US & World Daily Markets Financial Briefing 15-07-2010

Stocks Sharply Lower After Disappointing Philly Fed Reading

Stocks have extended their initial downside and are notably lower in mid-morning trading on Thursday, as traders are digesting a disappointing reading on Philadelphia-area manufacturing activity, the latest in a mixed batch of economic data on the day.

The markets came under pressure on news that the pace of growth in manufacturing activity in the Philadelphia-area unexpectedly slowed for the second consecutive month in July.

The Philadelphia Federal Reserve said its diffusion index of current activity fell to 5.1 in July from 8.0 in June, although a positive reading indicates continued growth. The decrease came as surprise to economists, who had expected the index to edge up to a reading of 10.1.

Similarly, the New York Fed said its general business conditions index fell to 5.1 in July from 19.6 in June. Economists had been expecting the index to edge down to a reading of 18.0.

Also today, the Labor Department revealed that initial jobless claims came in at 429,000 for the week of July 10th, down 29,000 from the previous week's revised total of 458,000. Economists had expected the measure to come in at around 450,000.

In a separate report, the Labor Department said that its producer price index fell by 0.5 percent in June following an unrevised 0.3 percent decrease in May. Economists had been expecting a much more modest decrease in prices of about 0.1 percent.

Excluding decreases in food and energy prices, the core producer price index edged up by 0.1 percent in June after rising by 0.2 percent in the previous month. The modest increase in core prices came in line with economist estimates.

In other economic news this morning, the Federal Reserve reported that that industrial production edged up by 0.1 percent in June after surging up by an unrevised 1.3 percent increase in May. The modest increase came as a surprise to economists, who had expected production to come in unchanged.

Early on, some optimism was present in the futures markets after J.P. Morgan (JPM) said its second quarter profit jumped by 76 percent to $4.8 billion, resulting in earnings of $1.09 per share. Meanwhile, revenues fell by 8 percent to $25.61 billion. On average, analysts projected the firm to earn $0.74 per share on revenues of $25.81 billion.

The major averages have slowed their drop in recent trading but are lingering near their session lows. The Dow is down 105.99 points or 1 percent at 10,260.73, the Nasdaq is down 25.11 points or 1.1 percent at 2,224.73 and the S&P 500 is down 11.69 points or 1.1 percent at 1,083.48.

Sector News

Banking stocks are among the worst performers in the early going, with the KBW Bank Index sliding by 2.4 percent. The decline is taking the index further away from Tuesday's six-week closing high.

Trucking, steel, airline and oil service stocks are under pressure amid what has become a broad-market sell-off.

Notably, the Philadelphia Oil Service Sector Index is down by 1.5 percent, although it remains rangebound. The weakness among oil service stocks comes as the price of crude futures is down by $0.45 to $76.59 a barrel.

Stocks Driven By Analyst Comments

Despite the weakness in the markets, Cognex (CGNX) is moderately higher after Robert W. Baird upgraded the stock from Neutral to Outperform. Shares are currently up by 0.7 percent after setting a two-week intraday high in earlier trading.

Meanwhile, Juniper Networks (JNPR) is sharply lower after Oppenheimer downgraded the stock from Outperform to Perform. The stock is down by 2.8 percent, falling from its best closing price in six weeks, set in the previous session.

Other Markets

In overseas trading, stocks across the Asia-Pacific region fell sharply on Thursday. Hong Kong's Hang Seng Index slid by 1.5 percent, while Japan's benchmark Nikkei 225 Index declined by 1.1 percent.

The major European markets have also moved notably lower. The U.K.'s FTSE 100 Index and the German DAX Index are down by 0.6 percent and 0.4 percent, respectively, while the French CAC 40 Index is down by 1.6 percent.

In the bond markets, treasuries are seeing notable strength amid the weakness on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.997 percent posting a loss of 5.3 basis points.

100% Bonus with CMS Forex. That's 100%!

Open an account with CMS Forex with at least $500 and you will receive a 100% deposit bonus. Every time you trade 10 lots you will get $50 until you have received all 100% of your deposit. There is no maximum - deposit $100,000 and you can earn up to $100,000. Already have a CMS account? You can still get the 100% bonus on your next deposit. Click Here

Canadian Markets Report

Toronto Stocks Poised To Open Higher On Commodities, Earnings

Bay Street stocks may open higher Thursday amid recovery in commodities prices and encouraging earnings reports from both sides of the border. Commodities recovered despite China said its economic growth rate slowed in the second quarter.

Close on the heels of Alcoa and Intel. JPMorgan Chase reported market-beating second quarter earnings. The first bank to report this earnings season recorded a profit of $1.09 per share. Analysts were expecting the company to report earnings of $0.70 per share.

On Wednesday, the S&P/TSX Composite Index lost 52.68 points or 0.45% to 11,620.16.

The price of crude oil edged up $0.17 to $77.21 a barrel. Wednesday's data from the EIA revealed U.S. crude inventories declined 5.1 million barrels in the week ended July 9, as against analysts' estimates for a draw down of 2 million barrel.

Meanwhile, the OPEC in its monthly report released today, said global oil demand will increase by 1.2% to 1.05 million barrels a day in 2011 to average 86.41 million barrels a day, largely led by developing economies such as China and India.

The price of gold moved up amid a weak U.S. dollar after the Federal Reserve cut its U.S. GDP growth outlook. Gold for August was up $6.80 to $1,213.80 an ounce.

In international M&A news, private equity firm The Carlyle Group said it will buy vitamin maker NBTY Inc. for $3.8 billion in cash.

In corporate news from Canada, oil and gas firm Nexen Inc. reported improved second-quarter net income of C$0.49 per share, compared to C$0.04 per share in the same quarter last year. The company declared a regular quarterly dividend of C$0.05 per common share.

Interactive whiteboards maker SMART Technologies said it priced the initial public offering of 38.83 million of its Class A Subordinate Voting Shares at $17.00 per share. The shares will will begin trading on Thursday, July 15, on the NASDAQ Global Select Market under the ticker symbol 'SMT', and on the Toronto Stock Exchange under the ticker symbol 'SMA'.

Therapeutic company Amorfix Life Sciences said Biogen Idec will receive the exclusive worldwide license to develop and commercialize its Disease Specific Epitopes antibodies. Amorfix will receive an up-front payment of $1 million and is eligible to receive milestone payments and royalties on sales.

Gold explorer Crown Minerals said it will be merged with Gold Summit Corp. to form a new company, Amalco.

Media company Astral Media said its third-quarter net earnings improved to C$0.85 per share from C$0.78 per share a year ago.

Media company Score Media reported net income of C$568 thousand or C$0.01 per share for the third quarter, compared to C$12 thousand or C$0.00 per share in the year-ago quarter.

Gaming software services provider CryptoLogic Ltd. said it expects second quarter total revenue to show a slight decline over first quarter and added its outlook for the full year is much less encouraging than at the time of the first quarter results announcement.

Oil and natural gas firm Sterling Resources said it has appointed David Blewden as its CFO, replacing Ian Hornby-Smith who is retiring.

Railway industry services provider Global Railway Industries said it will be selling G&B Specialties, Inc., and Bach-Simpson Corp to Wabtec Corp. for about $45 million.

Engineering consultancy services company Rutter Inc. slipped in to red, reporting third-quarter net loss of C$0.001 per share, compared with a net income C$0.0045 per share in the same quarter last year.

In economic news, Statistics Canada said manufacturing sales advanced 0.4% to C$44.80 billion in May, recording growth for the eighth time in nine months. The motor vehicle and parts industries were the primary contributor for higher sales.

In another report, the agency said, the number of new motor vehicle sales edged up 0.2% to 126,475 in units in May, with higher sales of truck offsetting lower passenger car sales.

From the U.S., the Labor Department said that initial jobless claims came in at 429,000 for the week ended July 10, down 29,000 from the previous week's revised total of 458,000. Economists were expecting claims to come in at around 450,000.

The Federal Reserve yesterday revised down its U.S. gross domestic product growth estimates to between 3% and 3.5% in the current year, from its previous estimate of increase by 3.2% to 3.7%.

Meanwhile today, China said its economy expanded by 10.3% in the second quarter over a year ago, after expanding 11.9% in the first quarter 2010.

Learn how to trade

Our "Value Packed" online trading seminar will show you how you can.

Click Here To Find Out More

Asia Markets Report

Indian Market Ends Marginally Down

The Indian market ended weak for a second consecutive session Thursday, as signs of slowing U.S. growth gave investors an excuse to take profits. Surprisingly, IT stocks closed firm following two sessions of losses.

Infosys, which reported lower-than-expected earnings for the first quarter on Tuesday, rose 0.61%, TCS gained 1.22% ahead of its earnings announcement due later in the day and Wipro ended up a little over a percent.

After declining by about 80 points or half a percent earlier in the day, the 30-share BSE Sensex recouped some of its loss before ending down 29 points or 0.16% at 17,909, while the 50-share S&P Nifty eased 7 points or 0.14% to 5,379.

The small-cap and mid-cap indexes on the BSE rose modestly, while in the broader market, declining shares outnumbered advancing ones by 1540 to 1360.

India's monsoon rains, crucial for the country's trillion-dollar economy, were 13 percent below normal as of July 14, the Indian Meteorological Department said in an update. The rains are unlikely to revive significantly next week, media reports quoted an IMD official as saying.

In other economic news, annual fuel inflation for the week ended July 3 eased sharply to 14.27% from 18.02% in the previous week, while food inflation snapped a two-week easing trend, government data released on Thursday showed.

Food inflation for the week under consideration edged up marginally to 12.81% from last week's 12.63% because of higher rice and wheat prices.

Nevertheless, the Reserve Bank of India is widely expected to raise its key policy rates by at least 25 basis points when it reviews its monetary policy later this month.

Rate-sensitive banking, realty and auto stocks closed on a mixed note. In the realty sector, Peninsula Land, Parsvnath Developers, DB Realty and Anant Raj Industries rose, while top bluechip stocks like DLF and Unitech ended in the red.

SBI declined about a percent after the Union Cabinet approved the merger of State Bank of Indore with its parent. Axis Bank advanced 2.34% on reporting a 32% rise in first-quarter net profit. ICICI Bank and HDFC Bank fell about a percent each.

Tata Motors reversed its early loss and closed up 1.41% after reporting 46% growth in its global vehicle sales for June. Ashok Leyland saw a late-session rally to end up about 4.5%

State-run downstream oil companies like BPCL, HPCL and IOC fell between 4% and 6% on allegations that they have formed a cartel to supply aviation turbine fuel to Air India.

Sun Pharmaceutical Industries pared its initial gain and ended down 0.26%. A U.S. District Court of New York has dismissed in its entirety the complaint filed by Taro Pharmaceutical Industries seeking to block the tender offer by Sun's subsidiary, Alkaloida Chemical Company, to purchase all outstanding ordinary shares of Taro.

Tata Steel added a percent after it proposed raising about Rs 1,600 crore via a preferential allotment of shares and warrants to its promoter Tata Sons at Rs. 594 per share. SAIL, Hindalco Industries and Hindustan Zinc were the other prominent gainers in the metal pack.

Magma Fincorp rose 1.15% after declaring healthy first-quarter results. LIC Housing Finance soared over 7% after reporting a 71% rise in first-quarter net earnings. UTV Software Communications gained 1.27% after it turned in a profit of Rs. 40.2 crore for the three months ended June versus a Rs.31.8 crore loss in the year-ago period.

Reliance Power, which received preliminary approval from the U.S. Exim Bank to finance its 4000-MW Sasan power project, ended down 0.23%. Cadila Healthcare fell 3% on turning ex-dividend.

Elsewhere, the other Asian markets also came under selling pressure on Thursday after the Federal Reserve cut its growth forecast for the U.S economy this year and suggested that additional measures may be needed to combat a weakening economy. Data showing disappointing U.S retail sales and easing China's economic growth also offset optimism about upbeat corporate earnings.

In Europe, stocks recouped most of their early losses, boosted by a rebound in automakers and drug makers, while the U.S. index futures pointed towards a lackluster opening on Thursday morning.

Vector Vest

DO YOU OWN THE RIGHT STOCKS?

Analyze Your Stocks FREE! – Click Here

European Markets

The major European markets opened Thursday’s session lower, but since then they have recovered and are seen trading modestly to moderately higher, encouraged by JP Morgan’s results. The French CAC 40 Index and the German DAX Index are moving up 0.25% and 0.44%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.16%.

In corporate news, Novartis (NVS) reported that its second quarter profit rose to $2.42 billion from $2.04 billion last year. Total sales came in at $11.72 billion. The company raised its sales guidance and now expects constant currency group sales growth in the mid-to-high single digits.

U.S. Economic Reports

With food and energy prices showing notable decreases in the month of June, the Labor Department released a report showing that producer prices fell by much more than economists had expected during the month.

The Labor Department said that its producer price index fell by 0.5 percent in June following an unrevised 0.3 percent decrease in May. Economists had been expected a much more modest decrease in prices of about 0.1 percent.
Excluding the decreases in food and energy prices, the core producer price index edged up by 0.1 percent in June after rising by 0.2 percent in the previous month. The modest increase in core prices came in line with economist estimates.

While the Federal Reserve of New York released a report showing that conditions for New York manufacturers continued to improve in July, the pace of growth in business activity slowed by much more than economists had anticipated.

The New York Fed said its general business conditions index fell to 5.1 in July from 19.6 in June, although a positive reading indicates continued growth. Economists had been expecting the index to edge down to a reading of 18.0. A separate report released by the Labor Department revealed that initial jobless claims came in at 429,000 for the week of July 10. This was down 29,000 from the previous week's revised total of 458,000.

Economists had generally expected the measure to come in at around 450,000. The industrial production report from the Federal Reserve is due out at 9:15 AM ET. Economists estimate no change in industrial production for June, while capacity utilization is expected to come in at 74.2%.

Industrial production rose 1.2% month-over-month in May, while economists had expected a more modest 0.9% increase. The increase was spearheaded by a 5.5% climb in the output of motor vehicles/parts. Utility output increased by 4.8%, benefiting from unseasonably warm weather. Capacity utilization also increased, gaining 1 percentage point to 74.7%.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 10.1 for July.

The business conditions index fell to 8 in June from 21.4 in May. However, the new orders index rose 2.9 points to 9, while the shipments index fell 1.6 points to 14.2. The employment indexes deteriorated, with the number of employees index slipping 4.7 to -1.5 and the average employee workweek index declining 8.5 points to -1.5.

100% Bonus with CMS Forex. That's 100%!

Stocks in Focus

JP Morgan Chase (JPM) is expected to move in reaction to its announcement that its second quarter earnings rose to $1.90 per share from 28 cents per share in the year-ago period. On a reported basis, net revenues fell to $25.10 billion from the year-ago’s $27.67 billion. Analysts estimated earnings of 70 cents per share on revenues of $25.59 billion.

AIG (AIG) could be in focus after it reported that its chairman Harvey Golub has resigned, citing disagreements with the company’s CEO Robert Benmosche. The company also announced the appointment of Robert Miller as the new chairman.

Shares of PC makers could see some activity in reaction to the results of the quarterly PC market surveys by IDC and Gartner. IDC said second quarter PC shipments received a shot in the arm from rising demand from corporate customers and strength in Europe. Shipments rose 22.4% year-over-year. Meanwhile, Gartner’s estimates suggest year-over-year shipment growth of 20.7%.

According to IDC, Hewlett-Packard retained its number one slot in terms of markets share, although it saw a 1.6 point-erosion in its market share to 18.1%. Dell (DELL) regained the number 2 slot from Acer.

Marriott International (MAR) is likely to move in reaction to its announcement that its second quarter earnings were 31 cents per share, up 35% from the adjusted net income of the year-ago period. Total revenues rose 12% to $2.77 billion. Analysts estimated earnings of 28 cents per share on revenues of $2.75 billion. The company expects comparable systemwide REVPAR for the third quarter to rise 5%-7% on a constant currency basis. Additionally, the company said it expects earnings of 18-22 cents per share for the third quarter and $1.05 to $1.13 per share for 2010. The consensus estimates call for earnings of 22 cents for the third quarter and $1.04 per share for the full year.

Landstar (LSTR) may also be in focus after it reported that its second quarter revenues rose 31% to $641.7 million. The company’s earnings rose to 49 cents per share from the year-ago’s 35 cents per share. Analysts estimated earnings of 48 cents per share on revenues of $600.04 million.

GlaxoSmithKline (GSK) is expected to react to a decision by a FDA panel regarding its diabetes drug Avandia. After reviewing a range of possibilities from making no changes to the label to withdrawal of the drug from the U.S. market following concerns over its cardiovascular safety, the committee voted to allow the drug to remain in the market.

Separately, GlaxoSmithKline said it expects to record a legal charge of 1.57 billion pounds in its second quarter, equating to an after-tax cost of 1.35 billion pounds. The company clarified that the charges include settlements, agreements in principle to settle and other provisioning for long-standing cases.