US & World Daily Markets Financial Briefing 04-08-2010

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Stocks Little Changed In Mid-Morning Trading

Stocks have given up the majority of their earlier gains and are little changed in mid-morning trading on Wednesday. The lack of conviction in the markets comes even as data points on both private sector employment and service sector activity surprised to the upside.

A short time ago, the Institute for Supply Management said service sector activity unexpectedly expanded at a faster pace in the month of July.

The ISM revealed that its non-manufacturing index rose to 54.3 in July from 53.8 in June, with a reading above 50 indicating continued growth in the service sector. Economists had been expecting the index to edge down to a reading of 53.0.

Earlier, payroll processor Automatic Data Processing, Inc. (ADP) said that non-farm private employment increased by 42,000 jobs in July following an upwardly revised increase of 19,000 jobs in June.

Economists had expected an increase of about 25,000 jobs compared to the addition of 13,000 jobs that had been reported for the previous month. With the increase, private sector employment rose for the sixth consecutive month.

In earnings news, PulteGroup Inc. (PHM) reported second-quarter net income of $0.20 per share, while analysts expected the company to report a loss of $0.01 per share. Total revenues for the quarter surged up to $1.31 billion from $678.58 million in the prior year quarter.

Media and entertainment giant Time Warner Inc. (TWX) said its second-quarter earnings rose to $0.49 per share, topping forecasts for $0.45 per share for the period. Revenues for the quarter grew 8 percent to $6.4 billion, while analysts expected revenues of $6.20 billion.

Additionally, Japanese automaker Toyota Motor Corp. (TM) said it swung to a profit in the first quarter compared to a loss in the same period last year, helped by 27 percent revenue growth on the strength of Asian sales and demand-stimulus programs in Japan.

After the markets closed for trading in the previous session, Anadarko Petroleum Corp. (APC) reported a narrower net loss for the second quarter, helped by increases in production and the average selling price. On adjusted basis, earnings were well ahead of the analysts' expectations.

In other corporate news, BP Plc (BP) has garnered some attention after revealing that its well in the Gulf of Mexico is in a static phase and appears to be on pace to be permanently sealed.

The major averages have seen choppy movement in recent dealing and are currently turning in a mixed performance. While the Dow is up 0.71 points at 2,284.23, the Dow is down 2.72 points at 10,633.66 and the S&P 500 is down 0.44 points at 1,120.02.

Gold stocks are among the morning's best performers, with the NYSE Arca Gold Bugs Index up by 1.7 percent. The upside in gold stocks comes amid a notable increase by the price of the precious metal, with gold currently up $14.30 at $1,201.80 an ounce.

Health insurance stocks are also moving higher on the day, with the Morgan Stanley Healthcare Payor Index up by 2.1 percent. The upward move has lifted the index to a fresh six-week intraday high.

While healthcare provider and biotechnology stocks are also posting notable gains, weakness has emerged among wireless, airline and semiconductors stocks.

Stocks Driven By Analyst Comments

Texas Capital Bancshares(TCBI) is trading higher after being upgraded at Credit Suisse to Outperform from Neutral. The broker cited share valuation as a reason for the ratings change. The stock has gained 2.3 percent, reaching its best intraday price in nearly three weeks.

Meanwhile, Navistar (NAV) is moving lower after being downgraded from Neutral to Underweight by analysts at JP Morgan Chase based on a forecast for a decline in market share. Shares are currently down by 2.7 percent, slipping to a one-month intraday low.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended on a mixed note. Japan's benchmark Nikkei 225 inched sank by 2.1 percent, while Hong Kong's Hang Seng Index gained 0.4 percent.

Meanwhile, the major European markets are on the upside. The German DAX Index is up by 0.8 percent, while the U.K.'s FTSE 100 Index and the French CAC 40 Index are both up 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 2.923 percent, posting a gain of less than one basis point.

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Canadian stocks may edge up at open Wednesday amid stable energy prices and firm gold prices. A better than expected private sector employment report from south of the border may help lift early sentiment.

However, traders may play the wait and watch game ahead of the ISM's Services Index from the U.S., due out later today. Official employment data from both sides of the border are scheduled for release Friday, which may also keep a lid on any large gains.

On Tuesday, the S&P/TSX Composite Index gained 69.17 points or 0.59% to 11,782.60.

The price of crude oil eased from its 3-month high amid worries over economic growth. Crude for September edged down $0.04 to $82.51 a barrel.

The price of gold moved up on speculation of higher demand from China and on a weak U.S. dollar. China announced yesterday that it will allow more commercial banks to import and export gold as well as to participate in trading at the Shanghai Gold Exchange. Gold for December delivery, the most actively traded contract, moved up $15.10 to $1,202.60 an ounce.

In corporate news from Canada, agriculture products company Agrium Inc reported higher second quarter net earnings of $3.20 per share, compared to $2.35 per share in the year ago period. Analysts were expecting the company to report earnings of $2.76 per share for the quarter.


Construction and infrastructure development company Aecon Group reported lower second quarter net income of C$0.14 per share, compared to C$0.18 per share in the year-ago quarter.

Factory automation solutions provider ATS Automation Tooling Systems reported first-quarter consolidated net income of C$0.07 per share versus a breakeven in the previous year.

Distribution utility holding company Fortis Inc. reported improved second quarter net earnings of C$0.32 per common share from C$0.31 per common share a year earlier.

Solar energy company Arise Technologies reported a narrower second quarter net loss of $0.05 per share compared to $0.11 per share in the year ago period. The company reported second quarter loss of $7.4 million, compared to $13.6 million a year ago.

In economic news from the U.S., payroll processor Automatic Data Processing said that non-farm private employment increased by 42,000 jobs in July following an upwardly revised increase of 19,000 jobs in June. Economists were expecting an increase of about 25,000 jobs compared to the addition of 13,000 jobs that had been reported for the previous month.

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Asian Markets End Mixed Await More Cues On Global Economy

Mixed trading was witnessed among the markets in Asia on Wednesday, as traders await more cues on global economy and key economic data related to jobs in the US. While the markets in China, Hong Kong, India, Indonesia and Taiwan ended in the green, the markets in Australia, Japan, Singapore and South Korea ended in negative territory. The strengthening of the yen against the US dollar to a 8-month high has caused Nikkei to end sharply weaker, while weak cues from Wall Street weighed on the market sentiment at Australia, Singapore and South Korea.

In Japan, the benchmark Nikkei 225 Index fell 204.67 points, or 2.1%, to 9489, while the broader Topix index of all First Section issues was down 13.25 points, or 1.5%, to 846.

On the economic front, data revealed that activity in the Japanese service sector contracted unexpectedly in July. The Markit / Nomura business activity index fell to 46.3 from 47.1 in the previous month. A reading above 50 indicates expansion while one below suggests contraction. The rate of decline was slower than the long-run series average, despite quickening to the most marked in the current 3-month period of contraction. Survey respondents blamed falling new business to the reduction in activity.

Exporters and electric machinery related stocks led the decline on concerns about stronger yen. Fanuc Ltd lost 3.66%, Kyocera Corp fell 3.16%, Tokyo Electron plunged 4.95%, TDK Corp. declined 3.79%, and Sony Corp. was down 3.00%. Among the major exporters, Canon Inc. was down 4.33%, Advantest Corp. declined 3.09%, Sharp Corp. slipped 1.69%, Panasonic Corp. shed 1.96% and Casio Computer was down 2.84%.

Automotive stocks also ended in negative territory. Suzuki Motor declined 3.80%, Honda Motor lost 2.22%, Hino Motors plunged 3.56%, Toyota Motor fell 1.59% and Mitsubishi Motors was down 1.75%.

Trading companies ended weaker on stronger local currency. Toyota Tsusho declined 1.49%, Mitsui & Co. shed 1.64%, Mitsubishi Corp. slipped 0.81%, Marubeni Corp. lost 2.28% and Itochu Corp. edged down 0.28%.

Sea transport related stocks ended in negative territory. Kawasaki Kishen Kaisa declined 1.90%, Mitsui OSK Lines fell 1.53% and Nippon Yusen plunged 2.75%.

Real estate related stocks also ended in the red on stronger yen. Sumitomo Realty & Development declined 2.59%, Mitsubishi Estate slipped 1.06%, Mitsui Fudosan shed 1.01%, Heiwa Real Estate fell 0.96% and Tokyu Land Corp. edged down 0.31%.

In Australia, the benchmark S&P/ASX200 Index declined 29.50 points, or 0.65%, and closed at 4542 points, while the All-Ordinaries Index ended at 4,560 representing a loss of 26.80 points or 0.58%.

On the economic front, official data revealed that Australia's trade surplus surged past expectations to a record high in June, fueled by a large increase in exports of commodities such as coal and iron ore. As per the data, the trade balance recorded a surplus of A$3.5 billion in June compared to the revised A$1.8 billion surplus in the previous month. Exports of goods and services rose 7% in June from May to A$26.7 billion, while Imports, on the other hand, were more or less unchanged from previous month.

In a separate report, the Australia Industry Group revealed that activity in the services sector contracted in July. The AIG Performance of Services Index fell 2.2 points to 46.6. A reading below 50.0 indicates contraction of activity in the sector..

A report released by the Australia Bureau of Statistics revealed that house prices rose 3.1% in the second quarter of 2010 compared to the previous quarter. Analysts expected the house prices to rise 2.0% for the quarter following the 4.8% gain registered in the first quarter. On an annual basis, house prices climbed 18.4% in the second quarter, after having gained 20% in the first quarter.

The Federal Chamber of Automotive Industries said 82,376 passenger cars, SUVs and commercial vehicles were sold in July, up 9.3% on the same month of 2009. The SUV segment was the strongest performer during the month with an increase of 29%.

Banks ended in negative territory following weak cues from Wall Street. ANZ Bank declined 0.98%, Commonwealth Bank lost 1.49%, National Australia Bank slipped 0.64% and Westpac Banking Corp. was down 0.48%. Investment banker Macquarie Group also ended in the negative territory with a loss of 0.76%.

Mining and metal stocks also ended in the red. BHP Billiton slipped 0.73%, Rio Tinto edged down 0.22%, Fortescue Metals fell 1.59%, Gindalbie Metals lost 2.02%, Macarthur Coal declined 1.85%, Mincor Resources slumped 3.40%, Murchison Metals shed 1.61% and Oz Minerals was down 2.40%.

Mixed trading was witnessed among oil and energy stocks. Woodside Petroleum advanced 0.67% and Santos edged up 0.07%. However, ROC Oil Co. declined 1.33%, Oil Search fell 1.17% and Origin Energy slipped 0.19%.

Gold stocks managed to end in positive territory following rise in gold prices in the international market. Lihir Gold added 0.96% and Newcrest Mining gained 1.38%.

Increasing FII inflows, mild gains in some Asian markets and a rally in IT stocks following Cognizant's stellar results helped the Indian market shrug off weak cues from the European and U.S. markets on Wednesday. After confining to a narrow range movement till the mid-session, the 30-share Sensex gained sharply late in the session before ending near the day's high at 18,217, up 103 points or 0.57%, while the 50-share Nifty rose by 28 points or 0.52% to 5,468.

Among the other major markets open for trading, China's Shanghai Composite Index added 11.52 points, or 0.44% to 2,639, Taiwan's Weighted Index advanced 15.13 points, or 0.19%, to close at 7,973, and Indonesia's Jakarta Composite Index was up 9.59 points, or 0.32%, to 2,983. However, Singapore's Strait Times Index ended in negative territory with a loss of 12.90 points, or 0.43% to close at 3,002.

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The major European markets, which opened Wednesday’s session lower, have now turned mixed. The French CAC 40 Index and the U.K. FTSE 100 Index are moving down 0.11% and 0.63%, while the German DAX Index rising 0.27%.

In corporate news, Societe Generale reported that its second quarter earnings rose to 1.08 billion euros from 309 million euros in the year-ago period. Revenues rose 17% to 6.68 billion euros.

German insurer Munich Re reported second quarter earnings of 709 million euros, higher than 697 million euros in the year-ago period. The company reaffirmed its full year guidance of more than 2 billion euros in net income before minority interests.

U.K. banking giant Lloyds reversed to a profit of 1.6 billion pounds in the first half of this year from a loss of 4 billion pounds in the year-ago period. Meanwhile, peer Royal Bank of Scotland confirmed reports about the sale of 318 branches along with associated assets to Banco Santander for 1.65 billion pounds. The sale is expected to be completed in 12-18 months.

BP announced that its ruptured well in the Gulf of Mexico appears to have reached a static condition. U.K.-based REIT British Land also reversed to a profit of 172 million pounds in its first quarter from a loss of 273 million pounds last year.

On the economic front, the British Retail Consortium said shop prices were 1.5% higher in July than a year ago, the same rate of growth as in June. Food inflation increased to 2.5% in July from 1.7% in June, while non-food inflation slowed to 1% from 1.4%.

Halifax’s house price survey showed that U.K. house prices unexpectedly rose 0.6% month-over-month in June. The agency’s housing economist Martin Ellis said, "The mixed pattern of monthly rises and falls over the first seven months of the year is consistent with a slowing market. It is also in line with our view that house prices will be broadly unchanged over 2010 as a whole."

The eurozone service sector saw a faster expansion in July, driven by higher levels of activity in France and Germany, the results of a survey showed. The Markit services business activity index rose to 55.8 from 55.5 in June. This was slightly below the earlier preliminary estimate of 56.0.

A report released by Eurostat showed that retail sales remained unchanged in June compared to the previous month. The annual growth slowed to 0.4% from 0.6% in May, although it was better than expectations for a 0.1% increase.

U.S. Economic News

Private sector employment increased for the sixth consecutive month in July, according to a report released by payroll processor ADP day, with the increase in employment exceeding economist estimates.

ADP said that non-farm private employment increased by 42,000 jobs in July following an upwardly revised increase of 19,000 jobs in June. Economists had expected an increase of about 25,000 jobs compared to the addition of 13,000 jobs that had been reported for the previous month.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 53 for July.

The non-manufacturing index fell to 53.8 in June from 55.4 in May, retreating to its lowest level since February. Economists had expected a much more modest drop to 55. The business activity index declined 3 points to 58.1 and the new orders index fell to 54.4 from the month-ago's 57.1. As expected, the employment index dipped back below the '50' level to 49.7. The prices paid index also declined, dropping about 7 points to 53.8.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 30th at 10:30 AM ET.

The previous weekly oil inventory report showed a 7.3 million barrel increase in crude oil stockpiles in the week ended July 23rd to 360.8 million barrels, with inventories above the upper limit of the average range.

Gasoline stockpiles edged up 0.1 million, remaining above the upper limit of the average range. Distillate inventories rose by 0.9 million barrels and were above the upper boundary of the average range. Refinery capacity averaged 90.6% over the four weeks ended July 23rd compared to 91.5% in the previous week.

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Northeast Utilities reported second quarter earnings of 41 cents per share compared to 47 cents per share last year. Operating revenues fell to $1.11 billion from the year-ago’s $1.22 billion. While the results were below expectations, the company raised its full year earnings guidance to $1.95-$2.05 per share from its earlier estimate of $1.80 per share to $2 per share, attributing the optimism to a strong performance by the transmission segment and competitive businesses, the impact of summer weather on sales and the resolution of two rate cases. The Street estimates earnings of $1.94 per share.

Molex reported fourth quarter non-GAAP earnings of 39 cents per share compared to a loss of 9 cents per share last year. Revenues rose 48% to $847.3 million. The results exceeded expectations. For the first quarter, the company estimates earnings of 42-46 cents per share on revenues of $850 million to $880 million, while the Street expects earnings of 39 cents per share on revenues of $820.07 million.

Anadarko Petroleum reported a second quarter loss of 8 cents per share, narrower than a loss of 48 cents per share last year. The recent quarter’s results included items that reduced earnings by 57 cents per share. Analysts’ estimate, which typically excludes one-time items, called for earnings of 35 cents per share. Revenues climbed to $2.60 billion from $1.91 billion last year yet trailed the consensus estimate of $2.75 billion.

Whole Foods Market’s third quarter earnings rose 53% to 38 cents per share and its sales rose 15% to $2.2 billion. Analysts estimated earnings of 38 cents per share on revenues of $2.14 billion. For the full year, the company estimates earnings of $1.37 to $1.39 per share on revenue growth of 11.7%-11.9%. The consensus estimates call for earnings of $1.37 per share on revenue growth of 11.30%.

Chesapeake Energy reported second quarter adjusted net income of 75 cents per share, while revenues rose to $2.01 billion from $1.67 billion last year. Analysts estimated earnings of 69 cents per share on revenues of $2.45 billion.

Pitney Bowes reported second quarter adjusted earnings of 48 cents per share, while sales declined 6% to $1.3 billion. The results trailed the consensus estimates. For the full year, the company expects adjusted earnings per share from continuing operations of $1.49-$1.85, while analysts estimate earnings of $2.38 per share.

Priceline.com said its second quarter pro forma earnings rose to $3.09 per share from $2.02 per share last year. Revenues rose 27.1% to $767.4 million. Analysts estimated earnings of $2.65 per share on revenues of $733.04 million. For the third quarter, the company estimates earnings of $4.06-$4.26 per share compared to the consensus estimate of $4.18 per share.

CBS Corp. said its second quarter adjusted earnings rose to 25 cents per share from 9 cents per share last year. Revenues rose 11% to $3.33 billion. Analysts estimated earnings of 21 cents per share on revenues of $3.24 billion.

Among insurers, XL Group reported operating income of 71 cents per share, lower than 85 cents per share last year. Analysts estimated earnings of 64 cents per share. Meanwhile, Protective Life (PL) said its second quarter operating earnings fell to 62 cents per share from $1.03 per share last year. However, the results were in line with estimates.

Other Corporate News

Alaska Air Group may be in focus after it said its load factor rose 3.1 percentage points to 87.4% in July, as traffic and capacity climbed 11% and 7.1%, respectively.

Barnes & Noble is likely to see some activity after it announced that it is evaluating strategic alternatives, including a possible sale of the company, citing the company’s view that its shares are under-valued.

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