US & World Daily Markets Financial Briefing 25-05-2010

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Stocks Posting Steep Losses As Overseas Concerns Outweigh U.S. Data

Stocks are down by substantial margins in mid-morning trading on Tuesday, as concerns regarding political tensions between the Koreas and the financial stability of the European Union are outweighing continued improvement on the U.S. economic front.

The major averages are all firmly in the red but off of their worst levels following the day's largely upbeat news from the world's largest economy.

The Conference Board released a report showing a much bigger than expected improvement in consumer confidence in the month of May, with the consumer confidence index rising to its highest level since March of 2008.

The consumer confidence index rose to a reading of 63.3 in May from a revised reading of 57.7 in April. Economists had expected the index to edge up to a reading of 58.3 from the 57.9 originally reported for the previous month.

Earlier, data from Standard and Poor's showed an acceleration in the annual rate of home price growth in the month of March.

While the S&P/Case-Shiller 20-City Composite Home Price Index edged down by 0.5 percent on a monthly basis in March, prices were up 2.3 percent compared to the same month a year ago. Economists had expected prices to show an annual rate of growth of 3.0 percent.

Market anxieties continue to run high, however, as North Korean Premier Kim Jong-Il ordered the North Korean military to be prepared for action as the sinking of a South Korean naval ship has drawn international ire.

Meanwhile, in Europe, action by the Spanish government last weekend to save a regional savings bank continues to dent confidence in the stability of European financials.

The major averages have seen choppy movement recently since climbing off of their session lows. The Dow is down 207.45 points or 2.1 percent at 9,859.12, the Nasdaq is down 49.86 points or 2.3 percent at 2,163.69 and the S&P 500 is down 22.21 points or 2.1 percent at 1,051.44.

Sector News

Electronic storage stocks are notably lower in mid-morning trading, with the NYSE Arca Disk Drive Index falling by 3.6 percent. The index has slipped to a three-month intraday low.

Significant weakness is also visible among housing stocks, which have come under pressure despite the upbeat home price data. Steel, trucking, and oil service stocks are also notably lower amid another broad-market sell-off.

Meanwhile, gold stocks are seeing moderate strength amid today's safety play for gold. The NYSE Arca Gold Bugs Index is up by 0.6 percent, as gold for June delivery is up by $3.80 to $1,197.80 an ounce.

Stocks Driven By Analyst Comments

Tech infrastructure firm EMC Corp. (EMC) is down after JP Morgan Chase downgraded the stock from Overweight to Neutral. EMC is currently down by 3.2 percent, and although it has not broke through recent intraday lows, it is on pace for its lowest closing price in nearly three months.

Corinthian Colleges (COCO) is also under pressure after analysts at Argus reduced their rating on the stock from Buy to Hold. The stock is currently down by 4.1 percent after setting a three and a half month intraday low in earlier dealing.

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TSX Poised For Weak Opening As Global Stocks Tank

Toronto stocks may open sharply lower Tuesday amid nervousness in the global financial markets and falling energy prices.

Also, speculation that austerity measures by some euro zone nations could cripple economic growth and escalating tension between North and South Korea may heavily weigh on sentiment.

The rescue of a small Spanish bank over the weekend raised concerns on the health of the financial system in the European nations.

Meanwhile, the Canadian dollar was recovering from an early morning steep loss against the U.S. dollar.

On Friday, the S&P/TSX Composite Index gained 115.40 points or 1.01% to 11,521.35, snapping its 6-day losing streak. US stocks were hit hard on Monday, while Bay Street was closed.

The price of oil slipped to a fresh 10-month low amid falling equities markets, with crude for July delivery shedding $2.30 to $67.91 a barrel.

Meanwhile, the price of gold eased after advancing near $1,200 an ounce intraday previous session. Gold for June edged down $2.7 to $1,191.30 an ounce.

In corporate news, international energy company BNK Petroleum announced that its wholly owned subsidiary BNK Petroleum (US) Inc., has signed an agreement with Wells Fargo Energy Capital Inc. to buy out an overriding royalty interest and net profits interest in the company's Tishomingo Field, Oklahoma for $12 million.

Bio-technology company QLT Inc. said Friday it has doubled the number of shares it planned to buy back to 4,700,060, representing 10% of the public float.

Oil and gas firm Ithaca Energy swung to profit in fourth quarter, reporting net profit of $0.03 per share, compared to a net loss of $0.08 per share in the year ago period.

Oil and gas explorer Velo Energy said it has issued 27.49 million units at C$0.30 per unit through a non-brokered private placement for gross proceeds of C$8.25 million.

Gold explorer Staccato Gold Resources said its security holders approved the proposed acquisition of Staccato by U.S. based diversified gold firm Timberline Resources Corp.

U.S. based mining and natural resources company Cliffs Natural Resources Inc. announced plans to acquire all of the common shares of each of precious metals explorers KWG Resources Inc. and/or Spider Resources Inc.

Cliffs plans to offer to purchase both the companies for C$0.13 in cash per common share each, representing a premium of 62.5% over the closing price on the TSX-V on May 21. This offer price implies a total value for KWG of C$100 million and Spider at C$86 million.

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Asian Markets Plunge On Fear Of Korean War, Europe Crisis

The markets across Asia plunged sharply on Tuesday amid fresh concerns about the looming war clouds across the Korean peninsula A weak closing on Wall Street in the previous session following IMF's warning about Spain's financial condition also impacted market sentiment with the Asian markets plunging sharply to multi-month lows. The sharp drop in commodity prices and crude oil futures also impacted market sentiment

In Japan, the benchmark Nikkei 225 Index fell 298.51 points, or 3.1%, to 9460 while the broader Topix index of all First Section issues was down 20.19 points, or 2.3%, to 860.

In the Nikkei-225 index, only less than 20 stocks managed to either remain unchanged or post minor gains during the trading session, while the other stocks ended sharply lower on broad sell-off on fresh concerns about possibility of war in Korean peninsula, and increasing concerns in Euro region related to debt crisis.

Retailer Fast Retailing dragged the market lower with its shares having plunged 5.36%. Among other retailers, Seven & I Holdings shed 2.25%, Marui Group fell 4.98%, Takashimaya lost 4.23% and J Front Retaling declined 4.24%.

Shipping stocks also ended lower. Mitsui OSK Lines lost 3.85%, Kawasaki Kishen Kaisha fell 4.37% and Nippon Yusen plunged 4.59%.

Among trading companies, Mitsui & Co., plunged 4.58%, Toyota Tsusho Corp. fell 4.09%, Mitsubishi Corp. slipped 2.45%, Sumitomo Corp. shed 2.66% and Itochu Corp. was down 2.70%.


Large banks also ended in negative territory. Sumitomo Mitsui Financial Group lost 3.08%, Mitsubishi UFJ Financial slipped 1.35%, Mizuho Financial edged down 0.61% and Resona Holdings declined 2.00%.

In Australia, the benchmark S&P/ASX200 Index plunged down 130.10 points, or 2.96% and closed at 4,265, while the All-Ordinaries Index ended at 4,286, representing a steep loss of 126.50 points, or 2.87%.

Almost all the stocks ended in negative territory with only 10 out of the 200 components in S&P/ASX 200 Index managing to end either unchanged from previous close or post marginal gains.

Mining and metal stocks plunged on lower commodity prices in the international market. BHP Billiton shed 4.02%, Rio Tinto slipped 3.82%, Fortescue Metals plunged 7.82%, Gindalbie Metals lost 3.61%, Iluka Resources declined 2.25%, Macarthus Coal was down 3.35%, Mineral Resource fell 4.00%, Murchison Metals slumped 8.50% and Oz Minerals decreased 4.72%.

Oil Stocks also ended sharply lower after crude oil features declined sharply in international market. Woodside Petroleum lost 3.41%, Santos fell 4.39%, ROC Oil plunged 5.71%, Oil Search Ltd declined 4.72% and Origin Energy shed 3.69%.

Gold stocks also ended in negative territory. Lihir Gold fell 1.28% and Newcrest Mining shed 1.40%.

Banks were the major losers taking cues from Wall Street where financials led the market sharply down in late-selling off of financial stocks. ANZ Bank lost 2.56%, Commonwealth Bank of Australia fell 3.68%, National Australia Bank slipped 3.26%, investment banker Macquarie Group plunged 4.69% and Westpac Banking Group was down 3.89%.

Airline stocks also ended sharply lower. Qantas Airways lost 4.49% and Virgin Blue Holdings plunged 6.59%.

In Hong Kong, the benchmark Hang Sang Index plunged 682.26 points, or 3.47%, and closed at 18,985, taking cues from other Asian markets as fears about a war in the Korean peninsula looms large on the horizon. Weak closing on Wall Street in the previous session and sharp decline in Korean Won amid speculation that North Korean Premier instructed his military command to be in ready state triggered sell-off in the markets. Resource stocks and China-related stocks witnessed sell-off with as many as 42 of the 43 components in the index having ended in negative territory.

Growing risk aversion due to economic uncertainty in Europe and sustained selling by foreign institutional investors (FIIs) in the past few sessions weighed heavily on Indian equities Tuesday. Plunging commodity prices, a steep fall in the value of rupee against the dollar to its lowest level in nearly eight months on Tuesday also rattled investor confidence. The benchmark 30-share Sensex fell below the 16,000 mark for the first time in more than three months before ending down 447 points or 2.71% at 16,022, while the 50-share Nifty tumbled 137 points or 2.78% to 4,807.

Among the other major markets open for trading, China's Shanghai Composite Index declined 50.79 points, or 1.90%, to close at 2,623, Singapore's Strait Times Index lost 72.68 points, or 2.67%, to close at 2,651, Taiwan's Weighted Index plunged 236.36 points or 3.23% to close at 7,086, and Indonesia's Jakarta Composite Index ended in negative territory with a loss of 95.49 points, or 3.66% to close at 2,514.

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The major European markets are trading lower on Tuesday after turning in a mixed performance on Monday. The French CAC 40 Index is slumping 3.62% compared to a 2.73% decline by the German DAX Index, while the U.K.’s FTSE 100 Index is moving down 2.74%.

On the economic front, Eurostat reported that industrial new orders in the euro zone rose 5.2% month-over-month in March. Economists expected a 2.5% increase following a 1.9% increase in the previous month. Excluding volatile transportation orders, new orders were up 4.5%. Annually, new orders jumped 19.8%, faster than the 12.5% increase in the previous month.

Meanwhile, the U.K. Office for National Statistics upwardly revised its GDP estimate for the first quarter to 0.3% quarterly growth from the previously estimated 0.2% growth. The upward revision was in line with expectations.

U.S. Economic Reports

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 3% year-over-year increase in the 20-city composite house price index for March.

The Conference Board is scheduled to release its consumer confidence report for May at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 58.3 in May.

The consumer confidence index rose more than expected to 57.9 in April from 52.3 in March, reaching the highest reading since September 2008. The present situation index increased for the second straight month, rising to 28.6 from 25.2, and the expectations index jumped 7 points to 77.4.

The Federal House Finance Agency, or FHFA, is set to release its house price index for March 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. The house price index declined 0.6% in February.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak on "The Road to Economic Recovery Following the Financial Crisis" to the European Economics and Financial Centre in London at 11:15 AM ET.

Earnings

AutoZone (AZO) reported third quarter net income that rose to $4.12 per share from $3.13 per share in the year-ago period. Net sales increased 9.9% year-over-year to $1.8 billion. Analysts estimated earnings of $3.59 per share on revenues of $1.71 billion.

Cracker Barrel Old County Store (CBRL) said its third quarter revenues rose 1.9% year-over-year to $578.2 million. The company’s earnings per share from continuing operations rose 17% to 61 cents per share. Analysts estimated earnings of 58 cents per share on revenues of $577.29 million. The company expects full year revenue growth of 1%-2% and net income per share of $3.50-$3.60. The consensus estimates call for 1.4% revenue growth and earnings per share of $3.53 per share.

Medtronic (MDT) reported fourth quarter revenues of $4.20 billion, up 10% year-over-year. On a non-GAAP basis, the company reported earnings of 89 cents per share, up 9% from last year. Analysts estimated earnings of 88 cents per share and revenues of $4.19 billion. For the full year, the company expects revenue growth of 5%-8% and earnings of $3.45-$3.55 per share, including a charge of 5 cents per share. Analysts’ estimates, which typically exclude one-time items, call for earnings of $3.52 per share on revenue growth of 4.90%.

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Phillips-Van Heusen (PVH) receded in Monday’s after hours session despite reporting first quarter revenues that rose 11% year-over-year to $619 million, exceeding the consensus estimate of $604.82 million. The company reported non-GAAP earnings of 83 cents per share, higher than 53 cents per share in the year-ago period. Analysts estimated earnings of 79 cents per share.

The company raised its full year guidance, now expecting non-GAAP earnings of $3.55-$3.65 per share and revenues of $4.35 billion to $4.40 billion. The consensus estimates call for earnings of $3.64 billion on revenues of $4.09 billion.

Cliffs Natural Resources (CNF) may be in focus after it announced that it intends to make takeover bid to acquire all of the common shares of KWG Resources and Spider Resources not owned by Cliffs or its affiliates. Cliffs currently holds about 19.4% stake in KWG. The offer price is $0.13 Canadian dollars in cash for each of KWG’s shares and each of Spider’s shares.

OSI Systems (OSIS) is likely to gain ground after Standard & Poor’s announced that it would replace Iowa Telecommunications Services (IWA) in the S&P SmallCap 600 Index after the end of trading on Friday.

First American Financial (FAF) could also see some activity on inclusion in the MidCap 400 Index following MidCap 400 constituent Theragenics (TGX) moving into the SmallCap 600 Index after trading on June 1st.

AAR Corp. (AIR) moved lower in Monday’s after hours session after it said it expects a negative impact of 2 cents per share in its fourth quarter results due to one-time transaction costs associated with a business acquisition.

Including the charge, the company expects earnings of 25-30 cents per share for its fourth quarter and sales of $355 million to $365 million. Analysts’ estimates, which typically exclude one-time items, call for earnings of 38 cents per share on revenues of $340.20 million.

Donaldson CO. (DCI) may also be in focus after it reported that its third quarter net sales rose 20.4% to $497.6 million. The company reported earnings of 62 cents per share compared to 34 cents per share last year. The recent quarter’s results included a charge of 3 cents per share compared to 6 cents per share last year.

Analysts expect earnings of 59 cents per share on revenues of $475.27 million. The company raised its 2010 earnings per share estimate to $2.01-$2.11 per share, while it expects sales to be between $1.83 billion and $1.86 billion.