US & World Daily Markets Financial Briefing 27-07-2010

Stocks Wavering Amid Mixed Economic News

Stocks are looking for direction in mid-morning trading on Tuesday, as a disappointing reading on consumer confidence, a more sizable than forecast pickup in home prices and solid corporate earnings have mixed up market sentiment.

With consumers growing increasingly more pessimistic about the short-term outlook, the Conference Board released a report showing that consumer confidence retreated further in July after falling sharply in June.

The Conference Board said its consumer confidence index fell to 50.4 in July from an upwardly revised 54.3 in June. Economists had expected the index to slip to a reading of 51.0 compared to the 52.9 originally reported or the previous month.

Earlier, Standard and Poor's said the S&P/Case-Shiller 20-City Composite Home Price rose at an annual rate of 4.6 percent in May compared to the 3.8 percent growth seen in April. Economists had expected prices to increase at an annual rate of 4.0 percent.

S&P also said that the 20-City Composite Index rose 1.3 percent on a monthly basis in May following a 0.9 percent increase in the previous month.

In earnings news, chemical giant DuPont (DD) reported adjusted second-quarter net income of $1.17 per share, firmly topping forecasts for $0.93 per share. Net sales for the quarter came in at $8.62 billion, also beating expectations that called for $8.23 billion for the period.

Looking ahead, DuPont said it now expects full year earnings of $2.90 to $3.05 per share, up from its previous forecast of $2.50 to $2.70 per share. Analysts had expected earnings of $2.64 per share.

Valero Energy Corp. (VLO) reported second-quarter net income of $1.03 per share compared to a loss of $0.48 per share in the same quarter last year. Wall Street analysts expected the company to report earnings of $0.70 per share.

Meanwhile, BP Plc (BP) unveiled a $17.2 billion second-quarter loss due to $32.2 billion in charges related to the oil spill in the Gulf of Mexico. The loss came after a profit of $4.39 billion in the same period last year.

The firm also named managing director Robert Dudley as its new chief executive, replacing Tony Hayward, starting in October. Dudley will be the first American to head the company.

The major averages have continued to see choppy movement in recent dealing, remaining near the flat line. While the Nasdaq is down 2.31 points or 0.1 percent at 2,294.12, the Dow is up 12.87 points or 0.1 percent at 10,538.30 and the S&P 500 is up 0.57 points or 0.1 percent at 1,115.58.

Sector News

Banking stocks are showing strong moves to the upside despite a largely tepid outing by most market sectors. The KBW Bank Index is up by 1.4 percent, setting a two-week intraday high.

Regions Financial (RF) is helping to lead the banking sector higher after posting a narrower than expected second quarter loss. Shares of Regions are currently up 5.2 percent after reaching a nearly two-month intraday high in early trading.

Computer hardware, healthcare provider and utility stocks are also trading higher, while weakness among gold, steel, and railroad stocks is limiting the upward mobility in the markets.

Notably, the Dow Jones Railroads Index is down by 1.2 percent, slipping off of the more than one-month closing high set in the previous session.

Stocks Driven By Analyst Comments

Werner Enterprises (WERN) is trading lower after being downgraded at Deutsche Bank from Buy to Hold. The broker said that a recovery in truckload rates has already been price into the stock. Shares are down by 0.7 percent, falling further from last Friday's nearly two-year closing high.

On the other hand, Costco (COST) is trading higher after Stifel Nicolaus raised its rating on the stock from Hold to Buy. The stock is up by 1.6 percent after setting a one-month intraday high in earlier trading.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw a mixed close on Tuesday. Japan's benchmark Nikkei 225 inched down by 0.1 percent, while Hong Kong's Hang Seng Index gained 0.6 percent.

Meanwhile, the major European markets are all seeing gains. The French CAC 40 Index is up by 1.2 percent, while the U.K.'s FTSE 100 Index and the German DAX Index are up by 0.4 percent and 0.3 percent, respectively.

In the bond markets, treasuries are seeing moderate weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 3.032 percent, posting a gain of 3.8 basis points.

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Canadian Markets Report

TSX May Open Higher Amid Firm Oil, Global Cues

Bay Street stocks are poised for a higher open Tuesday amid firm oil prices and positive cues from the global markets. Encouraging quarterly numbers from some Canadian companies may also help lift trader sentiment.

On Monday, the S&P/TSX Composite Index added 31.87 points or 0.27% to 11,746.07, after hovering around the unchanged line for most of the day.

The price of crude oil edged up amid a weak U.S. dollar and advancing equities. Crude for September delivery was up $0.57 to $79.55 a barrel.

The price of gold was little changed, with gold for August easing $0.60 to $1,182.50 an ounce. Financial stocks may be in play after encouraging quarterly numbers from Deutsche Bank AG and UBS AG.

UBS swung to profit in second quarter, reporting net earnings of CHF 0.52 per share, compared to a loss of CHF 0.39 per share in the year ago period. Deutsche Bank reported second quarter net earnings of EUR 1.75 per share versus EUR 1.64 per share a year earlier. Also, the Basel Committee on Banking Supervisions softened bank capital rules and set a leverage cap.

In corporate news from Canada, investment firm Onex Corp. and the Canada Pension Plan Investment Board have agreed to acquire U.K. based engineering and manufacturing company Tomkins plc for about $4.5 billion.

Oil and gas firm Talisman Energy reported improved second quarter net income of C$0.59 per share, compared to C$0.06 per share in the year ago period. The gain was largely due to a rise in the mark-to-market value of contracts this quarter, versus a hefty loss a year ago.

Information technology services provider CGI Group Inc. said its third-quarter net earnings increased to C$0.30 per share from C$0.25 per share in the prior year quarter.

Communications and media company Rogers Communications reported improved second-quarter net income of C$0.80 per share, up from C$0.65 per share last year.

Bio pharmaceutical company QLT Inc. said it slipped into red in second quarter, reporting net loss of $0.02 per share, compared to a profit of $0.16 per share in the previous year, impacted by a foreign exchange loss compared to a gain last year. Analysts were expecting the company to report a net loss of $0.04 per share this quarter.

Bio-pharmaceutical company Theratechnologies said that a shareholder plans to file a class action lawsuit against the company on behalf of shareholders who sold their stock just before the company reported a key step towards approval for marketing its tesamorelin drug.

Industrial products and services company Samuel Manu Tech said its controlling shareholder, Samuel, Son & Co will acquire all of the outstanding common shares in the capital of SMT that Samuel does not already own for C$7.5 per share.

Gold explorer Nevada Exploration said it would offer up to 20 million units on a private placement basis at $0.05 per unit for total gross proceeds of up to $1 million.

Cliffs Natural Resources Inc. announced that it has increased its ownership of Spider Resources Inc. to 85% after taking up and paying for an additional 22.2 million Spider shares validly tendered to its offer.

Elsewhere, the Asian markets ended mixed taking cues from an overnight gain on Wall Street.

Meanwhile, European stocks were extending gains amid upbeat economic data and encouraging quarterly earnings numbers from Deutsche Bank AG and UBS AG. Investors sentiment also boosted after the Basel Committee came to agreement over a series of new rules for banks so that they can withstand future shocks in the financial sector.

The Committee said the new measures, including a mandatory capital buffer for banks, must be implemented over a period of five years from 2013 to 2018.

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Asia Markets Report

Indian Market Ends Modestly Higher

The Indian market ended a lackluster session modestly higher on Tuesday after the Reserve Bank of India raised its repo rate by 25 basis points (bps) and the reverse repo rate by 50 bps, as expected, and left the cash reserve ratio (CRR) unchanged.

The central bank, headed by Duvvuri Subbarao, also lifted its economic growth outlook for 2010-11 to 8.5% from 8% and revised inflation outlook upwards to 6% from 5.5% in the April policy statement.

Firm global cues also offered some support. Most Asian stocks rose on Tuesday, lifting the MSCI Asia Pacific index by about half a percent, after a stronger than expected rebound in new U.S. home sales and upwardly revised guidance from shipper FedEx boosted sentiment.

European stocks gained for a sixth consecutive session, as UBS AG and Deutsche Bank AG reported forecast beating earnings and the Basel Committee on Banking Supervision eased some of its proposed capital and liquidity rules, mitigating concerns about capital raising. The U.S. index futures also edged higher.

Back home, the 30-share Sensex ended up about 60 points or 0.32% at 18,072. while the 50-share Nifty rose by 12 points or 0.22% to 5,431. However, in the broader market, declining shares outpaced gaining ones by 1520 to 1369 on the BSE.

Banking stocks such as HDFC Bank, Bank of India, IDBI Bank, ICICI Bank, SBI and PNB rose between 0.67% and 1.38%.

Realty stocks bounced back as investors saw no immediate impact on interest rates. Unitech, Indiabulls Real Estate, DLF, HDIL and Sobha Developers rose by 1%-3%.

In the auto sector, car maker Maruti Suzuki (up 1.41%) and two-wheeler maker Hero Honda Motors (up 2.97%) gained on bargain hunting after tumbling in the previous session. Shares of Bajaj auto struck a record high, gaining about 5%, and Tata Motors ended up over 3%.

Ashok Leyland (down marginally) and Larsen & Toubro (down 2.94%) eased despite announcing quarterly earnings in line with market estimates.

Fast-moving consumer goods maker Hindustan Unilever slipped 0.46% after it reported a modest 2% decline in quarterly net profit. However, other FMCG stocks like Nestle India and ITC closed up with modest gains. Godrej Consumer Products, which posted a 67% rise in first-quarter net profit, soared over 6%.

Explorer Essar Oil fell 1.49% after it swung to a Rs.70 crore loss in the June quarter. Tech Mahindra slumped 3.67% and NTPC closed unchanged on disappointing results.

Drug maker Glenmark Pharmaceuticals edged up 0.28% after reporting nearly a three-fold jump in its first-quarter consolidated net profit. Heavyweight Reliance Industries ended up 0.14% ahead of its results announcement due after the market close today.

Diamond Power Infrastructure rose 0.58% after it raised Rs 114 crore via a qualified institutional share placement. Titan Industries (up 1.33%) and Jyothy Laboratories (up 2.97%) closed firm on forecast beating results. Opto Circuits (India) fell 2.75% after it acquired U.S. based Unetixs Vascular Inc for $9.7 million. JSW Steel slipped 0.81% after Japan's JFE Holdings agreed to invest $1.1 billion to buy a 15% stake in the company.

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European Markets

The major European markets are rallying for the fifth straight session on Tuesday, capitalizing on positive earnings and encouraging economic data. The French CAC Index and the German DAX Index are advancing 1.17% and 0.64%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.83%.

In corporate news, UBS reported a second quarter net profit of 2 billion Swiss Francs, reversing from a loss of 1.41 billion Swiss Francs, as net trading revenues climbed to 3.45 billion Swiss Francs from 220 million Swiss Francs. Investment banking business reported solid growth, helped partly by a 599 million Swiss Francs gain on its own debt.

Meanwhile, Deutsche Bank said its second quarter profit rose to 1.16 billion euros from the year-ago’s 1.09 billion euros. The company said it was still on track to achieve its pre-tax profit guidance of 10 billion euros by 2011.

SAP (SAP) reported more than 15% second quarter profit growth to 491 million euros. Software and software related services revenues were 16% higher. The company raised the low-end of its software-related service revenue growth guidance to 6% from 4%, while maintaining the high end at 8%.

BP (BP) confirmed speculation today, announcing the departure of CEO Tony Hayward, effective October 1st. Hayward will be replaced by Robert Dudley. The company also reported a second quarter loss of $17.15 billion compared to a profit of $4.39 billion last year, as the company recorded a pre-tax charge of $32.2 billion related to the oil spill in the Gulf of Mexico. The company also plans to dispose of $30 billion worth of assets over the next 18 months.

On the economic front, the German Federal Statistical Office reported that German import prices rose 9.1% year-over-year in June, marking the sharpest annual increase since November 2000. On a monthly basis, import prices were up 0.9%. Export prices rose 3.9% year-over-year and were 0.4% higher than in the previous month.

The GfK Institute’s consumer confidence survey showed that its forward - looking consumer confidence index for August rose to 3.9 from July’s upwardly revised reading of 3.6. Economists estimated a reading of 3.5. The income expectations indicator jumped 20 points to 29.1, reflecting an increase in economic optimism, while the indicator related to the propensity to buy edged down 2.5 points, although it remained at an elevated level of 27.9.

Economic News

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 4% year-over-year increase in the 20-city composite house price index for May.

U.S. house prices rose 3.8% year-over-year in April compared to the 3.4% growth expected by economists. On a monthly basis, house prices rose 0.4% on a seasonally adjusted basis, snapping a 2-month declining run.

The Conference Board is scheduled to release its consumer confidence report for June at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index fell to 51 in July.

The consumer confidence index fell 9.8 points to 52.9 in June, marking its lowest level in 3 months. The present situation index fell 4.3 points compared to a 13.4-point drop by the expectations index.

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Stocks in Focus

Jacobs Engineering (JEC) said its third quarter adjusted earnings fell to 63 cents per share compared to net earnings of 76 cents per share last year. Revenues fell to $2.5 billion from the year-ago’s $2.7 billion. The consensus estimates had called for earnings of 60 cents per share on revenues of $2.59 billion. The company tightened its adjusted earnings outlook for the full year, expecting earnings of $2.15-$2.65 per share compared to its earlier outlook of $2.30-$2.65 per share. Analysts estimate earnings of $2.43 per share.

Meanwhile, Fluor (FLR) reported second quarter earnings of 87 cents per share, lower than 93 cents per share last year. Revenues declined to $5.2 billion from the year-ago’s $5.3 billion. Despite the declines, the results exceeded estimates. The company noted that new project awards were a record $9.3 billion. The company also raised the low-end of its 2010 earnings per share guidance by 10 cents to $2.90, while it maintained the high-end at $3.20 per share. Analysts estimate earnings of $2.93 per share.

Owens & Minor’s (OMI) second quarter revenues edged up to $2.02 billion from the year-ago’s $2.01 billion. The company’s income from continuing operations rose 2 cents to 46 cents per share. The results were below the consensus estimates. The company reduced its earnings estimate for 2010, with the company now expecting earnings to come in at the low end of its previous guidance of $1.93-$2.03 per share, which is below the consensus estimate of $1.98 per share.

Crane (CR) is likely to see some activity after it said its second quarter adjusted earnings rose 33% to 66 cents per share. Sales were up 1.3% to $552.8 million. The consensus estimates had called for earnings of 59 cents per share on revenues of $543.12 million. The company raised its earnings estimate for the full year to $2.35-$2.50 per share from its previous guidance of $2.15-$2.35 per share, while analysts estimate earnings of $2.39 per share. The company also announced a 15% increase in its quarterly dividend to 23 cents per share.

Alcon’s (ACL) second quarter sales rose 12.5% to $1.89 billion. The company reported adjusted earnings of $2.22 per share compared to $1.94 per share last year. The results exceeded expectations. The company also raised its 2010 earnings guidance to $7.45-$7.62 per share, surrounding the consensus estimate of $7.54 per share.

Health Management (HMA) reported second quarter net revenues of $1.25 billion, while net income rose 3 cents to 16 cents per share. Analysts estimated earnings of 15 cents per share on revenues of $1.26 billion.

Sanmina SCI (SANM) reported third quarter revenues of $1.63 billion, up 6.4% year-over-year. The company reversed to a profit of 32 cents per share on a non-GAAP basis compared to a loss of 14 cents per share last year. Analysts estimated earnings of 34 cents per share on revenues of $1.60 billion. For the fourth quarter, the company expects non-GAAP earnings of 35-41 cents per share on revenues of $1.65 billion to $1.70 billion. The consensus estimates call for earnings of 38 cents per share on revenues of $1.65 billion.

Teva (TEVA) said its second quarter non-GAAP earnings rose 30% to $1.08 per share on 12% sales growth to $3.8 billion. Analysts estimated earnings of $1.04 per share on revenues of $3.79 billion.

DuPont reported second quarter adjusted earnings that rose to $1.17 per share from 61 cents per share last year. Sales climbed 26% to $8.6 billion. Analysts estimated earnings of 93 cents per share on revenues of $8.27 billion. The company raised its full year adjusted earnings guidance to $2.90-$3.05 per share from its earlier estimate of $2.50-$2.70 per share, with the company attributing the optimism partly to its better than expected second quarter earnings. The consensus estimate calls for earnings of $2.64 per share.