US & World Daily Markets Financial Briefing 16-07-2010

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Stocks Sharply Lower After Alarming Drop In Consumer Sentiment

Stocks are posting steep losses in mid-morning trading on Friday, as a thoroughly disappointing reading on July consumer sentiment sent equity prices into a downward spiral. The downside has also come as a mixed batch of earnings may have lessened trader expectations of a strong second quarter earnings season.

A short time ago, the markets extended their earlier losses after Reuters and the University of Michigan reported that their consumer sentiment index plummeted to a reading of 66.5 in July from the final June reading of 76.0. Economists had been expecting the index to show a much more modest decrease to a reading of 74.5.

Also on the economic front this morning, the Labor Department released a report showing that consumer prices edged down by 0.1 percent in June, in line with expectations. Meanwhile, core prices, which exclude food and energy prices, increased by 0.2 percent in June, just above expectations for a pickup of 0.1 percent.

Earlier, markets were presented with quarterly results from Bank of America Corp. (BAC), Citigroup Inc. (C) and General Electric Co. (GE), all of which beat profit expectations but failed to meet revenue forecasts.

Goldman Sachs (GS) is on the upside following news that it has reached a settlement agreement with the SEC over claims of securities fraud linked to its mortgage investments. Under the settlement, Goldman will pay $300 million in fines to the Treasury Department and about $250 million as restitution to investors.

Tech-giant Apple (AAPL) has reportedly set up a press conference for 1 p.m. ET to answer questions regarding consumer complaints of poor reception on the iPhone 4. The device saw the strongest product launch in company history.

In other news, BP Plc's (BP) new cap on the troublesome oil well in Gulf of Mexico is seeing success in sealing the leak after 87 days of spillage. The stock is seeing a partial recovery from a fourteen-year closing low set last month.

The major averages have slowed their decline in recent trading but are currently lingering near their session lows. The Dow is down 168.97 points or 1.6 percent at 10,190.34, the Nasdaq is down 41.60 points or 1.9 percent at 2,207.48 and the S&P 500 is down 19.54 points or 1.8 percent at 1,076.94.

Sector News

Banking stocks are among the morning's worst performers, with the KBW Bank Index posting a loss of 3.8 percent. Despite the sharp drop, the index remains in a recent range.

Bank of America is turning in one of the sector's worst performances despite reporting second quarter earnings that exceeded analyst estimates. Shares of the banking giant are currently down by 7 percent, pulling back further its recent highs.

Before the start of trading, Bank of America said its second-quarter net income came in at $0.27 per share, topping expectations for $0.22 per share. However, the company reported total revenue for the quarter of $29.15 billion, short of the $29.75 billion forecast for the period.

Gold, networking, railroad and airline stocks are also under pressure, further contributing to the sharp drop by the major averages. Notably, the NYSE Arca Gold Bugs Index is down by 3.2 percent and is on pace for a six-week closing low.

The weakness in the gold sector comes as the price of the precious metal has plummeted by $20.10 to $1,118.20 an ounce.

Stocks Driven By Analyst Comments

Ritchie Bros. (RBA) is notably lower after being downgraded at RBC Capital Markets from Sector Perform to Underperform. The broker also lowered its target on the stock from $18 to $16. Shares are currently down by 4.8 percent, sinking to a fifteen-month intraday low.



Alliant Energy (LNT) is also on the downside following a downgrade by analysts at Wunderlich from Buy to Hold. The stock is posting a loss of 2.4 percent, falling from its best closing price in nearly three months.

Other Markets

In overseas trading, stocks across the Asia-Pacific region were mostly lower to close out the week. Japan's benchmark Nikkei 225 Index ended the day down by 2.9 percent.

The major European markets are also seeing steep losses. The U.K.'s FTSE 100 Index is down by 0.7 percent, while the French CAC 40 Index and the German DAX Index are down by 2.1 percent and 1.6 percent, respectively.

In the bond markets, treasuries are moderately higher amid the weakness on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.947 percent, posting a loss of 3.1 basis points.

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TSX May Open Lower On Falling Commodities

Canadian stocks may struggle to sustain recent gains Friday morning amid falling commodities prices and mixed flow of corporate earnings from south of the border.

Citigroup Inc. reported lower second-quarter net income of $0.09 per share, compared to $0.49 per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.05 per share for the quarter. Bank of America Corp. said its second-quarter net income dipped to $0.27 per share from $0.33 per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.22 per share for the quarter.

Meanwhile, General Electric Co. reported improved second-quarter net earnings of $0.28 per share, compared to $0.25 per share in the year ago quarter, against analysts' expectations for earnings of $0.27 per share.

Elsewhere, most Asian markets ended lower after yesterday's reports from the U.S. revealed slower pace of manufacturing growth in the Philadelphia and New York regions.

European stocks were moving higher amid a firm euro. Shares of BP plc. gained after it said it stopped the oil leak with it's new capping device.

On Thursday, the S&P/TSX Composite Index added 121.62 points or 1.05% to 11,741.77 on late buying.

The price of crude oil was down $0.26 to $76.36 a barrel amid mixed earnings reports from major U.S. companies.

The price of gold lost $13.60 to $1,194.70 an ounce amid a firm euro.

In corporate news from Canada, Thompson Creek Metals said it will buy Terrane Metals for C$650 million, paying C$0.90 in cash and 0.052 Thompson Creek common shares for each Terrane share.

Mineral explorer PLATINUM Group Metals turned to profit in third-quarter, reporting net income of C$0.46 per share, compared with a net loss of C$0.08 per share in the prior year quarter.

TSX May Open Lower On Falling Commodities

Molybdenum mining company Uranium One said it would acquire a 50% interest in the Akbastau uranium mine and a 49.67% interest in the Zarechnoye uranium mine from JSC Atomredmetzoloto.

Bio-pharmaceutical company Tekmira Pharmaceuticals said it received up to $140 million contact from U.S. Department of Defense.

In economic news, Statistics Canada said the composite leading index rose by 1.0% in June after gaining 1.1% in the previous two months. New orders for durable goods rose for a fifth straight month, adding 2.3%.

In another report, the agency said investments in non-residential building construction advanced 1.2% to C$10.1 billion in the second quarter from the previous quarter.

From the U.S., the Labor Department said consumer prices edged down by 0.1% in June following a 0.2% drop in May and a 0.1% decrease in April. The modest decrease came in line with economists' expectations. Meanwhile, core prices, which exclude food and energy prices, increased 0.2% in June after edging up by 0.1% in May. Economists were expecting core prices to rise by 0.1%.

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Indian Market Ends Modestly Higher

The Indian market ended a volatile session modestly higher on Friday, with TCS, Tata Motors and ICICI Bank leading the gains. After fluctuating between gains and losses, the 30-share BSE Sensex ended up about 50 points or 0.26% at 17,956, with 17 of its components closing higher.

TCS soared over 6% after announcing forecast-beating first-quarter earnings. HCL Technologies rallied 4.39%, Wipro edged up marginally and Infosys rose 0.70%. Mid-tier software stocks like Mphasis (up 1.54%), Rolta India (down 0.33%) and Patni Computer Systems (down 0.59%) closed on a mixed note.

Tata Motors advanced 2.65% after reporting 46% growth in global vehicle sales for June. However, other automakers such as Mahindra & Mahindra, Ashok Leyland, Bajaj Auto and Maruti Suzuki closed subdued.

The 50-share Nifty added 15 points or 0.28% to end below the 5,400 mark, while the mid-cap and small-cap indexes on the BSE gained 0.44% and 0.66%, respectively. In the broader market, advancing shares outnumbered declining ones by 1604 to 1310 shares.

Elsewhere, most Asian stocks edged lower on Friday, dragging the MSCI Asia Pacific index down by about a percent, after a drop in U.S. factory output and Google's lower-than-expected second-quarter earnings hurt investor sentiment. Weekend profit taking and earnings reports due from the likes of Bank of America, Citigroup and GE Electric also added to the caution.

Japan's Nikkei average fell about 3%, led by exporters, as a stronger yen dampened the earnings outlook for exporters.

European stocks and the U.S. index futures fluctuated despite Goldman Sachs Group Inc.'s settlement of a federal government fraud lawsuit and a rally in BP's shares after it managed to temporarily stem oil flow from its ruptured well in the U.S. Gulf of Mexico.

Back home, Tata Steel slipped 0.41% on reports that critical law and order situation in eastern India due to the Maoist problem is impacting its business. SAIL, Jindal Steel, Hindalco Industries and Sterlite Industries were the other decliners in the metal pack.

State-run oil companies ONGC (up 1.32%) and IOC (up 0.92%) closed firm on disinvestment reports. Heavyweight Reliance Industries closed down 0.93%. V. Srikanth, head of markets for South Asia at Citigroup Inc., is joining Reliance Industries as deputy chief financial officer, media reports said.

Sugar stocks like Shree Renuka, Bajaj Hindusthan, Balrampur Chini and Dhampur Sugar rose by 0.2%-2%. Weak monsoon rains thus far this year will not significantly hurt crop output in the country, Agriculture Minister Sharad Pawar said.

Jet Airways, which reportedly entered into a code sharing agreement with Kenya Airways, to enable passengers travel on each other's flights, ended down 0.29%.

In the banking sector, ICICI Bank rose 2.32%, SBI edged up marginally and Axis Bank gained 1.05%, while HDFC Bank ended down 1.24%. Dhanalakshmi Bank, rechristened as Dhanlaxmi Bank?, edged down 0.38% on equity dilution worries.

Aarti Drugs rose 0.55% after it resumed operations at its Valsad unit. NMDC and Sesa Goa rose modestly on speculation that a ban on iron ore exports is unlikely.


Everonn Education climbed over 13% after it convened a board meet on July 19 to consider issuing redeemable optionally convertible debentures to persons not forming part of promoter group. Other education-related stocks like Aptech, NIIT, Educomp and Navneet Publications gained between 1.7% and 3.3%.

Castrol India gained 0.60% on reporting a 17% rise in June-quarter net profit. BASF India (up 0.32%), South Indian Bank (up 2.15%), Chambal Fertilizer (up 1.52%) and UTV Software Communications (up 7.94%) advanced after posting better-than-expected quarterly earnings. Honeywell Automation plunged nearly 7% on disappointing results

Diamond Power Infrastructure rose 2.21% on winning a Rs.332-crore contract. IL&FS Transportation Networks added 1.89% on securing a Rs.536 crore NHAI project. Technofab Engg rallied 23% on its debut. DCM Shriram Industries fell 2.54% on going ex-dividend for a Rs.3 dividend per share.

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The major European averages opened Friday’s session higher and rose further in early trading. However, they have pared back some of their gains since then. In Thursday’s session, the averages closed on a mixed note.

The French CAC 40 Index and the German DAX Index are advancing 0.02% and 0.50%, respectively, while the U.K.’s FTSE 100 Index is rising 0.73%.

In corporate news, Sony Ericsson, a joint venture between Sony (SNE) and Ericsson (ERIC), reported a profit of 12 million euros compared to a net loss of 213 million euros in the year-ago period, the first profit since the second quarter of 2008. Nevertheless, the profit missed the expectations of some analysts. The company’s revenues rose 4.3% to 1.76 billion euros, as unit shipments came in at 11 million.

Meanwhile, BP (BP) is rallying after it said it succeeded in plugging the leak in its oil well in the Gulf of Mexico region.

U.S. Economic Reports

Consumer prices showed a modest decrease in the month of June, according to a report released by the Labor Department, with prices falling for the third consecutive month amid another notable decrease in energy prices.

The report showed that consumer prices edged down by 0.1 percent in June following a 0.2 percent drop in May and a 0.1 percent decrease in April. The modest decrease in prices came in line with the expectations of economists. Meanwhile, core prices, which exclude food and energy prices, increased by 0.2 percent in June after edging up by 0.1 percent in May. Economists had expected core prices to rise by 0.1 percent

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. in April at 9 AM ET.

The preliminary report on the Reuters/University of Michigan's consumer sentiment survey for July is scheduled to be released at 9.55 AM ET. The consumer sentiment index is expected to decline to 74.5 from June's 76.

Earnings

Bank of America (BAC) said its second quarter earnings after preferred dividends came in at 27 cents per share, lower than the 33 cents per share earned in the year-ago period. Total revenue net of interest expense fell to $29.45 billion from the year-ago’s $33.09 billion. Analysts estimated earnings of 22 cents per share on revenues of $29.75 billion.

Citigroup (C) reported that its second quarter net revenues fell to $22.07 billion from $29.97 billion in the year-ago period. The company reported net income of 9 cents per share. Analysts estimated earnings of 5 cents per share on revenues of $22.16 billion.

Mattel’s (MAT) second quarter net sales rose 13% year-over-year to $898.2 million. The company’s earnings climbed to 14 cents per share from 6 cents per share last year. The consensus estimates had called for earnings of 15 cents per share on revenues of $1.02 billion.

General Electric (GE) said its second quarter earnings rose to 28 cents per share from 25 cents per share last year. The company’s earnings from continuing operations came in at 30 cents per share, ahead of the 27 cents per share consensus estimate. However, revenues of $37.4 billion missed the mean analysts’ estimate of $38.37 billion.

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Google (GOOG) declined in Thursday’s after hours session after it reported that its second quarter total revenues rose 24% year-over-year to $6.82 billion. Excluding traffic acquisition costs, the company reported revenues of $5.09 billion. The company’s non-GAAP earnings rose to $6.45 per share from $5.36 per share last year. Analysts estimated earnings of $6.52 per share on revenues of $4.99 billion.

Goldman Sachs (GS) may react to its announcement that it has reached a settlement agreement with the SEC over claims of securities fraud linked to its mortgage investments. Under the settlement, Goldman will pay $300 million in fines to the Treasury Department and about $250 million as restitution to investors.

JB Hunt (JBHT) could see some activity after it reported that its second quarter revenues rose 22% to $943 million and said its earnings rose to 40 cents per share from adjusted earnings of 23 cents per share last year. Analysts estimated earnings of 36 cents per share on revenues of $911.62 million.

Polycom (PLCM) is also expected to move in reaction to its announcement that its second quarter net revenues rose to $295 million from $231 million in the year-ago quarter. The company’s non-GAAP earnings rose to 34 cents per share from 29 cents per share last year. The consensus estimates had called for earnings of 32 cents per share on revenues of $287.54 million.

Arthur J. Gallagher (AJG) may see some strength after it said it has entered into a $500 million unsecured credit facility that runs through July 14th, 2014. The company also said it may request an additional $100 million of funding capacity within the facility.

Valmont (VMI) is also likely to be in focus after it said its second quarter sales fell to $481.6 million from $498.8 million last year. The company’s earnings fell to 65 cents per share from $1.69 per share last year. The consensus estimates had called for earnings of $1.08 per share on revenues of $456.84 million. Analysts’ estimates typically exclude one-time items. The company said its expects its adjusted earnings for 2010 to show a decline from the year-ago period due to a slower pace of incoming orders and lower margins in its utility support structures segment.

Advanced Micro Devices (AMD) may move in reaction to its announcement that its second quarter revenues rose to $1.65 billion from $1.57 billion last year. On a non-GAAP basis, the company reported a profit of 11 cents per share compared to a loss of 37 cents per share last year. The consensus estimates had called for earnings of 6 cents per share on revenues of $1.55 billion. The company expects sequential growth in its third quarter revenues, while analysts estimate revenues of $1.66 billion.

Apple (AAPL) could see some activity after reports suggested that it will hold a press conference to discuss about problems related to the antenna and reception of its iPhone 4.

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