US & World Daily Markets Financial Briefing 17-09-2010

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Stocks Return To Flat Line As Consumer Sentiment Reading Disappoints

Stocks were unable to sustain their initial upside and have returned to the flat line in mid-morning trading on Friday, with the day's disappointing reading on consumer sentiment taking the air out of the early rally.

The major averages are turning in a mixed performance, with the tech-heavy Nasdaq posting a modest gain. While the Nasdaq is up 4.47 points or 0.2 percent at 2,307.72, the Dow is down 8.93 points or 0.1 percent at 10,585.90 and the S&P 500 is down 0.16 points or less than a tenth of a percent at 1,124.50.

The pullback by the markets came after Thomson Reuters Corp. (TRI) and the University of Michigan reported that their consumer sentiment index fell to 66.6 in September from the final August reading of 68.9. The decrease came as a surprise to economists, who had expected the index to increase to a reading of 70.0.

With the unexpected expected decrease, the consumer sentiment index dropped to its lowest level since August of 2009.

Meanwhile, the day's consumer price data has been largely shrugged off by the markets. The Labor Department reported that its consumer price index rose by 0.3 percent in August, matching the increase that was seen in July. Economists had been expecting consumer prices to show a slightly more modest increase of about 0.2 percent.

Core consumer prices, which exclude food and energy prices, came in unchanged in August after edging up by 0.1 percent in July. The core index had been expected to inch up by 0.1 percent.

Early upside came as traders looked to results from Oracle (ORCL), which said that its first-quarter profit rose 20 percent from last year, helped by higher software sales and new revenue from Sun Microsystems, which was acquired in late January.

The company's quarterly earnings of $0.42 per share and revenues of $7.5 billion came in above expectations, which called for earnings of $0.37 per share on revenues of $7.27 billion.

Additionally, Research In Motion (RIMM) said that its second-quarter profit soared 67.5 percent from last year, as consumer demand for its flagship product, the BlackBerry, continued to grow. The firm recorded earnings of $1.46 per share on revenues of $4.62 billion, beating forecasts.

For the third quarter of fiscal 2011, the company anticipates earnings of $1.62 to $1.70 per share on revenues of $5.30 billion to $5.55 billion. Analysts had expected earnings of $1.39 per share on revenue of $4.83 billion for the quarter.

In M&A news, healthcare giant Johnson & Johnson (JNJ) announced that it is in advanced negotiations for a potential purchase of all outstanding shares of Crucell N.V. (CRXL) not already held for a purchase price of 24.75 euros per share.

Sector News

A majority of the market segments are showing only modest change following another mixed set of economic reports.

Natural gas stocks are mostly lower, however, driving the NYSE Arca Natural Gas Index down by 0.9 percent. The decline has the index on pace for a two and a half-week closing low.

Airline, electronic storage and steel stocks are also trading lower, while some upside is visible among software stocks following Oracle's strong results.

The NYSE Arca Software index is up by 0.9 percent and is on target for a four and a half month closing high.

Stocks Driven By Analyst Comments

CenturyLink (CTL) is trading higher after being Goldman Sachs upgraded the stock to Buy, citing the steady nature of the firm's cash flow and earnings. The stock has gained 1.7 percent and is on pace for a two-week closing high.

Meanwhile, WMS Industries (WMS) is trading lower after being downgraded at Janney Montgomery Scott to Neutral. The stock is down by 0.7 percent, slipping further off of a recent one-month closing high.

Other Markets

Overseas, stock markets in the Asia-Pacific region closed the week on an upbeat note. Japan's benchmark Nikkei 225 Index rose by 1.2 percent, while Hong Kong's Hang Seng Index gained 1.3 percent.

Meanwhile, the major European markets are seeing moderate downside. The U.K.'s FTSE 100 Index is down by 0.4 percent, while the German DAX Index and the French CAC 40 Index are down by 0.7 percent and 0.8 percent, respectively.

In the bond markets, treasuries are moderately higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.714 percent, posting a loss of 4.5 basis points.

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TSX Looks To Open Higher; RIM In Focus

Bay Street stocks are poised for a positive open Friday amid recovery in energy prices and positive cues from the global equity markets.

Technology stock may be in play after an encouraging earnings reports from blackberry maker Research In Motion and the U.S. based Oracle Corp. Gold stocks are likely to extend gains amid continued surge in bullion prices.

On Thursday, the S&P/TSX Composite Index edged up 28.51 points or 0.24% to 12,173.35. The price of crude oil was recovering from its three day slump in morning deals with crude for October edging up $0.02 to $74.59 a barrel.

The price of gold continues to break new highs amid a generally weak dollar. Gold for December moved up $5.20 to $1,279.00 an ounce, after hitting an intraday high of $1,284.40.

China's state owned Sinochem is scouting for partners from UK and elsewhere to bid for Potash Corp. to avert a $130 per share bid from the Australian miner BHP Billiton, the Globe and Mail reported.

In corporate news from Canada, blackberry maker Research In Motion reported an over 65% growth in its second quarter profits, beating analysts estimates by a wide margin, as its flagship product, blackberry witnessed strong sales. The smart-phone maker reported net income of $796.7 million or $1.46 per share for the second quarter, up from $475.6 million or $0.83 per share a year ago. Analysts were expecting the company to report earnings of $1.36 per share this quarter. For the subsequent quarter, RIM guides EPS of $1.62 to $1.70, while consensus were at $1.39 per share.

According to media reports, auto parts maker Magna International and Japan based car battery maker GS Yuasa Corp. were in talks to manufacture electric car batteries in Europe, at an investment of about $450 million.

Bio pharmaceutical company Transition Therapeutics said it will no longer work to develop TT-223, a research stage diabetes drug, due to weak test results.

Global news services provider Thomson Reuters Corp. said it would issue 4.35% notes due 2020 aggregating C$750 million mainly to to repay its EUR 500 million principal amount of 4.625% medium term notes upon their maturity in November 2010.

Mineral resources company Entrée Gold said it would through its wholly-owned Peruvian subsidiary, Exploraciones Apolo Resources S.A.C. may acquire an initial 70% interest in the Lukkacha property at southeastern Peru.

Gold producer La Mancha Resources said its CEO, Bill Plyley will retire from the company on December 15, 2010.

Investment management services provider Gluskin Sheff + Associates Inc. said its fourth quarter net income edged up to C$5.83 million or $0.20 per share from C$5.79 million or $0.20 per share in the year-ago period.

In economic news from south of the border, the U.S. Labor Department said that the consumer price index rose by 0.3%in August, after increasing by the same amount in July.

Economists were expecting consumer prices to show a slightly more modest increase of about 0.2%. Meanwhile, core consumer prices, which exclude food and energy prices, came in unchanged in August after edging up 0.1% in July. The core index had been expected to inch up by 0.1%.

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Asian Markets End In Positive Territory

Asian markets open for trading on Friday, the last day of the trading week, ended in positive territory, lifted by commodity stocks including gold, on optimism about sustaining global economic recovery. Mixed performance on Wall Street in the previous session amid lackluster economic has little or no impact among the Asian markets. Japanese market advanced on weaker yen led by exporters. Except China, all the other markets ended with modest gains.

In Japan, the benchmark Nikkei 225 Index gained 116.59 points, or 1.23%, to 9,626, while the broader Topix index of all First Section issues rose 7.38 points, or 0.87%, to 852.

Light sweet crude oil futures for October delivery ended at $74.90 a barrel in electronic trading, up $0.33 per barrel from previous close at $74.57 a barrel in New York on Thursday.

Consumer finance company Credit Siason led the gains in the market, having surged up 7.59%.

Insurance stocks also ended in positive territory. MS&AD Insurance Group Holdings climbed 3.63%, T&D Holdings gained 1.87%, NKSJ Holdings surged up 3.61% and Tokio Marine Holdings added 0.59%.

Stocks related to oil and coal products also ended in positive territory. JX Holdings gained 3.06% and Showa Shell Sekiyu rose 1.86%.

Automotive stocks ended higher on weaker local currency. Honda Motor gained 1.86%, Toyota Motor climbed 3.92%, Suzuki Motor Corp. advanced 0.71%, Nissan Motor Co added 0.56% and Mazda Motor was up by 1.97%.

Real estate stocks also surged ahead. Sumitomo Realty & Development gained 2.51%, Mitsui Fudosan rose 2.36%, Tokyu Land Corp. added 0.60% and Mitsubishi Estate rose 1.69%. However, Heiwa Real Estate bucked the trend and ended in negative territory with a loss of 4.35%.

In Australia, the benchmark S&P/ASX200 Index advanced 33.60 points, or 0.73%, and closed at 4,640 points, while the All-Ordinaries Index ended at 4,685, representing a gain of 35.10 points, or 0.75%.

Light sweet crude oil futures for October delivery ended at $74.90 a barrel in electronic trading, up $0.33 per barrel from previous close at $74.57 a barrel in New York on Thursday.

Gold related stocks led the gains following sharp surge in bullion prices in the international gold market. The price breezed past the $1280 per ounce market to a new high. Newcrest Mining surged up 3.25% during the trading session.

Oil related stocks ended in positive territory. Woodside Petroleum added 0.52%, Santos Ltd surged up 3.56%, ROC Oil Ltd advanced 1.27%, Oil Search Ltd gained 0.50% and Origin Energy climbed 2.91%.

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Stocks Erase Early Gains In France

The French market erased early gains and is falling in afternoon trading Friday. Firm cues from Asia and strong earnings from technology companies across the Atlantic failed to sustain sentiment.

Crude for October delivery is trading down $0.01 at $74.56 per barrel and gold is adding $3.8 at $1277.6 an ounce.

In economic news, Germany's producer price measure of inflation slowed more than expected in August. Statistical office Destatis said the producer price index rose 3.2% from a year ago, slower than the 3.7% increase in July. Economists had expected inflation to slow to 3.5%.

In the Eurozone, construction output dropped a seasonally adjusted 3.1% on a monthly basis in July, compared to a 1.8% rise in the previous month, Eurostat said. The construction output in June was revised from 2.7% rise estimated initially.

The CAC 40 opened higher at 3,778. After witnessing steady gains in most part of the session, the index later dipped into negative territory, and is currently losing 0.04%.

Lenders are witnessing a downside. Societe Generale and Dexia are losing 2.2% each. Credit Agricole and BNP Paribas are slightly down.

Gas utility GDF, oil giant Total and dairy products maker Danone are making notable losses.

Grocery retailer Carrefour is rising 4.7% after announcing plans to revamp its stores. Department stores operator PPR is rising 1.1%. Chipmaker STMicroelectronics is rising 2.2% and ArcelorMittal is adding 1.9%. Car makers Renault and Peugeot are adding 0.7% and 0.5%, respectively.

Those making notable gains include telecom equipment maker Alcatel Lucent, building materials maker Saint-Gobain, Air France-KLM, computer firm Cap Gemini, hotel group Accor and cement giant Lafarge.

Elsewhere in Europe, the UK's FTSE 100 is adding 0.09%, while the German DAX is slipping 0.11%.

Across Asia/Pacific, most major markets closed higher on encouraging profit numbers released by technology companies Oracle and Research In Motion on Thursday. Australia's All Ordinaries added 0.75%, Japan's Nikkei 225 climbed 1.23% and India's BSE Sensex gained 0.91%. However, China's Shanghai Composite Index lost 0.15%.

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Oracle (ORCL) is likely to be in the spotlight after it reported first quarter non-GAAP earnings of 42 cents per share, up 38% year-over-year. The company’s non-GAAP total revenues were up 50% to $7.6 billion. Analysts estimated earnings of 37 cents per share on revenues of $7.27 billion. New software license revenues increased 25% on a GAAP basis to $1.3 billion and non-GAAP software license updates and product support revenues climbed 11% to $3.5 billion.

Research In Motion (RIMM) could move to the upside after it reported that its second quarter net income rose to $1.46 per share from 83 cents per share last year. Revenues rose 31% to $4.62 billion, with the company shipping 12.1 million devices during the quarter. The consensus estimates has called for earnings of $1.35 per share on revenues of $4.47 billion. For the third quarter, the company estimates earnings of $1.62-$1.70 per share on revenues of $5.30 billion to $5.55 billion. Analysts estimate earnings of $1.39 per share on revenues of $4.83 billion. The company estimates net subscriber account additions of 5-5.4 million for the quarter.

Texas Instruments (TXN) may see buying interest after it announced that its board has authorized the buyback of an additional $7.5 billion worth of its common stock in addition to the $1.3 billion in repurchase authorizations remaining at the end of June 2010. The company also said it plans to increase its quarterly cash dividend by 1 cent per share to 13 cents per share.

Boeing (BA) could be in focus after it announced a further increase in its production rate for the Next-Generation 737 program to 38 airplanes per month in the second quarter of 2013. It was only recently that the company announced a rate increase to 35 airplanes per month in 2012 from 31.5 planes. The upward revision was attributed to its swelling backlogs, which amount to more than 2,000, and current options that customers are expected to exercise and the ongoing sales campaigns.

Massey Energy (MEE) could see weakness after the company reduced its forecasts for 2010. The company now expects its operating results to be at the low end of its previously announced guidance range as its operations have continued to struggle since April due to stringent enforcement actions by MSHA. The company now expects shipments to be about 10 million tons in the third quarter and estimates an operating loss for the quarter.

Herman Miller (MLHR) is also expected to be in focus after it reported first quarter earnings of 22 cents per share compared to 14 cents per share last year. On an adjusted basis, the company’s earnings rose 1 cent to 23 cents per share yet missed the mean analysts’ estimate of 26 cents per share. Net sales climbed 17.5% to $380.7 million, exceeding the consensus estimate of $364.60 million.

Alkermes (ALKS) may see some activity after it said a FDA sub-committee voted 12 to 1 in favor of approving the company’s opioid dependence treatment VIVITROL.

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