US & World Daily Markets Financial Briefing 30-07-2009

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Markets May Stay Afloat on More Positive Earnings

The major U.S. index futures are pointing to a higher opening on Thursday, with positive earnings stirring recovery hopes, which were stifled in the past couple of sessions by mixed earnings and economic reports. The weekly jobs report was mixed in its details, with initial claims rising by much more than expected, while continuing claims unexpectedly fell. Some traders may stay on the sidelines ahead of the second quarter GDP report to be released tomorrow.

All said and done, the major averages are likely to stay in a broad range, with no meaningful recovery expected until the economic picture becomes clear. The prolonged and painful recovery anticipated does not augur well for a market recovery.

The impressive rally that began in July and saw the major averages reach multi-month highs has begun to peter out, as traders, who have built up positions in anticipation of a recovery have expressed apprehensions about a possible delay in the economic turnaround around. The major averages began Wednesday’s session on a downbeat note and remained below the unchanged line throughout the session.

The Dow Industrials ended down 26 points or 0.29% at 9,071 and the Nasdaq Composite receded 7.75 points or 0.39% to 1,977, while the S&P 500 Index closed at 975, representing a decline of 4.47 points or 0.46%.

Sixteen of the thirty Dow components ended the session lower and one was unchanged, while the remaining stocks advanced. Alcoa (AA), Caterpillar (CAT) and General Electric (GE) fell more than 3% each, while Chevron (CVX), DuPont (DD), Disney (DIS), 3M Co. (MMM), Pfizer (PFE) and Travelers (TRV) all closed down more than 1.50%. On the other hand, Bank of America (BAC) (up 1.35%), Microsoft (MSFT) (up 1.41%), AT&T (T) (up 1.68%), United Technologies (UTX) (up 1.45%) and Verizon (VZ) (up 1.85%) were among the notable gainers.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average fell 2.59%, the NYSE Arca Oil Index declined 2.03%, the Philadelphia Oil Service Index receded 3.31% and the NYSE Arca Gold Bugs Index declined 2.69%. The Philadelphia Housing Sector Index ended down 1.12%, while the NYSE Arca Disk Drive Index and the NYSE Arca Internet Index fell 1.44% and 3.24%, respectively. Meanwhile, the NYSE Arca Airline Index moved up 1.35%.

On the economic front, the Commerce Department’s durable goods orders report showed a 2.5% monthly decline in orders in June. Excluding transportation orders, orders rose 1.1%. Economists had been looking for a mere 0.8% decline in headline orders and flat order growth excluding transportation. Non-defense capital goods orders, excluding aircraft orders, rose 1.4% in June, adding to the 4.3% gain in May.

Annually, the metric is down 21.1%. Shipments of this category of goods, which go directly into GDP calculations, edged up 0.1% month-over-month. The report is a confirmation that the economy is moving towards stabilization.

Meanwhile, the results of the 5-year Treasury note auction were weak, with the yield higher than expected and the bid-to-cover ration coming in at 1.92, the lowest since September 2008.

The Beige Book released by the Federal Reserve showed weakness in activity that is showing signs of moderation in most districts. Stabilization was found, although at low levels. Most districts termed retail activity as being sluggish, while price changes across sectors and products were modest. Consumer spending was reported as remaining below year-ago levels.

At the same time, mixed views were offered about auto sales. Despite remaining subdued, manufacturing activity was found to be more positive than the previous Beige Book. Commercial real estate leasing markets were described as either “weak” or “slow” in all 12 districts. Meanwhile, lending activity was stable or weakened further and labor market conditions showed slackness.

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Toronto Stocks Look To Rebound From Recent Skid

Bay Street stocks will look to bounce back from a two-session slump Thursday as commodities pared some recent losses in the early going. Toronto's main index fell to a 12-day low yesterday after reaching a multi-month high earlier in the week.

Crude oil prices have climbed $1.08 to $64.43 per barrel in electronic trading. Oil fell more than $4 yesterday as the Energy Department reported a larger-than-expected build in crude inventories.

Petro-Canada reported second quarter net earnings of C$77 million or C$0.16 per share, compared to C$1.5 billion or C$3.10 per share last year.

On the metal front, gold jumped $5.50 to $935.50 an ounce, silver rose 17.7 cents to $13.435 an ounce and copper rose 5.8 cents to $2.5355 a pound.

Goldcorp reported second-quarter adjusted net earnings of US$99.2 million, or US$0.14 per share, compared to US$83.2 million or US$0.12 per share, in the second quarter of 2008. Analysts polled by Thomson Reuters expected the company to report earnings of US$0.15 per share.
 
Agnico-Eagle Mines reported second-quarter net income of C$1.2 million or C$0.01 per share, compared to net income of C$8.3 million or C$0.06 per share in the same quarter last year.

OceanaGold reported a second-quarter earnings of US$40.11 million or US$0.21 per share versus a loss of US$19.25 million or US$0.12 per share in the previous year.

In other corporate news, Hemisphere GPS reported second quarter net loss of US$1.26 million or US$0.02 per share, compared to net income of US$3.17 million or US$0.06 per share last year.

In economic news, the Canadian Industrial Product Index rose 0.7% in June compared with May, while the Raw Materials Price Index increased 6.2%. Both gains were due to a strong increase in petroleum prices. This is according to data released Thursday by Statistics Canada.

On Wednesday, the S&P/TSX Composite Index lost 115.21 points or 1.08% to settle at 10,455.33. The drop is the second in a row for Bay Street's main index, which had gained in nine of the previous 11 sessions.

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After yesterday’s rout, the major Asian markets ended higher on Thursday. In Japan, the sentiment was aided by positive growth in industrial production and the weaker yen.

Japan’s Nikkei 225 average showed considerable volatility throughout the session before closing up 51.97 points or 0.51% at 10,165. Mitsubishi Electricals rallied about 15%, while auto stocks also advanced on strong results from Honda and Nissan Motors. Fuji Electric Holdings, Fujifilm Holding, Jtekt Corp., Konami Corp., NSK, Olympus, Snayo, Sony and Toshiba were among the other notable gainers. On the other hand, resource, utility and bank stocks saw some weakness.

According to a release from the Ministry of Economy, Trade and Industry, Japan's industrial output rose 2.4% from May to a seasonally adjusted 81 in June, the fourth straight month of growth. The figure, however, fell short of the average market prediction of a 2.5% increase. Looking ahead, the government forecast that the headline index would rise 1.6% in July, and 3.3% in August.

Australia’s All Ordinaries opened modestly higher and advanced steadily throughout the rest of the session. The index ended up 47 points or 1.13% at 4,196. Most sectors showed buying interest, with the exception of energy and material stocks, which saw some weakness.

Hong Kong’s Hang Seng Index ended a volatile session moderately higher. The index ended up 95.58 points or 0.49% at 20,234. Thirty of the forty-two index components ended the session higher. Index heavyweight HSBC Holdings rose 1.24%, while other financial, property, utility and China-related stocks also showed buying interest. However, China Mercantile Holding, China Residential Enterprises, CNOOC, China Mobile, Cosco Pacific and Foxconn International declined in the session.

Currency, Commodity Futures

Crude oil futures are trading up $0.65 at $64 a barrel after receding $3.88 to $63.35 a barrel in Wednesday’s session. The previous session’s decline came after the weekly oil inventory report revealed that crude oil stockpiles rose by 5.1 million barrels to 347.8 million barrels in the week ended July 24th. Crude oil inventories remained above the upper bound of the average range for this time of the year.

Distillate stockpiles rose by 2.1 million barrels and remained above the upper boundary of the average range. However, gasoline inventories fell by 2.3 million barrels, although they remained in the upper half of the average range. Refinery capacity utilization averaged 86.3% over the four weeks ended July 24th compared to 86.9% in the previous week and 88.9% in the year-ago period.

Gold futures are currently rising $4.80 to $932 an ounce. In the previous session, the precious metal fell $14.50 to $927.20 an ounce. With traders rushing to the greenback and the yen in the wake of an increase in risk aversion, gold is slowly losing its relevance as a safe haven investment. Now-a-days, gold is moving in tandem with the riskier asset classes such as equities and crude oil.

The U.S. dollar is moving up to 95.45 yen after strengthening to 94.99 yen at the close of New York trading on Wednesday. Against the euro, the dollar is trading at $1.4051.

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The major European markets are trading higher on Thursday. The French CAC 40 Index and the U.K. FTSE 100 Index are rising 1.10% and 1.13%, respectively, while the German DAX Index is moving up 0.44%.

In corporate news, Alcatel-Lucent reported a second quarter net profit of 14 million euros, helped by a gain from asset sales. On an adjusted operating basis, the company reported a loss of 169 million euros. Revenues were down 4.8%. The company said it would break even on an adjusted operating income basis in 2009. Meanwhile, France Telecom reported a decline in its first half EBIDTA to 8.82 billion pounds from 9.29 billion pounds last year.

German engineering giant Siemens (SI) said its third quarter net income declined to 1.26 billion euros from 1.37 billion euros last year. The recent quarter’s results included one-time gains on asset sales. Operating profit was down 21% at 1.67 billion euros.

Smith & Nephew’s second quarter earnings rose to $118 million from $103 million last year despite revenues dropping 7% year-over-year to $926 million.

On the economic front, the Nationwide Building Society reported that U.K. house prices rose 1.3% month-on-month in July after climbing by a revised 1% in June. Economists had expected an increase of merely 0.2%. Annually, prices fell 6.2%, slower than the 9.3% decline seen in June.

U.S. Economic Reports

A labor department report showed that first-time claims for unemployment benefits rose 25,000 to 584,000 in the week ended July 25 from the previous week’s upwardly revised reading of 559,000. Economists had estimated claims to have increased to 575,000 in the recent reporting week from the initially reported 554,000 for the previous week.

The four-week moving average fell 8,250 to 559,000. The report also showed that continuing claims, which is calculated with a week’s lag declined 54,000 in the week ended July 18th.

Earnings

Travelers Co. said its second quarter earnings fell to $1.27 per share from $1.54 per share in the year-ago period. On an adjusted basis, the company reported earnings of $1.25 per share, below the consensus estimate of $1.28 per share. The company raised its 2009 operating profit estimate to $4.80-$5.05 per share from its earlier estimate of $4.55-$4.95 per share. Analysts estimate earnings of $5.17 per share.

Motorola reported second quarter earnings of 1 cent per share compared to break-even results in the year-ago period. The recent quarter’s results included a gain of 2 cents per share. Sales fell 32% to $5.5 billion. The consensus estimates had called for a loss of 4 cents per share on revenues of $5.6 billion.

Colgate-Palmolive’s second quarter earnings were $1.07 per share compared to 92 cents per share in the year-ago quarter. Sales fell 5.5% to $3.75 billion. Analysts estimated earnings of $1.05 per share on revenues of $3.81 billion. Newell Rubbermaid (NWL) reported adjusted second quarter earnings of 47 cents per share. Net sales fell 17.6% to $1.50 billion. Analysts estimated earnings of 35 cents per share on revenues of $1.46 billion. The company raised its full year earnings per share guidance to $1.15-$1.30.

Cigna said its second quarter earnings climbed to $1.58 per share from 96 cents per share despite revenues declining 8% to $4.49 billion. The company’s adjusted earnings were $1.14 per share. Analysts expected earnings of 96 cents on revenues of $4.8 billion. The company raised its adjusted earnings estimate for the year to $3.80-$4 per share from its earlier estimate of $3.70-$3.90 per share.

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Pride International may be in focus after it said its second quarter income from continuing operations fell to 69 cents per share from 87 cents per share last year. The year-ago quarter’s results included a gain of 7 cents per share. Revenues fell to $500.7 million from $541.5 million last year. Analysts estimated earnings of 66 cents on revenues of $497.67 million. For the third quarter, the company estimates earnings of 38-43 cents per share compared to the 50 cents per share consensus estimate.

Teradyne could rally after it reported second quarter revenues of $170 million. The company reported a loss of 21 cents per share on a non-GAAP basis. The consensus estimates called for a loss of 24 cents per share on revenues of $127.16 million. The company expects third quarter revenues of $190 million to $205 million and bottom line results in the range of a loss of 2 cents to a profit of 2 cents per share. Analysts estimate a loss of 18 cents per share on revenues of $157.22 million.

O’Reilly Automotive also rallied in Thursday’s after hour session after it reported an adjusted second quarter earnings of 63 cents per share on 78% sales growth to $1.25 billion. The Street estimated earnings of 55 cents per share on revenues of $1.23 billion. For the third quarter, the company estimates earnings of 53-57 cents per share and for the year, adjusted earnings are likely to be $2.09-$2.13 per share. Analysts estimate earnings of 51 cents per share for the quarter and $1.97 per share for the year.

FMC may recede after it reported second quarter adjusted net income of $1.10 per share compared with $1.29 per share last year. Revenues fell 13% to $700.3 million. The Street estimated earnings of $1.15 per share on revenues of $738.37 million. The company guided third quarter adjusted earnings to 85-95 cents per share, while it updated its full year earnings estimate to $4-$4.20 per share. The consensus estimates call for earnings of $1.15 per share for the quarter and $4.60 per share for the year.

Cabot Corp. is likely to move to the upside after it reported third quarter adjusted earnings of 6 cents per share on revenues of $511 million. Analysts estimated a loss of 21 cents per share on revenues of $553.33 million. In the year-ago period, the company reported earnings of 52 cents per share on revenues of $840 million.

Tesoro Corp. is likely to be in focus after it reported a second quarter loss of 33 cents per share compared to a profit of 3 cents per share last year. Revenues fell to $4.04 billion from $8.69 billion in the year-ago period, below the consensus estimate of $5.37 billion.

Visa may react to its announcement that its second quarter net income rose to 97 cents per share from 51 cents per share last year. Excluding the impact from the sale of its equity interest in VisaNet, the company’s earnings were 67 cents per share compared to the consensus estimate of 64 cents per share. Net operating revenues rose 2% to $1.6 billion, slightly shy of the mean analysts’ estimate of $1.64 billion. The company reaffirmed its 2009 guidance for high single digit growth and 2010 guidance at the lower end of the 11% to 15% range. The company expects more than 20% growth in annual adjusted earnings per share for Class A stock.

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