US & World Daily Markets Financial Briefing 31-08-2010

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Stocks Get Lift From Unexpected Improvement In Consumer Confidence

Stocks have turned higher over the course of morning trading on Tuesday after seeing early weakness, as traders digest an unexpected improvement in August consumer confidence amid an otherwise mixed picture on the economic front.

The major averages have moved off their highs for the session in recent trading but currently remain positive. The Dow is up 23.34 points or 0.2 percent at 10,033.07, the Nasdaq is up 1.45 points or 0.1 percent at 2,121.42 and the S&P 500 is up 2.17 points or 0.2 percent at 1,051.09.

A short time ago, the Conference Board said its consumer confidence index rose to 53.5 in August from an upwardly revised 51.0 in July. The increase came as a surprise to economists, who had expected the index to edge down to a reading of 50.0 from the 50.4 originally reported for the previous month.

Meanwhile, business activity in the Chicago-area saw a notable slowdown in the pace of growth in August, although activity still expanded for the eleventh consecutive month.

The ISM - Chicago said its Chicago Business Barometer fell to 56.7 in August from 62.3 in July, with a reading above 50 indicating continued growth in business activity. Economists had been expecting the barometer to slip to a reading of 57.0.

Also this morning, Standard & Poor's released a report showing that its reading on home prices in 20 major metropolitan areas increased by more than expected in June, but the data was likely skewed by the homebuyer tax credit.

"While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead," said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

Perhaps the most-watched report of the day will come in the middle of the afternoon, as the Federal Reserve releases the minutes of the August Federal Open Market Committee meeting at 2:00 p.m. ET.

The minutes will be closely watched for the economic outlook and commentary from the nation's central bankers, as traders continue to look for any clues regarding the direction of the stalling economy.

On the corporate front, Dollar General Corp. (DG) lifted its 2010 guidance, as the firm's second quarter profit surged to $0.41 per share, topping analyst estimates.

Meanwhile, agricultural products giant Monsanto Co. (MON) said it expects ongoing earnings for fiscal year 2010 in a range of $2.40 to $2.45 per share, at the low end of its previous guidance range of $2.40 to $2.60 per share.

Farm machine maker Deere & Co. (DE) also announced an agreement to sell its wind energy business to a wholly-owned subsidiary of Exelon Corp. (EXC) for $900 million.

Sector News

Gold stocks are among the morning's strongest performers, with the NYSE Arca Gold Bugs Index posting a 2.1 percent gain. The advance has boosted the index to its best intraday level in two months.


The upward move by gold stocks comes amid a notable increase by the price of the precious metal, with gold for December delivery up by $8.30 at $1,247.50 an ounce.

Steel stocks are also seeing strong gains, with the NYSE Arca Steel Index up by 1.9 percent. Despite the move, the index remains rangebound.

Airline, housing and railroad stocks are also seeing upside, while electronic storage stocks are seeing steep losses after bucking the downtrend in the previous session. The NYSE Arca Disk Drive Index is down by 1.8 percent, moving back towards last week's one-year closing low.

Stocks Driven By Analyst Comments

Despite the rebound by the broader markets, V.F. Corp (VFC) is trading lower after being downgraded at Piper Jaffray to Neutral from Overweight. The stock is currently down by 1.8 percent after setting to a two-month intraday low.

Rackspace (RAX) is also in the red following a downgrade at the Benchmark Company from Buy to Hold. Shares are currently down by 3.4 percent, moving further off of last Friday's seven-month closing high.

On the other hand, Gap Inc (GPS) is on the upside after being upgraded by Wells Fargo to Outperform from Market Perform. The stock has gained 2.1 percent, moving further off the one-year closing low set last week.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended sharply lower Tuesday. Japan's benchmark Nikkei 225 Index slid by 3.6, while Hong Kong's Hang Seng Index saw a loss of 1 percent.

Meanwhile, the major European markets have rebounded from early weakness and are little changed. The French CAC 40 Index, the German DAX Index and the U.K.'s FTSE 100 Index are all lingering near the flat line.

In the bond markets, treasuries are seeing moderate strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.509 percent, posting a loss of 3.6 basis points.

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TSX Poised For A Weak Open Amid GDP

Bay Street stocks are poised for a lower open Tuesday amid falling energy prices and weak cues from the global equity markets. The just-released second quarter GDP numbers, which indicated that the economic growth is losing momentum, may also weigh on trader sentiment.

On Monday, the S&P/TSX Composite Index edged up 15.84 points or 0.13% to 11,895.55. The price of crude oil was moving lower for a second session, with crude for October falling $0.95 to $73.75 a barrel.

The price of gold was holding on to its recent gains, with gold for December moved up $5.60 to $1,244.80 an ounce.

In corporate news from Canada, Scotiabank reported higher third quarter net income of C$1.01 billion or C$0.98 per share, compared to C$882 million or C$0.87 for the same quarter last year. Total revenues for the quarter were C$3.784 billion, compared to C$3.775 billion in the prior year quarter. The bank declared a quarterly dividend of C$0.49 per common share. Net earnings per share missed consensus by $0.01.

Blackberry maker Research In Motion may be in play after it had yielded to the pressure from the Indian government by giving access to its e-mail services. This has raised speculation that the smart phone maker will also bow to similar demands from some other nations.

Bio pharmaceutical company Lorus Therapeutics said it would opt for a shareholders rights offering instead of the earlier planned public equity offering, due to unfavorable market conditions.

Convenience store operator Alimentation Couche-Tard today said it has extended its offer to acquire Casey's General Stores, Inc. for $36.75 per share to September 30, from August 30.

In economic news, Statistics Canada said gross domestic product grew by 0.5% in the second quarter, after increasing by 1.4% in the previous quarter. Annualized GDP grew 2.0% this quarter, after expanding by 5.8% in the first quarter. Economists were expecting the GDP to expand 2.5% this quarter.

Among earnings reports from companies listed in the TSX Venture Exchange, natural gas distributor Changfeng Energy slipped in to the red, posting second-quarter net loss of C$331 thousand or C$0.005 per share, compared to a net income of C$128 thousand or C$0.002 per share in the last year quarter.

A development stage mineral properties explorer Timmins Gold reported a wider first quarter net loss of C$4.09 million or C$0.03 per share, compared to a net loss of C$804,330 or C$0.01 per share in the year ago period. Yesterday, the stock rose nearly 4% to C$1.88 per share.

Energy distributing company AltaCanada Energy reported a wider second-quarter net loss of C$1.28 million or C$0.02 per share, compared to C$1.05 million or C$0.01 per share in the prior year period.

Oilfield services company IROC Energy Services said it's loss for the second quarter narrowed to C$1.06 million or C$ 0.02 per share from loss of C$ 1.26 million or C$ 0.03 per share last year.

Oil and gas industry services provider Enseco Energy Services reported a narrower first quarter net loss of C$2.8 million or C$0.02 per share, compared to a net loss of C$3.4 million or C$0.08 per share for the year-ago quarter.

Oil and gas explorer Waldron Energy reported that its second-quarter loss widened to C$1.79 million or C$0.06 per share, from a loss of C$1.17 million or C$0.29 per share in the prior year quarter.

Forestry products company Cathay Forest Products reported a narrower second-quarter net loss of C$0.4 million or C$0.003 per share, compared to C$2.1 million or C$0.018 per share in the same quarter last year.

Pharmaceutical company Pyng Medical reported a narrower third quarter net loss of C$93 thousand or C$0.01 per share, compared to a net loss of C$102 thousand or C$0.01 per share a year ago.

Steel products company Empire Industries reported a wider second quarter net loss of C$2.5 million or C$0.03 per share, compared to a net loss of C$2.2 million or C$0.02 loss per share for the year-ago quarter.

Fiber Optic Systems Technology, reported a net loss for the second quarter of C$125 thousand or a breakeven per share, compared to a net loss of C$784 thousand or C$0.02 per share in the year-ago quarter.

E-commerce technology company Fireswirl Technologies reported a narrower second quarter net loss of C$153,967 or C$0.00 per share, compared to a net loss of C289,793 or C$0.01 per share for the year-ago quarter.

Online media content provider VRX Worldwide reported lower second-quarter earnings of C$91 thousand or $0.003 per share, compared to C$355 thousand or $0.010 per share a year ago.

Network engineering services provider Prestige Telecom slipped in to the red, reporting first quarter net loss of C$0.4 million or C$0.004 per share compared to net earnings of C$0.1 million or C$0.001 per share for the same period last year.

Enterprise software solutions provider WellPoint Systems slipped into the red, reporting second quarter net loss of C$2.34 million or C$0.05 per share compared to net income of C$1.56 million or C$0.03 per share last year.

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Asian Markets End In Negative Territory On Global Concerns

Asian markets ended the trading session Tuesday in negative territory on concerns about global economic recovery. Weak closing on Wall Street in the previous session amid thin volumes as traders fret over the health of the economy, a day after sharp gains on Fed Chairman's speech impacted market sentiment across the region. Japan's Nikkei 225 ended at a 16-month low as fresh measures announced by Bank of Japan to arrest Yen's continuing strength failed to enthuse traders.

In Japan, the benchmark Nikkei 225 Index dropped 325.20 points, or 3.55%, to 8,824, while the broader Topix index of all First Section issues slid 24.54 points, or 2.96%, to 805.

On the economic front, a report released by Japan's Ministry of Finance revealed that its preliminary read on Industrial Production showed an increase of 0.3% in July, the first increase in three months. For the full year to July, Industrial Production was up 14.8%.

A report released by the Japan Automobile Manufacturers Association revealed that automobile production rose 16.2% year-on-year to 742.247 units in July. Production of passenger cars rose 16%, and those of trucks was up 21.9%. Bus production increased 24.7%. The report further noted that domestic sales of automobiles in Japan climbed 12.9% to 486,606 units.


A report released by the Ministry of Economy, Trade & Industry in Japan revealed that retail sales rose 3.9% from a year earlier to JPY 11.7 trillion in July, accelerating from the 3.3% increase in June. Analysts had predicted a 3.5% rise. The report noted that retail sales jumped for the seventh straight month and at a faster than expected pace in July, led by higher demand for motor vehicles and fuel. On a month-over-month basis, retail sales were up 0.7% in July. Economists had forecast a 2.4% increase.

All the 33 sectors in the exchange ended in negative territory.

Glass and ceramics sector was the major loser during the trading session. NGK Insulators plunged 4.29%, Asahi Glass Co. slumped 4.43%, Tokai Carbon lost 3.93%, TOTO Ltd fell 2.74% and Sumitomo Osaka Cement Co was down by 5.44%.

Construction related stocks also ended weaker. JGC Corp. slumped 5.72%, Daiwa House Industry plunged 5.29%, Sekisui House lost 4.59%, Comsys Holdings Corp. fell 4.51% and Obayashi Corp. was down 4.19%.

Stocks related to precision machinery companies also ended in negative territory. Terumo Corp. slumped 5.13%, Olympus Corp. plunged 5.91%, Nikon Corp. fell 3.79%, Konica Minolta Holdings lost 4.30% and Citizen Holdings Co., was down 5.07%.

Real estate stocks also ended weaker. Mitsui Fudosan Co., declined 3.54%, Sumitomo Realty & Development fell 2.97%, Mitsubishi Estate Co. declined 2.70%, Tokyu Land Corp. shed 2.92% and Heiwa Real Estate was down 2.43%.

In Australia, the benchmark S&P/ASX200 Index declined 48.50 points, or 1.09%, and closed at 4,404 points, while the All-Ordinaries Index ended at 4,439, representing a loss of 44.30 points, or 0.99%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that retail sales expanded more than expected in July, led by higher sales in cafes, restaurants & takeaway food services. As per the report, retail sales increased 0.7% to A$20.4 billion during the month compared to a revised 0.4% increase in the previous month. Economists expected the retail sales to rise 0.4% during July. The report further noted that sales at cafes, restaurants & takeaway food services increased 5.3%, while food retailing rose 0.4%. On the other hand, household goods retailing fell 1.7%.


In a separate report , the Australian Bureau of Statistics revealed that the number of housing permits granted in the country rose in July, the first rise in four consecutive months. As per the report, total dwelling permits rose by a seasonally adjusted 2.3% in July to 13,732, compared with the previous month. Analysts had forecast a 0.7% fall after the 3.4% decrease in June. The number of private houses approved edged down 0.1% to 8,624. At the same time, the number of private sector other dwelling units approved were up 7.7% to 4,216. On a year-over-year basis, dwelling approvals were up 11%. Approvals for private sector houses were down 0.8%, while those for private sector other dwellings increased 38%.

Data released by the Australian Bureau of Statistics revealed that the country's current account balance, the broadest measure of trade balance, recorded a deficit of A$5.6 billion at the end of the June quarter, down from a A$16.5 billion deficit in the March quarter. The Bureau stated this was mainly due to a A$9.7 billion turnaround in balance of goods and services, which recorded a surplus of A$6.5 billion. At the same time, the income deficit fell A$1.1 billion to A$11.9 billion.

A statement released by the Reserve Bank of Australia revealed that total credit provided to the private sector in the country by financial intermediaries rose by a seasonally adjusted 0.1% in July compared to 0.2% increase in June. Economists had forecast a 0.3% rise. On a yearly basis, private sector credit rose 2.8%. The statement further revealed that Housing credit increased by 0.5% month-on-month in July following a 0.4% rise in June. Year-over-year, housing credit was up 8.1%.

Banks ended in negative territory on concerns about global economic recovery. ANZ Bank slipped 0.36%, Commonwealth Bank of Australia shed 0.25%, National Australia Bank fell 1.49% and Westpac Banking lost 2.82%. Investment banking company Macqaurie Group was down 1.00%.

Mining and metal stocks also ended weaker on global economic conditions affecting demand. BHP Billiton fell 2.17%, Rio Tinto slipped 1.30%, Fortescue Metals shed 0.64%, Gindalbie Metals plunged 3.26%, Mincor Resources declined 3.08%, Murchison Metals slumped 5.12%, Minara Resources was down 0.67% and Oz Minerals ended weaker by 3.56%.

Mixed trading was witnessed among gold stocks. While Newcrest Mining ended in positive territory with a gain of 3.44%, Lihir Gold remained unchanged from previous close.

The Indian market saw further downside on Tuesday, as investors continued to fret about the pace of global economic recovery. Nevertheless, the benchmark 30-share Sensex managed to recoup most of its early loss on late-session buying, but still ended down 61 points or 0.34% at 17,971, with 21 of its components drifting lower. The 50-share S&P Nifty ended down 13 points or 0.24% at 5,402.

Among the other major markets open for trading, China's Shanghai Composite Index declined 13.87 points, or 0.52% to 2,639, Jakarta Composite Index in Indonesia slipped 17.68 points, or 0.57%, to close at 3,082, Singapore's Strait Times Index was down 6.73 points, or 0.23%, to 2,952, and Taiwan's Weighted Index lost 124.92 points, or 1.61%, to close at 7,616.

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The major European markets opened Tuesday’s session sharply lower and are moving sideways following a very negative lead from Wall Street overnight and Asia subsequently. The French CAC 40 Index and the German DAX Index are slipping 1.27% and 0.93%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.97%.

In economic news, a report released by the German Federal Labor Agency showed that the number of unemployed individuals fell by a less than expected 17,000 in August compared to the previous month. Economists had expected a drop of 20,000. The unemployment rate remained unchanged at 7.6%.

Eurostat’s preliminary inflation report showed that the euro area’s inflation rate slowed to 1.6% year-over-year in August, slower than the 1.7% increase in the previous month.

A separate report released by the agency showed that the euro area's unemployment rate remained unchanged at 10% in July, in line with expectations. Eurostat said a total of 15.8 million people were registered as unemployed in the eurozone, with the number of unemployed people decreasing by 8,000 compared to the previous month.

Meanwhile, the Gfk NOP released the results of its consumer confidence survey for August, showing that its consumer confidence index for the U.K. improved unexpectedly to –18 from –22 in the previous month. Economists had expected a reading of –24.

U.S. Economic Reports

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 3.1% year-over-year increase by the 20-city composite house price index for June.

The index rose 4.6% year-over-year in May, marking the biggest price increase since August 2006. On a monthly basis, the index was up 0.5% in May following a 0.6% increase in April.

The results of the Institute for Supply Management-Chicago's business survey for August are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 57.0.

Conditions in the manufacturing sector in the Mid-western region improved at a faster than expected rate in July. The purchasing managers' index rose to 62.3 from 59.1 in June, while economists had expected a decline to 56. The new orders index rose 5.5 points to 64.6 and the backlog orders index climbed about 7 points to 57.6. The employment index also increased, rising 2.2 points to 56.6.

The Conference Board is scheduled to release its consumer confidence report for August 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 50.0 in August.

The consumer confidence index fell to 50.4 in July from 54.3 in June. Economists had expected a more modest decline to 51. The expectations index fell about 6 points, while the present situation index edged down by only 0.7 points. The percentage of individuals who said jobs were plentiful remained at 4.3%, while those who said jobs were hard to get rose to its highest level since March.

The Federal Reserve is scheduled to release the minutes of its August 10th Federal Open Market Committee meeting at 2 PM ET.

At the end of its one-day monetary policy meeting, the Federal Open Market Committee left its key interest rates unchanged at 0%-0.25%. Kansas City Federal Reserve President Thomas Hoenig continued to dissent, arguing for a change in the language, as he is of the view that the economy is recovering modestly as projected.

The Fed said in the post-meeting policy statement that the pace of recovery in output and employment has slowed in recent months. This was in contrast to its view in June, when it said the economic recovery was proceeding and the labor market was improving gradually. The committee also dropped its reference to financial conditions as being less supportive of growth. The FOMC also said the pace of the economic recovery is likely to be more modest in the near term than had been anticipated.

Stocks in Focus

GlaxoSmithKline (GSK) and Valeant Pharma (VRX) could be in focus after the companies announced that the U.S. FDA has extended the Prescription Drug User Fee Act goal date for their anti-epileptic drug ezogabine by 2 months to November 30th, 2010. The delay came as the FDA has not completed the review of the NDA due to the recent submission of additional data.

Donaldson (DCI) is expected to see some activity after it announced that its fourth quarter earnings climbed to 65 cents per share from 30 cents per share last year. The year-ago results included a charge of 5 cents per share. Revenues rose 22% to $515 million. Analysts estimated earnings of 64 cents per share on revenues of $499.50 million. For fiscal 2011, the company expects earnings of $2.28-$2.48 per share on revenues of about $2 billion. The consensus estimates call for earnings of $2.45 per share on revenues of $2.07 billion.

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Dollar Wobbles Ahead Of Housing Data

The dollar was uncertain in cautious trading Tuesday morning in New York, staying near a 15-year low versus the yen amid concerns about the pace of the US recovery.

Today's flurry of data will give the markets a better sense of where the economy is headed -- toward a slow but steady recovery, or back into recession.

The S&P/Case-Shiller home price index for June will be released at 9.00 a.m. ET. Economists expect a 3.5% year-over-year increase in the 20-city composite house price index for June following 4.6% year-over-year rise in the previous month.

At 9.45 a.m. ET, the results of the Institute for Supply Management-Chicago's business survey for August will be tabled. Economists expect the business barometer index based on the survey to come in at 57.5 for the month.

At 10.00 a.m. ET, the Conference Board will release its consumer confidence report for August. Economists expect the report to show that consumer confidence index fell to 50.0 in August from 50.4 in July.

At 2.00 p.m. ET, the Federal Reserve will release the minutes of its August 10th Federal Open Market Committee meeting. Traders will be keen to read between the lines of the minutes to assess the health of the economy.

The dollar slumped back toward Y84 against the yen overnight, coming close to last week's 15-year low of 83.63 before finding its footing.

Against the euro, the dollar wobbled near $1.2675, having been unable to sustain much direction over the past few weeks.

The euro area's unemployment rate remained unchanged at 10% in July, in line with expectations, official figures showed on Tuesday.

The buck gained a bit of ground versus the sterling, improving to a weekly high of $1.5390 from $1.5460.

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