US & World Daily Markets Financial Briefing 28-10-2010

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Stocks Turn Lower After Seeing Early Strength

After seeing some early strength on Thursday, stocks have turned lower over the course of morning trading despite an unexpected drop in weekly jobless claims. The markets may be in a holding pattern until after next week's Federal Reserve meeting and the midterm elections.

The major averages have pulled back well off their highs for the session and fallen into negative territory. The Dow is currently down 25.12 points or 0.2 percent at 11,101.16, the Nasdaq is down 9.19 points or 0.4 percent at 2,494.07 and the S&P 500 is down 2.54 points or 0.2 percent at 1,179.91.

Before the start of trading, the Labor Department reported that initial jobless claims fell to 434,000 in the week ended October 23rd from the previous week's revised figure of 455,000. The decrease surprised economists, who had expected claims to edge up to 458,000 from the 452,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since coming in at 427,000 in the week ended July 10th. Excluding the figure from early July, which was distorted by the July 4th holiday, jobless claims were at their lowest level since August of 2008.

Peter Boockvar, equity strategist at Miller Tabak, said, "Bottom line, the drop in initial claims is very encouraging and hopefully sustainable but because of seasonal adjustment issues, let's wait one more week before we conclude today is the beginning of a trend."

"The next part of the equation though is job hiring," he added. "Maybe after next week companies will get more clarity on both fiscal and monetary policy."

In earnings news, 3M (MMM) reported third-quarter net income of $1.53 per share compared to $1.35 per share a year ago. Worldwide sales totaled $6.9 billion in the third quarter, up 11 percent from $6.19 billion in the same period last year.

On average, analysts expected 3M to report earnings of $1.51 per share on revenues of $6.83 billion for the period.

Additionally, Exxon Mobil Corp. (XOM) said its third-quarter net income rose to $1.44 per share, topping estimates of $1.39 per share for the quarter. Total revenues came in at $95.30 billion, which was short of forecasts for $98.11 billion.

After the markets closed for trading in the previous session, Symantec Corp. (SYMC) posted second quarter earnings and revenues that topped estimates. For the third quarter, the firm's earnings forecast was in-line, while its revenue guidance came in above estimates.

Meanwhile, British biopharmaceutical company AstraZeneca Plc (AZN) reported a sharp decline in its third-quarter profit, as generic competition and the absence of H1N1 vaccine revenues recorded last year dragged down U.S. performance.

However, AstraZeneca's core earnings and revenues met estimates. The company also tightened its full-year earnings guidance, lifting the lower end of the range.

Sector News

Despite the downturn by the broader markets, strength remains visible among gold stocks, with the NYSE Arca Gold Bugs Index up by 1.4 percent. The upward move by the index comes as the price of the precious metal has risen by $9.70 to $1,332.30 an ounce.

Healthcare provider stocks are also seeing continued strength after Health Management Associates (HMA) reported third quarter earnings and revenues that beat estimates. Shares of Health Management are currently up 6.7 percent after reaching a four-month intraday high.

On the other hand, considerable weakness has emerged among trucking stock, as reflected by the 1.3 percent loss currently being shown by the Dow Jones Trucking Index. The index is pulling back further off the two-year closing high it set on Monday.

Housing, oil service, and electronic storage stocks have also shown notable moves to the downside. The Philadelphia Housing Sector Index is currently down by 1.1 percent and on pace for a two-month closing low.

Stocks Driven By Analyst Comments

Comcast (CMCSA) is trading on the upside after Kaufman raised its rating on the stock from Hold to Buy. The broker also boosted its target from $21 to $25. Shares are currently up by 1.5 percent after setting a two-year intraday high earlier on.

Meanwhile, Research In Motion (RIMM) is trading lower after analysts at Oppenheimer lowered their rating on the stock from Outperform to Perform. The stock is down by 2.8 percent, pulling back off of the two and a half month closing high set on Wednesday.

Other Markets

Overseas, stock markets in the Asia-Pacific region saw a mixed close on Thursday. Hong Kong's Hang Seng Index gained 0.2 percent, while Japan's benchmark Nikkei 225 Index slid by 0.2 percent.

Meanwhile, the major European markets are seeing some strength but have moved off their best levels. The U.K.'s FTSE 100 Index and the German DAX Index are up by 0.5 percent and 0.4 percent, respectively, while the French CAC 40 Index is up by 0.2 percent.

In the bond markets, treasuries are showing modest strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.674 percent, posting a loss of 3.8 basis points.

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TSX Looks To Open Higher Amid Strong Earnings Reports

Toronto stocks are poised to open higher Thursday amid a recent batch of encouraging earnings reports from major companies. A marginal recovery in commodities prices and strong cues from the global equity markets are also likely to help lift trader sentiment.

On Wednesday, the S&P/TSX Composite Index retreated from its 2-year peak, shedding 117.43 points or 0.93% to 12,567.25.

The price of crude oil was little changed Thursday morning as traders mulled over the mixed data on U.S. crude oil inventories. Wednesday, the EIA revealed U.S. crude oil inventories moved up by 5.0 million barrels, while gasoline inventories were down by 4.40 million barrels in the week ended October 22. Analysts were expecting crude oil inventories pile up by 700,000 barrels, while gasoline stocks are seen dropping 200,000 barrels last week. Crude for December moved up $0.55 to $82.49 a barrel.

Gold stocks may be in play amid strong earnings reports from major companies, including Gold Corp and Barrick Gold.

The price of gold moved up amid a marginal weakness in the U.S. dollar. Gold for December gaining $13.70 to $1,336.30 an ounce.

In corporate news from Canada, fertilizer company Potash Corp. reported higher third quarter net income of $402.7 million or $1.32 per share, up from $247.9 million or $0.82 per share last year. Analysts were expecting the company to report earnings of $1.16 per share. The company guides 2010 net income to be in the range of $5.75-$6.00 per share, compared to prior estimate of $5.00-$5.50 per share. Analysts expect the company to earn $5.62 per share.

Precious metals miner Goldcorp Inc. reported improved third-quarter net earnings of $466.5 million or $0.63 per share, up from $114.2 million or $0.16 per share in the third quarter of 2009. However, net earnings were $231.5 million or $0.31 per share up from $140.6 million or $0.19 per share and matching consensus estimates. The company announced a 100% increase in the dividend to $0.36 per share.

Gold producer Barrick Gold Corp. swung to profit in third quarter reporting net income of $837 million or $0.84 per share, compared to net loss of $5.35 billion or $6.07 per share last year. Adjusted net income rose to $829 million or $0.84 per basic share from $473 million or $0.54 per basic share last year. Analysts were expecting the company to report earnings $0.76 per share.

Gold producer Agnico-Eagle Mines swung to profit in third quarter, reporting net income of $121.5 million or $0.73 per share compared with net loss of $17.0 million or $0.11 per share last year.

Oil and gas producer Cenovus Energy reported steeply higher third quarter net earnings of $223 million, up from $101 million reported last year. However, operating earnings, which exclude some items, plunged to $159 million or $0.21 per share from $427 million or $0.57 per share in the previous year. The company declared a quarterly dividend of $0.20 per share.

MacDonald Dettwiler reported higher third quarter net income of C$38.3 million or C$0.93 per share, compared to C$28.5 million or C$0.70 per share in last year period.

Celestica Inc.'s said its third quarter net earnings, on a non-GAAP basis, grew to $46.3 million or $0.20 per share from $44.3 million or $0.19 per share in the prior year. Analysts were expecting the company to report earnings per share of $0.22 for the quarter. For the fourth quarter, the company anticipates revenue to be in the range of $1.70 billion to $1.85 billion, and adjusted net earnings per share to be in the range of $0.20 to $0.26. Analysts project earnings per share of $0.26.

News services provider Thomson Reuters reported that its third quarter net earnings rose to $268 million or $0.32 per share from $162 million or $0.19 per share in the same quarter last year. However on an adjusted basis, earnings per share rose to $0.49 from $0.43 in the prior-year period, beating consensus estimates for a profit of $0.44 per share.

Enterprise Content Management software solutions provider Open Text reported improved first quarter net income, on GAAP basis, of $21.7 million or $0.37 per share, compared to $1.7 million or $0.03 per share in a year ago quarter. However on an adjusted basis, net income was $50.0 million or $0.86 per share, versus $32.8 million or $0.58 per share in the year-ago quarter. Analysts were expecting the company to report net earnings of $0.83 per share. The company also announced the acquisition of StreamServe Inc., a provider of business communication solutions, for about $71 million.

Telecommunications company Cogeco Cable reported lower fourth-quarter net income of C$39.66 million or C$0.81 per share, compared to C$44.70 million or C$0.92 per share in the same quarter last year.

In economic news from the U.S., the Labor Department said that initial jobless claims fell to 434,000 in the week ended October 23 from the previous week's revised figure of 455,000. Economists were expecting claims to edge up to 458,000 from the 452,000 originally reported for the previous week. 

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European Markets Move Higher Amid Positive Earnings

The European stock markets are moving higher Thursday morning amid a fresh batch of encouraging earnings reports. Traders are also digesting data that showed European economic confidence improved by much more than expected in October.

In the commodities market, crude for December delivery is up $0.20 to $82.14 a barrel. Yesterday, data from the EIA revealed that U.S. crude oil inventories were up by 5.0 million barrels, while gasoline stocks declined by 4.40 million barrels in the week ended October 22.

Meanwhile, the price of gold was marginally higher, with gold for December delivery edging up $4.80 to $1,327.40 an ounce. In economic news, euro zone economic confidence improved to 104.1 in October from 103.2 in September, European Commission's survey revealed. The expected reading was 103.5. Separately, the commission said business sentiment rose more than expected to 0.98 in October from 0.76 in September. Economists were expecting a level of 0.79.

UK house prices fell 0.7% on a monthly basis in October, data from the Nationwide Building Society showed . Economists were expecting house prices to drop 0.3% after staying flat in September. On yearly basis, house price inflation eased sharply to 1.4% from 3.1% in the previous month, belying consensus forecast for a 2.3% increase.

German unemployment dropped less than expected in October, the Federal Labor Agency said. The number of unemployed fell 3,000, following 37,000 decline in September. Economists had forecast a decline of 30,000. The jobless rate remained at 7.5%, while it was predicted to drop to 7.4%.

Among stocks, software company Dassault Systemes SA is surging over 7% after reporting a 44% jump in its third quarter net income and raising its full year revenue guidance.

Oil giant Royal Dutch Shell plc reported a 7% increase in third quarter net income at $3.46 billion or $0.56 per share, up from last year's $3.25 billion or $0.53 per share. The stock is up nearly 1%.

France Telecom is adding close to 4% after reporting a nearly 2% rise in gross earnings at 4.26 billion euros, beating analysts' estimates for 4.14 billion euros. Diversified pharmaceutical company Sanofi-aventis is rising over 1%. The company said its third-quarter net income totaled 2.47 billion euros, up 8.9% from 2.27 billion euros reported last year.

Meanwhile, world's largest maker of power-transmission gears ABB Ltd is slipping over 2% even after reporting third quarter profit of $774 million, beating the average analyst estimate of $668 million. Spain's biggest bank Banco Santander S.A. is easing nearly 2% after reporting lower third quarter profit of 1.64 billion euros or 0.1854 euro per share, down from 2.22 billion euros or 0.2584 euro per share last year.

The U.K.'s second-biggest drug company AstraZeneca Plc is shedding close to 3% after the company reported a 27% dip in its third quarter profits. Car maker Renault SA said its third-quarter sales rose 7.6% from a year earlier, helped by strong international growth and favorable currency movements. The stock is down nearly 4%.

The FTSE 100 is currently up 0.60%, the CAC 40 is adding 0.63% and the DAX is up 0.47%.

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Indian Market Ends Volatile Session Lower

The Indian market ended a volatile session modestly lower on Thursday on the last day of F&O contracts expiry. Realty, consumer durable, power and metal stocks bore the brunt of the selling, while auto stocks witnessed stock-specific buying, limiting the downside.

After trading choppily in a range of 20,185- 19,869, the 30-share BSE Sensex ended down 64 points or 0.32% at 19,941, with 22 of its components edging lower. Jaiprakash Associates (down 2.24%), DLF (down 2.22%), NTPC (down 1.79%), Tata Steel (down 1.57%), Sterlite Industries (down 1.50%), Reliance Communication (down 1.45%) and ICICI Bank (down 1.44%) were among the prominent decliners.

On the flip side, telecom giant Bharti Airtel advanced 2.62%, two-wheeler manufacturer Hero Honda Motors gained 2.20% ahead of its results tomorrow and mortgage lender HDFC added 1.88%. HDFC Bank, Tata Power, Mahindra & Mahindra, ONGC and TCS also closed firm with modest gains.

The broader Nifty index fell 25 points or 0.41% to 5,988 and the BSE mid-cap and small-cap indexes lost about half a percent each. In the broader market, declining shares outpaced gaining ones by 1770 to 1167 shares on the BSE.

Bank of Baroda rose 2.07% after the state-run lender reported a 61% rise in quarterly net profit. Hindustan Copper edged up 0.36% on posting a four-fold jump in its quarterly net profit. SAIL fell 4.86% on disappointing results Punjab National Bank declined 2.29% on reporting a 16% rise in its September-quarter net profit.

ONGC gained 0.44% on reports of stake sale by the government. Adani Enterprise added 1.24% after it won a bid to develop and operate the Chendipada coal block in Orissa.

Firstsource Solutions tumbled 3.98% after its September-quarter consolidated net profit rose 14% year-over-year. Hexaware Technologies advanced 0.76% on posting a modest 2% rise in its quarterly net profit.

Hindustan Oil Exploration climbed 5.57% after it reported a Rs.14.57 crore net profit in the September quarter versus a Rs.1.76 crore loss in the year-ago period. Atlas Copco jumped 11.53% on the buzz that it will announce a share buy back. Bharat Petroleum Corporation rose 2.62% after announcing a hydrocarbon discovery in Brazil.

On the macro front, India's annual food inflation for the week ended October 16 fell sharply to 13.75% from 15.53% in the previous week, as prices of certain vegetables eased on improved kharif supplies, government data showed on Thursday, providing some relief to RBI ahead of its mid-term monetary policy review due next week. The index for fuels during the week under review, however, rose slightly to 11.25% versus 11.14% a week ago.

Elsewhere, the other Asian markets closed on a mixed note Thursday, with China's Shanghai Composite average down 0.15% and Japan's Nikkei down 0.22%, as the uncertain outcome of next week's U.S. mid-term elections and conflicting views about the exact timing and amount of Fed's bond purchases weighed on sentiment.

Japan's central bank has kept its benchmark lending rate unchanged at virtually zero as it seeks to breathe life into a faltering recovery. The Bank of Japan also released more details on its asset purchase scheme, which it originally unveiled last month.

The dollar fell for the first time in three days against major world currencies, as investors eagerly awaited the outcome of the Fed meeting next week, when the Fed is expected to announce a second round of quantitative easing to spur economic growth.

Crude prices were little changed near $82 a barrel in Asian trading after an Energy Department report showed a surprise drop in U.S. gasoline stockpiles.

European stocks were sharply higher in early trading, bolstered by strong corporate earnings from Sanofi-Aventis to Dassault Systemes and the Dow futures pointed to a higher open on Wall Street Thursday morning.

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Dollar Rally Fizzles Ahead Of Jobless Claims

The dollar was unable to sustain its gains from the previous session Thursday morning in New York, coming under modest pressure ahead of the latest word on the US jobs market.

Still, the dollar is relatively stable amid growing speculation that the size and scope of the Federal Reserve's anticipated bond purchase plan will be small than its first round of quantitative easing.

The Fed meets on November 3 and is reportedly set to embark on a series of gradual asset purchases totaling a few hundred billion dollars. In 2009, the Fed snapped up around $2 trillion in an effort to spur the economy.

The U.S. recovery is likely to be slow and bumpy and more monetary easing from the Federal Reserve is likely to be needed, a top Fed official said Wednesday night.

William Dudley, President of the Federal Reserve Bank of New York, said despite the best efforts of the central bank, the U.S. recovery is likely to be a slow and protracted one.

The dollar eased to $1.3850 versus the euro, back toward an 8-month low of $1.4150 set earlier in October.

Traders considered data showing the adjusted German jobless rate held steady at 7.5 percent in October, while economists had forecast 7.4 percent. The number of jobless fell by 3,000 to a seasonally adjusted 3.153 million, figures from the nation's Labor Office showed.

Economic confidence in the 16 countries that use the euro rose to its highest level in nearly three years during October, the European Commission said on Thursday.

The dollar drifted slightly lower to Y81.25 versus the yen, easing back toward a recent 15-year low of Y80.40. The buck is near a record low of 79.80 from back in 1995.

Japan's central bank kept its benchmark lending rate unchanged on Thursday.

The Bank of Japan now expects gross domestic product to grow 2.1% in the current fiscal year, revised down from the 2.6% expansion predicted in July. The growth outlook for the next fiscal year was also lowered to 1.8% from 1.9%

"The economy still shows signs of a moderate recovery but the pace is slowing down as growth in exports and production has recently been decelerating," the BOJ said in its latest outlook report.

Looking ahead to later this morning, the Labor Department will release its customary weekly jobless claims report for the week ended October 23rd at 8.30 a.m. ET. Economists expect that jobless claims come in at 450,000 for the week, slightly lower than 452,000 reported for the previous week.

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