US & World Daily Markets Financial Briefing 18-02-2010

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Stocks Showing A Lack Of Conviction In Mid-Morning Trading

Stocks are looking for direction in mid-morning trading on Thursday, as a mixed batch of economic data continues to create uncertainty about the direction and breadth of the economic recovery. The major averages are lingering near the unchanged mark, seeing a choppy outing.

On the economic front today, the Federal Reserve Bank of Philadelphia said that manufacturing conditions continued to improve in the mid-Atlantic region in the month of February, with the bank's index of manufacturing activity remaining positive for the sixth consecutive month.

The headline index of regional manufacturing activity rose to 17.6 in February from 15.2 in January, with a positive reading indicating growth in the sector. Economists had been expecting the index to increase to a reading of 17.0.

Meanwhile, the Conference Board released a report showing that its leading index increased by 0.3 percent in January following an upwardly revised 1.2 percent increase in December. The index had been expected to increase by 0.5 percent compared to the 1.1 percent growth originally reported for the previous month.

Earlier this morning, traders were put on edge as the Labor Department reported that first-time claims for unemployment benefits unexpectedly increased in the week ended February 13th, with the data offsetting some of the recent optimism about the outlook for the labor market.

Initial jobless claims rose to 473,000 from the previous week's revised figure of 442,000. The increase came as a surprise to economists, who had expected jobless claims to edge down to 438,000 from the 440,000 originally reported for the previous week.

In a separate report, the Labor Department revealed that producer prices rose by more than economists had forecast in January. The producer price index increased by 1.4 percent in January following an unrevised 0.4 percent increase in December. Economists had been expecting a more modest increase of about 0.8 percent.

Excluding volatile food and energy prices, the core producer price index rose by 0.3 percent in January after coming in unchanged in the previous month. The core index has been expected to edge up by 0.1 percent.

With earnings season nearing the finish line, Wal-Mart reported adjusted fourth-quarter net income of $1.17 per share, topping the forecast of $1.12 per share. Revenues for the quarter rose to $113.65 billion but fell short of the projected $114.36 billion for the quarter.

After the markets closed for trading on Wednesday, Hewlett-Packard reported first-quarter net income $1.10 per share, edging out the $1.06 per share expected by analysts.
Net revenue for the quarter increased 8 percent to $31.2 billion and beat the $30.01 billion forecast by analysts.

The major averages have seen choppy movement in recent dealing, remaining near the flat line. The Nasdaq is currently down 0.25 points or less than 0.1 percent at 2,226.04, while the Dow is up 13.38 points or 0.1 percent at 10,322.62 and the S&P 500 is up 0.30 points or less than a 0.1 percent at 1,099.81.

Sector News

Gold stocks are posting considerable gains despite this morning's lackluster outing, with the NYSE Arca Gold Bugs Index posting a 1.5 percent gain. With the upward move, the index reached its best intraday level in nearly a month in earlier dealing.

Healthcare provider, defense and steel stocks are also seeing notable strength, while semiconductor and housing stocks are moving lower, offsetting gains in other equity segments.

The Philadelphia Semiconductor Index and the Philadelphia Housing Sector Index are both down by 0.8 percent, although they remain rangebound.

Health insurance, trucking and computer hardware stocks are also moving lower, although selling pressure has remained subdued.

Stocks Driven By Analyst Comments

Winn-Dixie Stores is on the rise in mid-morning trading after being upgraded at Jefferies & Co. from Underperform to Hold. The broker also raised its target price on the stock from $7 to $11. The stock has gained 5.5 percent, jumping to a two and a half month intraday high.

American Eagle is also moving higher after an upgrade by Wells Fargo from Market Perform to Outperform. Shares are currently up by 2.2 percent, setting a two-week intraday high.

On the other hand, Watsco is under pressure after a downgrade by KeyBanc Capital Markets from Buy to Hold. The stock is down by 1.9 percent, pulling back off of the seventeen month closing high set on Wednesday.

Optimism May Be Diffused By Weak Data

Bay Street stocks may pare some recent gains Thursday on easing commodity prices and on profit taking, even as traders digesting the just released inflation numbers.

While the price of oil eased on demand concerns, the bullion pared recent gains as IMF announce plans to sell gold. The main index moved higher for the past six sessions, its longest winning streak in 2010, gathering nearly 5% as investors brushed aside worries over the euro zone and on rising commodity prices.

In corporate news, gold producer Agnico-Eagle Mines reported fourth-quarter net income of $0.31 per share, compared to net income of $0.15 per share in the same quarter last year.

Gold firm Kinross Gold turned to black in fourth quarter reporting net earnings of $0.34 per share, compared to net loss of $1.47 per share in the prior-year quarter.

Barrick Gold said it earned $0.21 per share in the fourth quarter, compared to a loss of $0.53 per share in the year ago period.
 
In M&A news, insurance provider Fairfax Financial Holdings said it will acquire Zenith National Insurance Corp. for about $1.4 billion.

Energy company Nexen Inc. turned to profit in fourth-quarter, reporting net income of C$0.49 per share versus a loss of C$0.35 per share in the year ago quarter.

Precious metals miner Dundee Precious Metals swing to profit reporting fourth quarter net earnings of C$0.04 per share, compared to a net loss of C$1.03 in the prior year quarter.

HSBC Bank Canada, a subsidiary of HSBC Holdings plc, reported net income of C$0.30 per basic share for the fourth quarter, compared to C$0.22 per basic share for the fourth quarter of 2008.

In brokerage updates, Morgan Stanley trimmed its rating on oil and gas industry services provider Trican Well Services to an 'Underweight' from an 'Overweight' rating. RBC ups Rogers Communications price target to C$41 from C$40.

In economic news, Statistics Canada said consumer prices rose 1.9% in the 12 months to January, following a 1.3% increase in December. On a monthly basis, prices rose 0.4% from December. The inflation rate is just below the central bank's 2% target and is unlikely to trigger interest rate hikes before the second half of 2010.

In another report, the agency said Non-residents acquired $11.2 billion of Canadian securities in December and Canadian investment in foreign securities, which was up in November after four months of divestments, slowed to $663 million in December.

From the U.S., the Labor Department said first-time claims for unemployment benefits unexpectedly increased in the week ended February 13, with the claims rising to 473,000 from the previous week's revised figure of 442,000. Economists had expected jobless claims to edge down to 438,000 from the 440,000 originally reported for the previous week.

Gold Slips As IMF Plans Sale

The price of gold eased Thursday morning after International Monetary Fund (IMF) announced plans to trim its gold reserves. Gold for April delivery was down $10.40 to 1,109.70 an ounce, after hitting a 2-week high in the previous session.

The IMF said it will 'soon' sell 191.30 tons of gold, in order to raise money to aid for programs to assist lower income nations. 
 Also, a marginally stronger US dollar near 9-month highs versus the euro put pressure on gold.

Silver and platinum were also edging lower in morning deals.

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Asian Markets Slip On Profit Taking

The markets across Asia, excluding China and Taiwan that are closed for weekly holidays, ended in negative territory on Thursday as traders resorted to profit taking after two days of gains amid lackluster trading with no definitive cues from the global markets. Weakness in the commodity markets also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index closed up 28.86 points, or 0.28%, at 10,336 while the broader Topix index of all First Section issues ggained 0.10 point, or 0.01%, to 905.

On the economic front, the Bank of Japan, at the conclusion of the two-day policy meeting, maintained its key interest at near-zero, as expected, and also held off for another month on unveiling further support measures to tackle deflation in the economy. In an unanimous vote, the Policy Board of the central bank, led by Governor Masaaki Shirakawa decided to leave its uncollateralized overnight call rate unchanged at 0.10% and pledged to maintain an extremely accommodative financial environment.

Separately, the Cabinet Office in Japan revealed that the country's leading index for December was revised up to 94.3 from 94 stated earlier, in the final report. The report further noted that the coincident index came in at 97.4 in December, slightly lower than the initial estimate of 97.6, but higher than previous month's final reading of 96.

Light sweet crude oil futures for March delivery ended at $76.86 a barrel in electronic trading, down $0.47 per barrel from previous close at $77.33 a barrel in New York on Wednesday.
 
Retail stocks led the gains in the market. Fast Retailing gained 2.09%, Isetan Mitsukoshi Holdings rise 2.06%, Seven & I Holdings advanced 0.61%, Aeon & Co. climbed 1.32%, J Front Retailing increased 1.64% and Takashimaya added 1.32%.

Textile stocks also ended in positive territory. Nisshinbo Holdings climbed 2.53%, Toray Industries rose 1.65% and Teijin Ltd gained 2.30%.

Shipping stocks ended in negative territory on profit taking. Mitsui OSK Lines declined 1.20% and Nippon Yusen fell 1.19%. Kawasaki Kishen Kaisa remained unchanged from previous close.

Mixed trading was witnessed among trading companies. While Sumitomo Corp. managed to end in positive territory with a gain of 0.51% and Sojitz Corp. remained unchanged from previous close, the other companies ended in the red on profit taking. Mitsubishi Corp. shed 1.27%, Marubeni Corp. slipped 0.93%, Mitsui & Co., declined 0.50%, Itochu Corp. fell 0.55% and Toyota Tsusho Corp edged down 0.23%.

Banking stocks also ended mixed. Sumitomo Mitsui Financial edged up 0.14%, and Mitsubishi UFJ Financial gained 1.11%. Mizuho Financial Group managed to end unchanged from previous close while Resona Holdings slipped 0.81%.

In Australia, the benchmark S&P/ASX 200 Index slipped 13.00 points, or 0.28% to close at 4,655, while the All-Ordinaries Index ended at 4,674, representing a modest loss of 12.90 points, or 0.28%.

On the economic front, a statement released by the National Australia Bank revealed that business confidence in the country rose in December quarter to a 15-year high. As per the report, the business confidence index for the final three months of 2009 rose 2.0 points to 18.0, the highest reading since Q4 of 1994. The report further noted that business conditions index that tracks the current business climate in the country increased four points, to plus nine, the highest since Q2 of 2008.

In a separate statement, the Australian Bureau of Statistics revealed that the value of total merchanide imported into the country decreased 4%, or A$741 million, in seasonally adjusted terms to A$16.7 billion. The statement further noted that while import value of consumption goods increased during the month, import value of intermediate & other merchandise goods, capital goods and non-monetary gold declined during the month.
 
Light sweet crude oil futures for March delivery ended at $76.86 a barrel in electronic trading, down $0.47 per barrel from previous close at $77.33 a barrel in New York on Wednesday.

Airliner Qantas reported disappointing results for the first half attributing difficult condition in the global aviation market as the primary reason. The company's first half net profit slumped 72% following which the company scrapped its first half dividend payment.. Following the result and the announcement, the stock plunged 8.08% on huge volumes. The other airline company Virgin Blue Holding declined 2.36%.

Diversified conglomerate Wesfarmers surprised the market with a flat profit for the first half that came in above analysts' estimates. The company further noted that the turnaround in its subsidiary Coles is on track. Following the news, the shares gained 3.20%. However, the other retail stocks ended weaker amid profit taking. David Jones slipped 0.61%, JB Hi-Fi Ltd lost 1.01% and Woolworths edged down 0.23%. Harvey Norman remained unchanged from previous close.

Mixed trading was witnessed among mining and metal stocks. BHP Billiton declined 1.11%, Rio Tinto fell 1.12%, Fortescue Metals lost 3.88%, Gindalbie Metals shed 2.38% and Oz Minerals was down 3.38%. However, Iluka Resources edged up 0.27% and Minara Resources rose 1.41%.

Gold stocks ended weaker on lower gold prices in the bullion market. Lihir Gold plunged 3.46% and Newcrest Mining lost 2.26%.

Oil stocks also ended in negative territory. Woodside Petroleum shed 0.50%, Santos lost 1.03%, Oil Search slipped 0.76% and Origin Energy fell 0.60%.

Mixed trading was witnessed among banking stocks. While National Australia Bank managed to end in positive territory with a gain of 0.15%, the other banks ended in negative territory. ANZ Bank edged down 0.02%, Commonwealth Bank of Australia shed 0.34% and Westpac Banking slipped 0.16%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 111.86 points, or 0.54%, at 20,422.15, as traders preferred to lock in gains from yesterday's gain and move to the sidelines awaiting further cues on the global economy. China related stocks and resource stocks declined on weaker commodity prices. Caution among the traders with the mainland China market closed for holidays also impacted market sentiment.
 
In South Korea, the KOSPI Index ended in the negative territory with a loss of 6.24 points, or 0.38%, at 1,621 as traders preferred to lock in gains from recent rally and move to the sidelines look for further cues on global economy. Weaker commodity prices and weak closing across other markets in the region also impacted market sentiment. Trading volumes were also relatively less than normal.

Profit taking after a two-day rally and the dollar's broad strength which pulled down commodity prices weighed on the Indian market Thursday. Asian stocks fell from two-week highs, the European markets were subdued after a 3-day rally and the Dow futures declined, further dampening sentiment. The benchmark Sensex finished at 16,328, down 101 points or 0.62% and the Nifty fell by 26 points or 0.53% to 4,888.

The markets in China and Taiwan are closed for holidays. Among the other major markets, Indonesia's Jakarta Composite Index slipped 21.31 points, or 0.83%, to close at 2,560, and Singapore's Strait Times declined 24.87 points, or 0.89% to close at 2,769.

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After showing weakness in early trading, the major European markets are trading on a mixed note. The French CAC 40 Index is edging down 0.08%, while the German DAX Index and the U.K.’s FTSE 100 Index are advancing 0.11% and 0.30%, respectively.

In corporate news, French insurer Axa reported that its second-half net income rose to 2.28 billion euros from 1.24 billion euros in the year-ago period. Operating earnings were up 36% to 1.74 billion euros.

Societe Generale said its full year profits jumped to 221 million euros from 87 million euros last year. The company recorded provisions of 1.9 billion euros the fourth quarter compared to its forecast of 1.4 billion euros.

U.S. Economic Reports

The U.S. Labor Department reported that the producer price index for January rose 1.4% month-over-month and the core producer price index climbed 0.4%. Economists had expected a more modest 0.8% increase in the headline index and a 0.1% increase in the core index.

Food prices edged up 0.4%, slower than the 1.3% increase in the December, while energy prices surged up 5.1% compared to the month-ago’s 0.7% increase. Prices of intermediate energy goods increased sharply, but intermediate food prices slid 0.2%.

First-time claims for unemployment benefits unexpectedly increased in the week ended February 13th, according to a report released by the Labor Department, with the data likely to offset some of the recent optimism about the outlook for the labor market.

The report showed that initial jobless claims rose to 473,000 from the previous week's revised figure of 442,000. The increase came as a surprise to economists, who had expected jobless claims to edge down to 438,000 from the 440,000 originally reported for the previous week.

The Conference Board is scheduled to release a report on its U.S. leading indicators index for January at 10 AM ET. The consensus estimate calls for a 0.5% increase in the leading indicators index for the month.

The U.S. leading economic indicators index rose 1.1% in December following a 1% increase in November and a 0.3% rise in October. With this, the index has risen steadily for nine consecutive months. While the coincident economic index rose 0.1%, the lagging index fell 0.2%.

The results of the Philadelphia Federal Reserve's manufacturing survey are also due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 17 for February.

In January, the manufacturing index fell to 15.2 from 22.5 in December. The new orders index dipped 5.1 points to 3.2, while the employment index rose 1.6 points to 6.1. The inventories index, although improving to -1.6 from the previous month's -5.7, remained in negative territory. The 6-month outlook index rose to 43.3 from 35.9.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 12th at 11 AM ET. The release date was pushed back by a day from the customary release of day of 'Wednesday' due to the public holiday on Monday.

In the week ended February 5th, crude oil stockpiles rose by 2.4 million barrels to 331.4 million barrels. Gasoline inventories increased by 2.3 million barrels to 230.4 million barrels, while distillate stockpiles edged down by 0.3 million barrels to 156.2 million barrels. Refinery capacity utilization averaged 78.4% over the four weeks ended February 5th compared to 79% in the previous week.

Federal Reserve Governor Elizabeth Duke is scheduled to appear at dinner of the CFA Virginia and the Economics Club of Hampton Roads for the annual Economic Impact Award in Norfolk, Virginia, at 5 PM ET.

Atlanta Federal Reserve Bank President Dennis Lockhart is also scheduled to speak on the economic outlook to the Augusta Metro Chamber of Commerce in Augusta at 7 PM ET. Also due to speak on that day is St. Louis Federal Reserve Bank President James Bullard, who will speak on the U.S. economy to the Economics Club of Memphis in Memphis, Tennessee, at 9 PM ET.

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Wal-Mart could be in focus after it reported fourth quarter adjusted earnings of $1.23 per share, ahead of the $1.12 per share consensus estimate. Sales rose 4.6% to $112.8 billion, missing the consensus estimate of $114.4 billion. For fiscal year 2011, the company expected earnings of $3.90-$4 per share compared to the $3.97 per consensus estimate.

Hewlett-Packard is expected to see some activity after it reported first quarter adjusted earnings of $1.10 per share on revenues of $31.2 billion. Analysts estimated earnings of $1.06 per share on revenues of $30.01 billion. The company lifted its full year revenue estimate to $121.5 billion to $122.5 billion from its previous estimate of $118 million to $119 million. On an adjusted basis, the company expects earnings of $4.37-$4.44 per share compared to its earlier estimate of $4.25-$4.35 per share. The consensus estimates call for earnings of $4.37 per share on revenues of $120.3 billion.

Sherwin Williams could be in focus after it said it has signed an agreement to buy the industrial wood coatings business of Arch Chemicals. The division generated $147 million in net sales in 2009.

Kinross Gold Corp. receded in Wednesday’s after hours session after it reported that its fourth quarter gold production rose 12% year-over-year. The company reported fourth quarter revenues of $699 million, higher than $484.4 million last year. Adjusted net earnings were 21 cents per share, higher than 9 cents per share last year. Analysts estimated earnings of 16 cents per share on revenues of $662.82 million. The company also said it has entered into an agreement with Barrick Gold (ABX) to sell one-half of its 50% interest in a project in Chile for $475 million, plus the assumption by Barrick of a $20 million contingent obligation.

Terex Corp. declined sharply in Wednesday’s after hours session after the company said it expects to continue to incur operating losses in the first half of 2010, returning to operational profitability only in the second half of the year. For the full year, the company expects a net loss of about $1 per share. Analysts estimate a loss of 31 cents per share for the year. The company also reported a net loss from continuing operations of $1.06 per share for the fourth quarter compared to a net loss of $4.78 per share. Net sales fell 36.1% to $1.06 billion. The consensus estimates called for a loss of 49 cents per share on revenues of $1.24 billion.

O’Reilly Automotive receded sharply in Wednesday’s after hours session after it forecast full year 2010 earnings of $2.50-$2.56 per share, below the $2.61 per share consensus estimate. For the first quarter, the company expects earnings of 56-60 cents per share compared to analysts’ average estimate of 59 cents per share. The company reported fourth quarter sales of $1.17 billion, up 5% year-over-year. The company’s net income rose to 52 cents per share from 32 cents per share last year.

Another auto parts retailer Advance Auto Parts reported fourth quarter sales of $1.14 billion compared to $1.10 billion last year. On a comparable basis, the company reported earnings of 39 cents per share compared to 41 cents per share last year. Analysts estimated earnings of 46 cents per share on revenues of $1.15 billion. For 2010, the company estimates earnings of $3.20-$3.40 per share and comparable store sales growth in the low to mid single digit range.

Norfolk Southern is expected to see buying interest after it said its Crescent Corridor Intermodal Freight Program of Projects was awarded $105 million from the U.S. Department of Transportation. The company also announced two more government awards valued at $52.5 million each.

Cyberonics could be in focus after it said its third quarter net sales rose 16% to $40.8 million. The company’s non –GAAP net income rose to 29 cents per share from 15 cents per share last year. The consensus estimates called for earnings of 25 cents per share on revenues of $40.58 million. For 2010, the company raised its income from operations guidance to $28 million to $30 million and increased its net sales guidance to $159 million to $162 million.

Cliff Natural Resources is likely to react to its fourth quarter resulting showing that sales rose 10% to $820.50 million, but came in below the $872.75 million estimated by analysts. Net income climbed to 82 cents per share from 47 cents per share last year.

Peet’s could also be in focus after it reported fourth quarter non-GAAP earnings of 36 cents per share, higher than 29 cents per share last year. Net revenues rose 16% to $91.70 million. Analysts estimated earnings of 38 cents per share on revenues of $89.75 million. For 2010, the company expects net revenue growth of 8%-12% and non-GAAP earnings of $1.24-$1.30 per share. The consensus estimates call for revenue growth of 7.6% and earnings of $1.27 per share.

Nvidia is expected be in focus after it reported fourth quarter revenue of $982.5 million, up from $481.1 million last year. On a non-GAAP basis, the company reported a profit of 23 cents per share compared to a loss of 27 cents per share last year. Analysts estimated earnings of 20 cents per share on revenues of $957.20 million. For 2011, the company expects first quarter revenues to be flat with the previous quarter.

HJ Heinz is likely to be in focus after it said it expects third quarter earnings from continuing operations of 82 cents per share compared to the 71 cents per share consensus estimate. The company raised its 2010 earnings per share from continuing operations guidance to $2.82-$2.85. The company attributed the strength to dynamic growth in emerging markets and volume growth of around 4% in the U.S. retail business and around 9% in the U.K. business.

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