US & World Daily Markets Financial Briefing 26-08-2010

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Stocks Up By Modest Margins In Mid-Morning Trading

Stocks are posting modest gains in mid-morning trading on Thursday, as a sharper than expected drop in weekly jobless claims boosted some appetite for riskier investments. The major averages are all in positive territory but have had difficulty sustaining a significant upward move.

The Dow is up 14.38 points or 0.1 percent at 10,074.44, the Nasdaq is up 6.44 points or 0.3 percent at 2,147.98 and the S&P 500 is up 3.29 points or 0.3 percent at 1,058.62.

Before the start of trading, the Labor Department reported that initial jobless claims in the week ended August 21st fell to 473,000 from the previous week's revised figure of 504,000.

Economists had expected jobless claims to show a more modest decrease to 485,000 from the 500,000 originally reported for the previous week, a nine-month high.

Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak, said, "After last week's disappointing figure, today's number is certainly a relief but it doesn't change the fact that it's still very elevated at this point of an economic expansion as the labor market still remains very sluggish."

The markets are also on the lookout for any commentary from central bankers gathering at the yearly Jackson Hole conference over the next few days, with the outlook for the economy in question.

On the corporate front, Dell (DELL) made news this morning after the computer maker boosted its bid for data storage firm 3PAR (PAR) to $24.30 per share, topping Hewlett-Packard's (HPQ) offer of $24 per share.

Craft and fabric retailer Jo-Ann Stores (JAS) reported second quarter results that topped projections while lifting its 2011 earnings estimate above most analysts' outlook.

Meanwhile, international clothing designer Guess? (GES) provided 2011 earnings guidance below consensus estimates, although the company's second quarter results exceeded expectations.

Sector News

Railroad stocks are among the morning's best performers, with the Dow Jones Railroads Index posting a 1.6 percent gain. The advance is lifting the index further off of Tuesday's one-month closing low.

Steel stocks are also seeing notable strength, driving the NYSE Arca Steel Index up by 1.3 percent. The index is bouncing off of the one-month closing low set on Wednesday.

Banking, gold, oil service and networking stocks are also seeing buying interest, while moderate weakness among healthcare provider and tobacco stocks is limiting the upside by the major averages.

Stocks Driven By Analyst Comments

Brush Engineered Materials (BW) is seeing notable strength after KeyBanc Capital Markets boosted its rating on the stock from Hold to Buy. Shares are currently up by 9 percent, moving further off of Tuesday's nearly one-month closing low.

Paychex (PAYX) is also trading higher after being upgraded at Deutsche Bank from Sell to Hold based on recent stock valuation. The stock has gained 1.2 percent, moving further away from a yearly low set earlier this month.

PolyOne (POL) is also seeing buying interest after Longbow raised its rating on the stock from Neutral to Buy. The stock is up by 4.7 percent and moving further off of this week's one-month closing low.

Other Markets

Overseas, stock markets in the Asia-Pacific closed mostly higher on Thursday, with Japan's benchmark Nikkei 225 Index advancing by 0.7 percent. However, Hong Kong's Hang Seng Index bucked the uptrend and edged down by 0.1 percent.

The major European markets are also moving to the upside. The U.K.'s FTSE 100 Index is up by 1.1 percent, while the French CAC 40 Index and the German DAX Index are advancing by 0.9 percent and 0.6 percent, respectively.

In the bond markets, treasuries are little changed, with the yield on the benchmark ten-year note are trading at 2.534 percent, down by less than a basis point.

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Financial Stocks Likely To Guide TSX Thursday

Toronto stocks may edge up at open Thursday amid encouraging cues from the commodities and global equity markets. However, financial stocks may be in play, guiding the direction for the market, after a mixed batch of earnings reports from some Canada's big banks this week.

On Wednesday, the S&P/TSX Composite Index added 90.77 points or 0.78% to 11,648.12, recovering from a one-month low hit intraday.

The price of crude oil continued to recover from its 3-month low amid a recovery in global equity markets. Crude for October was up $1.10 to $73.62 a barrel.

The price of gold was hovering around its 8-week high amid waning risk appetite, with gold for December edging down $1.90 to $1,239.40 an ounce.

In corporate news from Canada, the nation's largest lender Royal Bank of Canada reported lower third quarter net income of C$1.211 billion compared to C$1.488 billion in the year ago quarter. On a per share basis, earnings were C$0.84, down from C$1.05 in the year ago quarter. The bank declared a dividend of C$0.50 per share. Excluding one-time items, the bank earned C$0.87 per share, widely missing analysts' estimates for net earnings of C$1.02 per share.

Peer lender National Bank of Canada reported third quarter net income of C$271 million, down from C$303 million in the prior year quarter. Earnings per share for the quarter stood at C$1.56, down from C$1.78 in the year-ago quarter. Before one time items, the bank earned C$1.57 per share this quarter, compared to the consensus estimates of C$1.52 per share.

Earlier this week, CIBC reported third quarter earnings of C$1.66 per share, beating consensus estimates, while Bank of Montreal said it earned C$1.13 per share, missing analysts' estimates of C$1.21 per share.

Fertilizer maker Potash Corp. said it believes that the continued operation of the shareholder rights plan is in the best interests of the company and its shareholders. Last week, the company adopted a shareholder rights plan to thwart BHP Billiton's $130 per share hostile bid and to ensure sufficient time to explore and develop alternatives.

Communication equipment maker JDS Uniphase swung to profit in fourth quarter, reporting net income of $1.5 million or $0.01 per share, compared to a net loss of $63.6 million or $0.29 per share in the prior year quarter. For the first quarter of fiscal 2011, JDS anticipates non-GAAP net revenue in the range of $410 million to $425 million, while the consensus estimates were for a revenue of $415.44 million.

IP video solutions provider March Networks turned to profit in first quarter, reporting net income of C$108,000 or C$0.01 per share, compared to a net loss of C$489,000 or C$0.03 per share for the year-ago quarter.

And integrated Canadian hotelier Northampton Group turned to profit in first quarter, reporting net income of C$217,449 or C$0.008 per share, compared to a net loss of C$377,870 or C$0.014 per share for the year-ago quarter.

In economic news from south of the border, the U.S. Labor Department said that initial jobless claims fell to 473,000 in the week ended August 21 from the previous week's revised figure of 504,000. Economists were expecting jobless claims to show a more modest decrease to 485,000 from the 500,000 originally reported for the previous week.

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The major Asian markets closed Wednesday’s session mostly higher, with the Japanese and Australian markets recovering from a four-session slide, while the Hong Kong, the Singaporean, the South Korean and Taiwanese markets closing lower.

Japan’s Nikkei 225 average opened higher, but retreated into negative territory in early trading. However, the index recovered immediately thereafter and moved sideways for the rest of the session to close moderately higher. The yen’s retreat helped beaten down export stocks.

Dentsu, Hitachi Construction, J Front Retailing, Japan Steel Work, Mitsui Engineering & Shipping, Mizuho Trust & Banking, Nitto Boseki Co., Oki Electric Industries, Resona Holdings, Softbank and Nissan Chemical Industries were among the biggest gainers in the session.

Australia’s All Ordinaries opened higher and saw some volatility in early trading. Thereafter, the index advanced steadily to close up 32.80 points or 0.75% at 4,389. Energy and consumer staple stocks showed notable buying interest, while defensive IT and utilities retreated.

Hong Kong’s Hang Seng Index traded mostly below the unchanged line before closing down 22.92 points or 0.11% at 20,612. Most other stocks, barring China-related stocks, advanced in the session.

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The major European averages are trading higher on Thursday, with the French CAC 40 Index and the German DAX Index are advancing 0.97% and 1.06%, respectively, while the German Index is rising 0.93%.

A monthly survey from GfK Group showed that its forward - looking consumer confidence index for Germany rose to 4.1 points in September from a revised 4 points in August. Economists had expected the index to show a reading of 4 points. The substantial rise in German gross domestic product in the second quarter, falling unemployment and the decrease in the use of reduced working hours were cited as the sentiment boosting factors.

U.S. Economic Reports

Following the release of several disappointing employment reports, the Labor Department released a report showing that first-time claims for unemployment benefits fell by more than expected in the week ended August 21st.

The report showed that initial jobless claims fell to 473,000 from the previous week's revised figure of 504,000. Economists had expected jobless claims to show a more modest decrease to 485,000 from the 500,000 originally reported for the previous week

Stocks in Focus

Earnings

Semtech (SMTC) reported that its second quarter non-GAAP earnings rose to 42 cents per share from 18 cents per share last year. Net revenues rose 70.7% to $113.2 million. Analysts estimated earnings of 38 cents per share on revenues of $110.60 million. For the third quarter, the company expects non-GAAP earnings of 45-47 cents per share on net sales growth of 6%-10% quarter-over-quarter. The consensus estimates call for 41 cents per share on revenues of $115.93 million, representing 2.5% sequential growth.

JDSU (JDSU) reported fourth quarter non-GAAP earnings of 15 cents per share compared to a loss of 1 cent per share last year. Net revenues on a non-GAAP basis rose to $398.1 million from the year-ago’s $274.1 million. Analysts estimated earnings of 14 cents per share on revenues of $398.52 million. The company expects first quarter non-GAAP revenues of $410 million to $425 million, while analysts estimate revenues of $415.44 million.

Jo-Ann Stores (JAS) reported a profit of 20 cents per share for its second quarter compared to a loss of 13 cents per share last year. The consensus estimates called for earnings of 2 cents per share on revenues of $437.08 million. The company’s net sales rose 4.7% to $439.3 million. The company raised its 2011 earnings estimate to $3.20-$3.35 per share from $2.95-$3.10 per share, while analysts estimate earnings of $3.23 per share.

Guess? Inc. (GES) could also move in reaction to its announcement that its second quarter earnings climbed to 72 cents per share from 64 cents per share last year, exceeding the consensus estimate of 68 cents per share. Net revenues rose 10.5% to $577.1 million, also exceeding the $576.38 million consensus estimate.

For the third quarter, the company expects net revenues of $565 million to $580 million and earnings of 55-58 cents per share. The Street estimates earnings of 57 cents per share on revenues of $566.38 million. The company now expects full year earnings of $2.80-$2.85 per share on revenues of $2.35 billion to $2.40 billion. The full year revenue guidance surrounds the consensus estimate of $2.39 billion, while the earnings guidance trails the mean analysts’ estimate of $2.92 per share.

Other Corporate News

Emulex (ELX) could be in focus after it reiterated its guidance for the first quarter, expecting a loss of 8-11 cents per share on a non-GAAP basis and revenues of $100 million to $104 million. Analysts estimate earnings of 11 cents per share on revenues of $112.25 million. The company also said it has completed the acquisition of privately held ServerEngines, a fabless semiconductor company based in California for $78 million in cash, excluding $25 million of debt plus interest owed to Emulex and 8 million shares of Emulex stock.

Bob Evans Farms (BOBE) may trade higher after it announced an 11%increase in its quarterly cash dividend to 20 cents per share from 18 cents per share.

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Dollar Mixed Ahead Of Jobless Claims

The dollar was mixed Thursday morning in New York, creeping away from a 15-year low versus the yen ahead of another look at the sluggish jobs market.

The Labor Department is due to release its jobless claims report for the week ended August 21st at 8:30 am ET.

Economists expect a decline in the number of individuals claiming unemployment benefits to 485,000 from the half-a-million mark reported for the previous week, marking its highest level since November 2009.

With stock futures basically flat on Wall Street this morning, the buck eased a bit versus its European counterparts. Against the euro, the buck slipped to $1.2740, staying away from June's 4-year high of 1.1805.

The buck dropped to $1.5580 against the sterling, having lost two cents from a monthly high reached Tuesday.

Even with no further comments from Japanese officials indicated they will intervene to stop the rise of the yen, the buck managed to hold yesterday's modest gains.

The buck was stuck near Y84.50, near a 15-year low of Y83.58. A move below 79.75 would take buck to a record low.

The Federal Reserve is meeting in Jackson Hole, Wyoming this week amid reports of dissension among voting members on monetary policy. Chairman Ben Bernanke will speak on Friday, offering clues on his outlook for the economy.

Noted economist Nouriel Roubini on Thursday warned there is 40% chance of a double-dip recession, saying third quarter growth will be well below 1 percent.

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