US & World Daily Markets Financial Briefing 19-08-2009

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Economic Worries Returning To Market as Global Markets Retreat

The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment souring following a steep sell-off in the Chinese market. Subsequently, commodities are showing weakness, reflecting the risk aversion of traders, who have to contend with the uncertainty surrounding the economic outlook. The absence of any other major triggers could keep traders preoccupied with this worry, even as the outlook from a few technology companies suggests better times ahead.

After the previous session’s steep sell-off, U.S. stocks began Tuesday’s session on a positive note, as traders latched onto positive earnings reports from some retailers as a lifebuoy. Buying interest picked up over the course of the session, as Monday’s weakness bought bargain hunters into the markets. Consequently, the major averages all gained about 1%.

The Dow Industrials ended up 82.60 points or 0.90% at 9,218, the S&P 500 Index rose 9.94 points or 1.01% to 990 and the Nasdaq Composite closed at 1,956, representing a gain of 25.08 points or 1.30%.

Twenty-four of the thirty Dow components ended higher, with Alcoa (AA) (up 4.11%), American Express (AXP) (up 4.28%), Home Depot (HD) (up 3.14%), Bank of America (BAC) (up 2.05%) and Caterpillar (CAT) (up 2.64%) advancing strongly.

Among the sector indexes, the Dow Transportation Average confirmed the Dow’s upward move, gaining 1.68% and, the Dow Jones U.S. Basic Materials Index rose 1.79%. The S&P Retail Index gained 1.77% compared to a 1.96% advance by the Philadelphia Housing Sector Index. The NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index moved up over 2% each. While the NYSE Arca Gold Bugs Index rose 1.88%, the Philadelphia Oil Service Index and the NYSE Arca Oil Index ended up 2.40% and 1.26%, respectively.

The Philadelphia Semiconductor Index rose 1.02%, the NYSE Arca Disk Drive Index surged up 3.09%, the NYSE Arca Networking Index advanced 3.05% and the NYSE Arca Computer Hardware Index moved up 2.08%.

The Philadelphia Semiconductor Index, which began an uptrend since late last year and has been one of the first sector indexes to turn around, may be on track for more gains. The idea gains strength following the bullish outlooks issued by Analog Devices (ADI) and Hewlett Packard (HPQ). According to FBR Research, chip companies shipments have been increasing to toe in line with end consumption levels. Additionally, the supply chain is exhibiting one of the leanest inventory levels ever. Therefore any uptick in seasonal demand will likely to lead to healthy chip pull through during the third quarter and the fourth quarter.

The index has been ably supported by its 50-day moving average for most of its current uptrend and the key average is currently around 281. Apart from this level, the index may also find support around the 255 level and its 200-day moving average of 238.

On the economic front, the Commerce Department said housing starts fell to 581,000 in July from 587,000 in June, with the decline centered on multi-family starts, which are mostly built by investors. Single-family starts in fact showed a modest increase, rising to their highest level since October 2008.

Meanwhile, the Labor Department’s producer price inflation report showed that the producer price index fell 0.9% month-over-month in July, while economists had expected a mere 0.3% decline. The core rate showed 0.1% decline as opposed to expectations for a 0.1% increase.

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Toronto Stocks Could Move Slightly Lower

Bay Street stocks could see modest weakness early Wednesday as markets moved lower in and Europe, while U.S. futures are pointing to the downside. Traders mulled over data showing annual Canadian inflation dropped to its lowest level in 56 years.

Statistics Canada reported the annual Canadian consumer price index fell 0.9% in July, compared to an 0.8% drop a year ago. CPI fell 0.3% in July, compared to an 0.2% drop in June. CPI is expected to rise 0.3% year-over year, compared to an 0.8% drop last year and rise 0.3% month-on-month, compared to an 0.2% decline in June.

Annual core CPI rose 1.8% in JUly, compared to a 1.9% rise a year ago. On a monthly basis, core CPI rose 0.1% in July, after coming in unchanged in June.

On the corporate front, Sears Canada announced that its second-quarter net earnings were C$49.1 million or C$0.45 per share, compared to C$61.5 million or C$0.57 per share in the second quarter last year.
 
Nufcor Uranium announced that its fiscal 2009 loss was US$26.27 million or US$0.637, compared to a loss of US$216.95 million or US$5.173 per share in the year ago quarter. Income for the year was US$3.83 million, down from US$4.21 million in the prior year.

Twin Butte Energy and Buffalo Resources Corp. announced that they have entered into a merger arrangement worth C$119 million.

Oil Prices Drop Ahead Of EIA Report

Crude oil prices fell 60 cents to $68.59 per barrel, while gold dipped $2.70 to $936.50 an ounce and copper lost 8.35 cents to $2.691 a pound.

The S&P/TSX Composite Index surged 142.25 points or 1.35% on Tuesday to move at 10,673.84. The market fell 2.9% on Monday.

Crude oil prices moved lower on Wednesday as some traders bet yesterday's sharp rally was overdone. Traders looked forward to Energy Information Administration inventory data later this morning.

Light sweet crude for September delivery dropped to $68.41 per barrel, down 78 cents. Prices touched as low as $68.05 after reaching as high as $70.50.

EIA data is due at 10:30 a.m. ET. Analysts expected to see a rise of about 1.1 million barrels for the week ended Aug. 14. Gasoline stockpiles are expected to fall 1.7 million barrels.

American Petroleum Institute data showed crude inventories fell 6.1 million barrels last week, while gasoline stocks fell 847,000 barrels and distillates added 1.5 million barrels. API data is not as closely watched as the EIA report because participation in the industry data is voluntary.
 
Last week's EIA data showed crude oil inventories increased by 2.5 million barrels from the previous week. Experts were looking for a build in crude supplies of 1.2 million barrels.

Kuwait oil minister Sheikh Ahmed al-Abdullah al-Sabah reportedly said the Organization of Petroleum Exporting Countries should keep output the same for a third straight meeting. The cartel next meets on September 9 in Vienna. On Tuesday, light sweet crude rose $2.44 on the session.

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Asian Markets End Lower On Concerns About Recovery

The Asian markets ended in negative territory following sell-off in Chinese market amid fresh concerns about the sustainability of economic growth.

In Japan, benchmark Nikkei 225 Index ended at 10,204. representing a loss of 80.96 points, or 0.79%, while the broader Topix index of all first section stocks fell 6.41 points, or 0.7%, to 943.

On the economic front, the Ministry of Economy, Trade and Industry revealed that the all industry activity index dropped 8.2% year-on-year in June, slower than a 10.2% fall in the preceding month. On a monthly basis, the index rose a seasonally adjusted 0.1% in June compared to a 0.7% rise in the preceding month. Economists expected an increase of 0.3%.

Light sweet crude oil price for September delivery ended at $69.21 a barrel in electronic trading, up $0.02 from its previous close $69.19 a barrel in New York on Tuesday.

Sanyo Electric, maker of rechargeable batteries, surged up 10.27% following reports in the press that Toyota Motor will purchase batteries from Sanyo Electric for its hybrid vehicles from 2011.

Automotive stocks also advanced on buying interest at lower levels. Honda Motor added 0.33%, Toyota Motor Corp edged up 0.25% and Nissan Motor advanced 0.71%.

Trading companies ended in negative territory. Sumitomo Corp. declined 1.67%, Mitsui & Co. fell 1.22%, Toyota Tsusho lost 0.82% and Itochu Corp. shed 1.26%.
 
Shipping stocks ended weaker. Mitsui OSK Lines fell 2.24%, Nippon Yusen lost 1.49% and Kawasaki Kisem declined 2.34%.

Banking stocks also ended in negative territory on concerns about recovery. Mitsubishi UFJ Financial Corp lost 1.52%, Mizuho Financial slipped 0.89%, Resona Holdings lost 2.05% and Sumitomo Mitsui Financial shed 1.50%.

In Australia, the benchmark S&P/ASX200 Index losing 7.80 points, or 0.18%, to close at 4,374, while the All-Ordinaries Index ended at 4,388, representing a gain of 1.60 points, or 0.04%.

Strength in energy stocks following the announcement of an 20-year agreement by PetroChina to purchase LNG from the proposed Gorgon development project to the extent of A$50 billion offset the weakness in the broader market on concerns about pace of recovery.

On economic news, the latest report from Westpac Bank and Melbourne Institute revealed that the leading index of economy activity in the country contracted at an annualized rate of 3.3% in June compared to a fall of 5.3% in May.

Light sweet crude oil price for September delivery ended at $69.21 a barrel in electronic trading, up $0.02 from its previous close $69.19 a barrel in New York on Tuesday.

Woodside Petroleum advanced 3.65%, despite reporting a 12% drop in profit for the first half, hurt by lower oil prices. Among others in oil space, Santos gained 1.45%. However, Oil Search slipped 0.89% and Origin Energy, which reported a 20% rise in underlying earnings for full year, lost 2%.

Among metals and mining stocks, Rio Tinto gained 2.28%, Fortescue Metals rose 2.27%, Iluka Resources surged up 8.96%, Oz Minerals advanced 2.29% and Orica Limited added 0.60%. Gindalbie Metals remained unchanged at previous close, while BHP Billiton buked the trend and ended lower by 1.48%.

Quantas Airways, the country's biggest airliner, gained 3.46% after the company, releasing the results for the second half, revealed that it is planning to embark on a series of cost-cutting measures to the extent of A$1.5 billion. The airline reported a net loss for the second half of the year, its first loss in six years. Virgin Blue Holdings, the second largest airline, soared 6.49%.

Banking stocks ended in negative territory on concerns about recovery. ANZ Bank fell 2.80%, Commonwealth Bank of Australia slipped 0.79%, National Australia Bank lost 0.96% and Westpac Bank shed 0.84%.

Gold stocks also ended weaker. Lihir Gold lost 3.15%, Newcrest Mining fell 2.57% and Sino Gold Mining declined 2.14%.
 
In Hong Kong, the Hang Seng Index slipped 1.73% or 352.04 points and closed at 19,954, following late selling in stocks taking cues from mainland China where the market declined more than 4% and entered into a bear market, having lost nearly 20% since the beginning of the month.

Of the 42 components in the Index, only two stocks managed to end in positive territory with gains, while the balance 40 stocks witnessed sell-off on concerns about the sustainability of recovery.

In South Korea, the benchmark KOSPI Index ended in negative territory with a loss of 4.28 points, or 0.28%, at 1,546, following sell-off in Asian markets and concerns about deep correction in the global markets amid concerns about recovery.

Weak global cues, especially the sell-off in Chinese market on valuation concerns, reports about deceleration in India's merchandise exports for the tenth straight month and concerns on the monsoon front pulled down the Indian market sharply down on Wednesday after a recovery in the previous session. The BSE Sensex finished at 14,810, down 226 points or 1.50% and the S&P CNX Nifty fell 65 points or 1.45% to 4,394.

Among the other major markets in the region, China's Shanghai Composite Index slumped 4.30% or 125.30 points, to 2,786, Singapore's Strait Times Index lost 44.94 points, or 1.75% to close at 2,523. Taiwan's Weighted Index slipped 1.19 points, or 0.02% to close at 6,789 and Indonesia's Jakarta Composite Index declined 2.53% or 59.23 points to close at 2,278.

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The major European markets are moving to the downside on Wednesday after yesterday’s rebound following two sessions of steep losses. The French CAC 40 Index and the German DAX Index are receding 0.61% and 0.87%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.70%.

On the economic front, the German Federal Statistical Office reported that the German producer price index fell 7.8% year-over-year in July compared to a 4.6% drop in the previous month. The July rate marked the lowest on record. On a monthly basis, producer prices fell 1.5% following a 0.1% dip in June. Economists had estimated a 6.5% annual decline and 0.2% monthly drop.

Eurostat said in a report released today that eurozone construction output dropped a seasonally adjusted 1.1% month-over-month in June after falling 2% in May. Annually, construction output fell 8.8% compared to a 7.6% drop in May.

The minutes of the latest Bank of England meeting showed that six members of the Monetary Policy Committee voted to raise the size of asset purchases by GBP 50 billion. Three other members sought a GBP 75 billion increase to GBP 200 billion. The MPC agreed to spread the additional purchases of GBP 50 billion evenly over three months so that their completion would coincide with the preparation of the November Inflation Report projections.

The minutes also revealed that assuming that the Bank Rate followed the path implied by prevailing market yields, a larger increase in the scale of the asset purchase program was likely to be necessary to counterbalance the risk that inflation would fall short of the target.

U.S. Economic Reports

A report released by the Mortgage Bankers Association showed the index of applications to purchase a home or refinance a loan rose 5.6% in the week ended August 14th. The index for refinancing existing homes rose 6.9%.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

The weekly oil inventory report showed a 2.5 million barrel-increase in crude oil stockpiles in the week ended August 7th. Inventories of crude oil were above the upper boundary of the average range for this time of the year.

Meanwhile, gasoline stockpiles fell by 1 million barrels, but were still in the upper half of the average range. At the same time, distillate inventories edged up by 0.8 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 84.6% over the four weeks ended August 7th compared to 85.7% in the previous week.

Earnings

BJ’s Wholesale reported second quarter earnings of 64 cents per share compared with 61 cents per share in the year-ago period. Sales fell 5% to $2.51 billion. Analysts estimated earnings of 62 cents per share on revenues of $2.56 billion. The company raised its full year earnings estimate to $2.46-$2.56 per share from its earlier estimate of $2.44-$2.54 per share, while analysts expect earnings of $2.48 cents per share.

Deere & Co. said its third quarter earnings fell to 99 cents per share from $1.32 per share last year, as revenues declined 24% year-over-year to $5.89 billion. The consensus estimate had called for earnings of 57 cents per share on revenues of $5.25 billion.

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Hewlett-Packard declined in Tuesday’s after hours session after it reported third quarter earnings of 67 cents per share, lower than 80 cents per share in the year-ago period. On an adjusted basis, earnings were 91 cents per share compared to the 90 cents per share consensus estimate. Sales were down 2% at $27.45 billion, while analysts estimated sales of $27.26 billion. The company expects fourth quarter adjusted earnings of $1.12 per share, above the consensus estimate of $1.07 per share, while it reaffirmed its revenue outlook for the year.

Analog Devices could recede after it reported that its third quarter earnings fell to 22 cents per share from 47 cents per share in the year-ago period, as revenues declined 25% year-over-year to $492 million. Analysts estimated earnings of 20 cents per share on revenues of $479.6 million. For the fourth quarter, the company expects earnings from continuing operations of 24-26 cents per share compared to the 24 cents per share consensus estimate.

Chevron is likely to see some strength after it announced that it has made two natural gas discoveries in the Carnarvon Basin offshore Western Australia. The company noted that the discoveries are located in Australia’s premier hydrocarbon basin, where it is the leading leaseholder.

Par Pharmaceutical may gain ground after it announced that its licensing partner Aveva Drug Delivery Systems has received final approval from the FDA for its ANDA for a clonidine transdermal system, which is a seven-day patch for treating hypertension. The company said it would begin shipping the product in the near future.

Sigma Designs could also move to the upside after Standard & Poor’s announced that it would replace Noven Pharma in the S&P SmallCap 600 Index.

Jack Henry & Associates is likely to react to its announcement that its fourth quarter revenues rose to $191.9 million from $188.7 million in the year-ago quarter. The company’s net income rose to 33 cents per share from 28 cents per share in the same period last year. Analysts estimated earnings of 30 cents per share on revenues of $184.66 million.

Watson Pharma may also move in reaction to its announcement that it has priced a debt offering of $450 million of 5% senior notes due 2014 and $400 million of 6.125% senior notes due 2019 for a total offering of $850 million in aggregate principal amount. The company expects the offering to close on August 24, 2009 and it intends to use the net proceeds to fund a portion of the cash consideration of its previously announced purchase of Arrow Group and to retire and redeem some of its debts.

Resource Connection could be in focus after it announced the appointment of Anthony Cherbak as its new COO and President. Cherbak will replace Karen Ferguson, who quit as executive vice president and chief strategy officer, on the board.

BB&T Corp. is likely to react to its announcement that it has priced its public offering of 33.45 million shares at $26 per share. The company expects to garner net proceeds of $837.1 million from the offering.

Photronics could trade higher after it reported a loss of 55 cents per share for its third quarter compared to a loss of $4.93 per share last year. On an adjusted basis, the company reported a loss of 13 cents per share. Revenues declined 10% to $95.4 million. The consensus estimates called for a loss of 19 cents per share on revenues of $88.2 million.

Eli Lilly may see some weakness after it said the initial results from its five-year Phase III trials of its osteoporosis treatment arzoxifene did not meet its secondary efficacy endpoints and also exhibited some adverse effects. Consequently, the company said it has decided not to submit the treatment for regulatory review. Due to the decision, the company expects to record a charge of 3-4 cents per share in its third quarter results, although it confirmed its 2009 adjusted as well as reported earnings guidance.

Immucor may see strength after it announced that its board has authorized a 2 million share increase to its current stock repurchase program. Including the authorization, the company has a total of 2.6 million shares available for repurchase.

La-Z-Boy is likely to react to its announcement that it reported a first quarter net income of 4 cents per share compared to a loss of 17 cents per share. Sales fell 18.3% to $262.7 million, exceeding the $255.14 million consensus estimate.

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