US & World Daily Markets Financial Briefing 23-07-2010

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Stocks Wobbly Ahead Of European Stress Test Results

Stocks are seeing choppy movement in mid-morning trading on Friday, as the markets eagerly await stress test results for a number of major financial institutions in Europe. The major averages have been bouncing between gains and losses amid a volatile session thus far.

The much awaited stress test results are scheduled to be made public at 12:00 p.m. ET. The data will detail the required capital levels for 91 banks from 20 countries under the most dire conditions, including a 6 percent drop in employment.

Data from the euro zone was the chief driver of upbeat sentiment in pre-market dealing, with Germany's business climate index coming in at 106.2 in July, up from 101.8 in the previous month. Economists had forecast the index to slip to 101.5 in the euro zone's largest economy.

Further, Britain's GDP grew by 1.1 percent in the second quarter, according to the Office for National Statistics, surprising economists who had forecast 0.6 percent growth.

The markets are also delving into the latest quarterly results from a series of market giants. McDonald's Corp. (MCD) posted second-quarter net income of $1.13 per share, while analysts expected the company to earn $1.12 per share. Total revenues for the quarter rose to $5.95 billion, beating estimates for $5.91 billion.

Honeywell International Inc. (HON) said its second-quarter earnings came in at $0.60 per share and at $0.78 per share on an adjusted basis. On average, Wall Street analysts forecast earnings of $0.57 per share for the quarter. Net sales for the second quarter rose 8 percent to $8.16 billion, topping expectations.

Ford Motor Co. (F) reported second-quarter net income of $0.61 per share, crushing estimates of $0.40 per share. The auto giant said its quarterly revenues came in $35.0 billion, also soundly beating projections, which averaged $29.79 billion for the quarter.

Meanwhile, Verizon Communications Inc. (VZ) reported a second-quarter net loss of $0.07 per share including a $0.65 per share hit in connection with workforce downsizing. Operating revenues for the quarter totaled $26.77 billion, falling short of $27.11 billion estimated by analysts.

After the markets closed for trading in the previous session, Microsoft Corp. (MSFT) unveiled fourth-quarter net income of $0.51 per share, exceeding expectations of $0.46 per share. Revenues for the period totaled $16.04 billion, also better than the $15.27 billion projected on Wall Street.

The major averages are currently turning in a mixed performance, with the Nasdaq just below the unchanged line. While the Nasdaq is down 0.81 points or less than 0.1 percent at 2,245.08, the Dow is up 26.94 points or 0.3 percent at 10,349.24 and the S&P 500 is up 1.35 points or 0.1 percent at 1,095.02.

Sector News

Commercial real estate stocks are among the weakest performers thus far in the session, as reflected by the 1.1 percent pullback by the Morgan Stanley REIT Index. The decline is dragging the index down off of the one-month closing high set in the previous session.

Oil service, pharmaceutical and biotechnology stocks are also seeing notable weakness, while railroad and trucking stocks are notably higher, offsetting some of the aforementioned losses.

The Dow Jones Railroads Index and the Dow Jones Trucking index are both up by 1 percent, extending recent upside.

Stocks Driven By Analyst Comments

Omega Health (OHI) is notably lower after analysts at Jefferies downgraded shares from Buy to Hold. The stock is down by 2.8 percent, pulling back off of the eleven-year closing high set in the previous session.

Estee Lauder (EL) is also under pressure after Stifel Nicolaus lowered its rating on the stock from Hold to Sell. Shares are currently down by 1.6 percent after falling to a two-week intraday low in earlier dealing.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed the week on a high note. Japan's benchmark Nikkei 225 surged up by 2.3 percent, while Hong Kong's Hang Seng Index rose by 1.1 percent.

Meanwhile, the major European markets are mixed. The German DAX Index and the U.K.'s FTSE 100 Index are down by 0.1 percent and 0.5 percent, respectively, while the French CAC 40 Index is up by 0.2 percent.

In the bond markets, treasuries are modestly weaker amid the mixed movement on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.947 percent, posting a gain of 1.5 basis points.

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Asian Market End In Positive Territory On Wall Street Gains

Asian markets open for trading ended the last day of trading session for the week in positive territory, lifted by strong gains on Wall Street in the previous session on earnings optimism. Better than expected earnings reported by Microsoft (MSFT) after the markets closed on Wall Street and buoyant economic data in Europe also lifted market sentiment. Higher commodity prices and oil prices led to gains across the markets even as traders await the stress test results of European banks later in the day.

In Japan, the benchmark Nikkei 225 Index advanced 210.08 points, or 2.28%, to 9,431, while the broader Topix index of all First Section issues was up 15.81 points, or 1.92% percent, at 841.

On the economic front, a statement released by the Ministry of Finance revealed that Japanese investors purchased a net 1.305 trillion yen in foreign bonds and notes last week. The statement further revealed that Japanese residents also bought a net 49.2 billion yen in foreign stocks. Over the same period, foreign investors sold a net 29.8 billion yen in Japanese stocks and purchased a net 231.2 billion yen in Japanese bonds.

Real estate stocks led the gains in the market. Sumitomo Realty & Development climbed 4.47%, Mitsubishi Estate surged up 4.38%, Mitsui Fudosan gained 4.01%, Tokyu Land Corp. rose 3.63% and Heiwa Real Estate added 0.49%.

Glass and ceramic sector also witnessed smart gains during the session. Asahi Glass soared 6.05%, Tokai Carbon climbed 4.34%, NGK Insulators added 0.81%, TOTO Ltd gained 1.22% and Nippon Sheet Glass Co. Ltd rose 2.90%.


Stocks related to sea transport also surged up on optimism about recovery and higher demand. Mitsui OSK Lines climbed 5.39%, Kawasaki Kisen Kaisha rose 3.20% and Nippon Yusen gained 2.16%.

Banking stocks also ended in positive territory. Sumitomo Mitsui Financial Group gained 1.53%, Mizuho Financial Group rose 1.49% and Mitsubishi UFJ Financial climbed 1.75%. Resona Holdings managed to remain unchanged from previous close.

In Australia, the benchmark S&P/ASX200 Index was up 83.7 points, or 1.91%, at 4458 points, while the All-Ordinaries Index ended at 4,475, representing a gain of 80.30 points, or 1.83%.

On economic front, a report released by the Australian Bureau of Statistics revealed that exports prices surged in June Quarter from the March quarter, while import prices also rose in the same period. As per the report, the export price index increased by 16.1% quarter-over-quarter, faster than the 3.8% rise in the previous quarter. Economists were looking for a 13.5% increase. Import prices, on the other hand, rose 1.9% in the June quarter, following the 0.3% rise in the preceding quarter. Economists had forecast a 1% increase. On a year-over-year basis, export prices climbed 7.1% in the June quarter, rebounding from the 26.8% slump in the previous quarter. Import prices fell for the fourth straight quarter, down 5.2%.

Light sweet crude oil futures for August delivery ended at $79.00 a barrel in electronic trading, down $0.30 per barrel from previous close at $79.30 a barrel in New York on Thursday.

Bank stocks ended higher following strong cues from Wall Street. ANZ Bank advanced 1.40%, Commonwealth Bank of Australia surged up 2.64%, National Australia Bank climbed 2.57% and Westpac Banking rose 2.62%. Investment banker Macquarie Group was up 2.42%.

Mining and metal stocks ended in positive territory. BHP Billiton gained 2.06%, Fortescue Metals climbed 4.21%, Gindalbie Metals advanced 2.07%, Iluka Resources added 0.55%, Macarthur Coal gained 1.80%, Mincor Resources was up 1.01%, Murchison Metals increased 1.65%, Minara Resources soared 7.14%, Oz Minerals rose 1.67% and Rio Tinto was higher by 2.39%.

Oil related stocks also advanced following rise in crude oil prices in the international market. Woodside Petroleum gained 2.24%, Santos Ltd rose 2.14%, ROC Oil climbed 3.03%, Oil Search Ltd advanced 1.72% and Origin Energy added 0.78%.

Gold stocks also gained. Lihir Gold was up 1.23% and Newcrest Mining advanced 0.91%.

The Indian market pared its early gain on Friday, as investors awaited European bank stress test results due later in the day. After trading in a lackluster manner, the benchmark 30-share Sensex ended up 18 points or 0.10% at 18,131, a fresh 30-month closing high, with 14 of its components edging higher. Telecom giant Bharti Airtel topped the gainers with a 4% rise amid reports that it will make an open offer to acquire the remaining 22 percent stake that it already doesn't own in Zambia's leading telecom entity, Zain Zambia. The 50-share Nifty rose by 7 points or 0.13% to 5,449.

Among the other major markets open for trading, China's Shanghai Composite Index gained 9.62 points, or 0.38% to 2,572, Singapore's Strait Times Index advanced 17.80 points, or 0.60% to close at 2,973, Taiwan's Weighted Index rose 94.88 points, or 1.24%, to 7,761, and Indonesia's Jakarta Composite Index ended in positive territory with a gain of 32.10 points, or 1.07%, at 3,042.

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The major European markets ignored a weak start on Friday and moved into positive territory before turning mixed. Encouraging economic data from the region is lending support to the markets. The French CAC 40 Index and the German DAX Index are rising 0.45% and 0.56%, respectively, while the U.K.’s FTSE 100 Index is receding 0.22%

In corporate news, Swedish telecommunications company Ericsson (ERIC) reported a a second quarter profit of 1.88 billion Swedish kronor compared to 831 million Swedish kronor in the year-ago period. However, the increase was not significant as expected by some economists. Sales fell to 48 billion Swedish kronor from 52.14 billion Swedish kronor.

On a positive note, the Ifo Institute’s survey showed that the German business climate unexpectedly improved in July. The institute’s business climate index rose to 106.2 in July from 101.8 in June, exceeding forecasts of 101.5. The current assessment index rose to 106.8 from 101.2 and the expectations index moved up to 105.5 from 102.5.

In another upbeat report from the region, U.K. GDP rose a better than expected 1.1%in the second quarter following a 0.3% expansion in the previous quarter, while economists expected a more modest 0.3% growth. Marking a return to the black after 2 years, GDP rose 1.6% year-over-year, better than the estimated growth of 1.1%.

Research firm UniCredit commented that the sectors that surprised to the upside were those mostly affected in the first quarter by unfavorable one-off effects. So, the strong performance in the second quarter looks much more like a technical rebound rather than a genuine upward trend, and the momentum will decelerate in the second half, the firm said.

However, a report released by the INSEE showed that French consumer spending declined 1.4% month-over-month in June, reversing the 0.6% increase in the previous month. Economists had estimated a 0.3% increase. Spending declined 1.9% year-over-year compared to expectations for a 0.5% increase.

Other Corporate News

RealNetworks (RNWK) could see some activity after it announced the appointment of Bob Kimball as its president and CEO, effective immediately. Kimball had been serving as president and acting CEO since early January 2010 following the resignation of founder and chairman and CEO Rob Glaser.

Murphy Oil (MUR) may move in reaction to its announcement that its board has approved plans for exiting refining businesses. The company expects a deal to be completed in the first quarter of 2011.

Currency, Commodity Markets

Crude oil futures are moving down $0.46 to $78.84 a barrel after jumping $1.96 to $79.30 a barrel on Thursday. Gold futures, which rose $3.80 to $1,195.60 an ounce in the previous session, are currently edging down $0.04 to $1,200.30 an ounce.

Among currencies, the U.S. dollar is trading at 87.195 yen compared to the 86.945 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2899 compared to yesterday’s $1.2892.

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STMicoelectronics (STM) may see some activity after it reported second quarter adjusted earnings of 18 cents per share, while net revenues climbed 27% to $2.53 billion. Analysts estimated earnings of 15 cents per share on revenues of $2.52 billion. The company also said it expects 13%-19% revenue growth for its third quarter, while analysts estimate revenue growth of 15.60%.

Software giant Microsoft (MSFT) declined in Thursday’s after hours session after reporting fourth quarter net income of 51 cents per share compared to 34 cents per share last year. Revenues were up 22% to $16.04 billion. Analysts had estimated earnings of 45 cents per share on revenues of $15.3 billion.

Qlogic (QLGC) reported first quarter non-GAAP net income of 30 cents per share compared to 20 cents per share last year. The company’s net revenues rose 16% to $142.6 million. The consensus estimates had called for earnings of 29 cents per share on revenues of $144.07 million.

Cheesecake Factory (CAKE) reported second quarter adjusted earnings of 39 cents per share on revenues of $418.9 million. In the year-ago period, the company reported earnings of 28 cents per share on revenues of $407.94 million. The consensus estimates had called for earnings of 38 cents per share on revenues of $419.63 million.

Among financial stocks, American Express (AXP) reported second quarter earnings of 84 cents per share, higher than 9 cents per share a year earlier. The year-ago results included an 18 cents per share reduction from the repurchase of preferred shares from the Treasury. Consolidated revenues net of interest expense rose 13% to $6.9 billion. The results were ahead of the consensus estimates, which called for 78 cents per share in earnings and $6.84 billion in revenues.

Meanwhile, Capital One Financial (COF) reported a profit of $1.33 per share for its second quarter compared to a loss of 66 cents per share last year. Revenues rose 22.9% to $3.9 billion. Other metrics like domestic credit charge-off rate and delinquencies declined. Analysts estimated earnings of 88 cents per share on revenues of $3.96 billion.

Amazon (AMZN) said its second quarter net income rose to 45 cents per share from 32 cents per share last year. The company’s net sales rose 41% to $6.57 billion. Analysts estimated earnings of 54 cents per share on revenues of $6.54 billion. For the third quarter, the company expects net sales of $6.90-$7.63 billion, while analysts estimate sales of $7.15 billion.

ETRADE Financial Corp. (ETFC) may gain ground after it reported second quarter net income of 12 cents per share compared to a loss of $2.16 per share last year. However, net revenues fell to $534 million from the year-ago’s $621 million. Analysts estimated a loss of 11 cents per share on revenues of $299.38 million.

PMC Sierra (PMCS) reported second quarter net revenues of $160.7 million, up 30% year-over-year. The company’s non-GAAP net income rose to 20 cents per share compared to 13 cents per share last year. The results were ahead of estimates.

Rambus (RMBS) reported that its second quarter loss narrowed to 11 cents per share from 23 cents per share last year, as revenues rose 44% year-over-year to $38.9 million. However, the results trailed the consensus estimates, which called for a loss of 7 cents per share on revenues of $39.10 million.

Flextronics’ (FLEX) first quarter adjusted earnings climbed to 19 cents per share from 8 cents per share last year, as net sales rose to $6.57 billion from the year-ago’s $5.78 billion. The results were ahead of expectations. For the second quarter, the company expects adjusted earnings of 19-21 cents per share on revenues of $6.8 billion to $7.2 billion. Analysts estimate earnings of 20 cents per share on revenues of $6.75 billion.

Ford (F) is rising in pre-market trading after it reported second quarter earnings of 68 cents per share compared to a loss of 21 cents per share in the year-ago quarter. Revenues rose to $31.3 billion from $4.5 billion last year. Analysts estimated earnings of 40 cents per share on revenues of $29.79 billion.

However, McDonald’s (MCD) is receding in pre-market trading after it reported second quarter earnings of $1.13 per share, up 15% year-over-year. Revenues rose 5% to $5.95 billion. The consensus estimates had called for earnings of $1.12 per share on revenues of $5.91 billion.

Verizon (VZ) reported a second quarter loss of 7 cents per share compared to a profit of 52 cents per share last year. The recent quarter’s results included a charge of 65 cents per share. Operating revenues edged down 0.3% to $26.77 billion. Analysts’ estimates, which typically exclude one-time items, called for earnings of 56 cents per share on revenues of $27.11 billion.

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