US & World Daily Markets Financial Briefing 13-08-2009

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Stocks May Hold onto Optimism Despite Insipid Retail Sales

The major U.S. index futures are pointing to a higher opening on Thursday, although the futures have trimmed their gains following the release of a report that showed retail sales unexpectedly declined in July. Earlier, the sentiment was markedly upbeat after a hedge fund owned by billionaire investor John Paulson revealed in a filing that it has increased its exposure on banks.

Additionally, a rally in commodity prices and positive earnings reported by some retailers could generate some buying interest. Notwithstanding a slight increase in jobless claims, the Labor Department said continuing claims fell steeply to their lowest level since April, presenting a mixed picture on the labor market.

U.S. stocks ignored a negative start on Wednesday and advanced solidly in early trading. Thereafter, the major averages moved mostly sideways before legging up further following the release of the Fed’s post-meeting policy statement. After snapping back some of their gains in late trading, the major averages ended with gains in excess of 1% each.

The Dow Industrials rose 120.16 points or 1.30% to close at 9,362 and the Nasdaq Composite ended up 28.99 points or 1.47% at 1,999, while the S&P 500 Index gained 11.46 points or 1.15% to close at 1,006.

Twenty-eight of the thirty Dow components ended the session higher, with United Technologies (UTX) (up 4.30%), Travelers Co. (TRV) (up 3.34%), Verizon Communications (VZ) (up 1.99%), JP Morgan Chase (JPM) (up 2.35%), Caterpillar (CAT) (up 2.81%) and Boeing (BA) (up 2.09%) showing strong advances. On the other hand, Coca-Cola (KO) fell over 1% and DuPont (DD) edged down modestly.

Among the sector indexes, the Dow Jones Transportation Average and the Dow Jones U.S. Basic Materials Average rose over 1% each, while the NYSE Arca Airline Index advanced 3.54%. The NYSE Arca Biotechnology Index rose 1.80% compared to a 4.14% advance by the Philadelphia Housing Sector Index.

Financial stocks rebounded, as reflected by the 3% gain by the NYSE Arca Securities Broker/Dealer Index and a 1.86% advance by the KBW Bank Index. In the resource space, the NYSE Arca Oil Index moved up 1.14% and the Philadelphia Oil Service Index rose 1.84%.

The Philadelphia Semiconductor Index gained 1.18%, the NYSE Arca Disk Drive Index rose 1.39% and the NYSE Arca Internet Index advanced 1.64%. At the same time, the NYSE Arca Networking Index and the NYSE Arca Software Index rose 4.03% and 2.13%, respectively.

On the economic front, the Commerce Department said the trade deficit widened to $27 billion in June from $26 billion in May, with the wider deficit reflecting a faster rate of growth in imports than the exports. Excluding petroleum, imports were down 1%. The export growth was led by a 7.9% increase in exports of semiconductors, a 5.2% increase in telecommunications equipment and a 5% increase in exports of industrial supplies.

The Treasury auction of 10-year notes received a lukewarm response, with the yield at 3.734% and the bid-to-cover ratio at 2.49%.

While toeing along the expected lines with respect to interest rates, the FOMC said in its post-meeting policy statement that economic activity is leveling out, an improvement from its previous opinion that the pace of contraction is slowing. There weren’t any major changes to the references the committee made towards other measures.

Regarding its Treasury securities purchasing program, the central bank said the committee would gradually slow the pace of these transactions. The central bank anticipates the full amount of $300 billion to be purchased by the end of October. The FOMC reiterated its commitment to retain interest rates at exceptionally low levels for an extended period.

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Higher Crude Oil Prices Could Boost Bay Street Market

Canadian stocks could see some early strength on Thursday, as commodities are higher in the early going. European markets and U.S. futures are also in the green.

Crude oil has rallied to $71.63 per barrel, up $1.47 on the session. Prices earlier reached as high as $72.21. Meanwhile, gold added $7.20 to $959.70 per ounce and copper rose 6.8 cents to $2.8915.

Kinross Gold reported that its second quarter net earnings were US$19.3m or US$0.03 per share, compared to net earnings of US$26.0m or US$0.04 per share a year ago. Adjusted net earnings for the second quarter were US$84.3m or US$0.12 per share, up from US$49.5m or US$0.08 per share last year.

Niko Resources Ltd. reported a surge in first-quarter net income to US$20.44m or US$0.41 per share from US$6.27m or US$0.13 per share in the prior year.

Anvil Mining Ltd. reported second-quarter net loss was US$11.35m or US$0.13 per share, compared with a net income of US$8.52m or US$0.12 per share in the prior-year quarter.
 
Suncor reportedly closed units at a refinery in Edmonton for the second time in a month because of mechanical problems, adding to supply worries.

Gildan Activewear Inc. reported third-quarter net earnings of $41.5m or $0.34 per share, lower than net earnings of $54.5m or $0.45 per share reported in the same period of fiscal 2008. The previous year's results have been recast.

On Wednesday, the S&P/TSX Composite Index rose 30.4 points or 0.28% to close at 10,659.87. The market had finished at its lowest level of August on Tuesday.

Across the border, the Federal Open Market Committee announced Wednesday that it will leave the target range for its benchmark federal funds rate at zero to 0.25 percent. The Fed also repeated its belief that low rates will persist for what it calls "an extended period." The central bank said that economic activity is "leveling out."

Gold Challenges $960 On Weaker Dollar

Gold prices moved higher on Thursday as the dollar continued to slip against the euro. Traders considered a slew of generally disappointing economic news and also reacted to yesterday's Fed rate decision.

December-stamped gold rose to $958.50 per ounce, up $6 for the session. Prices climbed as high as $963.10 after earlier dipping below $950.

The dollar fell to a six-day low against the euro, moving to 1.4300. Gold usually moves opposite the dollar because of it's hedge value.

A Commerce Department report showed that retail sales edged down 0.1 percent in July following an upwardly revised 0.8 percent increase in the previous month. The decrease surprises economists, who had expected sales to increase by 0.8 percent compared to the 0.6 percent increase originally reported for June.
 
The Labor Department report showed that import prices fell 0.7 percent in July following a 2.6 percent increase in prices in June. Export prices edged down 0.3 percent in July after rising 1.0 percent in the previous month.

A separate Labor Department report showed that initial jobless claims edged up to 558,000 from the previous week's revised figured of 554,000. Economists had been expecting claims to slip to 545,000 from the 550,000 originally reported for the previous week.

Traders also had their first chance to react to the The U.S. Federal Reserve's interest rate decision on Wednesday after floor trading closed for the Comex. As expected, the Fed left interest rates at historic lows once again and said the economy shows signs of leveling out, though it warned that businesses and consumers continue to face significant pressures.

December gold climbed to $952.50 per ounce, up $4.90 on the session. Prices touched as high as $954.40 earlier in the day.

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Asian Markets End In Positive Territory On Fed Announcement

The markets across Asia, except South Korea, ended in the positive territory on Thursday taking cues from Wall Street where the US Federal Reserve, while retaining the interest rates unchanged at 0%-0.25%, stated that the world's largest economy is leveling out. Banks, exporters, and resource stocks advanced on increasing optimism about recovery later in the year.

In Japan, the benchmark Nikkei 225 Index ended the session at 10,517, up 82.19 points, or 0.79%, while the broader Topix index of all first section stocks gained 8.54 points, or 0.89% and closed at 968.

Automakers and exporters advanced after the local currency weakened against the greenback. Toyota Motor Corp. gained 1.49%, Honda Motor rose 1.32%, Suzuki Motor advanced 1.77% and Nissan Motor increaesed 1.83%.

Denso Corp., a maker of car parts, surged up 3.43% after Mitsubishi UFJ Financial lifted the stock to "strong outperform" from "market perform".

Trading companies also ended in positive territory. Toyota Tsusho Corp. gained 1.82%, Sumitomo Corp. advanced 1.34% and Mitsubishi Corp. added 0.42%.

Kawasaki Heavy Industries, manufacturer of high-speed trains, gained 6.91% after Nikkei newspaper reported that Vietnam is planning to utilize the high-speed technology being used by the company.
 
Banking stocks ended in positive territory. Mitsubishi UFJ Financial added 0.50%, Mizuho Financial advanced 0.43% and Sumitomo Mitsui Financial advanced 0.98%. However, Resona Holdings bucked the trend and edged down 0.08%.

Toray Industries surged up 5.97% following news that the company, in association with Hoshi University, developed an insulin spray for treatment of diabetes.

In Australia, the benchmark S&P/ASX200 Index rose 92.80 points, or 2.14%, to close at 4,436, and the All-Ordinaries Index ended at 4,437, representing a gain of 90.80 points, or 2.09%.

On economic front, the Australian Bureau of Statistics revealed that weekly wages increased in the second quarter of 2009 by a seasonally adjusted 1.2% over the preceding quarter. The reported further noted that weekly wages, which represent the amount paid to adult full-time ordinary time workers, rose a seasonally adjusted 6.1% for the year.

Separately, the Melbourne Institute in a report revealed that consumer inflationary expectations rose to 3.5% in August from 3.2% in July.

Banks ended in positive territory on increasing optimism that the recovery is round the corner. ANZ Bank gained 3.06%, Commonwealth Bank of Australia surged up 4.88%, National Australia Bank rose 4.06% and Westpac Banking advanced 3.94%.

James Hardie Industries, the leading seller of home sidings in the U.S., soared 9.90% after Toll Brothers, the luxury home builder in the U.S., reported better-than-expected sales.

Oil stocks gained following rebound in crude oil prices in the international market. Woodside Petroleum advanced 2.41%, Santos rose 3.34%, Oil Search gained 2.97% and Origin Energy advanced 2.25%.

Metals and mining stocks also ended in positive territory. BHP Billiton, which reported quarterly results yesterday, added 0.71%, Rio Tinto advanced 1.38%, Gindalbie Metals gained 3.45% and Oz Minerals rose 3.17%.

Shares of Arrow Energy, which supplies coal gas seam, surged up 9.18% after the company said that it has held talks with concerned parties related to takeover of the company.

Gold stocks bucked the trend and ended in negative territory following drop in bullion prices. Lihir Gold shed 0.76%, Newcrest Mining slipped 0.14% and Sino Gold fell 0.69%.
 
In Hong Kong, the Hang Seng Index gained more than 2% or 426.06 points and closed at 20,861, following strong closing in Wall Street and comments from the US Federal Reserve that the US economy is leveling out. Positive trading across other markets in the region also lifted market sentiment as traders picked up stocks at lower levels.

Of the 42 components in the index, only three stocks ended in the negative territory while the rest ended in the positive territory lifted by buoyancy about recovery later in the year.

In South Korea, the benchmark KOSPI Index ended flat with a marginal loss of 0.71 points, or 0.05% at 1,565. Late- session sell-off by institutional investors pared all the early gains in automotive, banking and technology stocks that surged in early trading taking cues from Wall Street.

Robust manufacturing growth, aggressive tax reform proposals unveiled as part of a new direct tax code by finance minister Pranab Mukherjee and comments from the U.S. Federal Reserve that the world's largest economy is leveling out, lifted the Indian market sharply higher on Thursday. The BSE Sensex finished at 15,518, up nearly 500 points or 3.32% and the S&P CNX Nifty rose 147 points or 3.31% to 4,605.

Among the other major markets in the region, China's Shanghai Composite Index gained 27.84 points, or 0.89% to close at 3,141, Singapore's Strait Times Index advanced 42.87 points, or 1.67% to close at 2,614, Indonesia's Jakarta Composite Index rose 49.13 points, or 2.09% to close at 2,396, and Taiwan's Weighted Index surged up 136.06 points, or 1.97%, to close at 7,035.

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The major European markets are advancing for a second day on Thursday, with the French CAC 40 Index, the German DAX Index and the U.K. FTSE 100 Index rising 0.50%, 1.91% and 1.37%, respectively.

In corporate news, Dutch investment bank ING Group reported a profit of 71 million euros for its second quarter compared to a loss of 793 million euros in the first quarter. The turnaround was helped by an increase in net interest margin and higher fees on assets under management. However, in the year-ago period, the company reported a profit of 1.92 billion euros.

On the economic front, the tidings were positive, with the preliminary second quarter GDP estimates from Germany and France showing that two of the largest euro zone economies emerged out of recession. France recorded sequential GDP growth of 0.3% compared with a downwardly revised 1.3% GDP decline in the previous quarter. Economists had expected a 0.3% contraction in contraction for the quarter.

Germany’s GDP rose 0.3% sequentially in the second quarter after adjusting for price, seasonal and calendar variations, with the economy expanding for the first time since the first quarter of 2008. The consensus estimate had called for a 0.2% decline in GDP for the quarter.

Meanwhile, the flash estimate from Eurostat showed that the euro area contracted 0.1% sequentially in the second quarter, much slower than the 2.5% decline seen in the first quarter. Economists had expected a quarterly decline of 0.5%.

U.S. Economic Reports

Among the trio of economic reports released today, the Commerce Department said retail sales edged down 0.1% month-over-month in July and retail sales, excluding autos, declined a steeper 0.6%. For July, Economists estimated a 0.7% increase in the retail sales and a 0.1% climb in retail sales excluding autos.

The decline in the headline number reflected a 2.1% drop each in gasoline station sales and building material & garden equipment and supplies sales. On the other hand, motor vehicle and parts sales rose 2.4%.

The Labor Department said first-time claims for unemployment benefits showed a small increase in the week ended August 8th, while continuing claims fell.

The report showed that initial jobless claims rose to 558,000 from the previous week's revised figure of 554,000. Economists had been expecting jobless claims to edge down to 545,000 from the 550,000 originally reported for the previous week. However, the continuing claims for the week ended August 1st fell 141,000 to 6.202 million.

Separately, the Labor Department said the import price index declined 0.7% month-over-month in July, reversing some of the 2.6% increase in the previous month. On a year-over-year basis, the index was down 19.3%.

The decline reflected a 2.8% increase in petroleum import prices, while non-petroleum import prices were down a more modest 0.2%. Export prices eased at a 0.3% rate in July compared to a downwardly revised 0.5% increase in May. Agricultural export prices fell 4.9% compared to 0.2% growth in export prices of non-agricultural commodities. On a year-over-year basis, export prices declined 8.1%.

The Commerce Department is scheduled to release its business inventories report for June at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.9% decline in business inventories for the month.

Business inventories at the end of May were down 1%, slightly steeper than the 0.8% decline expected by economists. Inventories declined for the ninth straight month. Meanwhile business sales eased 0.1%, with the inventory to sales ratio declining to 1.42 in May from 1.43 in the year-ago period, marking the lowest level since October 2008.

Earnings

Wal-Mart Stores (WMT) said its second quarter earnings rose to 88 cents per share from 87 cents per share last year, even as revenues declined 1.4% to $100.08 billion. The consensus estimates had called for earnings of 86 cents per share on revenues of $102.9 billion. The company expects third quarter earnings per share from continuing operations of 78-82 cents, while it raised the lower end of its 2010 earnings per share from continuing operations guidance to $3.50 from $3.45. Analysts estimate earnings of 80 cents per share for the third quarter and $3.56 per share for the year.

Urban Outfitters said its second quarter earnings fell to 29 cents per share from 33 cents per share last year. Revenues were up 1% at $458.6 million. Analysts estimated earnings 26 cents per share on revenues of $458.7 million.

Kohl’s reported second quarter earnings of 75 cents per share, lower than 77 cents per share in the year-ago period. Net sales rose 2.2% to $3.8 billion. Analysts estimated earnings of 74 cents per share on revenues of $3.79 billion. For the third quarter, the company expects sales growth to range between negative 1% and positive 1% growth, while it expects earnings to come between 40 and 44 cents per share. The company updated its 2009 earnings per share guidance to $2.59-$2.70.

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Bunge may see some weakness after it announced that it has priced its public offering of 10.5 million shares at $65.50 per share. The company expects the offering to generate net proceeds of $665 million.

Weingarten Realty Investors may be in focus after it announced the pricing of $100 million of 8.10% notes due 2019 in an underwritten public offering. The company intends to use the net proceeds for general corporate purposes, including reducing amounts outstanding under its revolving credit facility.

NetEase.com receded in Thursday’s after hours session despite reporting an increase in its second quarter revenues to $127.7 million from $104.8 million last year. The company reported earnings per ADS of 53 cents compared to 50 cents per ADS in the year-ago period. Analysts estimated earnings of 45 cents per ADS on revenues of $120.43 million.

Sirius XM Radio rose in the after hours session despite announcing that it intends to offer $250 million in aggregate amount of senior secured notes due 2015. The company said it would use the net proceeds to pay certain indebtedness under its credit agreement with Liberty Media Corp.

Monsanto is likely to be in focus after it said its long-serving CFO Terry Crews would retire and would be replaced by Carl Casale, effective November 30th.

URS Corp. could react to its announcement that its second quarter earnings were $1.16 per share compared with 70 cents per share in the year-ago period. Excluding a gain, the company reported earnings of 73 cents per share. Revenues fell 9% to $2.3 billion. The consensus estimates had called for earnings of 66 cents per share on revenues of $2.41 billion. The company lifted its 2009 earnings estimate to $3.20-$3.35 per share, while it estimates revenues of $9.4 billion to $9.8 billion.

Advanced Auto Parts declined in Wednesday’s after hours session despite reporting an increase in second quarter earnings to 83 cents per share from 78 cents per share last year, as revenues climbed 7% to $1.32 billion. Analysts estimated earnings of 83 cents per share on revenues of $1.31 billion.

SRA International is likely to gain ground after it reported fourth quarter revenues of $402 million, up 4.5% year-over-year. However, earnings per share fell to 30 cents per share from 32 cents per share last year. Analysts estimated earnings of 26 cents per share on revenues of $386.23 million. For 2010, the company estimated 3%-7% revenue growth to $1.585 billion to $1.645 billion and 14%-24% earnings per share growth to $1.15-$1.25. The consensus estimates call for earnings of $1.13 per share on revenues of $1.62 billion.

LDK Solar may see weakness after it reported a second quarter loss of $2.30 per ADS compared to a profit of $1.29 per ADS in the year-ago period. On an adjusted basis, the company reported an operating loss of $42.5 million. Revenues fell 48% to $228.3 million. The consensus estimates had called for a loss of 91 per ADS on revenues of $236.1 million. For the third quarter, the company expects revenues of $240 million to $270 million compared to the consensus estimate of $290.4 million.

Harris Corp. could move in reaction to its announcement that its fourth quarter non-GAAP earnings per share from continuing operation fell to 91 cents compared to $1 in the year-ago period. Revenues rose to $1.29 billion from last year’s $1.25 billion. Analysts estimated earnings of 81 cents per share on revenues of $1.21 billion. The company raised the lower end of its 2010 non-GAAP earnings from continuing operations estimate to $3.40 per share from its earlier estimate of $3.20 per share, while the upper end was retained at $3.50 per share. The company guided 2010 revenues to $5 billion to $5.1 billion. The consensus estimates call for earnings of $3.17 per share on revenues of $4.93 billion.

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