US & World Daily Markets Financial Briefing 22-09-2010

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Stocks Turning In A Lackluster Performance Mid-Morning Trading

Stocks are seeing another lackluster start to trading on Wednesday after ending the previous session mixed. The lack of significant movement comes amid a lack of first-tier economic data and as traders continue to digest the latest commentary from the Federal Reserve.

The major averages have moved to the downside in recent trading and are currently all in the red. The Dow is down 15.70 points or 0.1 percent at 10,745.33, the Nasdaq is down 16.13 points or 0.7 percent at 2,333.22 and the S&P 500 is down 3.58 points or 0.3 percent at 1,136.20.

Tuesday afternoon, the Federal Reserve announced its decision to keep interest rates at record lows, as was widely expected, while the central bank also noted that it is prepared to provide additional accommodation if needed to support the economic recovery.

Many have been speculating that the next available step in quantitative easing is to renew the purchase of long-dated government bonds.

In other news, the White House announced that Lawrence Summers, the director of President Barack Obama's National Economic Council, will be stepping down before the end of the year.

Summers, who is the chief White House advisor to the President on the development and implementation of economic policy and leads Obama's daily economic briefing, will return to his post at Harvard University, the White House said.

On the corporate front, software giant Microsoft Corp. (MSFT) announced that its board approved a 23 percent increase in its quarterly dividend or an increase of $0.03 to $0.16 per share. Nonetheless, shares of Microsoft are moving lower on the news, slipping by 2.5 percent.

In earnings news, General Mills Inc. (GIS) reported adjusted first-quarter net income that edged out estimates, while its net sales fell short of expectations.

After the markets closed for trading in the previous session, publishing and design software maker Adobe Systems (ADBE) said its third quarter profit rose 69 percent from last year, exceeding analysts' expectations. However, the company provided disappointing fourth quarter guidance.

Business service provider Cintas Corp. (CTAS) said that its first-quarter profit increased 13.5 percent over last year, due mainly to the absence of a litigation charge that impacted year-ago results. Quarterly earnings came in ahead of analysts' expectations, as did revenue.

Due to its share buyback program, Cintas raised its earnings outlook for fiscal year 2011 while reiterating its revenue forecast.

Sector News

Gold stocks are among the market's strongest gainers in the early going, with the NYSE Arca Gold Bugs Index up by 1.2 percent. The index has set a fresh nine and a half month intraday high as the price of gold is up by $20.50 at $1,294.80 an ounce on the day.

Steel stocks are also markedly higher, while more modest strength is visible among utility and natural gas stocks.

Meanwhile, semiconductor, airline, and electronic storage stocks are under pressure. Notably, the NYSE Arca Disk Drive Index is down by 1.4 percent, falling from the seven-week closing low set in the previous session.

Banking, internet and telecom stocks are also posting notable losses but are seeing much more tame selling.

Stocks Driven By Analyst Comments

Costco (COST) is trading higher after JMP Securities reiterated its Outperform rating on the stock, citing better visibility than its competitors. The stock has gained 1.2 percent, climbing to a two-year intraday high.

Energizer (ENR) is also on the upside after analysts at BMO Capital Markets upgraded shares to Outperform. The stock is up by 1.6 percent, also reaching its best intraday price in two years.

Wholesale electronics firm Watsco (WSO) has also moved higher after an upgrade at Oppenheimer from Perform to Outperform. Shares are currently up by 2.9 percent, setting a two-month intraday high.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended on a mixed note. Japan's benchmark Nikkei 225 Index fell by 0.4 percent, while Hong Kong's Hang Seng Index inched up by 0.2 percent.

Meanwhile, the major European markets are all down by varied margins. The U.K.'s FTSE 100 Index is down by 0.1 percent, while the French CAC 40 Index and the German DAX Index are down by 0.4 percent and 0.7 percent, respectively.

In the bond markets, treasuries are modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.551 percent, posting a loss of 4.3 basis points.

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TSX May Gain Strength From Rising Gold

Bay Street stocks may edge up at open Wednesday amid soaring bullion prices and recovery in energy prices. However, a disappointing retail sales data and weak cues from the global equity markets may cap any big gains.

On Tuesday, the S&P/TSX Composite Index lost 63.94 points or 0.52% to 12,170.57 amid selling in commodities stocks.

The price of crude oil moved up $0.78 to $75.75 a barrel. Tuesday after the markets close, the API said U.S. crude oil inventories rose by 2.2 million in the week ended September 17, contrasting analysts expectations for a draw of 1.5 million barrels.

The price of gold rallied to a fresh record high amid a weak U.S. dollar. Gold for December gained $20.80 to $1,296.80 an ounce. The greenback turned weak after the Federal Reserve hinted more monetary easing to spur the economy

China's state-owned firm Sinochem, reportedly hired Deutsche Bank and Citigroup as advisers to bid for Canadian fertilizer company Potash Corp. while BHP Billiton roped in Canada Prime Minister Advisers to lobby on Potash bid.

In corporate news from Canada, blackberry maker Research In Motion is likely to introduce its new tablet computer called the BlackPad as early as next week at a developers' conference in San Francisco, the Wall Street Journal reported today.

Technology solutions provider MacDonald Dettwiler said it won a $6 million new contract from the Canadian Space Agency.

Entertainment technology company IMAX Corp. and Cobb Theaters announced an agreement to install four IMAX theater systems in the Southeastern United States.

Communications services provider Axia NetMedia reported improved fourth quarter net income of C$2.0 million or C$0.03 per share, compared to a net income of C$412,000 or C$0.01 per share a year ago.

Junior mineral exploration company VMS Ventures Wednesday said it appointed Neil Richardson, who has over 22 years experience in mineral exploration and mining operations, as Chief Operating Officer effective October 1.

Mineral properties company Baffinland Iron Mines has received a takeover offer from Nunavut Iron Ore Acquisition Inc., a subsidiary of Iron Ore Holdings LP, for $274.3 million cash. The offer price represents a 42.9% premium over the company's closing stock value on Tuesday.

In economic news, Statistics Canada said retail sales edged down 0.1% in current dollars C$35.9 billion in July, suggesting the nation's economy is losing momentum following a relatively robust recovery from the global recession. Economists expected retail sales to rise 0.5%, after the 0.1% initially reported for June.

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Profit Taking Drags Asian Markets Lower

Asian markets open for trading on Wednesday ended in negative territory amid thin volumes as traders availed this opportunity to lock in profit from the recent gains. Mixed close in the Wall Street on Tuesday after Fed Reserve bought some more time to announce measures to support the economy while reiterating its resolve to extend assistance. The markets in China, South Korea and Taiwan were closed for public holidays. The markets in Australia, Hong Kong and Singapore ended in the green, while the markets in Japan, India and Indonesia ended in the negative territory on profit taking

In Japan, the benchmark Nikkei 225 Index dropped 35.79 points, or 0.37%to 9,566., while the broader Topix index of all First Section issues was down 3.42 points, or 0.40%, to 846.52

On the economic front, a report released by the Ministry of Trade, Economy and Welfare in Japan revealed that all industry activity increased at a faster pace of 1% on a monthly basis in July, following a 0.2% increase in the previous month. The growth rate for July matched economists' expectations On an annual basis, all industry activity increased 3.1% in July, better than the 3% growth reported for the previous month.

Concerns that additional measures from the Fed Reserve might strengthen local currency and impact the profits of the domestic companies impacted market sentiment as traders remained cautious and moved into the sidelines awaiting more clarity on sustaining global economic recovery.

In Australia, the benchmark S&P/ASX200 Index added 7.70 points, or 0.17%, and closed at 4,625 points, while the All-Ordinaries Index ended at 4,675, representing a gain of 9.80 points, or 0.21%.

On the economic front, a report released by Westpac Bank in association with the Melbourne Institute revealed that a leading indicator of the Australian economy continued to rise in July, though the pace of growth slowed down. As per the report, the leading index rose 6.8% on an annualized basis in July, well above the long term trend of 3.2%, but slower than June's 7.4% rise. The coincident index, which is a measure of current conditions, grew at an above trend rate, the report revealed. Westpac chief economist Bill Evans said this was the fourth consecutive month of slowing in the leading index. "In absolute terms the growth rate of the index is still high but it has clearly peaked," he said. "The growth rate of the index is still consistent with a faster pace of growth in the economy than Westpac expects."

Light sweet crude oil futures for November delivery ended at $75.29 a barrel in electronic trading, up $0.32 per barrel from previous close at $74.97 a barrel in New York on Tuesday.

Mixed trading was witnessed among the mining and mineral stocks. BHP Billiton advanced 0.46%, Fortescue Metals climbed 1.86%, Mincor Resources added 0.50%, and Murchison Metals rose 0.84%. Oz Minerals remained unchanged from previous close. However, Gindalbie Metals fell 2.73%, Iluka Resources shed 1.16%, Macarthur Coal slipped 0.43%, Minara Resources plunged 3.12% and Rio Tinto edged down 0.44%.

Oil related stocks ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum added 0.55%, Oil Search Ltd advanced 1.16%, Origin Energy climbed 1.89% and ROC Oil Ltd gained 1.22%. However, Santos Ltd bucked the trend and ended in negative territory with a modest loss of 0.39%.

Mixed trading was also witnessed among bank stocks. ANZ Bank edged up 0.04%, National Australia Bank advanced 0.39%, and Westpac Banking climbed 0.99%. Investment banking company Macquarie Group ended higher by 0.88%. However, Commonwealth Bank bucked the trend and slipped 0.23%.

Profit taking after about a ten percent rally in the past 10 trading sessions dragged the Indian market lower on Wednesday. Weak global cues also weighed on sentiment to some extent. Nevertheless, the major indexes managed to close off the day's lows spurred by some late-session buying. Building on yesterday's record high, the 30-share Sensex opened firm and rose to a high of 20,106 before reversing its direction on profit taking. The index lost as much as 200 points in the afternoon before finally ending down 60 points or 0.30% at 19,942. Likewise, the broader Nifty ended off the day's lows at 5,991, down about 18 points or 0.30% from its previous close.

The markets in China, South Korea and Taiwan were closed for public holidays.

Among the other markets in the region, Jakarta Composite Index in Indonesia ended in the negative territory with a loss of 21.69 points, or 0.64%, at 3,343, while the Strait Times Index in Singapore ended flat with a gain of 0.71 points, or 0.02%, at 3,096.

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The major European markets are declining for the second straight day on Wednesday, with all three of the major averages in the region firmly in negative territory. The French CAC 40 Index is receding 0.75% and the German DAX Index is slipping 1.19%, while the U.K.’s FTSE 100 Index is dropping 0.21%.

In economic news, the minutes of the Bank of England’s September meeting revealed that eight members voted to hold the interest rate at a record low of 0.5%, while Andrew Sentance sought a 25 basis point rate hike.

Sentance seems to have argued that the data over the month had not changed his assessment that it was appropriate to start to withdraw some of the exceptional monetary stimulus provided by cutting the bank rate to 0.5% alongside the program of asset purchases. The policymakers also decided to maintain the stock of asset purchases financed by the issuance of central bank reserves at 200 billion pounds.

A Eurostat report showed that industrial new orders in the euro area declined 2.4% month-over-month in July, steeper than the 1.4% drop expected by economists. Excluding volatile transport equipment orders, orders fell by a more modest 0.6%. At the same time, industrial new orders were 11.2% higher than in the year-ago period, slower than the 16.2% growth expected by economists.

U.S. Economic Reports

The Federal House Finance Agency, or FHFA, is set to release its house price index for July at 10 AM ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. In June, the seasonally adjusted house price index fell 0.3% from May, trimming some of the price increases seen in the previous months.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 17th at 10:30 AM ET.

Commercial crude oil inventories fell by 2.5 million barrels to 357.4 million barrels in the week ended September 10th, with stockpiles remaining above the upper limit of the average range for this time of the year.

Distillate inventories fell by 0.3 million barrels yet remained above the upper boundary of the average range. Gasoline inventories also declined, falling by 0.7 million barrels. Inventories of gasoline were above the upper limit of the average range. Refinery capacity utilization averaged 87.6% over the four-weeks ended September 10th compared to 88.2% for the previous week.

Stocks in Focus

Adobe Systems (ADBE) declined in Tuesday’s after hours session after it said it expects fourth quarter non-GAAP earnings of 48-54 cents per share on revenues of $950 million to $1 billion. Analysts estimate earnings of 53 cents per share on revenues of $1.03 billion. The company also reported third quarter non-GAAP earnings of 54 cents per share, higher than 35 cents per share last year, while revenues were $990.3 million. Analysts estimated earnings of 49 cents per share on revenues of $984.07 million.

Cintas Corp. (CTAS) may move in reaction to its announcement that its first quarter earnings rose to 40 cents per share from 35 cents per share last year. The recent quarter included 3 cents per share in gains compared to charges of 8 cents per share in the year-ago period. Analysts’ estimates, which typically exclude one-time items, called for earnings of 43 cents per share on revenues of $914.95 million. Revenues rose 3.6% to $923.90 million. The company reiterated its 2011 revenue guidance of $3.55 billion to $3.75 billion, while it expects earnings per share of $1.55-$1.63. Analysts estimate revenues of $3.70 billion.

Novartis (NVS) could be in focus after it announced that a late stage study of its Cushing’s disease treatment, SOM203, showed a reduction in cortisol levels. On the basis of this data, the company plans to do the first regulatory filing for the treatment this year. Separately, the FDA announced regulatory approval for Novartis’ multiple sclerosis drug Gilenya.

Microsoft (MSFT) may see buying interest after it announced a 23% increase in its quarterly dividend to 16 cents per share. The company also announced that its board has authorized up to $6 billion in incremental commercial paper and longer-term debt.

Progress Software (PRGS) rose modestly in Tuesday’s after hours session after it reported that its third quarter non-GAAP earnings rose to 56 cents per share from 40 cents per share last year. Revenues rose 8% year-over-year to $128.8 million. Analysts estimated earnings of 54 cents per share on revenues of $122.35 million. For the full year, the company expects non-GAAP earnings of $2.32-$2.36 per share on revenues of $524 million to $528 million. The consensus estimates call for earnings of $2.32 per share on revenues of $517.37 million.

Darden Restaurants (DRI) may see some activity after it reported that its first quarter earnings from continuing operations rose 19% to 80 cents per share from 67 cents per share last year. Sales from continuing operations rose 4.2% to $1.81 billion. Analysts estimated earnings of 77 cents per share on revenues of $1.82 billion. The company reaffirmed its forecast for 2011 earnings per share growth from continuing operations of 14%-17%, while analysts look for 14% earnings growth.

Power-One (PWER) is expected to see some buying interest after it said its board approved a $10 million stock buyback program. Swift Energy (SWFT) could also gain ground after it announced that it has renewed and extended its $500 million revolving credit facility till October 15th, 2015.

PMC-Sierra (PMCS) may see weakness after it lowered its third quarter net revenue guidance to $161 million to $163 million from its earlier estimate of $169 million to $170 million. Analysts estimate revenues of $173.50 million. The company also said it expects gross margins to be at the lower end of its earlier guidance range of 67.5%-68.5%, while the company also lowered its operating expense guidance for the quarter.

FMC Technologies (FTI) is likely to move to the upside it said it has been awarded a $520 million contract from Total Exploration and Production Angola for the manufacture and supply of subsea production equipment for the CLOV development project.

General Mills (GIS) may also be in focus after it reported first quarter adjusted earnings of 64 cents per share, the same as in the year-ago period. Net sales rose 1% to $3.53 billion. Analysts estimated earnings of 63 cents per share on revenues of $3.57 billion. The company reaffirmed its 2011 adjusted earnings estimate of $2.46-$2.48 per share, while analysts estimate earnings of $2.48 per share.

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Dollar Hits 4-Month Low Versus Euro

The dollar plunged to its lowest since May versus the euro, extending its steep recent losses amid speculation the Federal Reserve is preparing another round of quantitative easing measures.

Yesterday, the central bank suggested it is prepared to support the sluggish economy and are concerned about low inflation. Interest rates were kept at a record low near zero.

The euro has also been supported by recent successful bond auctions by Spain, Ireland, and Portugal, whose rampant debt nearly sparked a sovereign debt crisis earlier this year.

The dollar dropped to $1.3380 versus the euro, having plummeted almost 8 cents in the past ten days.

The dollar edged back toward its 15-year low from last week versus the yen. The buck slipped to Y84.55, nearing 82.91, its lowest since 1995. A week ago, Japanese authorities intervened in the currency markets to drive down the yen, but the move appears to have given the dollar only a temporary lift.

The buck held its ground versus the sterling after seeing losses earlier this week. The pair was at $1.5670 approaching mid-morning.

In economic news this morning, new industrial orders received by euro area manufacturers fell at a sharper than expected pace in July, official figures showed on Wednesday. The decline suggests Eurozone's manufacturing-led recovery may be faltering.

Mortgage applications in the United States continued to fall last week, as demand for new home loans slumped despite historically low interest rates, according to industry data released Wednesday morning.

Refinancing activity was also down, the Mortgage Bankers Association (MBA) said today in its Weekly Mortgage Applications Survey for the week ending September 17, 2010.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.4 percent on a seasonally adjusted basis from one week earlier.

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