US & World Daily Markets Financial Briefing 20-08-2010

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Economic Concerns Lead To Further Weakness On Wall Street

Stocks are mostly lower in mid-morning trading on Friday amid lingering concerns about the economic outlook. The major averages are all in negative territory, adding to the substantial losses that were posted in the previous session.

Currently, the Dow is down 69.85 points or 0.7 percent at 10,201.36, the Nasdaq is down 8.77 points or 0.4 percent at 2,170.18 and the S&P 500 is down 6.25 points or 0.6 percent at 1,069.38.

With no major economic data due to be released today to distract traders from the series of disappointing economic reports that were released on Thursday, traders are continuing to sell stocks amid worries that the economic recovery is slowing by much more than anticipated.

The report released yesterday showing an unexpected jump in weekly jobless claims added to concerns about the labor market, although a Philadelphia Federal Reserve report showing a contraction in regional manufacturing activity may be more troubling, as manufacturing had been a bright spot for the economy.

A negative reaction to the latest batch of corporate results is also contributing to the weakness in the markets, with shares of Hewlett-Packard (HPQ) currently down by 2.2 percent after the computer maker reported its third quarter results.

The loss by HP comes even though the company reported adjusted earnings for the quarter that came in line with analyst estimates on better than expected sales. Uncertainty about the company's future following the recent resignation of its CEO Mark Hurd may be contributing to the weakness.

Rival computer maker Dell (DELL) has been showing a lack of direction in morning trading after the company reported better than expected second quarter adjusted earnings and revenues but disappointed traders with a drop in its gross profit margin.

Dell reported second quarter adjusted earnings of $0.32 per share on $15.5 billion in revenues, while analysts had expected the company to earn $0.30 per share on $15.2 billion in revenues. However, the company also said its gross profit margin fell to 16.6 percent from 18.7 percent a year ago.

In other corporate news, shares of Agrium are currently down by 0.9 percent after the fertilizer company announced a definitive agreement to acquire Australian grain producer AWB Ltd. for $1.1 billion.

Sector News

Resource stocks are turning in some of the market's worst performances in morning trading, as commodities prices are moving mostly lower. A notable decrease by the price of crude oil is contributing to particularly steep losses by oil service stocks, with oil currently down $0.83 at $73.60 a barrel.

The weakness among oil service stocks is reflected by the 2 percent loss currently being shown by the Philadelphia Oil Service Index, which has fallen to its lowest intraday level in a month.

Outside of the resource sector, considerable weakness is also visible among transportation stocks, with the Dow Jones Transportation Average down by 1.4 percent. Health insurance, biotech, and banking stocks are also adding to the steep losses posted in the previous session.

Meanwhile, semiconductor stocks have moved higher over the course of the morning, resulting in a moderate gain by the Philadelphia Semiconductor Index. Marvell Technology (MRVL) is leading the sector higher after providing upbeat third quarter revenue guidance.

Stocks Driven By Analyst Comments

BlackBerry maker Research in Motion (RIMM) is posting a notable loss after Morgan Stanley downgraded the stock to Underweight from Overweight. Shares of RIM are currently down by 3.5 percent, falling to their worst intraday level in over a month.

Shares of Boyd Gaming (BYD) have also come under pressure after Argus downgraded its rating on the gaming company to Sell from Buy. Boyd is currently down by 5 percent, lingering near the five-month closing low it set last Friday.

On the other hand, shares of Repros Therapeutics (RPRX) have surged up by 15.8 percent after Ladenburg Thalmann upgraded its rating on the biopharmaceutical company to Buy from Neutral. Ladenburg Thalmann has a price target of $1.50 for the stock.

Other Markets

Overseas, stock markets in the Asia-Pacific region closed mostly lower on Friday, with the sell-off seen on Wall Street overnight generating some negative sentiment. Japan's benchmark Nikkei 225 Index plunged by 2 percent after closing higher in the two previous sessions.

The major European markets have also turned lower after moving modestly higher at the open. The U.K.'s FTSE 100 Index is currently down by 0.4 percent, while the French CAC 40 Index and the German DAX Index are both down by 1.1 percent.

In the bond market, treasuries are turning in a lackluster performance after showing a strong upward move on Thursday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by less than a basis point at 2.577 percent.

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TSX Poised For A Soft Open Amid Falling Energy Prices

Bay Street stocks are likely to extend losses for a second session Friday amid a gloomy economic outlook and discouraging cues from the commodities and the global equity markets.

Meanwhile, the Canadian dollar slipped near its lowest level in a month against its U.S. counterpart amid inflation data. Also, falling energy prices put pressure on loonie.

On Thursday, the S&P/TSX Composite Index slipped 70.91 points or 0.60% to 11,710.18, snapping its 4-day winning streak.

The price of crude oil moved down for a second session amid falling equities. Crude for October was down $1.01 to $73.76 a barrel.

The price of gold retreated from its 7-week high hit yesterday following data from the U.S. rekindled fears about the nation's economic recovery. Official jobless claims data from the U.S. raised concerns over the nation's employment situation. Gold for December delivery was down $8.10 to $1,227.30 an ounce.

In corporate news from Canada, fertilizer and agricultural products distributor Agrium Inc. announced that it has entered into definitive deal to buy all shares of AWB Ltd. at A$1.50 per share, or for $1.1 billion, in an all cash deal.

Integrated energy company Suncor Energy said it is experiencing an outage at one of its hydrogen reformer units at the oil sands base plant in Fort McMurray, Alta.

Energy sector solutions provider Gemini Corp. said its Second quarter net earnings declined to $0.19 million or 0.5 cents per share from $0.32 million or 1.0 cents per share in the same quarter last year.

Gold mining company Medoro Resources said it closed the buyout of assets of Frontino Gold Mines.

Retail property owner Plazacorp Retail Properties appointed Floriana Cipollone as CFO. Cipollone has 20 years of business experience most recently as CFO for Charter REIT.

In economic news, Statistics Canada said the consumer prices rose 1.8% in the 12 months to July, following a 1.0% increase in June, largely affected by changes in consumption taxes in Nova Scotia, Ontario, and British Columbia. Economists expected consumer prices to rise 2% annually. On a seasonally adjusted monthly basis, the nation's consumer prices rose 0.6% in July, following a 0.2% decline in June. Economists expected prices to rise 0.5% on-month.

Meanwhile, the Bank of Canada's closely watched core index advanced 1.6% in the 12 months to July, following a 1.7% rise in June. The seasonally adjusted monthly core index rose 0.1% in July, matching the increase in June.

Elsewhere, most Asian markets ended lower Friday, with equities in China and Japan surrendering nearly 2% each, following overnight losses on Wall Street. European shares were lingering in the red, extending their losses for a second day amid worries over the global economic growth.

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Indian Market Ends Modestly Lower

The Indian market snapped a two-day rally to end modestly lower on Friday, mirroring weak global cues. After moving choppily in a narrow range, the 30-share BSE Sensex ended down 53 points or 0.29% at 18,403, with 21 of its components declining. An intra-day recovery proved short-lived.

FMCG, IT, telecom and banking stocks bore the brunt of the selling, while high-beta realty stocks such as Sobha Developers, DLF, DB Realty and Unitech closed on a firm note.

In the capital goods sector, stocks such as Areva T & D, Thermax, Siemens and Larsen & Toubro rose by 1%-3% after the Union Cabinet cleared the controversial Civil Liability for Nuclear Damage Bill, 2010, and agreed to address major concerns suggested by the main opposition, BJP, to pave way for the introduction of the bill in Parliament.

In the oil/gas space, state-run oil marketing companies like IOC and HPCL rose by about a percent each, as crude oil prices turned weak. BPCL rallied 3.24% after it entered into a pact to acquire a stake in an Australian shale gas asset. State-run firms ONGC and Oil India, which are expected to launch a joint bid for oil exploration firm Cairn India, ended down 0.74% and 0.16%, respectively.

Heavyweight Reliance Industries ended up 1.16%. Defensive healthcare stocks such as Ranbaxy (up 3.59%), Lupin (up 2.85%), Glenmark Pharma (up 2.01%) and Cipla (up 1.90%) also posted notable gains.

Meanwhile, among the major decliners, Maruti Suzuki, Hindalco, ACC, ITC, Hindustan Unilever, ICICI Bank and Tata Motors fell by 1%-2%. In the telecom sector, Bharti Airtel eased 1.16% after it won the rights to sponsor all cricket series played in India for three years. Reliance Communications edged down 0.49% after it joined hands with Nokia India to launch a first-of-its-kind multi-faceted business partnership.

Software exporters like Infosys, TCS and Wipro lost between 0.5% and 2%, as downbeat economic data from the U.S. dimmed recovery prospects in the world's largest economy.

Reliance Infrastructure gained 0.60% on reports that it is betting bit on its EPC business. Mahindra & Mahindra, which proposed to launch new auto models in Sri Lanka, edged up 0.28%. Royal Orchid Hotels rose 1% after its board approved an enabling resolution to raise up to Rs. 150 crore via issue of securities to institutional investors. GE Shipping declined 0.80% after it incorporated a wholly-owned subsidiary.

Gillette India lost nearly 2%, extending its losses, on disappointing quarterly earnings. Hindustan Construction Company tumbled 4% on reports its Lavasa hill city project has come under the scanner of the ministry of environment and forests.

GVK Power & Infrastructure rallied 3.52% on reports it is buying Siemens Project Ventures' 40% stake in the Bangalore International Airport. Crest Animation Studios soared 10% after it proposed to consider corporate restructuring. Jet Airways climbed 4.53% on reports it is retiring high-cost debt. Emami added 0.28% on reports it is scouting for acquisitions.

Elsewhere, most Asian stocks declined on Friday, dragging the MSCI Asia Pacific index by about 1.3%, as concerns about the yen's rise and the ongoing weakness in the U.S. job market spoiled the mood.

European stocks and the U.S. index futures also fell, as renewed fears of a "double dip" recession spurred safe-haven buying in less risky assets such as gold, yen, and U.S. and Japanese government bonds.

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Banks, Miners Drag U.K. Market Down

The U.K. market is falling in afternoon trading Friday, as sentiment was impacted by weak Asian cues and the re-emergence of growth worries, following the disappointing jobs data released Thursday in the U.S.

Crude for October delivery is trading lower by $0.88 at $73.89 per barrel and December gold is slipping $4.9 at $1230.5 an ounce.

In a day of sparse economic news, Germany's leading economic index rose 0.9% and the coincident economic index remained unchanged in June, the Conference Board said. Five of the seven components in leading economic index for Germany improved in June. New orders in investment goods industries and the yield spread continued to make very large positive contributions to the index.

Meanwhile, Ric Battellino of the Reserve Bank of Australia said the Australian economy is likely to grow solidly in the coming years driven by high demand for its resources from Asia. Battellino said the economy would likely continue its growth but warned of risks to the downside.

The FTSE 100 opened at 5,211. After some volatile trading in the early session, the index drifted into negative territory in the first hour of trade, where it has been languishing since. The index is currently down 0.50%.

Plumbing products distributor Wolseley is declining 4%, thus topping the losers on the index. Miners Eurasian Natural Resources, Kazakhmys, Xstrata, Vedanta Resources, Anglo American and Antofagasta are sliding between 3.95% and 1.17%.

Among lenders, Royal Bank of Scotland is slipping 1.09% and HSBC Holdings is sliding 0.89%. Standard Chartered and Lloyds Banking Group are declining 0.5% and 0.4%, respectively. Barclays is retreating 0.92%.

Oil giant BP is declining 1% and Royal Dutch Shell is down 0.9%. However, BG Group is advancing 5.14%.

Cairn Energy is adding 1% and drug giant GlaxoSmithKline is gathering 0.9%..

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Earnings

Dell (DELL) reported that its second quarter non-GAAP earnings rose 10% to 32 cents per share. The company’s revenues rose 22% to $15.5 billion. The results were ahead of expectations. The company also reiterated its full year revenue growth guidance of 14%-19% and its non-GAAP operating income growth guidance of 18%-23%, while analysts estimate sales growth of 16.80%.

Hewlett-Packard’s (HPQ) third quarter non-GAAP earnings per share rose to $1.08 from 92 cents in the year-ago period. Net revenues rose 11.4% to $30.7 billion. Analysts estimated earnings of $1.08 per share on revenues of $30.43 billion. For the fourth quarter, the company estimates non-GAAP earnings of $1.25-$1.27 per share on revenues of $32.5 billion to $32.7 billion. The consensus estimates call for earnings of $1.26 per share on revenues of $30.43 billion. The company guided full year earnings to $4.49-$4.51 per share and revenues to $125.3 billion to $125.5 billion. The Street estimates earnings of $4.50 per share on revenues of $124.94 billion.

Foot Locker (FL) reported that its second quarter net income came in at 4 cents per share compared to break-even results in the previous year. However, sales fell 0.3% to $1.10 billion. Analysts estimated earnings of 3 cents per share on revenues of $1.13 billion.

Salesforce.com (CRM) said its second quarter non-GAAP earnings per share remained flat at 29 cents per share, while revenues rose 25% to $394 million. Analysts estimates, which typically exclude one-time items, called for earnings of 27 cents per share on revenues of $384.78 million. The company raised its fiscal year 2011 revenue guidance to $1.595 billion to $1.6 billion, while analysts estimate revenues of $1.57 billion. For the fourth quarter, the company expects non-GAAP earnings of 30-31 cents per share on revenues of $408 million to $410 million. The third quarter guidance was above the consensus estimates.

Marvell Technology’s (MRVL) second quarter non-GAAP net income climbed to 40 cents per share from 18 cents per share last year, in line with the consensus estimate. Net revenue rose 40% to $896 million, trailing the mean analysts’ estimate of $906.80 million. The company also announced that its board has authorized the buyback of up to $500 million shares.

Intuit (INTU) reported a loss of 5 cents per share on a non-GAAP basis for its fourth quarter compared to a loss of 10 cents per share last year, while revenues rose 18% to $537 million. Analysts estimated a loss of 10 cents per share on revenues of $500.69 million. For fiscal year 2011, the company expects revenues of $3.74 billion to $3.84 billion, while analysts estimate revenues of $3.42 billion. Separately, the company also said it has approved a new $2 billion stock repurchase program.

Aeropostale (ARO) said its second quarter earnings rose to 46 cents per share from 38 cents per share last year, in line with the consensus estimate. Sales rose 9% year-over-year to $497.7 million, missing the consensus estimate of $503.07 million. The company also said it expects third quarter net earnings of 61-63 cents per share, including a charge of 4 cents per share. Analyst estimates, which typically exclude one-time items, call for earnings of 72 cents per share.

Gap (GPS) said its second quarter earnings per share rose 3 cents to 36 cents per share and its net sales rose 2% to $3.32 billion. Analysts estimated earnings of 35 cents per share on revenues of $3.31 billion. The company reiterated its 2010 earnings guidance of $1.77-$1.82 per share compared to the consensus estimate of $1.79 per share. Separately, the company announced board approval for a new program to buy back $750 million worth of shares.

Hormel Foods (HRL) reported that its third quarter earnings rose to 63 cents per share from 57 cents per share last year, while revenues rose 10% year-over-year $1.7 billion. Analysts estimated earnings of 60 cents per share on revenues of $1.67 billion. The company also raised its full year earnings guidance to $2.85-$2.91 per share, while analysts estimate earnings of $2.84 per share.

Other Corporate News

Eli Lilly (LLY) could see some activity after a FDA advisory committee voted 8-6 in favor of expanding the pain indications for the company’s Cymbalta to a broader pain population that will be further defined by the FDA, if approved.

Rambus (RMBS) is also likely to be in focus after it announced that it has initiated a share repurchase program to buy about $90 million of its common stock through an accelerated repurchase agreement with JP Morgan Securities.

Another stock that could react to stock buyback news is Nordstrom (JWN), which said its board has authorized a $500 million repurchase program that would run through January 28, 2012.

Agrium (AGU) could be in focus after it announced a definitive agreement with Australia’s AWB Ltd to buy all shares of AWB for 1.50 Australian dollars per share.

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