US & World Daily Markets Financial Briefing 10-09-2010

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Stocks Mostly Higher In Mid-Morning Trading

Stocks are mostly on the upside in mid-morning trading on Friday, as the markets are digesting a much sharper than expected increase in wholesale inventories while awaiting economic commentary from the White House.

The Dow is up by 30.88 points or 0.3 percent at 10,446.12, the Nasdaq is up by 7.75 points or 0.4 percent at 2,243.95 and the S&P 500 is up by 4.85 points or 0.4 percent at 1,109.25.

A short time ago, the Commerce Department released a report showing that wholesale inventories rose by 1.3 percent in July, while economists had expected a much more tame increase of 0.4 percent. July's headline figure marked the sharpest increase in inventories since the 1.5 percent jump in July of 2008. The report also showed that wholesale sales rose by 0.6 percent.

At 11:00 a.m. ET, market attention is likely to turn to the White House, where President Barack Obama is scheduled to issue some economic commentary. The President is expected to announce the appointment of Austan Goolsbee to the position of Chairman of Economic Advisers following the departure of Christina Romer.

In global economic news, official data released from China revealed that the country's trade surplus narrowed in August as import growth picked up at a faster pace and export growth slowed. As per the report, China's trade surplus dropped to $20 billion in August from an 18-month high of $28.7 billion in the previous month.

In Japan, the Cabinet Office revealed that the country's gross domestic product or GDP for the second quarter was revised higher to 0.4 percent, topping last month's preliminary reading of 0.1 percent increase. The report further noted that, on an annualized basis, GDP jumped 1.5 percent, blowing past the preliminary reading that showed a 0.4 percent gain.

In corporate news, chipmaker Texas Instruments Inc. (TXN) narrowed its earnings and revenue outlook for the third quarter, but maintained the midpoint of the forecast ranges. The company now expects earnings in a range of $0.66 to $0.72 per share, compared to its prior estimate of $0.64 to $0.74 per share.

TI's current forecast comes as a bellwether, indicating that the recent global rebound in the worldwide chip market has started waning.

Chipmaker National Semiconductor Corp. (NSM) said that its first quarter profit nearly tripled from last year, helped by higher sales and improved margins. The company's quarterly earnings per share also came in above analyst expectations but the firm forecast second quarter sales below consensus estimates.

Sector News

Oil service stocks are turning in a strong performance on news that a pipeline that funnels a substantial of oil imports into the U.S. Midwest region was closed indefinitely.

The Philadelphia Oil Service Sector Index is up by 2 percent and is on target for a fresh monthly high. Oil prices have gained on the news, with the price of oil futures up by $1.37 to $75.62 a barrel.

Tobacco, railroad, housing and defense stocks are also markedly higher, while moderate weakness is present among semiconductor and telecommunication stocks.

Stocks Driven By Analyst Comments

Pan American Silver Corp. (PAAS) is higher after being upgraded at RBC Capital Markets from Sector Perform to Outperform. The broker also raised its target on the stock from $33 to $36. The stock has gained 3 percent and is on pace for a two-month closing high.

Nokia (NOK) is also on the upside after RBC Capital raised its rating on the stock from Sector Perform to Outperform. The broker also boosted its price target on shares from $12 to $14. The stock is currently up by 3 percent and is on target for its best close in three months.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended up by varied margins on Friday. Japan's benchmark Nikkei 225 Index rose by 0.4 percent, while Hong Kong's Hang Seng Index advanced by 1.6 percent.

Meanwhile, the major European markets are mixed. The U.K.'s FTSE 100 Index and the French CAC 40 Index both up by 0.1 percent, while the German DAX Index is down by 0.2 percent.

In the bond markets, treasuries are showing moderate weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.799 percent, posting a gain of 3.8 basis points.

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TSX May Open Higher Amid Recovering Energy Prices

Toronto stocks may open higher Friday amid recovery in energy prices and positive cues from the global equity markets. Stock specific action may not be ruled out amid a mixed bag of earnings reports. However, the just released August employment data may weigh on trader sentiment.

On Thursday, the S&P/TSX Composite Index eased 8.73 points or 0.07% to 12,033.53, losing nearly 1% in the past three-session streak.

The price of crude oil moved up Friday morning after a major oil transporter said it has shut down one of its big pipeline carrying oil to the U.S. Crude for October gained $1.10 to $75.35 a barrel.

The price of gold continued to fall for a second day after easing from near its all-time high in the previous session. Gold for December was down $10.30 to $1,240.60 an ounce.

In corporate news from Canada, athletic apparel company Lululemon Athletica, Inc. reported higher second quarter net income of $21.79 million or $0.30 per share from $9.24 million or $0.13 per share a year ago. Analysts were expecting the company to report earnings per share of $0.24 this quarter. The company now upped its fiscal 2010 EPS guidance to a range of $1.18 to $1.22 from the earlier $1.05 to $1.10.

Swimwear retailer Groupe Bikini Village swung to profit in second quarter, reporting net income of C$1.19 million or C$0.01 per share, compared with a loss of C$0.22 million or breakeven per share a year ago. Yesterday, the stock rose 40% to C$0.035, yet far below of its 52-week high of C$0.060.

Oil transporting company Enbridge Inc. announced that it has shutdown its 670,000 barrels per day crude supply pipeline line after a leak was discovered.

Oil and gas explorer Fairborne Energy said it has acquired strategic land and facilities at its core Marlboro/Pine Creek area for approximately C$71.5 million.

Natural gas focused fund Keyera Facilities Income Fund said it private placed C$155 million of long-term senior unsecured notes to a group of institutional investors. Proceeds would be used to repay C$52.5 million of long term debt that matured in August 2010, reduce short-term bank debt and fund growth capital expenditures and acquisitions.

Packaged beer maker Brick Brewing Co. reported improved second quarter net income of C$0.92 million or C$0.03 per share compared to C$0.46 million or C$0.02 per share in the previous year.

Food retailer Empire Co. reported lower first-quarter net earnings of C$81.6 million or C$1.19 per share, down from C$89.7 million or C$1.31 per share in the year ago quarter.

Bioniche Life Sciences reported a narrower net loss of C$1.59 million or C$0.02 per share, compared to a net loss of C$10.50 million or C$0.15 per share in the previous year.

Communications software and services provider Communique Laboratory reported a wider third quarter net loss of C$348,047 or C$0.007 per share, compared to C$250,983 or C$0.005 per share a year ago.

Office systems and services provider Inscape Corp. turned to profit in first quarter, reporting net income of C$606,000 or C$0.04 per share, compared to a net loss of C$962,000 or C$0.06 per share for the year-ago quarter.

In economic news, Statistics Canada said the nation added 35,800 jobs in August, as against economists expectation for addition of 24,000 jobs. Meanwhile, the unemployment rate jumped to 8.1% as more people entered the workforce.

Earlier today, China said its August imports were up 35.2% year-on-year to $119.27 billion, against a 25% increase expected by economists and exports climbed 34.4% to $139.3 billion, against an expected 35% increase.

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Asian Markets End In Positive Territory

Asian markets open for trading on Friday ended in positive territory with modest gains following better than expected weekly jobless claims and trade gap data in the US. Upward revision in Japan's second quarter GDP data, slight weakening of the yen against the dollar and China's trade surplus data impacted market sentiment. The markets in India, Singapore, Indonesia and Malaysia were closed for public holiday. Positive closing on Wall Street in the previous session also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index advanced 140.78 points, or 1.55% to close at 9,239, while the broader Topix index of all First Section issues was up 6.88 points, or 0.83%, at 834.

On the economic front, the Cabinet Office revealed that the country's gross domestic product or GDP for the second quarter was revised higher to 0.4%, topping last month's preliminary reading of 0.1% increase. The report further noted that, on an annualized basis, GDP jumped 1.5%, blowing past the preliminary reading that showed a 0.4% gain. Nominal GDP was down 0.6% on quarter versus the 0.9% decline reported in the preliminary reading last month. The revised deflator showed a 1.7% decline after posting an initial reading of -1.8%.

Separately, minutes of the policy board meeting held on August 9-10 revealed t hat members of the Bank of Japan have pledged to maintain indefinitely the current extremely accommodative monetary conditions. The board members also acknowledged that the surging yen is likely to hurt exporters and could force production sits to move abroad, the minutes showed. The board members agreed to closely monitor the yen and its impact. The BoJ maintained its key interest rate at 0.10 percent, in line with expectations. The bank also withheld from unveiling further support measures to tackle deflation.

Exporters led the gains as the local currency, yen, weakened slightly against the US dollar. Canon Inc. surged up 5.63%, Sony Corp. advanced 1.73%, Sharp Corp. rose 3.43%, TDK Corp gained 1.86%, and Panasonic Corp. added 0.74%.

Among the major machinery stocks, Fanuc Ltd advanced 1.57%, Tokyo Electron surged up 3.62%, Advantest Corp. rose 1.57%, Kyocera Corp. gained 1.72% and Mitsumi Electric Co.climbed 2.21%.

Shipping transport stocks also gained on optimism about higher demand. Kawasaki Kisen Kaisha advanced 0.96%, Mitsui OSK Lines gained 1.99% and Nippon Yusen rose 1.51%.

Trading companies also ended in positive territory on weaker yen. Mitsui & Co., gained 2.11%, Toyota Tsusho Corp. advanced 1.53%, Sumitomo Corp. added 0.97%, Marubeni Corp. climbed 1.58% and Itochu Corp. was up 0.29%.

In Australia, the benchmark S&P/ASX200 Index declined 21.90 points, or 0.48%, and closed at 4,560 points, while the All-Ordinaries Index ended at 4,601, representing a loss of 20.60 points, or 0.45%.

Mixed trading was witnessed among Mining and metal stocks. BHP Billiton slipped 0.58%, Fortescue Metals declined 2.24%, Gindalbie Metals edged down 0.54%, Iluka Resources plunged 4.95%, Macarthur Coal shed 0.89%, Mincor Resources lost 1.11%, and Minara Resources fell 0.66%. However, Rio Tinto added 0.47%, Oz Minerals rose 2.22% and Murchison Metals surged up 14.85%.

Oil related stocks also witnessed mixed trading. Woodside Petroleum slipped 0.91%, Santos Ltd plunged 4.69% and Oil Search Ltd lost 0.84%. However, ROC Oil Ltd remained unchanged from previous close and Origin Energy ended in positive territory with a modest gain of 0.39%.

Banks pared much of the early gains and ended in negative territory. ANZ Bank slipped 0.21%, National Australia Bank shed 0.68% and Westpac Banking edged down 0.17%. Investment banking company Macquarie Group declined 0.52%. However, Commonwealth Bank bucked the trend and ended in positive territory with a modest gain of 0.34%.

Telecom major Telstra ended in negative territory with a loss of 1.06%, and Newcrest Mining shed 2.34%. Among airline stocks, Qantas gained 2.35% while Virgin Blue Holdings plunged 6.98%.

The Indian market is closed for a public holiday on the eve of Ramadan. The markets in Singapore, Indonesia and Malaysia are also closed for the festival.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a modest gain of 6.86 points or 0.26%, at 2,663, and Taiwan's Weighted Index gained 54.57 points, or 0.70%, to close at 7,890.

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The major European markets are trading mixed on Friday, with the French CAC 40 Index and U.K.’s FTSE 100 Index moving up 0.10% and 0.07%, respectively, while the German DAX Index receding is edging up 0.20%.

U.S. Economic Reports

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of July to show a 0.4% increase.

Wholesale inventories at the end of June rose 0.1% month-over-month, aided by a 1% increase in the inventories of auto components, which lifted durable goods inventories by 0.3%. At the same time, non-durable goods inventories fell 0.2%. Wholesale sales, meanwhile, fell 0.7%

Stocks in Focus

Casey’s (CASY) may react to its announcement that it has entered into discussions with 7-Eleven regarding a potential deal. Casey’s confirmed that it received an unsolicited preliminary proposal from 7-Eleven, valuing the former at $40 per share in cash after media reported the takeover speculation on Thursday.

Texas Instruments (TXN) could be in focus after it tightened its revenue and earnings guidance for the third quarter. The company said it expects earnings of 66-72 cents per share compared to its earlier outlook of 64-74 cents per share. The company also narrowed its revenue guidance to $3.62 billion to $3.78 billion from its previous guidance of $3.55 billion to $3.85 billion. Analysts estimate earnings of 69 cents per share on revenues of $3.69 billion.

Lattice Semiconductor (LSCC) may also see some activity after it reiterated its third quarter guidance, which calls for flat to 5% sequential revenue growth and gross margin percentage of 59%-61%. The company also said it expects continued profitability in the third quarter. Analysts estimate earnings of 14 cents per share on revenues of $79.50 million, representing 3.11% sequential growth.

Nokia (NOK) could also be in focus after the Finnish telecommunication giant named Microsoft (MSFT) executive Stephen Elop as its president and CEO, effective September 21. The incumbent president and CEO Olli-Pekka Kallasvuo, a veteran with the company, will relinquish office on September 20th. The move is seen as infusion of fresh blood into the company, as it struggles due to competitive threat from smart phone makers.

National Semiconductor (NSM) could see weakness after it said it expects second quarter revenue of $390 million to $415 million, lower than the consensus estimate of $418.64 million. The company also reported first quarter net income of 33 cents per share, higher than 13 cents per share last year. Sales rose 31% to $412 million. Analysts estimated earnings of 35 cents per share on revenues of $414.49 million.

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Dollar Unable To Rally Despite Encouraging Signs

The dollar showed a lack of direction versus most major counterparts Friday morning in New York, with concerns about the health of Europe's banking system offsetting optimism about the US recovery.

Yesterday's jobless claims figures raised hopes that the employment situation is slowly improving, and that job creation may be around the corner.

However, traders are unlikely to make risky bets amid predictions that economies of developed nations like the US and Japan will struggle through the rest of the year.

Elsewhere, China posted an unexpected 35.2% jump in August imports this morning, signaling consumption is picking up in what is now the world's second largest economy.

The dollar pulled back to 1.2730 versus the euro, after hitting a 10-day high of 1.2643 overnight.

European Central Bank President Jean-Claude Trichet said the special credit measures extended to banks in the euro area will have to be maintained for some time yet to protect the recovery.

"As markets stabilize, our non-standard measures, which are fully consistent with our mandate and temporary in nature, will continue to be progressively phased out," he told the Financial Times newspaper in an interview.

Versus the sterling, the dollar continued to bounce around 1.5450, unable to cut further into its summertime losses.

A leading indicator of the U.K. economy rose at a lesser pace in July, suggesting at slower economic growth in the coming months.

The Conference Board leading index climbed 0.2%, slower than the 0.5% rise in June. Five of the seven components made positive contributions to the index.

The buck paused from its dramatic recent decline versus the yen, staying just above Tuesday's 15-year low of Y88.33.

On the flip side, the dollar fell further versus Canada's loonie, hitting a 3-week low of C$1.0286. The Canadian economy created 35,800 new jobs last month, but the nation's jobless rate rose to 8.1%.

On the economic front in the U.S., the Commerce Department will release its report on wholesale inventories for July at 10.00 a.m. ET. Economists expect that wholesales inventories rose 0.4% for the month.

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