US & World Daily Markets Financial Briefing 03-08-2010

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Stocks Posting Moderate Losses After Pending Home Sales, Factory Orders Drop

Stocks are seeing moderate weakness in mid-morning trading on Tuesday, as the markets are digesting decreases in pending home sales and factory orders following the morning's unexpectedly poor showing on the earnings front.

A short time ago, the National Association of Realtors reported a drop in pending home sales in the month of June, although the decrease was not as steep as expected.

The NAR said its pending home sales index fell by 2.6 percent in June following a revised 29.9 percent decrease in May. The index had been expected to decrease by about 5.0 percent compared to the 30.0 percent drop that had been reported for the previous month.

At the same time, the Commerce Department said that factory orders fell by 1.2 percent in June following a revised 1.8 percent decrease in the previous month. Economists had been expecting orders to decrease by 0.5 percent compared to the 1.4 percent drop originally reported for May.

Earlier, the Commerce Department released a separate report showing that personal income and spending both came in nearly unchanged in June after showing modest increases in the previous month.

Individual automakers will also release auto sales figures for July, which might provide additional clues regarding the health of consumer spending.

In earnings news, Pfizer Inc. (PFE) reported adjusted second quarter earnings of $0.62 per share versus $0.48 per share a year ago. On average, Wall Street analysts expected earnings of $0.52 per share for the quarter.

The drug giant reported revenues for the quarter of $17.3 billion, an increase of 58 percent compared to the same period last year. The figures also beat analyst expectations, which called for revenues of $16.65 billion for the quarter.

Meanwhile, Procter & Gamble Co. (PG) and Dow Chemical Co. (DOW) reported earnings and revenues that fell short of estimates.

The major averages have moved off their worst levels of the day in recent trading but remain firmly in negative territory. The Dow is down 47.23 points or 0.4 percent at 10,627.15, the Nasdaq is down 15.84 points or 0.7 percent at 2,279.52 and the S&P 500 is down 5.86 points or 0.5 percent at 1,120.00.

Sector News

Housing stocks are among the hardest hit stocks amid this morning's moderate pullback, with the Philadelphia Housing Sector Index posting a loss of 3.5 percent. Despite the drop, the index remains rangebound.

Radian Group (RDN) is helping to lead the housing sector lower after the mortgage insurer reported a second quarter loss versus a year-ago profit. Vulcan Materials (VMC) is also posted a steep loss after swinging to a net loss for the second quarter.

Airline stocks are also notably lower, with the NYSE Arca Airline Index down by 2.4 percent. With the slide, the index is moving further off of its best level in over two and a half years, set at the close of trading in the previous session.

Oil service, trucking, electronic storage and semiconductor stocks are also notably lower, while gold stocks are seeing moderate upside amid the day's risk aversion. The NYSE Arca Gold Bugs Index is up by 1.3 percent, as the price of gold is up by $4.40 at $1,189.80 an ounce.

Stocks Driven By Analyst Comments

Despite a down day in the markets, Imperial Sugar (IPSU) is trading higher after BWS Financial upgraded the stock from Sell to Hold. Shares are currently up by 2 percent after setting a three-week intraday high in earlier dealing.

On the other hand, TeleTech (TTEC) is under pressure after Stifel Nicolaus dropped its rating on the stock from Hold to Sell. The stock is down by 6.1 percent after setting a one-month intraday low earlier on.


Convergys (CVG) is also trading lower after Stifel Nicolaus downgraded the stock from Buy to Hold. The stock has lost 7.3 percent, setting a two-week intraday low.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended mostly higher on Tuesday. Japan's benchmark Nikkei 225 inched gained 1.3 percent, while Hong Kong's Hang Seng Index inched up by 0.2 percent.

Meanwhile, the major European markets are moderately lower. The U.K.'s FTSE 100 Index and the French CAC 40 Index are down by 0.7 percent and 0.6 percent, respectively, while the German DAX Index is down by 0.3 percent.

In the bond markets, treasuries are notably higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.905 percent, posting a loss of 5.8 basis points.

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TSX Looks To Track Global Stocks Sharply Higher

Canadian stocks will look to play catch-up on Tuesday, as global equities soared the day before, while Bay Street was closed for Civic Day.

On Friday, the S&P/TSX Composite Index eased 15.21 points or 0.13% to 11,713.43. The price of crude oil was hovering near its 3-month high ahead of a slew of economic data and weekly inventories report from the API. Crude for September was up $0.51 to $81.85 a barrel.

Meanwhile, the price of gold moved up for a fourth session amid a weak U.S. dollar. Gold for December delivery, the most actively traded contract, was up $3.30 to $1,188.70 an ounce.

In corporate news from Canada, Scotiabank said it has completed the acquisition of wholesale banking operations of The Royal Bank of Scotland in Colombia.

Gold mining companies Kinross Gold and Red Back Mining announced a friendly merger, whereby Kinross will acquire all of the outstanding common shares of Red Back that it does not already own. The total value of the proposed transaction is about $7.1 billion, on a fully-diluted basis.

Blackberry maker Research In Motion may be in play following reports that the UAE and Saudi Arabia announced plans to suspend blackberry services due to security concerns. Yesterday, the stock shed nearly 2% on the Nasdaq.

Beers and beverages maker Molson Coors Brewing reported higher second quarter net income of $1.27 per share, up from $1.01 per share last year. Excluding one-time items, the company earned $1.25 per share, compared to analysts estimates for an earnings of $1.20 per share.

British oil and gas firm EnQuest Plc said it would buy Canada's hydrocarbon company Stratic Energy for $45.7 million in an all-stock deal.

Oil and gas drilling contractor AKITA Drilling slipped in to the red in second quarter, reporting net loss of C$0.03 per share compared to net income of C$0.03 per share in the year-ago quarter.

Print and non-print publishing company McGraw-Hill Ryerson reported lower second quarter net income of C$0.19 per share, compared to C$0.52 per share in the year-ago quarter.

Bio pharmaceutical company MethylGene Inc. reported a narrower second quarter net loss of C$0.09 per share compared to loss of C$0.19 per share last year.

In economic news from the U.S., the Commerce Department said that personal income increased by less than 0.1% in June following a downwardly revised 0.3% increase in the previous month.

Economists were expecting income to increase by 0.1% compared to the 0.4% growth originally reported for May. Additionally, the report showed that personal spending decreased by less than 0.1% after rising by a downwardly revised 0.1% in May.

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Indian Market Ends Lackluster Session Higher; Bharti Rises 3%

The Indian market ended a lackluster session flat with a positive bias on Tuesday, as investors evinced little interest in buying stocks after a rally in the previous session.

After moving in a narrow range of 18,167- 18,072, the 30-share Sensex finally ended up 34 points or 0.19% at 18,115, with 14 of its components ending higher. Selective buying was seen in banking, oil/gas, healthcare, public sector and metal stocks, while FMCG, capital goods and IT stocks came under selling pressure.

The 50-share S&P Nifty rose by 8 points or 0.15% to 5,440 and the BSE mid-cap and small-cap indexes gained about 0.3% each. In the broader market, 1505 shares advanced, while 1430 declined and 120 others closed unchanged.

Banking stocks continued to remain in focus on the back of strong quarterly numbers reported over the weekend. ICICI Bank advanced 2.38%, extending its previous session's 4% rally. Axis Bank, Yes Bank, Canara Bank, Bank of Baroda, IDBI Bank and Kotak Mahindra Bank rose between 0.56% and 2.23%.

SBI gained 0.85% after the Lok Sabha cleared the SBI (Amendment) Bill, 2010, which will allow the government to reduce its stake in the state-run bank to 51 percent.

IT stocks closed subdued after the Indian rupee rose to a fresh one-month high in early trading Tuesday on the back of firm Asian currencies and stocks. Bellwether Infosys slipped 0.54%, TCS fell 0.65% and Wipro eased 0.34%.

Adani Enterprises rose over 2% after it agreed to buy a coal asset from Australia's Linc Energy for $456 million. Strides Arcolab gained 1.71% after it received the UK health regulator's ' Good Manufacture Practice' certification for its Carbapenems manufacturing facility at Campos, Brazil.

Hindalco Industries edged up 0.64% after delivering forecast-beating quarterly earnings. In the auto sector, Hero Honda Motors gained 1.79% after reporting a 17% rise in July vehicle sales. Maruti Suzuki added 0.36% after announcing a price hike.

Oriental Hotels soared nearly 7% after the company sought shareholder approval to split its existing equity shares. Telecom giant Bharti Airtel advanced 3.35% to close near the day's high.

Nitco tumbled around 5% on disappointing results. Ambuja Cements, which posted a modest 2% decline in its July cement dispatches, ended down 1.35%. Swaraj Engines eased a little over a percent after it reported a modest rise in its June-quarter net profit. Recently listed Aster Silicates (down 20%) and Emami Infrastructure (down 10%) ended deep in the red.

ADAG stocks fell after market regulator SEBI sought replies from top executives of the group companies in a case related to ECB transactions entered into by Reliance Natural Resources (down 3.30%) and Reliance Infrastructure (up 0.31%). Reliance Capital shed 0.69%, Reliance Power declined 2.50% and Reliance MediaWorks gave off 1.33%.

Elsewhere, most Asian stocks rose on Tuesday, lifting the MSCI Asia Pacific Index up by about 0.8 percent to a three-month high, after robust results from some European banks like HSBC and BNP Paribas and a string of upbeat economic reports from the U.S. and Europe eased investor concern about global economic growth.

However, European stocks retreated from a three- month high, dragged down by banks and miners, and the U.S. index futures dropped, as investors awaited more U.S. data on June personal consumption, factory orders and pending home sales due later in the day to assess the strength of economic recovery in the world's largest economy.

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The major European markets opened Tuesday’s session lower and are seen languishing in the red following strong advances in the previous session, which took the major averages in the region near their 3-monthclosing highs.

The French CAC 40 Index and the German DAX Index are currently down 0.02% and 0.59%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.42%.

In corporate news, copper miner Xstrata reported that its first-half net profits rose to $2.29 billion from $690 million last year, as revenues increased 43% to $13.61 billion.

Germany’s Deutsche Post said its second quarter net income rose to 81 million euros from the year-ago’s 66 million euros, as revenues climbed 16% to 12.8 billion euros. The company upwardly revised its EBIT guidance for the full year to 1.9 billion to 2.1 billion euros.

Reports suggest that Banco Santander may buy about 318 bank branches from the Royal Bank of Scotland (RBS) and could also acquire a multi-billion dollar pool of car loans from HSBC Holdings in the U.S.

U.K. homebuilder Taylor Wimpey reversed to a profit on a pre-tax basis of 19.6 million pounds for the first-half compared to a loss of 672.7 million last year. Revenues were up 11.1% to 827.1 million pounds.

On the economic front, the Markit / Chartered Institute of Purchasing & Supply construction purchasing managers' index slid to 54.1 in July from 58.4 in June. U.K. construction companies reported a further rise in new business received during July - the fifth increase in as many months. However, the rate of expansion slowed to its weakest since March.

Eurostat reported that euro zone producer prices rose 3% year-on-year in June, slightly slower than the 3.1% increase seen in May. Economists had expected the annual rate to stay at 3.1%. On a monthly basis, producer prices moved up 0.3% in June, the same rate as in the previous month, but slower than the 0.4% growth expected by economists.

U.S. Economic News

Individual automakers are scheduled to release their monthly U.S. sales results for July. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.

The Bureau of Economic Analysis released a report, which showed that personal income increased by less than 0.1% in June following a downwardly revised 0.3% increase in the previous month. Economists had expected income to increase by 0.1% compared to the 0.4 percent growth originally reported for May.

Additionally, personal spending decreased by less than 0.1% after rising by a downwardly revised 0.1% in May. Spending had been expected to come in unchanged compared to the 0.2% growth that had been reported for the previous month.

The Commerce Department is due to release its report on factory goods orders for June at 10 AM ET. Orders for manufactured goods are likely to have fallen 0.5% in the month. In May, factory goods orders fell 1.4% following a 1% decline in the previous month.

Meanwhile, durable goods orders, which make up the bulk of factory goods orders, fell 1% month-over-month in June, belying expectations for a 1% increase. Excluding transportation orders, orders were down a more modest 0.6%, with softness in primary metal, computer/electronics and machinery orders responsible for the weakness.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to show a 5% decline for June following the steep retreat in the previous month.

In May, pending home sales slumped 30% month-over-month and were down 15.9% compared to the previous year. The consensus estimates had called for a mere 10.5% drop. According to ING, the data has given rise to fears that the fiscal incentive of the homebuyer credit had served merely to cannibalize sales in the coming months and did not succeed in jump-starting a lasting recovery of the housing market.

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Kilroy Realty (KRC) reported second quarter funds from operations that fell to 41 cents per share compared to 79 cents per share last year despite revenue from continuing operations rising to $72.4 million from the year-ago’s $71.1 million. Analysts estimated earnings of 52 cents per share on revenues of $68.55 million.

Forest Oil (FST) said its second quarter adjusted earnings declined to 42 cents per share from 52 cents per share last year. Revenues climbed to $208.10 million from $182.07 million last year. The consensus estimates called for earnings of 41 cents per share on revenues of $219.98 million.

VeriSign (VRSN) reported that its second quarter non-GAAP earnings rose to 24 cents per share from 16 cents per share last year. Revenues climbed to $168.68 million from $154.34 million in the year-ago period. Analysts estimated earnings of 24 cents per share on revenues of $166.52 million.

Principal Financial Group (PFG) reported second quarter operating earnings of 63 cents per share, lower than 69 cents per share last year and also trailing the consensus estimate of 66 cents per share. Total revenues climbed to $2.23 billion from $2.16 billion in the year-ago period. The Street estimated revenues of $2.38 billion.

Archer Daniels Midland (ADM) said its fourth quarter earnings rose to 69 cents per share from 9 cents per share last year. However, net sales fell to $15.70 billion from $16.53 billion last year. Analysts estimated earnings of 52 cents per share on revenues of $16.47 billion.

Pfizer (PFE) reported adjusted second quarter earnings of 62 cents per share compared to 48 cents per share last year. Revenues rose 58% to $17.3 billion. Analysts estimated earnings of 52 cents per share on revenues of $16.65 billion. The company raised its 2010 adjusted earnings per share guidance, expecting earnings at the high end of its earlier guidance range of $2.10-$2.20 per share, while the company estimated revenues of $67 billion to $69 billion. Analysts estimate earnings of $2.16 per share on revenues of $67.30 billion.

Other Corporate News

Sourcefire (FIRE) could see buying interest after Standard & Poor’s said the company would replace ADPT Corp. (ADPT) in the S&P SmallCap 600 Index after the close of trading on Wednesday. ADPT is delisting from the Nasdaq global market as its shares no longer meet the listing standards.

SM Energy (SM) is likely to see some activity after the company said in its operational update that it is upwardly revising its production outlook for the back half of 2010 to reflect the additional capital investment planned for the second half of 2010. The company now estimates a 5% increase in its full year production.

Continental Airlines (CAL) could be in focus after it said its consolidated passenger load factor rose 0.7 points year-over-year to 88%, as traffic rose 2.5% and capacity climbed 1.7%.

Hewlett-Packard (HPQ) may react to its announcement that it has reached a settlement agreement with the U.S. Department of Justice to resolve an investigation into the company’s GSA multiple award schedule contract as well as separate allegations about the Rille complaint filed in a U.S. district court in 2007. The company expects to record a charge of 2 cents related to the settlement in its full year results.

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