US & World Daily Markets Financial Briefing 12-08-2010

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Stocks Well Off Lows But Still Down In Mid-Morning Trading

Stocks have moved well off of their worst levels since the opening bell but remain mostly lower in mid-morning trading on Thursday. Prospects of a dwindling economic recovery, concerns over the job market and disappointing quarterly results from Cisco (CSCO) are driving selling pressure, with the tech sector experiencing a particularly sharp decline.

The tech heavy Nasdaq is down by 28.07 points or 1.3 percent at 2,180.56, the Dow is down by 74.62 points or 0.7 percent at 10,304.21 and the S&P 500 is down by 9.63 points or 0.9 percent at 1,079.84.

Before the start of trading, the Labor Department reported that initial jobless claims rose to 484,000 in the week ended August 7th from the previous week's revised figured of 482,000. Economists had been expecting jobless claims to fall to 465,000 from the 479,000 originally reported for the previous week.

Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak, said, "Bottom line, seasonal distortions or not, initial claims are still too high and point to a still lame labor market."

Earlier in the day, RealtyTrac, an online marketplace for foreclosure properties, said that foreclosure filings in July dropped 10 percent from last year but grew 4 percent from the previous month.

The market researcher said one in every 397 U.S. housing units received a foreclosure filing during the month. July's bank repossession increased both year-over-year and sequentially.

Cisco Systems, which reported its fourth quarter results after the closing bell yesterday, is also weighing on the markets. The firm said its fourth quarter earnings per share, excluding items, beat analyst estimates by penny, but its quarterly sales were short of estimates.

While Cisco also said it expects first quarter revenues to increase by 18 to 20 percent, analysts had been expecting slightly stronger growth.

This morning, Kohl's Corp. (KSS) reported second-quarter net income and revenues that edged out forecasts, although the firm's third quarter earnings guidance missed expectations.

General Motors reported a profit for the second quarter of $1.3 billion, up from $865 million in the preceding quarter, while sales at the Detroit-based company came in at $33.2 billion, versus $31.5 billion in the first quarter.

Sector News

Tech stocks are among the morning's worst performers, with networking, electronic storage and semiconductor stocks all markedly lower.

The NYSE Arca Networking Index is down by 4.2 percent, falling to its intraday level in over a month, with Cisco helping to lead the way lower.

The Philadelphia Semiconductor Index is posting a 1.9 percent loss after setting a six-month intraday low in earlier dealing.

Housing, trucking and defense stocks are also seeing heavy selling, while gold stocks are higher, benefiting from the day's risk aversion. The NYSE Arca Gold Bugs Index is up by 2 percent, while the price of gold is up by $15.60 to $1,214.80 an ounce.

Stocks Driven By Analyst Comments

Electronic storage firm NetApp (NTAP) is notably lower after being downgraded at Merriman from Buy to Neutral. The stock is down by 7.1 percent after setting its lowest intraday price in nearly five weeks.

Networking firm Finisar (FNSR) is also under pressure after analysts at Auriga U.S.A. lowered their rating on the stock from Buy to Hold. The broker also downgraded its target on the stock from $19 to $16. Shares are currently down by 7.6 percent and also set a five-week intraday low.

Weakness is also present in shares of tech firm Flextronics (FLEX), which are lower after Ticonderoga dropped its rating on the stock from Neutral to Sell. The stock is posting a loss of 3.9 percent after falling to its lowest intraday level in nearly six weeks in earlier trading.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended on the downside Thursday. Hong Kong's Hang Seng Index and Japan's benchmark Nikkei 225 both fell by 0.9 percent.

The major European markets are also under pressure. The French CAC 40 Index and the German DAX Index are both down by 0.5 percent, while the U.K.'s FTSE 100 Index is down by 0.2 percent.

In the bond markets, treasuries are moderately lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.724 percent, posting a gain of 3.9 percent.

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Early Signals Point To A Weak Opening For TSX

Bay Street stocks are likely to extend losses at open Thursday amid plummeting oil prices and weak cues from the global equity markets.

However, value buying at lower levels after a steep fall in the previous session may help support stocks. Also, stock specific movements may not be ruled out amid a mixed bag of earnings reports from some key Canadian companies.

On Wednesday, the S&P/TSX Composite Index plummeted 256.08 points or 2.16% to 11,582.21, its 3-week low amid global economic growth concerns.

The price of crude oil eased for a third session amid global economic growth worries. Crude for September was down $1.77 to $76.25 a barrel.

Meanwhile, the price of gold moved up smartly to a four-week high as safe-haven buying resurfaced amid a gloomy economic outlook. Gold for December delivery gained $16.90 to $1,216.10 an ounce.

In corporate news from Canada, base metals miner Quadra FNX Mining swung to profit in second quarter, reporting net income of $0.15 per share compared to a loss of $0.08 per share in the previous year.

Integrated oil firm Suncor Energy said it would be selling certain natural gas properties for C$375 million, taking its total disposal to-date to about C$2.8 billion.

Oil and gas explorer Celtic Exploration swung to profit in second quarter, reporting net earnings of $0.05 per share compared to a loss of $0.07 per share in the previous year. Looking ahead, the company forecasts funds from operations for 2010 to be around $139.0 million or $1.55 per share, up from its previous guidance of $132.0 million. In addition, net earnings are forecast to be about $12.0 million or $0.13 per share, up from its previous forecast of $8.0 million.

Oil and gas producer Baytex Energy Trust said its second quarter funds from operations were C$109.1 million or C$0.95 per unit compared with C$86.66 million or C$0.81 per unit in the comparable period.

Heavy equipments dealer Finning International slipped into the red, reporting second quarter net loss of C$1.23 per share, compared to net income of C$0.28 per share in the same quarter last year. The company declared a quarterly dividend at C$0.12 per common share.

Restaurants operator Tim Hortons Inc. reported a 21% increase in its second quarter net income at C$94.1 million, compared to C$77.8 million in the second quarter of last year. Earnings per share were C$0.54 compared to C$0.43 per share last year, benefiting partly due to its share repurchase programs. The company announced a quarterly dividend of C$0.13 per share.

Apparels maker Gildan Activewear reported improved second quarter net earnings of $0.53 per share, compared to $0.34 per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.49 per share for the quarter.

Bio pharmaceutical company Æterna Zentaris reported a narrower second quarter net loss of $0.06 per share compared to $0.24 per share in the year-ago period. Analysts were expecting the company to report net loss of $0.10 per share this quarter.

Silver steaming company Silver Wheaton reported improved second quarter net earnings of $0.15 per share, compared to $0.06 per share in the same quarter last year. Analysts were expecting the company to report earnings of $0.16 per share this quarter.

Silver miner Pan American Silver reported improved second quarter net income of $0.17 per share, compared to $0.12 per share in the same period last year. The company declared $0.025 per share semi-annual cash dividend.

Legacy Oil + Gas Inc. reported a wider second quarter net loss of C$0.10 per share, compared to C$0.08 per share in the same quarter last year.

Junior oil and gas firm Rock Energy reported a narrower second quarter net loss of C$0.02 per share, compared to a net loss of C$0.07 per share last year.

Oil and natural gas explorer Connacher Oil and Gas slipped into the red in second quarter, reporting net loss of C$0.08 per share, compared to net income of C$0.14 per share in the year-ago quarter.

Oil and gas producer Emerge Oil & Gas reported a wider second quarter net loss of C$0.08 per share, compared to a net loss of C$0.02 per share in the year-ago quarter.

Fuel storage systems maker Dynetek Industries turned to profit, reporting second quarter net income of C$0.01 per share compared to a net loss of C$0.01 per share in the year ago period.

Property and causality insurance company Westaim Corp. reported second quarter net earnings of C$0.01 per share, as against a net loss of C$0.01 per share a year ago.

Loyalty management services company Groupe Aeroplan reported lower second quarter net income of $0.06 per share, compared to net a income of $0.13 per share in the year-ago quarter.

Aviation maintenance services provider Vector Aerospace said net earnings were C$8.8 million or C$0.19 per share, compared to C$7.9 million or C$0.21 per share in the previous year. The company attributed the improvement primarily to the year over year change in the foreign exchange gain.

Internet gaming software developer CryptoLogic Ltd. reported a wider second quarter net loss of $0.98 per share compared to a loss of $0.46 per share in the previous year.

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Asian Markets Extend Losses On Global Sell Off

Asian markets ended the trading session Thursday in negative territory, following sharp sell-off in Wall Street in the previous session, on concerns about slowdown in global economic recovery. The unexpected rise in unemployment rate in Australia to 5.3% in July and the decision of Bank of Korea to keep interest rates unchanged at 2.25% also impacted market sentiment. Traders preferred to stay in the sidelines waiting for direction and more cues on global economy.

In Japan, the benchmark Nikkei 225 Index ended 80.26 points lower, or 0.86% to 9,213, while the broader Topix index of all First Section issues was down 6.67 points, or 0.80% to 828.

On the economic front, results of a survey carried out by the Cabinet Office revealed that consumer sentiment index fell to 43.4 in July from 43.6 reported in June. Economists expected the sentiment index to rise to 43.9 for the month. Households' consumer sentiment, at the same time, came in at 43.3, down from 43.5 in June, the results reveal.

Separately, the Ministry of Economy, Trade and Industry revealed that industrial production in the country declined by a revised 1.1% in June, slightly better than the preliminary report of a 1.5% decline reported earlier. Shipments increased 0.2% in June, in contrast to the 0.2% decline estimated earlier. Inventory rose 0.7%, while the inventory ratio dropped 1.7%. On a yearly basis, production was up 17.3%.

Insurance stocks were the major losers in the market. T&D Holdings lost 3.37%, Tokio Marine Holdings fell 2.02%, MS & AD Insurance Group Holdings shed 1.65% and NKSJ Holdings was down 1.79%.

Glass and ceramic stocks also ended in negative territory. NGK Insulators shed 1.81%, Asahi Glass lost 2.40%, Tokai Carbon slipped 1.28% and Nitto Boseki Co., was down 2.26%.

Real estate stocks slipped into red on concerns about stronger local currency. Mitsubishi Estate fell 1.35%, Sumitomo Realty & Development slipped 0.74%, Mitsui Fudosan shed 0.75%, Tokyu Land Corp fell 2.42% and Heiwa Real Estate was down 0.98%.

Mixed trading was witnessed among the trading companies. Toyota Tsusho Corp. declined 1.61%, Mitsubishi Corp. shed 0.80%, Itochu Corp. lost 1.43%, Marubeni Corp. slipped 1.08% and Sojitz Corp. was down 0.72%. However, Mitsui & Co. ended in positive territory with a gain of 0.86% and Sumitomo Corp. advanced 0.41%.

In Australia, the benchmark S&P/ASX200 Index declined 54.60 points, or 1.23%, and closed at 4,401 points, while the All-Ordinaries Index ended at 4,422, representing a loss of 57.30 points, or 1.28%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the economy added 23,500 jobs in July, following the addition of 45,900 jobs in the previous month. Economists expected an addition of 20,000 jobs for the month. The report further noted that the unemployment rate in the country unexpectedly increased by 0.2% to 5.3% in July, contrary to economists mean forecast of a 5.1%. The employment participation in the country increased to 65.5% in July compared to 65.2% in June.

Results of a survey conducted by the Melbourne Institute revealed that consumers in Australia expect inflation to decrease modestly in August. The Institute's consumer inflation expectations index fell to a rate of 2.8% in August from the July reading of 3.3%, marking the fourth consecutive monthly decline in inflation expectations. The survey further noted that the proportion of consumers expecting inflation to be within the Reserve Bank of Australia's 2%-3% target range decreased to 18.9% in August from 19.1% in July.

Mining and metal stocks declined on concerns about economic recovery. BHP Billiton slipped 0.85%, Rio Tinto fell 1.79%, Fortescue Metals plunged 3.79%, Gindalbie Metals slipped 2.03%, Iluka Resources lost 2.04%, Macarthur Coal shed 1.58%, Mincor Resources was down 3.23%, Murchison Metals slumped 3.61% and Oz Minerals declined 2.92%.

Energy stocks ended in negative territory on lower crude oil prices in the international market. Woodside Petroleum slipped 0.68%, Santos Ltd lost 1.59%, ROC Oil Co. plunged 3.90%, Oil Search Ltd slipped 1.03% and Origin Energy also slipped 1.03%.


Gold related stocks also ended in negative territory. Lihir Gold slipped 0.47% and Newcrest Mining fell 1.14%.

Telecom major Telstra was the major loser in the market, having shed 9.54% after the company reported lower profit for the year and also forecast lower profit for the current financial year.

Banks ended weaker on concerns about global economic recovery. ANZ Bank slipped 0.36%, Commonwealth Bank of Australia shed 0.96%, National Bank of Australia fell 0.63%, and Westpac Banking Corp. lost 0.94%. Investment banking company Macquarie Group was down 1.74%.

The Indian market ended a volatile session on a flat note Thursday, shrugging off disappointing IIP data, a double digit food inflation and extremely weak sentiment prevailing in the global markets. SBI's impressive earnings and a late-session recovery led by auto, consumer durable and realty stocks offered support to some extent, while continued weakness in IT and metal stocks amid concerns about flagging global growth limited the upside. After falling as much as 155 points or 0.86% earlier in the session, the 30-share BSE Sensex recovered much from those levels to end marginally up at 18,074, with 12 of its components advancing, and the 50-share Nifty ended flat with a negative bias at 5,416.

Among the other major markets open for trading, China's Shanghai Composite Index ended in negative territory with a loss of 32.02 points, or 1.23% at 2,575, Taiwan's Weighted Index shed 65.24 points, or 0.83%, to close at 7,830, Indonesia's Jakarta Composite Index slipped 9.67 points, or 0.32%, to close at 3,026, and Singapore's Strait Times Index ended in negative territory with a loss of 22.22 points, or 0.75%, at 2,927.

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The major European averages are declining on Thursday, extending their losses for a third straight session. Yesterday, the major averages in the region slumped notably. The French CAC 40 Index and the German DAX Index are moving down 0.98% and 0.44%, respectively, while the U.K.’s FTSE 100 Index is receding 0.05%.

In corporate news, U.K. insurer Prudential reported that its first half operating profit rose 41% to 968 million pounds, aided by a strong performance in Asia. The company also raised its interim dividend by 5%.

Brewer Anheuser-Busch InBev reported a profit of $1.5 billion for its second quarter, higher than $1.07 billion last year. The profit growth came even though revenues dipped to $9.17 billion from last year’s $9.5 billion.

Eurostat reported that the euro area’s industrial production dropped 0.1% month-over-month in June. This was in contrast to economists' expectations for a 0.6% increase and was the first decline in four months. It followed an upwardly revised 1.1% rise in May. On an annual basis, industrial production was up 8.2%, slower than May's revised 9.9% growth.

U.S. Economic News

Adding to recent concerns about the job market, the Labor Department released a showing that first-time claims for unemployment benefits unexpectedly saw a modest increase in the week ended August 7th.

The report showed that initial jobless claims rose to 484,000 from the previous week's revised figured of 482,000. Economists had been expecting jobless claims to fall to 465,000 from the 479,000 originally reported for the previous week.

A Labor Department report showed that import prices rose 0.2% month-over-month in July, reversing some of the 1.3% drop in the previous month. The rebound was supported by a 2.1% increase in fuel import prices, while non-fuel import prices continued to decline, dropping 0.3% in the month.

At the same time, export prices edged down by 0.2% in July following a revised 0.7% increase in the previous month. Agricultural export prices edged down 0.1%, while non-agricultural export prices slid 0.2%.

Currency, Commodity Markets

Crude oil futures are receding $1.13 to $76.89 a barrel after declining $2.23 to $78.02 a barrel on Wednesday. The decline in the previous session came amid the equity market decline and the release of the weekly inventory report, which showed that crude oil stockpiles fell by 3 million barrels to 355 million barrels in the week ended August 6th. Despite the decline, crude oil stockpiles remained above the upper limit of the average range.

Gasoline inventories rose by 0.4 million barrels and remained above the upper limit of the average range. Distillate inventories also rose, increasing by 3.5 million barrels. Inventories of distillate fuel remained above the upper boundary of the average range for this time of the year. Refinery capacity utilization averaged 88.1% over the four weeks ended August 6th compared to 91.2% in the previous week.

Gold futures, which rose $1.20 to $1,199.20 an ounce in the previous session, are currently advancing an incremental $8.90 to $1,208.10 an ounce.

Among currencies, the U.S. dollar is trading at 85.445 yen compared to the 85.22 yen it fetched at the close of New York trading on Wednesday. The U.S. dollar is valued at $1.2815 against the euro compared to yesterday’s $1.2864.

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Earnings

Cisco (CSCO) reported fourth quarter non-GAAP earnings of 43 cents per share, up 39% year-over-year, and net sales of $10.8 billion, up 27% year-over-year. The consensus estimates called for earnings of 42 cents per share on revenues of $10.88 billion. In the conference call that followed the earnings release, the company said it expects first quarter revenue growth of 18%-20%, translating to revenues of $10.64 billion to $10.82 billion, which trails the consensus estimate of $10.95 billion.

Advance Auto Parts (AAP) reported that its second quarter earnings rose to $1.16 per share from 83 cents per share last year, as sales rose to $1.42 billion from the year-ago’s $1.32 billion. Analysts estimated earnings of $1.03 per share on revenues of $1.41 billion. The company also said its board authorized a $300 million share repurchase program.

Brinker (EAT) reported that its fourth quarter adjusted earning from continuing operations fell to 44 cents per share from 45 cents per share last year. Revenues rose to $743.1 million from $742.1 million last year. Analysts’ estimates, which typically exclude one-time items, called for earnings of 46 cents per share on revenues of $677.81 million.

Sara Lee (SLE) said its fourth quarter adjusted earnings from continuing operations fell to 19 cents per share from 26 cents per share last year. Net sales rose to $2.77 billion from $2.66 billion last year. The consensus estimates called for earnings of 16 cents per share on revenues of $2.86 billion.

Other Corporate News

GlaxoSmithKline (GSK) could be in focus after it said a FDA advisory committee has unanimously concluded that clinical studies provide evidence of the effectiveness of ezogabine, an investigational epilepsy drug it jointly develops with Valeant Pharma (VRX).

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