US & World Daily Markets Financial Briefing 27-07-2009

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The major U.S. index futures are pointing to a lower opening on Monday, with the futures shedding much of their early gains. The mood in the rest of the global market was upbeat, with the Asian averages extending their gains, while the European markets are also staying afloat. The recent optimism built on the back of positive earnings may face test in today’s session, as the markets await the new home sales report to be released shortly after the markets open.

That said, the continued rally in the resource space suggests that traders are hopeful of a turnaround in economic conditions in the near future. Some trepidation may be expressed ahead the release of a few key economic reports to be released during the course of the week, which may lead to indecision.

U.S. stocks recorded gains for another week, with the major averages advancing solidly in the week ended July 24th. The rally was sustained after companies rolled out better-than-expected bottom line results for the calendar year second quarter and issuing positive commentary about growth.

Last Monday, the major averages rose over 1%, helped by a positive economic report, a rise in commodity prices and earnings optimism.

Caterpillar lifted the confidence of traders on Tuesday with its upbeat earnings and positive guidance. Consequently, the markets extended their winning streak despite coming into the session with seven consecutive sessions of gains.

The major averages showed a lack of direction on Wednesday, as profit taking led to a mixed close. While the Dow Industrials and the S&P 500 Index fell moderately, the Nasdaq Composite Index advanced. However, optimism ruled on Wall Street on Thursday following the release of positive corporate earnings report and a bigger-than-expected increase in existing home sales. Consequently, the major averages settled the session up over 2% each.

After remaining below the unchanged line for the bulk of the session on Friday, weighed down by some negative earnings reports, the Dow Industrials and the S&P 500 Index recovered in late trading, while the Nasdaq Composite ended lower.

For the week, the Dow Industrials ended up about 4%, while the S&P 500 Index and the Nasdaq Composite rose 4.13% and 4.21%, respectively.

Among the sector indexes, the NYSE Arca Biotechnology Index jumped 26.89% for the week, benefiting from positive trial results as well as on the potential benefits for companies that are working on developing a swine flu vaccine. Securities firms also advanced, as reflected by the 6.66% gain posted by by the NYSE Arca Securities Broker/Dealer Index.

Bubbling oil prices perked up oil and oilfield services stocks, with the NYSE Arca Oil Index and the Philadelphia Oil Service Index gaining 5.49% and 6.49%, respectively. The NYSE Arca Airline Index rose 8.59%. The Dow Jones Transportation Average and the Dow Jones Utility Index posted weekly gain of 6.71% and 5.34%, respectively. Chip stocks continued to see strength, as reflected by the 3.58% gain posted by the Philadelphia Semiconductor Index.

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Toronto Stocks May Be Headed To Flat Open

Canadian stocks could see little direction in early trading on Monday morning after experiencing notable strength over the last two weeks. U.S. futures are mixed, while commodities are lingering near the flat-line, contributing to uncertainty on Bay Street.

Oil prices are up slightly, rising 12 cents to $68.17 per barrel. Gold is up $3.70 to $956.80 an ounce and copper is up 2.5 cents to $2.574.

Addax Petroleum announced financial results for the second quarter, posting net income of US$38 mln or US$0.24 per share, compared to US$293 mln or US$1.83 per share in the prior year period.

In other corporate news, Nortel Networks agreed to sell its wireless network to Stockholm- based Ericsson for $1.13 bln.
 
Cott Corp. announced that its second-quarter net income attributable to the company was US$33.7 mln or US$0.48 per share, compared to a net loss of US$1.8 mln or US$0.03 per share in the year ago quarter.

IMAX Corp. and VieShow Cinemas announced an agreement to open six additional IMAX theaters in Taiwan, following the strong results at its first IMAX location at the Sun VieShow Cinemas multiplex in the city of Taipei.

Across the border, Verizon Communications reported second quarter net income attributable to Verizon of $1.48 bln or $0.52 per share, compared to $1.88 bln or $0.66 per share last year.

The S&P/TSX Composite Index added 12.22 points or 0.11% to end Friday's session at 10,687.90. The market finished higher for an eighth time in 10 sessions and rose more than 300 points on the week.

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The major Asian markets ended Monday’s session higher, as the encouraging lead from Wall Street helped sustain the recent buying momentum. Japan’s Nikkei 225 average opened higher and rose further in early trading. After trading sideways for the rest of the session, the index ended up for the ninth consecutive session, gaining 144.11 points or 1.45% to close at 10,089.

The yen’s weakness helped export stocks, while among the other major advancers, Clarion jumped 13.64%, CSK Holdings rose 6.88%, Fuji Heavy Industries advanced 4.92%, Shinshei Bank gained 6.56%, TDK moved up 5.45% and Sompo Japan rallied 5.76%. Brokerages also found significant buying interest. On the other hand, marine transportation stocks receded on a weak profit outlook.

Australia’s All Ordinaries opened unchanged and rose sharply in early trading. Thereafter, the index moved steadily higher to close up 50.50 points or 1.23% at 4,148. The market witnessed broad based buying interest, with energy and material stocks leading the gains.

Leighton advanced strongly after it won a contract from a joint venture of BHP Billiton and Mitsubishi. Bank stocks also advanced strongly.

Hong Kong’s Hang Seng Index hovered in positive territory throughout the session before closing up 268.83 points or 1.35% at 20,252. Thirty-four of the forty-two index components ended the session higher.

Currency, Commodity Futures

Crude oil futures are edging up $0.21 to $68.26 a barrel after advancing $4.49 or 7.06% to $68.05 a barrel in the week ended July 24, when it gained for the second week in succession.

In the previous week, the commodity rose in the first two sessions of the week only to dip modestly on Wednesday amid the release of the weekly oil inventory report, which showed a decline in crude oil stockpiles but builds in gasoline and distillate inventories.

Crude oil resumed its uptrend by rising more than $1.75-a-dollar on Thursday and rose again on Friday to close above $68-a-barrel.

Meanwhile, gold futures are currently gaining $2.40 to $958.30 an ounce. In the previous week, the precious metal gained $18.40 or 1.9% to close at $955.90 an ounce. The increase in gold prices last week was primarily due to dollar weakness, as the strength in the equity markets led traders to shun the dollar, which is considered to be a relatively safe haven bet along with the yen.

Among currencies, the dollar closed the week ended July 24th on a mixed note. The greenback rose 0.6% against the yen, but fell 0.7% against the euro to $1.4202 a euro, marking the second straight week of declines. Apart from the increase in risk preference, positive manufacturing and services sector readings from the region and a rise in German business confidence also supported the euro.

Currently, the U.S. dollar is at 95.162 yen and is fetching $1.4264 versus the euro.

According to Commezbank, the Fed’s outlining of its exit strategy has not convinced traders and consequently, the dollar did not react much to the announcement. The muted reaction could be due to the past record of the Fed not raising rates sufficiently in times of an economic uptrend.

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The major European averages are trading higher on Monday, with the French CAC 40 Index and the German DAX Index rising 0.41% and 0.64%, respectively, while the U.K. FTSE 100 Index is moving up 0.01%.

In corporate news, a FT report said that German carmaker Volkswagen may be looking to raise 4 billion euros to finance its purchase of luxury carmaker Porsche. Reports suggest that Swiss investment bank UBS is hiring Bank of America’s Keith Magnus to head its Singapore and Malaysia investment banking business.

On the economic front, the property survey group Hometrack reported that the average asking price of a house in the U.K. remained unchanged in July compared to the previous month. Annually, house prices declined 7.7%, slower than the 8.7% drop in the previous month.

Meanwhile, Germany Federal Statistical Office reported that Germany’s import price index declined 11.3% year-over-year in June, marking the biggest price decline since February 1987. In May, the index was down 10.4%. At the same time, export prices fell 2.9% compared to a 2.7% drop in the previous month. On a monthly basis, import prices and export prices rose 0.4% and 0.1%, respectively.

German consumer confidence is expected to show an improvement in August, with the forward - looking consumer climate indicator forecast to come in at 3.5 compared to a revised reading of 3 for July. The economic expectations index jumped 8.6 points to –14, while the index of propensity to buy surged up 10.6 points to 25.1.

U.S. Economic Reports

The Commerce Department's new home sales report for June, the Conference Board's consumer confidence index for July, the Commerce Department's durable goods orders report for June and the advance second quarter GDP report are among the key reports the markets are likely to watch closely in the unfolding week. Apart from these reports, the S&P Case-Shiller's home price index for May, the results of the ISM-Chicago's manufacturing sector survey and the Federal Reserve's Beige Book are also likely to take the spotlight.

Traders may also stay tuned to the Fed speeches scheduled to be delivered during the week and the results of the Treasury's 20-year TIPS auction, 2-year note auction, 5-year note auction and 7-year note auction.

Durable goods orders are likely to show a modest increase in June following strong gains in April and May. That said, annualized durable goods order growth has been negative since March 2008. Conditions in the manufacturing sector haven't taken a turn for the better. The May national manufacturing survey of the ISM showed that the headline manufacturing index suggested a slower pace of contraction, while the indexes of new orders and backlog of inventories fell further into contraction zone. Unless, the manufacturing sector shows a resurgence, the chances of a sustainable rebound in durable goods orders look remote.

Second quarter GDP is set to show a decline both on a quarterly basis and on an annual basis, marking the fourth straight quarter of negative GDP growth. The second quarter will most likely to show flat consumer spending despite the tax rebates and stimulus checks doled out by the government. Residential and business fixed investments are likely to have fallen yet again, albeit at a slower pace than in the first quarter.

The Beige Book may reveal an economy that is still weak, but contracting at a more moderate pace. Tight credit standards are weighing on lending activity. At the same time, traders may closely watch labor market conditions as portrayed by the report to assess the health of the labor market.

The Commerce Department is due to release its new home sales report for June at 10 AM ET on Monday. The consensus estimate calls for an increase in new homes sales to 352,000.

New home sales declined 0.6% in May from the previous month to a seasonally adjusted annual rate of 342,000. Sales rose in the Northeast, Midwest and West, but declined in the South. The months supply of new homes declined to 10.2 in May from 10.4 in April, with the decline coming about due to a decline in inventories to 292,000 in May. The median sales price of new homes declined 3.4% year-over-year to $221,600.

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Ericsson is likely to be in focus after it said it would buy key Nortel Networks wireless assets for $1.13 billion. Nortel had put the assets on the block following its decision to file for insolvency protection.

Aetna could move in reaction to a Wall Street Journal report that it has decided to sell its pharmacy benefit management business. The report suggests that CVS Caremark (CVS) and Medco Health Solutions (MHS) are in the fray to purchase the unit. The company also announced earlier today that it is lowering its full year earnings forecast due to rising medical costs.

Earnings

Verizon said its second quarter earnings fell to 52 cents per share from 66 cents per share in the year-ago period. On an adjusted basis, the company’s earnings were 63 cents per share, in line with the consensus estimate. Revenues were up 11% to $26.86 billion.

Tellabs said its second quarter revenues fell to $385 million from $432 million last year. The company’s non-GAAP earnings were 8 cents per share, up from 4 cents in the year-ago period. For the third quarter, the company expects revenues to be flat to up by a mid-single digit.

Honeywell reported second quarter earnings of 60 cents per share, lower than 96 cents per share in the year-ago period, as revenues fell 22% year-over-year to $7.56 billion. Analysts estimated earnings of 96 cents per share on revenues of $7.73 billion. The company lowered its 2009 earnings per share guidance to the low end of its previous range, and now expects earnings of $2.85 per share on revenues of $31.5 billion. Analysts estimated earnings of $2.83 per share on revenues of $32.16 billion.

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