US & World Daily Markets Financial Briefing 24-07-2009

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Profit Taking May Override Earnings optimism

The major U.S. index futures are pointing to a mixed opening on Friday, with the winning run of the averages introducing an element of risk. Some wary traders may attempt to take profit on their recent gains ahead of the weekend. Disappointing earnings from big name companies such as Microsoft (MSFT) could stir anxiety about corporate profit outlook. The results of the consumer sentiment survey of Reuters/University of Michigan could also impact trading in today’s session.

U.S. stocks opened almost unchanged on Thursday, before a frim buying surge triggered by positive earnings lifted the major averages sharply higher in early trading. A positive home sales report generated some additional buying interest, which eventually slowed down over the course of the session.

The Dow Industrials ended up 188.03 points or 2.12% at 9,069, the Nasdaq Composite advanced 47.22 points or 2.45% to 1,974 and the S&P 500 Index rose 22.22 points or 2.33% to 976.

Twenty-seven of the thirty Dow components ended the session higher, with Alcoa (AA) (up 5.88%), Caterpillar (CAT) (up 6.73%), DuPont (DD) (up 5.90%), Disney (DIS) (up 5.59%) and 3M Co. (MMM) (up 7.36%) leading the advance. However, McDonald’s (MCD) slid 4.64%.

Among the sector indexes, the Dow Jones Transportation Average rose 3.28%, the Dow Jones Utility Average gained 2.52% and the NYSE Arca Airline Index moved up 3.67%. The NYSE Arca Oil Index gained 2.62% compared to a 3.88% gain by the Philadelphia Oil Service Index and a 3.30% gain by the Dow Jones U.S. Basic Materials Average. While the NYSE Biotechnology Index climbed 4.10%, the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index rose 3.19% and 2.95%, respectively.

The S&P Retail Index and the Philadelphia Housing Sector Index rallied 2.71% and 5.5%, respectively. In the technology space, the Philadelphia Semiconductor Index and the NYSE Arca Computer Hardware Index moved up close to a percentage point each, while the NYSE Arca Software Index rose 2.31%. The NYSE Arca Internet Index soared 4.66% compared to a 3.01% advance by the NYSE Arca Networking Index. On the other hand, the NYSE Arca Disk Drive Index fell 1.42%.

On the economic front, the Labor Department said initial jobless claims for the week ended July 18th came in at 554,000, while the previous week’s numbers were revised up by 2,000. Continuing claims declined by 88,000, although the decline was more due to the unusual seasonal adjustments this year due to the differing timings of auto plant shutdowns.

A report released by the National Association of Realtors showed that existing home sales rose 3.6% to a seasonally adjusted annual rate of 4.89 million units in June. Economists had estimated sales of 4.84 million for the month. May sales were revised down by 50,000 to 4.72 million units. Sales have been increasing for each of the past three months and existing home sales are now at their highest level since October 2008. The months-supply of new homes fell to 9.4 in June from 9.8 in May and are now at the lowest level since December 2008. Distressed sales accounted for 31% of the overall sales. The median price of an existing home rose to $181,800, although it is down 15.4% from the year-ago period.

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Bay Street Stocks Look To Extend Gains

Canadian stocks will look to build on gains from the previous session on Friday, following the lead of markets overseas. Toronto's main index finished the previous session at a six-week high.

Traders will have some merger and acquisition news to ponder. TransAtlantic Petroleum announced that it has acquired Energy Operations Turkey for total consideration of $7.75 million, including a $1.5 million promissory note payable in one year.

Nexen announced that it is reviewing strategic alternatives for its natural gas and power marketing businesses, which may include the sale of all or part of these businesses.

Loblaw Companies announced it has reached a deal to acquire T&T Supermarket for C$225 million.
 
Loblaw also posted second quarter net income of C$193 million or C$0.70 per basic share, compared to C$140 million or C$0.51 per basic share in the prior year period.

In other earnings news, HSBC Bank Canada reported second quarter earnings declined to C$114 million from C$158 million in the previous year. Basic earnings per share were C$0.23, down from C$0.30 per share in the same quarter last year.

In commodities, crude oil has slipped 13 cents to $67.03 per barrel in electronic trading, after a sharp rally yesterday. Gold is down $3.10 to $951.70 per ounce and copper is flat at $2.537 a pound.

On Thursday, the S&P/TSX Composite Index jumped 243.33 points or 2.33% to finish at 10,675.68. The gain is the first in three days for the market, which had rallied in six in a row before the recent skid.

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The Asian markets closed Friday’s session higher, with the major averages in the region recording gains between 0.32% and 1.95%.

Currency, Commodity Futures

Crude oil futures are trading down $0.33 at $66.83 a barrel after rising $1.76 to $67.16 a barrel in Thursday’s session. Gold futures, which rose $1.50 to $954.80 an ounce in the previous session, are currently slipping back $2.70 at $952.10 an ounce.

Among the currencies, the U.S. dollar is trading at 94.826 yen compared to the 94.925 yen it fetched at the close of New York trading on Thursday. The dollar is currently valued at $1.4221 a euro compared to yesterday’s $1.41143.

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The major European markets are showing mixed sentiment on Friday, with the French CAC 40 Index and the U.K.’s FTSE 100 Index rising 0.19% and 0.53%, respectively, while the German DAX Index is edging down 0.08%.

In corporate news, telecommunication equipment maker Ericsson (ERIC) reported that its second quarter operating earnings were up 47% at 6.9 billion Swedish Krona and sales rose 7.4% to 52.1 billion Swedish Krona.

The Munich-based Ifo Institute for Economic Research said its business climate indicator for Germany rose to 87.3 in July from 85.9 in June. The index came in better than the reading of 86.5 expected by economists. The index measuring current conditions in Germany improved to 84.3 from 82.4, while the expectations index came in at 90.4 in July, up from 89.5 in June.

The U.K. Office for National Statistics reported that the U.K.’s gross domestic product declined 0.8% quarter-on-quarter in the second quarter after falling 2.4% in the first three months of the year. Economists were looking for a 0.3% contraction.

Separately, the ONS said U.K. service sector output fell 1% in the three months to May compared with the three months to February. Economists had forecast a drop of 0.8%. This follows a decrease of 1.2% in the three months to April.

U.S. Economic Reports

The Reuters/University of Michigan's final report on the consumer sentiment index for July is scheduled to be released at 9:55 AM ET on Friday. While the index is expected to be revised up to 65 from the mid-month reading of 64.6, it would remain below June’s 70.8.

Earnings

Schlumberger (SLB) reported adjusted second quarter income from continuing operations of 68 cents per share, ahead of the 63 cents per share consensus estimate. Revenues fell 18% year-over-year to $5.53 billion, while analysts estimated revenues of $5.46 billion.

Ingersoll Rand (IR) reported that its second quarter adjusted earnings per share from continuing operations were 50 cents per share and revenues declined 23% year-over-year to $3.47 billion. The company revised its full year earnings per share guidance to $1.50-$1.80 from its previous estimate of $1.40-$1.90.

Black & Decker (BDK) said its second quarter earnings were 63 cents per share compared to $1.56 per share last year. Sales fell to $1.19 billion from the year-ago’s $1.64 billion. Analysts estimated earnings of 37 cents per share on revenues of $1.19 billion.

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Microsoft (MSFT) is likely to trade lower after it reported fourth quarter earnings of 34 cents per share, lower than 46 cents per share last year. Sales declined 17% to $13.1 billion. Analysts estimated earnings excluding certain items of 38 cents per share on revenues of $14.37 billion.

Amazon (AMZN) may move to the downside after it said its second quarter earnings declined to 32 cents per share from 37 cents per share last year. Revenues climbed 15% to $4.65 billion, but came in below the consensus estimate of $4.69 billion. For the third quarter, the company expects revenues of $4.75 billion to $5.25 billion compared to the consensus estimate of $4.92 billion.

Developers Diversified (DDR) receded in Thursday’s after hours session after it said its funds from operations were a loss of $1.15 per share compared to a revised FFO income of 79 cents per share. Revenues fell to $204.31 million from $222.63 million last year, while analysts estimated revenues of $201.80 million.

KB Home (KBH) may see weakness after it announced that it has priced an offering of $265 million aggregate principal amount of 9.10% senior notes due 2017. The company said it intends to use all or part of the proceeds to pay the purchase price of its tender offer for its notes due 2011.

LDK Solar (LDK) could trade higher after it raised its second quarter revenue guidance to $225 million to $235 million, which is slightly above its previous guidance. Additionally, the company said it expects to record a write-down to the tune of $150 million to $160 million against the cost of inventories, and therefore, it expects to report a loss of $180 million to $200 million for the quarter.

Baidu (BIDU) may be in focus after it said its second quarter revenues rose about 37% to $160.7 million compared to the mean analysts’ estimate of $157.82 million. The company’s earnings were $1.61 per share, ahead of the $1.44 per share consensus estimate.

KLA-Tencor (KLAC) declined in Thursday’s after hours session after it reported a loss of 15 cents per share for its fourth quarter compared to a loss of 9 cents per share last year. Revenues fell 52% to $281.5 million. Analysts estimated a loss of 15 cents per share on revenues of $298.1 million.

American Express (AXP) receded in the after hours session after it reported a decline in second quarter profit to 9 cents per share from 56 cents per share last year. On an adjusted basis, the company’s earnings were 27 cents per share. Revenues declined 18% to $6.09 billion, below the mean analysts’ estimate of $6.29 billion.

Cheesecake Factory (CAKE) is likely to recede after it reported a decline in its second quarter earnings to 28 cents per share from 29 cents per share last year, as revenues were almost unchanged at $407.9 million. The consensus estimates had called for earnings of 26 cents per share on revenues of $403 million.

Netflix (NFLX) could gain ground after it reported second quarter earnings of 54 cents per share compared with 42 cents per share last year, as revenues rose 21% to $408.5 million. The company added 289,000 subscribers in the quarter. The consensus estimates called for earnings of 50 cents per share on revenues of $409.72 million. For the third quarter, the company expects earnings of 39-47 cents per share on revenues of $416 million to $422 million. Analysts estimate earnings of 45 cents per share on revenues of $417.8 million.

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