Financials Sink, Energy Soars and Broad Indices Flat [delayed]

Ridgeland, MS, JUN 23, 2008 (EventX/Knobias.com via COMTEX) -- XLB | Quote | Chart | News | PowerRating -- Financials are once again weighing on the broad equity market averages. The XLF is down 2.6% and the banking index (BKX) is off 2.2% as Energy, Steel and Coal industries lead the commodity sectors higher. Analysts at both Goldman and Bank of America issue cautious review of financial names this morning. Consumer Discretionary names are lower with automakers (F,GM) and homebuilders (XHB) weighing on the sector. The WSJ reported the Big 3 automakers are facing a cash drain.

Energy prices are higher, but momentum has flipped to the negative in recent trading. The Dow (+30) and Nasdaq (unch) are little changed.

TOP STORIES

-- Republic Services (RSG) will acquire Allied Waste (AW) in a $6.24B stock swap deal characterized as a merger of equals.

-- Bunge (BG) will buy Corn Products (CPO) for $4.8B in an all-stock deal.

-- Citigroup will slash approximately 10% of its 65,000 investment banking employees according to a WSJ report.

-- Goldman Sachs cut the Financial sector to Underweight from Neutral.

-- Bond insurers Ambac (ABK), MBIA (MBI) and FGIC are talking to banks about wiping out $125 billion of liabilities on debt securities according to the Financial Times.

-- "What the stock market is belatedly waking up to is that the much-heralded and more fervently hoped-for second-half recovery isn't going to happen," Alan Abelson (Barron's).

COMMODITIES/BONDS

Crude: ($136.00, +$0.64)

Gold: ($881.80, -$19.50)

10-Year Treasury Note: (4.13%, -1bp)

MACROECONOMIC DATA

Monday

No major indicators scheduled

EUROPEAN MARKETS

The RBS/Markit Eurozone Purchasing Managers Index for services companies fell to 49.5 in June from 50.6 in May. This is the first time the index has indicated a contraction since June 2003. Consistent with U.S. PMI data, output price inflation in Europe is higher. It scored its biggest monthly rise since the series began in Nov 2002, hitting a 17-month high.

Lloyds TSB is mulling a bid for Dresdner Bank, a unit of German insurance giant Allianz (AZ) which the parent company put on the market according to a Times of London report. DAX: +0.3%

FTSE 100: +0.5%

CAC 40: +0.3%

Euro/Dollar: (1 Euro = $1.549)

ASIAN MARKETS

Asian stocks continued last week's decline in Monday trading. In Japan, a 4-year old sentiment poll of large manufacturers yielded its lowest-ever result. Rising costs and bank writedowns are the chief concerns of Tokyo traders according to a Bloomberg story. Semiconductor names Samsung Electronics and Advantest lost power. Financials followed the lead of their American counterparts, with Misubishi UFJ slumping as writedown concerns persist. Shares of Macarthur Coal will be halted until June 25, or until an announcement is made in reference to talks with Arcelor Mittal (MT) which owns a 14.9% stake in the coal miner. In India, stocks hit a 10-month low. On Friday, India's wholesale inflation jumped to a 13-year high of 11%.Nikkei 225: -0.6%

Shanghai Comp: -2.3%

Hang Seng: -0.1%

Dollar/Yen: (1 Dollar = 107.88)

SECTOR COMMENTARY

Energy

Crude oil, natural gas and gasoline futures are higher this morning in volatile trading on both sides of the flat line. The oil summit hosted by Saudi Arabia had little impact in the minds of commodity traders today. Saudi Arabia pledged to increase production beyond the planned 200,000 bbl/day July increase if demanded by the market. Next month Saudi Arabia is committed to pump 9.7M bbls/day, but the country contends it could pump 12,5M bbls/day by the end of 2009 and 15M bbls/day after that if required according to a Bloomberg report. The oil services segment (OIH +2%) is outperforming after Transocean (RIG +2%) announced a $1.7B 10-year deal with Brazil's Petrobras (PBR) today. Canadian-based oil services firm, North American Oil Energy Partners (NOA +7.8%) handily topped Q4 EPS and revenue expectations by 40% and 16% respectively.

Insiders are selling big positions in the oil & gas industry (Barron's): Hess (HES $36.1M), Oil States Int'l (OIS $16.4M), Complete Production Services (CPX $10.1M), Apache (APA $7.5M). However, insiders added $10M in Helix Energy (HLX) shares and $393K in Concho Resources (CXO).

Materials

The hot coal, fertilizer and steel industries succumbed to profit-taking on Thursday and Friday. However, this morning the DJ Coal and Steel indices are higher by 1% and 2% respectively. Fertilizer names are mixed and the gold & silver miners are giving back last week's gains under pressure from a rebounding dollar. Ahead of this week's housing data and FOMC meeting, the dollar is now stronger against the euro and yen in morning trading after slumping to a 2-week low against the euro last week. The FOMC meeting statement on Wednesday will likely attempt to dampen the rising inflation expectations while leaving the fed funds rate at 2%. On Friday, Knobias reported on the drive by major international steel makers to gain control over their coal and iron ore supplies. Today, shares of Macarthur Coal were halted and will remain so until June 25, or until an announcement is made in reference to talks with Arcelor Mittal (MT) which owns a 14.9% stake in the coal miner. Macquarie Group believes Rio Tinto (RTP) is seeking a 95% price hike for this year's iron ore sales to Asia. Vale (RIO) won a 71% price hike earlier this year. Finally, Bloomberg reports the price of thermal coal at Australia's Newcastle port, rose 1.5% to a record $162.66/metric ton. Production disruptions and strong Chinese demand account for the gains. Consumer Discretionary

Gasoline prices and the inversely correlated consumer sentiment surveys will continue to weigh on the consumer discretionary sector this week. The average price of gasoline in the U.S. hit $4.10 a gallon over the weekend. This morning gasoline futures are up 1c/gal in very volatile futures trading. The Conf. Board Consumer Confidence index is expected to fall one point to 56 on Tuesday and the Univ. of Michigan Consumer Sentiment report on Friday is expected to fall to 56.5 from 59.8 a month ago according to Dow Jones. This morning gasoline futures are trending lower, reversing earlier gains, and energy sensitive names in the airline, auto and retail industries could benefit.

Automakers Ford (F) and GM are extending the multi-year lows reached on Friday. The industry is facing a triple whammy of credit downgrades, tightening consumer lending and soaring gasoline prices. The WSJ ran a story this weekend on the cash drain at Ford, this follows an earlier and similar piece on GM's coming cash crunch in Barron's.

Homebuilders (XHB -1.7%) closed out a tough week near their 5-month lows on Friday. This morning the XHB is testing the 5-month low set 2 weeks ago. This week brings plenty of housing data including the Case-Shiller Home Price Index (Tues), New Home Sales (Wed) and Existing Home Sales (Thurs). Declines of 4% and 2% respectively, are expected for the two home sales indices this week.

Darden Restaurants (DRI) and Sonic Corp (SONC) will report earnings on Tuesday. In the retail space, Deutsche Bank upgraded JC Penney (JCP) to Buy from Hold.

(-) RGC: SMH Capital reiterated its Sell rating on theater operator Regal Entertainment citing weak concessions spending by customers. The call may hurt shares of Cinemark (CNK) and Reading Int'l (RDI), but RGC shares are already in technically oversold territory. Consumer Staples

Bunge (BG) will buy Corn Products (CPO) for $4.8B in an all-stock deal. CPO shareholders will receive $56.00 in market value of BG shares for each CPO share they own. Walgreen (WAG) shares are firm in early trading despite a 1c EPS miss on a (1%) sales miss for the May quarter. Financials (-2.7%)

Financials are the market's lagging sector once again as analysts are turning increasingly negative. Goldman Sachs cut the Financial sector to Underweight from Neutral. Bank of America trimmed its earnings estimates for investment banks Merrill (MER), UBS, Lazard (LAZ), Greenhill (GHL) and Evercore (EVR).

Citigroup (C) will slash approximately 10% of its 65,000 investment banking employees according to a WSJ report. On Friday, UBS estimated Citi's Q2 writedowns will be $8.7 billion. Goldman Sachs began cuts in its investment banking staff last week according to the Financial Times. The GS cuts that could trim 10% of its investment banking workforce as well. Banks plunged to multi-year lows last week as the credit vise squeezed tighter. The KBW Bank Index (BKX) lost 5.9% on the week. However, in a flight to safety, the yield on the 10-year treasury slid to 4.17% from 4.26%.

-- WU: Oppenheimer says consensus EPS estimates for Western Union are too conservative. Citigroup upped its price target for Buy-rated WU to $31 from $26.

-- SNV: Shares of Georgia-based Synovus Financial traded at 250% of normal volume over the last 3 sessions. Synovus closed the week at 8.84/sh, below the tangible book value of 9.04/sh. Director Daniel Amos bought 200,000 SNV shares on June 13, paying 9.26 - 9.30. -- CRFN: North Carolina-based Crescent Financial gained 9.5% on Friday, but still trades 20c below its per share tangible book value. During June, the pace of insider buying picked up with insiders acquiring 236,100 CRFN shares.

Health Care

Genta Incorporated (GNTA) has received notification from the FDA that Genta may resume clinical trials with tesetaxel, an oral taxane in Genta's oncology product portfolio.

Industrials

Allied Waste (AW) shareholders will get 0.45 of a Republic (RSG) share for each Allied share held in a $6.24B merger of equals. Bank of America upgraded Owens-Illinois (OI) to Buy from Neutral in a valuation call.

Technology

Microsoft (MSFT) Chairman Bill Gates will step down as Chairman of the company he founded in July. Meanwhile, at Yahoo (YHOO) top executives including the Panama design chief and the head of networks stepped down.

(-) XRTX: Baird and Wachovia both downgraded Xyratex to Neutral/Market Perform from Outperform ahead of the company's Wednesday earnings report. Telecommunications Services

Barron's called tiny cable company RCN (RCNI) a triple play pioneer and the "Little Engine that Could." The publication reported a Miller Tabak analyst sees RCNI, which closed at 10.48 on Friday, worth at least 23 and as much as 33 in a sum of parts valuation. Gabelli expects continued stock buybacks at Buy-rated CenturyTel (CTL).

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