US & World Daily Markets Financial Briefing 19-08-2010

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Stocks Move Sharply Lower On Weak Economic Data

With traders reacting to a slew of disappointing economic data, stocks have moved sharply lower over the course of morning trading on Thursday. The major averages have all pulled back firmly into negative territory, offsetting the gains posted earlier this week.

Currently, the Dow is down 131.27 points or 1.3 percent at 10,284.27, the Nasdaq is down 27.36 points or 1.2 percent at 2,188.34 and the S&P 500 is down 14.69 points or 1.3 percent at 1,079.47.

Stocks showed a notable move to the downside at the start of trading, as traders reacted to a report from the Labor Department showing that initial jobless claims unexpectedly rose to a nine-month high in the week ended August 14th.

The report showed that initial jobless claims rose to 500,000 from the previous week's revised figure of 488,000. Economists had been expecting jobless claims to slip to 475,000 from the 484,000 originally reported for the previous week.

While selling pressure was somewhat subdued in early trading, the markets saw further downside following the release of a report from the Philadelphia Federal Reserve showing an unexpected contraction in regional manufacturing activity in the month of August.

The Philly Fed said its diffusion index of current activity fell to a negative 7.7 in August from a positive 5.1 in July, with a negative reading indicating a contraction in manufacturing activity. The steep drop came as a big surprise to economists, who had expected the index to rise to a reading of 7.5.


A separate report from the Conference Board showed a modest increase by its leading economic indicators index for July, although the index increased by less than economists had expected.

Despite the considerable weakness in the broader markets, shares of McAfee (MFE) have moved sharply higher after the internet security firm agreed to be acquired by semiconductor giant Intel (INTC) in a deal valued at approximately $7.68 billion.

The deal values McAfee at $48 per share, a 60 percent premium to its closing price on Wednesday. The boards of directors of both companies have unanimously approved the deal.

Sector News

Transportation stocks have shown a notable move to the downside over the course of the morning, with airline stocks showing a particularly steep decline. The NYSE Arca Airline Index is currently down by 2.6 percent after closing higher in the five previous sessions.

Among airline stocks, shares of LAN Airlines (LFL) are posting a notable loss, with the Chilean airline currently down by 3.1 percent. LAN is pulling back further off the all-time closing high it set on Tuesday after announcing a merger with Brazilian airline TAM S.A.

Significant weakness has also emerged among healthcare provider stocks, as reflected by the 2 percent loss currently being shown by the Morgan Stanley Healthcare Provider Index. MedCath (MDTH) and Community Health Systems (CYH) are turning in two of the sector's worst performances.

Most of the other major sectors have also moved to the downside on the day, with commercial real estate, defense, and health insurance stocks posting steep losses. On the other hand, some internet stocks are bucking the downtrend following the news of the acquisition of McAfee.

Stocks Driven By Analyst Comments

After seeing notable strength in recent sessions, shares of AthenaHealth (ATHN) have come under pressure in morning trading, falling by 4.9 percent. With the loss, AthenaHealth is pulling back further off the three-month closing high it set on Tuesday.

The loss by AthenaHealth comes after Brean Murray downgraded its rating on the medical clinic billing and records software developer to Sell from Hold with a price target of $22.

Shares of Motorola (MOT) are also moving to the downside after Standpoint Research downgraded its rating on the mobile phone maker to Hold from Buy. Motorola is currently down by 2.3 percent.


On the other hand, Abercrombie & Fitch (ANF) is currently up by 0.5 percent, moving further off the nearly one-month closing low it set on Tuesday. The gain by Abercrombie & Fitch comes after Standpoint Research upgraded its rating on the apparel maker to Accumulate from Hold.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended the day higher, benefiting from the positive close seen on Wall Street overnight. Japan's benchmark Nikkei 225 Index surged up by 1.3 percent, while Hong Kong's Hang Seng Index rose by 0.2 percent.

Meanwhile, the major European markets have turned lower after seeing some strength earlier in the day. The French CAC 40 Index is down by 2 percent, while the U.K.'s FTSE 100 Index and the German DAX Index are down by 1.3 percent and 1.2 percent, respectively.

In the bond markets, treasuries have shown a notable move to the upside amid the sell-off on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is currently down by 5.7 basis points at 2.584 percent.

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Toronto Stocks May Struggle To Sustain Gains Thursday

Bay Street stocks may struggle to sustain recent gains Thursday morning as traders digest varied cues from economic data released today.

While Germany upped its economic growth forecast for 2010, official jobless claims data from the US raised concerns over the employment situation south of the border.

Meanwhile, Canada said its wholesale sales declined in June and the pace of growth of its composite leading indicator slowed in July.

On Wednesday, the S&P/TSX Composite Index rose for a fourth session, adding 52.45 points or 0.45% to 11,781.08.

The price of crude oil surrendered early gains after the release of the U.S. weekly jobs data. Crude for September was down $0.26 to $75.16 a barrel. In early morning deals, oil rose above $76 taking cues from gains in the Asian and European markets. Wednesday, the EIA said U.S crude oil inventories decreased by 800,000 barrels in the week ended August 13, sharply contrasting Tuesday's API data, which revealed 5.90 million barrels of crude stocks pile up.

The price of gold was steady around its 7-week high amid safe haven buying. Gold for December delivery was up $4.40 to $1,235.80 an ounce.

In corporate news from Canada, enterprise content management solutions provider Open Text reported improved fourth quarter net income of $0.89 per share, compared to $0.36 per share last year.

Construction and infrastructure development company Aecon Group said it has signed two highway and road construction contracts worth $75.4 million.

Investment services provider C.A. Bancorp Inc. appointed Jillian Crump as Chief Financial Officer and Kurt Brands as Chief Operating Officer.

Oil and natural gas explorer Wrangler West Energy reported a narrower second quarter net loss of C$0.15 per share, compared to a net loss of C$0.16 per share for the year-ago quarter.

Oil and gas explorer Cumberland Oil & Gas reported second-quarter net loss of C$483.57 thousand or C$ 0.01 per share compared to C$368.83 thousand or C$ 0.02 per share last year.

Investment company Zimtu Capital said Wednesday that it has acquired 2.15 million shares of Lakeland Resources Inc. formerly Cats Eye Capital Corp.

Mineral resources company Salazar Resources said it privately placed 2.73 million units at C$1.10 per unit with Canaccord Genuity Corp.

In brokerage updates, Royal Bank of Canada raised its rating on Magna International to 'Outperform' from 'Sector perform'.

In economic news, Statistics Canada said the composite leading index edged up 0.4% in July, after a increasing 0.7% in June, largely hurt by a slowdown in the household sector. Meanwhile, the manufacturing sector registered growth, with orders for durable goods rising 2.2%.

In another report today, the agency said wholesale sales declined 0.3% to $43.9 billion in June, as the machinery, equipment and supplies sub sector fell 2.3% to $8.9 billion in June. The building material and supplies sub sector fell 2.0%.

From south of the border, the U.S. Labor Department said that initial jobless claims rose to 500,000 from the previous week's revised figure of 488,000. Economists had been expecting jobless claims to slip to 475,000 from the 484,000 originally reported for the previous week.

Earlier today, Germany's central bank said its economy will grow by about 3% this year, much higher than the 1.9% pace that the bank had earlier forecast.

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Asian Markets End In Positive Territory

Asian markets ended the trading session Thursday in positive territory, taking cues from Wall Street where the major averages ended the trading session previous day in positive territory for the second successive day on optimism about sustaining economic recovery following better than expected results from the major retailers. The japanese yen weakened slightly against the US dollar and the euro and led the Japanese market into positive territory.

In Japan, the benchmark Nikkei 225 Index advanced 122.14 points, or 1.32% to 9,363, while the broader Topix index of all First Section issues was up 8.75 points, or 1.05%, to 844.

On the economic front, a report released by the Ministry of Trade, Economy and Industry revealed that all industry activity in the country unexpectedly grew by 0.1% month-on-month in June, same as reported for the previous month. Economists expected a 0.3% fall in all-industry activity for the month. Data further revealed that all industry activity slowed to 3% in June from 3.3% in the previous month, in annual basis.

Data released by the Ministry of Finance revealed that Japanese investors purchased a net 8.0 billion yen in foreign stocks last week. Japan residents also bought a net 2.17 trillion yen in foreign bonds and notes in the same period, the data noted. Further, foreign investors sold a net 40.3 billion yen in Japanese stocks, the data showed, and also purchased a net 219.1 billion yen in Japanese bonds and notes last week.

Real estate stocks led the gains following slight weakness in the local currency against the dollar and the euro. Mitsui Fudosan gained 3.07%, Mitsubishi Estate rose 3.36%, Tokyu Land Corp. advanced 2.40%, Sumitomo Realty & Development climbed 2.24% and Heiwa Real Estate was up 1.43%.

Stocks related to non-ferrous metals also ended in positive territory. Sumitomo Metal Mining Co. advanced 2.84%, SUMCO Corp. gained 1.79%, Sumitomo Electric Industries rose 2.11%, Toyo Seikan Kaisha climbed 1.39%, Mitsubishi Materials Corp. increased by 2.48%, and Mitsui Mining & Smelting Co. was up 1.66%.

Exporters and electric machinery stocks also advanced on weaker yen. Tokyo Electron surged up 5.36%, Fanuc Ltd advanced 1.90%, Kyocera Corp. gained 1.97%, TDK Corp. climbed 2.87%, Canon Inc. surged up 2.79%, Advantest Corp. soared up 3.79%, and Sony Corp. was up 1.68%.

Among the losers, All Nippon Airways ended lower by 0.96%.

In Australia, the benchmark S&P/ASX200 Index advanced 4.10 points, or 0.09%, and closed at 4,479 points, while the All-Ordinaries Index ended at 4,510, representing a modest gain of 5.70 points, or 0.13%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that overall average weekly wages in the country increased by a seasonally adjusted 1.4% in the second quarter over the March quarter. On annualized basis, average full time wages for the June quarter increased a seasonally adjusted 6.4%, the report noted. In trend terms, which further smooth the seasonally adjusted data, wages increased 1.4% on quarter and 6.2% on year.

In a separate report, the Statistics Bureau revealed that the value of Australia's merchandise imports increased in July from the previous month. As per the report, the value of merchandise imports into the country in July totaled A$18.7 billion, an A$829 million, or 5% on the revised total of A$17.9 billion in June. On a balance of payments basis, goods imports increased A$366 million in seasonally adjusted terms to A$18.8 billion in July. Intermediate & other merchandise goods imports rose 8%.

Resource related stocks ended weaker amid concerns about BHP Billiton's long term credit rating and its impact on the industry. BHP Billiton shed 0.31%, Rio Tinto slipped 0.27%, Fortescue Metals lost 0.85%, Gindalbie Metals fell 3.11%, Macarthur Coal was down 1.00%, Murchison Metals declined 1.83%, and Minara Resources plunged 7.14%. Oz Minerals, however, bucked the trend and ended in positive territory with a modest gain of 0.55%.

Oil related stocks ended in positive terrritory. Woodside Petroleum added 0.30%, Santos Ltd advanced 0.78%, Oil Search gained 1.53% and Origin Energy rose 1.15%. ROC Oil Ltd remained unchanged from previous close.

Gold related stocks also ended in positive territory. Lihir Gold advanced 0.46% and Newcrest Mining rose 1.00%.

Mixed trading was witnessed among the banking stocks. ANZ Bank slipped 0.62%, Commonwealth Bank of Australia shed 0.57% and Westpac Banking was down 0.46%. However, National Australia Bank ended in positive territory with a modest gain of 0.37%. Investment banking company Macquarie Group advanced 0.51%.

Momentum buying amid firm global cues lifted the Indian market sharply higher for a second consecutive session on Thursday. Barring realty stocks and select public sector undertakings, all the sector indexes closed in positive territory. While banking, FMCG and metal stocks rose sharply, IT and telecom stocks underperformed the broader market. The 30-share Sensex of the Bombay Stock Exchange (BSE), which opened at 18,276, rose to a fresh 30-month high of 18,475 before finishing up 198 points or a little over a percent at 18,455, while the 50-share S&P Nifty rose by 61 points or 1.11% to 5,540.

Among the other major markets open for trading, China's Shanghai Composite Index added 21.68 points, or 0.81% to 2,688, Taiwan's Weighted Index edged higher by 4.84 points, or 0.06%, to close at 7,929, Singapore's Strait Times Index gained 27.40 points, or 0.94%, and closed at 2,947, and Jakarta Composite Index in Indonesia ended in positive territory with a gain of 33.26 points, or 1.08%, at 3,105.

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The major European markets are showing volatility on Thursday and aretrading lower. The French CAC 40 Index and the German DAX Index are receding 0.33% and 0.31%, respectively, while the U.K.’s FTSE 100 Index is declining 0.41%.

In economic news, a report released by the U.K. Office for National Statistics showed that the U.K.’s retail sales rose 1.1% month-over-month in July following the 0.7% increase in June. Economists had expected a more modest 0.3% increase. On a year-over-year basis, retail sales were up 1.3%, faster than the 1.1% increase in June.

U.S. Economic News
First time claims for unemployment benefits showed another unexpected increase in the week ended August 14th, according to a report released by the Labor Department, with the data likely to add to recent concerns about the outlook for the labor market.

The report showed that initial jobless claims rose to 500,000 from the previous week's revised figure of 488,000. Economists had been expecting jobless claims to slip to 475,000 from the 484,000 originally reported for the previous week.

The Conference Board is scheduled to release a report on its U.S. leading index for July at 10 AM ET. The consensus estimate calls for a 0.2% increase in the leading indicators index for the month.

In June, the leading economic indicators index fell 0.2% month-over-month following a 0.5% increase in May. Economists had estimated a 0.4% drop. Average workweek and the pace of supplier deliveries served as the biggest drags along with the equity market weakness and a small increase in weekly jobless claims.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 7.5 for August.

In July, the manufacturing index fell to 5.1 from 8 in June, while economists had expected an increase by the index to 10. The new orders index fell to -4.3 from the month-ago's 9 and the shipments index declined about 10 points to 4. On the other hand, the employment index climbed back into the positive zone, rising to 4 from -1.5 in June. The future business conditions index was also weak, declining to 25 in July from 40.2 in June.

St Louis Federal Reserve Bank President James Bullard will speak about the economic outlook and monetary policy in Rogers, Arkansas, at 11.30 AM ET. At 1:30 PM ET, Chicago Federal Reserve Bank President Charles Evans is due to hold a press lunch.

Stocks in Focus

Earnings

Netease.com (NTES) reported second quarter earnings of 55 cents per share compared to 53 cents per share last year. Revenues rose about 49% to $198.6 million. Analysts estimated earnings of 58 cents per share on revenues of $184.94 million.

Limited Brands (LTD) said its second quarter adjusted earnings rose to 36 cents per share from 19 cents per share last year. Net sales rose to $2.24 billion from $2.07 billion. The results were ahead of the consensus estimates. The company also raised its August comparable store sales growth guidance to the mid to high single digits from its earlier estimate for a low single digit increase. The company also lifted its 2010 earnings per share guidance to $1.68-$1.83 from $1.60-$1.80. For the third quarter, the company estimates earnings of 3-8 cents per share. Analysts estimate earnings of 6 cents per share for the third quarter and $1.81 per share for the year.

Synopsys (SNPS) reported that its third quarter non-GAAP earnings fell to 39 cents per share from 47 cents per share last year, although its earnings topped the 38 cents per share consensus estimate. Sales slipped to $336.9 million from $345.2 million last year, exceeding the mean analysts’ estimate of $335.48 million. The company expects fourth quarter non-GAAP earnings of 37-39 cents per share on revenues of $349 million to $357 million. Analysts estimate earnings of 38 cents per share on revenues of $335.48 million. For the full year, the company expects non-GAAP earnings of $1.58-$1.60 per share on revenues of $1.354 billion to $1.362 billion. The consensus estimates call for earnings of $1.58 per share on revenues of $1.35 billion.

Brocade (BRCD) reported third quarter non-GAAP earnings of 13 cents per share, up 8% year-over-year. Revenues rose 2% year-over-year to $504 million. The consensus estimates called for earnings of 13 cents per share on revenues of $508.41 million.

Applied Materials (AMAT) reported a third quarter profit of 17 cents per share compared to a loss of 2 cents per share in the year-ago period. Net sales rose to $2.52 billion from the year-ago’s $1.13 billion. Analysts estimated earnings of 25 cents per share on revenues of $2.38 billion. For the fourth quarter, the company expects revenues to remain flat to rise 5% sequentially, while non-GAAP earnings are estimated at 28-32 cents per share. The consensus estimates call for earnings of 26 cents per share on revenues of $2.43 billion.

NetApp (NTAP) reported first quarter non-GAAP earnings of 49 cents per share, higher than 22 cents per share last year. Revenues climbed to $1.14 billion from the year-ago’s $838 million. For the fourth quarter of fiscal year 2011, the company expects non-GAAP earnings of 47-50 cents per share on revenues of $1.16 billion to $1.21 billion. The consensus estimates call for earnings of 47 cents per share on revenues of $1.17 billion.

Hot Topic (HOTT) reported a loss of 14 cents per share for its second quarter compared to a loss of 7 cents per share last year. The results from both quarters included a charge of 2 cents per share. Sales fell 4.9% to $150 million. Analysts estimated a loss of 13 cents per share on revenues of $150.36 million.

Staples (SPLS) reported that its second quarter adjusted earnings rose 25% to 20 cents per share. Sales were almost flat at $5.5 billion. The consensus estimates called for earnings of 20 cents per share on revenues of $5.64 billion. On an adjusted basis, the company expects earnings of 39-41 cents per share for the third quarter and $1.25-$1.29 per share for the full year. Analysts estimate earnings of 43 cents per share for the third quarter and $1.33 per share for the full year.

Other Corporate News

RadioShack (RSH) is expected to see some activity after it announced that its board increased its share repurchase authorization to $500 million from the current $290 million.

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Jobless Claims Unexpectedly Rise To Nine-Month High

First time claims for unemployment benefits showed another unexpected increase in the week ended August 14th, according to a report released by the Labor Department on Thursday, with the data likely to add to recent concerns about the outlook for the labor market.

The report showed that initial jobless claims rose to 500,000 from the previous week's revised figure of 488,000. Economists had been expecting jobless claims to slip to 475,000 from the 484,000 originally reported for the previous week.

With the unexpected increase, jobless claims rose to their highest level since coming in at 509,000 in the week ended November 14th, 2009.

The less volatile four-week moving average also rose to 482,500 from the previous week's revised average of 474,500, reaching its highest level since early December of last year.

On the other hand, continuing claims, a reading on the number of people receiving ongoing unemployment help, fell to 4.478 million in the week ended August 7th from the preceding week's revised level of 4.491 million.

While continuing claims fell to their lowest level since the week ended June 26th, the report also showed that extended benefits increased by a net 309 thousand in the week ended July 31st.

Michael Gapen, an economist at Barclays Capital, said, "This report indicates that the pace of firings and layoffs has increased and is a negative signal for the employment report in two weeks' time."

Two weeks from Friday, the Labor Department is due to release its closely watched report on the employment situation in the month of August.

The monthly report for July showed that employment fell by much more than expected in the month, with the drop reflecting a notable decrease in temporary workers for the census.

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