US & World Daily Markets Financial Briefing 22-10-2010

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Stocks Lacking Direction In Mid-Morning Trading

The markets are mixed in mid-morning trading on Friday, as individual stocks are being driven by their respective earnings reports, while the overall market is lacking direction amid a light day on the economic front.

The major averages have seen choppy movement in recent dealing, remaining near the unchanged mark. The Dow is down 17.34 points or 0.2 percent at 11,129.23, the Nasdaq is up by 6.18 points or 0.3 percent at 2,465.88 and the S&P 500 is up by 0.87 points or 0.1 percent at 1,181.13.

In earnings news, Honeywell International Inc.'s (HON) third-quarter earnings were $0.64 per share, topping estimates for $0.63 for the quarter. Sales were up 9 percent to $8.39 billion, also exceeding forecasts which called for revenues of $8.22 billion.

Honeywell now forecasts 2010 sales of about $33 billion and earnings of around $2.52 per share, while analysts project full-year revenues of $32.82 billion and earnings per share of $2.53.

Verizon Communications Inc. (VZ) reported adjusted third-quarter net income was $0.56 per share on revenues of $26.48 billion, topping both EPS expectations for $0.54 and revenue projections for $26.34 billion for the quarter.

Swedish telecom equipment maker LM Ericsson Telephone Co. (ERIC) reported a more than four-fold rise in its third-quarter profit, driven by higher networks sales, earnings from the Sony Ericsson joint venture and lower restructuring costs.

After the closing bell on Thursday, online retailer Amazon.com Inc. (AMZN) said that its third-quarter profit increased by 16 percent over last year. Quarterly earnings came in ahead of analyst expectations, as did net sales. Looking ahead, the company forecast revenue outlook for the fourth quarter in-line with the Street consensus.

American Express Co. (AXP) reported a 70 percent increase in third quarter profit that exceeded Wall Street estimates, helped essentially by increased cardmember spending. Revenues for the quarter rose 17 percent from a year ago, coming in ahead of expectations.

Chinese internet search provider Baidu, Inc. (BIDU) said its profit more than doubled in the third quarter, helped essentially by robust growth in online marketing revenue. Looking ahead, Baidu provided its revenue forecast for the fourth quarter, which is expected to come in above Wall Street estimates.

Sector News

Oil service stocks are seeing notable gains early on following upbeat quarterly results from Schlumberger (SLB). The Philadelphia Oil Service Sector Index is up by 1.6 percent but remains rangebound.

Within the sector, Schlumberger is up by 4.8 percent and is on pace for its best closing price in five and a half months.

Networking, semiconductor and software stocks are also higher along with healthcare insurance and provider stocks, while moderate weakness is visible among gold and defense stocks.

Stocks Driven By Analyst Comments

Machinery fluid specialist Graco (GGG) is higher after being upgraded at BB&T Capital Markets from Hold to Buy. Shares are currently up by 2.1 percent and on pace for their best closing price in nearly six months.

Penn National Gaming (PENN) is also higher following an upgrade at Jefferies from Hold to Buy. The broker also raised the target on the stock from $30 to $41. The stock is posting a gain of 2.7 percent, setting its best intraday price in fifteen months.

Meanwhile, foreign utilities firm Companhia de Saneamento Basico do Estado de Sao Paulo (SBS) is lower after being downgraded by Brean Murray from Buy to Hold. Shares are currently down by 1.6 percent, extending its pullback from the more than two-year closing high set earlier this month.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended on a mixed note on Friday. Japan's benchmark Nikkei 225 Index gained 0.5 percent while Hong Kong's Hang Seng Index slid by 0.6 percent.

The major European markets are modestly lower. The French CAC 40 Index and the German DAX Index are both down by 0.1 percent, while the U.K.'s FTSE 100 Index is down by 0.3 percent.

In the bond markets, treasuries are down but off of their worst levels. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.560 percent, posting a gain of 2.9 basis points.

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TSX Poised For Lackluster Session

Toronto stocks may witness a lackluster session Friday amid mixed cues from the global equity and commodities markets. Meanwhile, latest data revealed that the inflation remained tame in September, signaling that the Bank of Canada would stay pat on key interest rates for the near future.

Traders might turn cautious ahead of the weekend meeting by the finance ministers and central bank governors from the Group of 20 rich nations in South Korea to discuss reforms to the global economy.

On Thursday, the S&P/TSX Composite Index shed 50.69 points or 0.40% to 12,599.23. Energy stocks may be under the radar after Schlumberger Ltd. said it earnings soared to $1.73 billion or $1.38 per share. Excluding one-time items, earnings per share came in at $0.70, beating consensus estimates by $0.01 per share.

The price of crude oil moved back above $81 amid a relatively flat U.S. dollar ahead of the weekend G20 meeting. Crude for December was up $0.75 to $81.31 a barrel. The price of gold was trading flat Friday morning heading for its first weekly loss in six. Gold for December edged up $0.40 to $1,326.00 an ounce.

In a major M&A deal, construction and mining equipment maker Caterpillar Inc. said it would buy German engine maker MWM Holding GmbH, from private-equity firm 3i for about US$810 million, in cash.

Potash Corp. may be in play after Canada indicated that it will not back BHP Billiton's hostile bid for the Canadian fertilizer maker. In a speech delivered to business leaders in Regina on Thursday, Saskatchewan Premier Brad Wall said Potash Corp. is a strategic Canadian asset and noted that no promises of cash or other benefits will convince the province to back a hostile bid from Australia's BHP Billiton.

In corporate news from Canada, transportation company Bombardier Inc. said it got a firm order for a Global 7000 jet, valued at about $65 million from London Air Services. The company also revealed that it signed a framework agreement with Israel Railways for the delivery of double-deck coaches, valued at about $185 million. Separately, the company said it had priced its offering of EUR780 million aggregate principal amount of new senior notes.

Telecommunications company Shaw Communications reported lower fourth-quarter net income of C$122 million or C$0.28 per share, down from C$124 million or C$0.29 per share for the same period last year. The company said that it plans to invest about C$200 million during 2011 on its Wireless initiative.

Gold and base-metals miner Foran Mining said it would consolidate 100% ownership of the McIlvenna Bay deposit by purchasing the 25% interest of Copper Reef Mining Corporation.

In economic news, Statistics Canada said consumer prices rose 1.9% in the 12 months to September, following a 1.7% increase in August. Core consumer prices, which exclude volatile energy prices, were up 1.5% in September. The results were roughly in line with economist expectations.

Separately, the agency said retail sales increased 0.5% in current dollars to C$36.1 billion in August after flat sales the previous two months. Gains were reported in 6 of 11 subsectors representing 70% of total retail sales. In volume terms retail sales rose 0.3%.

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European Markets Turn Lower Ahead Of G20

European stocks are trading mostly lower Friday morning amid speculation that additional stimulus measures by central banks will fail to sustain the pace of the economic recovery, with traders turning cautious ahead of the weekend meeting by the finance ministers and central bank governors from the Group of 20 nations in South Korea to discuss reforms to the global economy.

In the commodities market, crude for December delivery is edging up $0.43 to $80.99 a barrel. Yesterday, oil eased after China reported slowdown in growth and the U.S. dollar turned higher.

Meanwhile, the price of gold continued to move down, with gold for December delivery easing $5.30 to $1,320.30 an ounce. Yesterday, gold slumped below $1,330 as risk appetite improved after a batch of strong corporate earnings reports from the U.S. companies.

In economic news from the euro zone, an indicator of German business confidence rose for the fifth month in a row to its highest level in three years. The Ifo Business Climate Index, based on conditions at 7,000 firms across Germany, climbed to 107.6 in October from 106.8 in the previous month. Economists had predicted a score of 106.5. The survey also showed surging optimism for the coming six months. The expectations index rose to 105.1 from 103.9, well above forecasts for a score of 102.9. The current situation index, which is a reflection of the current state of German businesses, rose to 110.2 from 109.8 in September. Analysts had forecast a score of 110.0.

Meanwhile, a leading indicator of the German economy climbed at a slower pace in August than in the previous month. The Conference Board leading index climbed 0.7% from July, when it grew 1.1%. Meanwhile, the coincident index, which is a measure of current economic activity, increased 0.2% in August, boosted by industrial production and manufacturing sales. Revised figure showed that the coincident index stagnated in July.

Latest data from the statistical office Eurostat revealed that no member state of the European Union recorded a government surplus in 2009. The largest government deficits in percentage of GDP were recorded in Ireland and the U.K. In Ireland, the deficit was 14.4% of GDP and that in the UK at 11.4%. The lowest deficit was recorded in Luxembourg, at 0.7% in 2009.

 Among stocks, Volvo AB is edging down nearly 1% even after it swung to profit, reporting third-quarter income of SEK 2.85 billion compared with a loss of SEK 2.91 billion in the third quarter of 2009. Earnings per share in the third quarter amounted to SEK 1.38 versus a loss of SEK 1.44 last year.

The world's biggest maker of heat exchangers Alfa Laval AB is slipping over 4% after reporting third quarter sales that missed analysts' estimates.

On the positive side, France's second-largest auto-parts supplier Valeo is gaining over 8% after reporting a 22% jump in third quarter sales and increasing its operating margin guidance.

Mobile wireless networks company Ericsson is adding around 8% after reporting third quarter net income of 3.68 billion kronor, beating analysts' estimates for net income of 3.52 billion kronor. Debutant Betfair Group is up close to 20%.

The FTSE 100 is currently down 0.33%, the CAC 40 is easing 0.03% and the DAX is slipping 0.07%.

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Thai Shares May Test 990-Point Level

The Thai stock market has alternated between positive and negative finishes through the last four trading days, since the end of the three-day winning streak in which it had gathered more than 20 points or 2 percent. The Stock Exchange of Thailand finished just below the 990-point plateau, and now analysts are predicting another slightly higher open on Friday.

The global forecast for the Asian markets is fairly flat with a touch of upside, thanks to continued good news among corporate earnings. Technology stocks may provide support, while gold, steel and oil shares may fall under pressure. The European and U.S. stocks finished slightly higher, and now the Asian markets are tipped to also inch slightly to the upside.

The SET finished flat on Thursday as the energy stocks and financials finished in mixed fashion.

For the day, the index added 0.69 points or 0.07 percent to finish at 988.80 after trading between 988.60 and 993.64. Volume was 3.219 billion shares worth 31.699 billion baht. There were 177 decliners and 160 gainers, with 155 stocks finishing unchanged.

Among the actives, energy giant PTT was down 0.65 percent, while PTT Exploration and Production climbed 1.2 percent, coal producer Banpu added 1.88 percent and Siam Concrete gained 0.31 percent.

The lead from Wall Street is cautiously optimistic as stocks were able to salvage some of their early-day upside and ended modestly higher on Thursday. Upbeat sentiment won over on a day offering solid quarterly results from a number of Dow components among many other reporting firms.

Among the day's major earnings reports, fast food giant McDonald's Corp. (MCD), farm & construction machinery manufacturer Caterpillar Inc. (CAT) and insurance firm Travelers (TRV) all beat profit and revenue expectations, leading stocks higher in early day trading.

Global shipping firm United Parcel Service Inc. (UPS) also bested third quarter net income estimates but fell short on the revenue line. However, the company raised its full-year 2010 guidance, based on the projections of retailers and economists before the peak holiday season.

Online retailer Amazon.com Inc. said its third-quarter profit increased by 16 percent over last year, as more customers tend to shop online. Quarterly earnings came ahead of the analysts' expectations, as did net sales.

Flash memory card maker SanDisk Corp. said third quarter profit rose 39 percent from last year, helped by higher revenue and improved margins. The company's quarterly earnings per share also breezed past Wall Street expectations.

American Express Co., Thursday reported a 70 percent increase in third quarter profit that exceeded Wall Street estimates, helped essentially by increased card members' spending. Revenues for the quarter rose 17 percent from a year ago, coming in ahead of expectations.

On the economic front, data was largely in-line with estimates, with the closely watched jobless claims number issued by the Labor Department falling by slightly more than economists had projected. The report showed a decline in claims for first-time unemployment benefits of 23,000 to 452,000 for the week ended October 16, while economists expected the figure to come in at 455,000.

Also, the Federal Reserve Bank of Philadelphia reported a positive reading in its October manufacturing activity index, the first positive number for the index in three months. The reading, however, was short of economist expectations. At the same time, the Conference Board reported that its index of leading economic indicators increased in-line with expectations in September.

The major averages all saw some upside in late-session dealing, all able to break into positive territory. The Dow gained 38.60 points or 0.4 percent to close at 11,146.57, the NASDAQ advanced by 2.28 points or 0.1 percent to 2,459.67 and the S&P 500 rose by 2.09 points or 0.2 percent to 1,180.26.

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Dollar Little Changed As Geithner Urges G20 To Cap Surpluses

The dollar was steady near a yearly low Friday morning in New York, after U.S. Treasury Secretary Timothy Geithner called on G20 nations to ease currency tensions.

In a letter to other finance ministers obtained by Bloomberg, Geithner asked G20 nations to promise "to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of under-valued currency."

His remarks are seen as directed toward China, which has until recently kept its currency locked in an artificially weak position relative to the dollar in order to prop up its exports.

Nations should reduce their trade imbalances "below a specified share" of their economic size, he argued.

Australia has reportedly called the US proposals "constructive."

With no first-tier economic data on tap from the US today, focus will turn to South Korea for more headlines from the G20 finance mininsters meeting.

The dollar was stuck in neutral versus the euro, holding at $1.3950 in early dealing. Earlier in October, the dollar hit an 8-month low of 1.4125, but has stabilized over the past week.

An indicator of sentiment at German businesses rose unexpectedly in October, with firms surprisingly turning more optimistic over future prospects.

Reports said the Ifo business climate index rose to 107.6 from 106.8 in September. Economists had forecast the indicator to fall to 106.5.

The buck firmed to $1.5660 against the sterling, and held steady at Y81.20 versus the yen. The dollar hit a fresh 15-year low of Y80.83 earlier this week.

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