US & World Daily Markets Financial Briefing 29-09-2010

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Stocks Move Mostly Lower In Mid-Morning Trading

Stocks are mostly lower in mid-morning trading on Wednesday amid a light day on the economic front. Despite the weakness in the markets, selling largely remains subdued ahead of tomorrow's final reading on second quarter GDP and data on jobless claims.

The major averages have seen some further downside in recent dealing, setting fresh session lows. The Dow is currently down 47.42 points or 0.4 percent at 10,810.72, the Nasdaq is down 11.26 points or 0.5 percent at 2,368.33 and the S&P 500 is down 6.57 points or 0.6 percent at 1,141.13.

Profit taking is contributing to the modest weakness visible in the markets, with some traders cashing in on the strong upward move shown over the past.

Nonetheless, shares of Hewlett-Packard (HPQ) are trading higher in the early going after the company forecast fiscal 2011 adjusted earnings of $5.05 to $5.15 per share on revenues of $131.5 billion to $133.5 billion.

HP's guidance is above analyst estimates, which called for fiscal 2011 earnings of $4.99 per share on revenues of $131.4 billion.

BP Plc (BP) is also in the spotlight today after announcing restructuring plans that include the creation of a safety unit with company-wide oversight.

In earnings news, Family Dollar (FDO) reported fourth-quarter net income of $0.56 per share, topping forecasts for $0.51 per share for the period. Net sales came in at $1.957 billion, just under the $1.96 billion expected for the period.

Family Dollar also announced $750 million in share repurchases along with guidance for fiscal 2011 that was roughly in line with forecasts.

In global economic news, data released in China revealed that manufacturing activity in the world's second largest economy picked up to a 5-month high in September. However, activity was still well off the record high levels registered at the start of the year.

Markit Economics said the HSBC manufacturing purchasing managers' index was at a seasonally adjusted 52.9, up from 51.9 in August. A reading above 50 indicates expansion.

Sector News

Commercial real estate stocks are notably lower in mid-morning trading, dragging the Morgan Stanley REIT Index down by 1.1 percent. The index remains in a range despite the day's decline.

Housing stocks are also under pressure, with the Philadelphia Housing Sector Index down by 1.1 percent as it falls from the two-week closing high set in the previous session.

Utility, banking and gold stocks are also trading lower, while strength is visible among oil service stocks, boosting the Philadelphia Oil Service Sector Index up by 1.2 percent. The advance has the index on pace for its best close in four and a half months.

Stocks Driven By Analyst Comments

Despite the weakness in the broader markets, Endo Pharmaceutical (ENDP) is trading higher after being upgraded at Oppenheimer from Perform to Outperform. The stock is up by 1 percent and on pace for a fresh three-year closing high.

Raymond James (RJF) is also on the upside after analysts at Ticonderoga lifted their rating on the stock from Neutral to Buy. Shares are currently up by 2.1 percent and have risen to their best intraday price in roughly seven weeks.

On the other hand, J. Crew (JCG) is in the red after being downgraded at Janney Montgomery Scott from Buy to Neutral, with the broker seeing increased competition for the firm. The stock is down by 2.6 percent but remains rangebound.

Other Markets

In overseas trading, the major markets in the Asia-Pacific region closed mostly higher on Wednesday. Japan's benchmark Nikkei 225 Index gained 0.7 percent, while Hong Kong's Hang Seng Index ended up by 1.2 percent.

Meanwhile, the major European markets are seeing moderate downside. The French CAC 40 Index and the German DAX Index are down by 0.7 percent and 0.4 percent, respectively, while the U.K.'s FTSE 100 Index is down by 0.1 percent.

In the bond markets, treasuries are little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.464 percent, posting a gain of less than one basis point.

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TSX Looks To Edge Up At Open

Toronto stocks may edge up at open Wednesday amid recovery in commodity prices. However, weak cues from the global equity markets may dent trader sentiment. While Asian markets ended mixed, European stocks were in the red amid worries over the euro zone sovereign debt situation after demonstrators protested against the proposed austerity measures.

On Tuesday, the S&P/TSX Composite Index added 88.28 points or 0.72% to 12,278.88

The price of crude oil was trading flat as traders await the official weekly inventories data from the EIA. Yesterday after the markets close, the API said U.S. crude oil inventories fell 2.4 million barrels, while gasoline inventories jumped 3 million barrels last week. Crude for November edged up $0.25 to $76.43 a barrel.

Gold stocks may be in play amid firm bullion prices. The price of gold continued to hit fresh highs amid a generally weak U.S. Dollar. Gold for December was up $0.40 to $1,308.70 an ounce, after hitting a record intraday high of $1,314.80.

In corporate news from Canada, mineral exploration company International Tower Hill Mines said it would be selling 10.4 million common shares at C$6.25 per share for C$65 million on a bought deal basis and privately place 4.9 million common shares at C$6.25 per share.

Gold and copper miner Northgate Minerals Corp. announced that it intends to offer $135 million of its convertible senior notes due 2016 in the US and Canada, mainly to finance a portion of the development costs of its Young-Davidson gold mine, Ontario.

Geophysical survey services provider Aeroquest International said its subsidiary got a 5-year photographic mapping and aerial photography services contract for a maximum of $10 million from the U.S. Army Corps of Engineers, St. Louis District.

Automotive electronics product maker Pacific Insight Electronics swung to profit in fourth quarter, reporting net income of C$316 thousand or C$0.06 per share, compared to a net loss of C$30 thousand or C$0.01 per share a year-ago.

Fertilizer maker Hanfeng Evergreen reported lower fourth quarter net income of C$9.6 million or C$0.15 per share, compared to C$11.21 million or C$0.19 per share in the prior year quarter.

Geothermal power company Magma Energy reported a wider fourth quarter net loss of $8.67 million or $0.04 per share from $1.88 million or $0.01 per share in the prior year quarter.

Healthcare company Centric Health Corp. said it acquired two pharmacies for C$7.0 million in cash. The acquisition will be accretive to its earnings in 2011 as these pharmacies generate annual revenue of about C$6.2 million and yield a market related EBITDA margin of 15-20%, the company said.

Wealth management company AGF Management reported improved third quarter net income of C$27.77 million or C$0.31 per share, up from C$22.74 million or C$0.25 per share last year.

Ondine Biopharma announced plans to consolidate its issued and outstanding common shares and to change its name to Ondine Biomedical Inc., to more accurately reflect the nature of its operations. Every 15 existing shares will be consolidated into one new share, bring the outstanding shares down to 8.45 million from the present 126.80 million.

In economic news, Statistics Canada said the Industrial Product Price Index increased 0.4% in August compared with July, led by primary metal products. The Raw Materials Price Index rose 2.2%, mainly as a result of higher prices for non-ferrous metals.

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Most Asian markets ended Wednesday’s session higher amid lingering optimism that the economic recovery will not be derailed. The Hong Kong market led the gains in the region with an over 1% advance. On the other hand, the Australian and Indian markets posted moderate losses. Positive domestic economic data also supported sentiment.

Japan’s Nikkei 225 average opened higher and hovered above the unchanged line throughout the session to close up 63.62 points or 0.67% at 9,559. Traders drew some comfort from positive business confidence data released by the Bank of Japan.

Most stocks advanced, with Ebara, Fuji Heavy Industries, Japan Steel Work, JX HD, Meidensha, Pioneer, Shinshei Bank and Toho Zinc advancing strongly in the session. However, utility stocks showed marked weakness. Telecom and some financial stocks also declined.

The results of the Bank of Japan’s quarterly Tankan survey showed that the index of business conditions for large manufacturers rose to 8 in the third quarter from 1 in the second quarter. Economists had expected a more modest improvement to 7. However, the forecasts for the December quarter revealed a reading of –1.

Skepticism regarding the future was clearly evident in the investment plans of large firms, which expect to raise their spending by a mere 2.4% in the current fiscal year following a 15.5% drop in fiscal year 2009.

After showing some buoyancy in the morning, Australia’s All Ordinaries declined sharply in late morning trading. With the selling momentum slowing, the index declined steadily, dipping into negative territory by late trading. Thereafter, the sell-off accelerated and the index ended moderately lower. The market witnessed a broad based sell-off, with consumer staple stocks leading the declines.

Hong Kong’s Hang Seng opened notably higher and moved sideways for the rest of the session. The index closed up 268.72 points or 1.22% at 22,379. Thirty-eight of the forty-five index components closed the session higher.

The Chinese market slipped slightly despite the release of positive manufacturing data. The results of a private survey showed that China's manufacturing activity picked up to a five-month high in September, although it remained well below the record high levels registered at the start of the year.

Markit Economics said the HSBC manufacturing purchasing managers' index was at a seasonally adjusted 52.9, up from 51.9 in August. Chinese manufacturing output rose in September at a pace slightly above the long-run average. This was mainly due to an increase in the inflow of new orders, which rose for the second month in a row.

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French Market Falls In Afternoon Trade

The French market has been moving across either side of the unchanged line and is trading in negative territory in afternoon trading Wednesday. Re-emergence of debt worries in Europe weighed on most banks, while construction stocks witnessed upside.

Crude for November delivery is adding $0.33 at $76.51 per barrel, ahead of the weekly inventory data from the Energy Information Administration and December gold is slipping $0.4 at $1307.9 an ounce.

In economic news, French consumer sentiment improved in September to minus 35 from minus 37 in August, the statistical office Insee said. The expected reading was minus 39.

Euro area economic sentiment also increased in September, a survey from the European Commission showed. Economic sentiment increased to 103.2 from 102.3 in August. Consensus forecast was for 101.3.

UK mortgage approvals fell in August compared to July, Bank of England said. The number of mortgages approved for house purchase fell to 47,372 in August from 48,346 in July, but stayed above the expected level of 47,000.

The CAC 40 opened higher at 3,781, but lost much of the gains later on. The index is currently falling 0.25%.

Banking stocks are mostly lower. Societe Generale is losing 1.5%, Natixis is losing 0.8% and BNP Paribas is losing 0.7%. Credit Agricole is adding 0.3%.

Carmaker Peugeot is down 1%, while Renault is gaining 0.3%. EADS, the maker of Airbus, is declining 1.2%.

Life insurer Axa is leading the gainers by adding 3.1% and engineering group Alstom is rising 1.7%.

Oil & gas services firm Technip is advancing 1.6% and metal fabrication company Vallourec is gathering 1.5%.

Hotel group Accor, lens maker Essilor International, Scheneider Electric, gas utility GDF Suez, cosmetics giant Loreal and France Telecom are seeing notable upside.

Heavy construction firms Vinci and Bouygues are up 0.8% and 0.7%, respectively. Building materials maker Saint-Gobain is rising 0.8%.

Elsewhere in Europe, the UK's FTSE 100 is falling 0.12% and the German DAX is slipping 0.06%.

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Hewlett-Packard (HPQ) is likely to react to its announcement at its annual analyst day event that it expects fiscal year 2011 revenues to come in between $131.5 million and $133.5 million. The company also said it expects adjusted earnings of $5.05-$5.15 per share. Analysts expect earnings of $4.99 per share on revenues of $131.42 billion.

Boeing (BA) may see buying interest after it announced that it has been awarded a new multi-year procurement contract from the U.S. Navy for 124 F/A-18E/F Super Hornet and EA-18G Growler aircraft. The company noted that the new contract is valued at $5.297 billion and that the deliveries would begin in 2012 and go on until 2015.

Campbell Soup (CPB) is expected to move in reaction to its announcement that its president and CEO Douglas Conant will step down from the post of CEO on July 31, 2011. The company also said it elected Denise Morrison as EVP and COO, effective October 1, 2010 in the run up to her succession to the post of CEO after Conant relinquishes office at the beginning of fiscal 2012.

Caterpillar (CAT) is likely to be in focus after it announced plans to expand its manufacturing presence in China by producing mini hydraulic excavator models in the under 8-ton range at a new facility at Wujiang. The company expects work on this new facility to begin in late 2010 and expects to begin production in 2012.

Teekay (TK) may react to its announcement that its president and CEO Bjorn Moller will retire in the spring of 2011 after serving the company for more than 25 years. Simultaneously, the company also announced the appointment of its chief strategy officer and EVP Peter Evensen as CEO-elect to succeed Moller.

AutoZone (AZO) could see buying interest after it announced plans to buy back additional $500 million of its common stock in connection with its ongoing share repurchase program. Another stock that could be in focus over stock buyback news is Covance (CVD), which said its board authorized the buyback of up to $250 million of its outstanding common stock. The company clarified that the buyback is in addition to the about 800,000 shares remaining under the repurchase authorization announced in 2007.

Fluor (FLR) may see some activity after it announced that it has been awarded the Project Hijau Gasoil Phase – 1 by Shell Refining Company FOM Malaysia. The company did not reveal the value of the deal, although it said it would recognize the contract value in the third quarter of 2010.

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