The major U.S. index futures are pointing to a modestly positive opening on Thursday. Fledgling signs of a distant recovery are emerging, with the weekly jobs report showing a decline in the recent reporting week, marking the first drop since early this year. Deal news is trickling in, although in fits and start, with Intel (INTC) being the latest company to court a target. The development shows companies' interest in consolidating at a time when valuations are still cheap, as they look forward to benefit from the purchases when the economy begins to turn around.
Nevertheless, the only concern is the overbought levels of the markets, which have been running up since early March in anticipation of a recovery. Most analysts think that the gains are overdone, given the ground reality of the economy seeing only a slow and steady recovery.
Chain store sales reported by the nation's retailers earlier in the day weren't enterprising enough to provide support to the retail space, which has seen a resurgence following some promising signals from consumers. Meanwhile, crude oil has defied expectations based on fundamentals and is trading up, with the latest catalyst being an upward revision to its crude oil price estimates by Goldman Sachs.
U.S. stocks opened Wednesday's session lower, as traders took profits as they digested some lackluster economic reports. Selling continued for most of the reminder of the session, albeit on a moderate note. In late trading, the major averages pared some of their losses, yet they still ended lower for the day.
The Dow Industrials ended down 65.63 points or 0.75% at 8,675 and the Nasdaq Composite receded 10.88 points or 0.59% to 1,826, while the S&P 500 Index fell 12.98 points or 1.38% to 932.
Twenty of the Dow components ended the session lower, with Alcoa (AA) (down 4.28%), Citigroup (C) (down 3.42%) and DuPont (DD) (down 3.86%) leading the Dow's decline. Bank of America (BAC), Caterpillar (CAT), General Electric (GE), IBM (IBM), Intel (INTC) and United Technologies (UTX) also showed notable weakness. On the other hand, Wal-Mart (WMT) climbed 1.90% and Microsoft (MSFT) gained 1.54%.
Among the sector indexes, the Amex Oil Index declined 4.66% compared to a 4.82% drop by the Philadelphia Oil Service Index. Gold stocks also showed considerable weakness, with the Amex Gold Bugs Index falling 6.08%. The Amex Securities Broker/Dealer Index, the Amex Oil Index, the KBW Bank Index and the Dow Jones Utility Average fell over 1.5% each.
The Dow Jones Transportation Average declined 2.53% and the Philadelphia Housing Sector Index moved down 3.82%. Meanwhile, the Amex Biotechnology Index rallied 3.11%. In the tech space, the Philadelphia Semiconductor Index receded 2.21%.
Among yesterday's economic reports, the ADP survey showed that U.S. private sector lost 532,000 jobs in May, more or less in-line with the expected decline of 525,000. Commenting on the report, Peter Boockvar from Miller Tabak said firings seem to be stabilizing, although hiring still remains sluggish.
The ISM's services sector survey showed that the purchasing managers' index came in at 44 in May compared to the expected reading of 45 and the month-ago's 43.7. The business activity index declined 3 points to 42.4. On the other hand, the new orders index declined to 44.4 in May from 47 in the previous month and the index of backlog of orders moved down to 40. On an encouraging note, the employment index moved to its highest level since October despite its meager 2 point-increase.
Factory goods orders rose 0.7% month-over-month in April, smaller than the 0.9% gain expected by economists. The March reading was revised down to show a 1.9% monthly decline as opposed to the 0.9% decline estimated originally.
Currency, Commodity Futures
Crude oil futures are rising $0.77 to $66.89 a barrel after receding $2.43 to $66.12 a barrel on Wednesday. Wednesday's retreat came amid the release of the weekly oil inventory report that showed a 2.9 million barrel-increase in crude oil stockpiles to 366 million barrels in the week ended May 29th. Inventories were now above the upper boundary of the average range.
However, gasoline inventories fell by 0.2 million barrels and were below the lower limit of the average range. On the other hand, distillate stockpiles increased by 1.6 million barrel and remained above the upper boundary of the average range. Refinery capacity utilization averaged 84.2% over the four-weeks ended May 29th compared to 84% in the previous week.
Gold futures are currently extending their losses, receding by $0.40 to $965.20 an ounce. The precious metal slipped $18.80 to $965.60 an ounce in the previous session.
The dollar is trading at 96.735 yen, stronger than the 95.985 yen it fetched at the close of New York trading on Wednesday. The dollar is trading at $1.4116 a euro, stronger than yesterday's $1.4162.
Asia
The markets across the Asia-Pacific region drifted into negative territory amid concerns about the U.S. economy following weak U.S. private employment and services sector reports. Profit taking following recent strength and caution ahead of a key U.S. jobs report along with lower commodity prices in international market influenced market movement. However, the Indian market ended in positive territory, bucking the overall trend in the region on expectation of more reforms from the new Government.
Japan's Nikkei 225 Average opened down by more than 50 points at 9,692, reflecting the losses on Wall Street. The market recovered smartly and moved above the unchanged line in the morning session to 9,743. However, profit taking in the afternoon ahead of the release of the key non-farm employment report on Friday and a lack of buying interest dragged the index down, as it closed at 9,669, down 72.71 points or 0.75%. The broader Topix Index of all first section issues also edged down 3.51 points, or 0.38% to close at 911.
On the economic front, the Ministry of Finance stated that Japanese companies reduced their spending on plants and equipment in the first quarter of 2009. Capital spending plunged 25.3% during the Jan-Mar period in 2009 following a 17.3% decline in the last 3 months of 2008. Economists were expecting a 30% drop in investment.
Shipping stocks ended weaker on profit taking following their recent gains. Kawasaki Kisen lost 3.51%, Nippon Yusen fell 4.52%, and Mitsui OSK Lines shed 3.41%. A mixed trend was witnessed among automotive stocks. Mitsubishi Motors surged up more than 15% following news that the company is planning to sell plug-in electric vehicles in the country in the next 4 years. Nissan Motor Co. gained 1.68%. However, Toyota Motor lost 2.31%, and Honda Motor fell 1.22% on profit taking.
Financial stocks ended in positive territory. Mitsubishi UFJ gained 1.30%, Mizuho Financial added 1.28%, Resona Holdings advanced 2.64% and Sumitomo Mitsui rose 1.08%. Brokerage Nomura Holdings advanced 3.11% after Fitch Ratings affirmed ratings for debt in the U.K and U.S.
Australia's All Ordinaries Index opened below the 4,000-mark at 3,989 compared to its previous close of 4,009, mirroring the weak closing on Wall Street, and it continued to slide further, dragged down by resource stocks on lower commodity prices in the international market. After moving sideways for the bulk of the session, the index slipped further in reaction to a trade balance report. The benchmark S&P/ASX 200 Index followed a similar trend and ended down at 3,935, with a loss of 82.60 points, or 2.06%.
On the economic front, the Australian Bureau of Statistics revealed that the trade balance unexpectedly turned to a deficit in April, coming in at a seasonally adjusted shortfall of A$91 million.
Resource stocks led the declines after a measure of six commodities traded on the London Metals Exchange, comprising of copper, zinc and nickel among others, declined 1.8% on Wednesday. BHP Billiton declined 5.18%, Orica Ltd shed 3.04%, Oz Minerals lost 3.33% and Rio Tinto slumped 6.56%. Among gold stocks, Lihir Gold lost 3.95%, Newcrest Mining shed 2.99% and Sino Gold edged down 0.77% on higher gold prices. In the oil stocks space, Woodside Petroleum lost 3.57%, Santos shed 3.08% and Oil Search fell 4.01%.
Banking stocks ended mixed on profit taking. Commonwealth Bank edged down 0.03%, National Australia Bank lost 3.93% and Westpac Banking slipped 0.16%. However, ANZ Bank bucked the trend and ended higher with a gain of 2.93%.
In Hong Kong, the Hang Seng Index opened lower at 18,418 and saw weakness, as property and resource stocks declined on profit taking. Strength among utility and retail stocks helped limit the losses and the index ended at 18,503, down 73.70 points or 0.40%.
Property stocks ended lower on profit taking. Henderson Land lost 3.27%, Hang Lung Property shed 3.57% and Sino Land fell 2.57%. All other property stocks also ended in negative territory. Resource and China-related stocks also declined.
Retailer Li & Fung, which supplies toys and other materials to Wal-Mart, surged up 6.85% after Wal-Mart reported that it would create 22,000 new jobs in the U.S. during 2009. Utility stock HK & China Gas gained 4.56% on lower commodity prices.
In South Korea, the benchmark KOSPI Index ended in negative territory, as foreign institutional investors preferred to take profits amid concerns about the U.S. economy. After opening lower at 1,410 compared to its previous close at 1,415, the Kospi continued to drift lower amid selling by foreign institutional investors. The index ended the session with a loss of 36.75 points or 2.60% at 1,378.
Financials, shipbuilding, and construction stocks ended lower on FII selling. Technology and automakers gained on a weaker local currency, helping limit the losses to some extent.
In India, the stock market ended in positive territory, erasing the losses seen in early trading on hopes of an economic recovery. The address of the President to the two houses of Parliament also lifted the market sentiment. The BSE Sensex gained 137.78 points or 0.93% to close at 15,008.
Among the other major markets in the region, China's Shanghai Composite Index ended lower by 11.34 points or 0.41% at 2,767, the Strait Times Index in Singapore ended lower by 0.88% or 21.08 points at 2,363 and the Taiwan Weighted Index fell 107.08 points or 1.55% at 6,786. However, Indonesia's Jakarta Composite Index gained 21.80 points or 1.08% to close at 2,033.
Europe
The major European markets are trading higher on Thursday, with the French CAC 40 Index and the German DAX Index moving up 0.60% and 0.65%, respectively, while the U.K.'s FTSE 100 Index is gaining 0.03%.
In corporate news, U.K.'s Johnson Matthey reported a small increase in pre-tax profits for the full year to 267.9 million pounds. British supermarket chain Wm Morrison said its like-for-like sales, excluding fuel, rose 8.2% in the first quarter. The company maintained its guidance for the full year. Department store Debenhams said it would raise 323 million pounds through the placement of shares.
In a central bank decision, the Bank of England said it is maintaining its key interest rate at 0.5%. The decision came as no surprise. The committee also opted to continue with its asset purchase program totaling 125 billion pounds financed by the issuance of central bank reserves. The central bank expects the program to take another 2 months to complete and decided to keep the scale of the program under review.
As expected, the European Central Bank also left its main refinancing operations rate at 1% after cutting the rate by a quarter point in May from 1.25%. The ECB had lowered interest rates by a total of three and a quarter percentage points since early October 2008.
Among the economic reports, the latest report from Halifax showed that U.K. house prices rose 2.6% month-over-month in May after three successive monthly declines of between 1.8% and 2.3%. Economists expected prices to fall 1%. Annually, house prices dropped 16.3% in May compared to a 17.7% fall in the previous month. Economists had expected a decline of 17.2%.
Eurostat said in a report that Eurozone retail sales increased 0.2% month-over-month in April compared to the 0.1% drop in the previous month, revised from the 0.6% drop reported initially. Economists were looking for a decline of 0.2%. Annually, retail sales declined 2.3% in April, smaller than 2.9% decline expected by economists.
U.S. Economic Reports
Among the duo of reports released by the Labor Department, initial jobless claims came in at 621,000 for the week ended May 23. This was down 4,000 from a revised mark of 625,000 in the previous week. The 4-week moving average of initial claims, a statistic that flattens out week-to-week fluctuations in the data, increased to 631,250 from the revised mark of 627,250 seen in the previous week.
Continuing claims, which measures the number of people receiving ongoing unemployment help, declined from record high levels. The statistic fell 15,000 to 6.735 million.
In a separate report, the Labor Department said first quarter non-farm productivity rose at an upwardly revised 1.8% quarter-over-quarter rate and unit labor costs climbed 2.7%. The consensus estimates had called for a 1.2% increase in non-farm productivity and 2.9% growth in unit labor costs.
The improvement in productivity reflected a 8.8% drop in hours, which more than offset the 7.2% decline in output. Hourly compensation rose 4.5% quarter-over-quarter.
Stocks in Focus
Wal-Mart (WMT) is likely to be in focus after it said it would add 22,000 people in its new or expanded stores in 2009. JetBlue (JBLU) could react to its announcement that it has increased its previously announced offering of 20 million shares to 23 million shares at a price of $4.25 per share. The company noted that Deutsche Lufthansa would buy 3.58 million shares.
Copart (CPRT) could be in focus after it reported that its third quarter income from continuing operations was 48 cents per share, down 7.7% from last year. Net sales and revenues fell to $197.33 million from last year's $221.15 million. Analysts estimated earnings of 48 cents per share on revenues of $202.97 million.
Airlines United Airlines (UAUA) and American Airlines (AMR) are likely to move in reaction to their May traffic results. United Airlines reported a load factor of 80%, as traffic and capacity declined 12.3% and 10.2% year-over-year, respectively. American Airlines' load factor rose 0.2 percentage points year-over-year to 73.3%. Traffic fell 14.3% compared to a 14.5% drop by capacity.
Valero (VLO) is also likely to be in focus after it announced that it has priced its public offering of 40 million shares at $18 per share. The company intends to use the proceeds for general capital purpose, including its capital spending program as well as recently completed and pending acquisitions.
Cyberonics (CYBX) may see some strength after it said its fourth quarter sales rose 14% year-over-year to $38.6 million, ahead of the consensus estimate of $37.66 million. The company's earnings per share doubled to 22 cents per share. The company said it anticipates 2010 revenues of $157 million to $161 million compared to the $156.4 million consensus estimate.
NetApp (NTAP), Data Domain (DDUP) and EMC Corp. (EMC), the three protagonists in a takeover tangle could continue to be in the spotlight after NetAPP and Data Domain announced a revised agreement for the purchase of Data Domain for $30 per share in cash and stock or $1.9 billion, net of Data Domain's cash. The revised offer is a bump up from NetApp's earlier bid price of $25 a share made on May 20th and matched an offer by EMC.
Comtech (CMTL) is likely to move to the upside after it reported third quarter adjusted earnings of 34 cents per share, above the 22 cents per share consensus estimate. The company's sales dipped 6.9% to $128.5 million.
SAIC (SAI) is also expected to trade higher after it said its first quarter earnings rose to 28 cents per share from 24 cents per share last year, as revenues rose 12% to $2.65 billion. The consensus estimates had called for earnings of 27 cents per share on revenues of $2.51 billion.
The retail space may see some activity in reaction to the release of retailers' same store sales results for May. Hot Topic's (HOTT) same store sales fell 6.4% in May compared to a 0.2% decline in May last year. Among the other teen retailers, Abercrombie (ANF) said its comparable stores for May were down 28% and Aeropostale's (ARO) same store sales dropped 19%. Zumiez (ZUMZ) said its May same store sales slumped 20.7%.
Wholesaler Costco (COST) said its comparable store fell 7% in May, while BJ's Wholesale reported a 6.8% decline in same store sales. Specialty apparel and personal care products retailer Limited Brands (LTD) also reported a 7% decline in same store sales for May.
Ciena (CIEN) is expected to move in reaction to its second quarter results, which showed revenues of $144.2 million, notably lower than $242.2 million last year. On a non-GAAP basis, the company reported a loss 25 cents per share compared to a loss of 40 cents per share last year. Analysts expected a loss of 9 cents per share on revenues of $156.73 million. Intel (INTC) could see some weakness after it announced a deal to acquire Windriver Systems (WIND) for $884 million or $11 per share in cash.
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