US & World Daily Markets Financial Briefing 11-08-2010

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Stocks Lingering Near Lows After Initial Sell-Off

Stocks are posting steep losses in mid-morning trading on Wednesday, bouncing around near their lows of the session after falling sharply at the opening bell. The major averages are lingering firmly in negative territory.

Uncertainty about the economic recovery with the Federal Reserve seemingly low on stimulus options has prompted a considerable flight to safety in today's session, leading to a drubbing in the global equity markets.

Traders were spooked after the Fed said Tuesday that it sees "more modest" economic growth in the near-term than previously expected and symbolized its lack of confidence in the recovery by saying that it would reinvest funds from maturing mortgage-backed securities into U.S. treasury bonds.

On the economic front today, the Commerce Department reported that the U.S. trade deficit for June unexpectedly widened to reach its highest level in well over a year.

The report showed that the trade deficit widened to $49.9 billion in June from a revised $42.0 billion in May. The wider deficit came as a surprise to economists, who had expected the deficit to narrow modestly to $42.2 billion from the $42.3 billion originally reported for the previous month.

In the afternoon, the Treasury Department will release its July budget, with economists estimating a deficit of $169 billion for the month, slightly lower than the $180.7 billion deficit reported for June. The report will be made public at 2:00 p.m. ET.

With earnings season winding down, Macy's, Inc. (M) reported second-quarter net income of $0.35 per share, above the $0.29 per share forecast by analysts for the quarter. Sales totaled $5.537 billion, up 7.2 percent from the same period last year and above analyst consensus for revenues of $5.50 billion.

After the markets closed for trading on Tuesday, diversified media and entertainment conglomerate Walt Disney Co. (DIS) said that its third quarter profit rose 40 percent from last year, helped by strong growth at ESPN and a turnaround at its film division. The company's quarterly earnings came in above analysts' expectations as did its quarterly revenue.

The major averages have all seen choppy movement in recent dealing, remaining near their lows of the day. The Dow is down 195.18 points or 1.8 percent at 10,449.07, the Nasdaq is down 55.03 points or 2.4 percent at 2,222.14 and the S&P 500 is down 23.99 points or 2.1 percent at 1,097.07.

Sector News

Semiconductor stocks are extending yesterday's steep losses amid fears that the tepid economic recovery will hurt profits for tech firms. The Philadelphia Semiconductor Index is down by 4 percent, slipping to its lowest level in six weeks.

Considerable weakness is also visible among steel stocks, with the NYSE Arca Steel Index posting a loss of 4.3 percent. The decline has driven the index down to its lowest intraday price in nearly two weeks.

Railroad, networking, airline and oil service stocks are also under pressure along with most other market segments, further evident of the day's broad based selling. The NYSE Arca Oil Service Index is down by 3.5 percent as the price of crude oil is down by $1.33 to $78.92 a barrel.

Stocks Driven By Analyst Comments

Atheros Communications (ATHR) is under pressure after analysts at Stifel Nicolaus lowered their rating on the stock from Buy to Hold. The stock is down by 4.2 percent, slipping to a nine-month intraday low.

TW Telecom Inc. (TWTC) is also posting a steep loss after being downgraded to Neutral from Buy at Bank of America based on recent valuation. The stock is posting a loss of 3.6 percent after setting a three-week intraday low.

Monolithic Power (MPWR) is also notably lower after Stifel Nicolaus downgraded the stock from Buy to Hold. Shares are currently down by 8.5 percent, slipping to its worst intraday price in fifteen months.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended on the downside Wednesday. Hong Kong's Hang Seng Index slid by 0.8 percent, while Japan's benchmark Nikkei 225 dropped by 2.7 percent.

The major European markets are also sharply lower. The French CAC 40 Index is down by 2.5 percent, while the German DAX Index and the U.K.'s FTSE 100 Index are both down by 1.9 percent.

In the bond markets, treasuries are posting strong gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.718 percent, posting a loss of 6.3 basis points.

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Toronto Stocks Poised For A Lower Open Amid Weak Global Cues

Bay Street stocks may continue to retreat Wednesday amid falling energy prices and weak cues from the global equity markets. However, stock specific movements may not be ruled out amid a mixed bag of earnings reports from some key Canadian companies.

While Asian markets, barring China, ended in the negative terrain, European stocks were lingering deep in the red amid economic growth worries after the Bank of England lowered its GPD growth forecast.

On Tuesday, the S&P/TSX Composite Index eased 25.27 points or 0.21% to 11,838.29, retreating from a 7-week high hit in the previous session.

The price of crude oil moved back below $80 amid worries over global economic growth. Yesterday, the U.S. Federal Reserve kept interest rates at record lows and said it would use cash from maturing mortgage bonds it holds to buy more government debt. Crude for September was down $1.05 to $79.20 a barrel.

The price of gold advanced as the U.S. dollar plummeted to a 15-year low versus the yen. Gold for December delivery was up $9.00 to $1,207.00 an ounce.

In corporate news from Canada, gold mining company Iamgold reported lower second-quarter net earnings of $0.10 per share, compared to $0.12 per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.15 per share. However, the company revised up its 2010 production guidance to a range of between 980,000 and 1.01 million ounces from the earlier range of 940,000 to 1.00 million ounces.

Blackberry maker Research In Motion said it repurchased 1.53 million or 0.28% of its outstanding common shares for $79.8 million.

Construction services company Churchill Corp. reported improved second quarter net earnings of $0.55 per share, compared to $0.45 per share in the year ago period.

Silicon metal making company Timminco Ltd. said it would form a joint venture with Dow Corning Corporation at its silicon metal production facilities in Becancour, Quebec. Dow Corning would acquire a 49% equity interest in a new joint venture entity.

Merchant banking company Envoy Capital Group reported a narrower third quarter net loss of $0.18 per share compared to $0.21 per share in the same quarter last year.

Oil and gas explorer Pacific Rubiales Energy swung to profit in second quarter, reporting net earnings of C$0.16 per share as against a loss of C$0.56 per share in the same quarter last year.

Toys making company Mega Brands Inc. swung to profit in second quarter, reporting net profit of $1.2 million or break-even per share compared to a net loss of $13.3 million or $0.36 per share last year.

Food retailer Metro Inc. reported improved third quarter net earnings of C$1.12 per share, up from C$1.01 per share a year ago. The Company declared a quarterly dividend of C$0.17 per Class A Subordinate Share and Class B Share.

Bio pharmaceutical company Protox Therapeutics turned to profit in second-quarter, reporting net income of C$0.01 per share compared to a loss of C$0.02 per share a year earlier.

Packaging and tissue paper maker Cascades Inc. reported lower second quarter net earnings of C$0.22 per share, compared to C$0.30 per share in the same quarter of 2009.

Fiber glass pipes maker Hanwei Energy Services slipped into the red, reporting first quarter net loss of C$0.08 per share versus a break-even for the same period in 2009.

In economic news, Statistics Canada said the nation's trade deficit with the rest of the world widened to C$1.1 billion in June from C$695 million in May. Economists were looking for the trade deficit to narrow to C$300 million from the deficit of C$503 initially reported in May.

From the U.S., the Commerce Department said trade deficit widened to $49.9 billion in June from a revised $42.0 billion in May. Economists were expecting the deficit to narrow modestly to $42.2 billion from the $42.3 billion originally reported for the previous month.

Tuesday, the U.S. Federal Reserve left the target range for federal funds rate unchanged near zero and maintained its commitment to keep the rate at lower levels for an extended period. The Fed committee also said it would reinvest principal payments from debt and mortgage-backed securities in longer-term Treasury securities in an attempt to keep its holdings of securities at their current levels and thus provide price stability.

Elsewhere, the Bank of England lowered its economic growth forecast for next year and now expects GDP growth to peak at around 3% annually - down from its 3.4% growth forecast in May.

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Asian Markets Slump Following Fed Remarks

Asian markets ended the trading session Wednesday in negative territory, on concerns about global economic recovery, after the US Federal Reserve acknowledged that the US economy has slowed down in recent months and also cautioned that the economic recovery will be more modest than anticipated over the near term. China's economy is also showing definite signs of slowdown and impacted the market sentiment of the traders in the region. Excluding China's Shanghai Composite Index, all the other markets in the region ended in the negative territory. Volumes continue to be below normal levels as more traders preferred to stay on the sidelines awaiting more cues.

In Japan, the benchmark Nikkei 225 Index shed 258.20 points, or 2.70% to 9,293, while the broader Topix index of all First Section issues was down 20.23 points, or 2.37% to 834.

On the economic front, a report released by the Cabinet Office revealed that core machinery orders in the country climbed a seasonally adjusted 1.6% month-on-month in June to 704.0 billion yen, rising for the fourth time in five months. It was, however, well below forecasts for a 5.4% increase following the 9.1% plunge in May. The report further noted that non-manufacturing orders were down 3.9% on month, while government orders surged 26.3%, overseas orders added 2.4% and orders from agencies climbed 9.5%. Total machine orders, including volatile ones for ships and electric power companies, were up 9.2% on month. On an annual basis, machine orders declined 2.2 percent in June - again missing forecasts for a 1.5 percent expansion after climbing 4.3 percent in the previous month.

The Bank of Japan, in its latest monthly review of economic developments, stated that the Japanese economic recovery is likely to proceed at a moderate pace, driven by strong growth in emerging economies. The central bank said exports and production will continue to be driven by growth in emerging economies, but the pace of growth is likely to slow. Meanwhile, the bank expects domestic demand to improve at a moderate pace.

Almost all the stocks, excluding the airline stocks, ended in negative territory. Glass and ceramic sector led the declines. NGK Insulators lost 3.43%, Asahi Glass was down 3.65% and TOTO Ltd was down 3.15%.

All Nippon Airways ended in positive territory with a gain of 0.65%.

In Australia, the benchmark S&P/ASX200 Index plunged 85.20 points, or 1.88%, and closed at 4,455 points, while the All-Ordinaries Index ended at 4,480, representing a loss of 83.30 points, or 1.83%.

On the economic front, a report released jointly by the Westpac Bank and the Melbourne Institute revealed that consumer confidence in Australia rose sharply in August. The group's consumer confidence index for August increased 5.4% from July to reading of 119.2 points. Readings above 100 points indicate there were more optimists than pessimists among those surveyed on their feelings about the economy.

The Australian Bureau of Statistics revealed that the total value of owner-occupied housing commitments, excluding alterations and additions, decreased a seasonally adjusted 1% in June from May. At the same time, the value of total personal commitments increased 1.2%. Fixed lending commitments rose 3.7%, while revolving credit commitments fell 1.1%. Commercial finance commitments decreased 8.9% in June. Lease finance commitments slumped 6%.

Financial stocks declined amid concerns about sustaining global economic recovery. ANZ Bank declined 1.99%, Commonwealth Bank of Australia fell 2.99%, National Australia Bank declined 2.49% and Westpac Banking plunged 3.69%. Investment banker Macquarie Group ended weaker by 3.69%.

Mining and metal stocks also declined on concerns about slowdown in China's economy and sustaining global economic recovery. BHP Billiton declined 1.84%, Rio Tinto fell 2.08%, Fortescue Metals lost 2.18%, Iluka Resources slipped 0.37%, Macarthur Coal was down 1.40%, Mincor Resources plunged 7.00%, Murchison Metals slumped 5.14% and Oz Minerals shed 3.40%.

Gold related stocks also ended in negative territory. Lihir Gold fell 2.08% and Newcrest Mining was down 1.84%.

Late-session profit taking amid negative global cues dragged the Indian market sharply lower on Wednesday, with investors offloading high-beta realty, rate-sensitive banking, defensive healthcare and export-focused IT stocks on concerns over the health of the U.S. economy. The benchmark 30-share BSE Sensex moved in a tight range in early trading before falling sharply to end down 150 points or 0.82% at 18,070, while the 50-share Nifty fell by 40 points or 0.73% to 5,421.

Among the other major markets open for trading, China's Shanghai Composite Index managed to end in positive territory with a gain of 12.22 points, or 0.47% to 2,607. However, the other markets ended in negative territory. Taiwan's Weighted Index declined 81.71 points, or 1.02%, to close at 7,895, Indonesia's Jakarta Composite Index lost 21.84 points, or 0.71%, to close at 3,035, and Singapore's Strait Times Index ended in negative territory with a loss of 35.03 points, or 1.17%, at 2,949.

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The major European markets are retreating sharply, with the French CAC 40 Index and the German DAX Index declining 1.96% and 1.75%, respectively, while the U.K.’s FTSE 100 Index slumping 1.55%.

Among corporate news, Nestle reported that its first-half profits rose 7.5%, as revenues rose 5.9%. Although the company cautioned of higher raw material costs hurting profits, it reiterated its full year forecast.

In economic news, the Office for National Statistics said the number of jobless allowance claimants in the U.K. fell by 3,800 in July. This was well below the decline of 17,000 anticipated by economists. The claimant count totaled 1.46 million in July.

The statistical office also said the unemployment rate was unchanged at 7.8% in the three months to June, in line with expectations. The number of unemployed totaled 2.46 million. Meanwhile, average weekly earnings including bonuses were up 1.3% annually in the June quarter. Economists had forecast a 1.1% increase. Excluding bonuses, earnings rose 1.6%.

Meanwhile, the Bank of England said in its August Inflation Report that inflation will likely remain above the 2% target until the end of 2011 due to the rise in the VAT rate from next year before heading down in 2012.

The bank's monetary policy committee said, however, that the prospects for inflation were "highly uncertain" and that they were "ready to respond in either direction" with monetary policy. It forecasts inflation to be around 1.4% in two years' time on market rates. The central bank also cut its two-year ahead growth forecast for the U.K. economy to just over 3% from around 3.6% in its May report.

U.S. Economic News

With the value of imports increasing and the value of exports falling in the month of June, the Commerce Department released a report showing that the U.S. trade deficit for the month unexpectedly widened to reach its highest level in well over a year.

The report showed that the trade deficit widened to $49.9 billion in June from a revised $42.0 billion in May. The wider deficit came as a surprise to economists, who had expected the deficit to narrow modestly to $42.2 billion from the $42.3 billion originally reported for the previous month.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 6th at 10:30 AM ET.

Crude oil inventories fell by 2.8 million barrels to 358 million barrels in the week ended July 30th. Nonetheless, 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.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $169 billion for July.

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Disney reported that its third quarter earnings rose to 67 cents per share from 51 cents per share in the year-ago period. Revenues rose 16% to $10 billion. The consensus estimates had called for earnings of 50 cents per share on revenues of $9.37 billion.

Cree said its fourth quarter adjusted earnings came in at 55 cents per share, higher than the 51 cents per share consensus estimate. Revenues rose 79% to $264.6 million compared to the $264 million consensus estimate. The company expects full year adjusted earnings of 56-59 cents per share on revenues of $270 million to $280 million. Analysts estimate earnings of 54 cents per share on revenues of $284 million.

Other Corporate News

WD-40 Company may be in focus after it said it said its 2010 earnings per share is expected to meet or exceed the top end of its previously issued earnings per share guidance of $2.05-$2.14. The company estimates revenues of $313 million to $319 million. Analysts estimate earnings of $2.13 per share on revenues of $317.39 million.

Dow Chemical Co. is likely to see some activity after it said its joint venture Dow Corning has entered into an agreement to buy a 49% stake in Timminco Ltd.’s silicon metal manufacturing facility in Quebec for $39.7 million.

SRA International may see some buying interest after it said the Department of Defense has awarded the company a re-compete contract to support the receipt and scientific review of research grant applications for its Congressionally Directed Medical Research Programs. If all options are exercised, the contract has a potential value of $100 million.

Aflac is likely to react to its announcement that its board has approved a 7.1% increase in its quarterly cash dividend, effective with the fourth quarter payment. The company also said it remains focused on increasing its operating earnings per share by 10% before the effect of foreign currency. The company also announced its intention to resume its share repurchase activities, which were suspended in the fourth quarter of 2008.

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