US & World Daily Markets Financial Briefing 21-07-2009

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Stocks Mixed In Mid-Morning Trading As Traders Weigh Bernanke Testimony

Following a moderately strong open on the heels of a string of positive earnings reports, stocks are mixed in mid-morning trading as traders are weighing testimony from Federal Reserve Chairman Ben Bernanke. The major averages are on opposite sides of the unchanged mark, with the tech-heavy Nasdaq in the red.

All eyes are on Capitol Hill, where Fed Chief Ben Bernanke is beginning his semi-annual testimony regarding monetary policy. Bernanke is expected to reveal his near-term economic outlook and his exit strategy following unprecedented government intervention in the U.S. financial system.

Early buying interest was prompted by a slew of encouraging earnings, with five Dow components reporting their quarterly results. Caterpillar (CAT), Coca-Cola (KO), DuPont (DD), Merck (MRK) and United Technologies (UTX) all revealed earnings that beat Wall Street estimates.

While Schering-Plough (SGP) and Lockheed Martin (LMT) also posted results that surpassed expectations, State Street (STT) disappointed. After the closing bell today, traders will be presented with quarterly earnings reports from Apple (AAPL), Yahoo! (YHOO) and Advanced Micro Devices (AMD).

The major averages currently continue to turn in a mixed performance, with the Nasdaq stuck in the red. The Nasdaq is currently down 6.38 at 1,902.91, while the Dow is up 51.55 at 8,899.70 and the S&P 500 is up 0.72 at 951.85.

Sector News

With the better than expected earnings from DuPont generating some buying interest, chemical stocks are seeing significant strength. The S&P Chemicals Index is currently up 2.6 percent after reaching its best intraday level in over a month.

Oil service and pharmaceutical stocks are also turning in some of the day’s strongest performances, with the Philadelphia Oil Service Sector Index and the NYSE Arca Pharmaceutical Index both currently up 1.2 percent.

The oil service index is extending its gains for the sixth straight session and has reached its best intra-day level in a month, while the pharmaceutical index has surged to its best level in well over six months.

Meanwhile, computer hardware and semiconductor stocks are retreating, contributing to the loss by the tech-heavy Nasdaq. The NYSE Arca Computer Hardware Index and the Philadelphia Semiconductor Index are down by 1.7 percent and 1.4 percent, respectively.

The computer hardware index is pulling back off of its best closing level in over a year, while the semiconductor index is falling away from its highest closing level in over nine months.

Further, banking, trucking and commercial real estate stocks are also moving to the downside. Notably, the Kbw Bank Index is posting a loss of 2.6 percent, while the Dow Jones Trucking Index is down by 1.8 percent.

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Toronto Stocks Look For Seventh Straight Advance

Bay Street stocks will look for a seventh straight gain on Tuesday morning as the resource sectors could see further strength with commodities rising again. Stocks are higher overseas and U.S. futures are pointing into positive territory.

Investors will also mull over the Bank of Canada's decision to leave interest rates at 0.25%. The move was widely expected by economists.

Crude oil is up 99 cents to $64.97 in electronic trading after topping $65 earlier in the morning. Gold and copper are also showing modest increases.

In corporate news, Canadian National Railway reported second-quarter net income of C$361 million or C$0.76 per share, compared to net income of C$436 million or C$0.90 per share in the comparable quarter last year. Before the announcement, the stock closed the session up 1.24% for the day.
 
Research In Motion Limited or RIM said that it has been prevented from bidding for the Canadian telecom equipment maker Nortel Networks Corp.'s Wireless Business that has been placed into insolvency auction scheduled to occur on July 24.

TD Bank Financial Group announced that it expects TD Ameritrade's third quarter earnings to translate into a contribution of C$68 million to third quarter net income for its Wealth Management segment.

Denison Mines Corp. said it has decided not to match the acquisition proposal that Northern Continental Resources received from Hathor Exploration.

On Monday, the S&P/TSX Composite Index rallied 171.29 or 1.65% to finish at 10,540.71. This is the best close since June 12.

Currency, Commodity Futures

Crude oil futures are trading up $0.86 at $64.84 a barrel after advancing $0.42 to $63.98 a barrel on Monday. Commerzbank believes that the price increase is merely a temporary correction in the medium term consolidation movement.

Gold futures are currently edging up $1.80 to $950.60 an ounce. In the precious session, the precious metal rose $11.30 to $948.80 an ounce, as higher oil prices and a weaker dollar supported gold.

On the currency front, the U.S. dollar is trading at 94.295 yen compared to 94.1925 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.4226 compared to yesterday’s $1.4232.

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The major Asian markets ended Tuesday’s session mostly higher, although most of them ended off their highs, as the five-day rally’s momentum faded. The Japanese market, which opened after a long weekend, opened higher and moved mostly sideways until late afternoon trading. Thereafter, there was a slight pick up in the buying momentum and the Nikkei 225 average ended up 256.70 points or 2.73% at a two-week closing high of 9,652.

The market witnessed broad based buying interest. The yen’s weakness in reaction to an increase in risk appetite benefited export stocks. On the other hand, airline, tobacco and telecom stocks showed weakness.

On the economic front, the minutes of the Bank of Japan’s June meeting revealed that all Monetary Policy Board members agreed that the Japanese economy had stopped worsening. The members also agreed that economy was likely to show clear signs of leveling out over time, in line with their projections made in April.

Australia’s All Ordinaries rose sharply in early trading before surrendering all its gains by the afternoon. Thereafter, the index recovered, although it finished well off its intra-day highs of 4.079. At the close of trading, the index was up 4.10 points or 0.10% at 4,048.

Most sector stocks showed lackluster performances, with energy and material stocks faring better than the others. In the mining space, BHP Billiton, Rio Tinto and Lihir Gold advanced, while Fortescue and Newcrest Mining receded. Bank stocks ended mostly lower, while energy and retail stocks showed mixed sentiment.

Hong Hong’s Hang Seng Index traded with a negative bias throughout Tuesday’s session before closing down 0.64 points at 19,502. China-related stocks served as a drag on the index, while banking, property and utility stocks were mostly higher. FIH rose over 8% in the session.

The Indian market ended lower, as a cautious undertone following sharp gains in recent sessions led to some profit taking. Despite positive global cues, the market lingered in the red all through the day, although it cut some of its loss in late trading. India’s Sensex moved choppily between 15,234 and 14,956 before finishing at 15,062, down 129 points or 0.85% from its previous close.

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After showing some initial apprehension, the major European averages are moving sharply higher on Tuesday, with the buying momentum continuing for the seventh straight session. The French CAC 40 Index and the German DAX Index are moving up 1.44% and 1.85%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.27%.

U.S. Economic Reports

Federal Reserve Chairman Ben Bernanke is set to deliver his semi-annual monetary policy testimony to the House Financial Services Committee in Washington at 10 AM ET. Although mixed economic data offer little clues as to when a recovery will begin, it is certain that the much-awaited recovery will happen slowly. The slow recovery coupled with the increasing slack may keep inflation low for some time.

Based on these assumptions, it is very likely that the Fed Chairman will affirm in his testimony that the fed funds target rate will be kept at exceptionally low levels for an extended period. Bernanke is also expected to discuss how the Fed will eventually unwind the unconventional policy stimulus, although he isn’t likely to signal an early withdrawal. The stabilization suggested by some of the economic numbers may preclude the Fed from expanding its Treasury or debt purchase programs.

Earnings

Continental Airlines said its second quarter net loss was $1.36 per share, as revenues fell 22.7% to $3.1 billion. Analysts estimated a loss of $1.36 per share on revenues of $3.14 billion.

UnitedHealth reported second quarter reported earnings that rose to 73 cents per share from 27 cents per share last year. On an adjusted basis, non-GAAP earnings were 67 cents per share. Total revenues were $21.66 billion compared to $20.27 billion in the year-ago period. The consensus estimates had called for earnings of 70 cents per share on revenues of $21.77 billion. The company raised its 2009 earnings per share estimate to $3-$3.15 per share from its previous estimate of $2.90-$3.15 per share. Analysts estimate earnings of $3.07 per share on revenues of $86.95 billion.

Merck’s second quarter non-GAAP earnings were 83 cents per share, lower than 86 cents per share in the year-ago period. Worldwide sales fell 3% to $5.9 billion. Analysts estimated earnings of 77 cents per share on revenues of $5.84 billion. The company reaffirmed its 2009 non-GAAP earnings estimate at $3.15-$3.30 per share compared to the consensus estimate of $3.20 per share.

United Technologies reported second quarter earnings per share of $1.05 per share, down 20% year-over-year. The recent second quarter earnings included 22 cents per share in restructuring charge and a one-time gain. Revenues declined 17% to $13.2 billion. The consensus estimates called for earnings of $1.04 per share and revenues of $13.92 billion.

DuPont’s second quarter adjusted earnings were 61 cents per share. Consolidated net sales declined 22% to $6.9 billion. Analysts estimated earnings of 53 cents per share on revenues of $7.15 billion. The company reaffirmed its 2009 earnings per share estimate at $1.70-$2.10, while the Street estimates earnings of $1.71 per share.

Coca-Cola reported adjusted second quarter earnings of 88 cents per share, down 9% year-over-year. Net operating revenues fell 9% to $8.27 billion. The results trailed the consensus estimates that called for earnings of 89 cents per share on revenues of $8.66 billion.

Caterpillar’s second quarter profits declined to 60 cents per share from $1.14 per share last year. The company’s adjusted earnings were 72 cents per share. Total sales and revenues fell 41% to $7.98 billion. Analysts estimated earnings of 22 cents per share on revenues of $8.86 billion. The company tightened its sales guidance for 2009 to $32 billion to $36 billion, while it improved its earnings per share guidance to $1.15-$2.25. This compares to the Street estimate of $1.02 per share in earnings and $34.86 billion in revenues.

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Texas Instruments showed weakness in the after hours session after it reported second quarter earnings of 20 cents per share compared to 44 cents per share last year. Revenues declined 27% to $2.46 billion. Nevertheless, the results were ahead of the consensus estimates, which called for earnings of 18 cents per share on revenues of $2.41 billion. For the third quarter, the company expects earnings of 29-39 cents per share on revenues of $2.5 billion to $2.8 billion. The Street estimates earnings of 27 cents per share on revenues of $2.52 billion.

Boston Scientific may see some buying interest after it reported second quarter sales growth of 7% to $2.074 billion. The company reported adjusted earnings of 20 cents per share, flat with last year, although the reported net income per share rose to 10 cents per share from 7 cents per share last year. Analysts’ estimates, which typically exclude one-time items, called for earnings of 13 cents per share on revenues of $2.05 billion. For the third quarter, the company expects adjusted earnings of 17-21 cents per share on net sales of $2 billion to $2.1 billion. The compamy updated its full year guidance, expecting adjusted earnings of 82-86 cents per share on net sales of $8.1 billion to $8.4 billion. Analysts estimate earnings of 57 cents per share on revenues of $8.17 billion.

CIT Group is likely to trade higher after it confirmed reports that it has entered into a $3 billion loan facility provided by a group of its major bondholders. The company also said it would carry out a comprehensive restructuring of its liabilities to provide additional liquidity and further strengthen its capital position.

HealthNet is likely to react to its announcement that it has agreed to sell its Northeast insurance and HMO entities in Connecticut, New York and New Jersey, which have about $450 million in tangible net equity. The company expects the deal to be closed within 12 months.

Legg Mason may gain ground after it reported first quarter net income of 35 cents per share compared to a net loss of 26 cents per share last year. Adjusted cash income per share was 61 cents, lower than $1.17 per share in the year-ago period. Operating revenues fell to $613.1 million from the year-ago’s $1.05 billion. The Street estimated revenues of $612.34 million.

Packaging Corp. of America also rose in Monday’s after hours session after it said its second quarter earnings climbed to $1.07 per share from 34 cents per share last year. On an adjusted basis, the company’s earnings for the recent second quarter were 28 cents per share. Sales fell 11% to $549.4 million. Analysts, on average, estimated earnings of 16 cents per share on revenues of $535.2 million.

Intel could see weakness after it announced that it intends to offer $1.5 billion principal amount of junior subordinated convertible debentures, which would be due in 2039 and are to be sold to qualified institutional investors. The company said it intends to use a majority of the proceeds to repurchase shares.

Amylin, Eli Lilly and Alkermes could be in focus after they announced positive results from a study comparing their diabetes drug Exenatide and Lantus. Patients using Exenatide once a week experienced a statistically superior reduction in average blood sugar levels.

TJX Companies is likely to move in reaction to its announcement that it has priced it offering of $400 million aggregate principal amount of notes due 2015. The notes will bear interest rates of 4.20% per annum and the net proceeds from the offering are to be used to repay the company’s outstanding notes due 2009 and to refinance substantially all of its C$235 million term credit facility of its Canadian subsidiary due January 11, 2010.

Bemis is expected to see weakness after it announced that it has priced an $800 million underwritten public offering of senior notes. The company intends to use the net proceeds to finance a portion of the $1.213 billion purchase price of its previously announced acquisition of Alcan Packaging Food Americas.

JDA Software Group may rally after it reported second quarter revenues of $99.5 million, higher than the $91.8 million reported in the year-ago period. Separately, the company announced the appointment of Peter Hathaway to the position of executive vice president and chief financial officer, effective July 20th. The company’s non-GAAP earnings climbed sharply to 47 cents per share from 29 cents per share last year. Analysts estimated earnings of 30 cents per share on revenues of $86.15 million.

Edward Lifesciences receded modestly in the after hours session despite reporting second quarter adjusted earnings of 79 cents per share compared to 66 cents per share last year. Net sales rose 2.4% to $335.5 million. The consensus estimates called for earnings of 76 cents per share on revenues of $329.83 million. The company forecast third quarter adjusted earnings of 66-70 cents per share, while at the same time it upwardly revised its 2009 earnings estimate to $3-$3.06 per share. The Street estimates earnings of 71 cents per sharer for the third quarter and $3 per share for 2009.

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