US & World Daily Markets Financial Briefing 25-02-2010

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Traders May Stay Guarded as They See Threats to Economic Recovery

The major U.S. index futures are pointing to a notably lower opening on Thursday, with the optimism that had resurfaced yesterday following Federal Reserve Chairman Ben Bernanke’s testimony likely to be put to test by a host of negative developments. Rating agencies Moody’s and S&P had threatened downgrading Greece, re-igniting concerns over the nation’s fiscal situation. Additionally, data on the job market released earlier in the day showed an unexpected sharp climb in the number of individuals claiming unemployment benefits. Markets may not be able to gather anything new from Bernanke’s testimony, as he presents his semi-annual monetary policy report to the Senate Banking Committee today.

U.S. stocks opened Wednesday’s session higher but showed some volatility in early trading amid the release of a disappointing housing report. As traders digested Federal Reserve Chairman Ben Bernanke’s testimony before the House Financial Services Committee, stocks spiked sharply and moved sideways thereafter to close the session notably higher.

The Dow Industrials advanced 91.75 points or 0.89% to 10,374 and the Nasdaq Composite Index ended up 22.46 points or 1.01% at 2,236, while the S&P 500 Index closed at 1,105, up 10.64 points or 0.97%.

Twenty-eight of the thirty Dow components ended the session higher, with Bank of America (BAC) (up 2.45%), Home Depot (HD) (up 1.98%), JP Morgan Chase (JPM) (up 2.43%), Disney (DIS) (up 1.52%) and Intel (INTC) (up 1.53%) advancing strongly in the session. However, Alcoa (AA) slid 0.91%.

Among the sector indexes, the NYSE Arca Biotechnology Index rose 1.26% and the KBW Bank Index rallied 2.28%. The S&P Retail Index rose 1.96% compared to a 1.92% gain by the Philadelphia Semiconductor Index and a 1.42% rally by the NYSE Arca Software Index. The NYSE Arca Internet Index and the NYSE Arca Networking Index also gained over 1% each. On the other hand, the NYSE Arca Disk Drive Index fell 2.68%.

On the economic front, the Commerce Department’s new home sales reports showed that new home sales declined to 309,000 in January from 348,000 in December, with sales dipping to a record low. New home inventories as measured by the months of supply rose to 9.1 months from 8 months in the previous month. In absolute terms, new home inventories increased to 234,000 from 233,000. The median price of a new home declined 2.4% year-over-year and fell 5.6% month-over-month to $203,500.

While testifying before the House Financial Services Committee, Bernanke said that growth in private sector final demand for goods and services, which is essential for a sustained recovery, is happening at a moderate pace. The Fed chief seems to concur with the view that inflation will remain subdued for some time. He clarified that the case for tightening monetary conditions is different from the winding down of the special liquidity schemes created during the crisis and the normalization of its lending to commercial banks through the discount window. His testimony more or less confirms views that the fed funds rate will remain unchanged for a long time.

Commodity, Currency Markets

Crude oil futures are retreating $1.43 to $78.57 a barrel after advancing $1.14 to $80 a barrel on Wednesday. Oil ran up yesterday, mainly due to the weakness of the dollar, ignoring the oil inventory report for the week ended February 19th, which showed a 3 million barrel increase in crude oil stockpiles to 337.5 million barrels. Crude oil inventories are now above the upper limit of the average range for this time of the year.

Gasoline stockpiles rose by 0.9 million barrels, remaining above the upper limit of the average range. On the other hand, distillate stockpiles fell by 0.6 million barrels, but remained above the upper boundary of the average range. Refinery capacity utilization averaged 79.4% over the four weeks ended February 19th compared to 78.8% last week.

Gold futures are currently moving down $5.10 to $1,092.10 an ounce. In the previous session, the precious metal rose $4 to $1,097.20 an ounce.

On the currency front, the U.S. dollar is trading at 89.145 yen, weaker than the 90.15 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3485.

Mixed Opening Session Likely For TSX; Financials May Rise

The Canadian market may witness a mixed opening session Thursday, with solid earnings from Canadian banks likely to offset concerns about lingering weakness in the US jobs market.
An unexpected rise in US weekly unemployment claims further dampened the hopes of a speedy economic revival.

The financials stocks may thrive on solid earnings reported by Canadian Imperial Bank and National Bank of Canada. Energy sector may feel the heat early in the day as the price of oil eased $1.11 to $78.89 a barrel.

Wednesday, the S&P/TSX Composite Index ended lower 4.88 points or 0.04% to 11521.83.

April Gold was down $1.6 to $1095.6 a troy ounce.

In corporate announcements, Canadian Imperial Bank reported a rise in first-quarter earnings to C$652 million from C$147 million in the prior-year quarter.

National Bank of Canada reported a substantial increase in first-quarter net income to C$215 million from C$69 million in the comparable quarter.

Suncor Energy announced the sale of its natural gas assets in Trinidad and Tobago to British energy company Centrica PLC for approximately US$380-million.
 
Pharmaceutical company Biovail Corp. reported a decline in its fourth-quarter net income to US$73.0 million from US$120.4 million in the year-ago quarter.

Paladin Labs Inc. reported its net income for the fourth quarter decreased to $4.4 million from $6.1 million last year.

Coffee chain Tim Hortons Inc. reported a 31.6% increase in its fourth-quarter net income to C$91.0 million from C$69.1 million last year. It also declared a dividend of C$0.13 per common share, payable on March 23, 2010.

Phoenix Coal Inc. announced the completion of the sale of its Panama South property lease to a major US coal producer for US$10 million.

Initial claims for jobless benefits in the US increased by 22,000 to a seasonally adjusted 496,000 in the week ended February 20, according to a release from the Labor Department. Economists had been anticipating a decline of 13,000 to 460,000, from the 473,000 reported for the previous week.

The Commerce Department reported a 3% rise in orders for durable manufactured goods in January.

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Asian Markets Slip On Fresh Concerns About Greece

The markets across Asia extended losses on Thursday as fresh concerns about debt crisis in Greece and possibility of S&P downgrading Greece overshadowed the positive closing on Wall Street in the previous session following Bernanke's statement that interest rates will be maintained at lower levels for an extended period. Lackluster trading on relatively less volume also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index fell 96.87 points, or 1.0%, to 10,102, while the broader Topix index of all First Section issues lost 4.28 points, or 0.5%, to 891.

On the economic front, a statement released by the Ministry of Finance revealed that Japanese investors bought net 348.0 billion yen in foreign bonds for the week ended February 20. The statement also noted that the country's residents sold a net 27.9 billion yen in foreign stocks last week. Foreign investors purchased a net 37.2 billion yen in Japanese stocks and net 310.5 billion yen in Japanese bonds during the last week, the statement noted.

Light sweet crude oil futures for April delivery ended at $79.59 a barrel in electronic trading, down $0.41 per barrel from previous close at $80.00 a barrel in New York on Wednesday.

Exporters led the decline on stronger local currency which declined below the psychological 90-yen mark. Sony Corp. declined 2.09%, Sharp Corp., fell 1.61%, Panasonic Corp. shed 1.88%, and Canon Inc. remained unchanged from previous close.
 
Automotive stocks also ended in negative territory. Suzuki Motor Corp. lost 2.25%, Honda Motor slipped 1.13%, Nissan Motor fell 1.67% and Toyota Motor edged down 0.15%. Mitsubishi Motor Corp., however, remained unchanged from previous close.

Trading companies also ended weaker on stronger local currency. Itochu Corp. declined 1.54%, Toyota Tsusho slipped 0.70%, Mitsubishi Corp. shed 0.45%, Marubeni Corp. fell 0.57% and Sumitomo Corp. lost 0.63%.

Shipping stocks also ended in negative territory. Kawasaki Kisen Kaisha lost 3.33%, Nippon Yusen fell 1.52% and Mitsui OSK Lines shed 1.20%.

Mixed trading was witnessed among banking stocks. While Mizuho Financial Group ended in negative territory with a loss of 0.58%, the other banks ended in positive territory with marginal gains. Mitsubishi UFJ Financial added 0.22%, Resona Holdings climbed 1.50% and Sumitomo Mitsui Financial advanced 0.25%.

Inpex Corp., engaged in oil exploration and development, ended weaker by 1.98%.

In Australia, the benchmark S&P/ASX 200 Index slipped 54.40 points, or 1.17% to close at 4,594, while the All-Ordinaries Index ended at 4,615, representing a loss of 51.00 points, or 1.09%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the average weekly ordinary time earnings of Australians increased a seasonally adjusted 2% in the three months to November, much faster than the 1.1% increase recorded in the three months to August period. On a yearly basis, the average weekly wage in Australia rose 5.9% and stood at A$1,226.70, the report revealed.

Separately, the Statistics Bureau revealed that private capital expenditure in the country increased a seasonally adjusted 5.5% in the fourth quarter of 2009 compared to the preceding third quarter. Economists expected a nominal 2% increase in the fourth quarter, following 3.9% contraction in the third quarter. The statement noted that capex for buildings and structures declined 1.7%, while equipment, plant and machinery capex surged 12.4%.

A statement released by the Conference Board revealed that its leading economic index for Australia stood at 112 in December, up from 111.3 reported in the previous month. The statement further noted that out of the seven components that make up the leading index, five components increased in the month. Positive contributions came from building approvals, the yield spread, rural goods exports, share prices, and gross operating surplus, the statement noted.

Light sweet crude oil futures for April delivery ended at $79.59 a barrel in electronic trading, down $0.41 per barrel from previous close at $80.00 a barrel in New York on Wednesday.
 
Mining and metal stocks ended in negative territory. BHP Billiton shed 1.05%, Rio Tinto lost 1.42%, Fortescue Metals fell 2.55%, Gindalbie Metals slipped 1.49%, Iluka Resources plunged 3.47%, and Oz Minerals declined 1.90%.

Gold stocks also ended sharply lower. Newcrest Mining fell 4.58% and Lihir Gold lost 4.09%.

Oil stocks also ended in negative territory. Woodside Petroleum slipped 0.51%, Santos fell 1.96%, Oil Search edged down 0.19% and Origin Energy lost 1.79%.

Bank stocks ended mixed. ANZ Bank slipped 1.20%, Commonwealth Bank of Australia shed 1.52% and Westpac Banking edged down 0.27%. However, National Australia Bank managed to end in positive territory with a gain of 0.33%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 68.17 points, or 0.33% at 20,400 as traders preferred to lock in gains and move to the sidelines amid fresh concerns on debt problems surrounding Greece. China related stocks and resource stocks declined on softer commodity prices as investors await second day of testimony from Ben Bernanke, who reiterated extended period of low interest rates in the US. Weak closing on other markets in the region also impacted market sentiment.

 In South Korea, the KOSPI Index ended in the negative territory with a loss of 25.32 points, or 1.57%, at 1,587, as traders preferred to lock in gains and move to the sidelines amid fresh concerns related to debt problems in Greece. Soft commodity prices and weak trading across other markets in the region also impacted market sentiment.

Short covering on account of the expiry of derivative contracts helped the Indian market end another lackluster session on a flat note Thursday. Cautious investors stayed on the sidelines ahead of Friday's Union Budget. After falling to as low 16,167 by mid-session, the BSE Sensex recouped most of its loss before finishing at 16,254, down 2 points or 0.01%, while the Nifty ended on a positive note at 4,860, up 0.02%.

Among the other major markets, Indonesia's Jakarta Composite Index lost 30.38 points, or 1.18%, to close at 2,549, Singapore's Strait Times slipped 12.99 points, or 0.47% to 2,749, and Taiwan' s Weighted Index fell 102.71 points, or 1.36%, to close at 7,427. China's Shanghai Composite Index, however, bucked the trend and ended in positive territory with a gain of 38.44 points, or 1.27%, at 3,063.

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The major European markets are showing volatility on Thursday, with weakness triggered by the resurfacing of worries over the Greek debt crisis. The French CAC 40 Index is receding 1.09%, while the German DAX Index is declining 0.76%. The U.K.’s FTSE 100 Index is trading down 0.87%.

A survey by European Commission showed that the eurozone’s economic sentiment indicator fell to 95.9 in February from 96 in January after ten months of uninterrupted increases. Economists had forecast a reading of 96.4.

A measure for consumer confidence dropped to -17 from -16, while the industrial confidence indicator climbed to -13 from -14.

On the economic front, French statistical agency INSEE said the French consumer confidence index fell to –33 in February from a downwardly revised reading of –30 in January. Economists had expected the index to improve to –28. All the five components of the index deteriorated from the month-ago levels.

A separate report showed that French producer prices rose 0.7% month-over-month following a 0.1% increase in December. The increase was slower than the 0.3% growth expected by economists. On a year-over-year basis, producer prices rose 0.4% compared to the consensus estimate for a 0.1% increase.

Meanwhile, Germany’s Federal Labor Agency reported that the number of unemployed persons in Germany rose by 7,000 in February compared to the previous month. Economists had expected an increase of 16,000. The jobless rate rose one-tenth of a percent to 8.2%.

U.S. Economic Reports

Cleveland Federal Reserve Bank President Sandra Pianalto will speak to the Dayton Area Chamber of Commerce Government Affairs Breakfast at 8:35 AM ET, while Bernanke will deliver the semi-annual monetary policy report before the Senate Committee on Banking, Housing and Urban Affairs at 9 AM ET.

The Commerce Department reported that orders for durable goods orders designed to last for more than 3 years rose a better than expected 3% month-over-month in January. This followed a 1.9% increase in December. Economists had estimated a 1.9% increase following the 1% growth estimated earlier.

The bulk of the increase was due to a strong 15.6% jump in transportation equipment orders. Shipments of durable goods edged down 0.2%, while unfilled orders edged up 0.1%. On a negative note, non-defense capital goods orders, excluding aircraft orders, a key indicator of capital spending, fell 2.9%. Shipment of this category of goods declined 1.5%.

In another disappointing sign for the beleaguered labor market, the Labor Department released a report showing another unexpected increase in first-time claims for unemployment benefits in the week ended February 20th.

The report showed that initial jobless claims rose to 496,000 from the previous week's revised figure of 474,000. Economists had been expecting jobless claims to slip to 460,000 from the 473,000 originally reported for the previous week.

The Federal House Finance Agency, or FHFA is set to release its house price index for December at 10 AM ET. The index is a weighted, repeat-sales index that measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.4% increase for the month.

In November, the index rose 0.7% month-over-month following a revised 0.6% increase in the previous month. Economists had expected a more modest improvement of 0.2%. On a year-over-year basis, the FHFA’s house price index increased 0.5%.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak to an economic forecast luncheon at Texas A&M University-Texarkana at 12.30 PM ET.

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Ensco International (ESV) is likely to be in focus after it reported fourth quarter earnings from continuing operations of $1.24 per share compared to $2.14 per share last year. Revenues declined to $500 million from the year-ago’s $605 million. Analysts estimated earnings of $1.23 per share on revenues of $472.33 million.

Everest Re Group (RE) could gain ground after it announced that its board approved a 5 million share increase in its share repurchase authorization, taking the total authorization to up to 8.5 million shares. The company’s board also declared a dividend of 48 cents per share.

Coca-Cola (KO) is likely to react to its announcement that it has offered to buy the North American operations of Coca-Cola Enterprise (CCE) in a substantially cashless transaction.

Ryland (RYL) could also react to its announcement that William Jews has been elected as the Chairman of the board. He will replace Chad Dreier in the position after the annual shareholders meeting on April 28th, 2010.

Bemis (BMS) may see some activity after it announced that it has reached an agreement with the Department of Justice that addresses its concernS regarding the company’s pending acquisition of Alcan Packaging’s Food Americas operations. The agreement calls for Bemis divest certain Food Americas packaging assets in the U.S., which generated $100 million in net sales, after closing.

NetEase.com (NTES) edged slightly higher in Wednesday’s after hours session after it reported fourth quarter revenues of 1.3 billion yuan or $189 million compared to 801.7 million yuan in the year-ago period. The company’s net earnings were 64 cents compared to 65 cents per share in the year-ago period. Analysts estimated earnings of 59 cents per share on revenues of $178.97 million.

Liberty Global (LBTYA) could be in focus after it reported fourth quarter consolidated revenues of $3 billion, up 19% year-over-year. The company reported net earnings of 34 cents per share compared to a net loss of $2.60 per share last year. The consensus estimates called for earnings of 16 cents per share on revenues of $2.91 billion.

Donaldson Co. (DCI) may gain ground after it reported second quarter net earnings OF 39 cents per share on revenues of $436.1 million. The consensus estimates called for 39 cents per share on revenues of $428.53 million. In the year-ago period, the company reported earnings of 43 cents per share on revenues of $460.6 million. For 2010, the company expects adjusted earnings of $1.89-$2.09 per share, while analysts estimated earnings of $1.87 per share. Separately, the company announced a 4% increase in its quarterly dividend.

GameStop (GmE) receded in Wednesday’s after hours session after it announced the resignation of its CFO Catherine Smith. Smith is leaving to accept a position at Wal-Mart (WMT). GameStop also announced the appointment of its Senior VP and chief accounting officer Robert Lloyd as its interim CFO, effective immediately.

Flowserve (FLS) is also likely to be in focus after it reported fourth quarter earnings of $1.93 per share, down 2% from the year-ago quarter. Sales rose to $1.2 billion from $1.17 billion last year. Analysts estimated earnings of $1.87 per share on revenues of $1.11 billion. The company reaffirmed its 2010 earnings per share estimate of $6.35-$7.15 per share, including 51 cents per share in charges. Analysts estimated earnings of $7.14 per share.

Salesforce.Com, Inc. (CRM) could move to the upside after it reported fourth quarter revenues rose 22% to $354 million. The company’s GAAP earnings rose 41% to 16 cents per share. Analysts estimated earnings of 15 cents per share on revenues of $342.28 million. The company expects first quarter non-GAAP earnings of 29-30 cents per share and full year 2011 earnings of $1.25-$1.27 per share. The consensus estimates call for earnings of 18 cents per share for the quarter and 82 cents per share for the year.

Owens & Minor (OMI) is expected to move in reaction to its announcement that it has appointed Charles Colpo as Executive VP & COO, effective March 1, 2010. Earlier Colpo served as Executive VP, Administration.

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