US & World Daily Markets Financial Briefing 17-08-2010

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Stocks Hovering In Positive Territory After Initial Strength

While stocks showed a notable move to the upside at the start of trading on Tuesday, the markets have not seen much follow-through on the upward move. The major averages remain firmly in positive territory, although they have recently pulled back off their best levels.

The Dow is currently up 47.08 points or 0.5 percent at 10,349.09, the Nasdaq is up 18.21 points or 0.8 percent at 2,200.08 and the S&P 500 is up 7.84 points or 0.7 percent at 1,087.22.

The initial strength seen in the markets came as traders reacted positively to the latest batch of economic data, including a report from the Labor Department showing that producer prices increased for the first time in four months, easing concerns about the inflation.

The Labor Department said its producer price index rose by 0.2 percent in July following an unrevised 0.5 percent decrease in June. The modest rebound in prices came in line with the expectations of economists.

Core producer prices, which exclude food and energy prices, increased by 0.3 percent in July after edging up by 0.1 percent in June. The increase, which exceeded economist estimates for 0.1 percent growth, marked the fastest pace of core price growth since January.

A separate report from the Commerce Department showing that housing starts increased in July following two months of steep declines. On the other hand, the report showed a bigger than expected decrease in building permits, which are seen as an indicator of housing demand.

The Federal Reserve also released a report showing that industrial production increased by much more than economists had been anticipating in July, with manufacturing output showing a notable rebound.

On the corporate front, retail giant Wal-Mart (WMT) is up by 1.7 percent after reporting second quarter earnings from operations of $0.97 per share on sales that rose 2.8 percent to $103 million. Analysts had expected earnings of $0.97 per share on sales of $105.4 billion.

Looking ahead, Wal-Mart raised its full year earnings guidance to $3.95 to $4.05 per share from its earlier estimate of $3.90 to $4 per share. The consensus estimate calls for earnings of $4 per share for the year.

Home Depot is also moving to the upside after reporting second quarter earnings of $0.72 per share on sales that rose 1.8 percent to $19.4 billion. The home improvement retailer had been expected to earn $0.71 per share on sales of $19.59 billion.

Additionally, shares of Potash Corp. (POT) are moving sharply higher after the company said it has rejected a takeover bid from BHP Billiton (BHP) that valued Potash at $130 per share. The offer represented a 16 percent premium to Potash's closing price on Monday.

Potash said that its board concluded that the proposal is grossly inadequate, adding that is not in the best interests of its shareholders to enter into discussions with BHP Billiton.

Sector News

Trucking stocks are seeing considerable strength in mid-morning trading, resulting in a 2.5 percent advance by the Dow Jones Trucking Index. With the gain, the index is moving further off the nearly one-month closing low it set last Friday.


Con-Way (CNW) and J.B. Hunt (JBHT) are turning in two of the trucking sector's best performances after Stifel Nicolaus upgraded its ratings on both stocks to Buy from Hold. Shares of Con-Way are up by 3.9 percent, while shares of J.B. Hunt are up by 3.5 percent.

Significant strength is also visible among steel stocks, as reflected by the 1.8 percent gain currently being shown by the NYSE Arca Steel Index. Worthington Industries (WOR) is helping to lead the sector higher, rising by 4.7 percent after Longbow upgraded its rating on the stock to Buy from Neutral.

Most of the other major sectors have also moved to the upside in morning trading, with oil service, semiconductor, airline, and housing stocks posting notable gains. The strength in the housing sector reflects a positive reaction to the monthly increase in housing starts.

Stocks Driven By Analyst Comments

Shares of Cott Corp. (COT) have shown a strong upward move in morning trading, moving further off the one-month closing set last Tuesday. The stock is currently up by 2.4 percent, poised to end the session at its best closing level in almost two months.

The gain by Cott comes after Stifel Nicolaus upgraded its rating on the non-alcoholic beverage company to Buy from Hold. Stifel Nicolaus has a $8.50 price target for the stock, which is trading at $6.50.

Honeywell International (HON) is also turning in a strong performance after J.P. Morgan upgraded the diversified manufacturer to overweight from neutral. Shares of Honeywell are currently up 2.2 percent after ending the previous session at a nearly one-month closing low.

On the other hand, shares of Blackberry maker Research in Motion (RIMM) are currently down by 2.8 percent after Wedbush downgraded its rating on the company's stock to Neutral from Outperform. Earlier in the session, RIM fell to its lowest intraday level in over a month.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Tuesday. Japan's benchmark Nikkei 225 Index fell by 0.4 percent, while China's Shanghai Composite Index rose by 0.4 percent.

Meanwhile, the major European markets are all moving to the upside after ending Monday's trading mixed. The U.K.'s FTSE 100 Index is currently up 0.8 percent, while the German DAX Index and the French CAC 40 Index are up by 1 percent and 0.6 percent, respectively.

In the bond markets, treasuries are giving back some ground following recent strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is currently up 4.6 basis points at 2.621 percent.

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Toronto Stocks To Open Higher As Potash Rebuffs BHP Bid

Bay Street stocks are poised for a higher open Tuesday amid recovering energy prices and mixed economic data from both sides of the border.

Potash Corp., which rejected an unsolicited bid from BHP Billiton, will provide support to the market. The stock rallied smartly in the European markets after the news.

Largely helped by overseas sales and cost cutting, U.S. retail giant Wal-Mart reported improved second quarter earnings that met consensus estimates. Second quarter net sales were up 2.8% to $103 billion, compared to $100 billion last year. Earnings per share came in at $0.97 this quarter.

On Monday, the S&P/TSX Composite Index edged up 24.51 point or 0.21% to 11,552.76.

The price of crude oil recovered from its 5-week low hit yesterday, with crude for September adding $0.85 to $76.09 a barrel. The National Hurricane Center said a low-pressure area in the Gulf of Mexico has a 30% chance of becoming a tropical cyclone in the next two days.

The price of gold was holding on to its previous session's gains on safe haven buying. Gold for December was up $1.20 to $1,227.40 an ounce.

In corporate news from Canada, fertilizer maker Potash Corp. said it has rejected an unsolicited $39 billion takeover offer from the Australian mining company BHP Billiton. The latter proposed paying $130 per share in cash, which is 16% higher than yesterday's closing price of Potash.


Exploration services company Divestco Inc. said it will be selling its 2D and 3D seismic data library to Pulse Seismic. Merchandising and real-estate company Sears Canada reported lower second quarter net earnings of C$0.29 per share, compared to C$0.45 per share in the year-ago period.

Bitumen maker Athabasca Oil Sands announced the appointment of Allan Hart as vice president, operations and the promotion of Anne Schenkenberger to vice president, legal and corporate secretary.

In economic news from Canada, Statistics Canada said manufacturing sales edged up 0.1% to C$44.8 billion in June, helped by higher receipts for paper, furniture, and chemical products. Economists expected manufacturing shipments to decline 0.5% from the 0.4% initially reported in May.

In another report, the agency said foreign investors acquired C$5.4 billion of Canadian securities in June, compared to $23 billion in May. Meanwhile, Canadian investors added C$4.0 billion in foreign assets to their portfolios.

From south of the border, the U.S. Commerce Department said that housing starts rose 1.7% to an annual rate of 546,000 in July. Economists had expected starts to rise by 1.1% to an annual rate of 555,000 from the 549,000 originally reported for the previous month. Meanwhile, the department added that building permits, an indicator of future housing demand, fell by 3.1% to an annual rate of 565,000 in July. Building permits had been expected to slip to a rate of 573,000.

Meanwhile, the U.S. Labor Department said its producer price index rose by 0.2% in July, matching consensus estimates, following an unrevised 0.5% decrease in June. Core producer prices, which exclude food and energy prices, increased by 0.3% in July after edging up by 0.1% in June. Economist were expecting only for 0.1% growth.

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Asian Markets End Mixed

Mixed trading was witnessed among the major markets open for trading in Asia on Tuesday. The market in Indonesia is closed for a holiday. While the markets in Australia, China, HongKong, and South Korea ended in positive territory with marginal gains, the markets in India, Japan, Singapore and Taiwan ended in negative territory with modest losses. Volumes were relatively less than normal with most traders adopting a cautious approach awaiting decisive cues on global economy.

In Japan, the benchmark Nikkei 225 Index lost 34.99 points, or 0.38% to 9,162, while the broader Topix index of all First Section issues was down 1.85 points, or 0.22%, to 827.

On the economic front, a report released by the Ministry of Economy, Trade and Industry showed that tertiary industry activity in the country declined 0.1% month-on-month in June compared to the previous month, in line with economists' expectations. However, the rate of decline slowed from a revised 0.8% drop seen in May. On a yearly basis, tertiary activity grew at a pace of 0.8%, down from 1.2% in May.

Inpex Corp., engaged in mining and oil exploration, was the major loser in the market having declined 4.42%. Fishing related stocks also ended in negative territory. Maruha Nichiro Holdings declined 1.45% and Nippon Suisan Kaisha plunged 4.50%.

Rubber-related stocks also ended weaker. The Yokohoma Rubber Factory slipped 0.71% and Bridgestone Corp. was down 0.45%.


Stocks in the glass and ceramics sector also slipped into red. NGK Insulators shed 0.81%, Tokai Carbon declined 2.10%, Asahi Glass Co. slipped 1.07%, Nippon Sheet Glass Co. declined 2.18% and Sumitomo Osaka Cement Co. was down 1.85%.

Mixed trading was witnessed among stocks of trading companies. Mitsubishi Corp. edged up 0.22% and Sumitomo Corp. added 0.30%. However, Toyota Tsusho Corp. slipped 0.78%, Marubeni Corp. shed 0.88%, Itochu Corp. declined 0.44% and Mitsui & Co. Ltd edged down 0.17%.

Real estate stocks, however, continued their northward march and ended in positive territory with modest gains. Sumitomo Realty & Development gained 2.44%, Mitsui Fudosan rose 2.52%, Mitsubishi Estate advanced 0.80% and Tokyu Land Corp. was up by 1.84%.

In Australia, the benchmark S&P/ASX200 Index advanced 38.50 points, or 0.87%, and closed at 4,477 points, while the All-Ordinaries Index ended at 4,503, representing a gain of 37.80 points, or 0.85%.

On the economic front, minutes of the policy board meeting of the Reserve Bank of Australia revealed that the members of the board felt that a wait-and-watch stance was warranted, given the fall in core inflation in the June quarter. The minutes also revealed that the members felt that holding interest rates steady was justifiable given a more uncertain outlook for the global economy. "The inflation data released during the month were in line with the board's expectations for a decline, and the outlook for economic growth had not changed. Markets had settled somewhat, but there was still more uncertainty over the global outlook than there had been earlier in the year," the minutes of the August 3 meeting said.

Mining and metal stocks advanced on fresh buying interest at lower levels amid optimism about sustaining global economic recovery. BHP Billiton added 0.50%, Rio Tinto advanced 0.88%, Fortescue Metals gained 1.56%, Iluka Resources climbed 3.21%, Macarthur Coal rose 0.80%, Mincor Resources was up by 2.80% and Oz Minerals surged up 3.32%.

Oil-related stocks ended in negative territory on lower crude oil prices in the international market. Woodside Petroleum slipped 0.12%, Santos Ltd lost 1.14%, ROC Oil Ltd fell 3.80% and Oil Search Ltd edged down 0.34%. However, Origin Energy bucked the negative trend and ended in positive territory with a modest gain of 0.52%.

Gold related stocks ended with modest gains. Lihir Gold advanced 0.46% and Newcrest Mining edged up 0.11%.


Banks also advanced on optimism about global economic recovery. ANZ Bank advanced 1.08%, Commonwealth Bank of Australia rose 1.51%, National Australia Bank gained 1.65% and Westpac Banking climbed 1.29%. Investment banking company Macquarie Group ended in positive territory with a modest gain of 1.27%.

The Indian market ended the trading session flat around the unchanged line, despite positive cues from US futures market and European markets as traders turned cautious ahead of key economic data in the US related to housing sector. The 30-share BSE Sensex closed at 18,048.85, down 1.93 points, or 0.01%, and the 50-share NSE slipped 4.15 points to 5,414.15. Shares related to technology, power and metals witnessed sell-off, while selective buying in cement stocks, banks such as ICICI Bank and HDFC bank limited the losses.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 10.19 points, or 0.38% at 2,672. However, Taiwan's Weighted Index gained ended in negative territory with a loss of 10.13 points, or 0.33%, to close at 7,931, and Singapore's Strait Times Index lost 10.15 points, or 0.35%, and closed at 2,923. The market in Indonesia was closed for a holiday.

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The major European averages are moving uniformly higher on Tuesday following the mixed performance on Monday. The French CAC 40 Index and the German DAX Index are rising 0.89% and 1.12%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.88%.

In corporate news, U.K. buyout vehicle Resolution said its pre-tax profit from continuing operations for the first-half rose to 139 million pounds from a loss of 7 million pounds last year. The company’s results were boosted by the performance of Friends Provident, which saw 42% sales growth to 458 million pounds.

On the economic front, the European Central Bank released the current account data, which showed that the euro area’s current account deficit narrowed to 4.6 billion euros in June from a 7.4 billion-deficit in May.

The consumer price inflation report released by the U.K. Office for National Statistics showed that consumer prices rose 3.1% year-over-year in July following a 3.2% increase in the previous month. The core inflation rate slowed notably to 2.6%. The increase was in line with expectations. On a monthly basis, consumer prices fell by 0.2% in July following a 0.1% increase in June.

The results of the ZEW economic sentiment survey showed that the economic sentiment index fell to 14 in August from 21.2 in July. Economists had expected a more modest decline to 20. The current situation index, however, jumped to 44.3 from 14.6 in July.

U.S. Economic News

A report released by the Commerce Department earlier in the day showed that housing starts rose 1.7% month-over-month to 546,000 in July from a downwardly revised rate of 537,000 for June. Economists had estimated housing starts to rise to 555,000 for July from the 549,000 estimated initially for June.

The bulk of the increase was in buildings with five units or more, which came in at 95,000, while single-family housing starts fell 4.2%. Meanwhile, building permits fell 3.1% to 565,000.

Meanwhile, producer prices rose 0.2% month-over-month in July, according to a report released by the U.S. Labor Department. The increase was in line with expectations. The core producer price index climbed 0.3%, faster than the 0.1% expected by economists.

Food prices rose 0.7%, reversing some of the 2.2% drop in June, while energy prices slid 0.9%. In the pipeline, inflation continued to remain benign, with the core intermediate and crude good produces dipping 0.4% and 1.4%, respectively.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate 0.6% growth in industrial production for July, while capacity utilization is expected to come in at 74.5%.

Industrial production rose 0.1% month-over-month in June compared to expectations for an unchanged reading. The increase was due to a 2.7% surge in utility output, with unseasonably warm weather leading to increased electricity output. However, manufacturing output declined 0.4%, dragged down by a 1.9% drop in the production of motor vehicle and parts. Excluding the motor vehicle sector, manufacturing output increased 0.2%. Meanwhile, refinery capacity utilization remained unchanged at 74.1%.

Minneapolis Federal Reserve Bank President Narayana Kocherlakota is due to speak about the FOMC to a business leaders lunch at Northern Michigan University in Marquette, Michigan, at 12:30 AM ET.

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Earnings

Agilent (A) reported third quarter adjusted earnings of 54 cents per share compared to 15 cents per share last year. Revenues rose 31% year-over-year to $1.38 billion. Analysts estimated earnings of 48 cents per share on revenues of $1.40 billion. For the fourth quarter, the company expects non-GAAP earnings of 58-59 cents per share on revenues of $1.52 billion. The consensus estimates call for earnings of 54 cents per share on revenues of $1.50 billion. The company expects full year non-GAAP earnings of $1.94-$1.95 per share on revenues of $5.4 billion, while the Street estimates earnings of $1.82 per share on revenues of $5.38 billion.

Urban Outfitters (URBN) said its second quarter earnings rose to 42 cents per share from 29 cents per share last year, as sales rose to $552.16 million from the year-ago’s $458.63 million. The results were ahead of expectations.

Home Depot (HD) reported second quarter earnings of 72 cents per share compared to 66 cents per share last year. Sales rose 1.8% to $19.4 billion. Analysts estimated earnings of 71 cents per share on revenues of $19.59 billion. The company lowered its 2010 sales growth guidance to 2.6% from 3.5%, while it expects earnings of $1.90 per share. Analysts expect sales to rise 3.40% and earnings per share of $1.89.

Abercrombie & Fitch (ANF) reversed to a second quarter profit of 22 cents per share compared to a loss of 30 cents per share last year. The year-ago results included a loss of 21 cents per share from discontinued operations. Analysts estimated earnings of 16 cents per share.

Wal-Mart (WMT) said its second quarter earnings from continuing operations rose to 97 cents per share from 89 cents per share in the year-ago period. Sales rose 2.8% to $103 billion. Analysts estimated earnings of 97 cents per share on revenues of $105.40 billion. The company raised its full year earnings per share guidance to $3.95-$4.05 from its earlier estimate of $3.90-$4, while it expects earnings of 87-91 cents per share for the third quarter. The consensus estimates had called for earnings of $4 per share for the full year and 91 cents per share for the quarter.

Other Corporate News

Fluor (FLR) may see some activity after it reported that its unit Fluor-B&W Portsmouth LLC was chosen as the prime contractor by the U.S. Department of Energy for the next phase of cleanup at the Portsmouth site in the Pike County, Ohio. The contract is valued at $2.1 billion over 10 years.

TD Ameritrade Holding Corp. (AMTD) is likely to be in focus after it said its average client trades per day fell 12% year-over-year in July, but rose 5% from June 2010.

Johnson & Johnson (JNJ) could see buying interest after a SEC filing revealed that Warren Buffett’s Berkshire Hathaway doubled its stake in the company in the June quarter. However, Berkshire has reduced its holdings in Kraft Foods (KFT) and Procter & Gamble (PG).

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