US & World Daily Markets Financial Briefing 19-07-2010

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Stocks Little Changed In Mid-Morning Trading

Stocks are little changed in mid-morning trading on Monday, unable to hold onto initial gains as a mixed bag of earnings and a drop in homebuilder confidence is weighing on the markets. The major averages have pulled back near the unchanged line after seeing early strength.

A short time ago, the National Association of Home Builders reported that homebuilder confidence deteriorated by more than anticipated in the month of July, with the decrease reflecting concerns about the housing market following the expiration of the homebuyer tax credit.

The NAHB/Wells Fargo Housing Market Index fell to 14 in July from a downwardly revised 16 in June, while economists had expected the index to edge down to 16 from the 17 originally reported for the previous month. With the decrease, the index fell to its lowest level since April 2009.

In earnings news, Halliburton Co. (HAL) announced that its second-quarter net income rose to $0.53 per share on revenues of $4.4 billion. Analysts expected the firm to earn $0.37 per share on revenues of $4.09 billion for the quarter.

Further, Delta Air Lines Inc. (DAL) said it swung to a second-quarter profit of $0.65 per share, topping estimates for $0.63 per share. Total revenue for the quarter increased 17 percent to $8.17 billion but fell short of the $8.27 billion estimated for the period.

Earlier in the day, Dutch consumer electronics company Philips Electronics (PHG) reported a surge in its second-quarter profit. The jump reflected strong sales growth in lighting, consumer lifestyle and emerging market segments.

In other news from overseas, Moody's Investor Services downgraded Ireland's credit rating from Aa2 to Aa1, citing a significant loss of financial strength as the primary reason. However, the ratings agency upgraded its outlook on the country's credit to 'Stable' from 'Negative.'

Meanwhile, BP Plc (BP) continues to monitor its new cap, which is seemingly holding the ruptured well shut, although some seepage was detected a distance from the disaster site.

Boeing (BA) is also in focus after the company implied at the Farnborough International Airshow that demand for commercial aircraft was on the way to recovery. The firm also said it does not see a holdup in its much delayed Dreamliner aircraft past January.

The major averages are currently posting modest losses, adding to the steep losses posted in the previous session. The Dow is down 10.83 points or 0.1 percent at 10,087.07, the Nasdaq is down 2.74 points or 0.1 percent at 2,176.31 and the S&P 500 is down 2.23 points or 0.2 percent at 1,062.65.

Sector News

Airline stocks are seeing considerable weakness following Delta Air Lines' revenue miss. The NYSE Arca Airline Index is down by 4.4 percent but remains rangebound. Delta is leading the sector lower, falling by 8.4 percent and hitting a seven-month intraday low.

Gold stocks are also seeing heavy selling, with the NYSE Arca Gold Bugs Index down by 2.5 percent. The slide has dragged the index down to its worst intraday level in seven weeks.

Banking, housing real estate and oil stocks are also lower, while gains among telecom, semiconductor and software stocks are limiting the drop by the major averages. The NYSE Arca Telecommunications Index is up by 1.2 percent, offsetting a part of Friday's losses.

Stocks Driven By Analyst Comments

Teekay Tankers (TNK) is trading higher after being upgraded by analysts at Bank of America from Neutral to Buy. Analysts also raised the price target on the stock from$12.50 to $15. The stock is up by 1.8 percent after setting a two and a half month intraday high earlier in the session.

Atheros Communications (ATHR) is also seeing strength after an upgrade at FBR Capital Markets from Perform to Outperform. Shares are up by 1.9 percent after reaching a one-month intraday high earlier.

On the other hand, Perrigo (PRGO) is retreating after being downgraded by Goldman Sachs to a Sell rating based on recent valuation. The stock is down by 3.4 percent after setting a seven-week intraday low in earlier dealing.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed lower on the day. Hong Kong's Hang Seng Index slid by 0.8 percent, while India's BSE 30 Index declined by 0.2 percent. The Japanese markets were closed on the day.

Meanwhile, the major European markets have turned mixed. The U.K.'s FTSE 100 Index is up by 0.2 percent, while the German DAX Index is flat and the French CAC 40 Index is down by 0.3 percent.

In the bond markets, treasuries are little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.936 percent, posting a loss of less than one basis point.

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TSX Poised For A Mixed Open Monday

Bay Street stocks may witness a lackluster session Monday amid flat commodities prices and mixed cues from the overseas equity markets. Traders will also turn cautious ahead of the latest interest rate decision by the Bank of Canada, due on Tuesday.

Elsewhere, most Asian markets ended in red, with only China closing in positive terrain. China's Shanghai Composite average rose over 2% today, recouping the 2% decline last week. The Japanese market was closed for a holiday.

Meanwhile, stocks in Europe were moving higher despite a downgrade of Ireland's public debt by a rating agency. Moody's Investors Service has downgraded its rating on Irish government bonds by one notch to Aa2 from Aa1, citing government's loss of financial strength, weaker prospects for growth in the economy and liabilities in the banking system.

On Friday, the S&P/TSX Composite Index lost 172.13 points or 1.47% to 11,569.65, erasing all the gains it made during the week.

The price of oil moved down, with crude for August delivery losing $0.27 to $75.74 a barrel. The price of gold was little changed, lingering near its 2-month low. Gold for August was down $2.80 to $1,185.40 an ounce

In corporate news from Canada, copper and zinc producer Boliden AB said earnings per share for the second quarter improved to SEK 2.76 from to SEK 1.58 last year.

British engineering and manufacturing company Tomkins PLC said it has received a $4.37 billion takeover bid from Canadian private equity firm Onex Corp. and the Canada Pension Plan Investment Board.

Information services provider Logibec Groupe Informatique Ltee said 8.9 million shares of Logibec, representing about 98% of the outstanding Logibec shares, have been tendered to the acquisition offer made by OPE LGI Inc.

Cliffs Natural Resources announced that it has taken up about 195.5 million common shares of Spider Resources Inc. taking its cumulative holding to 81.8% of Spider from the earlier 52.1%.

Healthcare industry technology services provider Vigil Health Solutions said that entered into C$200,000 loan agreement with British Columbia Discovery Fund Inc. and GrowthPoint Capital Corp.

Energy company Primeline Energy Holdings said it signed sale and purchase agreement for natural gas with China National Offshore Oil Corp.

In economic news, Statistics Canada said Canadian investors sold C$2.9 billion of foreign securities in May, the largest repatriation of funds from abroad since January 2010. Meanwhile, non-resident investments in Canadian securities were up C$23.2 billion, with government debt instruments attracting a major chunk. Foreign purchases of Canadian stocks nearly doubled in May to C$5.3 billion, the largest inflow so far in 2010.

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Asian Markets Slide On Weak Wall Street Cues

Asian markets, open for trading on Monday, ended in negative territory, following weak cues from Wall Street where the major indices ended steeply lower on Friday on weak consumer sentiment index and concerns about sustaining economic recovery. The Japanese market was closed for holiday. Except the Chinese market, which ended in positive territory with a gain in excess of 2%, all the other markets ended in the red awaiting more cues from US on global economic recovery.

In Japan, the markets were closed for a holiday.

In Australia, the benchmark S&P/ASX200 Index declined 64.40 points, or 1.46% and closed at 4,358, while the All-Ordinaries Index ended at 4,373, representing a loss of 64.30 points, or 1.45%.

On economic front, a report released by the Australian Bureau of Statistics revealed that the value of the country's merchandise imports increased in June compared to the previous month. As per the report, the value of merchandise imported into the country during June increased by 4% or A$621 million to A$17.91 billion, from a revised total of A$17.29 billion for May. The report further noted that, on a balance of payments basis, the goods imports increased A$4 million in seasonally adjusted terms to A$18.41 billion in June. Intermediate & other merchandise goods imports rose 5%, with the fuels & lubricants component up 13%. On the other hand, imports of non-monetary gold slumped 28% and capital goods imports were down 3%.

Among the mining stocks, BHP Billiton declined 1.05%, and Rio Tinto 1.14%.


Banks also ended in negative territory. Commonwealth Bank declined 1.67%, Westpac Bank was down 1.99%, National Australia Bank fell 1.80% and ANZ Bank plunged 2.31%.

Energy stocks also ended in negative territory. Woodside Petroleum declined 1.80%, Oil Search shed 1.70% and Origin Energy slipped 0.77%. Santos, however, bucked the trend and ended in positive territory with a gain of 0.44$.

Gold stocks also ended weaker on lower bullion prices in the gold market. Lihir Gold was down 1.66% and Newcrest Mining declined 1.84%.

On the brighter side, health care stocks gained following news that private hospitals and pathology operator Healthscope is being acquired by private-equity consortium led by the Carlyle Group LP and TPG Capital for A$6.26 per share in cash, valuing Healthscope at about A$2.7 billion or US$2.35 billion, including debt.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 159.21 points, or 0.79% at 20091, taking cues from other major markets trading in the region, as well as weak cues from Wall Street where the major averages ended in negative territory on Friday, following a weaker than expected consumer sentiment reading and mixed earnings reports from corporates in the first week of earnings season.

The Indian market ended a volatile session modestly lower on Monday, mirroring weakness across global markets. Sector-wise, FMCG, realty, consumer durable and oil/gas stocks came under selling pressure, while select public sector, banking, capital goods and metal stocks saw modest buying, limiting the downside. After moving in a narrow range of 18,005- 17,856, the 30-share BSE Sensex ended down 27 points or 0.15% at 17,928, with 19 of its components closing lower. The 50-share Nifty fell by about 7 points or 0.14% to 5,386.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 51.15 points, or 2.11% at 2,475. However, Taiwan's Weighted Index ended in negative territory with a loss of 14.74 points, or 0.19%, at 7650, Singapore's Strait Times Index declined 12.30 points to close at 2,945, and Indonesia's Jakarta Composite Index slipped by 16.88 points, or 0.56%, and closed at 2,976.

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The major European markets are trading higher on Monday, after recovering from their early losses. The French CAC 40 Index and the German DAX Index are currently rising 0.45% and 0.55%, while the U.K.’s FTSE 100 Index is advancing 0.61%.

In an important development today, Moody’s downgraded the Republic of Ireland's sovereign debt rating, citing worsening public finance situation and weak growth prospects.The agency cut the rating by one notch to Aa2 From Aa1. The downgrade comes a day before the Irish government is holding an auction of 6-year and 10-year bonds. However, Moody's raised its outlook on the ratings of Ireland's debt to stable from negative as it sees upside and downside risks to be broadly balanced.

BP’s (BP) woes continue, as government officials revealed that testing detected a seep at a distance from the well after the company claimed last week that a newly installed cap succeeded in plugging the leak. Meanwhile, in separate development, reports revealed that the company’s talks with Apache (APA) over probable asset disposals ran into rough weather. BP also updated today that costs related to the oil spill have reached about $3.95 billion.

Philips (PHG) reported that its second quarter net income rose to 262 million euros, notably higher than in the year-ago period. Sales rose to 6.2 billion euros from 5.23 billion euros in the year-ago period.

Meanwhile, Swedish electronics giant Electrolux reported a 56% increase in its second quarter profits to 1.03 billion Swedish kronor. However, revenues were marginally lower at 27.31 billion Swedish kronor.
In economic news, the average asking price for a house in England and Wales dropped for the first time this year in July. The fall came amid a sharp increase in the number of properties coming onto the market. Online company Rightmove said asking prices for English and Welsh homes fell 0.6% month-on-month in the four weeks to July 10, following a 0.3% increase in the previous month.

U.S. Economic Reports

The unfolding week is all about the housing market, which makes the fare all the more exciting, given the fact that housing, sans stimulus measures, remains a weak link in the current economic recovery. Traders may focus on the housing starts report to be released by the Commerce Department, the existing and new home sales reports for June and the National Association of Homebuilders' housing market index for July.

The weekly jobless claims report, the Federal Housing Finance Agency's house price index for May, the Conference Board's leading economic indicators index for June and Federal Reserve Chairman Ben Bernanke's testimony before Congress round up the other economic events of the week. Announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes may also be in focus.

After a steep drop in the previous month, housing starts may have declined yet again in June. Housing permits, a leading indicator for housing starts, fell 5.9% month-over-month in May and homebuilder confidence eroded sharply in June-all vouching for the weakness. State Street Global Advisors expects the extended correction to take starts back into the zone in which they had trended much of last year. However, the downside for house construction activity is likely to be limited by the extremely low level of new home inventories.

Existing home sales are also expected to show a decline, given weak contract signings in May and June, a 30% drop in pending home sales and weak mortgage applications volumes. At the same time, house prices could also remain weak due to a post tax-credit freefall in housing activity, a weak job market and near zero credit growth.

The National Association of Homebuilders is scheduled to release the results of its July survey on homebuilders' confidence at 10 AM ET. The housing market index is widely expected to decline to 16.

In June, the association's housing market index fell to 17 from 22 in May. The index measuring current sales trend fell 6 points to 17 and the index of traffic of prospective buyers declined to 14 from 16. The sales expectations index also declined, dropping to 23 from the month-ago's 27. Confidence apparently was dented by muted sales expectations, as the housing market prepares to stand on its own two feet without the support of fiscal stimulus.

Earnings

Delta Airlines (DAL) said its June quarter adjusted earnings came in at 65 cents per share, as operating revenues rose 17% to $8.17 billion. Analysts estimated earnings of 63 cents per share on revenues of $8.27 billion.

Halliburton (HAL) reported that its second quarter net income rose to 53 cents per share from the year-ago’s 23 cents per share. Consolidated revenues rose to $4.4 billion from $3.8 billion in the year-ago period. The consensus estimates had called for earnings of 37 cents per share on revenues of $4.09 billion.

Hasbro (HAS) reported second quarter earnings of 29 cents per share, higher than 26 cents per share last year. However, The company’s net revenues fell to $737.79 million from $792.20 billion last year. The results were ahead of the consensus estimate.

McMoRan Exploration (MMR) reported a second quarter net loss from continuing operations of 22 cents per share, narrower than the loss from continuing operations of $1.36 per share last year. However, revenues rose to $108.94 million from $96.55 million last year. Analysts estimated a loss of 22 cents per share on revenues of $105.61 million.

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Boeing (BA) is likely to see some buying interest after it announced that it has received an order for 30 Boeing 777-300ERs from Dubai-based Emirates. The company clarified that eighteen of these were previously attributed to an unidentified customer on its website. Separately, the company said its Boeing 787 Dreamliner made its international debut, landing at the Farnborough Airport at 9:09 a.m. local time in the U.K.

Raytheon (RTN) may also gain ground after it said the U.S. Air Force has awarded the company a $12.6 contract for Phase 1 integration and qualification of the Helmet Mounted Integrated Targeting system. The program includes five one-year production options, with a potential value up to $50 million.

Nokia (NOK) and Siemens (SI) are expected to react to their announcement that their joint venture networking firm Nokia Siemens has agreed to acquire Motorola’s (MOT) infrastructure assets for $1.2 billion in cash.

Currency, Commodity Markets

Crude oil futures are edging down $0.09 to $75.92 a barrel after closing marginally lower in the week ended July 16th, when it edged down $0.08 or 0.11% to $76.01 a barrel.

Oil started the previous week on a downbeat note, snapping its 3-session winning run and declining over $1 a barrel on Monday as the equity markets saw some moments of lackluster trading amid apprehension about the reporting season. However, the commodity came back with a vengeance on Tuesday after Alcoa’s (AA) earnings set Wall Street on fire. Oil rose over $2-a-barrel in the session.

However, oil slipped modestly on Wednesday in reaction to the weak U.S. retail sales data. The decline came despite the weekly oil inventory report showing a steep draw down in crude oil stockpiles. Soft economic data continued to weigh on oil both on Thursday and Friday, as it declined moderately in both the sessions to finish the week slightly lower.

Gold futures, which fell $21.60 or 1.79% at $1,188.20 an ounce in the week ended July 16th, are currently edging down $0.10 at $1,188.10 an ounce.

Among currencies, the U.S. dollar weakened against both the euro and the yen in the week ended July 16th, as the euro extended its recovery on hopes that the European Union will weather the debt crisis without taking a severe hit. Meanwhile, the greenback continued to be weighed down by soft economic data released from the U.S.

After losing about 2.2% against both the euro and the yen in the previous week, ending at 86.5725 yen and $1.293, respectively, the dollar is making a modest comeback. The U.S. currency is trading at 87.085 yen and is valued at $1.2934 versus the euro.

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