US & World Daily Markets Financial Briefing 21-07-2010

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Stocks Showing A Lack Of Conviction In Mid-Morning Trading

Stocks are on opposite sides of the unchanged line in mid-morning trading on Wednesday, as traders are digesting a mixed bag of quarterly results. The lack of conviction also comes ahead of congressional testimony by Federal Reserve Chairman Ben Bernanke this afternoon.

Bernanke will testify before the Senate Banking Committee at 2:00 p.m. ET, when he is set to offer his address on semi-annual monetary policy. Traders will focus on Bernanke's assessment and prescription for the health of the economy, which is showing mixed signals especially after the partial withdrawal of stimulus.

On the earnings front today, financial services firm Morgan Stanley (MS) reported second-quarter net income of $1.09 per share compared to a net loss of $1.10 per share in the year-ago period. Excluding income from discontinued operation, the firm reported net income of $0.80 per share.

Analysts expected Morgan Stanley to report earnings of $0.46 per share for the period. The company also reported net revenues for the period of $8.0 billion, above the $7.93 billion projected by Wall Street analysts for the quarter.

Wells Fargo & Company (WFC) unveiled second-quarter net income of $0.55 per share, beating estimates for $0.48 per share for the quarter. Total revenue for the latest quarter decreased 5 percent to $21.39 billion, nearly in-line with expectations for $21.4 billion for the quarter.

Coca-Cola Company (KO) reported adjusted second-quarter net income of $1.06 per share, topping forecasts for $1.03 per share for the quarter. Net revenues for the quarter came in at $8.67 billion but fell short of the $8.70 billion analysts expected.

United Technologies Corp. (UTX) revealed second quarter 2010 net income of $1.20 per share versus $1.05 per share in the same quarter last year. The results beat analyst projections for $1.16 per share. Revenues of $13.9 billion were 5 percent above the prior year quarter and higher than the $13.56 billion projected for the quarter. The firm also lifted its 2010 earnings guidance.

After the markets closed for trading in the previous session, Apple (AAPL) said that its third quarter profit jumped 78 percent from last year, driven by strong sales of Mac computers, iPhones and iPads. The company's quarterly earnings breezed past Wall Street expectations as did its quarterly sales.

Also after the close yesterday, internet search engine Yahoo! Inc. (YHOO) said that its second-quarter profit increased 51 percent from last year, boosted by significant growth in display advertising revenue, higher margins, and lower operating expenses.

The major averages have seen some upside in recent trading but currently remain mixed. The tech-heavy Nasdaq is down 6.97 points or 0.3 percent at 2,215.52, while the Dow is up 10.45 points or 0.1 percent at 10,240.41 and the S&P 500 is up 0.23 points or less than 0.1 percent at 1,083.71.

Sector News

Healthcare provider stocks are among the weakest performers thus far in the session, as reflected by the 1.7 percent pullback by the Morgan Stanley Healthcare Provider Index.

Within the sector, Quest Diagnostics (DGX) is seeing heavy selling after forecasting full year revenues to fall by about 1 percent compared to earlier projection of growth between 1 and 2 percent. Quest is down by 5.4 percent and is on pace for its lowest closing price in over a year.

Computer hardware, semiconductor, software and networking stocks are also trading lower, contributing to the loss by the tech-heavy Nasdaq.

Meanwhile, strong gains by steel, brokerage, banking and gold stocks are partially mitigating the aforementioned losses.

Stocks Driven By Analyst Comments

Stericycle (SRCL) is trading lower after being downgraded at Bank of America from Buy to Neutral based on valuation. The stock has lost 3.7 percent, slipping to its lowest intraday price in nearly six weeks.

Masco (MAS) is also on the downside after a downgrade by analysts at Goldman Sachs to Neutral. Shares are currently down by 2.9 percent, falling back down towards Monday's one-year closing low.

On the other hand, Goldman Sachs (GS) is trading higher after an upgrade at KBW to Outperform based on its recent settlement with the SEC. The stock has gained 1.1 percent and is on pace for its best closing level in over two and a half months.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed mostly higher on Wednesday. Hong Kong's Hang Seng Index rose by 1.1 percent and the Shanghai Composite gained 0.3 percent, while Japan's benchmark Nikkei 225 bucked the uptrend and slid by 0.2 percent.

The major European markets also remain notably higher. The U.K.'s FTSE 100 Index and the French CAC 40 Index are up by 1.7 percent and 1.5 percent, respectively, while the German DAX Index is up by 0.6 percent.

In the bond markets, treasuries are little changed amid the mixed movement on Wall Street. Subsequently, the yield on the benchmark ten-year note which moves opposite of its price, is trading at 2.937 percent, posting a loss of less than one basis point.

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Toronto Stocks May Open Higher On Earnings Optimism

Canadian stocks are likely to open higher Wednesday amid recovery in commodities prices and positive cues from global equity markets. With a light economic calendar, traders might focus on earnings reports from both sides of the border.

Yesterday after the markets closed, Apple Inc. reported better than expected quarterly results. Elsewhere, most Asian markets ended higher Wednesday as investors cheered Apple's strong earnings. Also, optimism that China may roll back policy tightening measures later this year aided traders' sentiment.

Stocks in Europe were on their track to snap their 5-day losing streak. Encouraging earnings reports from Fiat SpA and Accor SA bolstered investor confidence. British oil firm BP plc, rose over 3% after it said it will sell properties in the U.S., Canada and Egypt to Apache Corp. for $7 billion. Mining giant BHP Billiton gained in London after announcing increased fourth quarter output.

On Tuesday, the S&P/TSX Composite Index added 86.41 points or 0.75% to settle at its day high of 11,629.88, recovering around 2% from intraday low of 11,446.01.

The price of crude oil moved up ahead of the official weekly inventories data from the EIA. Crude for September delivery, the new front month contract, was up $0.53 to $78.11 a barrel.

The price of gold was trading almost flat amid a falling euro. Gold for August delivery edged down $0.20 to $1,191.50 an ounce.

The euro slipped against most majors ahead of the European Union banks' stress tests, due out on Friday. A total of 91 banks across Europe are being tested to assess whether they will be able to withstand future shocks in the financial sector. The results of the stress test will be published on July 23.

In corporate news from Canada, oil and gas producer EnCana Corp. slipped into the red in second-quarter, reporting net loss of $0.68 per share versus a profit of $0.32 per share last year. Analysts were expecting the company to report earnings per share of $0.22 for the quarter. The company declared a quarterly dividend of $0.20 per share.

Bombardier Aerospace, a subsidiary of transportation solutions provider Bombardier Inc. said it received $218 million order from Australian flag carrier Qantas Airways Ltd.

Telecommunications company BCE Inc. said it will purchase for cancellation 2.66 million common shares in private purchase agreement with unidentified third-party seller, as part of its 20 million shares repurchase program.

Entertainment technology company IMAX Corp. said it will open 8 more IMAX theaters in China in the next three years.

Interactive whiteboards company SMART Technologies said it had completed its initial public offering of 38.83 million of its class A subordinate voting shares at $17.00 per share.

Electronics products maker Adeptron Technologies announced the appointment of Jon Szczur as chief financial officer of the company.

Electronic manufacturing services company Aastra Technologies reported lower second quarter net income of C$0.37 per share, compared to C$0.40 per share in the year-ago quarter.


In economic news, Statistics Canada said wholesale sales edged down 0.1% to C$44.10 billion in May, mainly due to a decline in agricultural supplies industry.

Yesterday, the Bank of Canada raised the target rate for overnight loans between commercial banks a quarter point to 0.75%. The Bank said it expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5% in 2010, 2.9% in 2011, and 2.2% in 2012, which reflects a slightly weaker profile for global economic growth and more modest consumption growth.

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Asian Markets Extend Gains On Apple's Result

The major markets in Asia, except the Japanese, Singapore and Taiwanese markets, continued their northward march and ended in positive territory on Wednesday, taking cues from Wall Street where the major averages ended in positive territory in the previous session on optimism about earnings despite weak economic reports and mixed earnings from technology stocks. Positive results from Apple Inc. (AAPL), which reported results after the markets closed on Wall Street, lifted market sentiment. Japanese market continued its decline on concerns about stronger yen. Caution ahead of Ben Bernanke's testimony to the Congress and slew of earnings kept traders in cautious mode awaiting more cues on global economic recovery.

In Japan, the benchmark Nikkei 225 Index fell 21.63 points, or 0.2%, to 9279, while the broader Topix index of all First Section issues was down 2.91 points, or 0.4%, to 829.

On the economic front, minutes of the June 14-15 meeting of Japan's monetary policy board revealed that the members of the board remained wary of the fiscal problems that continue to plague Europe. The minutes further revealed that the policy board members felt that the Japanese economy may face downside risks later this fiscal year, as volatility in the stock market may weigh on consumption. "With regard to economic activity, while there are some upside risks such as faster growth in emerging and commodity-exporting economies, there are also downside risks such as those related to international financial developments," the minutes said.

Separately, Hiorhide Yamaguchi, deputy governor of the Bank of Japan, in a meeting with business leaders in Toyoma, said that the central bank will not rule out further easing measures to strengthen the country's economic recovery and overcome deflation. He noted that the central bank's fund provisioning measure, which was designed to offer low interest loans to financial institutions, is not necessarily the last of the bank's easing measures. "While the fund-provisioning measure is one new measure to support strengthening the foundations for economic growth, the ways to support strengthening the foundations for economic growth are not necessarily limited to the measure the bank has introduced," Yamaguchi said in the meeting.

Construction companies declined after Mizuho Securities initiated coverage for many construction contractors and placed them under "Underperform" category citing low growth in sales recovery and profitability as reasons. Obayashi Corp. declined 2.16%, JGC Corp. slipped 0.46%, Shimozu Corp. fell 1.85% and Daiwa House Industry Co. was down 0.73%.

Securities stocks also ended weaker following weaker than expected revenues for the April-June quarter. Nomura Holdings plunged 3.81%, Daiwa Securities Group fell 3.46%, Matsui Securities shed 2.10% and Mizuho Securities lost 3.02%.

Trading companies also ended in negative territory on stronger local currency. Mitsubishi Corp. declined 1.01%, Toyota Tsusho Corp. was down 0.62%, Sumitomo Corp. slipped 0.65%, Itochu Corp. fell 0.74% and Mitsui & Co., edged down 0.18%.

Mixed trading was witnessed among the large banks. While Sumitomo Mitsui Financial Group edged up 0.04% and Resona Holdings added 0.42%, Mizuho Financial Group fell 1.49% and Mitsubishi UFJ Financial was down 0.25%.

In Australia, the benchmark S&P/ASX200 Index added 9.10 points, or 0.21% and closed at 4,413, while the All-Ordinaries Index ended at 4,429, representing a gain of 10.00 points, or 0.23%.

On economic front, a report released by Westpac Bank and Melbourne Institute revealed that a leading indicator of the Australian economy continued to surge ahead in May despite a moderation in the pace of growth. As per the report, the leading index rose 6.7% on an annualized basis in May, well above the long term trend of 3% growth, but slightly lower than an annualized growth rate of 7.5% reported in the previous month. Commenting on the report, Bill Evans, chief economist in Westpac Bank, said, "In absolute terms the growth rate remains remarkably high but it appears that growth in the index has peaked. Despite the slowing, the current growth rate of the index is still indicative of a stronger outlook for growth in the near-term than Westpac expects."

Earlier in the day, mining giant BHP Billiton said it recorded a 16% increase in production of iron ore during the fourth quarter to 31.24 million tonnes from the year-ago period. However, production was flat with the prior quarter due to project tie-in activities at Western Australia Iron Ore. The company recorded a 9% increase in full-year production to 124.96 million tonnes.

Following the news, the stock price of BHP Billiton advanced 1.17%. Rio Tinto gained 1.95%. Among other mining stocks, Minara Resources rose 2.88% and Mineral Resources added 0.88%. Mincor Resources remained unchanged at previous close.

Among the metal stocks, Gindalbie Metals rose 1.58%, Macarthur Coal surged up 4.51% and Murchison Metals added 0.55%. Fortescue Metals, however, bucked the trend and ended in negative territory with a loss of 0.73%.

Mixed trading was witnessed among oil and energy stocks. Woodside Petroleum lost 1.72%, Santos Ltd shed 0.87% and ROC Oil Co. fell 1.47%. However, Oil Search Ltd and Origin Energy remained unchanged from previous close.

Gold related stocks ended in negative territory. Lihir Gold shed 0.49% and Newcrest Mining was down 0.57%.


Firm global cues, healthy quarterly earnings and expectations that inflation will moderate after the monsoon season helped the Indian market snap a two-day slide on Wednesday. The average annualized inflation will moderate and the impact will be felt after the monsoon is over, finance minister Pranab Mukherjee told reporters after meeting the chief ministers of the southern states in Hyderabad a day before. The 30-share Sensex ended up about 100 points or 0.56% at 17,977 and the 50-share Nifty rose by 31 points or 0.58% to 5,399.

Among the other major markets open for trading, China's Shanghai Composite Index gained 6.66 points, or 0.26% at 2,535 and Indonesia's Jakarta Composite Index advanced by 17.96 points, or 0.60%, and closed at 3,013. However, Taiwan's Weighted Index slipped 10.74 points, or 0.14%, to 7,701, and Singapore's Strait Times Index lost 22.52 to close at 2,926, on profit taking.

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Earnings optimism is helping sentiment in Europe, as the averages in the region are advancing over 1% each following the release of positive earnings report by Apple and also some domestic companies, including Fiat. The markets had closed lower in each of the past five sessions.

The French CAC 40 Index and the German DAX Index are rising 2 and 1.29%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.75%.

U.S. Economic Reports

Bernanke will testify before the Senate Banking Committee and table the semi-annual monetary policy at 10 AM ET. Economists expect the Fed Chairman to give some reassurance due to the recent spate of soft economic readings. He may also suggest that the Fed is wary of the downside risks to growth and stands ready to provide support with further quantitative easing should it be required.

DBS believes that Bernanke may highlight that it is the pace of recovery and not the recovery itself that is the concern. The central bank is expected to reiterate its stance that the underlying economic growth is still supported by business spending and growth in the external sector, but is constrained by consumers.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 16th at 10:30 AM ET.

Crude oil stockpiles fell by 5.1 million barrels to 353.1 million barrels in the week ended June 9th, although inventories remained above the upper limit of the average range.

Meanwhile, gasoline inventories rose by 1.6 million barrels, remaining above the upper limit of the average range. Distillate inventories also increased, rising by 2.9 million barrels, and were above the upper boundary of the average range. Refinery capacity utilization averaged 90.5% over the four-weeks ended July 9th compared to 89.8% for the previous week.

Earnings

Apple (AAPL) may perk up sentiment following the release of stellar third quarter results after the markets closed yesterday. The company’s earnings rose to $3.51 per share from the year-ago’s $2.01 per share, while revenues surged up about two-thirds to $15.7 billion, thanks to strong showings by its iPhones and Macs. Sales of the iPad, which began selling this quarter, came in at 3.27 million. Analysts estimated earnings of $3.11 per share on revenues of $17.03 billion.

Among other tech companies, Juniper (JNPR) reported second quarter revenues of $978.3 million, up 24% year-over-year. The company’s non-GAAP net income rose to 30 cents per share from 19 cents per share last year. Separately, the company also revealed that it intends to file a universal shelf registration statement to offer up to $1.5 billion worth of securities.

Meanwhile, Yahoo’s (YHOO) shares declined in Tuesday’s after hours session after it reported second quarter revenues, excluding traffic acquisition costs, of $1.13 billion, missing the consensus estimate of $1.16 billion. The company reported second quarter adjusted earnings of 16 cents per share, up from 10 cents per share last year. Analysts estimated earnings of 14 cents per share. For the third quarter, the company estimates revenues, including traffic acquisition costs, of $1.57 billion to $1.65 billion.

Seagate Technologies (STX) reversed to a fourth quarter profit of 76 cents per share from a loss of 17 cents per share, while revenues rose to $2.66 billion from $2.35 billion last year. Analysts’ estimates, which typically exclude one-time items, called for earnings of 77 cents per share on revenues of $2.85 billion.

SLM Corp. (SLM) could also be in focus after it reported that its second quarter core earnings rose to 39 cents per share from 31 cents per share last year. The result was ahead of the consensus estimate of 29 cents per share.

Boston Scientific (BSX) is likely to see some activity after it lowered its full year adjusted revenue guidance to $7.6 billion to $7.9 billion, while it upwardly revised its earnings estimate to 54-62 cents per share. Analysts estimate earnings of 28 cents per share on revenues of $7.82 billion. The company reported second quarter adjusted earnings of 12 cents per share on revenues of $1.93 billion, with the decline in sales attributed to shipment hold of its CRM products and product removal actions in the first quarter. The consensus estimates had called for earnings of 3 cents per share on revenues of $1.91 billion. In the year-ago period, the company reported revenues of $2.07 billion.

Coca-Cola (KO) reported that its second quarter earnings rose to $1.02 per share from 88 cents per share last year. On an adjusted basis, the company’s earnings were $1.06 per share. The company’s net revenues rose 5% to $8.67 billion. Analysts estimated earnings of $1.03 per share on revenues of $8.7 billion.

Morgan Stanley (MS) reported second quarter earnings of $1.09 per share compared to a loss of $1.10 per share last year. The company’s adjusted earnings per share from continuing operations came in at 80 cents per share, while revenues rose 53% to $7.95 billion. Analysts estimated earnings of 46 cents per share on revenues of $7.93 billion.

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American Airlines (AMR) is likely to be in focus after it received final approval from the U.S. Department of Transportation along with British Airways and Iberia to create a joint business governing flights between North America and Europe. The company also noted that fellow oneworld members Finnair and Royal Jordanian also received anti-trust immunity from the Department of Transportation.

Apache (APA) may react to its confirmation of reports that it will buy BP’s (BP) assets in the Permain Basin in West Texas and New Mexico and Egypt’s Western desert. Additionally, Apache will buy all of BP’s upstream natural gas business in Western Alberta and British Columbia. The total consideration is about $7 billion for the assets. Separately, the company announced that second quarter adjusted earnings nearly doubled to $2.44 per share, while analysts estimated earnings of $2.31 per share.

Liz Claiborne (LIZ) could see some activity after it announced that it plans to exit its Liz Claiborne branded outlet stores in the U.S. and Puerto Rico. The company expects the decision to help it eliminate meaningful operating losses related to this business by early 2011. The company also said it would incur non-cash impairment charges of $7 million in the second quarter and may incur additional charges in future periods.

Currency, Commodity Markets

Crude oil futures are moving up $0.64 to $78.22 a barrel after advancing $1.04 to $77.58 a barrel on Tuesday. An ounce of gold is currently fetching $1,196.10, up $4.40 from its yesterday’s close of 1,191.70 an ounce. In the previous session, the precious metal rose $9.80.

On the currency front, the U.S. dollar is trading at 86.995 yen compared to the 87.51 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.28 compared to yesterday’s $1.2881.