US & World Daily Markets Financial Briefing 19-05-2010

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Stocks Down By Steep Margins Amid Another Volatile Session

Stocks are posting steep losses in mid-morning trading on Wednesday, continuing their volatile streak amid uncertainty about the future of the European Union and the impact of the Greek debt crisis. The major averages are firmly negative after showing a lack of direction in early trading.

Europe continues to pressure sentiment today, as a unilateral German ban on short selling of euro denominated government bonds and big bank stocks has driven global equities sharply lower and fueled concerns about the long-term viability of the single currency.

With Germany acting on its own following the struggle to hammer out a European plan to backstop the sovereign debt of Greece and other vulnerable nations, questions have been raised about how cohesive the European Union will be as the debt crisis continues to swell.

With overseas concerns largely grabbing headlines, traders shrugged off data from the U.S. Labor Department, which said that its consumer price index edged down by 0.1 percent in April following a 0.1 percent increase in March. The modest decrease came as a surprise to economists, who had been expecting another 0.1 percent increase in prices.

Excluding a notable drop in energy prices as well as a modest increase in food prices, the core consumer price index came in unchanged for the second consecutive month. Economists had expected core prices to edge up by 0.1 percent.

The Federal Open Market Committee is also scheduled to release the minutes of its April 27th-28th meeting at 2:00 p.m.ET, with the focus of the markets likely to be pegged squarely on the featured economic commentary.

On the earnings front, Target Corp. (TGT) reported first-quarter earnings of $0.90 per share, topping forecasts that called for earnings of $0.87 per share. Sales for the quarter grew 5.5 percent to $15.16 billion. Wall Street analysts anticipated revenues of $15.58 billion.

BJ's Wholesale Club, Inc. (BJ) reported first-quarter net income that was better than expected and revenues that were in-line with projections. The company also announced an upward revision to its earnings guidance for fiscal 2010.

Farm machinery maker Deere & Co. (DE) unveiled second-quarter net income and revenues that both beat Street estimates.

After the markets closed for trading in the previous session, Hewlett-Packard Co. (HPQ) said that its second quarter profit jumped 28 percent from last year, as revenue increased and margins improved amid strong demand for its servers and personal computers as well as its printers.

The major averages have bounced well off their lows for the session in recent trading, but they currently remain stuck in the red. The Dow is down 58.27 points or 0.6 percent at 10,452.68, the Nasdaq is down 19.77 points or 0.9 percent at 2,297.49 and the S&P 500 is down 5.96 points or 0.5 percent at 1,114.84.

Sector News

Gold stocks are seeing heavy selling in morning trading, with the NYSE Arca Gold Bugs Index sliding by 4.1 percent, setting a two-week intraday low. The weakness in the sector comes as gold for June delivery is down by $16.40 to $1,198.20 an ounce.

Significant weakness has also emerged among steel stocks, as reflected by the 1.7 percent drop by the NYSE Arca Steel Index. With the decline, the index is on target for its lowest closing level in over three months.

Rio Tinto (RTP) is moving notably lower within the steel sector, falling by 3.8 percent. The pullback has the stock on pace for its lowest closing price in over seven months.

Airline, oil service, defense, railroad and housing stocks are also under pressure, among others, as the markets are seeing another day of widespread selling.

Stocks Driven By Analyst Comments

TJX Companies (TJX) is moving notably lower after being downgraded by analysts at Goldman Sachs to Neutral. The stock has fallen by 1.3 percent and is on pace for its lowest closing price in nearly seven weeks.

Under Armour (UA) is also under pressure following a downgrade to Sell by analysts at Sterne Agee. Shares are currently down by 3.7 percent, offsetting recent gains and headed back down towards the six-week closing low set earlier this month.

On the other hand, Watson Pharmaceuticals (WPI) is moving higher after being upgraded at JP Morgan chase from Overweight from Neutral. The broker also raised its target on the stock from $48 to $52. The stock is up by 0.8 percent, moving back towards last week's six-year closing high.

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TSX Poised For A Lower Open Amid Weak Energy Prices, Euro Zone Worries

Bay Street stocks may extend their declines Wednesday morning amid easing energy prices and on renewed worries over a setback to growth in the euro zone region due to the simmering debt crisis.

Yesterday, Germany banned a form of short selling in some select equities and euro-government bonds in an effort to curb speculative trading. Meanwhile, the European Commission urged EU nations to jointly regulate naked short-selling of shares and investments to reduce volatility in financial markets.

On Tuesday, the S&P/TSX Composite Index shed 48.49 points or 0.41% to 11,764.51, taking its losses in the past four days to 431 points or 3.58%.

The price of oil fell to a new 10-month low on worries over the euro zone growth prospects. Crude for June shed $0.86 to $68.55 a barrel.

The price of gold continued to retreat from its all-time high of $1,250 hit last Friday on profit taking. Gold for June slipped $7.20 to $1,207.40 an ounce.

In corporate news, independent investment dealer Canaccord Financial ported improved fourth-quarter net income of C$0.14 per share, up from C$0.07 per share in the year ago quarter. Excluding significant items, earnings per share were C$0.21 compared to C$0.07 last year. The company declared a quarterly dividend of C$0.05 per share.

Gold miner Richmont Mines said it would buy the balance 30% stake in Louvem Mines by issuing one share of Richmont for each 5.4 shares of Louvem.

Randgold Resources (GOLD) said it disposed 5 million common shares in gold miner Volta Resources t a price of C$1.59 per common share on Wednesday 12 May 2010. The total proceeds payable to Randgold were C$7.95 million, or $7.80 million.

Construction and infrastructure development company Aecon Group said it bagged a $19 million highway widening contract.

Merchandising and real estate company Sears Canada reported lower first-quarter net earnings of C$0.07 per share compared to C$0.10 per share a year ago. The company declared an extraordinary cash dividend of C$3.50 per share and said it will buy back up to 5% of its issued and outstanding common shares.

Hy-Drive Technologies posted a wider first-quarter net loss of C$0.02 per share, compared to C$0.01 per share in the previous year period.In economic news, Statistics Canada said wholesale sales were up 1.4% to $44.4 billion in March, raising for a fourth time in five months.

From the U.S., the Labor Department said Consumer Price Index edged down by 0.1% in April following a 0.1% increase in March. The modest decrease came as a surprise to economists, who were expecting another 0.1% increase in prices. Excluding the drop in energy prices as well as a modest increase in food prices, the core consumer price index came in unchanged for the second consecutive month. Economists were expecting core prices to edge up by 0.1%.

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Asian Markets Plunge On Euro Concerns

The markets across Asia plunged sharply and ended at multi-month lows on Wednesday as traders expressed fears about the impact the naked short selling ban imposed by Germany will have on the global markets. The sharp decline in commodity and oil prices coupled with a weaker euro, which is trading at a 4-year low, also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index declined 55.80 points, or 0.54%, to 10,187, while the broader Topix index of all First Section issues was down 3.27 points, or 0.36%, to 911.

On the economic front, a final report released by the Ministry of Economy, Trade and Industry revealed that industrial production in the country grew 1.2% in March compared to the previous month, revised upwards sharply from the preliminary report of a nominal 0.3% growth. On an annual basis, industrial production surged up 31.8%. The report further noted that shipments recorded a monthly increase of 2%, up from the initial estimate of 1.6%. At the same time, the decline in inventory was confirmed at 1.6%. On an annual basis, shipments climbed 29.9%, while inventory dropped 6%. Inventory ratio slipped 5.5% in March.

Separately, the Bank of Japan revealed that output prices in manufacturing industry increased 1.2% in April compared with the same month last year. The report noted that, on a month-over-month basis, manufacturing output prices increased 1.2% in April, faster than the 0.2% rise in the prior month.


Insurance stocks ended in negative territory. NKSJ Holdings fell 2.51%, MS & AD Insurance Holdings slipped 1.11%, T&D Holdings lost 1.70% and Tokio Marine Holdings shed 1.59%.

Securities stocks also ended weaker amid concerns about the ban imposed by Germany on naked short selling. Matsui Securities plunged 3.38%, Nomura Holdings shed 1.20%, Mizuho Securities slipped 0.80% and Daiwa Securities Group declined 0.48%.

Mixed trading was witnessed among automotive stocks. Toyota Motor declined 0.57%, Honda Motor slipped 0.83% and Suzuki Motor edged down 0.31%. Mitsubishi Motor remained unchanged from previous close. However, Hino Motors climbed 3.21%, Isuzu Motors soared 4.53% and Mazda Motor rose 2.03% on news that these stocks might be accumulated by the new Mutual Fund created by Nomura Asset Management Co. exclusively for car maker stocks.

In Australia, the benchmark S&P/ASX200 Index was down 83.60 points, or 1.87% to close at 4,387, while the All-Ordinaries Index ended at 4,414, representing a loss of 85.70 points, or 1.90%.On the economic front, results of a key survey conducted in the country revealed that the Westpac-Melbourne Institute consumer confidence index slid 7% to 108 in May from 116.1 recorded in the previous month. The survey was held after the release of the Federal Budget and the Reserve Bank of Australia's latest rate hike, and Westpac chief economist Bill Evans said both had a strong downward influence on consumer morale. Nevertheless, a reading above 100 means optimists outnumber pessimists.

In a separate report, it was revealed that wages in the country rose at the fastest pace in more than a year in the first three months of 2010. Data released by the Australian Bureau of Statistics revealed that wages grew a seasonally adjusted 0.9% between January and March compared to the preceding three months. That is slightly above analyst forecasts for a 0.8% increase and follows a 0.6% increase in the December quarter. It also marks the fastest rate of wage growth since the December quarter of 2008, when wages increased 1.2%.

A report released by the Department of Education, Employment and Workplace Relations revealed that job vacancies for skilled workers in the country increased a seasonally adjusted 4.4% month-on-month in May after the 6.2% fall in the previous month. On a yearly basis, the skilled vacancy index was up 25.6%, faster than the 12.8% increase in the preceding month.

Light sweet crude oil futures for June delivery ended at $68.15 a barrel in electronic trading, down $1.26 per barrel from previous close at $69.41 a barrel in New York on Tuesday.

Of the 200 stocks in the ASX/S&P 200 index, as many as 170 stocks declined as traders moved to sidelines amid increasing concerns about the global turmoil following debt crisis in Europe, with Euro down to a new 4-year low against the US dollar.


Banks led the declines with sharp losses. ANZ Bank fell 2.21%, Commonwealth Bank of Australia lost 2.39%, investment banker Macquarie Group shed 1.76%, National Australia Bank plunged 3.68% and Westpac Banking Group declined 2.91%.

Gold stocks also ended weaker after gold fell in the bullion market. Lihir Gold lost 1.94% and Newcrest Mining fell 1.95%.

Oil stocks also ended in negative territory following drop in crude oil prices. Woodside Petroleum lost 1.90%, Santos Ltd shed 2.97%, ROC Oil Co. plunged 7.50%, Oil Search fell 2.03% and Origin Energy slipped 1.23%.

Mining and metal stocks also ended lower on lower commodity prices in the international market. BHP Billiton slipped 0.73%, Rio Tinto lost fell 1.53%, Fortescue Metals plunged 4.68%, Gindalbie Metals slumped 5.77%, Iluka Resources slipped 1.33%, Murchison Metals was down by 8.02% and Oz Minerals declined 2.40%.

In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a loss of 365.96 points, or 1.83% at 19,579, taking cues from other markets in the region which also ended at fresh multi-month lows on fresh concerns about Euro after Germany unexpectedly imposed ban on naked short selling with immediate effect in an effort to curb financial speculation. The euro declined to a new-four year low, and the commodities as well as oil plunged sharply lower. Aluminum Corporation of China or CHALCO plunged 5.89% while CNOOC shed 4.26%. As many as 39 of the 43 components in the index ended in negative territory.

A sell-off across global markets amid worries about proposals for tighter financial regulations from the United States to Germany hit Indian equities hard on Wednesday. Reeling under the global pressure, the benchmark 30-share Sensex opened weaker at 16,802 and moved in a range thereafter for a while before tumbling to end down 467 points or 2.77% at 16,408. The 50-share Nifty fell 147 points or 2.89% to 4,920.

Among the other major markets open for trading, China's Shanghai Composite Index declined 6.98 points, or 0.27%, to close at 2,588, Singapore's Strait Times Index shed 68.35 points, or 2.40%, to close at 2,766, Indonesia's Jakarta Composite Index plunged 104.70 points, or 3.69% to close at 2,729, and Taiwan's Weighted Index slipped 26.14 points or 0.34% to close at 7,559.

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The major European markets are trading sharply lower on Wednesday after seeing a rebound in the previous session. Skepticism over the stability of the euro intensified following an announcement by Germany to ban short selling on euro-government bonds, CDS based on these bonds and shares of 10 banks and insurers.

The French CAC 40 Index and the German DAX Index are down 2.19% and 1.92%, respectively, while the U.K.’s FTSE 100 Index is declining 1.84%.

Eurostat reported that the euro zone’s construction output rose 7.6% month-over-month in March, reversing the 7.2% drop in the previous month. Annually, construction output fell 5.2%, an improvement from the 14.8% drop in the previous month.

The minutes of the May meeting of the Bank of England’s 2-day Monetary Policy Committee showed that the committee members unanimously decided to hold interest rates unchanged at a record low of 0.5%. The committee sees increasing risks to activity and inflation, although it is of the view that it is too early to assess with confidence the overall impact of recent developments on the medium-term outlook.

U.S. Economic Reports

A report released by the Labor Department showed that consumer prices declined 0.1% month-over-month in April following a 0.1% increase in the previous month. Economists had estimated a 0.1% increase. The core consumer price index remained unchanged, in line with expectations.

Food prices rose 0.2%, with the cost of eating at home rising by 0.2%. Energy prices fell 1.1%, reflecting a 2.4% drop in gasoline, while fuel oil prices rose 2.3%. Shelter costs, which have a significant weighting in the headline number, remained unchanged. Annually, on an unadjusted basis, consumer prices rose 2.2% and core consumer prices climbed 0.9%.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 14th at 10:30 AM ET.

Crude oil stockpiles rose by 1.9 million barrels in the week ended May 7th to 362.5 million barrels, with inventories remaining above the upper limit of the average range for this time of the year.

Distillate fuel inventories rose by 1.4 million barrels, remaining above the upper boundary of the average range. However, gasoline inventories fell by 2.8 million barrels, although they remained above the upper limit of the average range. Refinery capacity utilization averaged 88.2% over the four weeks ended May 7th compared to 87.5% in the previous week.

The Federal Reserve is scheduled to release the minutes of its April 27th-28th Federal Open Market Committee meeting at 2 PM ET.

At the end of its 2-day meeting, as expected, the FOMC said it maintained the target for the federal funds rate unchanged at 0%-0.25%. In its commentary on growth, the central bank said the labor market is beginning to improve compared to its earlier view that the labor market is stabilizing. The Fed retained its assessment of economic activity, suggesting that activity has continued to strengthen.

The Fed also said growth in household spending has picked up recently, almost the same view that it held last month, when it said household spending is expanding at a moderate rate. The statement indicating that housing starts have been flat at a depressed level was left out. The Fed's commentary on inflation was retained, with the central bank expecting inflation to remain subdued for some time due to substantial resource slack.

Earnings

Deree (DE) reported second quarter net sales and revenue growth of 6% to $7.131 billion. Net income rose to $1.28 per share from the year-ago’s $1.11 per share. On an adjusted basis, the company reported earnings of $1.58 per share. Analysts estimated earnings of $1.09 per share on revenues of $6.62 billion.

BJ’s Wholesale (BJ) said its first quarter net income rose to 49 cents per share from 45 cents per share last year. Net sales rose 12.9% to $2.55 billion. The consensus estimates called for earnings of 43 cents per share on revenues of $2.61 billion. The company raised its net income guidance for the full year to $2.58-$2.68 per share from its earlier estimate of $2.54-$2.64 per share. Analysts estimate earnings of $2.61 per share.

Target (TGT) reported that its first quarter earnings rose to 90 cents per share from 69 cents per share last year. Sales rose 5.5% to $15.16 billion. Analysts estimated earnings of 87 cents per share on revenues of $15.58 billion.

Hormel Foods (HRL) said its second quarter adjusted earnings rose 14% to 67 cents per share and its sales rose 7% to $1.7 billion. The results were ahead of the consensus estimates. The company raised its full year earnings estimate to $2.68-$2.78 per share from $2.75-$2.85, while analysts estimate earnings of $2.74 per share.

Chico’s FAS (CHS) reported first quarter earnings of 20 cents per share compared to adjusted earnings of 11 cents per share last year. Net sales rose to $481.6 million from $410.6 million in the year-ago period. Analysts estimated earnings of 20 cents per share on revenues of $473.62 million.

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Hewlett-Packard (HPQ) may move to the upside after it reported adjusted second quarter earnings of $1.09 per share, higher than the consensus estimate of $1.05 per share. Revenues rose to $30.8 billion from the year-ago’s $27.4 billion, also exceeding the $29.82 billion consensus estimate. The company also raised its outlook for the full year.

Analog Devices (ADI) is likely to trade higher after it reported that its second quarter revenues rose 41% to $668 million and said its earnings from continuing operations climbed to 55 cents per share from adjusted earnings from continuing operations of 21 cents per share last year. Analysts estimated earnings of 50 cents per share on revenues of $644.12 million. The company also raised its dividend by 10% to 22 cents per share.

Biogen Idec (BIIB) may react to an announcement by the company and its collaboration partner Roche that they have decided to discontinue the clinical development program of rheumatoid arthritis treatment ocrelizumab. The companies concluded that the overall benefit to risk profile of the treatment was not favorable compared to the currently available treatment options.

Donaldson (DCI) could also be in focus after it raised its full year guidance, with the company currently estimating adjusted earnings of $2.10-$2.20 and sales of $1.83 billion-$1.86 billion. The company attributed the optimism to a strong third quarter performance. The consensus estimates call for earnings of $1.97 per share on revenues of $1.82 billion. Preliminary results released by the company showed that it expects sales of $498 million to $413 million for the third quarter and adjusted earnings of 64-66 cents per share. Analysts estimate earnings of 54 cents per share on revenues of $462.64 million.

Photronics (PLAB) is also likely to move in reaction to its announcement that its second quarter sales rose 26% year-over-year to $105.1 million. The company reported non-GAAP earnings of 9 cents per share compared to a loss of 21 cents per share last year. Analysts estimated earnings of 4 cents per share on revenues of $102.34 million.

EOG Resources (EOG) could see some activity after it said its Canadian subsidiary EOG Resources Canada has agreed to acquire shares of Galveston, which owns a 49% stake in the planned LNG export terminal to be located at Bish Cove. Apache (APA) had earlier executed an agreement to buy 51% of the planned project.

Progressive Corp. (PGR) may react to its announcement that its net income per share for April remained flat at 17 cents per share, with net premiums earned rising 4% year-over-year, while the combined ratio rose 1.5 points to 90.7.

Yahoo (YHOO) is also expected to react to its announcement that it has signed an agreement to buy Associated Content. The company expects the deal to close in the third quarter of 2010, although it did not disclose the financial terms of the deal.

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