US & World Daily Markets Financial Briefing 30-07-2010

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Stocks Climb Off Lows Amid Surprises From Consumer Sentiment, Chicago Data

Stocks are moderately lower in mid-morning trading on Friday but have moved well off of their worst levels, as data on consumer sentiment and Chicago-area business activity surprised to the upside. Nonetheless, a disappointing reading on second quarter GDP is keeping a lid on the recovery attempt.

A short time ago, Thomson Reuters and the University of Michigan released their final report on consumer sentiment in the month of July, showing that the consumer sentiment index was upwardly revised by more than expected but continued to show a notable deterioration in sentiment compared to June.

The report showed that the consumer sentiment index for July was upwardly revised to a reading of 67.8 from the preliminary estimate of 66.5. While the revised reading came in above economist estimates of 67.5, it remained well below the June reading of 76.0.

Richard Curtin, Surveys of Consumers chief economist, said, "Scarce jobs and stagnating incomes have been the top concerns of consumers for some time."

"What changed in July was their recognition that the anticipated slowdown in the economy will keep jobs scarce for some time, while their uncertainties about future prospects were increased by the policies of the Obama administration," he added.

Meanwhile, the Institute for Supply Management - Chicago said its business barometer rose to 62.3 in July from 59.1 in June, with a reading above 50 indicating growth in Chicago-area business activity. The increase surprised economists, who had expected the index to fall to a reading of 56.3.

Initial downside came as the Commerce Department said that gross domestic product increased at an annual rate of 2.4 percent in the second quarter compared to the revised 3.7 percent jump seen in the first quarter. Economists had expected GDP to increase by 2.5 percent compared to the 2.7 percent growth that had been reported for the first quarter.

Commenting on the data, Neil MacKinnon, global macro strategist at VTB Capital said, "Data revisions have altered the cyclical profile but don't change the story that the pace of recovery is now slowing,"

He added, "In the absence of fresh fiscal stimulus, which peaked in Q2, the outlook for the U.S. economy during the rest of the year points towards the risk of further economic drift."

In earnings news, Chevron Corp. (CVX) reported second-quarter net income of $2.70 per share, up from $0.87 per share in the same quarter last year. Wall Street analysts expected the company to report earnings of $2.44 per share for the quarter. The firm posted revenues of $51.05 billion, which was short of the $52.52 billion projected by analysts.

Major drug maker Merck & Co. Inc. (MRK) reported adjusted second-quarter net income of $0.86 per share, topping expectations for $0.83 per share. Unadjusted net profit fell by roughly 50 percent to $0.24 per share. Sales for the quarter came in at $11.35 billion, short of the consensus estimate for $11.45 billion.

After the market closed for trading in the previous session, semiconductor equipment maker KLA-Tencor Corp. (KLAC) said that it swung to a fourth quarter profit, as revenue nearly doubled as a result of robust demand in each of the company's major end markets, geographies and product offerings. The company's quarterly adjusted earnings came in above expectations.

In other corporate news, entertainment giant Walt Disney Co. (DIS) announced an agreement to sell Miramax Films to Filmyard Holdings for approximately $660 million.

The major averages have seen some downside recently, pulling back off of their recovery highs. The Dow is currently down 33.61 points or 0.3 percent at 10,433.55, the Nasdaq is down 11.10 points or 0.5 percent at 2,240.59 and the S&P 500 is down 3.83 points or 0.4 percent at 1,097.70.

Sector News

Semiconductor stocks are among the morning's steepest percentage decliners, resulting in a 1.8 percent drop by the Philadelphia Semiconductor Index. The decline has the index on pace for a nearly one-month closing low.

Telecom, software, oil service and defense stocks are also under pressure, while substantial gains by health insurance stocks are helping to moderate the pullback in the markets. The Morgan Stanley Healthcare Payor Index is up by 1.2 percent but remains rangebound.

Gains by gold stocks are also helping to offset the losses in the other market segments, with the NYSE Arca Gold Bugs Index up by 1 percent, extending its rebound from Tuesday's two-month closing low. The strength in the sector comes even the price of gold is nearly unchanged.

Stocks Driven By Analyst Comments

Oceaneering International (OII) is trading lower after analysts at Jefferies downgraded the stock from Buy to Hold. The broker also lowered its target on the stock down from $64 to $55.Shares are currently down by 3.1 percent, slipping from the two-month closing high set in the previous session.

Mylan Labs (MYL) is also under pressure after Oppenheimer lowered its rating on the company's stock from Outperform to Perform. The stock is down by 1.5 percent, dipping to its lowest intraday price in almost a month.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region ended lower to close out the week. Japan's benchmark Nikkei 225 inched fell by 1.6 percent, while Hong Kong's Hang Seng Index declined by 0.3 percent.

Meanwhile, the major European markets have turned mixed. The U.K.'s FTSE 100 Index and the German DAX Index are down by 0.2 percent and 0.1 percent, respectively, while the French CAC 40 Index is up 0.2 percent.

In the bond market, treasuries are notably higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.936 percent, posting a loss of 6.3 basis points.

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TSX May Struggle For Direction Amid Mixed Earnings, Data

Toronto stocks may witness a lackluster session Friday amid a mixed bag of earnings reports from Canadian companies and GDP data from both sides of the border.

Cues from the global equity markets were also not encouraging, with stocks in Asia and Europe dipping on economic worries.

While the Canadian economy stalled for a second month in May, U.S. economic activity increased at a slightly slower than expected pace in the second quarter.

On Thursday, the S&P/TSX Composite Index edged up 32 points or 0.27% to 11,728.64.

The price of crude oil slipped further after the release of U.S. Gross Domestic Product data. Crude for September was down $0.73 to $77.63 a barrel.

Meanwhile, the price of gold was recovering for a third session, after falling to a 3-month low Tuesday. Gold for August was up $4.30 to $1,172.70 an ounce.

In corporate news from Canada, gold mining company Centerra Gold swung to profit in second quarter, reporting net earnings of $0.13 per common share compared with a loss of $0.36 per common share last year. The company declared a maiden dividend of C$0.06 per common share payable on September 8, 2010 to shareholders of record on August 18, 2010.

Energy pipeline company TransCanada Corp. reported lower second quarter net income of C$0.41 per share compared to C$0.50 per share in the same quarter last year. Analysts were expecting the company to report net income of C$0.44 per share this quarter. The company has declared a quarterly dividend of C$0.40 per common share for the quarter.

Insurance services provider Fairfax Financial Holdings announced second-quarter net earnings of $15.49 per share, compared to net earnings of $15.56 per share in the year ago quarter.

Wood products company Canfor Corp. posted a marginal increase in second-quarter net income at $0.13 per share, compared with $0.11 per share in the prior year period.

Specialty paper products company Catalyst Paper reported a wider second quarter net loss of C$0.96 per share, compared to a net loss of C$0.01 per share in the year-ago quarter. The net loss before specific items was C$0.11 per share, compared to a net loss of C$0.06 per share in the previous quarter.

Building products maker PFB Corp. Thursday reported a sharp decline in second quarter net income at $0.04 per basic share compared to $0.30 per basic share last year. Nonetheless, the company declared a regular quarterly dividend of $0.06 per share.

In economic news, Statistics Canada said Real Gross Domestic Product in the nation increased by 0.1% in May, after being unchanged in April. Economists were looking for economic activity to rise 0.2%.Goods producing industries rose 0.6%, led by oil and gas extractions and manufacturing activity edged up. Meanwhile, construction and utilities fell back, the agency said.

In another report, the agency said Canadian economy shed 25,000 jobs in May, dipping 0.2% from the previous month.

From the U.S., the Commerce Department said gross domestic product increased at an annual rate of 2.4% in the second quarter compared to the revised 3.7% jump seen in the first quarter. Economists had expected GDP to increase by 2.5% compared to the 2.7% growth that had been reported for the first quarter.

James Bullard commented yesterday that the risk of deflation in the US has risen compared with the beginning of this year and warned against a Japanese-style deflationary trap stemming from the Fed's extended period of low interest rates.

Elsewhere, the EU's statistics office, Eurostat said consumer prices in the euro zone rose by 1.7% in the year to July, up from a 1.4% gain in June, in line with market expectations.

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Asian Markets End In Negative Territory

The markets in Asia ended the trading session on Friday, the last trading day of the week and the month, in negative territory, taking cues from Wall Street where the major averages ended the previous session in the red, on concerns about the economy. Caution ahead of the key economic data in the US related to advance second quarter GDP kept traders on the sidelines awaiting more cues on global economic recovery. Profit taking following recent gains also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index lost 158.72 points, or 1.64%, to 9,537, while the broader Topix index of all First Section issues was down 11.77 points, or 1.37% percent, to 849.

On the economic front, a preliminary report released by the Ministry of Economy, Trade and Industry revealed that an index measuring industrial output in the country unexpectedly declined 1.5% on a seasonally adjusted basis in June, compared to the previous month, posting a score of 94.7. Analysts were expecting a 0.2% increase for the month, following 0.1% monthly gain in the previous month. The report further noted that, on an annual basis, industrial production climbed 17.0%, again missing forecasts for an 18.9% increase after surging 20.4% in the previous month.


A report released by the Ministry of Internal Affairs and Communications revealed that core consumer prices in the country declined 1.0% year-on-year in June, following 1.2% decline in the previous month. Analysts expected the consumer prices to decline 1.1% for the month. The report further noted that overall inflation was down 0.7% on year after easing 0.9% in May. It was flat on month after adding 0.1% in May.

In a separate report, the Ministry of Internal Affairs and Communications revealed that the unemployment rate rose to a seasonally adjusted 5.3% in June, with 3.44 million people looking for jobs. Analysts expected the unemployment rate to be flat at 5.2% as in May. The report further noted that the total labor participation rate in the country was 59.9% with 62.80 million people having active employment.

A report released by the Ministry of Land, Infrastructure, Transport and Tourism revealed that housing starts in the country increased 0.6% year-on-year in June, after having declined 4.6% in May. Economists expected the annual growth rate in housing starts for June to be 1.8%. The report noted that annualized housing starts in June totaled 750,000, compared to 737,000 in May. The expected level was 759,000.

Real estate stocks led the decline on stronger yen. Mitsubishi Estate plunged 4.09%, Mitsui Fudosan lost 3.90%, Sumitomo Realty and Development shed 2.32%, Tokyu Land Corp. fell 3.09% and Heiwa Real Estate was down 3.27%.

Iron & Steel related stocks ended in negative territory. JFE Holdings was down 3.01%, Pacific Metals Co., declined 2.51%, Kobe Steel plunged 7.18%, Sumitomo Metal Industries fell 2.79% and Nippon Steel slipped 1.99%. However, Nisshin Steel managed to buck the trend and end in positive territory with a gain of 1.40%.

Land transport stocks also ended sharply weaker. Nippon Express plunged 9.74% and Yamato Holdings declined 4.63%.

Mixed trading was witnessed among the shipping stocks. While Nippon Yusen managed to end in positive territory with a gain of 2.23%, Mitsui OSK Lines declined 2.82%, and Kawasaki Kisen Kaisha shed 2.38%.

In Australia, the benchmark S&P/ASX200 Index declined 30.60 points, or 0.68%, and closed at 4493 points, while the All-Ordinaries Index ended at 4,507, representing a loss of 28.80 points, or 0.63%.

On the economic front, a statement released by the Reserve Bank of Australia revealed that total credit provided to the private sector by the financial intermediaries in the country increased 0.2% month-on-month in June, following an increase of 0.5% in the previous month. Compared to June 2009, total credit to the private sector rose 2.8%, the statement noted. The statement further noted that housing credit increased by 0.4% on a monthly basis, following an increase of 0.6% in May. On a yearly basis, housing credit was up 8.2%. Other personal credit fell by 0.3% compared to May, while business credit was flat. Year-over-year, other personal credit increased 3.1% while business credit declined 5%.

Banks ended in the red on profit taking. ANZ Bank slipped 0.60%, Commonwealth Bank shed 0.85%, National Australia Bank was down 0.79% and Westpac Banking lost 1.07%. Investment banking company Macquarie Group plunged 3.10%.

Mining and metal stocks also ended in negative territory. BHP Billiton was down 0.84%, Rio Tinto fell 1.24%, Fortescue Metals shed 1.15%, Gindalbie lost 2.02%, Macarthur Coal declined 1.42%, Mincor Resources shed 1.98%, and Murchison Metals plunged 2.66%. However, Oz Minerals bucked the weak trend and ended in positive territory with a gain of 1.23%.

Mixed trading was witnessed among gold related stocks. While Lihir Gold ended in positive territory with a gain of 0.25%, Newcrest Mining ended in negative territory with a loss of 0.03%.

Oil related stocks also ended weaker. Woodside Petroleum slipped 0.29%, Santos fell 1.99%, Oil Search shed 0.68% and Origin Energy was down 1.22%. However, ROC Oil Co., bucked the trend and ended in positive territory with a gain of 1.43%.

The Indian market ended Friday's session sharply lower, as investors stayed cautious ahead of second-quarter GDP data from the U.S, scheduled to be released later in the day. Investor sentiment was dampened after a Federal Reserve official said yesterday that the Fed's current policies are putting the U.S. at risk for "a Japanese-style deflationary outcome within the next several years." The BSE Sensex ended down 124 points or 0.69% at 17,868 and the 50-share S&P Nifty index fell by 41 points or 0.76% to 5,368.

All the other major markets open for trading also ended in negative territory. China's Shanghai Composite Index declined 10.61 points, or 0.40% to 2,637, Taiwan's Weighted Index was down 38.36 points, or 0.49%, to close at 7,761, Singapore's Strait Times Index slipped 9.95 points, or 0.33% to close at 2,988, and Indonesia's Jakarta Composite Index was down 27.54 points, or 0.89%, to close at 3,069.

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The major European markets are retreating for the third straight session on Friday, as mixed earnings and caution has led to calculated moves in the markets. The French CAC 40 Index is currently down 1.25% compared to a 0.58% drop by the German DAX Index and a 0.61% decline by the FTSE 100 Index.

Telecommunication equipment maker Alcatel-Lucent (ALU) reported a loss of 184 million euros for its second quarter compared to a profit of 14 million euros in the year-ago quarter, as revenues declined 2.4% year-over-year. However, the company reiterated its forecast for flat to 5% growth in the telecom equipment and related services market.

EADS reported a net profit of 185 million euros for the first half of the year compared to 378 million euros last year, as revenues rose 1% year-over-year to 20.31 billion euros. However, the adjusted EBIT for the first half fell 54% to 406 million euros, while it declined 51% for the second quarter to 323 million euros. The company reaffirmed its full year EBIT guidance of 1 billion euros.

British Airways reported a net loss of 122 million pounds for its fiscal first quarter compared to a loss of 106 billion pounds a year-ago, hurt by a cabin crew strike and losses related to flight disruptions due to volcanic ash.

In economic news, market research firm GfK NOP said its consumer confidence index for the U.K. slid to -22 in July from -19 in the previous month, marking the fifth straight month of declines. Analysts had expected the sentiment indicator to fall to -20. The annual moving average of the consumer sentiment index remained unchanged at -18.

A report released by the German Federal Statistical Office showed that Germany’s retail sales fell by a calendar and seasonally adjusted 0.9% month-over-month in June. This follows 3% growth in May. Economists had expected a more modest decline of 0.2%. However, year-over-year, retail sales rose 3.1% in June, faster than the 1% increase expected by economists and the 0.7% pace in May.

Eurostat reported that the euro area’s inflation rose to 1.7% year-over-year in July, with the increase coming in line with expectations. A separate report released by the agency showed that the euro area’s unemployment rate held steady at 10% in June.

Economic News

U.S. economic activity increased at a slightly slower than expected pace in the second quarter, according to a report released by the Commerce Department, with the report also showing a notable upward revision to the pace of growth in the first quarter.

The report showed that gross domestic product increased at an annual rate of 2.4 percent in the second quarter compared to the revised 3.7 percent jump seen in the first quarter. Economists had expected GDP to increase by 2.5 percent compared to the 2.7 percent growth that had been reported for the first quarter.

A separate report released by the Labor Department showed that the employment cost index rose 0.5% quarter-over-quarter in the second quarter. The increase came in line with expectations. Wages and salaries, making up about 70% of compensation costs, rose 0.4%, while benefits increased 0.6%.

The results of the Institute for Supply Management-Chicago's business survey for July are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 56.3.

In June, the business barometer index came in at 59.1, in line with expectations. However, the new orders index fell by 3.6 points and the order backlogs index slipped by 2 points. Meanwhile, the inventories index slipped 10 points to 46.5, its lowest level since February, suggesting that the inventory cycle may be running its course. On a positive note, the employment index rose 5 points to 54.2.

The Reuters/University of Michigan's final report on the consumer sentiment index for July is scheduled to be released at 9:55 AM ET. The consumer sentiment index is expected to be revised up by a point to 67.5.

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DTE Energy (DTE) reported second quarter earnings of 51 cents per share, flat with last year, while operating earnings declined 17 cents to 39 cents per share. Operating revenues rose to $1.79 billion, up 6.2%. Analysts estimated earnings of 60 cents per share on revenues of $1.74 billion. The company also announced a 3 cents per share-increase in its quarterly dividend to 56 cents per share. The company reiterated its operating earnings guidance of $3.45-$3.80 per share for the full year, while analysts estimate earnings of $3.60 per share.

Eastman Chemical (EMN) reported second quarter adjusted earnings of $2.05 per share, higher than 86 cents per share last year. Sales revenues rose about 38% to $1.72 billion. The consensus estimates had called for earnings of $1.65 per share on revenues of $1.63 billion. The company expects third quarter earnings of $1.65-$1.75 per share and full year earnings of $6.20-$6.40 per share. Meanwhile, analysts estimate third quarter earnings of $1.34 per share and full year earnings of $5.43 per share.

KLA-Tencor (KLAC) reported fourth quarter non-GAAP earnings of 70 cents per share compared to a loss of 9 cents per share last year. Revenues nearly doubled to $559.42 million. Analysts estimated a profit of 60 cents per share on revenues of $558.15 million.

Amgen (AMGN) reported its second quarter adjusted earnings per share of $1.38 per share, up 7% year-over-year, while revenues rose 2% to $3.80 billion. The Street estimated earnings of $1.30 per share on revenues of $3.74 billion. The company said its adjusted earnings per share guidance remains unchanged at towards the low end of the range of $5.05-$5.25 per share, while analysts estimate earnings of $5.12 per share.

Genworth Financial (GNW) reported second quarter net income of 8 cents per share and net operating income of 24 cents per share, trailing the consensus estimate of 28 cents per share.

Fortune Brands (FO) said its second quarter sales rose 9% to $1.90 billion. The company’s earnings climbed to $1.48 per share from 66 cents per share last year. Analysts, on average, estimated earnings of 76 cents per share on revenues of $1.80 billion. For the full year, the company expects adjusted earnings in the range of $2.60-$2.90 per share, up from its earlier guidance of $2.50-$2.80 per share, while analysts estimate earnings of $2.84 per share.

Coventry Health Care (CVH) reported that its second quarter adjusted earnings were $1.01 per share and its operating revenues were $2.9 billion. Analysts estimated earnings of 52 cents per share on revenues of $2.84 billion. The company raised its adjusted earnings per share guidance for 2010 to $2.55-$2.70, while it expects revenues of $11.25 billion to $11.50 billion. The Street estimates earnings of $2.45 per share on revenues of $11.37 billion.

Other Corporate News

Disney (DIS) could be in focus after it confirmed that it has agreed to sell Miramax Films to Filmyard Holdings for over $660 million. The deal is expected to close between September 10 and the end of the calendar year.

Steven Madden (SHOO) is expected to see some strength after Standard & Poor’s announced that the company would replace inVentiv Health (VTIV) in the S&P SmallCap 600 Index

Honeywell (HON) may also see some activity after the company said its “Total InteGrated Engine Revitalization” program with the U.S. Army has been extended through Option Year 5, with a not-to-exceed value of $190 million.

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