US & World Daily Markets Financial Briefing 18-06-2009

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Following a roughly flat open, stocks are moving mostly higher in mid-morning dealing on Thursday, boosted by trader reaction to a string of encouraging economic reports. The major averages are turning in a mixed performance, however, as the Nasdaq underperforms.

While activity in the mid-Atlantic region's manufacturing sector has continued to contract in the month of June, the Federal Reserve Bank of Philadelphia released a report showing that the pace of contraction has slowed by much more than economists had been expecting.

The Philly Fed said its index of activity in the manufacturing sector rose to a negative 2.2 in June from a negative 22.6 in May, although a negative reading still indicates a contraction. Economists had been expecting a much more modest increase to a reading of negative 17.0.

Trader sentiment was further boosted by the release of the Conference Board’s report on leading economic indicators for the month of May, which showed that its leading indicators index increased by a little more than economists had been anticipating.

The report showed that the leading indicators index rose 1.2 percent in May following an upwardly revised 1.1 percent increase in April. Economists had expected the index to increase by 1.0 percent, matching the increase originally reported for the previous month.

Earlier, traders digested employment figures released by the Labor Department that showed first time claims for the week ended June 13th came in at 608,000 compared to last week's revised figure of 605,000.

Some optimism was generated by a drop in continuing claims, which fell by 148,000 in the week ended June 6th, brining the total number of people continuing to file for unemployment benefits to 6.687 million. This marked the first drop in continuing claims since the week ended January 3rd.

Traders are also considering comments from Treasury Secretary Tim Geithner, who is testifying before the Senate Banking Committee on the details of the Obama administration's proposed regulatory reforms for the financial system.

While the Dow and the S&P 500 are currently holding onto notable gains, the Nasdaq has pulled back into the red. The Nasdaq is currently down 3.76 at 1,804.30, while the Dow is up 58.27 at 8,555.45 and the S&P 500 is up 5.41 at 916.12.

Sector News

Benefiting from a positive reaction to the economic data, most of the major sectors have moved higher over the course of the morning.

Some of the day’s best performances are being put forth by healthcare provider stocks, as reflected by the 2.9 percent gain being shown by the Morgan Stanley Healthcare Provider Index. The upward move has helped the index to move further off of its worst closing level in over one month, set earlier this week.

Significant strength is also visible among health insurance stocks, with the Morgan Stanley Healthcare Payor Index currently up 5 percent. The index continues to regain ground after showing a notable decline earlier this month.

Banking stocks are also rebounding, with the Kbw Bank Index up by 1.9 percent. With the climb, the sector is moving well off the six-week low set in the previous session. Tobacco and pharmaceutical stocks are also offsetting recent losses.

However, the day’s gains are being limited by losses by semiconductor and housing stocks, with the Philadelphia Semiconductor Index and the Philadelphia Housing Sector Index dropping by 2 percent and 1.4 percent, respectively.

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Toronto stocks will look to rebound in early trading on Thursday morning after three straight negative sessions. Traders will ponder data showing the Canadian consumer price index was unexpectedly higher in the month of May.

In economic news, consumer prices inched higher by 0.1% in May, down from the 0.4% increase in April. Economists were looking for consumer prices to slip 0.2%. Core prices excluding energy and food advanced 2.0% over the 12 months to May, up from the 1.8% rise posted in April.

Investors are looking forward to the quarterly earnings report from Research in Motion after the closing bell. The Blackberry-maker is expected to report earnings of US$0.94 per share, up from US$0.84 a year ago. Revenues are expected to climb 52.3% to $3.41 billion.

Crude oil prices were slightly higher in electronic trading, adding 9 cents to $71.12 per barrel. Gold also gained modestly, rising $2.40 to $938.40 per ounce. Copper fell 2.8 cents to $2.2415.

Detrout Gold was initiated at Speculative Buy with a price target of C$17.50 by Laurentian Bank Securities. Iamgold increased its production outlook to 910,000 to 920,000, up 30,000 to 40,000 from its previous expectations.
 
Teck Resources said that it has agreed to sell one-third interest in Teck's Waneta Dam in southeastern British Columbia to BC Hydro for C$825 million.

Evertz Technologies Limited posted fourth quarter net income of C$20.8 million or C$0.28 per share, compared to C$21.1 million or C$0.28 per share in the last year quarter.

WestJet Airlines said that the WestJet Pilots Association ratified the 2009 pilot agreement, effective July 1. About 89% of the pilots voted in favor of the agreement.

Across the border, a Labor Department report showed that initial jobless claims rose to 608,000 from the previous week's revised figure of 605,000. Economists had expected jobless claims to edge up to 604,000 from the 601,000 originally reported for the previous week.

The S&P/TSX Composite fell 241.29 points or 2.34% to settle at 10,066.11 on Wednesday. This marked the lowest finish since May 22.

Crude oil futures are declining $0.29 to $70.74 a barrel after advancing $0.56 to $71.03 a barrel on Wednesday, when the commodity reacted to the weekly inventory report, which showed that crude oil stockpiles declined 3.9 million barrels to 357.7 million barrels in the week ended June 12th. Despite the declins, crude oil inventories remained above the upper limit of the average range.

Gasoline inventories increased by 3.4 million barrels, but stockpiles were still below the lower limit of the average range. Distillate inventories rose by 0.8 million barrels and were above the upper limit of the average range. Refinery capacity utilization averaged 85.8% over the four weeks ended June 12th compared to 84.8% in the previous week.

Gold is trading at $938.40 an ounce, up $2.40 from its New York session close of $936 an ounce yesterday, when it gained $3.80.

Among currencies, the U.S. dollar is weaker at 96.04 yen compared to the 95.7475 yen it fetched at the close of New York trading on Wednesday. The greenback is currently valued at $1.3945 versus the euro compared to yesterday’s $1.2943.

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The markets across the Asia-pacific region drifted lower on Thursday amid concerns about valuation and the pace and magnitude of global recovery. On the other hand, China's Shanghai Composite Index managed to buck the trend and end in positive territory after the World Bank revised its growth forecast for the country.

Japan’s Nikkei 225 Average opened sharply lower at 9,778 compared to its previous close of 9,840 and continued to drift lower in negative territory, pressured by the yen’s strength and uncertainty about growth. The index finally closed at 9,704, representing a loss of 137.13 points or 1.39%. The broader Topix Index of all first section issues ended at 911, down 11.82 points or 1.13%.

Profit-taking in trading houses, steel and oil firms dragged the market lower. Nippon Steel declined 4.20% after Japan Iron and Steel Federation revealed that production declined more than third during May. Kobe Steel slumped 5.29%. Sumitomo Metal Industries plunged 6.69%. Mitsui & Co fell 3.64%, Mitsubishi Corp. declined 4.22% and Sumitomo Corp. lost 3.07%.

Australia’s All Ordinaries Index opened unchanged from its previous close at 3,904. Weak cues from Wall Street and concerns about a global recovery dragged the indices below the unchanged line. The index remained below the unchanged line for the bulk of the session before closing at 3,887, representing a loss of 16.80 points, or 0.43%. The benchmark S&P/ASX 200 Index followed a similar trend and ended lower at 3,892, a loss of 12.00 points or 0.30%.

Resource stocks dragged the market lower on weak commodity prices. BHP Billiton, the world's largest mining company, declined 2.69%. Rio Tinto, which has been trading ex-dividend from Wednesday, slumped 8.95%. Nickel producer Mincor Resources fell 3.61%, and Oz Minerals fell 4.15%. Gold stocks ended lower on lower gold prices. Lihir Gold declined 1.04%, Sino Gold lost 2.43%, and Newcrest Mining fell 1.16%.

Financial stocks advanced after a report released by the Reserve Bank of Australia revealed that net interest margin, the key measure of bank's performance, has improved in the first half of fiscal 2010 and is presently higher than the margins that prevailed before the start of the global financial crisis. Commonwealth Bank added 0.98%, National Australia Bank gained 1.47% and Westpac Banking Corp advanced 1.58%. However, ANZ Bank bucked the trend and ended lower by 0.61%.

Hong Kong’s Hang Seng Index opened sharply lower at 17,956 compared to its previous close of 18,085 and continued to trade in negative territory on increasing concerns about a global recovery and lower commodity prices. The market ended with a loss of 308 points, or 1.70%, at 17,777.

Thirty-seven of the forty-two ended in negative territory. Among financial stocks, Bank of China fell 2.85%, Bank of Communications lost 2.50%, ICBC slumped 3.57% and China Commercial Bank declined 2.64%.

Property and resource stocks also ended in negative territory. Among resource stocks, Aluminum Corp. of China, or CHALCO, fell 2.90% on lower commodity prices. PetroChina lost 2.31% and CNOOC, the largest offshore oil firm in China, declined 1.24%.

Among the other major markets in the region, China's Shanghai Composite Index managed to end in positive territory with a gain of 43.78 points or 1.56% at 2,854 after the World Bank revised up its growth forecast for the country.

However, Strait Times Index in Singapore fell 34.25 points or 1.51% to close at 2,237, Taiwan’s Weighted Index lost 0.83% or 51.38 points to close at 6,145, and Indonesia's Jakarta Composite Index, slumped 3.65% or 73.98 points to close at 1,951.

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The major European markets are trading on a mixed note, after declining in each of the past four sessions. The French CAC 40 Index is edging up 0.08%, while the German DAX Index is receding 0.18% and the U.K.’s FTSE 100 Index is declining 0.64%.

In corporate news, Cadbury (CBY) said in its trading update that progress has continued into the second quarter and has improved in April and May. Therefore, the company said it continues to see full year revenue growth around the low end of its 4%-6% target and it expects to make good progress towards its goal of mid-teens margins by 2011. Swiss drug maker Novartis (NVS) said the U.S. FDA has approved llaris for the treatment of children and adults with cryopyrin-associated periodic syndrome.

On the economic front, a report from the Office for National Statistics showed that the U.K.’s retail sales volume decreased 0.6%, while economists were looking for a 0.3% increase. This was the first decline in three months. Textiles, clothing and footwear store sales dropped 1.9% in May.

U.S. Economic Reports

The Labor Department said initial jobless claims rose 3,000 to 608,000 in the week ended June 13th from an upwardly revised figure of 605,000 for the previous week. Economists expect a small increase in claims to 602,000 from the initially estimated figure 601,000 for the previous week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, dipped 7,000 to 615,750. Continuing claims, which measures people receiving ongoing unemployment help, declined 148,000 in the week ended June 6th to 6.687 million.

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 -17 for June.

In May, the index of business activity rose 1.8 points to -22.6. However, the increase was less than what analysts had expected. Nonetheless, May marked the third straight month of slowdowns in the pace of contraction.

The new orders index fell to -25.9 from -24.3 in April, while the backlog of orders index rose slightly to its highest level since September. The shipment index climbed to -19 in May from -35.7 in April, signaling a sharp improvement. Moreover, the future general business activity index rose to 47.5 from 36.2 in the previous month, marking the highest level since November 2004.

The Conference Board is scheduled to release a report on the U.S. leading index for May at 10 AM ET. The consensus estimate calls for a 1% increase in the leading indicators index for the month.

In April, the leading indicators index rose 1% following a 0.2% decline in March, marking the first increase in seven months. Stock prices, the interest rate spread, consumer expectations, initial unemployment claims, the average workweek and supplier deliveries all contributed positively to the index, while real money supply and housing starts acted as drags. Meanwhile, the coincident economic index fell 0.2% compared to a 0.5% drop in the lagging economic index.

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State Street receded in Wednesday’s after hours session after it reported that it has repaid the full amount of the government’s $2 billion investment in the company under the TARP.

Google, Yahoo and Microsoft are likely to react to the results of the latest Comscore survey, which showed that Google still led the U.S. core search market with a 65% share in May compared to Yahoo’s 20.1%, Microsoft’s 8%, Ask Network’s 3.9% and AOL’s 3.1%.

Among stocks that could react to offerings, Liz Claiborne said it intends to offer $75 million worth of principal amount of convertible senior notes due 2014. The company said it intends to use the net proceeds to temporarily pay down a portion of the outstanding borrowings under its amended credit facility. Quicksilver Resources said it intends to offer $425 million aggregate principal amount of senior notes due 2016. Hospitality Properties Trust said it has commenced a public offering of 15 million shares.

Sallie Mae is likely to gain ground after it said the U.S. Department of Education has selected it for its Federal Student Aid Title IV Student Loan Management/Servicing procurement.

AutoZone is likely to see buying interest after it announced that its board has authorized the buyback of an additional $500 million worth of stock. Including the latest authorization, the total authorization since 1998 stands at $7.9 billion. Oracle may also react to its announcement that it has acquired the intellectual property assets of California Software.

Pacific Sunwear may be in focus after it announced the appointment of Gary Schoenfeld as its president and chief executive officer, effective June 29th, 2009. FMC Technologies could gain ground after it said it has received an award from Eni for the manufacture and supply of subsea equipment for its Kitan field development. The contract is valued at approximately $60 million.

Earnings

J.M. Smucker said its fourth quarter net sales rose 81% to $1.07 billion. Excluding the impact of acquisitions and foreign exchange, net sales rose 3%. On an adjusted basis, the company reported non-GAAP earnings of $1.01 per share, higher than 73 cents per share last year. Analysts estimated earnings of 63 cents per share on revenues of $997.11 million. For 2010, the company expects net sales growth of 20% to $4.5 billion and adjusted earnings of $3.65-$3.80 per share.

Progress Software’s second quarter revenues declined 8% to $118 million, while GAAP revenues fell 9% to $117 million. On a non-GAAP basis, earnings declined 17% to 39 cents per share. Analysts estimated earnings of 38 cents per share on revenues of $119 million. For this fiscal year ending November 30, 2009, the company expects GAAP revenues of $492 million to $502 million and non-GAAP earnings of $1.72-$1.81 per share. The consensus estimates call for earnings of $1.74 per share on revenues of $499.60 million.

Pier 1 Imports reported first quarter net income of 32 cents per share compared to a loss of 37 cents per share last year. Sales fell to $281 million from $310 million last year. Analysts estimated a loss of 36 cents per share on revenues of $276.21 million.

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