US & World Daily Markets Financial Briefing 06-08-2010

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Stocks are largely on the downside in mid-morning trading on Friday, driven lower by a disappointing July jobs number. The major averages are all in negative territory but have been able to move off of their session lows.

Sentiment was gloomy before the start of trading after the Labor Department said that non-farm payroll employment fell by 131,000 jobs in July following a revised decrease of 221,000 jobs in June. Economists had expected employment to drop by 87,000 jobs compared to the loss of 125,000 jobs originally reported for the previous month.

At the same time, the report showed that the unemployment rate came in unchanged compared to the previous month at 9.5 percent, reflecting a decrease in the size of the labor force. The unemployment rate had been expected to edge up to 9.6 percent.

While the hiring of temporary census workers contributed to a substantial increase in employment in the month of May, the elimination of the jobs as the census work is completed has contributed to the notable decreases in employment seen in the past two months.

On the other hand, the report showed that private sector employment increased by 71,000 jobs in July following a downwardly revised increase of 31,000 jobs in June.

Peter Boockvar, equity strategist at Miller Tabak, "Private sector job gains are averaging 90,000 per month this year, obvious hiring but still lackluster relative to what is needed to forcefully lower the unemployment rate."

At 3:00 p.m. ET, the Federal Reserve will release its consumer credit report for June. Economists project that consumer credit declined by $5.7 billion in June.

In earnings news, AIG Inc. reported a second-quarter net loss but a profit that beat expectations on an adjusted basis. The firm's revenues also beat the mark even though they showed a decline from the year-ago quarter.

After the markets closed for trading in the previous session, Kraft Foods Inc. said that its second quarter profit rose 13 percent from last year, helped by the acquisition of British confectioner Cadbury.

The company's quarterly earnings per share, excluding items, came in above analysts' expectations. However, quarterly revenues came in lower than forecast, and the company trimmed its full year revenue growth projections.

The major averages moved to the downside downside in recent trading, pulling back off of their recovery highs. The Dow is down 79.31 points or 0.7 percent at 10,595.67, the Nasdaq is down 19.08 points or 0.8 percent at 2,273.98 and the S&P 500 is down 9.90 points or 0.9 percent at 1,115.91.

Sector News

Healthcare provider stocks are posting some of the morning's steepest losses, resulting in a 2.4 percent drop by the Morgan Stanley Healthcare Provider Index.

The index is being weighed down by shares of PharMerica Corporation, which have plunged by 23.8 percent to an all-time intraday low. The loss comes after the firm reported sharply lower second quarter earnings and provided disappointing full year guidance.

Electronic storage, banking, railroad and natural gas stocks are also under pressure, further driving down the major averages. The NYSE Arca Disk Drive Index is down by 2.2 percent and has set a fresh one-month intraday low.

Meanwhile, notable upside is visible among gold stocks, which are benefiting from the day's risk aversion plays. The NYSE Arca Gold Bugs Index is up by 1.6 percent, setting a three-week intraday high, as the price of gold has risen by $10.60 to $1,209.90 an ounce.

Stocks Driven By Analyst Comments

Cooper Tire & Rubber Co.  is down after BB&T Capital Markets lowered its rating on the stock from Buy to Hold. The stock is currently down by 3.4 percent and is on pace for a one-month closing low.

Flagstone Reinsurance is also trading lower after Stifel Nicolaus downgraded shares from Buy to Hold. Shares are down by 1.7 percent, setting their lowest intraday price in nearly two months.

On the other hand, TFS Financial is notably higher after analysts at FBR Capital Markets upgraded the stock from Perform to Outperform. Shares are up by 1 percent, bouncing off of more than two year closing low set on Thursday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended the week on a mixed note. Japan's benchmark Nikkei 225 slid by 0.1 percent, while Hong Kong's Hang Seng Index gained 0.6 percent.

Meanwhile, the major European markets have all moved to the downside. The U.K.'s FTSE 100 Index has edged down by 0.1 percent, while the German DAX Index and the French CAC 40 Index are down by 0.5 percent and 0.8 percent, respectively.

In the bond markets, treasuries are notably higher amid the pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.852 percent, posting a loss of 6.3 basis points.

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Bay Street stocks may open lower Friday amid discouraging monthly jobs report from both sides of the border. While Canada reported a loss of 9,300 jobs for July, recording the first dip in this year, U.S. non-farm payroll employment fell by 131,000 jobs last month. 

U.S stock futures were pointing to a lower open after the monthly employment report from the U.S.

On Thursday, the S&P/TSX Composite Index retreated from its 6-week high, shedding 70.28 points or 0.59% to 11,774.77. 

The price of crude oil was down $0.61 to $81.34 a barrel, while the price of gold moved up $9.40 to $1,208.70 an ounce, after the release of monthly employment report earlier today.

Energy stocks may be under pressure as the price of crude oil slipped for a third session Friday.

In corporate news from Canada, automotive supplier Magna International (MG_A.TO) swung to profit in second quarter, reporting net earnings $2.59 per share compared to a loss of $1.83 per share in the previous year. Analysts were expecting the company to report $1.46 per share this quarter. 

Wireless broadband communications services provider TeraGo Inc. reported a wider second-quarter net loss of C$0.17 per share, compared to a net loss of C$0.12 per share for the same period in 2009.

Industrial auctioneer Ritchie Bros. Auctioneers Inc. reported lower second quarter net earnings of $0.25 per share compared to$0.37 per share a year ago. Analysts were expecting the company to report net earnings of $0.23 for this quarter. 

Gold miner La Mancha Resources reported higher second quarter net income of C$0.06 per share compared to C$0.04 per share in the year-ago quarter.

Gold mining company Richmont Mines swung to profit in second quarter, reporting net income of C$0.01 per sahre, compared to a net loss of C$0.05 per share a year-ago. 

Electricity producer Boralex Inc. slipped into red in second quarter, reporting net loss of C$0.15 per share compared to a profit of C$0.05 per share last year.

Real estate company Melcor Developments announced the resignation of Michael Shabada as CFO, effective October 31, 2010.

Beer maker Brick Brewing Co. signed a new contract brewing agreement, which would contribute a minimum of $1 million in net revenue over the initial term of two years.

In economic news, Statistics Canada said employment fell by 9,300 jobs in July, the first decline this year, following a 93,200 increase in June. Unemployment rate edged up 0.1% to 8.0% in July, after dropping below 8% for the first time in more than a year in June. Economists had expected Canadian employers to have added 10,300 jobs to payrolls last month, following a 93,200 gain in June.

Bay Street stocks may open lower Friday amid discouraging monthly jobs report from both sides of the border. While Canada reported a loss of 9,300 jobs for July, recording the first dip in this year, U.S. non-farm payroll employment fell by 131,000 jobs last month. 

U.S stock futures were pointing to a lower open after the monthly employment report from the U.S.

On Thursday, the S&P/TSX Composite Index retreated from its 6-week high, shedding 70.28 points or 0.59% to 11,774.77. 

The price of crude oil was down $0.61 to $81.34 a barrel, while the price of gold moved up $9.40 to $1,208.70 an ounce, after the release of monthly employment report earlier today.

Energy stocks may be under pressure as the price of crude oil slipped for a third session Friday.

In corporate news from Canada, automotive supplier Magna International swung to profit in second quarter, reporting net earnings $2.59 per share compared to a loss of $1.83 per share in the previous year. Analysts were expecting the company to report $1.46 per share this quarter. 

Wireless broadband communications services provider TeraGo Inc. reported a wider second-quarter net loss of C$0.17 per share, compared to a net loss of C$0.12 per share for the same period in 2009.

Industrial auctioneer Ritchie Bros. Auctioneers Inc. reported lower second quarter net earnings of $0.25 per share compared to$0.37 per share a year ago. Analysts were expecting the company to report net earnings of $0.23 for this quarter. 

Gold miner La Mancha Resources reported higher second quarter net income of C$0.06 per share compared to C$0.04 per share in the year-ago quarter.

Gold mining company Richmont Mines  swung to profit in second quarter, reporting net income of C$0.01 per sahre, compared to a net loss of C$0.05 per share a year-ago. 

Electricity producer Boralex Inc.  slipped into red in second quarter, reporting net loss of C$0.15 per share compared to a profit of C$0.05 per share last year.

Real estate company Melcor Developments announced the resignation of Michael Shabada as CFO, effective October 31, 2010.

Beer maker Brick Brewing Co. signed a new contract brewing agreement, which would contribute a minimum of $1 million in net revenue over the initial term of two years.

In economic news, Statistics Canada said employment fell by 9,300 jobs in July, the first decline this year, following a 93,200 increase in June. Unemployment rate edged up 0.1% to 8.0% in July, after dropping below 8% for the first time in more than a year in June. Economists had expected Canadian employers to have added 10,300 jobs to payrolls last month, following a 93,200 gain in June.

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Mixed trading was witnessed in Asian markets on Friday, as traders await the jobs report for July from the US for further direction. While the markets in China, Hong Kong, Indonesia and Taiwan ended in positive territory with marginal gains, the markets in Australia and Japan ended mixed around the unchanged line. The markets in India and Singapore ended in negative territory while the market in South Korea ended flat, nearly unchanged from previous close.

In Japan, the benchmark Nikkei 225 Index fell 11.80 points, or 0.1%, to 9642, while the broader Topix index of all First Section issues rose 4.08 points, or 0.5%, to 861.

On the economic front, a preliminary report released by the Cabinet Office in Japan revealed that the leading index rose more than expected in June, following declines in the previous two months. As per the report, the leading index climbed to 98.9 in June from 98.6 in May. Economists expected a reading of 98.7 for the month. 

Volumes were relatively less on a day when traders preferred to exercise caution and remain in the sidelines awaiting the key jobs report in the US later in the day. Concerns that the dollar might weaken or the yen gets stronger if jobs report turns out to be weaker than expected kept traders guessing.

Real estate stocks extended gains for the second successive day. Sumitomo Realty and Development climbed 4.05%, Mitsui Fudosan was higher by 3.88%, Mitsubishi Estate gained 2.65%, Heiwa Real Estate advanced 1.88% and Tokyu Land Corp. added 0.89%.

Among glass stocks, Nippon Sheet Glass surged up 5.6% after reporting better than expected results for the first quarter and upward revision of its guidance for operating profit. Asahi Glass gained 2.00% and Sumitomo Osaka rose 1.83%.

In Australia, the benchmark S&P/ASX200 Index slipped 0.40 points, or 0.01%, and closed at 4566 points, while the All-Ordinaries Index ended at 4,586, representing a slight gain of 1.40 points, or 0.03%.

On the economic front, a report released by the Australian Industry Group and the Housing Industry Association revealed that construction activity in the country contracted in July. As per the report, the group's Performance of Construction index declined 3.1 points to 43.3 in July, its second straight monthly decline. Readings below 50.0 indicate a contraction of activity in the measured sector. 

Releasing its quarterly Monetary Policy Statement, the Reserve Bank of Australia said that its current interest rate structure is appropriate, and has left its forecasts for GDP and inflation largely unchanged. 
The RBA forecast GDP growth for the full 2010 year to be around 3.25%, strengthening to 3.75% over 2011 and 4.00% over 2012. The bank said growth in the mining sector is expected to be stronger than in other sectors.

Banks ended in negative territory with minor losses. ANZ Bank slipped 0.69%, Commonwealth Bank shed 0.68%, National Australia Bank was down 0.64% and Westpac Banking fell 0.96%. Investment banking company Macquarie Group declined 1%.

Mixed trading was witnessed among mining and metal stocks. BHP Billiton advanced 0.71%, Rio Tinto added 0.26%, Fortescue Metals climbed 2.05%, Gindalbie Metals surged up 5.56%, Iluka Resources gained 0.74%, Macarthur Coal rose 3.45% and Oz Minerals was up 0.80%. However, Murchison Metals bucked the trend and ended in negative territory with a loss of 1.90% and Mincor Resources shed 1.47%.

Mixed trading was witnessed among gold related stocks. While Lihir Gold slipped 0.24%, Newcrest Mining ended in positive territory with a gain of 0.26%.

Oil stocks ended in negative territory. Oil Search Ltd slipped 0.34%, Origin Energy edged down 0.19%, Santos Ltd shed 0.66% and Woodside Petroleum was down 0.45%. However, ROC Oil bucked the trend and ended in positive territory with a gain of 1.30%.

The Indian market ended yet another lackluster session modestly lower on Friday, as caution set in ahead of the U.S. employment report due later in the day. Among the top decliners, ICICI Bank, Larsen & Toubro, NTPC, Reliance Industries, Hindalco Industries, Bharti Airtel, Reliance Infrastructure, ONGC, SBI, DLF, TCS, Tata Steel and Hero Honda Motors lost between 0.5% and 1.5%. On the flip side, Tata Motors rallied 3.89% ahead of its results due next week. ITC (up 1.86%), HDFC (up 1.39%), Jindal Steel (up 1.16%), ACC (up 0.97%), Mahindra & Mahindra (up 0.66%), Wipro (up 0.63%) and Cipla (up 0.19%) also ended firm. The 30-share Sensex moved in a range of 18,245-18,118 before finally ending down 29 points or 0.16% at 18,144, while the 50-share Nifty eased 8 points or 0.14% to 5,439. 

Among the other major markets open for trading, China's Shanghai Composite Index gained 37.63 points, or 1.44% at 2,658, Taiwan's Weighted Index advanced 26.45 points, or 0.33%, to close at 7,963, and Indonesia's Jakarta Composite Index ended higher by 15.65 points, or 0.51%, at 3,061. However, Singapore's Strait Times Index ended in negative territory with a loss of 11.70 points, or 0.39% to close at 2,995.

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Ailing Labor Market to Hurt Sentiment

The major U.S. index futures are pointing to a lower opening on Friday, with the worse than expected decline in non-farm payrolls likely to trigger some anxiety, leading to a negative open on Wall Street. Although the markets had discounted the decline associated with the layoff of temporary workers hired for census, additions to private payrolls was weaker than expected. With earning season on the verge of entering the last leg, attention now shifts to Main Street and the uncertainty surrounding the economic condition is likely to be an irritant for the markets.

Worried about instability in the job market, U.S. stocks opened Thursday’s session lower and languished below the unchanged line throughout the session. However, the major averages closed well off the lows of the session.

The Dow Industrials ended down 5.45 points or 0.05% at 10,675 and the Nasdaq Composite slipped 10.51 points or 0.46% to close at 2,293, while the S&P 500 Index closed 1.43 points or 0.13% lower at 1,126.

The breadth among the Dow components was almost even, with sixteen stocks closing lower, while fourteen ended in positive territory. American Express (AXP) and Pfizer (PFE) were the biggest decliners in the session, while Caterpillar (CAT) rose over 1%.

Currency, Commodity Markets

Crude oil futures are moving down $0.85 to $81.16 a barrel after retreating $0.46 to $82.01 a barrel on Thursday. Gold futures, which rose $3.40 to $1,199.30 an ounce in yesterday’s session, are currently adding $0.70 to $1,200 an ounce.

Among currencies, the U.S. dollar is trading at 85.235 yen compared to the 85.8198 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.3253 compared to yesterday’s $1.3188.

Asia

The major Asian markets closed Friday’s session on a mixed note, with the Japanese closing lower and the South Korean market closing slightly lower, while the Australian and Hong Kong market closed higher. The Chinese market rallied rally sharply, advancing 1.44%.

Japan’s Nikkei 225 average opened sharply lower, but it recouped much of its losses over the course of the session to close down merely 11.80 points or 0.12% at 9,642. A report released by Japan’s Cabinet Office showed that its leading index for Japan rose to 98.9 in June from 98.6 in the previous month. Economists had expected a reading of 98.7.

After languishing in the red for the better part of the session, Australia’s All Ordinaries pared back its loss over the course of the session to close up merely 1.40 points or 0.03% at 4,586. Consumer staple stocks led the advances, while energy and financial stocks gave back some ground.

Europe

The major European averages are showing weakness on Friday, with the French CAC 40 Index receding over 1%, while the German DAX Index and the U.K.’s FTSE 100 Index are declining 0.97% and 0.55%, respectively.

In corporate news, Royal Bank of Scotland reported a profit of 9 million pounds for the six-month period compared to a loss of 1.04 billion pounds in the year-ago period.

On the economic front, a report released by the U.K. Office for National Statistics showed that manufacturing output in the U.K. rose 0.3% month-over-month in June, the same rate of increase as in May. Economists had expected a 0.4% increase. A separate report released by the agency showed that output prices in the U.K. rose 0.1% in July, reversing the 0.3% drop in the previous month.

Meanwhile, a government report revealed that manufacturing output in Germany fell 0.6% on a monthly basis in June following a revised 2.9% increase in May, marking the first drop in four months.

U.S. Economic News

The Labor Department reported that the U.S. economy shed 131,000 jobs in July, steeper than the 87,000 job losses expected by economists. While federal government employment fell by 143,000, reflecting the lay-off of temporary workers hired for Census-related work, private sector employment rose by 71,000. 

The unemployment rate calculated based on the household survey remained unchanged at 9.5% in July. The civilian participation rate was also largely unchanged at 64.6%. The average workweek rose by 0.1 hour to 34.2 hours, but average hourly earnings rose by 0.2% month-over-month and 1.8% annually to $22.59.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for June is likely to show a decline of $5.7 billion.

In May, consumer credit declined by a bigger than expected $9.1 billion, sharply lower than the $3 billion decline expected by economists. More importantly, April's reading was revised to a decline of $14.9 billion from the $1 billion increase estimated initially. Revolving credit tied to credit card loans fell by $7.3 billion in May, while non-revolving credit tied to auto loans dipped by $1.8 billion. Consumer credit outstanding is currently at $2.415 trillion, its lowest level since March 2007.

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Public Storage reported second quarter net income of 36 cents per share, lower than 80 cents per share last year. The company’s funds from operations fell to 92 cents per share from $1.40 per share last year. Revenues slipped to $354.39 million from the year-ago’s $355.18 million. Analysts estimated earnings of $1.24 per share on revenues of $372.53 million.

Live National Entertainment said its second quarter revenues fell 10% to $1.27 billion. The company reported a loss from continuing operations of 20 cents per share, narrower than the loss of 37 cents per share last year. The consensus estimates had called for a loss of 2 cents per share on revenues of $1.38 billion.

Microchip Technology reported first quarter earnings of 47 cents per share on revenues of $320.8 million. On an adjusted basis, the company reported earnings of 55 cents per share, ahead of the 51 cents per share consensus estimate. Analysts estimated revenues of $319.3 million.

Activision Blizzard reported second quarter GAAP net revenues of $683 million and non-GAAP earnings of 6 cents per share. The consensus estimated earnings of 5 cents per share on revenues of $719.8 million. For the third quarter, the company expects non-GAAP net revenues of $725 million and non-GAAP earnings of 8 cents per share, while analysts estimate earnings of 12 cents per share on revenues of $911.9 million.