US & World Daily Markets Financial Briefing 17-07-2009

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Mixed Earnings May Deter Traders

The major U.S. index futures are pointing to a lower opening on Friday. After earnings-induced optimism drove markets higher in the past four sessions, the buying momentum is likely slowdown, as conglomerate General Electric (GE) and Bank of America (BAC) turned in lackluster earnings. Commodity prices are moving to the downside, as the mixed earnings reports are likely to sap some positive energy from the markets.

That said, there are a few positive catalysts that could help the markets overcome the anxiety. Housing starts rose to the highest level in seven months, which is reinforcement that the housing market is approaching some degree of stabilization. However, volatility that is characteristic of a quadruple witching session makes it difficult to predict the market action.

After moving back and forth across the unchanged line in a narrow range on Thursday, U.S. stocks surged up sharply in a late afternoon rally. Sentiment for most of the morning was subdued, as traders digested mixed economic and earnings reports amid anxiety over the fate of lender CIT Group (CIT).

The Dow Industrials ended higher for the fourth straight session, rising 95.61 points or 1.11% to 8,712. The Nasdaq Composite closed up 22.13 points or 1.19% to 1,885 and the S&P 500 Index rose 8.06 points or 0.86% to 941.

Twenty-six of the thirty Dow components ended the session higher. American Express (AXP) (up 3.89%), IBM (IBM) (up 3.19%), Alcoa (AA) (up 2.96%), Caterpillar (CAT) (up 2.18%), Disney (DIS) (up 2.95%), Hewlett-Packard (HPQ) (up 2.19%) and Intel (INTC) (up 2.49%) advanced strongly. On the other hand, Bank of America (BAC) fell 1.86% and AT&T (T) receded 1.08%.

Among the sector indexes, the Dow Jones Transportation Average rose 2.49%, the NYSE Arca Biotechnology Index rallied 3.02% and the Dow Jones U.S. Basic Materials Average climbed 2.55%. In the resource space, the NYSE Arca Oil Index gained close to 1% and the Philadelphia Oil Service Index rose 1.42%. The Philadelphia Housing Sector Index ended up 1.76%.

The Philadelphia Semiconductor Index advanced 1.93%, the NYSE Arca Disk Drive Index gained 1.44%, the NYSE Arca Computer Hardware Index moved up 2%, the NYSE Arca Internet Index rallied 2.27% and the NYSE Arca Networking Index advanced 1.61%.

Lending support to the market yesterday was the jobless claims report for the week ended July 11th, which showed first time claims for unemployment benefits fell sharply to 522,000 from 569,000 in the previous week. Peter Boockvar from Miller Tabak noted that claims were skewed lower artificially, as the usual July auto plant shutdowns are unlikely, given GM and Chrysler have already shut down plants following their insolvency filing. The four-week average also slid in the week. Continuing claims for the week ended July 4th also fell to 6.273 million, marking the lowest level since April 10th.

The Philadelphia Fed’s manufacturing survey showed that the business activity index fell to –7.5 in July from 2.2 in June. The employment index declined by 3.5 points to –25.3, while the inventories index was little changed at –15.4. Despite new orders and order backlogs indexes improving from month-ago levels, they still remain negative. The 6-month outlook index fell to 51.9 in July from 60.1 in June.

Meanwhile, the National Association of Homebuilders revealed that the housing market index rose 2 points to 17 in July compared to 15 in June, with the July reading marking the best since September 2008. The present conditions index rose 3 points, while the future expectations index remained unchanged. The index of prospective buyer traffic edged up a point.

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Toronto Stocks Look For Fifth Straight Gain

Bay Street are looking at a flat open on Friday morning as Toronto's main index looks for its fifth positive session of the week. The market finished at a 2 1/2-week high on Thursday.

Investors will consider a report showing Canadian consumer prices dropped 0.3% in June compared with June 2008, following a 0.1% increase in May, according to data released Friday by Statistics Canada. Excluding energy, the CPI rose 2.1% in June. The results were in line with analysts expectations.

On the commodity front, crude oil is down 41 cents at $61.61, while gold and copper prices are little-changed.

Patheon announced that it has signed an agreement with EMCOR Facilities Services, a subsidiary of Emcor Group for facilities and energy management services at its three US plants including Cincinnati, Ohio, and Manati and Caguas, Puerto Rico.

Cargojet Income Fund announced it has acquired the remaining 49% interest in Prince Edward Air Ltd. for C$1.0 million. Cargojet had previously acquired a 51% interest in PEAL on May 1, 2008.
 
Western Canadian Coal Corp. announced it appointed Craig Dirk as Chief Operating Officer for its Canadian Operations.

Financials will also be in focus with U.S. giants Citigroup and Bank of America reporting earnings. Citigroup reported earnings per share of $0.49, compared to a loss of $0.55 in the prior year quarter, boosted by a one-time gain. BoA reported EPS of $0.33, compared to $0.72 in the year ago quarter.

Also across the border, the U.S. Commerce Department revealed that housing starts rose 3.6 percent to an annual rate of 582,000 units in June from a revised pace of 562,000 units in the previous month.

On Thursday, the S&P/TSX Composite Index added 88.96 points or 0.87% to settle at 10,304.42. This was the best close for the index in July.

Currency, Commodity Markets

Crude oil futures are trading down $0.57 at $61.45a barrel after advancing $0.49 to $62.02 a barrel in Thursday’s session, with the gain attributed to positive sentiment towards growth engendered by better-than-expected U.S. weekly jobless claims data and Chinese GDP data.

Gold futures, which fell $4 to $935.40 an ounce in the previous session, are currently edging down $0.90 at $934.50 an ounce.

On the currency front, the U.S. dollar is trading at 94.03 yen compared to the 93.9303 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is currently valued at $1.4106.

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Rising on the positive lead provided by Wall Street, the major Asian markets ended Friday’s session higher. Indonesia was the only major market in the region, which ended lower.

Japan’s Nikkei 225 average advanced for the fourth straight session, although the index exhibited volatility throughout the session. The index ended up 51.16 points or 0.55% at 9,395.

Asahi Glass rallied 4.09%. Financial stocks, including banks, real estate and brokerages, also showed some strength. Retail stocks Fast Retailing and J Front Retailing rose 2.29% and 3.12%, respectively. Construction stocks also moved to the upside. The auto space saw mixed sentiment. However, electrical machinery and electronics makers declined. NEC slumped over 8%.

On the economic front, Japan’s Cabinet Office revised down the leading index for May to 76.9 from 77 reported on July 6. Economists expected the index to come in at 76.8. In April, the index was at 76.2. At the same time, the coincident index was revised up to 87.1 from 86.9 estimated initially, and came in higher than the reading of 86 in April. The lagging index was also revised up to 84.1 from 84, but was down from 86.3 in the preceding month.

Australia’s All Ordinaries opened unchanged, but it spiked sharply in early trading. Shortly thereafter, the index pared back all its gains and began to move back and forth across the unchanged line to close 5.10 points or 0.13% at 3,992. Energy stocks showed a firmer trend, while material and industrial stocks also showed modest buying interest.

On the other hand, healthcare, telecommunication and utility stocks declined in the session. Among miners, BHP Billiton and Rio Tinto advanced, while Lihir Gold, Fortescue and Newcrest Mining ended lower. Banking stocks also ended mixed.

Hong Kong’s Hang Seng Index opened higher and moved steadily higher to end the day up 443.79 points or 2.42% at 18,806. Thirty-nine of the forty-two index components closed higher. Bank of China Hong Kong, Chalco, China Shenhua, China Unicom, Tencent, Shopping Property and Cheung Kong were among the notable gainers.

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The major European markets are trading higher on Friday, extending the gains of the previous four sessions. The French CAC 40 Index and the German DAX Index are rising 064% and 0.42%, respectively, while the U.K.’s FTSE 100 Index is moving up 0.61%.

In corporate news, British Airways said it plans to raise about 600 million pounds, as it grapples a liquidity crisis. The airline also said it expects to report an operating loss of 100 million pounds for its first quarter.

U.S. Economic Reports

On the economic front, the Commerce Department said housing starts rose 3.6% month-over-month to 582,000 in June from a downwardly revised reading of 562,000 for May. Economists had expected housing starts to have declined to 530,000 from the initially estimated reading of 532,000 for April.

Single-family starts rose 14.4%, while starts of buildings with five units or more were 101,000. Annually, housing starts slumped 52%. Building permits rose 8.7% month-over-month to 563,000.

Earnings

General Electric said its second quarter earnings from continuing operations were 26 cents per share compared to the 23 cents per share profit expected by analysts. Revenues fell 17% to $39.1 billion, below the mean analysts’ estimate of $42.16 billion.

Citigroup reported a second quarter profit of 49 cents per share compared to a loss of 55 cents per share last year. The recent quarter’s results included a gain of $6.7 billion related to the sale of a majority stake in its Smith Barney brokerage unit.

Bank of America’s second quarter earnings were 33 cents per share compared to 72 cents per share last year. The recent quarter’s results included one-time items, including a $713 million towards preference dividend.

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IBM rose in Thursday’s after hours session after reporting second quarter earnings of $2.32 per share compared with $1.97 per share last year. Sales fell 13% to $23.25 billion. Analysts estimated earnings of $2.02 per share for the quarter on revenues of $23.59 billion. The company now expects earnings of $9.70 per share compared to its earlier estimate of $9.20 per share and the consensus estimate of $9.15 per share.

Google moved lower in Thursday’s after hours session despite reporting second quarter net profit of $4.66 per share compared to $3.92 per share last year. Excluding stock option expenses, earnings were $5.36 per share. Revenues, excluding traffic acquisition costs, were $4.1 billion. Analysts estimated earnings of $5.09 per share on revenues of $4.06 billion.

Renaissance Learning saw weakness in the after hours session despite reporting second quarter revenues of $28.5 million, up 1.5% from last year. The company’s earnings rose to 14 cents per share from 11 cents per share in the year-ago period. The consensus estimates had called for earnings of 11 cents per share on revenues of $27.22 million.

CIT Group may continue to be in focus after it said its board is continuing to evaluate alternatives to improve its liquidity. The company is in discussions with potential lenders to secure financing.

Virgin Media could also react to its announcement that it has priced the offering of $600 million aggregate principal amount of senior notes due 2016 of its wholly owned subsidiary Virgin Media Finance. The notes will bear an interest rate of 9.50% per annum and will be payable in cash semiannually beginning on February 15th, 2010.

Callaway Golf receded in Thursday’s after hours session after it released its preliminary second quarter results, expecting a net sales decline of 17% to $302 million. The company expects earnings per share of 10 cents per share for the quarter compared to 58 cents per share last year. The earnings estimate of the recent second quarter include a 2 cents per share compared to 5 cents per share in the year-ago period. The company attributed to the muted outlook to a slower-than-anticipated recovery in consumer spending and soft market conditions. Analysts estimate earnings of 12 cents per share on revenues of $296.63 million for the quarter.

Dell is likely to react to its announcement that it has sold its American remanufacturing operations in Lebanon, Tennessee to logistics services provider GENCO Supply Chain Solutions. The company said the sale is in-line with its recent efforts to simplify global operations, enhance efficiency and reduce costs.

Immucor may also be in focus after it announced the appointment of Geoffrey Crouse to the newly created post of chief operating officer.

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