US & World Daily Markets Financial Briefing 21-04-2009

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Financial Space May Continue to Weigh on Market Sentiment

The major averages are currently turning in a mixed performance, with the tech-heavy Nasdaq posting a modest gain. While the Nasdaq is up 2.00 at 1,610.21, the Dow is down 45.48 at 7,796.25 and the S&P 500 is down 4.26 at 828.13.

The major U.S. index futures are pointing to a lower opening on Tuesday. A mixed batch of earnings reports released earlier in the day is likely to keep buying interest subdued. Most bank stocks, including Bank of New York Mellon (BK), reported disappointing results and this does not bode well for the financial space, which came under significant weakness in Monday’s session. Forward expectations continue to be bleak, suggesting limited probability of a near term improvement. Additionally, anxieties over stress test results also could lead to some selling.

U.S. markets opened Monday’s session sharply lower, weighed down by underlying fears over the health of corporate earnings, which were manifested in full force following the sharp increase in loan loss provisions recorded by Bank of America (BAC) in its first quarter. The major averages showed steady declines throughout Monday’s session before closing down with losses in excess of 3.5%.

The Dow Industrials ended down 289.60 points or 3.56% at 7,842 and the Nasdaq Composite Index receded 64.86 points or 3.88% to 1,608, while the S&P 500 Index declined 37.21 points or 4.28% to 832.

All thirty of the Dow components ended in negative territory, with Bank of America leading the slide with a loss of 24.34%. Citigroup (C) (down 19.45%), American Express (AXP) (down 12.98%), General Motors (GM) (down 10.75%) and JP Morgan Chase (JPM) (down 10.73%) were among the other notable decliners.

Among the sector indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index fell 7.33% and 15.35%, respectively. The Philadelphia Semiconductor Index declined 5.74%, while the Amex Networking Index and the Amex Disk Drive Index also recorded losses in excess of 5%, each. On the other hand, hardware stocks bucked the downtrend, with a gain of 2.25%.

The Dow Jones Transportation Average slipped 5.49% compared to a 6.15% slump by the Amex Airline Index. Meanwhile, the Philadelphia Housing Sector Index receded 7.98%. The Amex Oil Index and the Philadelphia Oil Service Index ended down 4.79% and 6.72%, respectively. However, the Amex Gold Bugs Index gained close to 4%.

On the economic front, the Conference Board said the leading indicators index fell 0.3% month-over-month in March following a 0.2% monthly drop in February. The largest negative contributors were building permits, stock prices and the index of supplier deliveries. On the other hand, real money supply and yield spread had a positive impact on the headline index.

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Canadian Stocks Looking For Direction Ahead of BoC rate call

Bay Street was on pause Tuesday morning following big losses in the previous session as market players braced for the latest interest rate decision from the Bank of Canada. Quarterly earnings from around the world have been pouring in, and early returns suggest another mixed bag of results.

Bay Street stocks plunged more than 300 points on Monday, following the lead of U.S. and European markets. The key mining, energy and financial sectors posted significant declines to lead the way. The S&P/TSX Composite Index fell 311.50 points or 3.3% to move at 9,126.15. The finish was the lowest since April 8 for Toronto's main index, which had reached a three-month high last week.

Across the border, five Dow components are out with earnings news Tuesday morning. Caterpillar Inc. reported first-quarter net loss of $112 million or $0.19 per share, compared to a profit of $922 million or $1.45 per share in the first quarter of 2008.

DuPont (DD) reported financial results for the first quarter, posting net income of $0.48 billion or $0.54 per share, compared to $1.19 billion or $1.31 per share in the prior year period. For the second quarter 2009, the company anticipates revenue growth to be limited by continuing weak demand in non-agriculture markets.
 
In Canada, Teck Cominco Ltd. announced first quarter net earnings of C$241 million, or C$0.50 per share, compared to C$345 million or C$0.78 per share in the prior year quarter.

Adjusted net earnings for the quarter declined to C$270 million from C$326 million in the year-ago quarter.

Canadian National Railway Company on Monday reported an improved first quarter earnings, helped by a gain on the sale of Weston subdivision. Owing to current economic conditions, transportation volumes decreased in almost all markets resulting in overall 4% decline in revenues year-on-year. However, revenues as well as earnings topped Street expectations. Separately, the company also announced its dividend for the second quarter.

Quebecor World Inc. said that it has filed a plan of reorganization and disclosure statement with the U.S. Court.

Duluth Metals Limited announced the acquisition of 5,142 acres of prospective mineral leases within the Duluth Complex; 2,528 acres were acquired from State of Minnesota and the remaining 2,614 acres are leased private mineral rights. All acres are located in Lake or St. Louis Counties, Minnesota.

Later this morning, the Bank of Canada makes its latest interest rate decision. Economists expect the BoC to hold steady at 0.5 percent.

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The major European markets are trading on a weak note. While the French CAC 40 Index is slipping 1.73%, the German DAX Index is moving down 1.43%. The U.K.’s FTSE 100 Index is moving down 1.76%.

On the economic front, the German Federal Statistical Office reported that German producer prices fell by 0.5% year-over-year in March, marking the lowest year-over-year rate since September 2002, when it declined 1.1%. On a monthly basis, the index fell by 0.7%.

Meanwhile, consumer price growth in the U.K. consumer prices slowed down to an annual rate of 2.9% in March, according to a report released by U.K.’s Office of National Statistics. The monthly inflation rate was 0.2%, with both the readings coming in line with expectations.

Economic sentiment in Germany continued to improve in April, the results of the Zew survey showed. The economic sentiment index rose 16.5 points to 13 following a reading of –3.5 points in March. The uptrend is attributed to the effect of the government stimulus packages and low inflation environment, which is supporting private consumption.

Earnings

DuPont (DD) said its first quarter earnings attributable to common shareholders were 54 cents per share compared to $1.31 per share last year. Net sales fell to $6.87 billion from $8.58 billion in the year-ago period. Analysts expected earnings of 52 cents per share on revenues of $7.74 billion. The company reduced its full year earnings per share guidance to $1.70-$2.10 per share, citing difficult market conditions.

Caterpillar (CAT) reported a first quarter loss of 19 cents per share compared to a $1.64 per share in the year-ago period. Excluding redundancy costs, the company reported a profit of 39 cents per share. Sales and revenues declined 22% to $11.796 billion. The company revised its 2009 sales and revenue outlook, expecting the metric to be in the range of plus or minus 10% around a mid-point of $35 billion. The company expects to be profitable in 2009. Excluding redundancy costs, the company expects earnings to be about $1.25 per share.

Coca-Cola (KO) said its first quarter adjusted earnings per share were 65 cents, down 3% from last year. Net operating revenues fell 3% to $7.17 billion. Analysts, on average, estimated earnings of 65 cents per share on revenues of $7.36 billion.

UnitedHealth’s (UNH) first quarter revenues climbed 8% to $22 billion. Net earnings rose to 81 cents per share from 78 cents per share last year. Analysts estimated earnings of 67 cents per share on revenues of $21.37 billion. The company continues to expects full year net earnings of $2.90-$3.15 per share.

United Technologies (UTX) said its first quarter net income available to common shareholders was 78 cents per share, down 24% to $722 million. On an adjusted basis, the company reported

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Tuesday, markets across the Asia-Pacific region followed Wall Street lower as concerns about the U.S. banking sector and pessimism about earnings tempered risk appetite. The focus was back on the state of the economic recovery in the world's biggest economy after Bank of America marked up protection for bad loans.

The Japanese market fell sharply as financials came under intense selling pressure and reports that Toyota Motor Corp.'s fiscal 2009 domestic output may hit a 31-year-low hurt investor sentiment.

The Nikkei 225 index recouped some of its early losses and closed at 8,711, down 213 points or 2.39%, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange moved down 18 points or 2.07% to 831. Stocks declined mostly across the board, although stocks in the retail, information and communication and land transport sectors bucked the declining trend.

Toyota Motor fell nearly 4% on reports that its domestic output will fall to 2.8 million units in the current business year ending next March. Honda tumbled 4.88%, Suzuki fell 3.49%, Nissan slipped 0.20% and Mazda drifted down 2.69%.

Sony Corp retreated 4.14% on the strengthening of the yen and a cut in its rating to "hold" by Nikko Citigroup. Trading house Mitsui & Co. slumped 6.46% after oil and copper prices fell. Advantest fell 4.81%, Tokyo Electron closed down 0.94%, Kyocera moved down 2.30% and Fujitsu declined 1.21%

The Australian market tumbled, led down by banks and miners, as a slump on Wall Street on concerns about bad debts on bank balance sheets and the Reserve Bank of Australia governor Glenn Stevens' statement that Australia was in a recession weighed on sentiment.

The benchmark S&P/ASX200 index closed at 3,677, down 92 points or 2.43% and the All Ordinaries index fell 89 points or 2.4% to 3,633. Banking stocks were hit hard. National Australia Bank tumbled 4.49%, ANZ fell nearly 4%, Commonwealth Bank declined 1.84% and Westpac Banking moved down 2.57%.

Among miners, BHP Billiton fell 4.01%, Rio Tinto tumbled 5.82% and Iluka Resources moved down 3.43%. The new chairman of Rio Tinto Jan du Plessis said Rio's board was committed to the group's proposed $19.5 billion tie up with China's state-owned Chinalco

On the economic front, the Reserve Bank of Australia's board members said that the outlook is weaker for near-term demand, but they still believe a recovery is likely by the end of 2009, minutes from the board's April 7 monetary policy meeting revealed on Tuesday.

The South Korean market closed flat and as gains in shipbuilders and technology shares offset losses in the financial sector. The benchmark KOSPI recouped all its early losses to finish at 1,337, up a mere 0.03 percent or 0.42 points. Volume was at 629.61 million shares worth 6.4 trillion won (US$4.7 billion) and advancers outnumbered decliners by 412 to 398.

Shipbuilders outperformed on optimism that South Korean companies would win orders from Brazil's Petrobras by as early as May. Daewoo Shipbuilding rose 1.47%, Samsung Heavy Industries advanced 3.41% and Hyundai Heavy added 0.47%.

Steel maker POSCO fell 2.30% on profit taking, market heavyweight Samsung Electronics moved down 0.17%, automaker Hyundai Motor declined 2.12%, Kia Motors fell 2.14% and oil stock SK drifted down 2.42%.

After a weak start, India's benchmark Sensex recouped most of its losses on the emergence of fresh buying by funds as the central bank cut short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each. The BSE Sensex ended at 10,898, down 81 points or 0.74%.

Hong Kong’s Hang Seng opened notably lower and moved sideways for the rest of the session. The index ended down 465.02 points or 2.95% at 15,286. A majority of the stocks declined in the session. Property stocks declined sharply, with Sino Land, New World Development and Hang Lung Property leading the slide.

Among the other markets in the region, China's Shanghai Composite index slipped 0.85%, Singapore's STI Straits Times index moved down 1.37%, but Taiwan's TWII Weighed index closed up 1.73%.

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Gold Prices Move Into Positive Territory Again

Gold prices moved higher again in early trading on Tuesday as traders continued to drift toward the precious metal's safety appeal amid lower stocks and a weaker dollar.

June-dated gold futures rallied to $894.00, up $6.50 per ounce. Prices reached as high as $895.80 in the early going. Soon-to-be merged Merck (MRK) and Schering-Plough (SGP) both missed analyst estimates in the recent quarter.

The dollar saw some weakness in New York trading, adding to gold's hedge appeal. The buck slipped away from a five-week high against the euro and also fell against the British pound and Swiss franc. Gold usually moves in the opposite direction as the dollar.

After the stock market saw a sharp loss on Monday, traders remained cautious Tuesday amid the release of a mixed bag of corporate earnings results.
 
In economic news, Treasury Secretary Timothy Geithner will be facing a barrage of questions revolving around his plans to shore up banks. Geithner is scheduled to testify before the Congressional Oversight Panel at 10 a.m. ET.

Also, the Federal Reserve and other banking regulators are expected to release a "white paper" April 24 that would reveal how regulators went about assessing the firms' health, including assumptions about the losses firms could face for loans and securities under different economic scenarios.

Gold gained nearly $20 yesterday, erasing its losses from last week. On a longer-term basis, gold remains down more than 10% since briefly topping $1,000 in February.

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