Inflation and Energy Drive Indexes Lower

123jump.com Staff
30 Mar, 2006
New York City

Market averages declined as investor refocused on inflation worries. Fourth quarter revised GDP of 1.7% from 1.6% led yield on 10-year bond to 4.87%. Oil jumped and crossed $67 per barrle and Nigeria, Iran and Venezuela contributed to the oil related jitters. Gulf of Mexico oil production is still 22% below pre-Katrina level. Gold and silver rose 25-year high and copper traded at record level.

[R]4:30PM Inflation concerns and rising oil and metal prices pressure averages.[/R]

-Market averages declined on inflation worries.
-Dow down 65 points, S&P down 2.64 and Nasdaq up 3.04.
- Oil up 70 cents to $67.15, gold up $13.40 to $586.70 and silver up 55 cents to $11.66.

Oil prices were on the rise and closed up 70 cents to $67.15 per barrel on geopolitical concerns and 22% lower than pre-Katrina production in the Gulf of Mexico and severe production curtailment in Nigeria. After more than five months of Hurricane Katrina and Rita oil production has not reached to the level before the storms. In the mean time demand for gasoline and crude is on the rise in the domestic market. Royal Dutch Shell in Nigeria has shut down 50% of its production on worker safety issues. Venezuela and Exxon disagreement lead Exxon to sell a stake in a field to its Spanish partner Repsol YPF.

Market averages remained under pressure as the fourth quarter GDP was revised to 1.7% higher from the previous read of 1.6%. The Department’s read of price deflator was significantly higher than expected leading bond investors to sell bonds and drive yield on the 10-year bond to 4.87%. Interest rate sensitive stocks and transportation stocks fell as price of oil and rates on bonds rose. Home builders, airlines and trucking stocks lost ground.

Prices of precious metals were on the rise. Gold rose $13.4 to $586.7, silver rose 55 cents to $11.66 and copper rose to all-time high of $2.48. Metal producers around the world gained on the rising metals prices. BHP Billiton ((BHP)) rose 3%, Rio Tinoto ((RTP)) and Phelps Dodge ((PD)) rose more than 5%.


[R]3:20PM Emerging markets are set to deliver excellent first quarter.[/R]
Latin markets continued their advance led by Brazil index gain of 0.44%. Mexico and Argentina advanced 0.12% and 0.2%. Brazilian Central Bank reported in the quarterly report cut its inflation target to 3.6% from 3.7%. The Central Bank has inflation target of 4.5%. The lower inflation target is likely to lower the current lending rate known as Selig rate of 16.5% by a full percentage point. Petrobras and Vale do Rio Doce rose 1% and 2% respectively. Mexican IPC index rose 0.7% but settled at 0.2% as the market neared a close. Cement maker Cemex and home builder Homex rose 1.3% as the market focused on the earnings at the end of the quarter. The soft drink and beer maker Femsa lost 1%. Emerging markets in Asia broadly advanced as India, Taiwan, Thailand and Hong Kong delivered better than 0.7% gain at close. India close at all-time high 11,307 on strong fund flows from the domestic and overseas investors. Russia surged 2.85% but Turkey lost 0.18%.


[R]2:30PM Higher Bond yield dampen the averages.[/R]
In the early afternoon trading major averages are under pressure as investors face rising bond yields. Yield on 10-year bonds rose as high as 4.874%, highest level since June 2004. Crude oil traded near $67 per barrel and gold surged $11.50 to a 25-year high of $587.50 per ounce. In other news Google lost 2% as the company plans to sell 5.3 million shares to index funds managers and raise at least $2.1 billion. GM lost 1.2% as the company is reported to be in discussion to sell its stake in Japanese auto manufacturer Isuzu for $323 million and is nearing a sale of 51% stake in its financing arm GMAC.

Shares of recently spun-off Ameriprise from American Express rose 3.5% on the news that the company bought back 6.4 million shares from Berkshire Hathaway and plans to buy $750 million of its own stock. Berkshire now holds 9.8% of Ameriprise. The construction materials maker Martin Marietta Materials rose 2% after the company revised its earnings guidance to 52 cents and 58 cents from 30 cents to 45 cents. The company also raised the guidance for the annual earnings to $5.15 and $5.50 per share.


[R]12:30PM European markets finished sharply up.[/R]
European markets surged Thursday to finish sharply higher with German and French stocks reaching multi-year highs. Stocks were lifted by Nokia, strong mining stocks rally and other merger-and-acquisition news. Nokia shares climbed 4.8% after the world's top maker of mobile phones lifted outlook for cellular phones, citing strong subscriber demand. However, London Stock Exchange dropped 8.6% after the Nasdaq withdrew its $4.2 billion bid for the company. The German DAX 30 rose 1.2%, the French CAC 40 climbed 1.2%, and London FTSE 100 surged 1%.

Crude oil prices continued to rise, following Iran’s rejection of a U.N. Security Council demand to stop uranium enrichment works. Light sweet crude May delivery rose 13 cents to $66.58 a barrel. London Brent climbed 50 cents to $66.05. European gold hit a 25-year high. In London gold traded at $585.10 per troy ounce, up from $565.30. In Zurich the precious metal climbed to $583.70 from $566. In Hong Kong gold surged $15.30 to $577.60. Silver closed unchanged at $10.80. The U.S. dollar lost ground versus major currencies. The euro traded at $1.2142, up from $1.2025. The dollar bought 117.24, down from 117.74 The British pound was quoted at $1.7452, up from $1.7348.

[R]11:30AM Stocks declined on GDP data.[/R]
Higher-than-expected inflation in the fourth quarter made stocks change their upward direction, sending them lower. U.S. stocks reversed from early gains after Treasury yields rose to the highest level in nearly two years. The benchmark 10-year U.S. Treasury note was down 13/32, with the yield at 4.859%t, a 21-month high. As a result banks and utilities, which are interest-rate sensitive stocks, fell on fears that the Fed Reserve will continue with interest rate hikes to limit inflation. Shares of Citigroup Inc ((C)) fell 0.7%. Shares of No. 4 U.S. bank Wachovia Corp. ((WB)) fell 1%. Google Inc. ((GOOG)) was the biggest drag on Nasdaq, falling 2.4% after the Web search company announced a plan to sell more 5.3 million shares worth $2 billion. Most of the blue chips turned negative, dragging the Dow. 3M ((MMM)) was one of the worst performers, falling 1.2%. General Motors ((GM)) was another notable decliner on news that the automaker is close to reaching a deal to sell its majority stake in GMAC to an investor group led by Cerberus Capital Management. Altria ((MO)), Caterpillar ((CAT)), and Home Depot ((HD)) were also conspicuous movers to the downside. Meanwhile, shares of General Electric ((GE)) advanced 1.9% after Morgan Stanley raised its price target on the stock. Alcoa ((AA)) and Microsoft ((MSFT)) were also bucking the downward trend.


[R]10:30AM Stocks turned to the downside.[/R]
After the initial advance, stocks lost ground and the three major averages slipped into negative territory as traders turned to consolidating recent gains. The Dow dropped well below the unchanged line, while the Nasdaq and the S&P 500 posted more modest losses. The semiconductor sector sharply fell to the downside, following early strength. Airline and utility stocks were conspicuous movers to the downside after particularly strong performances in the previous session. Despite weakness in the broader markets, gold stocks remained notable gainers. The sector advanced 2.8%, rising to its best level in almost two months. The continued strength in the gold sector was contributed by a continued rise of the precious metal price. At its high for the session, the price of gold was at a 25-year high. The metal sector gained strength as other metals prices rose along with the price of gold. Newmont Mining ((NEM)), Freeport-McMoRan ((FCX)), and Agnico-Eagle Mines ((AEM)) stood out as the best performers. Wireless stocks showed strength after Nokia ((NOK)) raised its outlook on market volume growth to 15%, compared to its previous forecast of 10%. Shares of Nokia rose 4.2%.


[R]9:45AM Stocks opened in the positive.[/R]
Stocks opened in the positive, continuing yesterday’s upside movement. Stocks were boosted by positive quarterly results from Bust Buy and Nokia’s improved outlook. Best Buy ((BBY)) posted a 13% rise in Q4 earnings as its sales gained 16% on strong demand for flat-panel televisions and MP3 players. The tech-heavy Nasdaq posted gains on strength in the semiconductor sector, with ATI Technologies ((ATYT)) helping to lead the sector higher. Tech stocks were also supported by 1.2% increase in Motorola ((MOT)) shares after its rival Nokia projected annual growth for overall worldwide mobile device sales to 15% from a prior target of 10%. Gold stocks stood out among advancers, extending a recent upward move amid a notable increase in the price of the precious metal. The sector advanced by 3.7%. Brokerage stocks moved further upside, following significant gains in the previous session with A.G. Edwards ((AGE)) helping to lead the sector higher after reporting Q4 and revenue above analyst estimates. Energy stocks also moved higher, benefiting from a continued increase in the price of oil. In the first hour of trading, the Dow Jones industrial average gained 0.73, or 0.01%. The Standard & Poor's 500 index was up 1.97, or 0.15%, and the Nasdaq composite index added 6.99, or 0.3%. Bonds continued falling amid concerns that rising yields will draw away interest in stocks, with the yield on the 10-year Treasury note jumping to 4.84% from 4.8% late Wednesday.

[R]Initial jobless claims fell by 10,000.[/R]
The Department of Labor released its report on initial jobless claims in the week ended March 25 on Thursday, showing that jobless claims fell compared to an upwardly revised figure for the previous week. The report showed that jobless claims fell to 302,000 from the previous week's revised figure of 312,000. Economists expected claims to come in at 305,000 compared to the 302,000 originally reported for the previous week. At the same time, the less volatile four-week moving average fell to 310,750 from the previous week's revised average of 312,250. The decrease by the moving average comes after it increased in the four previous weeks. The report also showed that continuing claims in the week ended March 18 rose to 2.483 million from the preceding week's revised level of 2.463 million.


[R]9:15AM Stock futures pointed to a flat start.[/R]
U.S. stock futures pointed to a flat opening, reflecting continuously rising oil prices on Iran’s nuclear program. Google ((GOOG)), which is joining the S&P 500 index, also weighed on sentiment after the company announced a plan to sell 5.3 million shares for $2.09 billion. Markets made a strong performance on Wednesday, with the major averages rebounding from sharp declines, following the Fed Reserve's interest rate announcement on Tuesday. The Nasdaq ended the session at a five-year high. Shares in the Nasdaq Stock Market ((NDAQ)) are expected to be active after the exchange withdrew its $4.18 billion bid for the London Stock Exchange. Shares of Motorola ((MOT)) rose before the bell after top-ranked rival Nokia raised its outlook for the global handset market. General Motors ((GM)) is likely to be in the spotlight after after it was downgraded at Moody's Investors Service. Standard & Poor's 500 futures rose by 0.4 point but were even with fair value. Dow Jones industrial average futures rose 2 points, while Nasdaq 100 futures were up 3 points.

[R]Fourth-quarter GDP grew 1.7%, in line with expectations.[/R]
Thursday morning, the Department of Commerce released its final report on the fourth quarter gross domestic product. The report showed that fourth quarter GDP growth was upwardly revised in line with expectations. The Commerce Dept. said that fourth quarter GDP growth was revised up to 1.7 percent from the previously reported 1.6 percent growth, although it is still well below the 4.1 percent growth seen in the third quarter. Economists had expected growth to be revised up to 1.7 percent. The report showed that the modest upward revision reflected higher than previously reported inventory investment. However, the upward revision to inventory investment was partly offset by a downward revision to consumer spending on services. The Commerce Dept. noted that the slowdown in GDP growth in the fourth quarter compared to the third quarter was primarily due to a slowdown in consumer spending, an acceleration in imports, a downturn in federal government spending, and a slowdown in spending on equipment and software. At the same time, the report also showed an upward revision to the pace of core inflation, with the growth in the index of consumer prices excluding food and prices revised up to 2.4 percent from the 2.1 percent growth previously reported. The index rose 1.4 percent in the third quarter.

Crude oil prices continued to rise, following Iran’s rejection of a U.N. Security Council demand to stop uranium enrichment works. Light sweet crude May delivery rose 13 cents to $66.58 a barrel. London Brent climbed 50 cents to $66.05. European gold advanced Thursday, reversing recent losses. In London gold traded at $578.50 per troy ounce, up from $565.30. In Zurich the precious metal climbed to $579.60 from $566. In Hong Kong gold surged $15.30 to $577.60. Silver climbed to $11.20 from $10.80. The U.S. dollar lost ground versus major currencies. The euro traded at $1.2071, up from $1.2025. The dollar bought 117.33, down from 117.74 The British pound was quoted at $1.7386, up from $1.7348.

CarMax Inc, ((KMX)), retailer of used cars, reported Q4 net income of 38 cents a share, up from 28 cents a share a year earlier on 16% sales growth, while same-store sales fell 3%. The company attributed the drop to difficult year-over-year comparisons and a drop in sales financed by its sub prime credit provider. CarMax beat analyst estimate for earnings of 37 cents a share.

ABM Industries Inc, ((ABM)), facility services contractor, reported Q1 net income was 8 cents a share, down from 11 cents a share in the same period in a year ago on revenue growth and sales growth. ABM added that it has filed its 2005 10-K after a delay. The company stated that it has approved a buyback program of up to 2 million shares through Oct. 31, 2006.

Robbins & Myers Inc, ((RBN)), maker of equipment and systems for the pharmaceutical industries reported Q2 net earnings of 8 cents a share, up vs. breakeven on a per-share basis in the same period a year ago. If not for restructuring charges, the per-share profit was 21 cents compared with 11 cents on revenue growth.

Ruby Tuesday Inc, ((RI)), restaurant chain, reported Q3 net earnings of 50 cents a share, up 10% from 42 cents a share in the year-earlier period on revenue growth, beating analysts’ forecasts of 46 cents a share. In Q3 comparable sales at company-owned restaurants advanced 4.7%, and were up 5.4% at its domestic franchise restaurants.

Arrow International Inc, ((ARRO)), medical device company, reported Q2 net earnings of 28 cents a share, up from 12 cents a share the year-earlier on 7% revenue growth. The company added that it reduced its Q2 operating results by 3 cents a share to reflect changes in its accounting for U.S. shipping terms.

Conn's Inc, ((CONN)), home appliances seller, reported that Q4 net income advanced 39.8% to 53 cents a share on 27% revenue growth and 22.6% same-store sales growth. The company added that it opened six new stores in the year, bringing the total to 56, and it expects that total to rise to 62 to 64 stores by January 2007.

Kinross Gold Corp, ((KGC)), precious metals company, reported a Q4 loss of 45 cents a share, down from a loss of 25 cents a share a year-earlier despite revenue growth, missing analyst estimate for a profit of 5 cents a share. Q4 results reflect impairment charges of $147.2 million, and accruals for future reclamation obligations of $47 million.


[R]9:00AM India gains for the fifth day in a row.[/R]
Sensex index in Mumbai rose for the fifth day in a row adding 123.56 points or 1.1% to close all-time high at 11,307.4. The index has gained 387 points or 3.57% in the last five days as both domestic and international investors pour money in India stocks. For the first quarter of 2006 international funds have invested at the annual rate of more than $15 billion and domestic funds have invested at the rate of $17 billion. The strong liquidity has helped the index to gain close to 16% for the first quarter of 2006. Indian market is the second best performing market in the world followed by Russian market with a gain of 21% in the first quarter.

For the day, 1700 stocks advanced and 764 stocks declined and 79 were unchanged. Daily turnover jumped from $900 million to $1.2 billion. For the second day in a row industrial, sugar, IT and select pharmaceutical stocks advanced. Triveni Engineering, Dhampur Sugars and Shakti Sugars gained 10%, 8% and 9% respectively. Tata group of companies were in demand as shares of Tata Metalik, TCS and Tata Motors rose 5%, 2.4% and 1.2% respectively. A steady but weakening Indian rupee against American dollar supported a rise in Indian IT stocks. It companies, in general generate significant revenue from software export. Satyam Computers and Wipro led the gainers for the day.


[R]8:00 AM European averages traded higher at mid-day.[/R]
European markets advanced at mid-day dealings, boosted by higher close on Wall Street and strong mining stocks. Merger-and-acquisition news was also a key driver for the stocks. U.K. lender Alliance & Leicester rose 3.4% after it rejected a $10.1 billion offer from French bank Credit Agricole. However, London Stock Exchange dropped 8.6% after the Nasdaq withdrew its $4.2 billion bid for the company. The German DAX 30 rose 0.5%, the French CAC 40 climbed 0.6%, and London FTSE 100 surged 0.7%.


[R]7:45AM Asian markets finished largely higher. Japan hit a new high.[/R]
Asian-Pacific benchmarks finished broadly higher, following a rally in U.S. stocks. The Nikkei hit a new high, crossing the 17,000-point level for the first time in almost six years. The Japanese index rose 0.6% to 17,045.34 strongly supported by technology stocks like Tokyo Electron, up 1.8% and Kyocera, up 1.1%. The banking sector also contributed to the advance, helped by an upbeat report from Goldman Sachs Group which raised its profit estimates for 8 banks to a total of $28.8 billion. Among gainers Mitsubishi UFJ Financial Group gained 4.1% and Mitsui Sumitomo Insurance rose 2.1%. Hong Kong’s Hang Seng climbed 0.9%, taking a cue from U.S. and Japanese gains, Taiwan Weighted index rose 0.7% on tech stocks, while China Shanghai Composite fell 0.8%, dragged by profit taking in the property and metals sectors.