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Risk Aversion Amid Lack of Direction May Drive Traders Away From Equities
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The major U.S. index futures are pointing to a lower opening on Tuesday. For the second day in running, there isn’t much economic news to digest and therefore, traders are likely to be left with little clues to decide their course of action. That said, earnings from some major European as well as U.S. firms have been disappointing. Commodity prices are pulling back amid a lack of direction. Traders may largely track a Fed speech to be delivered after the markets open and the direction of oil prices.
U.S. stocks opened Monday’s session slightly lower, although they traded with a positive bias amid some degree of volatility in the morning. A lack of any major catalysts created uneasiness among traders, especially after the previous week’s sharp gains. The Dow Industrials and the S&P 500 Index experienced notable weakness in the mid-session before they recouped their losses and closed only slightly lower.
The Dow Industrials ended down 13.68 points or 0.13% at 10,553 and the S&P 500 Index edged down 0.19 points or 0.02% to 1,139, while the Nasdaq Composite remained mostly above the unchanged line barring momentary weakness in the morning. The technology-weighted index ended up 5.86 points or 0.25% at 2,332.
Seventeen of the thirty Dow components ended the session lower, with 3M Co. (MMM), American Express (AXP) and Boeing (BA) declining over 1% each. On the other hand, Cisco Systems (CSCO) rose 3.65%, DuPont (DD) moved up 1.14% and McDonald’s (MCD) rallied 2.28%. AT&T (T) and Verizon (VZ) gained more than 1% each.
Among the sector indexes, the NYSE Arca Airline Index fell 1.93% and the NYSE Arca Gold Bugs Index slipped 1.07%. However, the Philadelphia Housing Sector Index gained 1.51% compared to a 1.18% advance by the NYSE Arca Securities Broker/Dealer Index. The NYSE Arca Disk Drive Index climbed 3.21% and the NYSE Arca Internet Index rose 1.31%.
Commodity, Currency Markets
Crude oil futures are trading down $1.59 to $80.28 a barrel after gaining $0.37 to $81.87 a barrel on Monday. Gold futures, which fell $11.20 to $1,124 an ounce in the previous session, are currently receding $12.20 to $1,111.80 an ounce.
On the currency front, the U.S. dollar is trading at 89.796 yen compared to the 89.692 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.3545.
Asia
The major Asian markets ended a lackluster session on Tuesday on a mixed note following the uninspiring lead from Wall Street.
Japan’s Nikkei 225 average languished below the unchanged line for the better part of the session despite a few valiant attempts to break into positive territory. The index closed at 10,568, down 18.27 points or 0.17%.
Financial, pharma, technology, utility, electrical machinery, trading house, construction and resource stocks came under selling pressure. On the other hand, Clarion rallied 5.78%, Pioneer rallied 4.50% and Nitto Boseki rose 3.35%. Auto stocks showed mixed sentiment.
On the economic front, Japan’s Economic and Social Research Institute’s preliminary estimates showed that the leading economic indicators index rose 2.4 points to 97.1 in January. The coincident index climbed 2.5 points to 99.9, while the lagging index increased to 85.1 from the previous month’s 82.9.
Australia’s All Ordinaries, which showed some weakness in the morning, recovered in the afternoon and began moving close to the unchanged line with a positive bias in the afternoon. Buying pressure picked up thereafter, resulting in the index closing modestly higher. The index closed up 9.70 points or 0.20% at 4,829. Most sectors, with the exception of material, real estate and telecommunication stocks, advanced modestly to moderately in the session.
Miners Rio Tinto, BHP Billiton, Fortescue, Newcrest Mining, Incitec and Lihir Gold fell in the session, while the four major banks also declined. Energy stocks extended their gains, with AGL Energy, Origin Energy and Santos advancing, while Woodside Petroleum receded.
Business confidence and conditions in Australia rose for the second consecutive month in February, the results of the National Australia Bank’s survey showed. NAB’s business confidence index came in at 19 in February, up from 15 in the previous month. This marks the highest reading since November 2009. Sentiment was especially buoyant in the mining, retail sector and transport sectors. Meanwhile, the business conditions index climbed to 8 in February from 3 in January.
Hong Kong’s Hang Seng Index showed some volatility in early trading before recovering in early afternoon trading. In the afternoon, volatility returned, resulting in the average closing up merely 10.68 points or 0.05% at 21,208.
Utility and insurance stocks advanced. Property stocks showed mixed sentiment. However, bank, resource and retail stocks came under selling pressure.
Europe
After showing some strength in early trading on Tuesday, the major European averages have retreated into negative territory and are currently trading lower. The French CAC 40 Index and the German DAX Index are moving down 0.49% and 0.55%, respectively, while the U.K.’s FTSE 100 Index is receding 0.71%.
Banking stocks are leading the declines in the region after Moody’s warned that it may downgrade ratings on some U.K. banks after the government winds down some of its banking bailout programs.
In corporate news, real estate investment trust Liberty International plc is declining 3.49% after revealing its intention to separate into two listed companies. The company earlier reported a narrower loss for 2009.
EADS, the parent company of Airbus, reported a loss of 1.05 billion euros for the fourth quarter, with the results including a charge of 1.6 billion euros for the A400M military project and a 240 million euro charge for its A380 program.
On the economic front, the U.K. Office for National Statistics reported that the U.K.’s trade deficit widened to 8 billion pounds in January from a revised deficit of 7 billion pounds in December, with the recent month’s deficit the biggest since August 2008. The consensus estimate had called for a deficit of 7 billion pounds. Exports fell 6.9% month-over-month compared to a 1.6% decline in imports.
Meanwhile, the French trade deficit narrowed to 3.68 billion euros in January from a revised deficit of 4.15 billion in December. The French Customs Office reported that exports rose to 30.17 billion euros from 29.39 billion euros in December, while imports increased to 33.86 billion euros from 33.55 billion euros.
A survey by the U.K. Royal Institute of Chartered Surveyors showed that a net 17% saw house prices rising in February, lower than January's 31%. This was way below analyst expectations for a net house price balance of 30%. At the same time, a separate British Retail Consortium survey showed today that total retail sales value in the U.K. rose 2.2% on a like-for-like basis in February compared to a year ago. On a total basis, sales rose 4.5% compared to February 2009.
U.S. Economic Reports
Chicago Federal Reserve Bank President Charles Evans is due to speak to the NABE annual policy conference in Arlington, Virginia, at 9:30 AM ET.
Stocks in Focus
Texas Instruments (TXN) receded in Monday’s after hours session after it revised its first quarter guidance, now expecting revenues of $3.07 billion to $3.19 billion compared to its earlier estimate of $2.95 billion to $3.19 billion. The company expects earnings of 48-52 cents per share compared to its earlier estimate of 44-52 cents per share. Analysts estimate earnings of 49 cents per share on revenues of $3.08 billion.
H&R Block (HRB) also moved lower in Monday’s after hour session after it reported third quarter earnings from continuing operations of 16 cents per share compared to 20 cents per share last year. Revenues fell 5.9% to $934.9 million. Analysts estimated earnings of 15 cents per share on revenues of $949.55 million.
Tivo (TIVO) is likely to move in reaction to its announcement that its fourth quarter revenues rose to $68.45 million from $59.18 million last year. The company reported a loss of 9 cents per share compared to a loss of 4 cents per share in the year-ago period. The consensus estimates had called for a loss of 12 cents per share on revenues of $47.45 million.
Diodes (DIOD) may trade higher after it raised its guidance for the first quarter, citing strength in global markets. The company lifted its first quarter revenue estimate to $134 million to $138 million from its earlier estimate of $131 million to $137 million. The company also raised its gross margin guidance to 32.5%-33.1% from 32%-33%.
ResCare (RSCR) could be in focus after it announced that its fourth quarter revenues fell 2% year-over-year to $387 million. The company’s adjusted earnings were 25 cents per share. Analysts estimated earnings of 25 cents per share on revenues of $388.37 million. For 2010, the company estimates earnings per share of $1.05-$1.15 and revenues of $1.6 billion. The consensus estimates call for earnings of $1.08 per share on revenues of $1.58 billion.
CDC Corp. (CHINA) rallied in Monday’s after hours session after it reported fourth quarter revenues that fell to $83 million from $97 million last year. The company reported break-even results compared to a loss of 76 cents per share last year. On a non-GAAP basis, the company reported earnings of 5 cents per share. Analysts estimated earnings of 3 cents per share on revenues of $81.91 million. For 2010, the company expects revenues of $352 million to $358 million, while analysts estimate revenues of $346.59 million.
Thor Industries (THOR) is likely to see some activity after it reported that its second quarter sales surged up to $430 million from $226.7 million last year. The company reported earnings of 22 cents per share compared to a loss of 27 cents per share last year. The consensus estimates had called for earnings of 28 cents per share on revenues of $428.33 million.
UAL Corp. (UAUA) is likely to gain ground after its subsidiary United Airlines said its consolidated passenger load factor rose 5.7 points year-over-year to 78.7%. Traffic rose 2.1% compared to a 5.3% decline in capacity.
Watson Pharma (WPI) may react to its announcement that its subsidiary Watson Labs has been sued by Endo Pharma (ENDP) and Penwest Pharma (PPCO) in connection with the filing of the company’s ANDA for Cxymorphone Hydrochloride Extended-Release tablet, which is a generic version of Endo’s Opana.
FMC Technologies (FTI) could see buying interest after it announced that it has received a $62 million contract from Statoil ASA for the manufacture and supply of subsea production equipment to support the Marulk field.
Northrop Grumman (NOC) is expected to be in focus after it said it would not submit a bid to the Department of Defense for the KC-X program. The company attributed its decision to the methodology defined in the RFP, which favors Boeing’s (BA) smaller refueling tanker and does not recognize the value of the added capability of a larger tanker.
Susquehanna Bancshares (SUSQ) could come under selling pressure after it announced the commencement of its public offering of about $300 million of its common stock. The company also noted that Susquehanna Capital Trust II has commenced a public offering of about $50 million worth of trust preferred securities. Another stock that could see weakness over an announcement of common stock offering is Comercia (CMA), which said it would offer $800 million worth of shares in a public offering.
Immunogen (IMGN) could rally after it announced that the FDA has granted orphan drug designation to its IMGN901 compound used for the treatment of Merkel cell carcinoma. The company also said the European Union concurrently granted the compound orphan medicinal product designation for the treatment of Merkel cell carcinoma.
Casey’s General Stores (CASY) receded in Monday’s after hours session despite reporting third quarter earnings of 34 cents per share, higher than 28 cents per share last year. Total revenues climbed to $1.11 billion from the year-ago’s $849.27 million. The consensus estimates had called for earnings of 38 cents per share on revenues of $1.12 billion.
Dick’s Sporting Goods (DKS) may react to its announcement that its fourth quarter earnings were 56 cents per share, while sales rose 10.7% to $1.3 billion. Analysts estimated earnings of 55 cents per share on revenues of $1.30 billion. For 2010, the company estimates consolidated earnings per share of $1.32-$1.35 and a 2%-3% increase in comparable store sales. Analysts estimate earnings of $1.32 per share for the year.
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