US & World Daily Markets Financial Briefing 27-08-2010

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Volatility Rampant On Wall Street In Mid-Morning Trading

Stocks are seeing volatile swings in mid-morning trading on Friday, as traders continue to digest the latest economic data as well as commentary from Federal Reserve Chairman Ben Bernanke. The major averages are all currently in positive territory, near session highs.

The Dow is up 59.94 points or 0.6 percent at 10,045.75, the Nasdaq is up 10.77 points or 0.5 percent at 2,129.46 and the S&P 500 is up 4.46 points or 0.4 percent at 1,051.68.

In comments issued a short time ago, Bernanke indicated that the Fed would mull over the purchase of additional securities should economic conditions worsen amid the slowing recovery. Despite indicating consideration of these easing measures, the Fed chief stopped short of promising any action at the current time.

Bernanke also stated that the recovery has slowed to a slower than expected pace, calling the economic outlook "inherently uncertain" and further stressing that the fragile economy "remains vulnerable to unexpected developments."

Also on the economic front, Thomson Reuters and the University of Michigan said that their consumer sentiment index for August was downwardly revised to 68.9 from the previous estimate of 69.6, although it remains above the July reading of 67.8.

The downward revision came as a surprise to economists, who had expected the index to be revised up to a reading of 70.0.

Earlier this morning, the Commerce Department reported that GDP growth in the second quarter was downwardly revised to 1.6 percent from the advance estimate of 2.4 percent. Economists had been expecting second quarter GDP growth to be revised down to 1.4 percent.

In the latest development in the bidding war for electronic storage firm 3Par (PAR), Hewlett Packard (HPQ) has raised its bid for the firm to $30 per share after Dell (DELL) matched HP's offer of $27 per share this morning.

Boeing Co. (BA) is also in the spotlight after the aerospace giant announced another delay for its 787 Dreamliner aircraft. The firm said it now expects the jet to be ready during the first quarter of 2011 due to delays related to the aircraft's engine.

In earnings news, jeweler Tiffany & Co. (TIF) reported adjusted second-quarter earnings that edged out estimates, while revenues were short of expectations.

Software solutions provider Novell Inc. (NOVL) said that its third-quarter profit declined by 6 percent from last year, with both earnings and revenues coming in lower than expected by analysts.

Sector News

Electronic storage stocks are showing notable strength in mid-morning trading, with the NYSE Arca Disk Drive Index up by 1.8 percent. The upward move is lifting the index off of the one-year closing low set in the previous session.

Steel stocks are also seeing buying interest resulting in a 2 percent advance by the NYSE Arca Steel Index. With the move, the index is bouncing off of the five-week closing low set on Thursday.

Oil service, semiconductor, airline and housing stocks are also on the upside, while weakness is visible among tobacco stocks, driving the NYSE Arca Tobacco Index down by 0.4 percent.

Stocks Driven By Analyst Comments

Tesoro (TSO) is trading higher after being upgraded at RBC Capital Markets to Outperform based on its margin outlook. The stock is up by 3.4 percent, bouncing off of a seven-week closing low.

Men's Wearhouse (MW) is also on the upside following an upgrade by JP Morgan Chase to Overweight from Neutral. Shares are currently up by 4.5 percent, setting a one-month intraday high.

Other Markets

Overseas, stock markets in the Asia-Pacific region saw a mixed close on Friday. Japan's benchmark Nikkei 225 Index gained 1 percent, while Hong Kong's Hang Seng Index edged down by 0.1 percent.

The major European markets are also seeing a mixed performance. The French CAC 40 Index is down by 0.7 percent, while the German DAX Index is nearly flat and the U.K.'s FTSE 100 Index is up by 0.2 percent.

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 2.546 percent, posting a gain of 4.7 basis points.

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TSX May Edge Up At Open Amid Recovering Energy, US GDP

Toronto stocks may edge up at open Friday amid recovery in energy prices and firm cues form the European markets. However, financial stocks may be in play amid a mixed bag of earnings reports from some key Canadian banks this week.

On Thursday, the S&P/TSX Composite Index edged up 5.06 points or 0.04% to 11,653.18, after gaining 0.78% in the previous session.

The price of crude oil continued to recover from its 3-month low for a third day, with crude for October delivery adding $ 0.40 to $73.76 a barrel.

The price of gold was trading steady at its 8-week high, with gold for December gaining $4.90 to $1,242.60 an ounce.

Meanwhile, India today insisted that it would ban some Blackberry services if Research In Motion did not allow access to track its email and instant messaging services, citing national security.

Potash of Saskatchewan remains in focus after the Globe and Mail reported that Chinese state company Sinochem is preparing a takeover bid to rival BHP Billiton.

Insurance company Manulife Financial and Ace Ltd of Switzerland are reportedly among bidders for some of the Asian assets of New York Life Insurance Co. that are up for sale.

Mineral exploration company Lexam Explorations reported a net loss for the second quarter of C$323,193 or C$0.01 per share, compared to net income of C$59,416 or C$0.00 per share for the year-ago quarter.

Base metals miner Iberian Minerals turned to profit in second quarter, reporting net income of $90.5 million or $0.27 per share as against a loss of $39.28 million or $0.13 per share in the same quarter last year.

Radio Frequency Identification technology solutions provider IPICO Inc. reported a narrower second quarter net loss of $0.03 per share, compared to $0.05 per share in the same quarter last year.

Complex data solutions provider Epic Data International slipped into the red in third quarter, reporting net loss of C$0.02 per share, compared to a net income of C$0.01 per share in the same quarter last year.

Oil and gas firm Painted Pony Petroleum reported net income for the second quarter of C$350 thousand or C$0.01 per share, compared to a net loss of C$1.97 million or C$0.06 per share in the year-ago quarter.

Junior oil and gas explorer Second Wave Petroleum reported a narrower second quarter net loss of C$1.58 million or C$0.02 per share, compared to C$4.14 million or C$0.11 per share in the year ago quarter.

Building products company Whitemud Resources reported a narrower second quarter net loss of C$0.07 per share, compared to a net loss of C$0.12 per share for the year-ago quarter.

Mobile data solutions company TrueContext Mobile Solutions slipped into the red in second quarter, reporting net loss of $0.47 million as compared to a net income of $0.73 million in the same quarter last year.

In economic news from south of the border, the U.S. Commerce Department said that GDP growth in the second quarter was downwardly revised to 1.6% from the advance estimate of 2.4% . Economists were expecting second quarter GDP growth to be revised down to 1.4%.

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Asian Markets End Mixed In Cautious Trading

Mixed trading was witnessed among the Asian markets open for trading on Friday, the last day of the trading week, as most of the traders turned cautious ahead of the GDP report for the second quarter and Fed Chairman Ben Bernanke's speech at the Jackson Hole in the US. Weak closing on Wall Street in the previous session despite better than expected drop in weekly jobless claims also impacted market sentiment. Expectations of fresh measures to arrest the strengthening of the yen against the dollar and the euro lifted export-related stocks in Japan. The markets in India, Hong Kong and South Korea ended in negative territory, while the markets in Japan, Australia, China, Singapore and Taiwan ended in positive territory with modest gains.

In Japan, the benchmark Nikkei 225 Index closed up 84.58 points, or 1.0%, to 8991.06, while the broader Topix index of all First Section issues rose 7.83 points, or 1.0%, to 820.

On the economic front, the Ministry of Internal Affairs and Communications revealed that the unemployment rate in the country was a seasonally adjusted 5.2% in July, coming in at 3.31 million people. Analysts expected the unemployment rate at 5.3% for the month, same as in June. The report further noted that the the number of employed persons in July was 62.71 million, an increase of 10,000 from the previous year. The report further stated that the job-to-applicant ratio was 0.53 for July, in line with forecasts and rising slightly from 0.52 in the previous month.

In a separate report, the Ministry of Internal Affairs and Communications revealed that consumer prices declined 1.1% year-on-year in July, falling for the 17th consecutive month. Analysts expected a 1% decline in consumer prices for the month. The report further noted that overall inflation also matched expectations at -0.9% after shedding 0.7% on year in the previous month.

In yet another report, the Ministry of Internal Affairs and Communications revealed that the average of monthly consumption expenditures per household was up 1.1% on year in July, standing at 285,274 yen. The report further noted that the average monthly income per household stood at 562,094 yen, down 1% in real terms from the previous year. The average consumption expenditure was 319,659 yen per household, up 1.0% in real terms from the previous year.

Stocks of exporters led the gains on optimism about steps to tackle the firming yen. Sony Corp. climbed 2.65%, Sharp Corp. advanced 1.20%, Panasonic Corp. gained 1.32%, Canon Inc. added 0.86% and Advantest Corp. was up 1.72%. Among the electric machinery stocks, Fanuc Ltd rose 1.52%, Tokyo Electron climbed 2.62%, Kyocera Corp. added 0.14% and Mitsubishi Electric Corp. gained 1.43%.

Trading companies also ended in positive territory. Toyota Tsusho Corp. gained 1.75%, Sumitomo Corp. climbed 2.07%, Mitsubishi Corp. advanced 0.83%, Itochu Corp. increased by 2.20% and Mitsui & Co., was up 0.79%.

Real estate stocks also ended in positive territory. Sumitomo Realty & Development gained 1.82%, Mitsubishi Estate added 0.78%, Tokyu Land Corp. rose 1.51% and Heiwa Real Estate increased by 1.52%.

In Australia, the benchmark S&P/ASX200 Index advanced 14.10 points, or 0.32%, and closed at 4,370 points, while the All-Ordinaries Index ended at 4,404, representing a modest gain of 14.70 points, or 0.33%.

Mixed trading was witnessed among the mining and metal stocks. BHP Billiton declined 0.24%, Rio Tinto slipped 0.30%, Mincor Resources shed 0.85%, and Murchison Metals lost 1.02%. Minara Resources ended unchanged from previous close. However, Fortescue Metals ended in positive territory with a gain of 1.78%, Gindalbie Metals advanced 0.56%, Macarthur Coal advanced 0.54% and Oz Minerals was up 0.42%.

Oil related stocks also witnessed mixed trading. Woodside Petroleum slipped 0.85% and ROC Oil lost 1.41%. However, Santos gained 1.63%, Oil Search advanced 0.53% and Origin Energy ended in positive territory with a gain of 0.07%.

Gold related stocks ended in negative territory. Lihir Gold declined 2.01% and Newcrest Mining was down 1.97%.

Banking stocks also ended mixed. ANZ Bank slipped 0.13% and investment banker Macquarie Group was down 0.79%. However, Commonwealth Bank of Australia advanced 0.47%, National Australia Bank added 0.17% and Westpac Banking climbed 0.93%.

Weak global cues dragged the Indian market sharply lower on Friday ahead of a U.S. report on second-quarter GDP later in the day. Investors also eagerly awaited a speech by Federal Reserve Chairman Ben Bernanke for more clarity on what measures the Fed might announce at the central bank's annual conference to prevent deflation and a double-dip recession. After trading weak in a narrow range in the first half of the session, the 30-share Sensex lost further ground in the afternoon before ending down 228 points or 1.25% at 17,998, while the 50-share Nifty fell by 39 points or 1.26% to close at 5,409.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 7.26 points, or 0.28% at 2,611, Singapore's Strait Times Index advanced 12.87 points, or 0.44%, to 2939, and Taiwan's Weighted Index rose 33.17 points, or 0.43%, to 7,723. However, Jakarta Composite Index in Indonesia bucked the trend and ended in negative territory with a loss of 40.40 points, or 1.28%, to close at 3,105.

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The major European markets are mostly higher on Friday, extending the gains in the previous session. Traders adopted a cautious stance ahead of a key U.S. consumer sentiment report and speech by the Fed Chairman.

The French CAC 40 Index and the German DAX Index are rising 0.53% and 0.01%, respectively, while the U.K.’s FTSE 100 Index is moving up 0.11%.

In economic news, the U.K. Office for National Statistics showed that the U.K. economy grew at an upwardly revised 1.2% rate in the second quarter compared to the 1.1% growth estimated initially, with the revision reflecting an upward revision to construction output growth. The year-over-year growth was also upwardly revised to 1.6%.

The German Federal Statistical Office reported today that Germany’s import price index rose 9.9% year-over-year in July compared to a 9.1% increase in June. Economists had estimated a 9.7% increase. However, on a monthly basis, import prices slid 0.2%, less severe than the 0.4% drop expected by economists. Export prices also increased, rising 4.1% year-over-year. In June, the increase was a more modest 3.9%.

U.S. Economic Reports

Economic activity in the second quarter expanded by far less than previously estimated, according to a report released by the Commerce Department, although the downward revision to the pace of gross domestic product growth was not quite as severe as economists had expected.

The Commerce Department said that GDP growth in the second quarter was downwardly revised to 1.6% from the advance estimate of 2.4%. Economists had been expecting second quarter GDP growth to be revised down to 1.4%.
The Reuters/University of Michigan's final report on the consumer sentiment index for August is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be upwardly revised to 70.

Federal Reserve Chairman Ben Bernanke is due to speak in Jackson Hole at Wyoming, at 10 AM ET.

Stocks in Focus

Earnings

International Rectifier (IRF) reported that its fourth quarter net income fell to 41 cents per share from 56 cents per share last year. Revenues rose to $263.8 million from $241.9 million last year. Analysts estimated earnings of 26 cents per share on revenues of $258.66 million. Analysts’ estimates typically exclude one-time items. For the first quarter, the company estimates revenues of $275 million to $280 million, while analysts estimate revenues of $266.17 million.

Novell (NOVL) said its third quarter non-GAAP earnings fell to 6 cents per share from 7 cents per share last year. Net revenues fell to $199 million from the year-ago’s $216 million. The consensus estimates had called for earnings of 7 cents per share on revenues of $200.17 million.

J. Crew (JCG) said its second quarter net income rose to 53 cents per share from 29 cents per share last year. Revenues rose 14% to $407.5 million. The results exceeded expectations. The company reduced its 2010 earnings guidance to $2.25-$2.35 per share from $2.35-$2.45 per share. For the third quarter, the company estimates earnings of 55-60 cents per share. Analysts estimate earnings of $2.46 per share for the year and 71 cents per share for the third quarter.

Other Corporate News

Hewlett-Packard (HPQ) and Dell (DELL) could see some activity in connection with the bidding war they are waging for 3PAR (PAR). HP announced a revised bid for 3PAR on Thursday, exceeding Dell’s revised offer of $24.30 per share. In retaliation, earlier today, Dell launched a counter-bid, equaling HP’s offer.

Hutchinson Technology (HTCH) could be in focus after it announced the promotion of corporate controller David Radloff to the post of CFO following the resignation of Steve Polacek from the position. Polacek is leaving to accept a position at another company.

Boeing Co. (BA) could react to its announcement that it has postponed the delivery of the first 787, citing a delay in engine availability from Rolls Royce. The Dreamliner is now expected to be delivered by the middle of the first quarter of fiscal 2011. The company’s earlier scheduled placed the delivery date at the end of 2010, although the company cautioned last month that the delivery date could be postponed to a few weeks into 2011.

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Dollar Pauses For Bernanke Speech, GDP Figures

The major currencies stood practically still Friday morning as all eyes turned to Jackson Hole, Wyoming, in search of clarity on the Federal Reserve's strategy to keep the fragile economic recovery going.

With the economy losing momentum, Federal Reserve Chairman Ben Bernanke has joined other central bankers and small army of economists in the shadows of the Grand Tetons for the Kansas City Fed's annual symposium.

Jean-Claude Trichet of the European Central and Masaaki Shirakawa of the Bank of Japan are also on hand for the meeting.

Bernanke will speak at 10 am ET, and the markets will be looking for any clues about the Fed's next move, which could range from further quantitative easing to a modest rate hike.

Bernanke's talk will come after the government releases its second estimate on second quarter economic growth at 8:30 am ET. Economists predict that the initial estimate of 2.4 percent growth could be pared nearly in half to 1.3 percent.

Also, the Reuters/University of Michigan's final report on the consumer sentiment index for August will be released at 9:55 am ET. Analysts expect that the sentiment index to be upwardly revised to 70.0 from the preliminary reading of 69.6.

The dollar was on pause near a 15-year low versus the yen after Japanese Prime Minister Naoto Kan said officials were prepared to take bold actions to halt the rapid rise of the yen.

The buck fetched Y84.75 approaching 8 am ET, a modest improvement from this week's 15-year low of Y83.58.

The dollar was stable near $1.27 versus the euro, having drifted slightly lower over the course of the week.

Versus the sterling, the dollar was little changed at $1.5510 following news that the U.K. economy grew 1.2% sequentially in the second quarter, revised up from 1.1%.

Gross domestic product was 1.7% higher than the second quarter of 2009. The annual growth rate was also revised up, from 1.6%.