June 16, 2009

Better Trades US News - June 16, 2009

After a promising open, the markets reverted to negative ground by mid-day, as investors could not benefit from a handful of better-than-expected economic reports. The markets also reversed course during the June 16 session as the value of the dollar slipped and the price of commodities advanced.

On the economic front, construction of new homes in May surged by the biggest amount in three months, as the Commerce Department confirmed that building of new homes and apartments advanced 17.2% to an annual rate of 532,000 units. The current reading came in higher than the 500,000 unit pace which economists were anticipating.

May’s reading comes in after April’s in which construction declined to the lowest reading on record, 454,000 units. With an increase in construction, building permits jumped as well, climbing 4% to an annual rate of 518,000 units.

Within the report, the 17% jump was amassed with the help of a 7.5% increase in single-family home construction. The report also revealed that construction of multi-family units surged 61.7%, following a 49.4% drop in April.

Although May witnessed a substantial increase in construction, the overall activity is still more than 45% below the rate posted this time last year.

In a report released by the Labor Department, wholesale prices for May advanced at a slower pace than anticipated, as prices for food items declined during the month. For the month, the Produce Price Index (PPI) inched higher by 0.2%, well below the expected increase of 0.6%.

Excluding the volatile pricing of food and energy costs, the core inflation rate slipped 0.1% in May, the direct opposite of what was expected, an increase of 0.1%.

The leading factor to the drop in PPI was a 1.6% decrease in food costs, yet this was offset considerably by a 2.9% increase in the cost of energy, including a nearly 14% jump in the cost of gasoline.

Despite the nominal increase in the PPI, wholesale prices have receded 5% over the past year, the largest annual decline in nearly 60 years.

The final bit of economic news released on Tuesday came from the Federal Reserve, in which government data showed that the nation’s industrial production retreated at a greater clip than anticipated in May. The main culprit for the massive decline was due to the lack of demand from heavy machinery, automobiles and household appliances.

In the release, industrial production slipped 1.1% for the month, retreating for the seventh consecutive month, following a 0.7% slide in April. Production within the mining industry fell 2.1% in May, while utility output dropped 1.4% and manufacturing production slipped 1%.

As the nation’s leading production industries continue to cope with a dismal economic situation, the lack of demand for finished goods caused the overall operating rate to fall to 68.3%, a new record low.

In the corporate world, one of the world's largest pork processors and hog producer, Smithfield Foods Inc. (SFD) announced early Tuesday morning that the company booked a loss during the 4Q, albeit smaller than anticipated.

For the recent period, SFD recorded a loss of $78.8M, or $0.55 per share, versus a profit of $2.4M, or $0.02 per share from a year ago. Quarterly sales dipped as well, falling from $2.87B to $2.85B, as sales of pork products increase marginally to $2.46B.

Analysts, on average, were looking for the hog producer and processor to post a quarterly loss of $0.60 per share on total sales of $3.06B. Heading into the next fiscal year, 2010, Smithfield remains on track to restructure their pork business, along with lowering debt, strengthening their balance sheet and bolstering liquidity.

By the sound of the closing bell, shares of Smithfield Foods were down, losing $0.54, or 4.8%, to end the session at $10.64 per share.

FactSet Research Systems Inc. (FDS), which supplies global economic and financial data to analysts, investment bankers and other financial professionals, confirmed before the opening bell on June 16 that the company’s profits during the 3Q increased year-over-year on better margins and higher sales.

For the recent period, FactSet booked net income of $38.5M, or $0.79 per share, in contrast to the previous year’s earnings of $32.5M, or $0.65 per share, an increase in earnings of more than 18%.

Revenues for the company increased nearly 5% during the quarter, climbing from $147.4M to $154.4M. In the meantime, analysts were looking for the financial research and analytical provider to post earnings of $0.72 per share on overall revenues of $155.2M.

Looking ahead, FactSet is projecting 4Q earnings to range between $0.73 and $0.75 per share on total sales figures between $152M and $157M. Analysts, meanwhile, are anticipating quarterly earnings of $0.72 per share on total revenues of $155.45M.

With the markets concluding trading, shares of FDS were down nearly 2% at the close, losing $0.92 to end the day at $50.00 per share.

The price of crude resumed its trek lower during the June 16 session, as investors continued their selling over the past few session. At the close of Tuesday’s trading, the price for a barrel of light sweet crude for July delivery slipped $0.15 to $70.47, making the value of oil twice that of the price it sold for back in March.

In additional NYMEX trading, gasoline for July delivery gained $0.017 to $2.0711 a gallon, while heating oil fell $0.003 to $1.850. Natural gas for July delivery slipped $0.07 to $4.312 per 1,000 cubic feet.

Pvrices within the government debt markets advanced on Tuesday, as traders watched as the Fed was in the process of purchasing an undisclosed amount of debt that matures between May 2012 and November 2013. Back in March, the Fed announced their program to buy back $300B in debt in order to help stimulate demand and lower rates.

With the sound of the closing bell, the benchmark 10-year note inched higher, adding 16/32 to 95 21/32 as its yield slipped from 3.79% the day before to 3.65%. Meanwhile, the 30-year note jumped 1 16/32 to 96 14/32 with a yield of 4.46%, down from the previous session’s 4.58%. Lastly, the 2-year note gained 3/32 to 99 13/32 as its yield dipped to 1.17%, down from last night’s 1.22%.

Inside the Forex markets, the U.S. Dollar retreated in value trading against the major global currencies, as domestic economic news hampered the recent rally in the price of the greenback. By late afternoon, the 16-nation Euro advanced against the Dollar, buying $1.3836, up from the previous night’s price of $1.3788.

Furthermore, the British pound increased in value as well versus the greenback, buying $1.6406, up from Monday’s price of $1.6342. In additional currency trading, the Dollar lost ground against the Japanese yen, falling from 97.65 to 96.42. Meanwhile, the greenback dropped to 1.0883 Swiss francs from 1.0928 francs, while also declining against the Canadian dollar, to 1.1333 from 1.1337.

By the sound of the closing bell, the Dow Jones Industrial average gave up 107.46 points, or 1.2%, to end the day at 8,504.67, while the broader market indicators concluded the session in the red as well.

The S&P 500 index was lower by 11.75 points, or 1.3%, to close out at 911.95, while the tech-heavy NASDAQ composite index dropped 20.20 points, or 1.1%, finished Tuesday’s session at 1,796.18.

2009 Better Trades Article

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BRIAN MULLIN