US & World Daily Markets Financial Briefing 27-08-2009

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Stocks May Turn In Another Lackluster Performance - U.S. Commentary

Stocks may turn in another lackluster performance during trading on Thursday after showing a lack of direction throughout the previous session. The major index futures are currently indicating a slightly higher open for the markets, with the Dow futures up 17 points.

Traders continue to have questions about the outlook for the markets in spite of the release of some key economic data. A number of traders are likely to stay on the sidelines amid a lack of significant corporate news.

While the Commerce Department released its second estimate of gross domestic product in the second quarter, the pace of decline in economic activity was unrevised from the advance estimate.

The report showed that GDP decreased at an annual rate of 1.0 percent in the second quarter, unchanged from the 1.0 percent decrease originally reported in late July. Economists had been expecting GDP to be revised to show a decrease of 1.5 percent.

The Commerce Department said upward revisions to exports, residential fixed investment, consumer spending, and government spending were offset by downward revisions to private inventory investment and to nonresidential fixed investment.

Separately, the number of people filing for first-time unemployment claims edged down last week, according to a report released by the Labor Department, although jobless claims remain at a relatively high level.

The report showed that jobless claims edged down to 570,000 from the previous week's revised figure of 580,000. Economists had been expecting jobless claims to slip to 565,000 from the 576,000 originally reported for the previous month.

Continuing claims, which measure the number of people receiving ongoing unemployment help, fell to 6.133 million for the week ended August 15, the most recent week for which the government has data.

On the corporate front, Toll Brothers Inc. (TOL) reported a third-quarter net loss of $2.93 per share compared to a net loss of $0.18 per share in the year ago quarter. Wall Street analysts expected the company to report a loss of $1.74 per share. Revenues for the quarter totaled $461.4 million, which beat forecast of $460.2 million for the quarter.

American Eagle Outfitters (AEO) reported second quarter net income of $0.14 per share compared to $0.29 per share last year. The earnings came in line with estimates, while quarterly revenues of $657.6 million fell short of the consensus estimate of $659.56 million.

In other news, Microsoft (MSFT) announced that it would reduce the price of its high-end X-Box 360 model by as much as $100 in an effort to match the price of rival Sony (SNE), which reduced the price of its Playstation 3 by a comparable amount last week.

Stocks finished Wednesday's session little changed, with the day's trading marred by choppy movement despite largely positive news on the economic front. The Dow closed up by 4 points at 9,544, the Nasdaq gained 0.20 points to finish at 2024 and the S&P 500 rose by 0.12 to 1,028.

Crude oil futures are sliding in early commodities trading, falling by $0.25 to $71.18 a barrel after moving modestly lower in the previous session. Meanwhile, the price of gold is moving higher, advancing by $4.40 to $948.90 an ounce.

On the currency front, the U.S. dollar is mixed versus the major European currencies, falling to $1.4258 versus the euro and moving up to $1.620 versus the pound. Meanwhile, the dollar has slipped against the yen, trading at 93.82 yen.

In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Thursday. Japan's benchmark Nikkei 225 Index slid by 1.6 percent, while Hong Kong's Hang Seng Index closed down by 1 percent.

Meanwhile, the major European markets are mixed, with the German DAX Index falling by 0.1 percent while the U.K.'s FTSE 100 Index and the French CAC 40 Index are up by 0.2 percent and 0.3 percent, respectively.

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Toronto's main index was unable to break out of a stubborn range Thursday morning despite strong earnings results from major Canadian lenders.

The S&P/TSX Composite Index was up 13.30 points at 10,925. Resource stocks pulled back as the US dollar strengthened, weighing on commodity prices. However, financials rose after earnings results from Canada's big six bans continued to top estimates.

National Bank shares were up 2.2 percent after it announced that its third-quarter net income was C$303 million, up 6% from the C$286 million in the third quarter of 2008.

Royal Bank surged 6.5 percent. The company reported third-quarter net income of C$1.56 billion or C$1.05 per share, compared to C$1.26 billion or C$0.92 per share in the same quarter last year. The bank held its dividend steady at 50 cents.

TD Bank stock was up 3.3 percent after the company reported third-quarter net income of C$912 million, compared to C$997 million in the year ago quarter.

CIBC missed estimates in Wednesday, and is down 2.5 percent.

In the US, the Commerce Department released its second estimate of gross domestic product in the second quarter, showing that the pace of decline in economic activity was unrevised from the advance estimate.

The report showed that GDP decreased at an annual rate of 1.0 percent in the second quarter, unchanged from the 1.0 percent decrease originally reported in late July. Economists had been expecting GDP to be revised to show a decrease of 1.5 percent.

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Asian markets finished lower with the Japanese Nikkei sliding after the recent strong gains, while investors were also cautious ahead of the national election over the weekend.

Investors are weary about buying as they expect Japan's opposition Democratic Party will win the Aug. 30 national election. Attention has turned to what the new party, and in particular the new finance minister, will do with the economy.

Across the markets, the Dow Jones is down 165 points to 10,473 with the Hang Seng sliding 213 points to 20,242.

Steel firms were lower after the China's state council said on Wednesday it would curb overcapacity by restricting licences for steel and cement production. Nippon Steel, JFE Holdings and Kobe Steel were down.

China's offshore oil producer CNOOC fell after reporting a 55% slump in first-half profits.

Tokuyama Corp, the polysilicon maker, tumbled after revealed it will issue 65m shares in a public offering and an additional 19m shares in an overallotment option at the end of September.

Fashion group Esprit was also heavily down after it saw profits slump 40% in the second half.

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Europe’s main markets turned negative in midday trade with a weak beverage sector offsetting strong financials and utilities.

A 4% drop in full-year profit at Diageo was pretty much in line with expectations, but the alcoholic drinks giant dropped after cutting current year growth targets.

The group, responsible for the Smirnoff, Captain Morgan and Guinness brands, said pre-tax profit fell £78m to £2.015bn in the year ended 30 June on reported sales up 15% to £12.28bn. Net sales rose to £9.31bn from £8.09bn. French peer Pernod Ricard is also down.

The German Dax has fallen 25 points at 5,497, with the French Cac down 4 points to 3,663. The Swiss market is 2 points lower at 6,179.

Credit Agricole posted better-than-expected quarterly results thanks to a good performance at its corporate and  investment banking arm.

The Paris-based group saw net profit rise to €201m in the second quarter compared with €76m a year earlier.

Net banking income increased 40.3% to €4.56bn, while net losses at its corporate and investment banking division narrowed to €87m from €855m previously.

Elsewhere in the sector, Societe Generale, Commerzbank and UBS are all going well.

GDF Suez is leading the utility sector higher after reporting in line first-half figures. The power and gas group’s net income dropped to €3.26bn from €3.48bn in the same period last year.

French peer EDF and Germany’s E.ON are also in demand.

In economic news, German consumer confidence continued to improve, with the GfK sentiment indicator rising to 3.7 for September from 3.4 points the previous month.


CAC 40 - Risers

1. Accor (AC) € 37.42 +6.93%
2. Credit Agricole (ACA) € 13.24 +5.16%
3. GDF Suez (GSZ) € 29.93 +2.32%
4. EDF (EDF) € 37.31 +2.07%
5. Societe Generale (GLE) € 55.79 +1.25%
6. Cap Gemini (CAP) € 34.03 +1.17%
7. France Telecom (FTE) € 18.60 +0.46%
8. Total (FP) € 40.17 +0.35%
9. PPR (PP) € 80.25 +0.07%
10. Vivendi (VIV) € 19.55 +0.00%

CAC 40 - Fallers

1. Dexia (DEXB) € 6.23 -6.36%
2. Alcatel-Lucent (ALU) € 2.63 -4.79%
3. Pernod Ricard (RI) € 53.00 -3.99%
4. Michelin (ML) € 52.74 -2.33%
5. Renault (RNO) € 32.08 -2.27%
6. LVMH (MC) € 66.71 -1.98%
7. Bouygues (EN) € 32.37 -1.92%
8. Essilor International (EI) € 38.63 -1.47%
9. Vallourec (VK) € 106.95 -1.38%
10. Suez Environnement Company (SEV) € 14.36 -1.20%

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Alcoholic drinks group Diageo’s trading update is expected to report an improvement in full-year pre-tax profits on Thursday, with the market consensus hovering around £2.bn, compared to £2.09bn last year. This is despite an anticipated decline in revenue to around £9.25bn from £10.64bn in the year to 30 June 2008.

Net sales showed zero growth on an organic basis in the first nine months of the fiscal year as the business felt the effect of the global economic downturn. The management responded by cutting costs and announcing plans to close the Johnnie Walker bottling plant and a distillery in Glasgow.

Broker Charles Stanley said ‘higher raw material costs will have held back operating margins despite recent declines in commodity prices, as the group is locked in to hedges at higher levels.’

Asia-Pacific has been the blot on the company’s copybook this year, with operating profit expected to show a small decline, in contrast to double-digit percentage improvements in Europe, North America and the International division – the latter including Africa, where the company’s Guinness product is enduringly popular.

Jordan-based pharmaceutical company Hikma Pharnaceuticals has been trading close to its 52-week high this month, supported by bid speculation, with US drugs company Pfizer seen as a likely buyer.

Broker Panmure Gordon said it will be looking out for the numbers on ‘branded revenues, which we forecast to reach US$189m, injectables revenues reaching US$71m and generics revenues reaching US$54m.’

For the group as a while Panmure Gordon expects gross profit of $138m on revenues of $310m. Earnings per share (EPS) are forecast to be 19.5 cents. Fellow broker Chalres Stanley is marginally more optimistic, going for earnings before interest and tax of $54m on sales of $320m, giving EPS of 19.6 cents.

IMI has had a bad month after agreeing to pay an $18,2m fine in early August over irregular payments by its US subsidiary Control Components, and Thursday’s interim results are not expected to provide a cheery end to the month for the group.

UBS is predicting a 19% fall in organic revenue and expects the company’s fluid power division to be 'only marginally profitable'.

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