US & World Daily Markets Financial Briefing 14-08-2009

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Stocks May Fight to Retain Late-week Buoyancy

The major U.S. index futures are pointing to a lower opening on Friday, although market course of the day seems to be highly uncertain. The session is likely to witness the battle between bulls, who are betting on an economic as well as market recovery, and the bears, who are skeptical about the widely expected sustained recovery. Crude oil futures and gold are moving to the upside, mainly due to the weakness of the dollar.

The consumer price inflation report released earlier in the day showed containment in inflationary pressures. In reaction, bond yields are trending lower. Earnings and forward expectations of retailers have been fairly positive. Traders now keenly await the industrial production report to give a definitive direction towards the course of today’s market action.

U.S. stocks showed a lack of direction on Thursday, moving back and forth across the unchanged line amid the release of mixed economic reports, a rise in commodity prices and promising earnings from some of the retailers. The Dow Industrials opened slightly higher at 9,362 and moved in a 9,305-9,407 range before closing up 36.58 points or 0.39% at 9,398.

The Nasdaq Composite Index and the S&P 500 Index traded above the unchanged line for much of the session, barring a brief sharp retreat in early trading and a brief brush with negative territory in early afternoon trading. While the Nasdaq Composite closed up 10.63 points or 0.53% at 2,009, the S&P 500 Index rose 6.92 points or 0.69% at 1,013.

Eighteen of the thirty Dow components ended the session higher, with Bank of America (BAC) (up 6.72%), Alcoa (AA) (up 5.79%), DuPont (DD) (up 2.28%), Travelers Co. (TRV) (up 2.24%), Wal-Mart (WMT) (up 2.71%), Home Depot (HD) (up 1.76%) and JP Morgan Chase (JPM) (up 1.63%) showing solid gains. On the other hand, United Technologies (UTX) fell 1.32%.

Among the sector indexes, the NYSE Arca Airline Index climbed 1.79%, the KBW Bank Index rallied 3.11%, the Philadelphia Oil Service Index gained 2.92%, the Dow Jones U.S. Basic Materials Average moved up 2.65% and the NYSE Arca Gold Bugs Index rose 3.39%. However, the Philadelphia Housing Index lost close to 1%.

In the technology space, the Philadelphia Semiconductor Index jumped 2.19%, the NYSE Arca Disk Drive Index rose 2.09%, the NYSE Arca Computer Hardware Index gained 1.62% and the NYSE Arca Networking Index surged up 3.45%.

On the economic front, the Commerce Department’s business inventories report showed a bigger-than-expected 1.1% drop in business inventories in the month of June. However, business sales rose 0.9%, resulting in an inventory to sales ratio of 1.38 in June compared to 1.26 in the year-ago period.

First time claims for unemployment benefits rose to 558,000 in the week ended August 8th from a revised reading of 554,000 in the previous week. However, continuing claims for the week ended August 1st showed a decline. Meanwhile, the results of the Treasury’s 30-year bond auction were encouraging, with the yield slightly below where it was trading and the bid-to-cover ratio at a fairly decent 2.54.

Retail Sales Not Cashing in on ‘Cash-for-clunkers’ Program

The Commerce Department’s retail sales report belied expectations for a strong rebound in July sales despite a 2.4% increase in auto sales. In final analysis, spending on autos deprived consumers of money that could have been spent on other retail commodity categories. All important categories, including electronics, furniture, sporting goods, building material and department stores showed sales declines. Core retail sales that remove volatile gas, building material and autos showed a 0.2% decline.

The gain in auto sales may not be sustainable, as the artificial boost is likely to wear off even if an additional $2 billion is approved under the program. The initial euphoria, as reflected by the jump in auto sales in the July retail sales report reflects buying by people who have cars that qualify for the program and who have access to funding to cough up the rest of the sum, excluding the incentives. When this demand dries up, there may be a déjà vu of dealerships sporting a deserted look.

That apart, consumers may also have to contend with rising gasoline prices, which eats into their discretionary spending. Although oil market fundamentals do not support much upside from current levels, speculative factors and oil’s negative correlation with the U.S. dollar is helping the commodity stay above the $70-a-barrel mark.

Although some sales uptick could be expected to coincide with back-to-school purchases, spending is likely to remain below-normal conditions due to the multiplicity of negative factors that are wrenching the neck of consumers. The retail sales report reinforces the view that consumer spending will have a less of a role in the current recovery. At least in the short-term, consumer spending may impede a sustainable recovery.

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Canadian stocks could see little direction at the open on Friday after rising in recent days. European stocks and U.S. futures are hovering near the unchanged mark, while commodities are seeing minimal strength.

Crude oil gained 18 cents to $70.70 in electronic trading, continuing its recent choppy movement. Gold has added $3.10 to again challenge $960 an ounce, while copper is flat at $2.91 per pound.

In corporate news, FNX Mining posted net earnings for the second quarter of C$12.5m or C$0.14 per share, higher than C$11.3m or C$0.13 per share in the prior year period.

Aurizon Mines Ltd. announced that its second quarter net earnings of C$13.6m or C$0.08 per share, compared to earnings of C$5.6m or C$0.04 per share, in the same period of 2008.

Allied Nevada Gold Corp. announced a public offering of 11.15m shares of common stock of the Company at a price of C$9.00 per share, for aggregate gross proceeds of approximately C$100.35m.
 
Redline Communications Group Inc. reported a second quarter net loss of US$2.6m or US$0.12 per share, compared to a loss of US$5.3m or US$0.25 per share in the same quarter of last year.

Enterra Energy Trust reported second-quarter net loss of $14.38m or $0.23 per unit, compared to a loss of $11.86m or $0.19 per unit in the same quarter of last year.

In economic news, Canadian new motor vehicle sales fell 0.6% in June, compared to a 1% rise in May. Sales were expected to drop 1%. Meanwhile, manufacturing shipments were unexpectedly up 1.9% in June, compared to a 6% drop in the previous month. A 0.3% decline was forecast.

On Thursday, the S&P/TSX Composite climbed 165.69 points or 1.55% to settle at 10,825.56. The gain was the second straight for the index, which recovered losses from earlier in the week.

Gold Up Slightly, Stuck Below $960

Gold prices inched higher on Friday morning and continued to hover near the $960 per barrel mark. The dollar was little-changed against the other major currencies, limiting the metal's hedge value.

December gold rose to $957.60 per ounce, up $1.10 on the session. Gold reached as high as $961.40 and as low as $956.70.

The greenback settled into a range versus the euro after seeing some volatile movement earlier in the day. The buck was also little-changed against the pound after returning early gains.

On the economic front, the Labor Department said its consumer price index was unchanged in July after increasing by an unrevised 0.7 percent in June. The lack of growth in consumer prices came in line with the expectations of economists.
 
Apparel prices showed a notable increase for the month, with the apparel index increasing by 0.6 percent in July following a 0.7 percent increase in June.

Meanwhile, the Federal Reserve released a report that showed that industrial production increased by 0.5 percent in July after falling by 0.4 percent in June. Economists had been expecting a slightly more modest increase in industrial production of about 0.4 percent.

In other metal trading, silver rose 4.3 cents to $15.03 per ounce and copper fell 1.25 cents to $2.9015 a pound.

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Asian Markets End Higher On Recovery Hopes

The markets across Asia, except India and China, ended in the positive territory on Friday on increasing optimism about global recovery and satisfactory earnings. Positive closing in Wall Street amid choppy trading led by late buying interest lifted market sentiment across Asian markets. However, the gains were limited as traders preferred to lock-in gains ahead of the weekend. The Chinese and Indian markets, however, ended in negative territory on profit taking.

In Japan, the benchmark Nikkei 225 Index ended the session at a 10-month high of 10,597, up 80.14 points, or 0.76%, while the broader Topix index of all first section stocks gained 5.16 points, or 0.53% and closed at 974.

On the economic front, the Ministry of Economy, Trade and Industry revealed that an index measuring tertiary industrial activity unexpectedly increased by a seasonally adjusted 0.1% during the month of June, contrary to economists' mean expectations of a 0.3% decline.

Trading companies and machinery companies led the gains following rise in commodity prices in the international market.

Trading companies gained after Goldman Sachs analyst said that a recovery in steel production makes trading companies more attractive. Mitsubishi Corp. rose 3.32%, Mitsui & Co., gained 2.78%, Toyota Tsusho Corp. advanced 1.78%, Marubeni Corp surged up 5.78% and Sumitomo Corp. added 0.62%.
 
Machinery companies advanced on expectation that demand is picking up in China. Komatsu surged up 5.28%, Hitachi Construction Machinery soared 8.37%, Daikin Industries advanced 2.57% and Kuboto Corp. rose 2.81%.

In banking space, Mitsubishi UFJ Financial added 0.66%, Resona Holdings advanced 0.91% and Sumitomo Mitsui edged up 0.24%. Mizuho Financial remained unchanged from previous close.

Among retailers, Aeon & Co., the second largest retailer in the country, gained 0.61% and J Front Retailing gained 1.76%. However, Fast Retailing fell 2.60% following news that its rival Aeon started selling jeans at a price tag of 880 Yen, lower than the price of 990 Yen charged by Fast Retailing.

In Australia, the benchmark S&P/ASX200 Index gained 25.10 points, or 0.57%, to close at 4,461, and the All-Ordinaries Index ended at 4,465, representing a gain of 28.40 points, or 0.64%.

On economic front, Glenn Stevens, Governor of the Reserve Bank of Australia, said that it would be appropriate for the central bank board to start adjusting interest rates back towards normal levels provided the situation warrants no more exceptional monetary stimulus. The Governor, in his half-yearly testimony before the House of Representatives standing committee, said, "The timing and pace of those adjustments, if and when they come, will be a matter of careful consideration, taking into account all the relevant factors, including what might be happening with market interest rates."

Light sweet crude oil price for September delivery ended at $70.88 a barrel in electronic trading, up $0.36 from its previous close $70.52 a barrel in New York on Thursday.

Profit taking late in the session trimmed the gains in the market while the underlying sentiment is one of optimism driven by satisfactory earnings results from companies.

Among banks, ANZ Bank gained 2.67%, National Australia Bank rose 2.97% and Westpac Banking advanced 0.62%. However, Commonwealth Bank of Australia ended in the red with a loss of 1.07% on profit taking.

Mixed trading was witnessed among the oil stocks. While Woodside Petroleum lost 1.01% and Santos slipped 0.81%, Oil Search gained 0.90% and Origin Energy advanced 1.60%.

In mining and metals space, BHP Billiton remained unchanged from previous close, Rio Tinto advanced 2.02%, Oz Minerals gained 1.75% and Mincor Resources surged up 4.33%. However, Gindalbie Metals shed 2.22% and Alumina edged down 0.27% on profit taking.

Mixed trading was witnessed among the gold stocks. While Sino Gold managed to end in positive territory with a gain of 0.17%, Lihir Gold slipped 0.76% and Newcrest Mining lost 1.19%.
 
Leighton Holdings, the biggest construction company in the country, reported a 28% drop in net profit for the year ended 30th June 2009. However, it forecast that profit will rebound in the current year following signs of recovery in the construction and mining sectors. Following the positive outlook, the shares surged up 7.32%.

In Hong Kong, the Hang Seng Index recovered most of its losses in early trading and managed to end in positive territory with a gain of 32.03 points, or 0.15%, at 20,893.

Buying interest emerged at lower levels in late trading session following news that the country came out of recession with a GDP growth of 3.3% in the second quarter compared to the previous quarter. In early trading, the market slumped nearly 500 points on profit taking and weak-cues from mainland China.

Li & Fung led the gains after having reported better than expected profit for the second quarter. The stock surged up 9.23%. Espirit Holdings, wholesaler and retail trader, gained more than 8% on increased optimism about higher demand.

Banks and property stock also witnessed buying interest at lower levels.

In South Korea, the benchmark KOSPI Index gained 26.77 points, or 1.77% to close at 1,591. Technology and banks led the gains on increasing optimism that the worst for the global economy is over and recovery will start later in the year.

In India, investors chose to take profits after downbeat economic data from the U.S. dampened investor sentiment. A three percent loss in Chinese market and jitters that deficient monsoon would bring down economic growth also weighed on market movement. The BSE finished at 15,412, down 107 points or 0.69% and the S&P CNX Nifty fell 25 points or 0.54% to 4,580.

Among the other major markets in the region, China's Shanghai Composite Index slumped 93.59 points, or 2.98%, to 3,047. and Indonesia's Jakarta Composite Index slipped 9.62 points, or 0.40% to close at 2,387. However, Singapore's Strait Times Index added 17.33 points, or 0.66% to close at 2,631 and Taiwan's Weighted Index gained 34.55 points, or 0.49% to close at 7,069.

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The major European averages opened modestly higher and spiked sharply only to pare back some of their gains. The French CAC 40 Index and the German DAX Index are rising 0.24% and 0.32%, respectively, while the U.K.’s FTSE 100 Index is moving up 0.45%.

In corporate news, German steel giant Thyssenkrupp reported a third quarter loss of 639 million euros compared to a profit of 573 million euros in the year-ago period. On an adjusted basis, the company reported a pre-tax loss of 452 million euros. Sales fell 34% to 9.3 billion euros.

Meanwhile, Eurostat said the Eurozone's consumer price index dropped 0.7% year-over-year in July, revised from the 0.6% drop estimated initially. In June, consumer prices fell 0.1%. This was the second consecutive month of decline in consumer prices. A year ago, inflation was 4%. On a monthly basis, the consumer price index fell 0.7%.

U.S. Economic Reports

On the economic front, consumer prices remained unchanged in June compared to the previous month, in line with expectations. On an unadjusted basis, consumer prices showed a 2.1% drop.

Core prices, which exclude the volatile food and energy sectors, also rose in line with expectations, edging up 0.1% advanced 0.1% from the previous month. Food and beverage and housing costs were down 0.2% each, helping to offset the 0.6% increase in transportation costs.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production rose 0.4% in July, while capacity utilization is expected to come in at 68.3%.

Industrial output fell 0.4% in June compared to the previous month, which was better than the 0.6% drop expected by economist. The decline marked the seventeenth drop in eighteen months. Annually, output was down 13.6%. Manufacturing output fell 0.5%, with auto-related production dropping 2.7%, while the rest of the manufacturing sector showed a smaller 0.4% decline. Capacity utilization fell two-tenths to 68% in June.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for August is scheduled to be released at 9.55 AM ET. Consumer sentiment is expected to rise to 69 from the previous month's reading of 66.

Earnings

J.C. Penney (JCP) reported break-even results in the second quarter compared to earnings of 52 cents per share in the year-ago quarter. Sales fell 7.9% to $3.94 billion. Analysts estimated a loss of 1 cent per share on revenues of $3.94 billion. The company raised its 2009 earnings per share guidance to 75-90 cents per share from its earlier estimate of 50-65 cents per share, while analysts estimate earnings of 89 cents per share.

Abercrombie & Fitch (ANF) said its loss for the second quarter was 30 cents per share compared to a profit of 87 cents per share in the year-ago period. The recent quarter’s results included $24.4 million in impairment charges. Analysts estimate, which typically excludes one-time items, called for a loss of 7 cents per share.

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Red Robin Gourmet Burgers (RRGB) is likely to see weakness after it reported that its second quarter earnings fell to 41 cents per share from 49 cents per share last year. Revenues fell 3%to $201.1 million. Analysts, on average, estimated earnings of 37 cents per share on revenues of $206.1 million.

Blockbuster (BBI) may be in focus after it said its first quarter loss was 21 cents per share, narrower than 23 cents per share last year. On an adjusted basis, the company reported a loss of 19 cents per share. Revenues fell 22% to $1.02 billion. The consensus estimates had called for a loss of 12 cents per share on revenues of $1.12 billion. For the full year, the company expects a loss of $15 million to a profit of $5 million.

Luxury retailer Nordstrom (JWN) is expected to move higher after it raised its forecast for the full year to $1.50-$1.65 per share from its earlier estimate of $1.25-$1.50 per share. The company reported second quarter earnings of 48 cents per share, lower than 65 cents per share in the year-ago period, but in line with the consensus estimate. Revenues fell 6% year-over-year to $2.29 billion, above the consensus estimate of $2.14 billion.

Autodesk (ADSK) is likely to react to its announcement that its second quarter adjusted earnings fell to 24 cents per share from the year-ago’s 56 cents per share. Revenues declined to $415 million from $619.5 million in the same period last year. The consensus estimates had called for earnings of 19 cents per share on revenues of $413.7 million. For the third quarter, the company expects earnings of 4-9 cents per share on revenues of $400 million to $420 million. Analysts estimate earnings of 21 cents per share on revenues of $419.1 million.

Elizabeth Arden (RDEN) may see weakness after it posted a loss of 7 cents per share on an adjusted basis for its fourth quarter compared to a profit of 22 cents per share last year. Sales declined 10% to $212.6 million. Analysts estimated a loss of 8 cents per share on revenues of $213.4 million.

DeVry (DV) could see strength after it reported a profit of 51 cents per share for its fourth quarter on 43% sales growth to $396.2 million. The Street had estimated earnings of 51 cents per share on revenues of $376.9 million.

Southwest Airlines (LUV) is likely to move in reaction to its announcement that its $170 million bid for Frontier Airlines was deemed unacceptable by the insolvency court due to its rejection of a requirement that calls for the pilots of the two airlines to work out an integration plan before the deal would close. That leaves Republic Airways with its $108.8 million bid the winner of the auction.

Boeing (BA) could see some weakness after reports suggested that the company has halted work at a plant of its Italian supplier, which assembles the fuselage of its 787 Dreamliner. The order to stop production was issued on June 23rd, the day when the company announced an indefinite delay in the first flight of the aircraft. Separately, the company settled claims that it performed defective work on military refueling planes in Iraq and Afghanistan by agreeing to pay the U.S government $25 million.

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