US & World Daily Markets Financial Briefing 18-08-2010

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Stocks Showing A Lack Of Direction In Morning Trading

Stocks are turning in a lackluster performance in morning trading on Wednesday amid a light day on the economic front. While the major averages showed a notable move to the downside in early trading, they have moved well off their worst levels since then.

The major averages are currently turning in a mixed performance, with the Nasdaq posting a modest gain. The Nasdaq is currently up 0.93 points or less than 0.1 percent at 2,210.37, while the Dow is down 30.88 points or 0.3 percent at 10,374.97 and the S&P 500 is down 1.90 points or 0.2 percent at 1,090.64.

Profit taking contributed to the initial weakness in the markets, with traders cashing in on the strong gains posted in the previous session amid continued concerns about the economic outlook. Selling pressure remained relatively subdued, however, with traders reluctant to make significant moves.

Shares of Target (TGT) are moving moderately lower after the discount retailer reported second quarter earnings that came in line with analyst estimates on weaker than expected sales.

"Our retail segment generated strong profitability, overcoming softer-than-expected sales," said Gregg Steinhafel, chairman, president and chief executive officer of Target.

Deere (DE) is also trading lower after reporting second quarter earnings of $1.44 per share on $6.84 billion in revenues. Analysts had expected the farm equipment maker to earn $1.23 per share on revenues of $6.52 billion. Deere also forecast fourth quarter equipment sales growth of about 32 percent.

Meanwhile, Analog Devices is posting a strong gain after reporting third quarter earnings that rose by more than expected on a stronger than anticipated increase in sales. The chip maker also forecast better than expected fourth quarter results.

In other news, BHP Billiton (BHP) has gone hostile in its bid to takeover Potash Corp. (POT) after the fertilizer maker's board rejected BHP's $39 billion takeover offer. After rising sharply on Tuesday, shares of Potash are seeing further upside on the news.

Sector News

Resource stocks are seeing considerable weakness in morning trading amid a decrease in commodities prices. Within the sector, oil service stocks are posting particularly steep losses, moving lower along with the price of crude oil.

Ahead of the release of the weekly oil inventories report, crude for September delivery is currently down $1.59 at $74.18 a barrel. Subsequently, the Philadelphia Oil Service Index is down by 1.6 percent after closing higher in the two previous sessions.

Natural gas stocks are also posting notable losses, dragging the NYSE Arca Natural Gas Index down by 1.4 percent. Among natural gas stocks, EOG Resources (EOG) is down by 2.4 percent, at a level that would mark a four-month closing low.

Most of the other major sectors are showing only modest moves, reflecting the lack of conviction among traders. While moderate weakness is visible among healthcare provider stocks, some strength has emerged among computer hardware and semiconductor stocks.

Stocks Driven By Analyst Comments

Food and drug retailer Safeway (SWY) is posting a notable loss after Longbow downgraded its rating on the company's stock to Sell from Neutral. Shares of Safeway are currently down by 3.7 percent, pulling back further off the two-month closing high set last Monday.

Additionally, shares of SuperMedia (SPMD) are extending a recent downward move, with the advertising agency currently falling by 3 percent to an all-time intraday low. The loss by SuperMedia comes after Oppenheimer downgraded its rating on the company's stock to perform from outperform.

Meanwhile, shares of Emergent BioSolutions (EBS) are currently up by 2.1 percent after WBB Securities upgraded its rating on the biopharmaceutical company to firm Buy from Buy. With the gain, Emergent is moving further off last Friday's nearly one-month closing low.

Other Markets

Overseas, stock markets across the Asia-Pacific region ended Wednesday's trading mostly higher. After closing lower in the two previous sessions, Japan's benchmark Nikkei 225 Index rose by 0.9 percent, while Hong Kong's Hang Seng bucked the uptrend and fell by 0.5 percent.

Meanwhile, the major European markets have all moved to the downside. The U.K.'s FTSE 100 Index is down by 0.7 percent, while the French CAC 40 Index and the German DAX Index are both down by 0.5 percent.

In the bond market, treasuries are moving back to the upside following the pullback that was seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price is currently down 5.2 basis points at 2.593 percent.

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TSX May Open Lower On Falling Energy Prices

Toronto stocks may struggle out of the gate on Wednesday, as energy prices turned lower after an industry report revealed U.S. crude inventories unexpectedly rose last week. Also, profit taking after a sharp rally in the previous session may trim gains.

However, fertilizer stocks may continue to be in focus as the Australian mining giant BHP announced plans for a hostile takeover bid for Potash Corp. of Saskatchewan Inc. Notably, the offer price of $130 per share is about 13% discount to the latest closing price of Potash.

On Tuesday, the S&P/TSX Composite Index rallied 175.88 points or 1.52% to 11,728.64, recovering part losses incurred in the previous week.

The price of crude oil moved down Wednesday morning as traders await the official weekly inventories data from the EIA. Tuesday after the market hours, the API said U.S. crude oil inventories were up by nearly 5.9 million barrels last week, sharply contrasting consensus expectations for a dip of 1.1 million barrels. Crude for September was down $0.73 to $75.04 a barrel.

Meanwhile, the price of gold was pausing for a breather after recent rallies. Gold for December edged down $1.40 to $1,226.90 an ounce

In corporate news from Canada, Australian mining company BHP Billiton announced Wednesday that it has decided to make its acquisition offer for Potash Corp. direct to the shareholders at $130 per share. After BHP announced its plan to buy Potash Corp. yesterday the Canadian fertilizer company's stock advanced to close at a new 52-week high of C$147.34 per share. Meanwhile, credit ratings agency Moody's reportedly said it was likely to put BHP Billiton's credit rating under review for a possible downgrade if a formal takeover offer was made.

In another news in M&A space, food products company CoolBrands International said it would merge with a full-service hygiene solutions provider Swisher International, Inc. Following the completion of the transaction, the current CoolBrands shareholders will hold about 52% of the merged company, while current shareholders of Swisher, primarily Wayne Huizenga and Steve Berrard, and their group will hold around 48%.

Insurance services provider Manulife Financial said it would issue C$900 million of medium term notes for general corporate purposes, including investments in subsidiaries.

Energy sector focused investment trust ARC Energy Trust said it has completed the acquisition of oil and gas exploring company Storm Exploration Inc. for about C$645 million.

Retail stores operator Loblaw Companies warned the public not to consume in store baked President's Choice Decadent Chocolate Chunk Cookies,as it may contain small metal pieces.

Elsewhere, Asian markets ended mixed taking cues from an overnight jump in the U.S. markets. Meanwhile, European stocks were trading lower pressured by sell-offs in energy stocks. With a light economic calendar, traders will look to the commodities markets to get clues during the day.

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Asian Markets End Mostly Higher

Asian markets open for trading on Wednesday ended the trading session mostly in positive territory, taking cues from Wall Street where the major averages ended in positive territory with notable gains on better than expected earnings from major retailers and fairly encouraging economic data. Optimism that the world's largest economy will sustain economic recovery and bargain hunting at lower levels led to modest gains in most markets. However, the markets in China, Hong Kong, Singapore and Taiwan ended in negative territory.

In Japan, the benchmark Nikkei 225 Index rose 78.86 points, or 0.86% to 9,241, while the broader Topix index of all First Section issues was up 8.45 points, or 1.02%, at 835.

On the economic front, a final report released by the Cabinet Office in Japan revealed that the country's leading index for June was revised up to 99 from 98.9 reported in the preliminary report, marking the first increase in leading index after falling for two consecutive months. For May, the leading index stood at 98.6. The report further noted that the coincident index rose slightly to 101.3 in June from 101.2 in May. At the same time, the lagging index came in at 83.5, revised up from 83.4. The latest figure matched the reading in May.

Light sweet crude oil futures for September delivery ended at $75.56 a barrel in electronic trading, down $0.21 per barrel from previous close at $75.77 a barrel in New York on Tuesday.

Oil exploration and refining company, Inpex Corp. led the winners in the market with a gain of 4.62%. Oil related stocks also ended in positive territory. JX Holdings climbed 3.98% and Showa Shell Sekiyu advanced 0.80%.

Shares of trading companies also advanced on optimism about global economic recovery. Mitsubishi Corp. gained 2.45%, Sumitomo Corp. rose 2.63%, Mitsui & Co., advanced 1.97%, Itochu Corp. increased by 1.79% and Toyota Tsusho Corp was up by 0.79%.

Auto related stocks also ended in positive territory. Honda Motor gained 2.35%, Toyota Motor advanced 0.83%, Nissan Motors climbed 2.83%, Isuzu Motors rose 1.83% and Hino Motors edged up 0.27%.

Shipping related stocks also gained on optimism about global economic recovery. Kawasaki Kisen Kaisha gained 1.47%, Mitsui OSK Lines climbed 2.49% and Nippon Yusen rose 1.44%.

In Australia, the benchmark S&P/ASX200 Index slipped 2.10 points, or 0.05%, and closed at 4,475 points, while the All-Ordinaries Index ended at 4,504, representing a modest gain of 0.70 points, or 0.02%.

On the economic front, a report released by Westpac Bank in association with Melbourne Institute revealed that a leading indicator of the Australian economy continued to surge ahead in June despite a moderation in the pace of growth. As per the report, the country's leading index rose 6% on an annualized basis in June, well above the long term trend of 3%, compared to an annualized growth rate of 7.4% in the previous month. On a monthly basis, the leading index was unchanged in June compared to an upwardly revised 0.3% rise in May. The report further noted that the coincident index, which is a measure of current conditions, grew at an above trend rate for the second straight month.

A separate report released by the Australian Bureau of Statistics revealed that an index measuring the total hourly rate paid to workers in Australia increased 0.8% in the second quarter of 2010, compared to the 0.9% increase in the first quarter, and lower than 0.9% increase projected by the economists. On an annualized basis, wage costs were up 3.0% - again slightly below forecasts for a 3.1% increase after the 3.0% gain in the first quarter.

A report released by the Department of Education, Employment and Workplace Relations revealed that job vacancies for skilled workers in the country declined a seasonally adjusted 4.7% month-on-month in August after rising 10% in the previous month. On a yearly basis, the skilled vacancy index was up 18.5%, slower than the 25% increase in the preceding month, the report noted.

Survey results published by the Housing Industry Association and Commonwealth Bank revealed that housing affordability in the country sank in the second quarter of 2010. As per the results, the HIA-CBA Housing Affordability Index, which measures interest rates, household income and home prices, declined 9.1% to a reading of 108.3 in the second quarter, compared to 119.2 in the first quarter. Compared to the same quarter in 2009, the reading was down 32%, the results revealed.

Mining giant BHP Billiton confirmed that it is interested in acquiring Potash Corp. of Saskatchewan and submitted a bid of US$130 per share for the company. Potash Corp. rejected the initial bid, and in turn, BHP Billiton is submitting a revised all-cash offer for Potash Corp. Shares of the company slumped 4.43% following announcement of BHP's interest in the Canadian company.

The sharp fall in BHP shares led to gains in other competitors in the mining and metals sector. Rio Tinto surged up 2.81%, Fortescue Metals climbed 2.63%, Macarthur Coal gained 2.92%, and Mincor Resources edged up 0.80%. Oz Minerals remained unchanged from previous close.

Banks ended in positive territory on Wall Street gains. ANZ Bank advanced 0.62%, Commonwealth Bank of Australia added 0.30%, National Australia Bank gained 1.12% and Westpac Banking Corp. rose 1.27%. Investment banking company, Macquarie Group was higher by 1.25%.

Gold related stocks ended in negative territory. Lihir Gold was down 0.46% and Newcrest Mining shed 0.65%.

The Indian market rose sharply on Wednesday, shrugging off mixed global cues, with heavyweights such as Hindalco, Tata Motors, HDFC, HDFC Bank, ONGC, TCS and ITC leading the gainers. After trading in a narrow range till the mid-session, the 30-share BSE Sensex saw notable late-session gains to end up 208 points or 1.15% at 18,257, while the 50-share Nifty rose by 65 points or 1.20% to 5,479.

Among the other major markets open for trading, China's Shanghai Composite Index ended in negative territory with a loss of 5.59 points, or 0.21% at 2,666, Taiwan's Weighted Index slipped 6.99 points, or 0.09%, to close at 7,924, and Singapore's Strait Times Index lost 3.99 points, or 0.14%, and closed at 2,919. However, the Jakarta Composite Index in Indonesia ended in positive territory with a modest gain of 19.49 points, or 0.64%, at 3,072.

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The major European markets are trading on a mixed note on Wednesday following the gains they notched up in the previous session. The French CAC 40 Index and the U.K.’s FTSE Index are moving down 0.04% and 0.39%, respectively, while the German DAX Index are gaining 0.14%.

In economic news, the minutes of the Monetary Policy Committee meeting of the Bank of England showed that eight members voted to retain the interest rate at a record low of 0.5%, while Andrew Sentance sought a 25 basis point hike. The meeting was held on August 4 and 5.

Most members thought that the current level of Bank rate and stock of asset purchases financed by the issuance of central bank reserves remained appropriate to balance the risks to the inflation outlook in the medium term.

Eurostat reported that the euro zone’s construction output rose a seasonally adjusted 2.7% month-over-month in June following a revised 0.7% drop in May. On an annual basis, construction output grew 3.1% compared to the revised 6.2% drop in the previous month.

U.S. Economic News

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 13th at 10:30 AM ET.

The inventory report for the week ended August 6th showed that crude oil stockpiles fell by 3 million barrels to 355 million barrels. Despite the decline, crude oil stockpiles remained above the upper limit of the average range.

Gasoline inventories rose by 0.4 million barrels and remained above the upper limit of the average range. Distillate inventories also rose, increasing by 3.5 million barrels. Inventories of distillate fuel remained above the upper boundary of the average range for this time of the year. Refinery capacity utilization averaged 88.1% over the four weeks ended August 6th compared to 91.2% in the previous week.

Earnings

Analog Devices (ADI) reported third quarter earnings that increased to 65 cents per share from 55 cents per share last year. Sales rose 8% to $720 million, exceeding the $706.50 million consensus estimate. For the fourth quarter, the company estimates revenues of $740 million to $770 million and earnings of 68-72 cents. Analysts estimate earnings of 61 cents per share on revenues of $715.51 million.

La-Z-Boy (LZB) reported break-even results on a per share basis for its first quarter compared to a profit of 4 cents per share last year. The recent quarter’s results included a 1 cent per share restructuring charge. Net sales were almost flat at $263.3 million. Analysts expected break-even results on revenues of $263.81 million.

Bob Evans Farms (BOBE) said its first quarter earnings per share declined to 41 cents per share from 52 cents per share last year, as sales fell 3.9% to $412.6 million. The consensus estimates called for earnings of 44 cents per share on revenues of $422.10 million. The company reaffirmed its 2011 operating earnings guidance of $105 million to $110 million and net sales guidance of $1.7 billion, in line with the consensus estimate.

Other Corporate News

Emerson (EMR) could be in focus after it said it has agreed to sell its Motor and Appliance Controls businesses to Japan’s Nidec Corp. (NJ). The unit generated sales of over $800 million in 2009.

Windstream (WIN) is likely to see some activity after it said it would buy Kansas-based privately-held regional fiber transport and competitive local exchange carrier Q-Comm for $782 million. Windstream said it expects to issue $237 million in stock connection with the deal and pay $278 million in cash, while it also agreed to pay the target company’s debt valued at $267 million, net of cash acquired.

Dillard’s(DDS) may see buying interest after it announced that its board has authorized the buyback of up to $250 million worth of its Class A common stock.

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Dollar Falters Versus Sterling, Loonie Wednesday Morning

The dollar was generally weaker Wednesday morning in New York, coming under pressure versus the sterling amid evidence of dissension on interest rates within the Bank of England's voting members.

The buck also fell further versus its Canadian counterpart on speculation the economy north of the border is primed to withstand a possible double-dip recession in the US.

Industry data released this morning signaled that extraordinarily low interest rates are not pushing potential buyers back into the housing market. Instead, current owners are taking advantage of the rates to refinance their existing mortgages.

The Mortgage Bankers Association said refinancing activity increased 17.1 percent from the previous week, the biggest jump since May 2009.

However, the MBA's seasonally adjusted purchase Index decreased 3.4 percent from one week earlier. The dollar slumped nearly two cents to 1.5665 against the sterling after touching a 4-week high of 1.5497.

Policy makers of the Bank of England were not unanimous in holding interest rate at a historic low in August, the minutes of the meeting showed Wednesday. For the third straight month, Andrew Sentance was the lone member arguing for a rate hike.

Versus the euro, the dollar eased a bit to 1.2900, having shown little direction over the past week since rallying earlier this month.

The buck was steady versus the yen at Y85.50, holding near a 1995 low of 84.71. The buck has been hammered by Canada's loonie this week, and fell furthering early dealing this morning to a 9-day low of C$1.0278.

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