Markets May Sag on Weak Jobs Data and Negative Corporate News - RTTNews Daily Market Analysis

Thu. August 07, 2008; Posted: 09:32 AM

(RTTNews) - The major U.S. index futures are pointing to a lower opening Thursday. Sentiment may be impacted by dismal results reported by insurer AIG (AIG | Quote | Chart | News | PowerRating), which are likely to re-ignite concerns over the health of financial firms. Additionally, continuing climb in jobless claims may stir anxiety about conditions in the labor market. Oil has begun to resume its uptrend after its recent sharp pullback and could serve to deprive some of the recent positive momentum in the markets. Retail sales reported by the nation's retailers have been in-line with the recent trend, with discount retailers and wholesale clubs posting solid gains, while the others turned in disappointing results.

After experiencing weakness in Wednesday's morning trading on some disappointing corporate results, the major averages turned higher in the afternoon. The turnaround in sentiment came about due to better-than-expected results from Cisco Systems (CSCO | Quote | Chart | News | PowerRating) and another pullback in the price of oil.

The Dow Industrials advanced 40.30 points or 0.35% to 11,656 and the S&P 500 Index gained 4.31 points or 0.34% to 1,289. Riding on the strength of Cisco's earnings, the Nasdaq Composite advanced 28.54 points or 1.21% to 2,378.

Among the sectors, the Amex Oil Index and the Philadelphia Oil Service Sector Index gained 2.63% and 2.26%, respectively, as oil stocks rose on bargain hunting. The Amex Gold Bugs Index rose 1.47%, while the Amex Biotechnology Index rallied 1.48%. In the technology space, semiconductor, disk drive, software and networking stocks showed significant strength.

Currency, Commodity Markets

The price of oil is currently up $2.48 at $121.06 a barrel. On Wednesday, oil pulled back $0.59 to $118.58 a barrel following the release of the Energy Information Administration's weekly oil inventory report.

The report showed that crude oil inventories rose by 1.7 million barrels in the week ended August 1st to 296.9 million barrels and are now in the lower half of the average range for this time of the year. Distillate fuel inventories increased by 2.8 million barrels, while gasoline inventories declined by 4.4 million barrels. Refinery capacity utilization averaged 87.7% over the four-weeks ended August 1st compared to 88.2% in the previous week.

Gold futures are gaining $6.30 to $889.30 an ounce after declining $3.10 to $883 an ounce on Wednesday.

On the currency front, the dollar is showing some weakness and is currently trading at 109.375 yen after strengthening to 109.265 yen at the close of New York trading on Wednesday. The dollar is currently valued at $1.5421 versus the euro.

Asia

Stock markets across the Asia-Pacific region closed mostly lower despite Wall Street extending its gains on Wednesday. A $5 billion quarterly loss reported by the American International Group weighed on financial stocks. The Japanese market closed lower, as investors locked in profits following Wednesday's 340-point rally. The benchmark Nikkei 225 index closed down 129.90 points or 0.98% at 13,125.

Investors also found little comfort from weak machinery order outlook for the third quarter. Before the market opened today, the Cabinet Office said that Japan's core private-sector machinery orders fell by a better-than-expected 2.6% compared to the previous month in June and forecast a 3.0% quarterly decline for the September quarter. The South Korean market fell after the central bank raised its key interest rate to control inflation. The Kospi lost 14.71 points or 0.93% to finish at 1,564 following Wednesday's 2.8% surge.

Earlier in the day, the Bank of Korea hiked its 7-day repo rate for August by 0.25-percentage point to 5.25%, the first increase in a year and the highest level since February 2001. The Chinese market gained 0.3% on Thursday, extending its gains for a second trading session, led by property developers. Financial shares were hit on profit taking following strong gains on Wednesday. The benchmark Shanghai Composite Index closed up 8.21 points at 2,728. The Hong Kong market closed higher, ending a two-day losing streak. The benchmark Hang Seng Index rose 154.45 points or 0.7% to finish at 22,104.20, off a high of 22,424.54. The financial markets in Hong Kong remained closed on Wednesday due to a typhoon warning. Europe

The major European markets are trading higher on Thursday. While the French CAC 40 Index is up 0.87%, the German DAX Index is gaining 0.49%. The U.K.'s FTSE 100 Index is advancing about 0.26%.

In corporate news, Deutsche Telecom (DT | Quote | Chart | News | PowerRating) reported a 35% decline in net profits for its second quarter, with the decline mainly due to one-time items and an increase in interest expense. The company confirmed its full year adjusted EBITDA and cash flow guidance. German insurer Allianz withdrew its earnings growth forecast for the year after it reported a decline in its second quarter earnings to 1.5 billion euros from 2.1 billion euros. Revenues fell 9.5% to 22 billion euros.

Swiss confectioner Nestle reported 6.1% growth in its net profits for its first quarter, as sales rose 3.8% to 53.07 billion Swiss francs. Meanwhile, French insurer Axa reported a 32% decline in first-half profits. However, the drop was not as severe as many had expected.

On the economic front, the German Federal Statistical Office released its trade gap report for June, showing a trade surplus of 19.7 billion euros in June compared to 16.7 billion euros in the year-ago period. On a seasonally and calendar adjusted basis, the trade surplus was 18.1 billion euros. Germany's current account balance showed a surplus of 18.5 billion euros. Economists expected a smaller surplus of 12 billion euros for the month.

The Bank of England kept its benchmark interest rate unchanged at 5% at its August meeting. The decision was in-line with expectations, as economists expected the central bank to allow time for its previous policy actions to produce results.

The Bank of England's counterpart in the European Union, the European Central Bank, also announced a freeze its interest rate at 4.25% after raising it by 25 basis points in July. The interest rate on the marginal lending facility was held at 5.25%, while the interest rate on the deposit facility was retained at 3.25%. The inflation rate in the euro zone region remains well above the central bank target of 2%. However, the bank may have been prompted to maintain rates due to evidence of slowing economic growth in the euro zone economies.

U.S. Economic Reports

A Labor Department report showed that the number of individuals claiming unemployment benefits rose 7,000 in the week ended August 2nd to 455,000 from the previous week's unrevised average of 448,000. Economists had expected claims to have eased to 420,000

The four-week average that removes volatility rose 26,750 in the recent week to 419,500 from the previous week's revised average of 392,750. Continuing claims, which is calculated with a week's lag, rose 31,000 in the week ended July 26th to 3.311 million.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, are due out at 10 AM ET on Thursday. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The consensus expectations call for a 1% decline in the index for June.

The pending home sales index for May declined a worse-than-expected 4.7% to 84.7 in May, reversing the upwardly revised 7.1% growth seen in the previous month. The steepest decline was in the South, where the index declined by 7.1%.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET on Thursday. Consumer credit for June is likely to show an increase of $6.4 billion.

Consumer credit increased at an annual rate of 3.5% or $7.8 billion in May to $2.57 trillion. Economists had expected a $7 billion increase for the month. Revolving and non-revolving credit increased by 7% and 1.2%, respectively.

Earnings

Cardinal Healthcare (CAH | Quote | Chart | News | PowerRating) reported that its fourth quarter revenues rose 3% to $23 billion and adjusted earnings per share climbed 9% to 97 cents per share. The company expects fiscal year 2009 adjusted earnings of $3.80 to $3.95 per share.

Sara Lee (SLE | Quote | Chart | News | PowerRating) announced a fourth quarter loss of 98 cents per share compared with a profit of 16 cents per share last year. The recent quarter's results included a charge of $1.20 per share. Revenues climbed 12% to $3.51 billion. Analysts, on average, estimated earnings of 26 cents per share on revenues of $3.48 billion.

Stocks in Focus

AIG could see weakness after it reported a second quarter net loss of $2.06 per share compared with a profit of $1.64 per share in the year-ago quarter. On an adjusted basis, the company reported a loss of 51 cents per share compared to a profit of $1.77 per share last year. Analysts, on average, expected a profit of 63 cents per share last year.

VeriSign (VRSN | Quote | Chart | News | PowerRating) could see some weakness after it reported a loss of 35 cents per share for its second quarter, wider than the 2 cents per share loss reported in the year-ago period. On an adjusted basis, the company reported earnings of 25 cents per share, exceeding the 23 cents per share consensus estimate. Revenues rose 17% to $303 million, significantly higher than the mean analysts' estimate of $231 million.

Advance Auto Parts (AAP | Quote | Chart | News | PowerRating) is likely to react to its announcement that its second quarter sales rose 5.6% to $1.24 billion. The company's earnings per share climbed 23% to 79 cents per share from 64 cents per share in the year-ago period. The consensus estimates had called for earnings of 72 cents per share on revenues of $1.21 billion.

Avis Budget (CAR | Quote | Chart | News | PowerRating) rose in Wednesday's after hours session after it reported 4% revenue growth in the second quarter to $1.6 billion. However, the company's earnings from continuing operations fell to 15 cents per share from 22 cents per share last year. Looking forward, the company expects 2008 revenues to show an increase from 2007 revenues of $6 billion. On an adjusted basis, the company predicts pre-tax income of $140 million and EBITDA of about $350 million.

Among retailers, teen apparel retailer Hot Topic (HOTT | Quote | Chart | News | PowerRating) reported a 1.4% drop in same store sales for July. The company now expects a second quarter loss of 2 cents per share compared to its earlier estimate for a loss of 2-4 cents per share. Analysts currently estimate a loss of 3 cents per share for the quarter. Zumeiz' (ZUMZ | Quote | Chart | News | PowerRating) same store sales fell 1.4% in July.

Murphy Oil (MUR | Quote | Chart | News | PowerRating) is likely to be in focus over its announcement that its President and CEO Claiborne Deming would retire effective December 31st, 2008. The company also announced that Deming will be succeeded by Davod Wood, who is currently serving as its Executive Vice President worldwide exploration and production operations.

Nationwide Financial Services (NFS | Quote | Chart | News | PowerRating) rallied sharply in Wednesday's after hours session after it said it has signed an agreement with Nationwide Mutual Insurance that allows Nationwide Mutual to acquire all outstanding Class A shares of Nationwide Financial for $52.25 per share in cash. Nationwide Mutual already owns all of National Financial's Class B shares. Separately, the company announced a decline in its second quarter net income to 62 cents per share from $1.37 per share last year. Net operating income was 92 cents per share, lower than $1.39 per share last year. Sales fell to $4.27 billion from $4.54 billion in the year-ago period.

Sunoco (SUN | Quote | Chart | News | PowerRating) rose in the after-hours session despite reporting second quarter net income of 70 cents per share, significantly lower than $4.20 per share in the year-ago period. On an adjusted basis, the company reported earnings of 52 cents per share. On the other hand, revenues climbed 49% to $16.08 billion. Analysts, on average, expected earnings of 30 cents per share.

URS (URS | Quote | Chart | News | PowerRating) may gain ground after it raised its adjusted earnings per share estimate for 2008 to $2.73-$2.85 per share from its earlier estimate of $2.62-$2.73 per share. The company reiterated its revenue guidance of $9.8 billion. The company also reported second quarter adjusted earnings of 81 cents per share, which exceeded the mean analysts' estimate of 60 cents per share. Revenues doubled to $2.53 billion.

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