U.S. Inflation Contained; Euro Slides

Arthi Gupta, Mayank Mehta and Sanjay Barot
19 May, 2010
New York City

U.S. stock futures and world markets plunged sharply on fears about the impact the naked short selling ban imposed by Germany will have on the global markets. U.S. consumer price index falls 0.1% in April. Hewlett-Packard, Analog Devices, Deere net rises.

[R]10:00 AM New York – U.S. stock futures and world markets plunged sharply on fears about the impact the naked short selling ban imposed by Germany will have on the global markets. U.S. consumer price index falls 0.1% in April. Hewlett-Packard, Analog Devices, Deere net rises.[/R]

U.S. stocks and world markets declined sharply as traders expressed fears about the impact the naked short selling ban imposed by Germany will have on the global markets.

The sharp decline in commodity and oil prices coupled with a weaker euro also impacted market sentiment. U.S. consumer price index falls 0.1% in April. Hewlett-Packard, Analog Devices, Deere net rises.

Germany''s BaFin financial-services regulator temporarily banned naked short selling and naked credit-default swaps of euro-area government bonds. The ban also applies to naked short selling in shares of ten banks and insurers that will last until March 31, 2011, BaFin said yesterday in a statement.

BaFin said it was taking the step because of ""exceptional volatility"" in euro-area bonds. ""Massive"" short-selling was leading to excessive price movements which ""could endanger the stability of the entire financial system.""

Michael Barnier, the EU commissioner for the internal market and financial regulation, said Germany''s actions would be ""more efficient if they are coordinated at European level.""

The commission already has a task force looking into issues including naked selling, Barnier added.

The markets in Europe are also trading weaker as the euro''s weakness continues to haunt the market. The euro hit a four-year low against the dollar. It fell to below $1.215 before recovering to $1.219.

German Chancellor Angela Merkel said that the ""current crisis"" facing the euro was ""the biggest test Europe has faced in decades.""

The U.S. dollar is presently gaining against the euro and the pound, but it is trading weaker against the Japanese yen.

Consumer prices unexpectedly showed a modest decrease in the month of April, according to a report released by the Labor Department on Wednesday, with the unexpected drop in prices reflecting a notable decline in energy prices.

The index of consumer prices decreased 0.1% in April from March and increased 2.2% from a year ago month. The energy index fell 1.4%.

Hewlett-Packard Co. said that its second quarter profit jumped 28% from last year, as revenue increased and margins improved amid strong demand for its server and personal computers as well as printers.

Chip maker Analog Devices Inc. said that its second-quarter profit more than tripled over last year, driven essentially by strong revenue growth in most segments, as well as higher margins. The company also boosted its quarterly dividend by 10%.

Farm machine maker Deere & Co. posted a 16% growth in its second-quarter profit driven by strong demand for large farm machinery and higher shipments in construction and forestry.

Commodities, Currencies and Yields

Dollar edged higher against euro to $1.2183 and decreased against the Japanese yen to 91.18.

Crude oil decreased $1.24 to $68.17 a barrel for a front month contract, natural gas edged lower $0.02 cent to $4.33 per mBtu and gasoline decreased 2.070 cents to 202.24 cents.

Gold decreased $9.20 in New York trading to close at $1,205.40 per ounce, silver closed lower $0.329 to $18.55 per ounce and copper for the front month delivery decreased 9.250 cents to $2.93 per pound.

Yields on 10-year U.S. bonds increased to 3.34% and on 30-year U.S. bonds traded at 4.23%.

Stock Movers

ChipMOS Technologies (Bermuda) Ltd., the packager and tester of computer chips surged 10.9%.

Culp, Inc., the maker of upholstery fabrics added 3.3%.

Northrop Grumman Corporation, the defense company fell 0.4%.

Earnings Review

Analog Devices, Inc. ((ADI)), the chip maker said first quarter sales rose 41% to $668.2 million from $474.7 million a year ago. Net income in the quarter rose 222.4% to $167.1 million or 55 cents per diluted share compared to net income of $51.8 million or 18 cents per share a year ago.

Deere & Company ((DE)), the maker of tractors and harvesters reported second quarter sales rose 6% to $6.55 billion from $6.19 billion a year ago. Net income in the quarter rose 16% to $547 million or $1.28 per diluted share compared to net income of $472 million or $1.11 per share a year ago.

Hewlett-Packard Company ((HPQ)), the maker of PCs and printers said second quarter sales rose 12.4% to $30.8 billion from $27.4 billion a year ago. Net income in the quarter rose 29.4% to $2.2 billion or 91 cents per diluted share compared to net income of $1.7 billion or 71 cents per share a year ago.

Target Corporation ((TGT)), the discounter reported first quarter sales rose 5.5% to $15.2 billion from $14.4 billion a year ago. Net income in the quarter rose 28.6% to $671 million or 90 cents per diluted share compared to net income of $522 million or 69 cents per share a year ago. Comparable same-store sales increased 2.8%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 55.80 or 0.54% to 10,186.84, and Hang Seng index in Hong Kong decreased 365.96 or 1.83% to 19,578.98, and CSI 300 index in China lower 9.17 or 0.33% to 2,762.17. ASX 200 index in Australia decreased 83.60 or 1.87% to 4,387.10 and the FTSE Bursa KL Composite index in Malaysia was lower 21.94 or 1.65% to 1,308.23.

The Kospi Index in South Korea decreased 13.16 or 0.80% to close at 1,630.08. SET index in Thailand closed higher 5.43 or 0.71% to 765.54. JSE Index in Indonesia decreased 104.70 or 3.69% to 2,729.48. The Sensex index in India decreased 467.27 or 2.77% to 16,408.49.

Europe Markets Review

In London FTSE 100 Index closed lower 130.98 or 2.47% to 5,176.36, in Paris CAC 40 Index decreased 101.96 or 2.82% to 3,515.36 and in Frankfurt DAX index traded lower 163.93 or 2.66% to 5,992.00. In Zurich trading SMI decreased 99.43 or 1.54% to 6,371.41.