US & World Daily Markets Financial Briefing 22-01-2010

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Major Averages Face Key Test as Risk Aversion Intensifies

The major U.S. index futures are pointing to a mixed opening on Friday, with sentiment still hurt by apprehension that stringent financial regulations will eat into profitability of banks. That said, earnings news has been rather upbeat, signaling that corporate profits may be on their way towards a sustainable recovery. The risk aversion following the 2-day slide in the markets has supported safe haven currencies such as the dollar and the yen, sending commodities lower. Amid this backdrop and in the absence of any key economic report, the major averages may fight to hold key support levels.

After showing some indecision in early trading on Thursday amid the release of a disappointing jobs report, the major U.S. averages fell sharply in early trading. A muted economic outlook and financial regulatory measures announced by President Barack Obama sent traders scurrying out of the markets. Thereafter, stocks moved sideways to end the session notably lower, the second straight session of sharp declines.

The Dow Industrials retreated further from the multi-month hit on Tuesday and settled down 213.27 points or 2.01% at 10,390, representing its lowest level in more than a month. Twenty-eight of the thirty Dow components ended the session lower, with Alcoa (AA) (down 6.43%), Bank of America (BAC) (down 6.19%), Caterpillar (CAT) (down 4.87%) and JP Morgan Chase (JPM) (down 6.59%) leading the slide.

While the Nasdaq Composite Index receded 25.55 points or 1.12% to 2,266, the S&P 500 Index closed down 21.56 points or 1.89% at 1,117. The S&P 500 Index closed just short of its 50-day moving average of 1,114.61.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average slumped 4.59%, the NYSE Arca Gold Bugs Index slipped 4.44% and the Philadelphia Housing Sector Index declined 3.72%. The NYSE Arca Biotechnology Index, the NYSE Arca Oil Index and the NYSE Arca Airline Index all lost over 2%. On the other hand, the NYSE Arca Disk Drive Index gained 1.45%.

On the economic front, the initial jobless claims report showed an increase in claims to 482,000 in the week ended January 16th compared to 446,000 in the previous week, rising to the highest level since mid-November. However, the surge was attributed to a backlog in processing claims from prior weeks. Continuing claims fell by 18,000 in the week ended January 9th to 4.599 million.

The results of the Philadelphia Fed’s manufacturing survey showed that its manufacturing index fell to 15.2 in January from 22.5 in December. The new orders index dipped 5.1 points to 3.2, while the employment index rose 1.6 points to 6.1. The inventories index, although improving to –1.6 from the previous month’s –5.7, remained in negative territory. The 6-month outlook index rose to 43.3 from 35.9.

The Conference Board said its U.S. leading economic indicators index for the U.S. rose 1.1% in December following a 1% increase in November and a 0.3% rise in October. With this, the index has risen steadily for nine consecutive months. While the coincident economic index rose 0.1%, the lagging index fell 0.2%.

TSX Likely To Remain Depressed On Commodity Worries

Canadian stocks are likely to remain subdued on Friday as the prices of commodities continued to linger in the red. The price of oil dipped lower towards the $75-mark on worries over diminishing demand, while the price of bullion was slipping below the psychological $1,100-mark. However, selective buying could emerge on bargain hunting after the main index had shed nearly 3% in the past two days.

The S&P/TSX Composite Index nosedived Thursday to a multi-week low of 11,469.10, surrendering 210.22 points or 1.80%. Stocks dipped as commodities slumped on worries China will hike interest rates to keep the economy from overheating. Financial stocks suffered after U.S. President Barack Obama proposed sweeping restrictions on banks. Traders also overlooked positive comments by the Bank of Canada, which said country's economy is on track to recover this year, while predicting the economy to expand by 4.3% in the second quarter before edging down.

The price of oil was at $75.88, down $0.20 a barrel and the price of bullion eased $10 to $1,095 an ounce. In corporate news, Bank of Nova Scotia and International Finance Corporation will buy a maximum of 10% stake each in VietinBank, Vietnam News Agency reported today.

WestJet Airlines said it would expand its current fleet from 86 planes to 135 planes by 2016. Premium Brands Holdings announced the acquisition of South Seas Meats for C$2.1 million and noted this will be accretive to its 2010 earnings.

Technology service provider Power Tech reported narrower fourth quarter net loss of C$0.01 per share, compared to a net loss of C$0.03 per share in the year-ago quarter.

Fuel cell producer Ballard Power Systems announced that it has received up to $4.8 million by Sustainable Development Technology Canada or SDTC for a project to advance fuel cell power module technology.

Clarke Inc. announced that it has acquired 460,800 units of TerraVest Income Fund, bringing its total holdings in TerraVest to 3.8 million units, representing about 19.56% of the total outstanding units.

Canaco Resources Inc. said it has agreed with Beijing Donia Resources Co. Ltd. to acquire 70% of the outstanding shares of Harvest Mining PLC, a private Ethiopian exploration company. The purchase price is C$6.0 million.

Media networks operator OutdoorPartner Media Corp. said it will sell substantially all of the assets of the company's US subsidiary, Intelligent Media Corporation, to a newly formed subsidiary of Brite Media Group for $2 million.

Mortgage broking company PM Prime City One Capital Corp. announced the sale of the remaining 50% interest in the Richmond Hill development property for C$1.2 million.

Gold explorer Golden Band Resources Inc. said it will amalgamate with its wholly-owned subsidiary, Jolu Development Corporation, effective February 1, which enables the company with certain tax benefits and reduce administration costs.

WebTech Wireless Inc. said it has been granted a C$600 thousand contract by the City of Ottawa, Ontario. Natural gas producer Paramount Energy Trust said it expects to convert as a corporate later in 2010. Gas stations operator Parkland Income Fund said it received necessary approvals for the proposed purchase of Bluewave Energy LP.

In economic news, Statistics Canada said country's retail sales dipped 0.3% in November to $35.2 billion, reversing uptrend in the past three months. Sales declined in five of eight retail store sectors, the agency said.

Commodity, Currency Markets

Crude oil futures are edging down $0.17 to $75.91 a barrel after declining $1.66 to $76.08 a barrel in Thursday’s session. Yesterday’s decline came amid the release of the weekly oil inventory report, which showed that crude oil inventories edged down by 0.4 million barrels to 330.6 million barrels. Inventory levels of crude oil were above the upper level of the average range.

Distillate stockpiles declined by 3.3 million barrels, but yet remained above the upper boundary of the average range. On the other hand, gasoline inventories rose by 3.9 million barrels and were above the upper limit of the average range. Refinery capacity utilization averaged 80% over the four-weeks ended January 15th compared to 80.4% in the previous week.

Gold futures are currently sliding $7.80 to $1,095.40 an ounce. In the previous session, the precious metal fell $9.40 to $1,103.20 an ounce.

On the currency front, the U.S. dollar is weakening to 90.147 yen from the 90.4305 yen it fetched at the close of New York trading on Thursday. The dollar is currently valued at $1.4131 versus the euro.

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Asian Markets Slump On Obama's Bank Regulation Plan

In Japan, the benchmark Nikkei 225 Index closed down 277.86 points, or 2.6%, at 10,591, while the broader Topix index of all First Section issues fell 15.09 points, or 1.6%, to 941.

On the economic front, data released by the Ministry of Trade, Economy and Industry revealed that Japan's all industry activity edged up 0.1% month-on-month in November, following revised 1.1% growth in the previous month. The data further revealed that within the overall industrial activity, the tertiary industry activity index slipped 0.2%, reversing an increase of 0.4% in the prior month. The index for construction grew 1.8% and that for industrial production rose 2.2%.

Trading companies declined on lower commodity prices and strengthening local currency. Mitsubishi Corp. slumped 4.50%, Mitsui & Co., fell 2.92%, Toyota Tsusho Corp. lost 2.82%, Sumitomo Corp. shed 1.33% and Marubeni Corp declined 3.67%.

Oil explorer Impex plunged 4.24%. Among other mining and oil stocks, Nippon Mining Holdings retreated 3.16%, Nippon Oil Corp lost 3.16% and Showa Shell fell 2.03%.
 
Automotive stocks also ended weaker. Toyota Motor declined 3.22% after stating that it would recall 2.3 million vehicles due to defective accelerators. Honda Motor lost 2.42%, Isuzu Motors slipped 0.87%, Mitsubishi Motor plunged 3.60% and Nissan Motor fell 1.96%.

Shin-Etsu Chemical was the major loser in trading session, having plunged 5.27% after announcing that the company expects to post a 50% drop in group net profit for the current fiscal year.

Banking stocks ended mixed. While Sumitomo Mitsui Financial shed 0.66%, Mitsubishi UFJ Financial edged up 0.20%, Mizuho Financial gained 1.06% and Resona Holdings climbed 2.65%.

In Australia, the benchmark S&P/ASX Index fell 76.60 points, or 1.60% to close at 4,751, while the All-Ordinaries Index ended at 4,772, representing a loss of 77.70 points, or 1.60%.

On the economic front, data released by the Australian Bureau of Statistics revealed that the country's international trade declined in the fourth quarter of 2009. According to the report, the country's Import Price Index decreased by 4.3% in the fourth quarter in comparison to the previous quarter. The Export Price Index for the quarter decreased 1.7% in comparison to the third quarter. The Statistics Bureau attributed the appreciation of the Australian Dollar against most other major currencies, as well as lower prices for telecommunications and sound recording equipment as primary reasons for the decline.

Separately, results of the latest survey by Westpac Bank and Melbourne Institute showed that consumer unemployment expectations plunged 15.5% in January, reversing the 3.1% increase in the previous month.

Light sweet crude oil futures for March delivery ended at $75.98 a barrel in electronic trading, down $0.10 per barrel from previous close at $76.08 a barrel in New York on Thursday.

Banks led the declines taking cues from Wall Street where the financial stocks, including Goldman Sachs, led the downslide reacting to the US bank regulation plan proposed by President Obama.

ANZ Bank lost 2.62%, Commonwealth Bank of Australia declined 1.43%, National Australia Bank shed 1.73% and Westpac Banking Corp., slipped 0.90%. Investment banker Macquarie Group slumped 3.19%.

Mining and metal stocks also ended sharply lower as commodity prices slipped on concerns about Chinese policy actions to cool growth in its economy. BHP Billiton lost 2.27%, Rio Tinto slumped 3.45%, Fortescue Metals fell 3.61%, Gindalbie Metals shed 1.83%, Iluka Resources edged down 0.59% and Minara Resources declined 4.00%.
 
Gold stocks continued to retreat on lower bullion prices. Lihir Gold shed 2.24% and Newcrest Mining lost 2.35%.

Oil stocks also ended weaker. Woodside Petroleum, which released a better-than-expected production report, plunged 3.33%. Oil Search slipped 0.18% and Origin Energy shed 0.36%. However, Santos bucked the trend and ended in positive territory with a gain of 0.52%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 136.49 points, or 0.65%, at 20,726, dragged down by banks on concerns about the impact of the banking regulation plan unveiled by US President Obama. Weak closing on Wall Street in the previous session dragged down by financials and sell-off across the markets in the region also impacted market sentiment.

In South Korea, the KOSPI Index ended sharply lower at 1,684, down 37.66 points, or 2.19%, on concerns about the impact of US banking regulation plan and China's policy tightening measures on sustaining global economic recovery. Profit taking also contributed to weakness amid jittery mood across the markets in the region.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index fell 28.04 points, or 1.06% to close at 2,610, Taiwan's Weighted Index plunged 200.56 points, or 2.47% to close at 7,927, Strait Times Index in Singapore declined 31.27 points, or 1.10%, to close at 2,820 and . China's Shanghai Composite Index lost 30.27 points, or 0.96%, to close at 3,129.

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Bank stocks are leading the slide in Europe on Friday, with the major averages in the region trading lower. The French CAC 40 Index and the German DAX Index are moving down 1.10% and 0.81%, respectively, while the U.K.’s FTSE 100 Index is declining 0.83%.

In corporate news, Sony Ericsson, a joint venture between Sony (SNE) and Ericsson (ERIC), reported a fourth quarter loss of 167 million euros compared to a loss of 187 million euros last year. Sales fell 40% to 1.75 billion euros. The company’s mobile phone shipments fell 40% to 14.5 million.

On the economic front, a report released by INSEE showed that French industrial confidence rose to its highest level since September 2008 in January. The business confidence indicator rose to 92 in January from 88 in December, higher than the economists’ estimate of 90.

The Office for National Statistics reported that U.K. retail sales rose 0.3% in December compared to the previous month, while the expected increase was 1.1%. Retail sales volume was 2.1% higher than in December 2008, softer than the consensus estimate for 3% growth.

Industrial new orders rose 1.6% year-over-year in November following a revised decrease of 1.9% in October, according to a report released by Eurostat. Economists had forecast a 0.5% increase. On an annual basis, orders were down 1.5% compared to October's revised fall of 14.4%.
Earnings

General Electric (GE) said its fourth quarter earnings from continuing operations attributable to common shareowners fell to 28 cents per share from 36 cents per share last year. Revenues fell 10% to $41.44 billion. Analysts estimated earnings of 26 cents per share on revenues of $40.02 billion.

Johnson Controls (JCI) reported that its first quarter revenues rose 15% year-over-year to $8.4 billion. The company reported non–GAAP earnings of 43 cents per share. Analysts estimate earnings of 29 cents per share on revenues of $7.49 billion. The company raised its 2010 revenue guidance to $33 billion from $31 billion estimated previously. The company also improved upon its 2010 earnings per share guidance to $1.70-$1.75 from $1.35-$1.45. Analysts estimate earnings of $1.52 per share on revenues of $31.14 billion.

Among banks, Sun Trust Banks (STI) reported a fourth quarter net loss available to common shareholders of 64 cents per share compared to a loss of $1.07 per share last year. Revenues were almost flat at $1.95 billion. Analysts estimated a loss of 75 cents per share on revenues of $2.06 billion.

BB&T Corp. (BBT) said its fourth quarter net income totaled 27 cents per share, lower than 51 cents per share last year, but higher than the consensus estimate of 21 cents per share. Fully taxable net interest income totaled $1.36 billion, up 24.5% year-over-year.

Schlumberger’s (SLB) fourth quarter income from continuing operations fell to 67 cents per share compared to $1.03 per share in the year-ago period. Revenues were $5.74 billion, lower than $6.87 billion last year. Analysts estimated earnings of 64 cents per share on revenues of $5.45 billion.

McDonald (MCD) reported fourth quarter earnings per share of $1.11, including an 8 cents per share benefit, compared to 87 cents per share last year. Revenues rose 7% year-over-year to $5.97 billion. Analysts estimated earnings of $1.02 per share on revenues of $5.94 billion.

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Google (GOOG) came under selling pressure in Thursday’s after hours session despite reporting fourth quarter revenues of $6.67 billion, up 17% year-over-year. Revenues, excluding $1.72 billion in traffic acquisition costs, were $4.95 billion. On a non-GAAP basis, the company reported earnings of $6.79 per share, higher than the year-ago’s $5.10 per share. Analysts estimated earnings of $6.50 per share on revenues of $4.92 billion.

AMD (AMD) receded in Thursday’s after hours session after it reported a fourth quarter adjusted loss of 8 cents per share compared to the loss of 18 cents per share estimated by analysts. Revenues rose 42% year-over-year to $1.6 billion, ahead of the consensus estimate. The company expects first quarter sales to show a sequential decline.

American Express (AXP) may also be in focus after reporting fourth quarter earnings that rose to 60 cents per share from 21 cents per share last year. The company’s adjusted earnings from continuing operations were 59 cents per share compared to the 57 cents per share consensus estimate. Revenues fell to $6.49 billion from $6.51 billion last year.

NRG Energy (NRG) may gain ground after Standard & Poor’s announced that the company would replace Sun Microsystems (JAVA) in the S&P 500 Index after the close of trading on a date to be announced. Sun has agreed to be acquired by Oracle (ORCL) and the deal is pending for want of final approvals.

Cablevision (CVC) is likely to see some activity after the company announced along with Scripps Networks (SNI) that they have reached an agreement allowing the return of Food Network and HGTV programming to Cablevision customers in the New York tri-state region beginning Thursday afternoon. The companies did not announce the terms of the agreement.

Finish Line (FINL) could gain ground after it announced an increase in its quarterly cash dividend to 4 cents per share from 3 cents per share of its outstanding Class A and Class B common stock.

Consolidated Edison (ED) receded in Thursday’s after hours session after it reported that its fourth quarter earnings from ongoing operations fell to 67 cents per share from 72 cents per share last year. Analysts estimated earnings of 76 cents per share. The company also announced a quarterly dividend of 59.5 cents per share, which translates to an annualized dividend of $2.36 per share, up 2 cents from last year.

Pall (PLL) could move to the upside after it announced an increase in its quarterly dividend to 16 cents per share, up 10.3% from the previous quarter.

Burlington Northern Santa Fe (BNI) may be in focus after it announced that its fourth quarter earnings were $1.55 per share, including a tax benefit of 25 cents per share, compared to earnings of $1.78 per share last year. Revenues fell 16% to $3.57 billion. The consensus estimates had called for earnings of $1.22 per share on revenues of $3.62 billion. Analysts’ estimates typically exclude one-time items. Separately, the company also unveiled a planned capital commitment program of $2.4 billion, which is down $240 million from 2009 due to fewer expected locomotive acquisitions in 2010.

Conexant Systems (CNXT) could see upside after it reported that its first quarter revenues were $61.8 million compared to $57.46 million last year. The company’s non-GAAP core income from continuing operations was 17 cents per share compared to a loss of 2 cents per share last year. Analysts estimated earnings of 11 cents per share on revenues of $60.10 million. For the second quarter, the company expects core net income of 13-14 cents per share on revenues of $60 million to $61 million. The consensus estimates call for earnings of 8 cents per share on revenues of $54.90 million.

Capital One Financial (COF) is likely to see some activity after it reported fourth quarter net income from continuing operations of 89 cents per share compared to a loss of $3.67 per share last year. Total revenues rose to $3.37 billion from $3.17 billion last year. Analysts, on average, expected earnings of 45 cents per share on $4.30 billion.

Emulex (ELX) may move in reaction to its announcement that its second quarter net revenues came in almost flat with its year-ago results at $108.3 million. The company’s non-GAAP net income per share was 18 cents per share, down 22% from last year. The consensus estimates called for earnings of 16 cents per share on revenues of $104.10 million. For the third quarter, the company estimates non-GAAP earnings per share of 16-18 cents per share on net revenues of $100 million to $103 million. Analysts estimate earnings of 14 cents per share on revenues of $100.32 million.

Western Digital (WDC) is likely to see some activity after it reported second quarter revenues of $2.6 billion, up from $1.82 billion last year. The company’s earnings improved to $1.85 per share from 6 cents per share in the year-ago period. The consensus estimates called for earnings of $1.36 per share on revenues of $2.35 billion.

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