US & World Daily Markets Financial Briefing 23-07-2009

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Earnings Give Traders A Reason to Stay in the Market

The major U.S. index futures are pointing to a higher opening on Thursday, reflecting the optimism of traders notwithstanding the increase in jobless claims. The spotlight is on a few positive earnings, which is reinforcing the recovery theme many have been banking on. The break out of the major averages above their early June highs should be viewed as a positive from a technical perspective, although there is the risk of a pullback from overbought levels. The markets may also stay tuned to the existing home sales report to be released shortly after the markets open.

While U.S. stocks opened Wednesday’s session lower, as profit taking took a toll on the markets, the major averages showed a lack of direction throughout the remainder of the session before ending the day mixed. The Dow Industrials ended down 34.68 points or 0.39% to 8,881 and the S&P 500 Index receded 0.51 points or 0.05% to 954, while the Nasdaq Composite rose 10.18 points or 0.53% to close at 1,926.

The breadth among Dow components was evenly poised, with 15 stocks ending lower, while the remaining 15 stocks advanced. American Express, Boeing, Caterpillar and Coca Cola fell over 2% each, while IBM and United Technologies both ended down 1%.

On the other hand, General Electric, Home Depot, Intel, Kraft Foods, Pfizer, AT&T and Travelers Co. rose over 1% each.

Among the sector indexes, the Philadelphia Oil Service Index fell 1.59% and the NYSE Arca Oil Index lost about 1%. The NYSE Arca Airline Index slid 1.11%. Meanwhile, the Dow Jones Transportation Average, the KBW Bank Index, the NYSE Arca Broker/Dealer Index and the S&P Retail Index gained about 1% each. The Philadelphia Housing Index advanced 3.3%.

In the technology space, the Philadelphia Semiconductor Index rose 2.6%, the NYSE Arca Disk Drive Index rallied 4.11% and the NYSE Arca Internet Index gained 1.14%.

The Philadelphia Semiconductor Index has been on a roll, going from strength to strength. The course of the index accentuates the leadership role of technology stocks in the current recovery. Since early March, the index has been supported by its 50-day moving average. According to Cantor Fitzgerald analyst Marc Pado, the success of the semiconductor sector is a leading indicator for both the consumer and the business community.

The consolidation phase that followed a downtrend that ended in October 2008 ended in late March this year, and the index has been climbing higher since then. After convincingly breaking above the 271 level and the 285 level, the index is on track to test another resistance around 312.

Federal Reserve Chairman Ben Bernanke, in his testimony to the Senate Banking Committee, repeated most of his comments from the previous day. He highlighted unemployment as a serious problem. Bernanke also said there is likely to be extensive real estate problems for banks.

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TSX Could Open Near Flat-Mark As Traders Consider Earnings Reports

Toronto stocks could struggle to find direction in early trading Thursday as investors ponder a slew of earnings news. Commodities are little-changed and U.S. stock futures are flat.

Crude oil is down 20 cents to $65.20 per barrel, after snapping a five-session losing streak yesterday. Several big companies in the energy sector are in the earnings picture.

EnCana Corp. reported second-quarter net earnings plunged to US$239 million or US$0.32 per share from prior year's net earnings of US$1.22 billion or US$1.63 per share.

Husky Energy reported second quarter earnings of $430 million or $0.51 per share, compared to $1.36 billion or $1.60 per share a year earlier.

On the metal front, gold has added 30 cents to $953.60 per ounce, continuing its limited movement. Silver is down 2 cents to $13.72 an ounce and copper has dropped 3.15 cents to $2.494 per pound.
 
Teck Resources Limited reported its second quarter net earnings from continuing operations of C$521 million or C$1.07 per share, compared to C$500 million or C$1.12 per share in the previous year period.

Potash Corp. of Saskatchewan reported second-quarter net earnings of US$187.1 million or US$0.62 per share, compared to US$905.1 million or US$2.82 per share in the same quarter last year.

Celestica announced that second quarter GAAP earnings of US$5.3 million or US$0.02 per share, compared to US$39.8 million or US$0.17 per share last year.

TransForce said its second-quarter net income decreased to $17.98 million or $0.21 per share from $19.28 million or $0.22 per share in the year earlier period.

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The major Asian markets shrugged off the lackluster performance by Wall Street stocks overnight and ended higher. Earnings optimism, a positive economic report from Japan and comments from the Asian Development Bank that emerging Asian economies are moving into the transition zone leading up to a recovery from a recession encouraged traders to buy stocks.

Japan’s Nikkei 225 average showed apprehension in early trading and was found moving back and forth across the unchanged line in a narrow range till late morning trading. Thereafter, buying interest picked up, propelling the index sharply higher. After showing consolidation in the afternoon, the index gave up some of its gains to close up 69.78 points or 0.72% at 9,793.

A report released by Japan’s Ministry of Finance showed that Japan’s trade surplus rose to 508 billion yen in June from 104.1 billion yen in the year-ago period. However, the surplus was not as big as the 610 billion yen expected by economists. Total exports dropped 35.7% year-on-year in June to 4.59 trillion yen after falling 40.9% in the preceding month. Imports were down 41.9% to 4.09 trillion yen, slower than the 42.4% drop in the preceding month.

Electrical machinery and electronics stocks ended mostly higher along with auto, pharma and financial stocks. However, utility, construction, resource and trading houses came under selling pressure.

After trading below the unchanged line in the morning, Australia’s All Ordinaries recovered in the afternoon, although the upward move was unconvincing. The index closed the session up 3.70 points or 0.09% at 4,073.

Energy and material stocks advanced, helping to offset the weakness in consumer staple, financial and real estate stocks. Miners Rio Tinto, BHP Billiton, Fortescue and Newcrest rose in the session, while Lihir Gold saw some weakness. The four major bank stocks ended lower.

Hong Kong’s Hang Seng rebounded in Thursday’s session, with the index opening higher and moving steadily higher to close up 569.53 points or 2.96% at 19,818. All forty-two of the index components ended the session higher.

Currency, Commodity Futures

Crude oil futures are edging down $0.35 at $65.05 a barrel after moving down $0.21 to $65.40 a barrel on Wednesday. The price of oil is likely to see further weakness if it isn’t supported by factors such as rising equities and a weaker U.S. dollar. OPEC’s threat of production cuts may not be serious, as Iraq, which has been exempted from OPEC quotas, continues to increase production.

The oil inventory report for the week ended July 17th showed that crude oil stockpiles fell by 1.8 million barrels, although inventories remaining above the upper boundary of the average range for this time of the year.

On the other hand, gasoline stockpiles rose by 0.8 million barrels and were near the upper limit of the average range. Distillate inventories increased by 1.2 million barrels and remained above the upper boundary of the average range. Refinery capacity utilization averaged 86.9% over the four weeks ended July 17th compared to 87.2% in the previous week.

Gold futures are edging up $0.20 at $952.20 an ounce. In the previous session, the precious metal rose $6.40 to $953.30 an ounce. The weaker dollar is continuing to support gold.

On the currency front, the U.S. dollar is trading at 94.374 yen. The dollar is trading at $1.4225 versus the euro compared to yesterday’s $1.4220.

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The major European markets are trading mixed on Thursday after eight consecutive sessions of gains. While the French CAC 40 Index is down 0.06%, the German DAX Index is gaining 0.38% and the U.K.’s FTSE 100 Index is rising 0.11%.

In corporate news, ST-Ericsson, a joint venture between STMicroelectronics and Ericsson, reported a net loss of $213 million for its second quarter. The company reported an operating loss of $224 million, wider than the operating loss of $94 million last year. Revenues fell to $666 million from pro forma revenues of $966 million in the year-ago period.

Credit Suisse reported a profit of 1.57 billion Swiss francs for the second quarter compared to 1.22 billion Swiss francs in the year-ago period. The results were aided by a strong performance of the company’s investment banking division.

A report released by the French National Institute for Statistics and Economic Studies showed that confidence among French businesses improved slightly in July. The business confidence indicator rose to 78 in July from 76 in June, upwardly revised from 75 reported earlier. Economists were looking for a reading of 77.

Meanwhile, a report released by the Office for National Statistics showed that U.K. retail sales grew 1.2% month-over-month in June, exceeding economists' expectations for a 0.3% increase. Sales in predominantly food stores climbed 0.7% in June, matching the growth seen in March, which incidentally is the highest since October 2008. Annually, retail sales grew 2.9% in June, topping expectations for a 2.1% rise.

U.S. Economic Reports

First-time claims for unemployment benefits showed a moderate increase in the week ended July 18th, according to a report released by the Labor Department, with the increase coming roughly in line with economist estimates.

The report showed that jobless claims rose to 554,000 from the previous week's revised figure of 524,000. Economists had expected jobless claims to increase to 557,000 from the 522,000 originally reported for the previous week.

The National Association of Realtors is scheduled to release its report on existing home sales for June at 10 AM ET. Economists estimate existing home sales of 4.83 million for the month.

Existing home sales came in at a seasonally adjusted annual rate of 4.77 million units in May, representing a 2.4% month-over-month increase from 4.66 million in April. Single-family sales rose 1.9% and multi-family sales climbed 6.1%, with both readings showing increases for the second straight month. The median existing home price fell 16.8% year-over-year to $173,000, although it rose 3.8% month-over-month. Existing home inventories fell to 3.798 million from 3.978 million in April, with the months of supply declining to 9.6 from 10.1 in April.

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Logitech could be in focus after it said its first quarter sales fell 36% year-over-year to $328 million. The company reported a net loss of 20 cents per share compared to net income of 16 cents per share last year. The recent quarter’s results included a restructuring charge amounting to 1 cent per share. Analysts estimated a loss of 19 cents per share on revenues of $318.44 million. For the second quarter, the company expects sales of $465 million to $485 million compared to the consensus estimate of $507.52 million.

Bristol-Myers Squibb is likely to react to its announcement that its has agreed to acquire Medarex for $16 per share in cash. The aggregate purchase price of the transaction is $2.4 billion.

Tupperware may rally after it reported that its second quarter sales rose by 4% to $524.7 million. The company’s adjusted earnings per share were 86 cents, up 15% year-over-year. Analysts estimated earnings of 61 cents per share on revenues of $485.60 million. The company revised up its 2009 earnings per share guidance to $2.59-$2.64 compared to its earlier estimate of $2.16-$2.26 per share.

Qualcomm could see weakness after it reported that its third quarter earnings fell to 44 cents per share from 45 cents per share in the year-ago period. The company’s adjusted earnings were 54 cents per share and revenues fell slightly to $2.75 billion. Analysts estimated earnings of 52 cents per share on revenues of $2.73 billion. For the fourth quarter, the company expects revenues of $2.55 billion to $2.75 billion and for the year, the company expects revenues of $9.85 billion-$10.25 billion. Analysts estimate revenues of $2.71 billion for the quarter and $10.39 billion for the year.

eBay rose in Wednesday’s after hours session in reaction to its second quarter adjusted earnings that came in 37 cents per share, ahead of the consensus estimate of 36 cents per share. Revenues declined 5% to $2.1 billion compared to the $1.99 billion consensus estimate. The company guided third quarter adjusted earnings to 34-36 cents per share on revenues of $2.05 billion to $2.15 billion. Analysts estimated earnings of 35 cents per share on revenues of $2 billion.

Amazon.com could also be in focus after it said it would acquire online apparel and footwear retailer Zappos.com in a stock swap transaction valued at $807 million. Amazon has also agreed to provide Zappos employees with $40 million in cash and restricted stock units.

SanDisk could move to the upside after it reported that its second quarter sales declined 10% to $731 million. On an adjusted basis, the company reported earnings of 36 cents per share. Analysts, on average, estimated earnings of 16 cents per share on revenues of $710 million.

Ford reported an after-tax adjusted operating loss of 21 cents per share for its second quarter compared to a loss of 63 cents per share in the year-ago quarter. Revenues declined by $11 billion from last year to $27.2 billion last year. Analysts estimated a loss of 48 cents per share on revenues of $24.76 billion. The company reported a profit including a $3.4 billion gain due to debt reduction. The company also said it remains on track to achieve or exceed its 2009 financial targets.

Bunge said its second quarter net sales fell 23% to $10.99 billion, while the company’s earnings per share were $2.28 per share, lower than $5.45 per share in the year-ago quarter. Analysts estimated earnings of 68 cents per share on revenues of $12.24 billion. The company maintained its full year earnings guidance at $4.90-$5.40 per share.

Xerox’s second quarter revenues fell 18% to $3.7 billion. The company’s earnings per share declined 33% to 16 cents per share. The consensus estimate called for earnings of 11 cents per share on revenues of $3.72 billion. For the third quarter, the company expects earnings of 10-12 cents per share and for the full year, earnings are expected to be 50-55 cents per share. Analysts estimate earnings of 14 cents per share for the quarter and 51 cents per share for the year.

AT&T reported second quarter earnings of 54 cents per share, lower than 63 cents per share last year. Consolidated revenues eased slightly to $30.7 billion. Analysts estimated earnings of 51 cents per share on revenues of $30.66 billion.

3M Co. reported that its second quarter earnings were $1.12 per share and revenues were $5.7 billion. On an adjusted basis, the company’s earnings were $1.20 per share. Analysts estimated earnings of 94 cents per share on revenues of $5.41 billion. The company raised its 2009 sales guidance, saying it now expects organic sales volume to decline between 10% and 13% compared to its previous estimate of a drop of 11% to 15%. The company also raised its full year earnings guidance to a range of $4.10 to $4.30 per share from its previous forecast for earnings of $3.90 to $4.30 per share.

McDonald’s reported a second quarter earnings of 98 cents per share compared to $1.04 per share in the year-ago period. Revenues declined 7% to $5.65 billion. Analysts estimated earnings of 97 cents per share on revenues of $5.72 billion.

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