US & World Daily Markets Financial Briefing 26-07-2010

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Stocks Come To Life As New Home Sales Surprise To The Upside

After a lackluster start, stocks are posting modest gains in mid-morning trading on Monday, helped higher by a bigger than expected rebound in new home sales and upbeat guidance from shipping giant FedEx (FDX). The major averages are all in positive territory, building on the one-month closing highs set on Friday.

A short time ago, the Commerce Department reported that new home sales increased by more than expected in June after showing a steep drop in May due to the expiration of the homebuyer tax credit.

New home sales shot up by 23.6 percent to an annual rate of 330,000 in June from the revised May rate of 267,000. Economists had expected sales to edge up to 310,000 from the 300,000 originally reported for the previous month.

In corporate news, FedEx Corp. announced that it has raised its first-quarter earnings outlook to a range of $1.05 to $1.25 per share from its prior estimates of $0.85 to $1.05 per share. Analysts had expected the company to report earnings of $1.01 per share for the quarter.

The company also raised its fiscal 2011 earnings guidance to a range of $4.60 to $5.20 per share from the previous outlook $4.40 to $5.00, reflecting the current market outlook for fuel prices and a continued moderate recovery in the global economy. Analysts had expected the company to report earnings of $4.98 per share for fiscal 2011.

BP Plc (BP) is also in focus again as the oil giant is reportedly mulling the replacement of CEO Tony Hayward. According to reports, BP managing director Robert Dudley is slated to take over the position and would be the first American to head the firm. The company's board is set to meet later today to make its final decision.

Cigarette manufacturer Lorillard Inc.'s (LO) reported second-quarter net income of $1.73 per share, topping forecasts for $1.61 per share for the quarter. The company posted net sales of $1.04 billion compared to the $1.03 billion registered in the same period last year.

The major averages have pulled back off their best levels of the day in recent trading but remain moderately higher. The Dow is up 45.26 points or 0.4 percent at 10,469.88, the Nasdaq is up 9.32 points or 0.4 percent at 2,278.79 and the S&P 500 is up 5.29 points or 0.5 percent at 1,107.95.

Sector News

Biotechnology stocks are among the morning's strongest performers, with the NYSE Arca Biotechnology Index up by 3.1 percent. With the advance, the index set a one-month intraday high in earlier trading.

Housing stocks are also seeing significant buying interest following the day's new home sales figures. The Philadelphia Housing Sector Index is up by 2.2 percent, moving high for the third session in a row to reach a seven-week intraday high.

Transportation, healthcare, commercial real estate and defense stocks are also markedly higher, while significant weakness is visible among gold stocks, with the NYSE Arca Gold Bugs Index down by 1 percent.

Stocks Driven By Analyst Comments

Patterson-UTI Energy Inc. (PTEN) is notably higher after analysts at Jefferies upgraded shares from Hold to Buy. The broker also lifted its target on the stock from $17 to $21. The stock is up by 2.4 percent, setting a five-month intraday high.

Meanwhile, Lender Processing Services, Inc. (LPS) is under pressure after Oppenheimer lowered its rating on the stock from Outperform to Perform. Shares are currently down by 0.6 percent, falling towards an eleven-month closing low set late last month.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly higher. Japan's benchmark Nikkei 225 gained by 0.8 percent, while Hong Kong's Hang Seng Index edged up by 0.1 percent.

The major European markets have turned higher and are up by modest margins. The U.K.'s FTSE 100 Index, the German DAX Index and the French CAC 40 Index are all up by roughly 0.4 percent.

In the bond markets, treasuries are seeing modest losses. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 3.014 percent, posting a gain of 2 basis points.

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Bay Street Stocks May Struggle To Sustain Recent Gains Monday

Toronto stocks are poised for a lackluster session Monday amid falling commodities prices and weak cues from the global equity markets. Traders will look to new home sales data from the U.S., due out today during trading hours, to get clues on the direction of the markets.

On Friday, the S&P/TSX Composite Index added 46.45 points or 0.40% to 11,714.21, gaining 145 points or 1.26% last week.

The price of crude oil edged down ahead of new home sales data from the U.S. Also, threat to production in the Gulf of Mexico from tropical storm Bonnie diminished. Crude for September was down $0.71 to $78.27 a barrel

The price of gold was lingering below $1,190 as risk appetite improved amid rising equities. Gold for August edged up $0.40 to $1,188.20 an ounce.

Blackberry maker Research In Motion may be in play after the UAE's telecommunication watchdog said Blackberry smart-phones are a potential threat to the country's national security.

In corporate news from Canada, agriculture business company Viterra Inc. said it would offer up to C$500 million of senior unsecured notes over the next 25 months.

Gold and silver explorer Tagish Lake Gold said that New Pacific Metals commenced an unsolicited take-over bid to acquire all of the shares of Tagish on July 21. In addition, the company said it has received a proposal from YS Mining for the recapitalization of the company.

Wholesales distributor of building products Taiga Building Products reported lower first quarter net income of C$0.17 per share, compared to C$0.20 per share for the year-ago quarter.

Renewable energy company Biox Corp. said it expects net loss for the third quarter of 2010 to be between $6.0 million and $6.3 million. Last quarter the company reported net loss of $5.95 million.

Elsewhere, the Asian markets ended mixed with India, Indonesia and Singapore closing in the red, while Australia, China and Hong Kong closed higher.

Meanwhile, stocks in Europe were marginally lower. The long-awaited results of a stress test on European banks received a mixed response as 84 of 91 euro-zone banks passed a test on their ability to withstand future financial shocks. But some analysts feel that the tests were too lenient.

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Asian Markets End Mixed

Mixed trading was witnessed among the Asian markets Monday, with the markets in India, Indonesia and Singapore ending in negative territory, while the markets in Australia, China, Hong Kong, Japan and South Korea ending in positive territory with modest gains, following relief from the stress test results of European Banks, which revealed that only 7 of the 91 banks failed the test. Optimism about earnings, following positive closing on Wall Street on Friday, led modest gains in the market while profit taking and caution ahead of data capped market gains.

In Japan, the benchmark Nikkei 225 Index gained 72.70 points, or 0.77%, to finish at 9,504, while the broader Topix index of all First Section issues was up 4.59 points, or 0.55%, to 846.

On the economic front, a report released by the Ministry of Finance revealed that the country saw a merchandise trade surplus of 687.0 billion yen in June, which was roughly in line with analysts expectations for a surplus of 690.9 billion yen for the month. For the previous month, the revised trade surplus was 320.9 billion yen. Data further noted that exports climbed 27.7% on year, topping expectations for a 23.5% annual increase after the 32.1% surge in the previous month. Imports jumped 26.1% on year, slightly above forecasts for a 24.7% annual rise following the 33.4% jump a month earlier. The adjusted trade balance showed a surplus of 456.0 billion yen, well below expectations for a 539.0 billion yen surplus after the revised 320.2 billion yen surplus in May.

Stocks of precision machinery manufacturers advanced following the weakening of the local currency against the US dollar and the Euro. Fanuc Ltd gained 1.65%, Kyocera Corp. advanced 1.08%, TDK Corp. rose 1.39%, Panasonic Electric Works surged up 4.39%, Mitsubishi Electric Corp. climbed 3.36% and Tokyo Electron added 0.43%.

Exporters also advanced on weaker yen. Canon Inc. climbed 2.47%, Sharp Corp. advanced 0.21%, Advantest Corp. added 0.26% and Panasonic Corp. edged up 0.09%.

Real estate stocks also ended in positive territory. Sumitomo Realty & Development gained 1.71%, Mitsui Fudosan rose 1.42%, Mitsubishi Estate advanced 1.07%, Heiwa Real Estate climbed 1.96% and Tokyu Land Corp. was up 0.96%.

Glass and ceramics stocks also ended in positive territory. NGK Insulators surged up 3.30%. Asahi Glass Co. climbed 1.90%, Tokai Carbon rose 2.41% and Sumitomo Osaka Cement was up 3.31%.

Sea-transport related shipping stocks also ended in positive territory. Kawasaki Kisen Kaisha climbed 2.25%, Mitsui OSK Lines added 0.34% and Nippon Yusen edged up 0.30%.

In Australia, the benchmark S&P/ASX200 Index advanced 27.70 points, or 0.62%, at 4486 points, while the All-Ordinaries Index ended at 4,504, representing a gain of 29.30 points, or 0.65%.

On economic front, a report released by the Australian Bureau of Statistics revealed that producer prices at the final stage of production in the country rose in the June quarter, but at a less than expected pace. As per the report, the producer price index rose 0.3% between April and June, slowing from the 1% increase in the preceding quarter. Economists were looking for a 0.8% rise in producer prices for the quarter. The price of domestically produced items climbed 0.4% at the final stage of production in the June quarter, slower than the 1% increase in the March quarter. This was mainly due to price rises in building construction, and real estate agents, up 0.3% and 3.3% respectively.

Banks ended in positive territory following the release of stress test results of European banks on Friday. ANZ Bank advanced 1.43%, Commonwealth Bank of Australia added 0.49%, National Australia Bank gained 1.64% and Westpac Banking rose 1.85%. Investment banking company Macquarie Group ended in positive territory with a gain of 0.79%.

Retailers also looked up after Wesfarmers surprised the market with better than expected sales for the past 12 months, lifted by good performance of its subsidiary Coles. The stock price of Wesfarmers surged up 3.23%, while Woolworths advanced 0.62%. However, departmental stores operators ended in negative territory. David Jones lost 1.27%, and Harvey Norman plunged 3.01%.

Mixed trading was witnessed among the mining and metal stocks. BHP Billiton added 0.35%, Rio Tinto advanced 0.56%, Fortescue Metals climbed 3.80%, Gindalbie Metals rose 0.51%, Macarthur Coal gained 3.01%, and Murchison Metals was up 1.08%. However, Iluka Resources declined 0.36%, Mincor Resources fell 2.24%, and Oz Minerals ended in negative territory with a loss of 0.82%.

Mixed trading was witnessed among gold stocks. While Lihir Gold remained unchanged from previous close, Newcrest Mining ended in positive territory with a gain of 0.39%.

Oil stocks also ended mixed. Woodside Petroleum added 0.50%, Santos edged up 0.07%, ROC Oil Co gained 1.47% and Origin Energy advanced 0.13%. However, Oil Search bucked the trend and ended weaker with a loss of 1.02%.

The Indian market ended a lackluster session notably lower near the day's low on Monday, as caution set in ahead of RBI's monetary policy meet on Tuesday and car maker Maruti Suzuki reported weak quarterly numbers. Maruti Suzuki plunged over 12% after it posted a 20.37% fall in first-quarter net profit due to a surprise increase in royalty payments to its parent. Two-wheelers manufacturer Hero Honda Motors slumped 7.5% on reports that Japan's Honda Motor may divest its 6% stake in the company. Reversing its initial gain, the benchmark 30-share Sensex ended down 111 points or 0.61% at 18,020, while the 50-share Nifty fell 30 points or 0.56% to 5,419.

Among the other major markets open for trading, China's Shanghai Composite Index advanced 16.66 points, or 0.65% to 2,589, and Taiwan's Weighted Index added 26.23 points, or 0.34%, to close at 7,787. However, Singapore's Strait Times Index ended in negative territory with a loss of 6.48 points, or 0.22% to close at 2,967, and Indonesia's Jakarta Composite Index slipped 18.32 points, or 0.60%, to close at 3,024.

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The major European markets, which opened higher, reacting to the relatively positive stress test results, have given back their gains since then and are trading lower. The French CAC 40 Index and the German DAX Index are trading down 0.39% and 0.38%, respectively, while the U.K.’s FTSE 100 Index is receding 0.09%.

In corporate news, BP (BP) continues to be in the spotlight after it responded to media reports about the possible replacement of its CEO Tony Hayward. The company said no final decision has been made about management changes. U.K. media outlets had speculated that the company would announced that Hayward was negotiating the terms of his departure ahead of the release of the oil giant’s second quarter results and Robert Dudley, a managing director with the company, is being considered as a replacement for Hayward.

Media company Pearson reported that its first quarter net profits rose to 92 million pounds from 28 million pounds last year, as sales rose 8.8% to 2.34 billion pounds. Citing its stronger than expected performance in the first-half, the company raised its outlook for the full year.

On the economic front, property intelligence provider Hometrack said British house prices edged down 0.1% in July from the previous month. This marks the first decline in house prices in 15 months, according to Hometrack's indicator. On a yearly basis, house prices were still 2% higher in July, although this marks a slowdown from the 2.1% increase in the previous month.

Hometrack said the number of homebuyers registering with real estate agents fell by 1.3% from June, indicating shrinking demand. The property analyst said while part of the drop in demand was due to seasonal factors, the underlying trend in demand has been falling.

Economic News

Housing data continues to be in focus in the unfolding week along with the advance estimate of second quarter GDP and consumer confidence readings. The Commerce Department's new home sales report and the S&P Case-Shiller home price index for May are likely to be on the radar, as traders assess the economy's health following recent mixed readings.

Traders may also focus on the advance second quarter GDP report to be released by the Bureau of Economic Analysis on Friday, the results of the Conference Board's and the Reuters/University of Michigan's consumer sentiment surveys and the results of the ISM-Chicago's manufacturing survey. The Commerce Department's durable goods orders data, the Labor Department's employment cost index and the Federal Reserve's Beige Book round up the other economic events of the week. Traders may also pay attention to the results of a series of Treasury auctions spread over the week.

The GDP report is likely to reveal that second quarter GDP may have expanded almost at the same rate as in the first quarter. Consumer spending, which remained strong at the beginning of the quarter, leveled off and reversed course over the course of the quarter. Meanwhile, trade is unlikely to have contributed significantly to second quarter growth, as export growth slackened, primarily due to weak demand from Europe.

Durable goods orders for June are expected to have seen a small bounce, mainly due to firmer transportation equipment orders. Boeing's orders picked up in June, with the company reporting 49 aircraft orders in the month compared to 5 in May. The optimism is tempered slightly due to slowing activity in the manufacturing sector in recent months.

BMO Capital Markets expects consumer confidence to fall again in July, as the equity markets have continued to show volatility and job growth has remained soft. The firm noted that consumer confidence readings remain at recessionary levels, pointing towards a soft demand environment until the labor market strengthens.

The Commerce Department is due to release its new home sales report for June at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 310,000.

New home sales may have risen in June, although the magnitude of the rebound is likely to be very modest relative to May's outsized decline. The National Association of Home Builders' housing market index dipped to a more than 1-year low, and existing home sales fell 5.1% month-over-month in June. However, offering some comfort is the fact that the closing deadline of the government's first-time homebuyers' tax credit has been extended to September 30th from the earlier end date of June 30th.

In May, new home sales plummeted 32.7% month-over-month to a seasonally adjusted annual rate of 300,000 units. The consensus estimate had called for a mere 15% drop.

The estimate of new houses for sale at the end of the month edged down to 213,000 in May from 214,000 in April, the months of supply at the current sales rate surged up to 8.5 months from 5.8 months due to the much slower pace of sales.

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Sohu.com, Inc. (SOHU) reported that its second quarter revenues rose 15% year-over-year to $146.1 million. On a non-GAAP basis, net income came in at 96 cents per share. Analysts estimated earnings of 80 cents per share on revenues of $142.29 million. The company estimates total revenues of $153 million-$158 million and non-GAAP earnings of $1-$1.05 per share. The consensus estimates had called for earnings of 93 cents per share on revenues of $154.92 million.

Alberto-Culver (ACV) said its third quarter net sales rose 18.8% to $417.6 million. On an adjusted basis, earnings per share from continuing operations rose 30% to 39 cents per shares. Analysts estimated earnings of 37 cents per share on revenues of $391.31 million.

Other Corporate News

Procter & Gamble (PG) could be in focus after it said it is voluntarily recalling two specific lots of its prescription renal dry cat food as a precautionary measure as it has potential to be contaminated with salmonella. However, the company said that no illness has thus far been reported.

Pfizer (PFE) may see some activity after Japanese pharma firm Eisai said the U.S. FDA has approved a new once-daily, higher-dose Aricept 23 mg tablet developed by the company along with its partner Pfizer, for the treatment of moderate to severe Alzheimer’s disease.

Intuitive Surgical (ISGR) is expected to see some buying interest after it said its board has authorized the company to repurchase up to an additional $150 million worth of shares.

Fairchild Semiconductor (FCS) could also be in focus after it said it expects to appeal a federal court’s decision that it willfully infringed patents of Power Integrations (POWI). Fairchild said the ruling is inconsistent with repeated rejections of Power Integrations patents by the U.S. Patent Office.

Currency, Commodity Markets

Crude oil futures are edging down $0.63 to $78.35 a barrel after advancing $2.97 or 3.91% to $78.98 a barrel in the week ended July 23rd. The previous week saw the commodity going about a roller coaster ride before settling higher.

Oil broke a 3-session losing streak last Monday, advancing moderately, as the equity markets held their ground despite the insipid housing data. The equity market rally continued to offer support to oil on Tuesday, as it gained more than $1-a-barrel in Tuesday’s session.

Bernanke’s comments about the economic environment, which triggered the sell-off in equities on Wednesday, also weighed on oil, as it declined in the session. A bearish inventory report released during the day aggravated the weakness. However, the commodity rose sharply on Thursday amid earnings optimism and the release of the report showing a smaller-than-expected decline in existing home sales. Oil reversed course and declined modestly on Friday, as the hurricane threat from Tropical Storm Bonnie waned.

Gold futures, which edged down $0.40 to $1,187.80 an ounce in the previous week, are currently declining $1.40 to $1,186.40 an ounce.

On the currency front, the U.S. dollar rebounded in the week ended July 23rd, advancing against both the yen and the euro. The greenback gained 1.03% against the yen before ending the week at 87.4635 yen, while it edged up 0.19% against the euro at $1.2910.

Currently, the dollar is trading at 86.891 yen and is valued at $1.2926 versus the euro.

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