99 Cents Only Stores could be in focus after it said its net sales for the first quarter were $332.1 million, up 8.9% year-over-year. Same store sales rose 7.2%. The consensus estimates called for sales of $322.31 million.

Lawson Software traded lower in Thursday’s after hours session after it forecast first quarter adjusted earnings of 5 cents per share on revenues of $160 million to $165 million. The guidance is below the consensus estimates, which call for earnings of 8 cents per share on revenues of $165.8 million. The company also reported fourth quarter earnings of 6 cents per share compared with 2 cents per share last year. On an adjusted basis, the company’s earnings remained flat at 10 cents per share. Revenues fell 20% to $186.2 million. Analysts, on average, estimated earnings of 10 cents per share on revenues of $177.1 million.

Shaw Group is likely to see weakness after it reported third quarter net income of 9 cents per share, lower than 62 cents per share in the year-ago period. The company’s non-GAAP earnings were 57 cents per share, lower than 67 cents per share in the year-ago period.

KennaMetal is likely to be in focus after it said it has priced a public offering of 7 million shares at $15.75 per share. The company said it intends to use the net proceeds from the offering to pay off outstanding bank debt.

DryShips could also react to its announcement that it has entered into an agreement to acquire the remaining 25% of the total issued and outstanding capital stock of Primelead Shareholders. Primelead is to be a wholly owned subsidiary of DryShips upon closing of the deal. The transaction terms call for the payment of $50 million cash and the issuance of $280 million face value of convertible preferred stock for the 25% stake in Primelead.

Healthcare Realty Trust may see some buying interest after Standard & Poor’s announced that the company will replace Wabash National in the S&P SmallCap 600 Index after the close of trading on July 16th.

Tidewater may move to the upside after the company’s board authorized the repurchase of up to 200 million shares of its common stock. The company said it would use available cash or borrowings under its revolving credit facility to fund any share repurchases.

Susquehanna Bancshares is likely to see weakness after it said it expects second quarter earnings to be below market expectations. The company attributed the shortfall to an increase in the provision for loan losses to $50 million in the second quarter from $35 million in the first quarter, a FDIC insurance special assessment of $6.2 million, consolidation pre-tax charges of $2.9 million and an other than temporary impairment pre-tax charge of $0.9 million.

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