US & World Daily Markets Financial Briefing 25-08-2010

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Stocks Posting Moderate Losses After New Home Sales Drop

Stocks are down by moderate margins in mid-morning trading on Wednesday, as traders are digesting weaker than expected durable goods orders growth and a steep drop in new home sales. The major averages are all in negative territory, although they are off of their session lows.

The Dow is down 50.55 points or 0.5 percent at 9,989.90, the Nasdaq is down 9.17 points or 0.4 percent at 2,114.59 and the S&P 500 is down 6.77 points or 0.6 percent at 1,045.10.

The Commerce Department said that new home sales plunged by 12.4 percent to an annual rate of 276,000 in July from the revised June rate of 315,000. The decrease came as a surprise to economists, who had expected sales to edge up to 334,000 from the 330,000 originally reported for the previous month.

With the unexpected decrease, new home sales fell to their lowest level on records dating back to 1963 and are down is 32.4 percent compared to the same month a year ago.

Before the start of trading the Commerce Department released a separate report showing that durable goods orders edged up by 0.3 percent in July following a revised 0.1 percent decrease in June. Economists had expected orders to surge up by 3.0 percent compared to the 1.2 percent drop that had been reported for the previous month.

Excluding a 13.1 percent increase in orders for transportation equipment, durable goods orders actually fell by 3.8 percent in July compared to a revised 0.2 percent increase in the previous month. Ex-transportation orders had been expected to increase by 0.5 percent.

In earnings news, Toll Brothers Inc. (TOL) reported third-quarter net income of $0.16 per share, compared to a heavy loss in the same period last year. The latest income figure was also better than analyst forecasts, which called for a loss.

Toll's quarterly revenues also topped expectations, although its fourth quarter revenues were projected lower compared to levels in the comparable period last year.

BHP Billiton (BHP) reported a full-year 2010 profit excluding items of $12.47 billion, which was more than twice what it earned last year but still short of analyst estimates.

In other corporate news, Anglo-Australian miner Rio Tinto Plc (RTP), along with a Chinese partner, is reportedly considering a bid for fertilizer producer Potash Corp. (POT) after the world's biggest fertilizer marker rejected BHP Billiton's approximately $40 billion hostile bid.

Sector News

Airline stocks are among the morning's worst performers, with the NYSE Arca Airline Index posting a 1.8 percent loss. The decline has dragged the index down to its lowest intraday level in a month's time.

Weakness is also visible among semiconductor stocks, driving the Philadelphia Semiconductor Index down by 1.3 percent to its lowest intraday level in nearly seven months.

Electronic storage, banking, steel and natural gas stocks are also under pressure, while gold stocks are bucking the downtrend amid today's risk aversion. The NYSE Arca Gold Bugs Index is up by 1.1 percent as the price of the precious metal is up by $5.70 to $1,239.10.

Healthcare-related stocks are also seeing some upside, while housing stocks are also seeing modest strength despite the day's dismal housing report.

Stocks Driven By Analyst Comments

Annaly Capital (NLY) is trading lower after JMP Securities downgraded its rating on the stock from Outperform to Market Perform citing weaker than expected performance in the firm's MBS investments. Shares are down by 2.6 percent, on pace for their lowest close in nearly three months.

On the other hand, healthcare IT firm Quality Systems (QSII) is trading higher following an upgrade by JMP from Market Perform to Outperform. The stock is currently up by 3.4 percent after setting a two and a half week intraday high.

Homebuilder DR Horton (DHI) is also on the upside after being upgraded at Ticonderoga from Neutral to Buy. The stock has gained 3.3 percent, moving off of the one-month closing low it set on Tuesday.

Other Markets

Overseas, stock markets in the Asia-Pacific region extended their downside on Wednesday. Japan's benchmark Nikkei 225 Index fell by 1.7 percent and Hong Kong's Hang Seng Index edged down by 0.1 percent.

The major European markets are also seeing losses. The U.K.'s FTSE 100 Index and the German DAX Index are down by 1.3 percent and 1.1 percent, respectively, while the French CAC 40 Index is down by 1.5 percent.

In the bond markets, treasuries are moderately higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.463 percent, posting a loss of 3.6 basis points.

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TSX Poised For A Lackluster Open Wednesday

Bay Street stocks are poised to struggle at the opening bell Wednesday. While cues from the commodities and global equity markets were discouraging, Canada's fifth largest bank CIBC reported market-beating third quarter earnings.

On Tuesday, the S&P/TSX Composite Index lost 161.28 points or 1.38% to 11,557.35, erasing its previous five session's gains.

The price of crude oil was lingering around its 3-month low as traders await the official weekly crude oil inventories data from the EIA. Crude for October was down $0.40 to $71.23 a barrel.

Meanwhile, the price of gold rebounded toward its 7-week high as safe haven buying resurfaced amid falling equities. Gold for December was up $4.60 to $1,238.00 an ounce.

Australian miner BHP Billiton, which had made a hostile takeover bid for Canada's Potash Corp., today reported a 100% jump in its second half profits at $6.5 billion. This has raised speculation that the company may hike its bid to Potash, as the company's free cash flow is now around $12.5 billion.

Meanwhile, Vale, reportedly one of the 'white night' to bid for Potash, said media reports were totally unfounded.

In corporate news from Canada, largely helped by lower credit loss provisions Canadian Imperial Bank of Commerce reported improved third-quarter net income of C$1.53 per share compared to C$1.02 a year earlier. Net income rose to C$640 million from C$434 million last year. The bank declared a dividend of $0.87 per share this quarter. Excluding one-time items the bank said it earned C$1.66 per share, beating analysts expectations of $1.53 per share, before exceptional items.

Yesterday, Bank of Montreal reported improved third quarter earnings mainly due to lower provision of credit losses. National Bank of Canada and RBC are scheduled to release their third quarter results Thursday.

Gold and copper producer Northgate Minerals said it has entered into an engagement with BNP Paribas to establish a $100 million seven-year project debt facility for construction of Northgate's Young-Davidson Mine, northern Ontario.

Oilfield and construction services company Cordy Oilfield Services reported a narrower second quarter net loss of C$0.02 per share, compared to a net loss of C$0.05 per share in the year-ago quarter. The company has appointed Matt Braaten as Cordy's interim, chief financial officer.

Data communications services company Radiant Communications posted second-quarter net loss of C$198 thousand or C$0.01 per share, compared with a net income of C$224 thousand or C$0.02 per share in the prior year period.

Oil and gas explorer Stratic Energy reported second-quarter net income of $0.2 million, compared to a net loss of $8.4 million in the year ago quarter.

Junior oil and gas explorer TriOil Resources reported a a narrower second-quarter net loss of C$0.11 per share, compared to a loss of C$0.84 per share in the same quarter last year.

In economic news from the U.S., the Commerce Department said that durable goods orders edged up by 0.3% in July following a revised 0.1% decrease in June. Economists were expecting orders to surge up by 3.0% compared to the 1.2% drop that had been reported for the previous month.

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Indian Market Extends Losses On Global Recovery Woes

Lingering concerns over the global economic outlook and relatively expensive valuations of Indian equities versus global peers weighed on the Indian stock market for a third consecutive session Wednesday. A bout of volatility also dragged stocks southwards ahead of the expiry of near-month F&O contracts on Thursday.

The 30-share BSE Sensex ended down 132 points or 0.72% near the day's low at 18,180, with 23 of its components ending in the red. The 50-share S&P Nifty fell 43 points or 0.78% to 5,462. The broader indexes such as the BSE small-cap and mid-cap indexes fell about 1.5% each, indicating a cautious undertone.

Realty stocks continued to underperform. Consumer durable, auto, healthcare and metal stocks followed suit on profit taking, while IT stocks closed on a flat note after the Indian rupee fell to a one-month low against the dollar. Banking stocks closed mostly lower after the RBI vowed to take appropriate policy actions to anchor inflationary expectations.

Select FMCG stocks like Nestle India, Godrej Consumer Products, Tata Global Beverages and ITC closed firm on defensive buying. Telecom giant Bharti Airtel fell 1.61% on profit taking following recent gains.

DLF (down 3.35%), Tata Steel (down 3.22%), Hindalco (down 2.97%), Cipla (down 2.63%), Hero Honda Motors (down 2.32%) and Jaiprakash Associates (down 2.16%) were among the prominent decliners.


Info Edge (India), owner of job portal naukri.com, eased 0.98% after it proposed to invest Rs 4.7 crore in an online food guide and restaurant directory business. Religare Enterprises tumbled 4.48% to Rs.478.35 after its promoters proposed to acquire about 2.80 crore shares of the company via an open offer at Rs. 457 a share.

State Bank of Mysore, which plans to raise Rs 500 crore via a rights issue, ended down 2% on profit taking after recent sharp gains. Oil explorer Cairn India lost around 3% amid reports that state-run fuel companies are not making any counter offer for Cairn.

Scooters India rallied nearly 5% on buzz that Tata Motors and Piaggio are in the race to acquire a controlling stake in the public sector company. Mid-sized IT services firm Patni Computer Systems rose 2.27% after it secured a multi-million rupees contract to provide application management services to the Codan Group in Scandinavia.

Prakash Steelage climbed 70% to Rs. 187.95 on its debut. Brigade Enterprises added 3% on reports of share sale to institutional investors. Ind-Swift Laboratories rallied 3.53% ahead of a board meet today to consider a convertible-warrants issue to the promoters group. Edserv Softsystems edged up 0.62% after it became an authorized online training partner of Corel in India.

Elsewhere, Asian stocks extended losses on Wednesday, with Japan's Nikkei closing below the 9000 threshold for the second straight session, after a record plunge in U.S. home sales and a slowdown in Japanese export growth for a fifth month in July added to evidence the global economic recovery is faltering.

European stocks swung between gains and losses following Ireland's credit ratings downgrade, while the Dow futures pointed towards a higher open on Wall Street Wednesday after a sell-off in the previous session on another disappointing report on housing.

Elsewhere, Asian stocks extended losses on Wednesday, with Japan's Nikkei closing below the 9000 threshold for the second straight session, after a record plunge in U.S. home sales and a slowdown in Japanese export growth for a fifth month in July added to evidence the global economic recovery is faltering.

European stocks swung between gains and losses following Ireland's credit ratings downgrade, while the Dow futures pointed towards a higher open on Wall Street Wednesday after a sell-off in the previous session on another disappointing report on housing.

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The major European averages are moving lower for a second straight session on Wednesday, as traders have exercised caution ahead of batch economic reports from across the Atlantic. The French CAC 40 Index and the German DAX Index are moving down 1.38% and 0.47%, respectively the U.K.’s FTSE 100 Index is declining 0.87%.

Miner BHP Billiton (BHP) reported that its profit for the year ended in June rose to $12.72 billion from $5.88 billion last year, as revenues climbed 5.2% to $52.8 billion.

In economic news, the Ifo Business Climate Index, based on conditions at 7,000 firms across Germany, climbed to 106.7 in August from 106.2 in the previous month, reaching its highest level in more than three years. Economists had predicted a score of 105.7. Ifo President Hans-Werner Sinn said, "The German economy remains robust. The firms have assessed their business situation more positively than in the previous month."

The current situation index, which is a reflection of the current state of German businesses, rose to 108.2 from 106.8 in July. Analysts had forecast a score of 107.5. At the same time, the survey also showed reduced optimism for the coming six months. The expectations index fell to 105.2 from 105.6 but still came in above forecasts for a score of 104.3.

U.S. Economic Reports

A report released by the Commerce Department showed that new orders for durable goods rose 0.3% month-over-month in July, with the bulk of increase due to a jump in transportation orders, which jumped 13.1%. Economists had expected a 3% increase. Excluding transportation orders, new orders fell 3.8%.

Non-defense capital goods orders, excluding aircraft orders, - a key measure of capital spending – declined 8% in July. The data is likely to trigger anxiety about capital spending, which was partly responsible for the economic recovery that is underway.

The Commerce Department is due to release its new home sales report for July at 10 AM ET. The consensus estimate calls new homes sales of 334,000.

New home sales rose 23.6% to an annual rate of 330,000 in June from a downwardly revised reading of 267,000 for May. Meanwhile, inventories measured in terms of months of supply fell to 7.6 months in June from 9.6 months in May. The median price of new homes fell 0.66% year-over-year to $213,400.

The Federal House Finance Agency, or FHFA, is set to release its house price index for June at 10 AM ET. The index is a weighted, repeat-sales index that measures average price changes of single-family houses in repeat sales or refinancings on the same properties. In May, house prices rose 0.5% month-over-month, higher than the consensus estimate for 0.3% growth. On a year-over-year basis, house prices fell 1.2%, smaller than the 1.4% drop in April.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 20th at 10:30 AM ET.

The oil inventory report for the week ended August 13th showed that crude oil inventories fell by 0.8 million barrels to 354.2 million barrels. Notwithstanding the decline, crude oil stockpiles remained above the upper limit of the average range for this time of the year.

Gasoline inventories remained almost unchanged and remained above the upper limit of the average range. Meanwhile, distillate stockpiles rose by 1.1 million barrels and were still above the upper boundary of the average range. Refinery capacity utilization averaged 90% over the four weeks ended August 13th compared to 88.1% in the previous week.

Stocks in Focus

Earnings

Verifone Systems (PAY) reported that its third quarter net income rose to 36 cents per share from 29 cents per share last year. Net revenues rose to $261 million from the year-ago’s $241 million. Analysts estimated earnings of 30 cents per share on $248.75 million.

Pacific Sunwear (PSUN) reported a second quarter loss of 22 cents per share on a non-GAAP basis, while its GAAP loss widened to 36 cents per share from 22 cents per share last year. Net sales declined to $218.34 million from $242.79 million last year. Analysts estimated a loss of 12 cents per share on revenues of $244.80 million. The company said it expects to reach positive comparable store sales in the fourth quarter but guided third quarter same store sales to a decline of 4%-9%.

Luxury homebuilder Toll Brothers (TOL) reported a third quarter profit of 33 cents per share compared to a loss of $2.93 per share last year. Revenues fell to $454.20 million from $461.38 million last year. The consensus estimates had called for a loss of 14 cents per share on revenues of $393.43 million.

Other Corporate News

Varian Medical Systems (VAR) could be in focus after it announced that it has entered into an agreement with Bank of America (BAC) to buy $225 million worth of its stock under an accelerated stock buyback program. The company also said it has amended its revolving credit facility with Bank of America to increase its borrowing capacity by $75 million to $225 million.

Coinstar (CSTR) is likely to see some activity after it announced a definitive agreement to sell its money transfer business to Sigue Corp. for $41.5 million, subject to a post-closing working capital adjustment. The company expects the deal to close next year.

Lockheed Martin (LMT) is likely to see some buying interest after it said it has received a $11.4 million contract modification from the U.S. Air Force for the sustainment of the F-2 Raptor Fleet. The contract initially issued in 2008 and extended in 2009.

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Dollar Steadies As Japanese Officials Talk Down Yen

The dollar stabilized after hitting a 15-year low versus the yen Wednesday morning in New York, as Japanese officials stepped up efforts to talk down their surging currency.

The yen has become the world's preferred safe haven currency of late, and has soared amid growing concerns about a global double-dip recession.

Recent economic data from the US has signaled that the world's largest economy has lost momentum due to weakness in the jobs and housing markets.

On the economic front, the Commerce Department will release its report on durable goods orders for July at 8.30 a.m. ET. Economists expect that durable goods orders increased 3.1% during the month, following a 1.2% decline in the previous month.

At 10.00 a.m. ET, the Commerce Department will release a report on new home sales for July. Economists expect new home sales of 330,000, unchanged from the previous month, which saw a 23.6% rebound in the previous month.

The buck steadied versus the yen last night, and was drifting slightly higher to 84.60 in early dealing today.

The Japanese government will take "appropriate" measures when necessary to address the foreign exchange volatility, Nikkei reported on Wednesday quoting Finance Minister Yoshihiko Noda.

On Tuesday, the dollar hit 83.58 -- its lowest since 1995.

The dollar rose to $1.26300 versus the euro, staying near yesterday's monthly high of 1.2586. Strong gains over the past two weeks have taken the dollar back toward June's 4-year high of 1.1805.

Standard & Poor's cut its credit rating on Ireland, and assigned the country a negative outlook late on Tuesday. The dollar firmed up a bit to $1.5400 against the sterling, and to C$1.0650 versus Canada's loonie.

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