US & World Daily Markets Financial Briefing 24-05-2010

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Stocks Turn Mixed After Upbeat Existing Home Sales Data

Stocks are mixed in mid-morning trading on Monday, as traders are digesting upbeat existing home sales figures while also keeping an eye on any news from the debt-embattled European Union. The major averages are on opposite sides of the unchanged mark after last week's heavy losses.

The National Association of Realtors reported a continued increase in existing home sales in the month of April, with home buyers motivated by a tax credit, improving consumer confidence and favorable affordability conditions.

Existing home sales rose by 7.6 percent to an annual rate of 5.77 million units in April from an upwardly revised 5.36 million units in March. Economists had expected sales to rise to 5.65 million units from the 5.35 million unit rate originally reported for the previous month.

Traders also remain focused on the threat of the Greek debt crisis spreading to Spain and Portugal, raising fears that the global economic recovery could be derailed without much participation from Europe.

With earnings season winding down, Campbell Soup Co. (CPB) reported adjusted third-quarter earnings of $0.54 per share, topping estimates for $0.51 per share. Net sales for the most quarter increased to $1.8 billion from $1.69 billion in the comparable period.

Looking ahead, Campbell said it expects full year adjusted earnings growth at the high-end of its previous guidance range of 9%-11%. The company also said it expects full year sales growth of 2.5%-3.5%, while analysts estimate sales growth of 2.30%.

The major averages have all seen some upside in recent trading but currently remain mixed. While the Nasdaq is up 9.26 points 0.4 percent at 2,238.30, the Dow is down 32.88 points or 0.3 percent at 10,160.51 and the S&P 500 is down 1.85 points or 0.2 percent at 1,085.84.

Sector News

Gold stocks are seeing a strong outing in mid-morning trading, with the NYSE Arca Gold Bugs Index up by 2.3 percent, moving further off of the one-month closing low set last Thursday. The strength in the sector comes as gold for June delivery is up by $11.40 at $1,187.50.

Airline, housing and computer hardware stocks have also moved to the upside, while weakness is visible among banking stocks, driving the KBW Bank Index down by 1.1 percent. Despite the drop, the index remains in a range near last Thursday's two and a half month closing low.

Oil, oil service, commercial real estate and natural gas stocks are also lower, offsetting the gains in the other market segments.

Stocks Driven By Analyst Comments

Toddler product firm RC2 is under pressure following a downgrade by analysts at Robert W. Baird from Outperform to Neutral. The stock is down by 2.8 percent and on pace for a one-month closing low.

On the other hand, Google is moving higher after being upgraded by MKM Partners to Buy. The stock is up by 2.3 percent, bouncing off of the eight and a half month closing low set last Friday.

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Dollar Gains On Euro Amid Lingering Debt Fears

The dollar was generally stronger Monday morning in New York, as stock futures pointed to another lower open on Wall Street. With risk aversion picking up, the safe haven dollar took back some of its late-week losses against the euro and sterling.

The threat of a Greek debt crisis spreading to Spain and Portugal has spooked investors and raised fears the global economic recovery could be derailed without much participation from the Euro zone.

While the dollar may firm up versus riskier currencies as equities remain weak, gains will likely be tempered by economic concerns in the wake of last week's disappointing US jobless claims numbers.

On the economic front today, the National Association of Realtors will release its report on existing home sales for April at 10 a.m. ET. Economists estimate existing home sales of 5.65 million for the month.

Later in the week, the markets will be treated to a slew of economic data related to consumer confidence, new home sales, and the preliminary estimate of 1st quarter GDP.

The dollar improved to 1.2390 versus the euro, having touched a low of 1.2671 late last week. With today's advance, the dollar moved back toward a recent 4-year high of 1.2143.

The buck also rallied versus sterling, touching 1.4375 before leveling off. A month of solid gains brought the dollar to a yearly high of 1.4267 last week.

U.K. Chancellor George Osborne has outlined plans to cut public spending by GBP 6.25 billion this year, as the newly formed coalition government seeks to tame Britain's bulging budget deficit.

The dollar was steady versus the yen Monday morning, holding near 90.20.

The Japanese economy is likely to recover moderately, the Bank of Japan said in its Monthly Report of Recent Economic and Financial Developments for May.

Versus the loonie, the dollar eased slightly to C$1.0590.

Canadian markets are closed for the Victoria Day holiday.

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Asian Markets End In Positive Territory, On Wall Street Cues

The markets across Asia, excluding Japan, ended in positive territory on Monday, taking cues from Wall Street which ended in positive territory on Friday with modest gains on speculation that the economic turmoil in Europe is showing signs of fading. Bargain hunting at lower levels, specifically in commodity-related stocks helped the advance. However, the market in Japan ended mixed amid concerns that a stronger local currency might impact exports, especially to those in the Euro region.

In Japan, the benchmark Nikkei 225 Index fell 26.14 points, or 0.3%, to 9758.40; however, the broader Topix index of all First Section issues rose 0.32 point, or 0.04%, to 880.

On the economic front, a report released by the Ministry of Trade, Economy and Industry revealed that all industry activity in the country dropped for the second month in a row in March. As per the report, all-industry activity declined 0.8% in March following a steeper 2.3% decline in the previous month. Economists expected the activity to decline by 0.7% for the month.


Separately, the report revealed that industrial production in the country rose 1.2% in March, following a 0.6% drop in February. The index of government services moved up 0.6% versus last month's 0.9% drop. Year-on-year, all industry activity grew at a faster pace of 4.7% in March, following 4.1% growth in the previous month.

A report released by the Japan Chain Stores Association revealed that supermarket sales in the country slipped by 4.9% in April from the previous year. As per the report, April's drop follows 6.6% fall seen in March. Sales before stores adjustment showed an annual decline of 5.5% compared to 6.7% decrease in the previous month.

The Japanese government maintained its economic view for a second month after upgrading it in March. Separately, the central bank lifted its assessment, saying the economy is starting to recover moderately. Releasing the monthly report, the Cabinet Office noted that exports are rising moderately. Industrial production as well as private consumption are picking up. Further, recent price developments show that the economy is in a mild deflationary phase. The economy is expected to pick up as corporate profits improve, reflecting improvement in overseas economies and the effects of policy measures. "Although the economy has been picking up steadily, it is only weakly self-sustaining and remains in a difficult situation such as a high unemployment rate," the Cabinet Office reiterated.

Exporters having more exposure to European markets ended in negative territory while bargain hunting at lower levels helped markets offset most of the losses.

Mazda Motor declined 1.30% and Honda Motor edged down 0.32%. However, other automotive stocks ended in positive territory as investors evinced buying interest at lower levels amid cautious trading. Toyota Motor added 0.30%, Mitsubishi Motors remained unchanged from previous close, Isuzu Motor advanced 0.72%, Hino Motors rose 1.32%, and Suzuki Motor gained 0.96%.

Marine stocks ended in positive territory. Kawasaki Kishen Kaisa surged up 3.94%, Mitsui OSK Lines climbed 2.63% and Nippon Yusen advanced 0.93%.

In Australia, the benchmark S&P/ASX200 Index surged up 90.00 points, or 2.09% and closed at 4,395, while the All-Ordinaries Index ended at 4,412, representing a gain of 87.00 points, or 2.09%.

On the economic front, a statement released by the Australian Bureau of Statistics revealed that new vehicle sales in the country climbed a seasonally adjusted 8.4% month-on-month in April to 90,935 units, following a 2.8% drop in March sales. The statement further noted that sales of all types of vehicles increased in April. Passenger vehicle sales increased 7.8%, sports utility vehicle sales were up 16.1% and other vehicle sales rose 1.9%.


Mining and metal stocks led the gains. BHP Billiton gained 2.80%, Rio Tinto climbed 3.80%, Iluka Resources advanced 2.77%, Macarthur Coal added 0.94%, Mineral Resource rose 6.71%, Murchison Metals surged up 8.99%, and Oz Minerals increased 0.95%.

Gold stocks also ended in positive territory on bargain hunting. Lihir Gold surged up 3.17% and Newcrest Mining gained 2.21%.

Oil Stocks also advanced following rise in crude oil futures in the international market. Woodside Petroleum climbed 3.50%, Santos rose 3.28%, ROC Oil Co. gained 2.94%, Oil Search Ltd rose 3.94% and Origin Energy advanced 1.31%.

Bank stocks also ended in positive territory as concerns about Europe crisis appears to have eased slightly. ANZ Bank climbed 4.29%, Commonwealth Bank of Australia rose 2.53%, investment banking company Macquarie Group gained 1.83%, National Australia Bank advanced 3.32% and Westpac Banking surged up 3.95%.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a gain of 121.93 points, or 0.62%, at 19,668, taking cues from Wall Street where the major averages ended in positive territory on Friday in late trading session, amid speculation that the economic crisis is Europe seems to be fading. Positive closing across other markets in the region as traders evinced fresh buying interest in beaten-down stocks at bargain hunting also lifted market sentiment.

The Indian market gave back all its early gain to finish on a flat note on Monday. Speculation that the Chinese government will go slow on tightening measures and the announcement that the Ambani brothers have scrapped all existing non-compete agreements the groups had signed in 2006 lifted Indian equities sharply higher at mid-session after a more than 3% loss last week. However, as the session progressed, the market pared all its gain and briefly slipped into the red before closing on a flat note because of late-session profit taking. The 30-share Sensex opened stronger at 16,495 and rose close to 2% before paring its gain, although it ended up 24 points or 0.15%. The broader Nifty index ended at 4943.95, up 12.80 points, or 0.26%.

Among the other major markets open for trading, China's Shanghai Composite Index surged up 89.90 points, or 3.48%, to close at 2,673, Singapore's Strait Times Index advanced 22.67 points, or 0.84%, to close at 2,724 and Taiwan's Weighted Index climbed 85.02 points or 1.17% to close at 7,323. However, Indonesia's Jakarta Composite Index bucked the trend and ended in negative territory with a loss of 13.61 points, or 0.52% to close at 2,610.

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After opening Monday’s session higher, the major European markets have surrendered their early gains and are trading lower. The French CAC 40 Index and the German DAX Index are moving down 0.54% and 1.06%, respectively, while the U.K.’s FTSE 100 Index is receding 0.32%.

Sentiment has been hurt by the news of the bailout of a Spanish bank by the Bank of Spain through the injection of 550 million euros in restructuring funds.

U.S. Economic Reports

Traders are likely to shift their focus to the housing market in the unfolding week after a week when the markets looked past the positive data points due to their preoccupation with the European fiscal crisis.

The National Association of Realtors' existing home sales report, the Commerce Department's new home sales report, the Federal Housing Finance Agency's house price index and the S&P Case-Shiller house price index are among the housing reports that are scheduled to be released during the week.

Traders may also keenly watch the Commerce Department's durable goods orders report for April, the Conference Board's consumer confidence index, the final reading of the Reuters/University of Michigan's consumer sentiment index and the weekly jobless claims report.

The second reading on first quarter GDP, the Bureau of Economic Analysis' personal income and spending report, the results of the Institute for Supply Management - Chicago's manufacturing survey, Treasury auctions of 2-year, 5-year and 7-year notes and a few Fed speeches round up the other economic events this week.

Economists expect both existing home sales and new home sales to show monthly increases in April, buoyed by the positive impact of the first time homebuyers' credit, which has since expired. That said, housing demand is likely to soften in the coming months, with the recent plunge in new mortgage applications to a 13-year low pointing to a soft patch ahead. However, an improving job market should serve to prevent a free fall.

The recent market swoon following the intensification of the fiscal crisis in Europe does not bode well for consumer confidence readings. Nevertheless, a pick up in job creation and a drop in gasoline prices should offer some support.

Durable goods orders should see a rebound in April, helped by continued strong performance of capital goods orders, excluding aircrafts and defense. The expectations gain strength from the robust new orders readings from business surveys in April. Meanwhile, Boeing reports on its website that its commercial airplane orders fell to 34 in April from 43 in March.

The National Association of Realtors is scheduled to release its report on existing home sales for April at 10 AM ET. Economists estimate existing home sales of 5.65 million for the month.

In March, existing home sales rose to a seasonally adjusted annual rate of 5.35 million from 5.01 million units in February, snapping a three-month losing streak. First time buyers accounted for about 44% of the total buyers, strong evidence of the success of the first time homebuyers' credit.

Inventories of existing homes in terms of the months of supply slid to 8 months in March from 8.5 months in the previous month. However, in absolute numbers, existing home inventories rose to 3.58 million from the previous month's 3.53 million. The median price of an existing home rose 3.7% month-over-month.

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Equity One (EQY) could be in focus after it announced that it has entered into an agreement to buy Capital and Counties USA through a joint venture with its parent Capital Shopping Centres Group in a deal valued at $600 million. The deal allows Capital Shopping Centres to receive 4.1 million shares of Equity One common stock and 10.9 million joint venture units.

Campbell Soup (CPB) is likely to move in reaction to its announcement that its third quarter sales rose 7% to $1.80 billion. On an adjusted basis, the company reported earnings of 54 cents per share, up from 48 cents per share last year. The consensus estimates called for earnings of 51 cents per share on revenues of $1.80 billion.

Looking ahead, Campbell said it expects full year adjusted earnings growth at the high-end of its previous guidance range of 9%-11%. The company also said it expects full year sales growth of 2.5%-3.5%, while analysts estimate sales growth of 2.30%.

Triquint Semiconductor (TQNT) is likely to gain ground after it said the U.S. Air Force Research Labs has awarded the company a contract to develop new Gallium Nitride modules for unmanned aerial vehicles.

Frontier Communications (FTR) is expected to see some activity after the Federal Communications Commission approved the company’s pending acquisition of Verizon’s (VZ) local communications operations in 14 states. The deal is expected to close by July 1st, 2010.