US & World Daily Markets Financial Briefing 26-06-2009

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Stocks Turning In A Lackluster Performance In Mid-Morning Trading

After a strong outing in the previous session, stocks are showing a lack of conviction in mid-morning trading on Friday, as low volume has prompted some stagnation in the equity markets. The major averages are all in negative territory by modest margins, turning in another lackluster performance.

On the economic front, a report from the Commerce Department showed that personal income jumped 1.4 percent in May following an upwardly revised 0.7 percent increase in April, although the growth was due in large part to increased government social benefit payments.

The report also showed that that personal spending rose 0.3 percent in May after coming in unchanged in the previous month. The moderate increase in spending came in line with economist estimates.

Separately, consumer sentiment in the month of June has improved by more than previously estimated, according to the results of the Reuters/University of Michigan survey of consumers.

The report showed that the consumer sentiment index was revised up to 70.8 in June from the preliminary reading of 69.0, coming in well above the May reading of 68.7. Economists had been expecting the index to be unrevised at 69.0.

In earnings news, tech giant Palm posted an adjusted fourth quarter loss of $0.40 per share, compared to a loss of $0.22 per share in the year-ago period. Wall Street analysts had expected the firm to report a loss of $0.62 per share.

KB Home (KBH) reported a second-quarter net loss of $1.03 per share, compared to a net loss of $3.30 per share for the same period last year. Analysts expected the company to report a loss of $0.64 per share for the quarter.

Memory chip maker Micron Technology (MU) revealed that its loss for the third quarter widened from a year ago. The firm attributed the loss to hefty charges and losses related to the disposal of semiconductor equipment and other items, as well as sharp decline in quarterly sales.

Meanwhile, Qantas said on Thursday that it has reached a mutual agreement with Boeing (BA) to defer the delivery of 15 aircraft by four years and cancel orders for 15 others scheduled for delivery in 2014 and 2015.

The major indices have experienced choppy trading for most of the morning, contributing to the day’s insignificant moves. The Dow is currently down 33.41 at 8,438.99, the Nasdaq is down 1.30 at 1,828.24 and the S&P 500 is down 2.91 at 917.35.

Sector News

Some of the day’s worst performances are being turned in by pharmaceutical stocks, as reflected by the NYSE Arca Pharmaceutical Index falling by 1.1 percent on the day. The index has bounced between gains and losses in recent sessions while remaining near its best closing level in over four months set last Friday.

Pulling the sector lower are shares of Sanofi Aventis, which are down by 5.5 percent on the day. With the decline, the stock is moving further off the nine-month high set last Friday and falling to its worst intraday level in over a month.

The continued decline by Sanofi Aventis comes amid concerns about the company’s drug Lantus, which may pose a cancer risk. Further prompting the slide was a downgrade at Morgan Stanley, which changed its rating on the stock to Equal Weight from Overweight.

Additional downside is visible among healthcare provider and banking stocks, with the Morgan Stanley Healthcare Provider Index and the Kbw Bank Index both down 1.3 percent. The indices continue to trade within their respective ranges.

Meanwhile, some strength is visible among computer hardware stocks, as reflected by the 2 percent gain currently being shown by the NYSE Arca Computer Hardware Index. With the gain, the index has reached its best intraday level in nearly ten months.

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Bay Street Stocks May Pause After Rally

Canadian stocks may struggle to find direction early Friday as U.S. futures are flat and commodities are seeing modest movement. Bay Street's main index is seeking a fourth straight positive close.

Crude oil is down 3 cents to $70.20 per barrel in electronic trading, after surging above $70 yesterday. Gold is up $8.10 to $947.60 per ounce and copper is off 2.4 cents to $2.338 per pound.

In corporate news, Potash Corporation of Saskatchewan Inc. said Thursday night it now expects second quarter earnings to be US$0.70 per share, compared to its prior guidance of US$1.10 to US$1.50 per share. Analysts expect the company to earn US$0.93 per share.

OPTI Canada saw its price target lowered to C$3.25 from C$4 at UBS, which maintained its Buy rating for the oil-sands company.

Teck Resources had its target dropped to C$21 from C$22 by UBS, but kept its Buy rating. Mosaid Technologies reported adjusted fourth-quarter net income of C$7.7 million or C$0.75 per share, up 26% from C$6.1 million or C$0.57 per share in the same quarter last year.
 
Shaw Communications reported that its third quarter net income was C$132 million or C$0.31 per share, compared to C$128 million or C$0.30 per share for the same period last year.

Sun Life Financial Inc. said it plans to issue in Canada up to C$300 million principal amount of Series D Senior Unsecured 5.70% Debentures due 2019.

Across the border, a Commerce Department report showed that personal income jumped 1.4 percent in May following an upwardly revised 0.7 percent increase in April. Economists had expected income to rise 0.3 percent compared to the 0.5 percent growth originally reported for the previous month.

Additionally, the Commerce Department also said that personal spending rose 0.3 percent in May after coming in unchanged in the previous month. The moderate increase in spending came in line with economist estimates.

On Thursday, the S&P/TSX Composite Index gained 254.92 points or 2.52% to end at 10,355.85. The index closed at its best level since June 16.

Crude oil futures are gaining $0.11 to $70.34 a barrel after advancing $1.56 to $70.23 a barrel on Thursday. The resumption in the rally in crude oil prices has been supported by geopolitical tensions surrounding the unrest in Iran following the presidential elections there and the civil unrest in Nigeria.

However, Commerzbank is of the view that the above factors will have a limited impact on prices due to the availability of ample spare capacity and the possibility of the strategic release of oil stocks. The firm expects oil prices to finish the year at $70 per barrel.

Gold futures are rising $3.10 to $942.60 an ounce. In the previous session, gold added $8.50 to close at $948 an ounce.

Among currencies, the U.S. dollar is trading at 95.29 yen compared to the 95.95 yen it fetched at the close of New York trading on Thursday. At the same time, the greenback is valued at $1.4080 versus the euro.

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The major Asian markets closed higher on Friday, with the exception of the Indonesian Jakarta Composite Index. India’s Sensex advanced the most in the region, rising close to 3%.

Japan’s Nikkei 225 average opened higher on the positive U.S. lead, but it came under pressure after a report showed that consumer price inflation in Japan declined sharply in May. However, a commodity rally helped the index recover immediately thereafter and the index advanced solidly to close up 81.31 points or 0.83% at 9,877.

Tire makers led the gains after Bridgestone stated that it expects to report a narrower loss for the first half of the year. The stock gained 8.5%. Yokohoma Rubber advanced 7.57% and Sumitomo Rubber Industries gained 8%.

Nippon Electric, the third largest producer of glass for flat panel televisions, gained more than 6% after doubling its operating profit forecast for the latest quarter, on increasing demand for its products. Among others in the sector, Asahi Glass advanced 2.6%.

Hong Kong’s Hang Seng Index opened higher and moved sideways before legging up further in the afternoon. The index ended up 325.23 points or 1.78% at 18,600. Thirty-eight of the forty-two index components ended higher, with property stocks once again leading the advance. China Mercantile Holding, China Unicom, China Shenhua and Cosco Pacific were among the other notable gainers.

Rising global markets, budget expectations and hopes of improvement in monsoon rains by the first or second week of July helped the Indian market bounce-back sharply on Friday after a considerable amount of profit taking in 8 of the 11 previous trading sessions. Sharp gains in market heavyweights Reliance Industries, Larsen & Toubro and ICICI Bank helped the market end near the day's high. The BSE Sensex opened higher at 14,374 and saw some sideways movement before rising sharply to finish at 14,765, up 419 points or 2.92% from the previous close.

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The major European averages are receding on Friday after yesterday’s slump, with commodity and financial stocks lending support. The French CAC 40 Index and the German DAX Index are moving down 0.89% and 0.28%, respectively, while the U.K.’s FTSE 100 Index is receding about 0.10%.

On the economic front, the French Institute for Statistics and Economic Studies confirmed its preliminary GDP estimate of a 1.2% sequential decline for the first quarter. According to the final report, households' consumption expenditure rose 0.2%, while government spending was flat. Total gross fixed capital formation in the first quarter was down 2.4%. Exports dropped 6.4%, exceeding the 5.3% drop in imports.

A separate report released by the INSEE showed that consumer confidence stood at -37 in June, up from -40 in May. Economists had expected a reading of -39 for June. A year earlier, the indicator was at -47.

The German import price index declined 10.4% year-over-year in May compared to the 8.6% fall in the previous month, according to a report released by the German Federal Statistical Office. This was the biggest price decline since February 1987. Economists were looking for a decline of 10.3%. A year ago, import prices were up 6.9%.

U.S. Economic Reports

A report released by the Bureau of Economic Analysis showed that personal income rose by 1.4% in May compared to the previous month. The increase came after an upwardly revised 0.7% month-over-month increase in April. Economists had expected a more modest 0.3% increase for the month. Personal spending rose 0.3%, in-line with estimates, following an upwardly revised unchanged reading in April.

Spending on durable goods rose 0.8% in May after falling 1.3% in April, while spending on non-durable goods rose 0.5%. Spending on services was unchanged in May after rising 0.4% in the previous month. The core price consumption expenditure index rose at a 1.8% year-over-year rate, slower than the 1.8% rate in May.

The Reuters/University of Michigan's final report on the consumer sentiment index for June is scheduled to be released at 10 AM ET on Friday. The index is expected to be unrevised from the previous reading at 69.0, up from a reading of 68.7 in May.

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Robbins & Myers may come under selling pressure after it reported that its third quarter earnings fell to 31 cents per share from 61 cents per share last year, as sales declined to $143.4 million from $200.9 million in the year-ago period. Analysts expected earnings of 25 cents per share on revenues of $135.2 million. The company narrowed its full year earnings guidance to $1.41-$1.51 per share from its previous estimate of $1.35-$1.65 per share. The consensus estimate calls for earnings of $1.46 per share for the year.

Finish Line is also likely to move to the downside after it reported a first quarter loss of 1 cent per share compared to a profit of 2 cents per share last year. Sales fell 7% to $267.2 million. The consensus estimates had called for earnings of 1 cent per share on revenues of $273.15 million.

On the other hand, Tibco Software may trade higher after it said its second quarter earnings climbed to 6 cents per share from 2 cents per share last year. On an adjusted basis, the company reported earnings of 11 cents per share. Revenues declined 5% to $142.7 million. The Street had estimated earnings of 9 cents per share on revenues of $139.4 million.

Micron Technology is expected to see weakness after it reported a loss of 36 cents per share for its third quarter, wider than the loss of 30 cents per share last year. Revenues were down 26% at $1.1 billion compared to $1.5 billion in the year-ago period. The consensus estimates called for a loss of 43 cents per share on revenues of $1.18 billion.

Palm could see strength after its adjusted fourth quarter loss of 40 cents per share came in narrower than the consensus estimate for a loss of 62 cents per share. Revenues fell to $86.8 million, although they were ahead of the consensus estimate of $80.6 million.

Brightpoint is likely to be in focus after it said it is filing a shelf registration statement with the SEC covering the resale of up to 30 million shares of the company’s stock by NC Telecom Holding.

PotashCorp. may see weakness after it reduced its second quarter earnings guidance to 70 cents per share from its earlier estimate of $1.10-$1.50 per share due to lower than forecast potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers. Analysts estimate earnings of 93 cents per share for the quarter.

Honeywell could be in focus after it announced a definitive agreement to acquire Germany-based RMG Group for $400 million. The company noted that RMG Group would be integrated into Honeywell Process Solutions.

Torchmark is likely to react to its announcement that it has priced an offering of $300 million in aggregate principal amount of 9.25% senior notes that will mature in 2019. The company said it intends to use the net proceeds for the repayment of the $99.45 million in aggregate amount of the company’s 8.25% senior debentures that mature on August 15th, 2009 and for general corporate purposes.

Foot Locker and J.C. Penney are likely to be in focus after Foot Locker said its board has elected Ken Hicks as it President and CEO, effective August 17th, 2009. Hicks will replace Matthew Serra, who has been the company’s CEO since March 2001. Hicks has been serving as chief merchandising officer at J.C. Penney.

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