US & World Daily Markets Financial Briefing 19-02-2010

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Stocks Modestly Lower In Mid-Morning Trading

Stocks are seeing a modest pullback in mid-morning trading on Friday, as traders continue to mull over the Federal Reserve's decision to hike the discount rate on banks and another round of tame inflation data. The major averages are all in negative territory after seeing three straight days of gains during the holiday shortened week.

On the economic front today, the U.S. Labor Department reported that consumer prices rose by 0.2 percent in January following an increase of 0.2 percent in November, slightly less than the 0.3 percent pickup forecast by economists.

Core prices, which exclude the volatile food and energy sectors, fell for the first time in 28 years, slipping by 0.1 percent after coming in nearly flat for the previous month.

The markets also continue to digest news from the Federal Reserve, which raised its discount rate by 25 basis points to 0.75 percent after the close of trading on Thursday, with the new rate effective today.

Speculation has risen that the move signals the start of a withdrawal for emergency liquidity measures from the economy, which has shown some signs of life in recent months.

With earnings season near the finish line, computer maker Dell Inc. (DELL) posted fourth-quarter adjusted net income for the period of $0.28 per share, edging out the $0.27 per share forecast by Wall Street analysts. Nonetheless, shares are down as profit was lower compared to the same period last year. Revenues for the quarter came in at $14.9 billion, topping expectations of $13.85 billion.

J.C. Penney Co. Inc. (JCP) reported fourth-quarter net income of $1.02 per share on an adjusted basis. On average, analysts projected the firm to earn $0.82 per share for the quarter. Net sales for the quarter declined 3.6 percent to $5.55 billion but were able to edge out the $5.54 billion estimated by analysts.

Media giant CBS Corp. (CBS) said its fourth quarter was hurt by higher impairment charges and declines in radio, outdoor and political advertising sales, as well as continued softness in the publishing retail market. Nonetheless, adjusted earnings were able to meet estimates.

The major averages have all seen choppy movement in recent dealing, holding just below the flatline. The Dow is currently down 21.60 at 10,371.59, the Nasdaq is down 7.21 at 2,234.15 and the S&P 500 is down 2.32 at 1,104.15.

Sector News

Computer hardware stocks are notably lower in mid-morning trading, with the NYSE Arca Computer Hardware Index down by 1.4 percent. With the decline, the index is pulling off of the one-month closing high reached yesterday.

Health insurance stocks are also under pressure, with the Morgan Stanley Healthcare Payor Index falling by 1.2 percent. The pullback has the index on pace to end the session at its lowest level in over two months.

Gold, oil and semiconductor stocks are also lower, while railroad utility and trucking stocks are limiting the losses in the markets.

Stocks Driven By Analyst Comments

Anheuser-Busch InBev (BUD) is lower after a downgrade by Stifel Nicoloaus from Buy to Hold. Shares are currently down by 2.2 percent, pulling off of Thursday's five-week closing high.

Home Properties Inc. (HME) is under pressure after a downgrade by RBC Capital Markets from Outperform to Sector Perform. The stock is down by 3.6 percent, falling away from the seven week high posted yesterday.

On the other hand, Liz Claiborne (LIZ) is on the rise in after being upgraded at KeyBanc Capital Markets from Hold to Buy. The stock has gained 3.9 percent, jumping out to a four-month intraday high.

TSX May Witness A Volatile Session Ahead Of Week-end

Canadian stocks may struggle to sustain recent gains Friday morning after a surprise move by the Federal Reserve to hike discount lending rates to US banks.

Moreover, profit taking may also put pressure after the main index witnessed its longest winning streak this year, gaining over 5% in the past seven sessions. However, encouraging domestic retails sales numbers and better jobs data may support prices at lower levels.

The U.S. stock futures also point to a lower opening. The S&P/TSX Composite Index added 59.35 points or 0.51% to 11,694.84 Thursday. The price of oil eased $0.19 to $78.86 a barrel and bullion slipped $9.50 to $1,109.2 an ounce.

Potash makers may be in play today. Fertilizer maker Agrium Inc. said it has extended the expiration date to March 22 for its offer to acquire CF Industries Holdings for $45.00 in cash plus one Agrium share per CF share.

Canpotex Limited said it has concluded a new second-quarter supply contract to India covering shipments through June 2010 at a contract price of $370.00/MT. Canpotex is the offshore marketing company owned by 3 Saskatchewan potash producing companies namely Agrium Inc. , Mosaic Canada Crop Nutrition LP, a subsidiary of The Mosaic Co. and Potash Corp. 
 
Insurance provider Fairfax Financial Holdings announced that its fourth-quarter net earnings were $1.65 per share, compared to $19.62 per share in the year ago quarter. It also announced that it will 563,381 subordinate voting shares to institutional investors at $355 per share for aggregate proceeds of about $200 million. The stock closed Thursday at C$374.99.

Silver explorer Silver Standard Resources said it entered into an agreement to sell 100% of its interest in the Silvertip Project to Silvercorp Metals Inc. for total consideration of C$15.0 million.

Life sciences company MDS Inc. said it would offer to repurchase for cancellation up to between 40% and 46% of its outstanding common shares for an aggregate purchase price of up to $450 million.

Pharmaceutical research & development company Nuvo Research Inc. reported fourth-quarter net income of C$22.27 million compared with a loss of C$2.41 million a year earlier.

Integrated petroleum company Husky Energy said its president and CEO, John Lau, who served for 17 years, will retire soon.

Asset management company Brookfield Asset Management reported that its fourth-quarter net income was $0.15 per share, compared to$0.27 per share in the same quarter last year.

Crude oil futures are moving down $0.28 to $78.78 a barrel. This after advancing $1.73 to $79.06 a barrel on Thursday’s session. The previous session’s advances came amid the release of the oil inventory report showing a 3.1 million barrel increase in crude oil stockpiles to 334.45 million barrels in the week ended February 12th. Inventories remained above the upper limit of the average range.

Gasoline inventories also increased, rising by 1.7 million barrels in the recent reporting week, with stockpiles above the upper limit of the average range. However, distillate inventories declined by 2.9 million barrels, but were above the upper boundary of the average range. Refinery capacity utilization averaged 78.8% over the four weeks ended February 12th compared to 78.4% last week.

An ounce of gold is currently fetching $1,110, down $8.70. In the previous session, gold slid $1.40 to settle at $1,118.70 an ounce.

Among currencies, the U.S. dollar is trading at 91.726 compared to 91.8075 yen it fetched at the close of New York trading in the previous session. The EUR-USD pair is now sitting at 1.3527.

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Asian Markets Decline On Fed Discount Rate Hike

The markets across Asia, excluding China and Taiwan that are closed for a week-long holiday, ended sharply in negative territory on Friday as traders reacted negatively to the surprise discount rate hike announced by the US Federal Reserve after the markets closed for trading in the previous session. Weakness in commodity markets also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index lost 212.11 points, or 2.05% to 10,124 while the broader Topix index of all First Section issues lost 15.65 points, or 1.73%, to 889.

On the economic front, the Bank of Japan, in its Monthly Report of Recent Economic and Financial Developments, maintained its economic assessment and said that conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being. The central bank noted, "Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand."

In a separate report, the Ministry of Trade, Economy and Industry revealed that all-industry activity in the country unexpectedly dropped 0.3% in December compared to the previous month. Economists expected the all-industry activity to rise 0.1% for the month. On annualized basis, all industrial activity declined 1.6% during December over the same period last year, the report noted.
 
Almost all the stocks across categories declined as traders were apprehensive that the modest recovery in global economy might be affected by the decision of the US Federal Reserve to withdraw the stimulus measures. The weakening of the local currency, Japanese Yen, which surged past the 91-yen mark per dollar failed to enthuse exporters and trading companies amid jitters that Bank of Japan might also follow suit and signal its intention to tighten the monetary policy.

Realty stocks declined the most on fears of higher interest rates. Sumitomo Realty & Development plunged 4.15%, Mitsui Fudosan slumped 4.32%, Mitsubishi Estate lost 4.31%, Tokyu Land Corp., fell 3.77% and Heiwa Real Estate shed 3.28%.

Banks also ended in negative territory. Sumitomo Mitsui Financial shed 0.38%, Resona Holdings lost 2.27%, Mizuho Financial fell 2.84% and Mitsubishi UFJ Financial slipped 1.32%.

Automotive companies also ended in negative territory. Toyota Motor fell 1.79%, Honda Motor slipped 1.12%, Mitsubishi Motor lost 2.42% and Nissan Motor declined 2.13%.

 In Australia, the benchmark S&P/ASX 200 Index declined 19.80 points, or 0.43% to close at 4,635, while the All-Ordinaries Index ended at 4,656, representing a loss of 17.60 points, or 0.38%.

On the economic front, the Reserve Bank of Australia reiterated its hawkish stance on monetary policy , but did not elaborate on the timeline for future interest rate hikes. RBA Governor Glenn Stevens told the House of Representatives Standing Committee on Economics in Canberra that the Australian economy is well placed to benefit from its ties to Asia and that higher interest rates will be needed as the recovery gathers steam. "If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent with the target over the medium-term," said Stevens.

After the markets closed for trading in the US, the Federal Reserve raised the discount rate by 25 basis points to 0.75% with effect from Friday, signaling the end of the Emergency Liquidity measures extended to member banks. The euphoria over strong closing on Wall Street in the previous session dissipated following the news. Weak trading across other markets in the region also impacted market sentiment.

Banks dragged the indices lower after National Australia Bank revealed flat results for the fourth quarter, and missed analysts' estimates. The stock slumped 2.70%. Among other banks, ANZ Bank slipped 0.41%, and Commonwealth Bank of Australia shed 0.36%. Investment banker Macquarie Group fell 1.97%. However, Westpac Banking, which reported better than expected results for the fourth quarter, managed to buck the trend and ended in positive territory with a gain of 0.28%.
 
Metals and mining stocks also ended in negative territory. Rio Tinto declined 1.53%, Fortescue Metals lost 1.41%, Gindalbie Metals shed 2.44%, Iluka Resources edged down 0.27%, Macarthur Coal slipped 0.37%, and Oz Minerals declined 2.00%. BHP Billiton, however, bucked the trend and ended in positive territory with a modest gain of 0.17%.

Gold stocks plunged on lower gold prices in the bullion market. Lihir Gold declined 2.51% and Newcrest Mining plunged 3.37%.

Oil stocks also ended in negative territory. Woodside Petroleum slipped 0.39%, Santos shed 0.45% and Origin Energy fell 0.30%. However, Oil Search bucked the trend and ended in positive territory with a gain of 0.19%.

In Hong Kong, the Hang Seng Index ended sharply lower in the negative territory with a loss of 528.13 points, or 2.59%, at 19,894.02, as traders reacted negatively to the unexpected hike in discount rate by 25 basis points by US Federal Reserve, after the markets closed for trading on Wall Street in the previous session. The US Federal Reserve signaled its intention to eliminate the stimulus measures in a phased manner and this signal caused jitters among investors that interest rates will also be increased in the near future. All the 42 components of the index ended in negative territory.

In South Korea, the KOSPI Index ended in the negative territory with a loss of 27.29 points, or 1.68%, at 1,594, as traders turned jittery over moves of the US Federal Reserve to raise discount rates by 25 basis points as a first step towards withdrawing stimulus measures. Across the board selling of stocks amid profit taking and concerns about economic recovery impacted the market sentiment.

The Indian market fell sharply on Friday, weighed by a sell-off across Asia after the Federal Reserve unexpectedly increased its discount rate for the first time in more than three years, pulling down commodity prices and the index futures. Responding to what it said was "continued improvement in financial market conditions," the Fed said it is increasing the so-called discount rate by 25 basis points to 0.75% after an unanimous approval by the Federal Reserve Board. The benchmark Sensex fell to a low of 16,075 on a panic selling before ending off the day's lows at 16,192, down 136 points or 0.83% and the Nifty fell by 43 points or 0.88% to 4,845.

The markets in China and Taiwan are closed for holidays. Among the other major markets, Indonesia's Jakarta Composite Index edged down 5.66 points, or 0.22%, to close at 2,554, and Singapore's Strait Times slipped 12.05 points, or 0.44% to close at 2,757.

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The major European averages opened Friday’s session sharply lower, as traders reacted negatively to fears that monetary and fiscal stimuli may soon be withdrawn, thwarting the fledgling recovery. However, since then selling pressure waned and buying interest emerged in some markets. The markets in the region had closed higher in each of the past four sessions. The German DAX Index and the U.K. FTSE 100 Index are moving up 0.06% and 0.13%, respectively, while the French CAC 40 Index is declining 0.18%.

In corporate news, Swiss confectioner Nestle reported full-year profit of 10.43 billion Swiss francs, down 42% year-over-year, on a 2% decline in revenues to 107.62 billion Swiss francs. However, earnings as well as sales were above most expectations. Earnings before interest, taxes, restructuring and impairments rose slightly to 15.7 billion Swiss francs. The company also said it would increase its dividend by 14.3% to 1.6 Swiss francs and also would buy back shares worth around 10 billion Swiss francs in 2010.

U.K. miner Anglo American reported a 54% decline in net profit for 2009, as revenues tumbled 25%. The company did not declare any dividend for a second straight year.

On the economic front, the results of a survey by French statistical agency INSEE showed that the French business confidence indicator remained unchanged at 91 in February. Manufacturers' personal production outlook indicator fell to -6 from a revised figure of -5 in the previous month. It was expected to improve to -3. Meanwhile, the general production outlook indicator remained at - 5.

A report released by German Federal Statistical Office showed that producer prices in Germany declined at a slower annual rate in January, with the index dipping by 3.4% from the month-ago’s decline of 5.2%. Economists had expected a more severe drop of 4%. However, on a monthly basis, producer prices rose 0.8% following a 0.1% slippage in December.

U.S. Economic Reports

The Labor Department reported that the consumer price index rose 0.2% month-over-month in January, the same rate as in the previous month. However, the increase was slower than the 0.3% gain expected by economists. The core consumer price index that excludes food and energy declined by 0.1%, belying expectations for 0.1% growth.

Food prices rose 0.2%with cost of eating at home and eating away from home increasing in the month. Energy prices were up 2.8%, reflecting a 6.1% surge in fuel oil prices and a 4.4% increase in gasoline prices. Shelter costs, which have significant weighing in the headline number, eased 0.5%, mitigating the rise in food and energy prices. Annually, on an unadjusted basis, consumer prices rose 2.6% in January.

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Dell, which followed close on the heels of Hewlett-Packard’s results, may be in the spotlight after it reported that its fourth quarter adjusted earnings were 28 cents per share, ahead of the consensus estimates. Revenues rose 11% to $14.9 billion compared to the $13.8 billion estimated by analysts.

CBS Corp. may also move in reaction to its announcement that its fourth-quarter earnings fell to 9 cents per share, down from 20 cents per share last year. Revenues edged down 1% to $3.50 billion, ahead of the $3.47 billion consensus estimate. The company’s adjusted profit of 25 cents per share was in-line with the consensus estimate.

Biogen Idec is likely to react to an announcement from the FDA that it has approved Rituxan along with a chemotherapy for treating previously untreated and previously treated CD20- positive chronic lymphocytic leukemia patients.

GlaxoSmithKline is likely to see some activity after it announced that it is reviewing label changes proposed by the FDA for asthma medications containing long-acting beta-agonists. The agency has asked GlaxoSmithKline and makers of other affected medicines containing the compound to agree with the proposed changes or state why they are not warranted.

Schlumberger is expected to move in reaction to a Wall Street Journal report that said the company is in advanced talks to buy Smith International (SII). The deal value is speculated to be in the $9 billion range.

Developers Diversified could also be in focus after it reported fourth-quarter operating funds from operations of 31 cents per share compared to 71 cents per share last year. Revenues fell to $209.52 million from the year-ago’s $218.52 million. Analysts’ estimates, which typically exclude one-time items, called for funds from operations of 33 cents per share on revenues of $201.10 million. The company also announced the appointment of David Oakes as Senior Vice President and CFO.

Quicksilver Resources  is likely to move in reaction to its announcement that its year-end reserves for 2009 were 2.4 trillion cubic feet of natural gas equivalents, up 9% last year. The company’s average production per day rose 23%.

California Pizza Kitchen may see activity after it reported fourth quarter revenues of $167.8 million, up 3.8% year-over-year. The company reported net income, excluding one-time items, of 17 cents per share. Analysts estimated earnings of 17 cents per share on revenues of $167.80 million.

RC2 Corp. reported fourth-quarter adjusted earnings of 43 cents per share, flat with last year. Net sales fell slightly to $121.3 million. The consensus estimates called for earnings of 41 cents per share on revenues of $125.92 million. For 2010, the company expects earnings per share of $1.35-$1.45.

Ingram Micro could be in focus after it reported fourth-quarter sales of $8.81 billion. The company reported earnings of 64 cents per share, including charges of 9 cents per share, compared to a loss of $3.48 per share, including a $4.10 per share in charges and 5 cents per share in gains. Analysts estimated earnings of 52 cents per share on revenues of $8.35 billion. For 2010, the company expects a sequential decline in revenues, in line with seasonality, while analysts estimate sales of $7.56 billion.

First Solar reported reporting fourth quarter earnings of $1.65 per share compared to $1.61 per share last year. The company’s revenues rose to $641.3 million from $433.7 million last year. The results exceeded expectations. For 2010, the company estimates net sales of $2.7 billion to $2.9 billion and earnings per share of $6.05-$6.85. The Street estimates sales of $2.73 billion and earnings of $5.37 per share.

Intuit may see buying interest after it reported second quarter revenues of $837 million, up 8% year-over-year. The company’s non-GAAP earnings rose 35% to 35 cents per share. Analysts estimated earnings of 32 cents per share on revenues of $813.61 million. The company raised its 2010 guidance and now expects revenues of $3.3 billion to $3.4 billion and non-GAAP earnings of $1.97 to $2.04 per share. The consensus estimates call for earnings of $1.95 per share on revenues of $3.34 billion.

Aruba Networks may see activity after it reported second-quarter non-GAAP earnings of 6 cents per share, higher than 2 cents per share last year and exceeding the 5 cents per share consensus estimate. Revenues rose to $62.66 million from last year’s $47.68 million, also exceeding the $59.90 million consensus estimate.

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