US & World Daily Markets Financial Briefing 20-07-2010

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Earnings Anxiety to Keep Sentiment Subdued

The major U.S. index futures are pointing to a sharply lower opening on Tuesday, with sentiment likely to be impacted by insipid earnings and lackluster economic data. A report released by the Commerce Department showed that housing starts declined to an 8-month low in June. However, building permits, an indicator of future housing activity, increased. Anxiety over earnings is likely to keep sentiment subdued, with more uncertainty looming ahead in the form of stress test results of the European banking institutions.

U.S. stocks opened Monday’s session higher, but they moved back to the downside in early trading following the release of a weak housing market reading. After dipping into negative territory in mid-morning trading, the major averages rose steadily, although amid caution, to end moderately higher.

The Dow Industrials ended the session up 56.53 points or 0.56% at 10,154 and the Nasdaq Composite added 19.18 points or 0.88% to close at 2,198, while the S&P 500 Index closed up 6.37 points or 0.59% at 1,071.

Twenty-two of the thirty Dow components closed the session higher, with Boeing (BA) (up 2.07%) and Intel (INTC) (up 2.71%) leading the gainers. Alcoa (AA), Caterpillar (CAT), Pfizer (PFE), IBM (IBM), Hewlett-Packard (HPQ) and Microsoft (MSFT) all gained over 1%. On the other hand, Bank of America (BAC) fell 2.65%.

Among the sector indexes, the Philadelphia Semiconductor Index rallied 2.15%, the Dow Jones Utility Average rose 1.35% and the Philadelphia Oil Service Index gained 1.55%. The NYSE Arca Internet Holders Index, the NYSE Arca Disk Drive Index, the NYSE Arca Computer Hardware Index and the NYSE Arca Software Index advanced over 1% each. However, the NYSE Arca Gold Bugs Index slid 1.68%.

On the economic front, the National Association of Home Builders said that its housing market index fell to 14 in July from a downwardly revised reading of 16 for June, marking its lowest level in well over a year. The present conditions index declined 2 points to 15 and the outlook index fell 1 point to 21, while the index measuring prospective buyer traffic moved down 3 points to 10.

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TSX Poised For Lower Open Amid BoC Rate Hike

Toronto stocks may open lower Tuesday amid falling commodities prices and mixed cues from the global equity markets. Traders were also digesting mixed earnings reports from south of the border.

Meanwhile, the Bank of Canada raised the target rate for overnight loans between commercial banks a quarter point to 0.75%. The Bank rate is correspondingly 1% and the deposit rate is 0.50%.

The Bank said it expects the economic recovery in Canada to be more gradual than it had projected in its April MPR, with growth of 3.5% in 2010, 2.9% in 2011, and 2.2% in 2012, which reflects a slightly weaker profile for global economic growth and more modest consumption growth.

U.S. stock futures were pointing to a lower open amid mixed earnings reports.

Healthcare product company Johnson & Johnson reported second quarter earnings of $1.23 per share, up from $1.15 per share in the same quarter last year. Analysts were expecting the company to report earnings of $1.21 per share this quarter. However, the company lowered its 2010 earnings guidance to a range of $4.65 - $4.75 per share from the earlier range of $4.80 - $4.90 per share.

Meanwhile, Goldman Sachs Group said its second quarter earnings dipped to $0.78 per share from $4.93 per share in the year-ago period, belying analysts expectations for earnings of $2.08 per share this quarter. However, excluding one-time items, Goldman's earnings per share were $2.75 for the quarter.

Yesterday, IBM and Texas Instruments reported disappointing quarterly numbers.

Elsewhere, most Asian markets ended higher taking cues from modest gains on Wall Street overnight.

Meanwhile, European stocks extended losses for a fifth session, despite opening higher Tuesday.

On Monday, the S&P/TSX Composite Index erased 26.18 points or 0.23% to 11,543.47.

The price of crude oil moved down amid a firm U.S. dollar, with crude for August delivery shedding $0.35 to $76.19 a barrel.

The price of gold extended losses for a third session as safe-haven appeal wanes. Gold for August edged down $0.30 to $1,181.60 an ounce.

In corporate news from Canada, Air Canada announced it estimates that its system capacity, in the second quarter of 2010 was 5.3% higher than the second quarter of 2009, within the range of the 4.5% to 5.5% increase previously projected outlook. For the full year 2010, the company now expects its system capacity to increase by between 6% and 7.5% over 2009 rather than the previously projected increase of 4% to 6%.

Healthcare services provider Northstar Healthcare Inc. said it has decided not to make a recommendation with respect to the acceptance or non-acceptance of C$0.95 per common share acquisition offer made by Canada Healthcare Acquisition Inc. The offeror, a corporation indirectly controlled by Donald Kramer, a former CEO and former director of Northstar.

Investment services provider C.A. Bancorp Inc. said its board will not make any recommendation to its shareholders regarding the increased takeover offer by 1535633 Alberta Ltd., a wholly-owned subsidiary of Century Services LP. The latter has hiked its offer price to C$1.71 per share from the earlier C$1.50 per share.

Software solutions provider iseemedia said Synchronica plc will acquire 100% of its issued and outstanding common shares, by issuing 311,305,160 ordinary shares at approximately C$0.027 to iseemedia shareholders, a total consideration of approximately C$8.3 million.

In news from the the U.S., the Commerce Department said housing starts fell 5% to an annual rate of 549,000 in June from the revised May estimate of 578,000. Economists were expecting housing starts to fall to 575,000 from the 593,000 originally reported for the previous month. At the same time, the Commerce Department said that building permits rose 2.1% to an annual rate of 586,000 in June from 574,000 in May, surprising economists who had expected building permits to edge down to 572,000.

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Most Asian markets advanced on Tuesday, with the exception of the Japanese market, which opened after yesterday's public holiday and was reacting to yesterday's sell-off in Asia. The rebound in the region followed Wall Street's resilience overnight even in the wake of the disappointing housing report and mixed earnings reports. The Chinese Shanghai Composite Index led the gains with a 2.15% advance.

The Asian Development Bank today raised its 2010 growth projection for the 45 economies of developing Asia, including the likes of China and India, to 7.9% from 7.5%. The lender attributed the optimism to a stronger-than-anticipated rebound in exports and much-improved consumer confidence that have helped the region's economies recover faster than expected.

This would mark a strong acceleration from the 5.2% growth in 2009, though it is still well below the record 9.6% growth in 2007. Next year, ADB forecasts growth to moderate slightly to 7.3% due to numerous uncertainties in the global economy.

Japan's Nikkei 225 average languished in negative territory throughout the session before closing down 107.90 points or 1.15% at 9,300. A majority of stocks declined in the session, with Taiyo Yuden, Sumitomo Chemical, Shinsei Bank, NGK Insulators, Mitsui Fudosan, Mitsui Engineering & Shipping, Mitsui & Co., Mitsubishi Estate, JX HD, JFE Holdings, Inpex, Fuji Heavy Industries, Dowa Holdings and Chuo Mitsui Trust among the worst decliners.

Japan's Cabinet Office released its revised report on business conditions, showing that the leading economic indicators index for May was downwardly revised to 98.6 from 98.7 and remained below the April reading of 101.7. The coincident index was left unrevised at 101.2, down 0.1 points from the previous month.

Australia's All Ordinaries opened modestly higher and moved sideways in the morning before taking off strongly in early afternoon trading. Thereafter, the index moved steadily higher till late afternoon before consolidating for the rest of the session. The index ended up 46 points or 1.05% at 4,419. The market witnessed broad based buying interest, with material stocks leading the way.

The minutes of the Reserve Bank of Australia's July monetary policy meeting showed that the bank is of the view that a wait-and-watch stance is warranted and that the release of the June quarter inflation data, which is due later this month, would direct their next policy move. The members also felt that holding interest rates steady was justifiable given that rates had already returned to "average" levels.

The monetary policy board saw the decision to hold the cash rate at 4.50% to be appropriate given "increased international uncertainty." The members noted that the coming month would see important announcements, such as the results of the European banking stress tests, which have the potential to have a significant impact on financial markets and global confidence.

Hong Kong's Hang Seng Index opened almost unchanged but rose in early trading. After rising till early afternoon trading, the index moved sideways to close up 173.64 points or 0.86% at 20,265. Thirty-seven of the forty-three index components closed the session higher.

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Amid reports that German lender Hypo Real Estate has failed the stress tests conducted on European financial institutions, the results of which are officially due on Friday, the European markets are trading little changed on Tuesday. The major averages opened sharply higher following losses in the previous four sessions, but they have surrendered their gains since then and are currently-trading notably lower.

The French CAC 40 Index and the German DAX Index are moving down 1.29% and 1.61%, respectively, while the U.K.’s FTSE 100 Index is declining 0.73%.

In economic news, the German Federal Statistical Office reported that Germany’s producer price index rose 1.7% year-over-year in June, faster than the 0.9% growth in the previous month. The increase was steeper than the 1.1% growth expected by economists. 

Bank of New York Mellon reported second earnings per share from continuing operations of 55 cents per share, higher than 23 cents per share last year. Revenues rose 3% to $3.3 billion. Analysts estimated earnings of 54 cents per share on revenues of $3.34 billion.

PepsiCo said its second quarter core constant earnings per share rose 8% to $1.10. Net revenues rose 40% to $14.80 billion. The consensus estimates called for earnings of $1.08 per share on revenues of $14.41 billion. The company said its core constant currency earnings per share for 2010 are likely to increase 11%-13% from core earnings per share of $3.71 in 2009, which translates into an earnings per share range of $4.12-$4.19.

Johnson & Johnson reported second quarter sales of $15.3 billion, up 0.6% from last year. The company’s adjusted earnings per share rose 5.2% to $1.21. Analysts estimated earnings pf $1.21 per share on revenues of $15.64 billion. The company reduced its adjusted earnings guidance for the full year to $4.65-$4.75 per share, citing the impact of its voluntary recalls, while analysts estimate earnings of $4.81 per share.

Goldman Sachs said its second quarter adjusted earnings were $2.75 per share on a 36% revenue decline to $8.84 billion. The consensus estimates called for earnings of $2.08 per share on revenues of $8.94 billion.

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IBM could come under selling pressure after it reported that its second quarter revenues rose merely 2% to $23.7 billion, missing the consensus estimate of $24.17 billion. The company reported second quarter earnings of $2.61 per share, up 13% year-over-year. The consensus estimates called for earnings of $2.58 per share. The company also raised its 2010 earnings guidance to at least $11.25 per share, while analysts estimate earnings of $11.27 per share.

Texas Instruments also receded in Monday’s after hours session after it reported second quarter revenues of $3.50 billion, up 42% year-over-year but slightly off the mean analysts’ estimate of $3.52 billion. The company’s earnings per share rose notably to 62 cents from the year-ago’s 20 cents and came in line with estimates. For the third quarter, the company expects earnings of 64-74 cents per share on revenues of $3.55 billion to $3.85 billion. Analysts, on average, estimate earnings of 64 cents per share on revenues of $3.59 billion.

ManTech is expected to see some activity after it announced the resignation of its president and COO Lawrence Prior III. The company also said its Chairman and CEO George Pedersen will assume the responsibilities of president and the three current operating group presidents will assume the COO duties for their respective regions.

Lennar could be in focus after it said a California court issued a tentative decision in favor of the company in a lawsuit initiated against the company by a joint venture partner.

Steel Dynamics may react to its announcement that its second quarter sales more than doubled to $1.6 billion from the year-ago’s $792 million. The company reversed to a profit of 22 cents per share from a loss of 8 cents per share last year. The consensus estimates had called for a profit of 25 cents per share on revenues of $1.64 billion.

Tupperware is also likely to be in focus after it reported that its adjusted second quarter earnings per share rose to 93 cents per share from 86 cents per share last year. The result was below the consensus estimate of 97 cents per share. The company’s net sales climbed to $565.1 million from $524.7 million in the year-ago period but trailed the consensus estimate of $580 million. The company maintained its 2010 local currency sales growth outlook of 6%-8%, while it now expects adjusted earnings of $3.51-$3.61 per share. Analysts expect 8% sales growth and earnings per share of $3.70.

Griffon Corp. is likely to see some activity after it announced that it has agreed to buy Ames True Temper from Castle Harlan Partners IV for a total consideration of $542 million, subject to certain adjustments, plus related transaction fees and expenses.

Amazon may see buying interest after it said sales of its Kindle device have tripled since it lowered the price to $189 from $259. The company also noted that its customers now purchase more Kindle books than hardcover books.