US & World Daily Markets Financial Briefing 26-08-2009

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Traders May Stick To The Sidelines As They Digest Data

The major U.S. index futures are pointing to a roughly flat opening on Wednesday, with traders expressing some uncertainty about the outlook for the markets. Traders are digesting a report showing a bigger than expected increase in durable goods orders while looking ahead to the release of a separate report on new home sales after the start of trading. Trading may also be impacted by the release of the Energy Department’s weekly report on oil inventories, which could have a significant impact on the direction of oil prices. The healthcare sector may also be in focus today following the passing of Senator Edward Kennedy, a key proponent of healthcare reform.

After turning in a lackluster performance in the previous session, U.S. stocks advanced on Tuesday following the release of reports that reinforced expectations of an economic recovery. The major averages opened to the upside and spiked sharply higher in early trading, as traders reacted to the Conference Board’s consumer confidence report and the S&P/Case-Shiller home price index.

The buying momentum slowed thereafter, although the indexes held above the unchanged line throughout the session. The reappointment of Federal Reserve Chairman Ben Bernanke for a second term also turned out to be market positive due to the predictability that comes along with his appointment.

The Dow Industrials ended up 30.01 points or 0.32% at 9,539 compared to a 2.43 point or 0.24% gain by the S&P 500 Index, which close at 1,028. The technology-weighed Nasdaq Composite Index gained 6.25 points or 0.31% to close at 2,024.

Twenty of the thirty Dow components ended the session higher, while one ended unchanged and the remaining 9 stocks closed below the flat line. Boeing (BA), Bank of America (BAC), Home Depot (HD), Intel (INTC), JP Morgan Chase (JPM), Merck (MRK), Travelers Co. (TRV) and McDonald’s (MCD) were among the notable gainers.

Among the sector indexes, the NYSE Arca Airline Index surged up 3.96%, the NYSE Arca Biotechnology Index rallied 2.83% and the S&P Retail Index advanced 1.78%. The Philadelphia Housing Sector Index moved up 2.23%, the NYSE Arca Securities Broker/Dealer Index gained 1.66% and the NYSE Arca Disk Drive Index rose 1.14%. On the other hand, the Philadelphia Oil Service Index fell 2.23%.

On the economic front, the S&P Case-Shiller home price survey showed that the 20-city home price index fell 15.4% year-over-year in June. On a monthly basis, the index rose 1.4%, moving up for the second straight month. Barring Detroit and Las Vegas, all cities recorded monthly increases. The $8,000 tax credit seems to be benefiting sales and in turn prices.

Meanwhile, the Conference Board’s consumer confidence survey showed that the consumer confidence index rose to 54.1 in August from 47.4 in July. Economists had expected a more modest increase to 47.9. The bulk of the improvement was in the expectations index, which jumped 10 points, while the present situations index rose merely 1.6 points.

The Treasury auction of $42 billion worth 2-year notes produced a lukewarm reception. The bid-to-cover ratio at 2.68 was the lowest since February and indirect buyers accounted for 49.37% of the total, while at the same time the yield was at 1.119%.

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Bay Street Stocks May See Little Change At Open

Toronto stocks could struggle to find direction on Wednesday morning as commodities lingered near the flat-mark. Financials may rally again on Bay Street as earnings season for big banks continued to bring encouraging results, but markets in Europe are seeing mild weakness.

Crude oil dropped 60 cents to $71.45 per barrel in early trading. Gold has gained $2.60 to $948.60 and copper is up 1.25 cents to $2.886.

Canadian Imperial Bank of Commerce announced that its third quarter net income was $434 million, compared to net income of $71 million for the same period last year. Earnings per share were $1.02, compared with $0.11 a year ago.

Royal Bank, Toronto-Dominion Bank and National Bank of Canada are scheduled to report Thursday and Scotiabank is due on Friday. Bank of Montreal reported better-than-expected earnings on Tuesday.
 
Eldorado Gold Corp. announced a deal to acquire the shares of Sino Gold Mining Limited it does not currently own. The deal is worth about A$2.2 billion or C$2.0 billion.

Thompson Creek Metals Co. Inc. announced Tuesday that it expects to raise approximately C$217 million through a bought deal financing. The company said it will offer 15.5 million common shares of the company at a price of C$14.00 per share.

CAE Inc. announced a series of military contracts with prime contractors and other military customers valued above C$100 million.

On Tuesday, the S&P/TSX Composite Index rose 130.56 points or 1.21% to settle at 10,920.53. This marks its best finish since August 5.

Oil Falls Further Ahead Of EIA Report

Crude oil fell in early U.S. trading as industry data released late yesterday showed crude oil supplies rose last week. Traders awaited the Energy Information Administration's inventory report later this morning.

Light sweet crude for October delivery fell to $71.22, down 82 cents for the session. Prices hit a 10-month high of $75 on Tuesday.

The EIA's data is due at 10:30 a.m. ET. Experts are predicting a decline in crude oil supplies of 2.7 million barrels in the week ended August 21. Gasoline stockpiles are expected to fall 1.5 million barrels and distillates are predicted to drop 700,000 barrels.

Late Tuesday afternoon, the American Petroleum Institute data showed crude supplies rose by 4.3 million barrels in the week ended August 21. Gasoline stocks slipped 1.8 million barrels. The EIA report is watched more closely because participation in that data is mandatory.
 
On the economic report, a Commerce Department report showed that new orders for durable goods jumped 4.9 percent in July following a revised 1.3 percent decrease in June. Economists had expected orders to increase by 3.2 percent compared to the 2.2 percent decrease that had been reported for the previous month.

New home sales data is coming at 10 a.m. ET for the month of July. Sales of 390,000 are projected, compared to 384,000 a month earlier.

On Tuesday, crude dropped to $72.05, losing $2.32 on the session. Earlier, oil hit $75 for the first time since October.

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The Asian markets ended in the positive territory on Wednesday following cues from Wall Street, where the major indices ended modestly higher on better than expected consumer confidence and home price. Better-than-expected earnings from Chinese companies also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index rose to an 11-month high and ended at 10,640, representing a gain of 142.35 points, or 1.35%.

On the economic front, the Ministry of Finance revealed that the merchandise trade balance surplus for July was 380.2 billion yen, slightly below the 390 billion yen surplus forecast following the revised 507.5 billion yen surplus in June.

In a separate report, the Bank of Japan said that an index measuring corporate services prices in the country declined 3.4% year-on-year during July.

Automakers advanced on expectations of an increase in demand. Toyota Motor gained 1.48% after the company revealed that it is considering reducing overall global production, which might help reduce its losses. Honda Motor added 0.67%, Nissan Motor advanced 0.74%, and Mitsubishi Motor rose 0.59%.

Bank stocks also ended higher on optimism about an economic recovery. Mitsubishi UFJ Financial added 0.51%, Mizuho Financial climbed 0.44%, Resona Holdings advanced 0.78% and Sumitomo Mitsui Financial rose 0.99%.

In Australia, the benchmark S&P/ASX200 Index gained 1.11% or 48.70 points to close at 4,454, while the All-Ordinaries Index ended at 4,464, representing a gain of 46.90 points, or 1.06%.

On the economic front, the Australian Bureau of Statistics revealed that construction work recorded a decrease in the June quarter marking a second straight quarterly decrease. According to the report, construction work was down a seasonally adjusted 0.1% quarter-over-quarter, a slower rate of decline compared to the 2.2% drop reported in the March quarter. The quarterly decrease was smaller than economists' forecast of a 3% decline.

Westfield Group, the biggest owner of shopping centers, reported a 12.1% gain in operating profit for the first half of the year. The company, which earns a third of its revenue from the 55 malls it owns in the U.S., gained 4.66%. Among other property stocks, Stockland surged up 5.40%, GPT Group soared 7.48% and Mirvac Group rose 6.48%.

Metals and mining stocks ended in positive territory. BHP Billiton gained 0.93%, Fortescue Metals added 0.45%, Gindalbie Metals rose 3.11%, Illuka Resources surged up 8.28%, Oz Minerals advanced 2.68% and Rio Tinto increased 0.92%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 21.08 points, or 0.10% at 20,456, taking cues from Wall Street. Profit taking on valuation concerns amid volatile trading limited the gains, however, with property and bank stocks showing weakness.

South Korea’s benchmark KOSPI Index ended at 1,614, up 12.74 points, or 0.80% following Wall Street cues on optimism about growth. Steel and shipping stocks attracted buying interest, while profit taking in automotive stocks limited the gains.

Firm buying in IT stocks on the back of better-than-expected U.S. economic data and short covering a day before the expiry of current month derivatives contracts helped the Indian market end higher for the 5th straight session. The BSE Sensex climbed 81 points, or 0.52% to close at 15,770 and the S&P CNX Nifty rose 21 points or 0.46% to 4,681.

Among the other major markets in the region, China's Shanghai Composite Index advanced 1.78% or 51.79 points, to 2,968, and Singapore's Strait Times Index added 9.67 points, or 0.37% to close at 2,628.

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The major European markets are slipping, with the German DAX Index and the U.K.'s FTSE 100 Index down by 0.4 percent and 0.3 percent, respectively, while the French CAC 40 Index is falling by 0.1 percent.

On the economic front, a business climate indicator for German industry and trade improved for the fifth straight month in August, providing further evidence that the Eurozone economy is on the road to recovery.

The business climate index rose to 90.5 in August from 87.4 in July, the Munich-based Ifo Institute for Economic Research said Wednesday. That is the highest reading since September of last year. Economists had expected the indicator to climb to 89. “There is still sufficient scope for this important leading indicator to keep rising at least in the next six months,” Commerzbank chief economist Jörg Krämer said.

U.S. Economic Reports

With orders for transportation equipment showing a substantial rebound, the Commerce Department released a report on Wednesday showing that orders for durable goods increased by much more than expected in the month of July.

The report showed that new orders for durable goods jumped 4.9 percent in July following a revised 1.3 percent decrease in June. Economists had expected orders to increase by 3.2 percent compared to the 2.2 percent decrease that had been reported for the previous month.

Excluding an 18.4 percent increase in orders for transportation equipment, durable goods orders increased by a much more modest 0.8 percent in July compared to a 2.5 percent increase in June. The increase came in below economist estimates of 1.0 percent growth.

The Commerce Department is also due to release its new home sales report for July at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 390,000.

In June, new home sales rose 11% to a seasonally adjusted annual rate of 384,000 units. A 23% month-over-month increase in sales in the West was attributed to the $8,000 federal tax credit awarded to first time buyers and the $10,000 California tax credit for new homes.

The median sales price of new homes fell 12% year-over-year to $206,200, while inventories, as measured by the months supply of new homes at current sales rate, fell to 8.8 from 10.2 in the previous month.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

The oil inventory report for the week ended August 14th showed that crude oil inventories declined by 8.4 million barrels to 343.6 million barrels. Notwithstanding the steep decline, crude oil stockpiles remained above the upper boundary of the average range for this time of the year.

Gasoline inventories fell by 2.1 million barrels, but they were still in the upper half of the average range. Distillate stockpiles edged down by 0.7 million barrels, although stockpiles were still above the upper boundary of the average range. Refinery capacity utilization averaged 84.1% over the four weeks ended August 14th compared to 84.6% in the previous week.

Atlanta Federal Reserve Bank President Dennis Lockhart is due to deliver a luncheon address to the Chattanooga Area Chamber of Commerce in Chattanooga, Tennessee at 11 AM ET.

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Fluor (FLR) may react to its announcement that its CEO Alan Boeckmann has sold about 90,000 of his shares in the company as part of his personal long-term asset diversification strategy.

Iconix Brand Group (ICON) is likely to see buying interest after Standard & Poor’s said it has upgraded its outlook on the company to “stable” from “negative.” The agency attributed the improved outlook to the company’s ability to maintain its current operating performance amid a weak retail environment, reduce its debt level and improve credit protection measures.

Terra Industries (TRA) could be in focus after it said its board rejected a revised takeover offer from CF Industries Holdings (CF), saying the offer substantially under-values Terra. Last week, CF Holdings raised its offer to 0.465 shares of CF Industries for each Terra common share.

Keithley Instruments (KEI) is likely to react to news that it has announced further cost reductions, including the elimination of 10% of its global workforce. The company said it estimates non-recurring severance, separation and related costs associated with the reductions of $2.3 million to $2.6 million on a pre-tax basis. The company reiterated that it would return to profitability in 2010, as per its original plan.

Amgen (AMGN) may see weakness after it announced that a late stage study of its anemia drug Aranesp did not show superior performance than the placebo when tested in patients with chronic kidney disease, type 2 diabetes and anemia.

Hain Celestial (HAIN) is likely to trade lower after it said its fourth quarter earnings fell to 3 cents per share from 16 cents per share last year. On an adjusted basis, the company reported earnings of 28 cents per share. Revenues declined 6% to $262.7 million. Analysts estimated earnings of 30 cents per share on revenues of $287.4 million. For 2010, the company expects earnings of $1.19-$1.28 per share on revenues of $1.01 billion to $1.03 billion. The consensus estimates call for earnings of $1.36 per share on revenues of $1.22 billion.

Blue Coat Systems (BCSI) may also be in focus after it reported a first quarter profit of 9 cents per share compared to a loss of 15 cents per share last year. The company’s adjusted earnings were 23 cents per share, exceeding the 22 cents per share consensus estimate. Revenues fell 13% to $116 million compared to the mean analysts’ estimate of $115.8 million.

International Rectifier (IRF) may see activity after it reported fourth quarter earnings of 41 cents per share compared to a loss of 69 cents per share last year. The recent quarter’s results included a gain of $96.1 million. Revenues fell 22% to $159.6 million. Analysts’ estimates that typically exclude one-time items called for earnings of 59 cents per share on revenues of $146.6 million. The company forecast first quarter revenues of $165 million to $175 million compared to the consensus estimate of $155.6 million.

Myriad Genetics (MYGN) is expected to react to its fourth quarter results, which showed revenues of $86.1 million, up 33% year-over-year. However, net income fell to 24 cents per share from the year-ago’s 70 cents per share, with the recent quarter’s results dragged down by a loss of $13.06 million from discontinued operations. Earnings from continuing operations climbed to 37 cents per share from 23 cents per share last year. Analysts estimated earnings of 22 cents per share on revenues of $86.72 million.

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