US & World Daily Markets Financial Briefing 22-07-2010

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Stocks Rallying In Morning Trading Amid Mostly Upbeat News

Stocks are sharply higher in mid-morning trading on Thursday, as traders are digesting upbeat industrial goods data out of Europe and a softer than expected decline in existing home sales. Strong earnings reports from a number of large cap stocks are also helping to bolster sentiment.

A short time ago, the National Association of Realtors released a report showing that existing home sales fell by less than expected in June and remained at relatively elevated levels.

NAR said existing home sales fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million units in May. Economists had been expecting existing home sales to show a steeper decline to a 5.09 million unit rate.

In a separate report, the Conference Board said its leading indicators index fell by 0.2 percent in June following an upwardly revised 0.5 percent increase in May. Economists had expected the index to fall by 0.4 percent, reversing the 0.4 percent increase originally reported for the previous month.

Early upside in the markets was driven by data from Eurostat, which reported that orders for industrial goods in the euro zone rose 3.8 percent in May, a jump of nearly 22.7 percent compared to the same period last year. The figure surprised economists, who had forecast flat monthly orders.

Meanwhile, the Labor Department released the day's most disappointing economic report, showing that jobless claims jumped to 464,000 in the week ended July 17th from the previous week's revised figure of 427,000. Economists had expected weekly jobless claims to increase to 445,000 from the 429,000 originally reported for the previous week.

On the earnings front, construction machinery manufacturer Caterpillar Inc. (CAT) reported second quarter net income of $1.09 per share, topping forecasts for $0.85 per share for the period. Sales and revenues for the quarter totaled $10.409 billion, firmly beating forecast for $9.80 billion. The company's median forecast for earnings and revenues for fiscal 2010 was also above analyst expectations.

Economic bellwether United Parcel Service Inc. (UPS) reported second-quarter net income of $0.84 per share, which was above analyst consensus of $0.77 per share. Total revenues for the quarter rose to $12.20 billion from the $10.83 billion posted in the prior year quarter. Analysts had consensus revenue estimate of $11.98 billion for the period.

3M Co. (MMM) said its second quarter net income came in at $1.54 per share, beating estimates for $1.48 per share. Net sales for the quarter rose 17.7 percent to $6.73 billion, also topping estimates that called for $6.66 billion. The firm also boosted its 2010 sales growth expectations.

The major averages have moved roughly sideways in recent trading, hovering near their best levels of the day. The Dow is up 203.51 points or 2 percent at 10,324.04, the Nasdaq is up 54.40 points at 2.5 percent at 2,241.73 and the S&P 500 is up 24.38 points or 2.3 percent at 1,093.97.

Sector News

Telecommunication stocks are among the morning's strongest percentage gainers, driving the NYSE Arca Telecommunications Index up by 4.9 percent. With the gain, the index has risen to its best intraday level in over two months.

The advance in the telecom sector is being spearheaded by Qualcomm (QCOM), which has risen by 8 percent to a nearly three-month intraday high. The gain by Qualcomm comes after the company unveiled third quarter earnings and full year guidance that were higher than Wall Street analysts had anticipated.

Railroad, housing, banking and steel stocks are also posting strong gains on the day, further helping to drive the rally in the major averages. Notably, the NYSE Arca Steel Index is up by 4 percent, setting a one-month intraday high.

Considerable strength is also visible among networking, trucking, gold and semiconductor stocks, providing further evidence of the day's broad-based buying interest.

Stocks Driven By Analyst Comments

Software solutions firm Concur Technologies (CNQR) is notably higher after being upgraded at Jefferies from Hold to Buy. Shares are currently up by 2.8 percent and set a twenty-two month intraday high in earlier trading.

Healthcare IT firm Cerner (CERN) is also on the upside after analysts at Jefferies raised their rating on the stock from Hold to Buy. The stock has gained 4.7 percent, bouncing off of a nine and a half month closing low set in the previous session.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed on a mixed note. Japan's benchmark Nikkei 225 slid by 0.6 percent, while Hong Kong's Hang Seng Index rose by 0.5 percent.

Meanwhile, the major European markets are notably higher. The U.K.'s FTSE 100 Index is up by 1.8 percent, while the German DAX Index and the French CAC 40 Index are up by 2.4 percent and 2.8 percent, respectively.

In the bond markets, treasuries are moderately lower amid the strength on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.934 percent, posting a gain of 4.2 basis points.

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TSX May Edge Up At Open Thursday

Bay Street stocks may open marginally higher Thursday, taking cues from the US and Europe, where stocks rose for a second session following upbeat economic data.

However, a disappointing news on the Canadian consumer and another troubling reading on the US jobs market may cap any significant gains.

Traders might also turn cautious ahead of EU banks' stress tests. Bernanke said yesterday that the economic outlook remains "unusually uncertain" and said the Fed is prepared "to take further policy actions as needed" to lift growth in the U.S.

On Wednesday, the S&P/TSX Composite Index shed 116.55 points or 1.00% to 11,513.33. Light Sweet Crude Oil futures for September delivery were up $0.32 to $76.88 a barrel. Yesterday oil retreated from its three-week high after official data revealed unexpected increase in weekly U.S. crude oil inventories. Wednesday, the EIA said crude inventories rose 400,000 barrels to 353.5 million barrels in the week ended July 16, contrasting analysts estimates for a draw-down of 1.2 million barrels.

The price of gold moved down as traders were cautious ahead of European Union banks' stress tests results, due out Friday. A total of 91 banks across Europe are being tested to assess whether they will be able to withstand future shocks in the financial sector. Gold for August delivery was down $6.10 to $1,185.70 an ounce.

In corporate news from Canada, grocery stores operator Loblaw Companies reported lower second quarter net earnings of C$0.64 per share, compared to C$0.70 per share last year, despite sales rising to C$7.32 billion from C$7.23 billion in the previous year. Analysts were expecting the company to report net earnings of C$0.62 per share.

Wood based panels maker Norbord Inc. turned to profit, reporting second-quarter net earnings of $0.81 per share versus a loss of $0.42 per share in the same quarter last year. The company extended the expiry date of its small shareholder selling program to August 30, 2010.

Contract drilling services company Precision Drilling slipped into the red, reporting second-quarter net loss of C$0.24 per share compared with an earnings of C$0.22 per share in the year-ago period.

Convenience-store operator Alimentation Couche-Tard has increased its hostile offer for U.S. retailer Casey's General Stores to $36.75 per share from the earlier $36.00 per share.

In economic news, Statistics Canada said retail sales edged down 0.2% in current dollars to $36.0 billion in May, with receipts from building material and garden equipment stores leading the decline. Economists were looking for retail sales to rise 0.5% in May, following a 2.0 % decline in April.

From the U.S., the Labor Department said weekly jobless claims jumped to 464,000 from the previous week's revised figure of 427,000. Economists were expecting claims to increase to 445,000 from the 429,000 originally reported for the previous week.

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Asian Markets End Mixed

Mixed trading was witnessed across the major Asian markets open for trading on Thursday. While the markets in Australia, Japan, Indonesia, South Korea and Taiwan ended in negative territory taking cues from Wall Street where the major averages ended in negative territory, the markets in China, HongKong, India and Singapore ended in positive territory with modest gains.

In Japan, the benchmark Nikkei 225 Index dropped 57.95 points, or 0.62%, to 9,221, while the broader Topix index of all First Section issues was down 3.87 points, or 0.47%, to 825.

On the economic front, a report released by the Ministry of Trade, Economy and Industry in Japan revealed that all industry activity unexpectedly increased in May. The report however noted that the growth rate in all industry activity slowed down to 0.2% month-on-month during May, following a sharp 1.9% growth in April. Economists were anticipating for a 0.4% fall in all industry activity for the month. Among the major sectors, the report noted that, construction activity surged 8.9%, reversing prior month's 4.4% drop. The indices of government services moved up 0.9% compared to a 0.8% fall in April. Meanwhile, industrial production growth slowed to 0.1% from 1.3%. Tertiary industry activity, at the same time, dipped 0.9%, following a 2.4% rise.

In a separate report, the Japan Chain Stores Association revealed that supermarket sales in the country declined 1.4% in June compared to the same period last year. The report further noted that June's decline was slower than the 5.3% decrease seen in May. Sales before stores adjustment, dropped 3.5% on a yearly basis in June. Supermarket sales figures are based on the sales at 62 supermarket chains which operate 7,859 outlets in total.

All Nippon Airways was down 2.32%.

Precision machinery stocks also ended in negative territory. Terumo Corp. declined 1.84%, Olympus Corp. fell 2.54%, Nikon Corp. lost 2.27%, Citizen Holdings slipped 2.50% and Konica Minolta Holdings was down 1.36%.

Among the mining stocks, Inpex Corp. declined lost 2.48%.

Mixed trading was witnessed among automotive stocks. Toyota Motor added 0.17% and Mazda Motor climbed 1.01%. However, Honda Motor slipped 0.54%, Hino Motors lost 1.02%, Mitsubishi Motors fell 1.75% and Suzuki Motor was down 0.62%.

Shipping stocks also ended in negative territory on concerns about economic slowdown. Mitsui OSK Lines declined 1.24%, Kawasaki Kishen Kaisha plunged 2.82% and Nippon Yusen was down 1.22%.

In Australia, the benchmark S&P/ASX200 Index was down 38 points, or 0.86%, at 4375, while the All-Ordinaries Index ended at 4,395, representing a loss of 33.90 points, or 0.77%.

On economic front, a report released by National Australia Bank revealed that business confidence in the country declined sharply in the June quarter, led by global uncertainty and the unpopular resources super tax. The National Australia Bank business confidence index stood at 3 in the June quarter, sharply down from 17 reported for the March quarter. The sharp fall in sentiment comes in a quarter in which the Reserve Bank of Australia hiked the cash rate to 4.50% and suggests Australian businesses are starting to feel the pinch of higher rates. The bank decided to freeze interest rates in June and extended its wait-and-watch stance in July. The report revealed that confidence was weakest in construction, recreation and wholesale sectors, while it was strongest in mining, manufacturing and finance.

Bank stocks led the decline following weak cues from Wall Street. ANZ Bank declined 1.73%, Commonwealth Bank of Australia fell 2.40%, National Bank of Australia lost 1.82% and Westpac Bank was down 1.64%. Investment banking company Macquarie Group declined 1.16%.

Mixed trading was witnessed among the resource stocks. BHP Billiton added 0.34%, Rio Tinto advanced 0.63%, Iluka Resources gained 0.98%, Macarthur Coal edged up 0.08%, Mincor Resources rose 1.58% and Minara Resources surged up 7.69%. Gindalbie Metals remained unchanged from previous close. However, Fortescue Metals declined 1.46%, and Murchison Metals edged down 0.27%.

Oil stocks ended in negative territory. Woodside Petroleum slipped 0.12%, Santos declined 1.45%, ROC Oil fell 1.49%, and Origin Energy was down 1.03%. However, Oil Search bucked the trend and ended in positive territory with a gain of 0.17%.

Gold related stocks also ended in negative territory. Lihir Gold was down 0.98% and Newcrest Mining declined 1.17%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 102.47 points, or 0.50%, at 20,590, lifted by late buying activity on optimism about earnings and positive futures trading in the US market. Rising shares in European market on better than expected economic data and rise in euro against the dollar ahead of the release of bank stress test results also lifted market sentiment. As many as 38 of the 42 components in the index ended in positive territory.

Earnings momentum, reports that the Centre and states are nearing a deal on the structure of the ambitious indirect taxes reform, the goods & services tax (GST), and a sharp recovery in global markets, helped the Indian market end higher for a second straight session on Thursday. The benchmark indexes were subdued in early trading, tracking weak cues from Asian markets after Federal Reserve Chairman Ben Bernanke's comments that the U.S economy was facing "unusually uncertain" prospects, sparked concerns the global economic recovery may be faltering. The 30-share BSE Sensex ended up about 135 points or 0.76% at a 30-month high of 18,113 and the 50-share Nifty rose by 43 points or 0.79% to 5,442.

Among the other major markets open for trading, China's Shanghai Composite Index advanced 27.01 points, or 0.1.07% to 2,562 and Singapore's Strait Times Index rose 29.58 points, or 1.01% to close at 2,956. However, Taiwan's Weighted Index declined 34.95 points, or 0.45%, to 7,666, and Indonesia's Jakarta Composite Index ended in negative territory with a loss of 3.48 points, or 0.12%, at 3,010.

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Aided by better than expected economic news, most European averages are advancing strongly, extending their gains from the previous session. The French CAC 40 Index and the German DAX Index are rising 1.73% and 1.55%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.92%.

In corporate news, Credit Suisse Group (CS) reported a marginal rise in second-quarter earnings, as lower expenses and one-item gains offset a decline in revenues. Revenues at its largest revenue fetching division, namely the investment banking segment, declined compared with the year-ago, reflecting weak fixed income sales and trading revenues.

French Statistics office INSEE's business sentiment index climbed to 98 in July from June's 96. Analysts had forecast a score of 94. Business leaders felt that their past activity increased in the manufacturing industry. The indicator measuring output levels climbed to 22 from 20 in June.

A separate report showed that consumer confidence was broadly unchanged around depressed levels, with rising unemployment being the biggest fear among the French. INSEE's consumer sentiment index was stable at -39 in July. Economists had predicted the indicator to rise to -40.

Meanwhile, the results of a survey by Markit Economics showed that the French private sector expanded at a faster pace in July compared to June. The flash purchasing managers' index, which assesses conditions at 750 companies across France, rose to 59.9 from 59.6.

The rise in the headline composite index was driven by a faster expansion of service sector activity during July, while manufacturing output increased at the slowest rate in ten months.

Markit Economics also reported that private sector activity in the euro zone picked up in July. The flash estimate of the composite output index rose to a 3-month high of 56.7 in July from 56 in June. The manufacturing purchasing managers’ index rose to a 3-month high of 56.5 in July, which the services purchasing managers’ index rose 1 point to 56.5.

The U.K. Office for National Statistics reported that the U.K. retail sales rose 0.7% month-over-month in June. Economists had expected a more modest 0.5% increase. The annual comparison showed that retail sales rose by 1.3%, down from the revised 1.7% increase in the previous month, but faster than the 1% growth estimated by economists.

U.S. Economic Reports

First time claims for unemployment benefits increased by more than expected in the week ended July 17th, according to a report released by the Labor Department, with the data likely to lead to continued concerns about the strength of the labor market.

The report showed that jobless claims jumped to 464,000 from the previous week's revised figure of 427,000. Economists had expected weekly jobless claims to increase to 445,000 from the 429,000 originally reported for the previous week

The National Association of Realtors is scheduled to release its report on existing home sales for June at 10 AM ET. Economists estimate existing home sales of 5.09 million for the month.

Existing home sales fell 2.2% month-over-month in May to a seasonally adjusted annual rate of 5.66 million. Single-family and multi-family sales declined 1.6% and 6.8%, respectively. Despite the decline, home sales are at still at elevated levels, thanks to the stimulatory effect of the homebuyers tax credit that expired on April 30th. Inventories of existing homes measured in terms of months of supply fell to 8.3 months in May from 8.4 months in the previous month. The median price of an existing home rose 2.7% year-over-year to $179,600.

The Federal House Finance Agency is set to release its house price index for May at 10 AM ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. In April, the house price index rose 0.8% month-over-month following a 0.1 % increase in the previous month.

The Conference Board is scheduled to release a report on the U.S. leading index for June at 10 AM ET. The consensus estimate calls for a 0.4% drop by the leading indicators index for the month.

The leading economic indicators index rose 0.4% month-over-month in May, slightly less than the 0.5% increase expected by economists. With the board upwardly revising the previous month's reading to show a flat performance from the 0.1% decline reported originally, the index has been showing growth for 14 consecutive months. In May, the index received support from a longer workweek, consumer confidence, a less steep yield and money supply.

Bernanke is scheduled to testify before the House Financial Services Committee at 9:30 AM ET.

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eBay (EBAY) reported that its second quarter non-GAAP earnings rose 18% year-over-year to 40 cents per share, while revenues rose 6% to $2.2 billion. Analysts estimated earnings of 38 cents per share on revenues of $2.17 billion. Citing a stronger dollar, the company slightly adjusted its 2010 guidance, with the company now expecting non-GAAP earnings of $1.60-$1.65 per share and revenues of $8.8 billion to $9 billion. The consensus estimates call for earnings of $1.64 per share on revenues of $8.99 billion.

Netflix (NFLX) declined in Wednesday’s after hours session despite reporting second quarter non-GAAP earnings of 88 cents per share, higher than 58 cents per share last year. Revenues rose to $519.82 million from $408.67 million last year. The results were ahead of expectations. The company estimates GAAP earnings per share of $2.58-$2.86 per share for the full year and 61-74 cents per share for the third quarter. Analysts estimate earnings of $2.65 per share for the year and 68 cents per share for the third quarter.

Qualcomm (QCOM) reported third quarter adjusted earnings of 57 cents per share on a 2% decline in revenues to $2.71 billion. Analysts estimated earnings of 54 cents per share on revenues of $2.63 billion. The company raised its full year earnings per share estimate to $2.33-$2.37 from its earlier estimate of $2.21-$2.32 per share. The company also upwardly revised the low-end of its revenue guidance to $10.7 billion from $10.4 billion, while maintaining the high-end at $11 billion. Analysts estimate earnings of $2.31 per share on revenues of $10.72 billion.

Baidu (BIDU) rallied in Wednesday’s after hours session after it reported that its second quarter revenues rose 74.4% to $282.3 million. Traffic acquisition costs amounted to $27.4 million. The company’s adjusted earnings came in at 36 cents per share, ahead of the consensus estimate of 31 cents per share. For the third quarter, the company expects revenues of $324.4 million to $333.3 million, while analysts estimate revenues of $321.55 million.

Xilinx (XLNX) said its first quarter GAAP earnings rose to 58 cents per share from 14 cents per share in the year-ago period. Net revenues rose 12% year-over-year to $594.7 million. The results were ahead of the consensus estimates. For the second quarter, the company expects 3%-7% sequential growth in sales, while analysts predict a 5% sequential decline.

Western Digital (WDC) reported that its fourth quarter earnings increased to $1.13 per share from 86 cents per share in the year-ago period. The recent quarter’s results included $27 million in charges compared to $23 million in gains recorded in the year-ago quarter. Revenues also increased to $2.4 billion from the year-ago’s $1.9 billion. Analysts’ estimates, which typically exclude one-time items, called for earnings of $1.35 per share on revenues of $2.45 billion.

Terex Corp. (TEX) reported a second quarter net loss from continuing operations of 12 cents per share compared to a net loss from continuing operations of $1 per share last year. The recent quarter’s results included $18 million in charges compared to $24 million last year. Net sales from continuing operations rose 14% year-over-year to $1.08 billion. Analysts’ estimates, which typically exclude one-time items, called for a loss of 30 cents per share on revenues of $1.10 billion.

Starbucks (SBUX) may see weakness after it reported that its third quarter net revenues rose 8.6% to $2.19 billion, but trailed the consensus estimate of $2.55 billion. The company’s non-GAAP earnings per share rose 21% year-over-year to 29 cents, in line with the consensus estimate. The company now expects full year 2010 adjusted earnings of $1.22-$1.23 per share, while it initiated its 2011 earnings estimate of $1.36-$1.41 per share. Analysts estimate earnings of $1.23 per share for 2010 and $1.41 per share for 2011. Separately, the company announced a 30% increase in its regular quarterly dividend.

AT&T (T) said its second quarter earnings per share rose to 68 cents per share from 54 cents per share in the year-ago quarter. Operating revenues edged up 0.6% to $30.81 billion. Analysts estimated earnings of 57 cents per share on revenues of $30.90 billion. The company raised its 2010 earnings per share outlook, now expecting strong earnings per share growth compared to its earlier estimate for stable to improved earnings per share.

3M Co. (MMM) reported second quarter earnings per share of $1.54 per share on sales growth of 17.7% to $6.7 billion. The company expects organic sales growth of 13%-15%, higher than its earlier estimate of 10%-12% growth. The consensus estimates had called for earnings of $1.48 per share on revenues of $6.66 billion. The company also upwardly revised its earnings guidance to $5.65-$5.80 per share.

Nokia (NOK) is rising in pre-market after it reported adjusted second quarter earnings of 11 euro cents per share, in line with consensus estimate. Sales rose merely 1% to 10 billion euros.

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