US & World Daily Markets Financial Briefing 14-07-2009

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Mixed Economic Reports May Lead to Some Consolidation

The major U.S. index futures are pointing to a mixed opening on Tuesday. The retail sales report released earlier in the day was uninspiring despite the fact that headline number exceeded expectations. Much of the other details showed weakness. However, the bigger than expected increase in producer prices may increase optimism over growth going forward.

Goldman Sachs’ earnings came in notably higher than expected. That said, the gains in the financial space may be limited, given yesterday’s sharp gains. Technology stocks may see some activity ahead of Intel’s earnings. Commodity prices are moving higher in anticipation of an improvement in demand and this likely to help maintain the buying interest in the space.

After seeing some apprehension in early trading on Monday, stocks showed a notable upward move amid some positive analyst comments about the financial sector. The major averages spiked sharply higher in mid-morning trading and saw some further upside over the course of the session, closing at their best levels of the day.

The Dow Industrials ended the day up 185.16 points or 2.27% at 8,332, the S&P 500 Index gained 21.92 points or 2.49% to close at 901 and the Nasdaq Composite Index advanced 37.18 points or 2.12% to end at 1,793.

All thirty of the Dow components ended the session higher, with financial stocks showing particular strength. Bank of America rallied 9.34%, American Express climbed 5.60% and JP Morgan Chase advanced 7.33%. Alcoa, General Electric, Kraft Foods, Microsoft, Pfizer, Travelers Co. and United Technologies also showed notable gains.

Among the sector indexes, the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index moved up 3.53% and 6.53%, respectively. The NYSE Arca Airline Index rose 2.09%, while the NYSE Arca Oil Index and the Philadelphia Oil Sector Index gained 2.10% and 1.65% respectively. The NYSE Arca Gold Bugs Index rose 2.08% compared to a 2.60% climb by the Dow Jones U.S. Basic Materials Index. Retail stocks showed some buoyancy, with the S&P Retail Index rallying 2.66%.

In the technology space, the Philadelphia Semiconductor Index rose 2.41%, the NYSE Arca Disk Drive Index gained 3.26%, the NYSE Arca Software Index rose 2.29%, the NYSE Arca Networking Index advanced 2.06% and the NYSE Arca Internet Index rose 2.89%.

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Toronto Stocks May Extend Yesterday's Gains

Canadian stocks could add to yesterday's rebound session on Tuesday as commodity prices have moved to the upside. Stocks recovered nearly 1.5% yesterday after falling more than 500 points last week.

Crude oil prices climbed 84 cents to $60.53 per barrel after dropping sharply throughout the bulk of July. Meanwhile, copper has jumped 5.15 cents to $2.2745 per pound and gold has edged up $1.50 to $924 per pound.

JLL Partners announced 33.84 mln shares in the capital of Patheon Inc. have since commencement of the offer, been validly deposited to JLL's offer to acquire, at a price of US$2.00 cash per share.

Maximizer Software Inc.'s second-quarter net loss widened to US$0.42 mln from US$0.27 mln in the previous year.
 
On the economic front, Canadian new motor vehicles sales continued to rise in May. Increased truck sales led to a 1.0% rise in the number of new motor vehicles sold in May to 121,348 units. The result was in line with analysts' expectations.

Across the border, a Commerce Department report showed that retail sales rose 0.6 percent in June following an unrevised 0.5 percent increase in May. Economists had been expecting retail sales to increase by a somewhat more modest 0.4 percent.

Excluding a 2.3 percent increase in sales by motor vehicle and parts dealers, retail sales increased by 0.3 percent in June compared to a 0.4 percent increase in May. The increase in ex-auto sales came in below economist estimates of 0.5 percent growth.

On Monday, the S&P/TSX Composite Index rallied 144.80 points or 1.48% to close at 9,891.93.

Currency, Commodity Markets

Crude oil futures are trading up $1.43 at $61.12 a barrel after edging down $0.20 to $59.69 a barrel in Monday’s session. Gold futures are gaining $2.10 to $924.60 an ounce. In the previous session, the precious metal rose $10 to $922.50 an ounce.

On the currency front, the U.S. dollar is trading at 93.071 yen, stronger than the 92.9675 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.3969 compared to the previous session’s $1.3978.

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Rallying in-line with the sentiment across the rest of the global markets, the Asian markets ended Tuesday’s session higher. The sentiment in the region also improved after the Singapore government raised its economic forecast for 2009 to reflect a stronger performance in the second quarter.

Japan’s Nikkei 225 average opened sharply higher and moved sideways for the rest of the session, as bargain hunting triggered by the positive lead from Wall Street helped the index snap a nine-session losing streak and close up 211.48 points or 2.34% at 9,262.

Brokerages led the market gains, while exporters also rose in reaction to the weakening of the yen against the dollar. NEC Electronics closed up about 10% on reports that the company is planning to ramp up the output of microcontrollers.

Australia’s All Ordinaries opened unchanged and spiked sharply in early trading before flattening out. The index ended up 120.80 points or 3.23% at 3,859. Most sectors, barring defensive healthcare stocks, ended higher.

Miners BHP Billiton and Rio Tinto advanced sharply in the session. The four major banks, namely the Commonwealth Bank, National Australia Bank, ANZ Bank and Westpac also saw solid gains.

Hong Kong’s Hang Seng Index opened higher and moved sideways thereafter before seeing incremental buying interest in late trading. At the close of trading, the index was up 631.10 points or 3.665 at 17,886. Forty-one of the forty-two index components ended the session higher, with Hong Kong & China Gas ending unchanged.

The Indian market closed sharply higher and closed near the day's high on Tuesday, helped by firm overseas cues. Short covering by speculators and reports that monsoon rains will intensify in the coming days also influenced trading. The BSE Sensex opened higher at 13,549 and rose to a high of 13,903 before finishing at 13,854, up 453 points or 3.38% from its previous close.

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The major European markets are advancing on Tuesday, rising for the second straight session. The French CAC 40 Index is rising 0.59%, while the German DAX Index and the U.K. FTSE 100 Index are gaining 0.64% and 0.57%, respectively.

On the economic front, housing market sentiment in Great Britain improved to a 21-month high in June, according to the latest survey results from the Royal Institution of Chartered Surveyors. The Institute said that its top-line house price balance improved to minus-18.1 in June from a revised reading of minus-43.8 in May.

The British Retail Consortium said U.K. retail sales grew 3.2% year-on-year in June, faster than a 0.8% increase in the preceding month. Same store-sales were up 1.4% after falling 0.8% in May.

The survey results of the ZEW Center for European Economic Research said its economic sentiment indicator for Germany fell to 39.5 in July from 44.8 in June. Economists had expected the index to come in at 47.8. The assessment of the current economic situation remained almost unchanged in July, with the corresponding indicator rising 0.4 points to –89.3.

A report released by the European Commission’s statistical agency, Eurostat showed that the euro area’s industrial production rose 0.5% month-over-month in May after falling 1.4% in April. The increase was smaller than the 1.5% growth expected by economists. Annually, industrial output declined 17%.

Inflation data from the U.K. suggested a further let up in the inflationary environment. The U.K.’s annual inflation rate eased to 1.8% in May from 2.2% in May. On a monthly basis, the inflation rate was 0.3% in May. Core inflation, which excludes energy, food, alcohol and tobacco, rose 1.6% compared to the previous year.

U.S. Economic Reports

A report released by the Labor Department showed that producer prices rose 1.8% month-over-month in June following a 0.2% increase in May, while the core producer price index climbed 0.5%. Economists had expected a 1% increase in producer prices and a 0.1% increase in core producer prices.

Meanwhile, the Commerce Department said retail sales showed a notable increase for another month, as sales rose 0.6% month-over-month in June, the same pace of increase in the previous month. Economists had expected a 0.4% increase in retail sales. Excluding autos, retail sales were up 0.3%, slightly lower than the 0.4% increase in May and also lower than the 0.5% growth expected by economists.

In April, business inventories dipped 1.1% month-over-month compared to the expected decline of 1%, with the drop spearheaded by a depletion of auto inventories. The March reading was revised down to a decline of 1.3%. Business sales fell by a lesser magnitude, dropping 0.3% month-over-month. Accordingly, the business inventories to sales ratio declined to 1.43.

Earnings

Johnson & Johnson reported second quarter adjusted earnings of $1.15 per share compared with $1.18 per share in the year-ago period. Sales declined 7.4% to $15.2 billion. Analysts, on average, estimated earnings of $1.11 per share on revenues of $15.02 billion. The company confirmed its adjusted earnings guidance of $4.45-$4.55 per share for 2009, while analysts expect earnings of $4.51 per share.

Goldman Sachs’ reported that its second quarter earnings per share increased to $4.93 per share compared with $4.58 per share in the year-ago period. After excluding the impact of the TARP dividend payment, the company’s earnings were $5.71 per share. Net revenues rose to $13.76 billion from $9.42 billion last year. Analysts estimated earnings of $3.54 per share on revenues of $10.66 billion.

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CSX Corp is expected to be in focus after it reported earnings from continuing operations of 72 cents per share for its second quarter compared with 95 cents per share in the year-ago quarter. Revenues fell 25% to $2.19 billion. Analysts, on average, estimated earnings of 62 cents per share on revenues of $2.27 billion. Shipping volume was down 21%.

Novellus may see weakness after it reported a loss of 52 cents per share for its second quarter compared with a year-ago loss of 2 cents per share. On an adjusted basis, the company’s loss was 41 cents per share. Revenues fell to $119.2 million from $257.7 million last year. The consensus estimates called for a loss of 38 cents per share on revenues of $119.22 million.

Dell may move to the downside after it said it expects a slight sequential increase in its second quarter revenues. However, the company expects a decline in gross margins due to higher component costs, a competitive pricing environment and an unfavorable mix of product and business segment demand.

Take-Two Interactive is also likely to trend lower after it lowered its guidance for the July quarter and the year due to a delay in the release of BioShock 2 until next year and the lower-than-expected new release orders from retailers. The company expects a loss of 65-75 cents per share on an adjusted basis, worse than its initial estimate of a loss of 55-65 cents per share. Revenues are expected at $120 million to $130 million compared to its previous estimate of $145 million to $165 million.

Martin Marietta Materials could see weakness after it lowered its 2009 net earnings guidance to $2.70-$3.30 per share, citing the weaker and slower than expected recovery of the economy, a marked decrease in transportation infrastructure and adverse weather conditions in the first half of the year.

Bank of Ozark is likely to gain ground after it announced that its second quarter net income available to common shareholders was 56 cents per share compared to 51 cents per share in the year-ago period. Analysts estimated earnings of 53 cents per share for the quarter. Net interest income rose 28.2% to $30.26 million and non-interest income more than quadrupled to $22.61 million.

A.O. Smith is also likely to see buying interest after it announced that it has increased its quarterly dividend by 2.6% to $.195 per share. The company also said it expects to generate operating cash of $140 million to $150 million in 2009.

Aetna and UnitedHealth may see some buying interest after the Department of Defense announced that it has awarded military healthcare contracts, called the TRICARE managed care support contract, to the companies. Aetna will support healthcare delivery to about 2.8 million eligible beneficiaries in the North Region. At the same time, the Department of Defense has opted not to renew its contract with Health Net and Humana.

Dime Community Banchares may react to its announcement that it expects its June quarter earnings to be 21 cents per share compared to 26 cents per share in the year-ago period. Kulicke & Soffa Industries may see some activity after it announced the resignation of its chief executive officer, Maurice Carson, effective August 4th, 2009. The company noted that he is leaving to take a position at a semiconductor company in Northern California.

Immucor could also be in focus after it said it has sent a preliminary response to the FDA following the agency’s communication last month about its decision to revoke the company’s license for its reagent red blood cells and anti-E blood grouping reagent products. Immucor should provide a more detailed response by August 11th.

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