US & World Daily Markets Financial Briefing 05-08-2010

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Stocks Mostly Lower In Mid-Morning Trading

Stocks are mostly on the downside in mid-morning trading on Thursday, as the markets are reacting to an unexpected increase in weekly jobless claims levels. The major averages are all in negative territory, although only by modest margins.

Before the start of trading this morning, the Labor Department reported that initial jobless claims rose to 479,000 in the week ended July 31st from the previous week's revised figured of 460,000.

The increase came as a surprise to economists, who had expected jobless claims to edge down to 455,000 from the 457,000 originally reported for the previous week.

While weekly jobless claims rose to their highest level in over three months, Peter Boockvar, equity strategist at Miller Tabak, noted that jobless claims in July have been impacted by auto plant shutdowns or the lack thereof with respect to GM.

"Notwithstanding the seasonal noise in July, the level of claims remains stubbornly high and still point to a sluggish labor market," Boockvar said.

He added, "While tomorrow we will hopefully see an expected 90,000 added to the private sector roles, the pace remains below what is needed to absorb the monthly additions to the labor force."

Market focus has also been on the retail sector this morning, with a number of key chain stores reporting comparable July store sales. BJ's Wholesale (BJ) reported that its July comps rose by 6 percent, Nordstrom (JWN) said its sales increased by 7.6 percent, Kohl's (KOHL) sales advanced by 7.1 percent and sales by Macy's (M) jumped by 11 percent.

In earnings news, Beazer Homes (BZH) reported a third-quarter net loss that was narrower than last year but still worse than expected. Meanwhile, revenues comfortably beat estimates.

Healthcare giant CIGNA Corp.'s (CI) second-quarter net income and revenues came in above expectations, while the lower end of the firm's full-year earnings guidance was in-line with forecasts.

Freight transportation and logistics services company Con-way Inc. (CNW) posted second-quarter net income that was nearly 24 percent higher compared to the same period last year but still missed projections.

In other corporate news, BP Plc (BP) remains in the spotlight as the firm is conducting a cementing procedure, looking to permanently seal its burdensome oil well in the Gulf of Mexico.

The major averages have climbed well off their worst levels of the day, but they currently remain stuck in the red. The Dow is down 20.05 points or 0.2 percent at 10,660.38, the Nasdaq is down 6.27 points or 0.3 percent at 2,297.30 and the S&P 500 is down 2.65 points or 0.2 percent at 1,124.59.

Sector News

Health insurance stocks are among the morning's worst performers, with the Morgan Stanley Healthcare Payor Index falling by 1.5 percent. The slide is dragging the index down off of the six-week closing high set in the previous session.

The sector is being led lower by Molina Healthcare (MOH), which has plunged by 11.4 percent. The loss by Molina comes after the company reported second quarter earnings that fell year-over-year and announced a public offering of 4 million shares of its common stock.

Trucking stocks are also under pressure, dragging the Dow Jones Trucking Index down by 1.2 percent. With the loss, the index is falling from the nearly two year closing high set at the end of yesterday's session.

Banking, computer hardware and tobacco stocks are also trading lower, while modest strength is visible among oil service and airline stocks.

Stocks Driven By Analyst Comments

Despite a largely down performance in the markets thus far, Savient Pharmaceuticals (SVNT) is higher after being upgraded by analysts at Bank of America to Neutral from Underperform. The broker cited the likelihood of a big drug approval for the firm in September as a reason for the ratings change.

Savient stock has gained 3.9 percent and although it has not taken out recent intraday highs, it is on pace for a three-month closing high.

Meanwhile, Rayonier (RYN) is trading lower after being downgraded at JP Morgan Chase from Neutral to Underweight based on recent valuation. Shares are currently down by 2 percent, pulling back further off of the all-time closing high set earlier this week.

Hub Group (HUBG) is also down following a downgrade at UBS from Buy to Neutral also based on recent valuation. The stock is down by 3 percent, slipping from the six-week closing high set on Wednesday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended on a mixed note on Thursday. Japan's benchmark Nikkei 225 gained 1.7 percent, while the Shanghai Composite Index sank by 0.7 percent.

The major European markets are also turning in a mixed performance. The U.K.'s FTSE 100 Index is down by 0.1 percent, while the French CAC 40 Index and the German DAX Index are up by 0.2 percent and 0.4 percent, respectively.

In the bond markets, treasuries are modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.926 percent, posting a loss of 2.6 basis points.

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TSX May Open Flat Amid Mixed Economic Data

Bay Street stocks may witness a lackluster session Thursday amid mixed economic reports from both sides of the border. While weekly jobless claims in the U.S. rose more than expected, Canadian building permits rebounded in June.

Traders may turn cautious ahead of Friday's monthly employment report from the U.S. and Canada. On Wednesday, the S&P/TSX Composite Index rose to its three-week, adding 62.45 points or 0.53% to 11,845.05.

Crude for September delivery was down $0.54 to $81.93 a barrel. Yesterday, the EIA said gasoline inventories were up by 729,000 barrels, while crude oil inventories decreased by 2.8 million barrels to 358.0 million barrels in the week ended July 30.

Elsewhere, the price of gold is edging up amid a weak U.S. dollar. Gold for December delivery, the most actively traded contract, added $5.80 to $1,201.70 an ounce.

In corporate news from Canada, independent energy company Canadian Natural Resources reported improved second quarter net earnings of C$0.63 per share compared to restated earnings of C$0.59 per share in the comparable period.

Telecommunications company BCE Inc. said its second-quarter net earnings improved to C$0.77 per share from C$0.58 per share a year earlier. The company declared a quarterly dividend of $0.4575 per common share and announced that the annual common share dividend will increase by 5% to $1.83 per share.

Gold miner Kinross Gold reported second-quarter adjusted net earnings of $0.16 per share, up from $0.12 per share, for the same period last year. Analysts were expecting the company to report earnings of $0.16 per share. The company declared a dividend of $0.05 per share and announced the appointment of Brant Hinze as Executive VP & COO.

Gold producer Yamana Gold reported higher second quarter revenues of $351.37 million compared to $236.71 million in the year ago quarter and announced a 33% hike in its quarterly dividend at $0.02 per share.

Life and health insurance services provider Sun Life Financial reported lower second quarter net income of C$0.37 per share compared to C$1.05 per share in the year ago quarter.

Home, auto and business insurance company Intact Financial Corp. reported higher second quarter net income of C$1.04 per share, compared to C$0.62 per share, for the same period last year. The company declared a quarterly dividend of C$0.34 per share.

Engine and fuel injection systems company Westport Innovations reported a narrower first quarter net loss of $0.21 per share, compared to a net loss of $0.25 per share in the prior year quarter.

Airlines operator Air Canada slipped into the red in second quarter, reported a net loss of C$0.72 per share, compared to net income of C$1.55 per share in the year ago quarter.

In economic news from Canada, Statistics Canada said the value of overall building permits totaled C$6.6 billion in June, up 6.5% from May and a 24.9% increase from June 2009. Economists were expecting an increase of only 1.8%, following the 10.8% decline reported in May.

From the U.S., the Labor Department said that initial jobless claims rose to 479,000 in the week ended July 31 from the previous week's revised figured of 460,000. The increase came as a surprise to economists, who had expected jobless claims to edge down to 455,000 from the 457,000 originally reported for the previous week.

Elsewhere, the European stocks were hovering in positive terrain. As widely expected, the Bank of England has left its bench mark interest rates at a record low of 0.5%, while the ECB also opted to stay pat on rates.

Overnight, Asian markets ended mixed despite forecast-beating earnings from car maker Toyota and chip maker UMC. While the Chinese and Indian markets ended lower, the markets in Japan and Australia closed higher.

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Asian Markets End Mixed

Mixed trading was witnessed in Asian markets on Thursday, as traders await key economic data from the US for further direction. While the markets in Australia, Japan, Hong Kong, Indonesia and Singapore ended in positive territory with modest gains, the markets in China, India, South Korea and Taiwan ended in negative territory. The weakening of the yen against the dollar led to sharp gains in Japan, while positive closing on Wall Street lifted market sentiment on optimism about sustaining global economic recovery.

In Japan, the benchmark Nikkei 225 Index gained 164.58 points, or 1.73%, to 9,654, while the broader Topix index of all First Section issues was up 11.16 points, or 1.32 percent, to 857

On the economic front, a statement released by the Ministry of Finance revealed that Japanese residents sold a net 20.4 billion yen in foreign stocks in the week ended July 31. The statement further noted that Japanese investors purchased a net 1.27 trillion yen in foreign bonds and notes last week.Foreign investors bought a net 144.1 billion yen in Japan stocks, the data showed, and also purchased a net 287.4 billion yen in Japan bonds and notes.

Real estate stocks led the gains in the market. Sumitomo Realty and Development surged up 5.51%, Mitsui Fudosan soared 5.68%, Mitsubishi Estate climbed 5.45%, Tokyu Land Corp. rose 3.69% and Heiwa Real Estate gained 3.40%.

Stocks of non-ferrous metals ended in positive territory. Toyo Seikan Kaisha gained 2.75%, Sumitomo Metal Mining rose 1.96%, Sumitomo Electric Industries increased 1.99%, Mitsui Mining and Smelting Co. climbed 2.92%, Mitsubishi Materials Corp. surged up 3.52% and Toho Zinc Co. was higher by 2.43%.

Oil related stocks also ended in positive territory. JX Holdings gained 2.52% and Showa Shell Sekiyu rose 1.52%.

Trading companies also gained on weaker yen. Mitsui & Co. surged up 4.65%, Toyota Tsusho Corp. rose 2.77%, Mitsubishi Corp. advanced 1.33%, Marubeni Corp. climbed 2.97% and Itochu Corp was up 1.81%.

In Australia, the benchmark S&P/ASX200 Index added 24.40 points, or 0.54%, and closed at 4566 points, while the All-Ordinaries Index ended at 4,585, representing a gain of 25.20 points, or 0.55%.

Mining and metal stocks led the gains on optimism that global economic recovery will be sustained, though at a slightly slower pace. BHP Billiton added 0.39%, Rio Tinto edged up 0.23%, Fortescue Metals gained 1.85%, Gindalbie Metals rose 2.06%, Macarthur Coal climbed 2.27%, Mincor Resources increased 2.51%, Murchison Metals was up 0.55% and Oz Minerals was higher by 2.05%.

Oil related stocks also ended in positive territory. Woodside Petroleum advanced 0.76%, Santos Ltd added 0.52%, ROC Oil Co rose 4.05%, Oil Search gained 0.67% and Origin Energy rose 1.05%.

Banks also ended in positive territory with marginal gains. ANZ Bank added 0.30%, Commonwealth Bank remained unchanged from previous close, National Australia Bank added 0.76% and Westpac Banking also remained unchanged from previous close.

Gold related stocks ended higher on higher gold prices in the international market. Lihir Gold gained 1.67% and Newcrest Mining rose 1.59%.

Late-session profit taking following recent sharp gains dragged the Indian market modestly lower on Thursday. Oil/gas, healthcare, public sector, power, metal and banking stocks eased, while select realty, IT, auto and FMCG stocks gained modestly, limiting the loss. After confining to a range-bound movement, the 30-share Sensex finally ended down 45 points or 0.24% at 18,173, while the 50-share Nifty fell 21 points or 0.38% to 5,447.

Among the other major markets open for trading, China's Shanghai Composite Index ended in negative territory with a loss of 17.76 points, or 067% at 2,621 and Taiwan's Weighted Index declined 35.81 points, or 0.45%, to close at 7,937. However, Indonesia's Jakarta Composite Index surged up 61.69 points, or 2.07%, to 3,045, and Singapore's Strait Times Index added 4.89 points, or 0.16% to close at 3,007.

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The major European markets are trading on a mixed note on Thursday after yesterday’s mixed performance. The French CAC 40 Index and the German DAX Index are rising 0.47% and 0.23%, respectively, while the U.K.’s FTSE 100 Index is receding 0.07%.

In corporate news, U.K. banking giant Barclays (BCS) reported that its first-half pre-tax profits rose to 3.4 billion pounds, helped by lower impairment charges and gains on its own debt. U.K. insurer Aviva said its first-half operating profit came in at 1.27 billion pounds compared to 1.05 billion pounds last year.

Unilever (UL) reported a second quarter profit of 1.06 billion euros compared to 758 million euros last year, as sales rose 12.4% to 11.75 billion euros. Mining giant Rio Tinto (RTP) said its underlying earnings for the first-half period rose about 125% to $5.77 billion.

Two central bank decisions from the region came along the expected lines. At the end of two-day rate setting meeting, the Bank of England’s Monetary Policy Committee decided to retain the interest rate at 0.5%. The current rate is the lowest since the central bank was established in 1694. The decision was in line with economists' expectations. Policy makers also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at GBP 200 billion. The minutes of the meeting will be released on August 18.

The European Central Bank left its key interest rate unchanged at a record low of 1% for the fifteenth straight month. The decision was in line with economists' expectations. The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

U.S. Economic News

The Labor Department said that first-time claims for unemployment benefits unexpectedly showed a moderate increase in the week ended July 31st.

Initial jobless claims rose to 479,000 from the previous week's revised figured of 460,000. The increase came as a surprise to economists, who had expected jobless claims to edge down to 455,000 from the 457,000 originally reported for the previous week.

Currency, Commodity Markets

Crude oil futures are falling $0.53 to $81.94 a barrel after edging down $0.08 to $82.47 a barrel on Wednesday. The modest retreat in the previous session came amid the release of the EIA’s inventory report, which showed that crude oil inventories fell by 2.8 million barrels to 358 million barrels in the week ended July 30th. Inventories of crude oil remained above the upper limit of the average range.

At the same time, gasoline inventories edged up by 0.7 million barrels and were above the upper limit of the average range. Distillate stockpiles rose by 2.2 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 91.2% over the four-weeks ended July 30th compared to 90.6% in the previous week.

Gold futures are edging up $2.60 to $1,198.50 an ounce. In the previous session, the precious metal rose $8.40 to $1,195.90 an ounce.

Among currencies, the U.S. dollar is trading at 86.18 yen compared to the 86.2705 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3184 compared to yesterday’s $1.3162.

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Avis Budget (CAR) reported second quarter earnings of 25 cents per share compared to a loss of 2 cents per share last year. The company’s revenues fell 1% to $1.3 billion. Analysts estimated a profit of 18 cents per share on revenues of $1.33 billion.

SINA Corp. (SINA) said its second quarter non-GAAP earnings rose 62% to $27.7 million or 42 cents per share, as revenues rose 10% to $99.4 million. The consensus estimates called for earnings of 35 cents per share on revenues of $92.57 million. For the third quarter, the company estimates net revenues of $101 million to $104 million, while analysts estimate revenues of $100.80 million.

News Corp. (NWS) reversed to a fourth quarter profit of 33 cents per share from a loss of 8 cents per share last year. Revenues climbed to $8.11 billion from the year-ago’s $7.67 billion.

Murphy Oil (MUR) reported second quarter net income of $1.41 per share, higher than 83 cents per share last year. The year-ago results included items that had a net negative impact of about 7 cents per share. Revenues climbed to $5.59 billion from $4.56 billion last year. The consensus estimates called for earnings of $1.21 per share on revenues of $6.36 billion. The company also announced a 10% increase in its quarterly dividend.

Prudential Financial (PRU) reported second quarter after-tax adjusted operating income of $1.51 per share, lower than $1.87 per share last year. Analysts estimated earnings of $1.32 per share.

Meanwhile, Hartford Financial (HIG) reversed to a second quarter profit of 17 cents per share on a core basis from a loss of $1.90 per share last year. The company’s adjusted core earnings were 92 cents per share, ahead of the consensus estimate of 71 cents per share. The company lowered its full year core earnings guidance to $2.10-$2.30 per share from $2.70-$3 per share, while analysts estimate earnings of $2.71 per share.

Allstate (ALL) said its second quarter operating income rose to 81 cents per share from 55 cents per share last year. However, revenues fell 9.8% to $7.66 billion. The results were ahead of expectations.

Con-way (CNW) reported that its second quarter net income declined to 26 cents per share from 64 cents per share last year despite revenues rising 23.7% to $1.31 billion. While earnings trailed the consensus estimate of 30 cents per share, revenues were ahead of $1.26 billion consensus estimate.

Other Corporate News

Among retailers, Fred’s (FRED) reported a 2.7% increase in its same store sales for July, rebounding the 4.6% drop in the previous month. Teen apparel retailer Hot Topic (HOTT) said its same store sales dipped 9% in July. The company also lowered its second quarter loss estimate to 14 cents per share, while analysts estimate a loss of 10 cents per share.

AMR Corp. (AMR) could see some activity after its American Airlines unit said its load factor fell 0.3 points in July to 87%. The decline came despite a 2.7% increase in traffic and a 3.1% improvement in capacity. AMR’s regional carrier American Eagle reported a 1.7 point decline in load factor to 76.1%.

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