US & World Daily Markets Financial Briefing 16-07-2009

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Stocks Showing A Lack Of Direction In Mid-Morning Trading

After a lower open, stocks have shown a lack of conviction in mid-morning trading on Thursday, as traders are digesting a slew of mixed earnings and economic reports. The major averages have been swinging between gains and losses throughout the morning.

Generating some pessimism earlier was the Federal Reserve Bank of Philadelphia’s report showing that its index of manufacturing activity in the Mid-Atlantic region fell by more than economists had been expecting.

The Philly Fed said its index of current activity fell to a negative 7.5 in July from a negative 2.2 in June, with a negative reading indicating a contraction in the sector. The index had been expected to slip to a reading of negative 4.8.

In a separate report this morning, the Labor Department revealed that first time claims for unemployment benefits continued to decrease in the week ended July 11th, with initial jobless claims falling by more than economists had been expecting.

The report showed that jobless claims fell to 522,000 from the previous week's revised figure of 569,000. Economists had been expecting jobless claims to fall to about 530,000 from the 565,000 originally reported for the previous week.

However, analysts have pointed out that irregularities in the auto sector have continued to impact jobless claims, skewing the data artificially lower.

On the earnings front, JP Morgan Chase (JPM) reported second-quarter net income that firmly beat Wall Street estimates, but Xilinx Inc. (XLNX), Cintas (CTAS), Harley Davidson (HOG), and Marriott International (MAR) offered a mixed bag of results, limiting the optimism.

After the close of trading today, traders will look to results from tech giants IBM Corp. (IBM) and Google (GOOG).

Traders are also keeping an eye on Capitol Hill, where former Treasury Secretary Henry Paulson is testifying before Congress, answering questions from lawmakers regarding the controversial Bank of America and Merrill Lynch merger that took place late last year.

The major averages have moved to the upside in recent trading and are currently posting modest gains. The Dow is currently up 16.86 at 8,633.07, the Nasdaq is up 3.04 at 1,865.94 and the S&P 500 is up 0.26 at 932.94.

Sector News

The major sectors are split, contributing to the lack of conviction being shown by the equity markets in mid-morning trading.

Biotechnology stocks are turning in strong performances, as reflected by the 3.1 percent gain being shown by the NYSE Arca Biotechnology Index. With the gain, the index is moving further off a roughly one-month closing low set last Wednesday.

While pharmaceutical, trucking and defense stocks are also moving higher, brokerage and commercial real estate stocks are posting steep losses. The NYSE Arca Securities Broker/Dealer Index and the Morgan Stanley Real Estate Index are down by 1.8 percent and 1.4 percent, respectively. The retreat by the indices has partially offset yesterday’s strong gains.

Further, banking and airline stocks are also seeing notable weakness, with the Kbw Bank Index down by 1.1 percent, while the NYSE Arca Airline Index is down by 1.3 percent.

While the banking index is pulling back off of a one-month closing high set on Wednesday, the airline index is backing off of a roughly two-month closing high also set in the previous session.

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Toronto Stocks Could See Mixed Open After Recent Rally

Canadian stocks could struggle to find direction in early trading on Thursday, following three straight days of gains. A drop in crude oil may offset optimism from mild gains seen overseas.

Crude oil prices are down 59 cents to $60.95 after surging sharply in the previous session. Gold and copper prices are little-changed.

Research In Motion Ltd. and Visto Corporation announced that they have reached a deal to settle all patent litigation between the companies. As part of the deal, RIM will pay US$267.5 million.

Nexen reported that its second-quarter net income attributable to the company was C$20 million or C$0.04 per share, compared to C$380 million or C$0.70 per share in the same quarter of last year.

Coeur d'Alene Mines Corp. said it has agreed to sell back to Perilya Limited its 100% interest in the silver contained at the Broken Hill mine in Australia for US$55.0 million in cash.
 
Randgold Resources Limited announced that it proposed to acquire Moto Goldmines Limited for C$5.00 per share.

Across the border, JP Morgan reported net income of $2.7 billion or $0.28 per share for the second quarter. Analysts expected the company to report earnings of $0.04 per share for the quarter.

A U.S. Labor Department report showed that jobless claims fell to 522,000 from the previous week's revised figure of 569,000. Economists had been expecting jobless claims to fall to about 530,000 from the 565,000 originally reported for the previous week.

On Wednesday, the S&P/TSX Composite Index climbed 229.31 points or 2.29% to settle at 10,215.46. This marked the best finish since July 3.

Currency, Commodity Markets

Crude futures are rising $0.61 to $60.93 a barrel after advancing $2.02 to $61.54 a barrel on Wednesday. Yesterday, the commodity was supported by the rally in equities and the resultant increase in risk preference, which pushed down the value of the dollar. Additionally, a bullish oil inventory report released by the Energy Information Administration also supported prices.

The Energy Information Administration said crude oil stockpiles fell by 2.8 million barrels to 344.5 million barrels in the week ended July 10th, with inventory levels remaining above the upper boundary of the average range. Gasoline inventories rose by 1.5 million barrels and were in the upper half of the average range.

Distillate stockpiles edged up by 0.6 million barrels and remained above the upper boundary of the average range. Refinery capacity utilization averaged 87.2% over the four-weeks ended July 10th compared to 86.7% in the previous week.

Gold futures are trading flat after they climbed $16.60 to $939.40 an ounce in the previous session.

Among currencies, the U.S. dollar is trading at 93.81 yen compared to the 94.23 yen it fetched at the close of New York trading on Wednesday. Currently, the dollar is valued at $1.4136 versus the euro.

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The major Asian markets ended Thursday’s session mostly higher, with the exception of the Chinese, Indian and Indonesian markets. The positive close on Wall Street set the stage for the rally, with a Chinese GDP report further supporting the upside. However, the pullback in the U.S. index futures in reaction to an announcement from CIT led to the trimming of some of the gains.

Japan’s Nikkei 225 average opened higher and saw further gains in early trading. Thereafter, the index began to move steadily lower, although it closed up 74.91 points or 0.81% at 9,344.

Auto stocks were mostly higher in the session, with Mazda leading the gains with an over 6% advance. Exporters, tire makers and trading houses also showed notable gains. On the other hand, brokerages and financial stocks pulled back on profit taking. Breweries also showed some weakness.

On the economic front, Japan’s tertiary index declined 0.1% month-over-month in May compared to expectations for a 0.4% increase. Nonetheless, the Bank of Japan today upgraded its assessment of the economy for the third month. In its latest assessment of monthly financial and economic conditions, the bank said Japan’s economic conditions have stopped worsening.

Australia’s All Ordinaries opened unchanged and surged up in early trading. Thereafter, buying interest waned, resulting in sideways movement by the index. At the close of trading, the index was up 70.30 points or 1.79% at 3,988.

Energy, consumer staple and material stocks rallied strongly, with only telecommunication stocks showing modest weakness. Macquarie Group rallied strongly, rising over 1 Australian Dollar. The four major banks as well as heavily weighted mining stocks also advanced.

The Chinese Shanghai Composite Index, which showed volatility in early trading and saw solid strength in the mid-session following the release of stronger than expected second quarter GDP, receded in a late session pullback. The index ended down 4.809 points or 0.15% at 3,184.

Meanwhile, Hong Kong’s Hang Seng Index opened sharply higher, but it gave back almost all its gains towards the close of trading on a day, when the index saw a steady decline. The index ended up 103.21 points or 0.57% at 18,362.

Twenty-seven of the forty-two index components ended higher in the session, with index heavyweights HSBC Holdings and China Mobile advancing in the session. Mainland financial stocks showed mixed sentiment, while property stocks were mostly higher.

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The major European markets are moving lower on Thursday following three straight sessions of gains. The major averages in the region opened lower and have been showing volatility, as traders anxiously await the fate of U.S. lender CIT Group and a batch of economic and earnings. The French CAC 40 Index and the German DAX Index is rising 1.31% and 0.90%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.43%.

In corporate news, Novartis (NVS) reported that its second quarter earnings fell 10% to $2.04 billion from $2.25 billion last year, with the bulk of the decline stemming from unfavorable currency effects and expenses related to issuance of bonds. The company confirmed its guidance for mid-single digit growth in group sales in local currency terms. That said, it raised its sales forecast for drug sales.

Swedish white goods maker Electrolux reported a second quarter profit of 658 Swedish Kronor compared to 99 million Swedish Kronor, which included restructuring charges of 539 million Swedish Kronor. Revenues rose 7.4%.

Sony Ericsson, a joint venture between Sony (SNE) and Ericsson (ERIC), reported a loss of 213 million euros for the fourth quarter compared to net income of 6 million euros in the year-ago period. Sales declined 40% to 1.68 billion euros. Meanwhile, Finnish telecommunication giant Nokia (NOK) said its second quarter earnings declined to 380 million euros compared to 1.1 billion euros in the year-ago period. Sales fell 25% to 9.91 billion euros. The company lowered its mobile device market share estimate to be flat in 2009 compared to its earlier estimate for an increase.

The French National Institute for Statistics and Economics reported that French consumer prices fell 0.5% year-over-year in June, while rising 0.1% compared to the previous month.

U.S. Economic Reports

First time claims for unemployment benefits continued to decrease in the week ended July 11th, according to a report released by the Labor Department on Thursday, with initial jobless claims falling by more than economists had been expecting.

The report showed that jobless claims fell to 522,000 from the previous week's revised figure of 569,000. Economists had been expecting jobless claims to fall to about 530,000 from the 565,000 originally reported for the previous week.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for June at 9 AM ET.

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 -5 for July.

In June, the pace of contraction in manufacturing activity in the mid-Atlantic region slowed significantly, with the index of business activity coming in at -2.2 compared to -22.6 in May and the economists estimate of -17. The prices paid and prices received indexes increased, rising to -13 and -16.6, respectively. The new orders index also saw a significant improvement, with the index moving up about 21 points to -4.8, while the shipments index climbed 21 points to 2.1.

On the employment front, there was improvement as well, albeit on a moderate degree. On a more upbeat note, the 6-month outlook index rose to 60.1 from 47.5 in the previous month, reaching the highest level since September 2003.

The National Association of Homebuilders is scheduled to release the results of their survey on homebuilders' confidence at 1 PM ET.

The housing market index fell by 1 point to 15 in June, reflecting the caution of homebuilders due to their concerns over the fragile state of the housing market. The index of current home sales and the index gauging traffic of prospective buyers remained unchanged at 14 and 13, respectively, while the index gauging expectations for the next six months fell 1 point to 26.

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PC makers and part suppliers could move in reaction to IDC and Gartner’s quarterly reports. The reports suggested that PC shipments declined by a slower than expected pace in the second quarter. IDC said global PC shipments fell 3%, while Gartner estimated a 5% decline. That said, the industry remains on track to record its first annual drop since 2001.

Xilinx receded in Wednesday’s after-hours session despite reporting first quarter adjusted earnings of 21 cents, ahead of the 19 cents per share consensus estimate. Revenues fell 23% to $376.2 million, but came in below the mean analysts’ estimate of $381.4 million. For the second quarter, the company expects a 2%-6% sequential increase in sales.

Cintas may also see weakness after it reported fourth quarter revenues of $879 million, down 13% year-over-year. The company’s net income fell to 3 cents per share from 58 cents per share last year. On an adjusted basis, the company’s net income was 38 cents per share. The consensus estimates called for earnings of 37 cents per share on revenues of $876.03 million.

Polycom may be in focus after it reported second quarter net revenues of $230.7 million, lower than $271.6 million in the year-ago period. The company’s non-GAAP net income fell to 29 cents per share from 35 cents per share last year. Analysts estimated earnings of 28 cents per share on revenues of $223.20 million.

Resource Connection is likely to move to the downside after it reported a fourth quarter loss of 14 cents per share compared to a profit of 35 cents per share last year. The recent quarter’s results included charges totaling 13 cents per share. Revenues fell 44% to $132 million. Analysts estimated earnings of 4 cents per share on revenues of $143.6 million.

Stanley Furniture could be in focus after it reported that its second quarter net sales fell 28.4% to $42.33 million. The company reported a loss of 29 cents per share compared to a loss of 1 cent per share last year. Analysts expected a loss of 20 cents per share on revenues of $39.91 million.

U.S. Bancorp. could react to its announcement that it has completed the repurchase of a warrant held by the Treasury by paying $139 million. AIG may also be in focus after it said it would accelerate steps to spin off Alico in an IPO. Meanwhile, a Bloomberg report suggested that Prudential is in talks to buy the insurer’s two Japanese unit.

CIT Group is likely to see weakness after it said discussions with government agencies have ceased and there is no likelihood of additional government support being provided over the near term. The development opens up the possibility of a insolvency filing by the lender.

Rowan Companies may be in focus after it said it has priced a public offering of $500 million of its 7.875% senior notes due 2019 in a registered public offering. The company said the notes would be issued at 99.341% of its principal amount and have a fixed interest rate of 7.875% per annum. The company intends to use the proceeds from the offering for general corporate purposes.

Earnings

J.P. Morgan Chase said its second quarter earnings were 28 cents per share, lower than 53 cents per share in the year-ago period. The recent quarter’s earnings included a one-time non-cash reduction in net income applicable to common stockholders of 27cents per share, resulting from repayment of TARP preferred capital. Total net revenues were $25.62 billion, higher than $18.40 billion in the year-ago period. Analysts estimated earnings of 4 cents per share on revenues of $25.89 billion.

Marriott International said its second quarter adjusted income from continuing operations were 23 cents per share and revenues declined to $2.6 billion from $3.2 billion last year. Analysts estimated earnings of 23 cents per share on revenues of $2.52 billion. For the third quarter, the company expects earnings from continuing operations of 9-14 cents per share. The company guided full year adjusted earnings from continuing operations to be 76-86 cents per share.

Biogen Idec’s second quarter revenues rose 10% to $1.1 billion. The company’s non-GAAP earnings were 75 cents per share compared to the year-ago’s 91 cents per share. Analysts expected earnings of 68 cents per share on revenues of $1.07 billion. The company updated its full year guidance and now expects sales growth in high single digits and non-GAAP earnings of over $3.85 per share. The consensus estimate for the year calls for earnings of $3.82 per share.

Harley-Davidson reported second quarter net income of 8 cents per share, significantly lower than the year-ago’s 95 cents per share. Net revenues fell to $1.15 billion from $1.57 billion last year. Analysts estimated earnings of 24 cents per share on revenues of $1.15 billion.

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