U.S. Housing Starts Fall; CPI Rises 0.2%; GM IPO

Arthi Gupta
17 Nov, 2010
New York City

U.S. stocks declined after housing starts fell more than expected and the consumer price index rose in October and mortgage applications dropped as rates rose. GM boosted IPO size by 31% to 478 million shares. Sara Lee won European approval to sell business units to Unilever.

[R]9:35 AM New York – U.S. stocks declined after housing starts fell more than expected and the consumer price index rose in October and mortgage applications dropped as rates rose. GM boosted IPO size by 31% to 478 million shares. Sara Lee won European approval to sell business units to Unilever.[/R]

Most Asian markets declined nearly 2% with the exception of Japan. The European markets advanced after the European finance ministers decided on extending financial assistance to Ireland.

Ireland continued to struggle with the prospect of sovereign debt stress while its financial institutions remained under heavy scrutiny. No clear resolution was reached in the crisis despite the offer of bailout funds by European finance ministers.

Home Builders Confidence Rises; Refi Index Weak

The National Association of Home Builders revealed in a report on Tuesday that the U.S. homebuilders’ confidence improved for the second consecutive month in November. The NAHB/Wells Fargo Housing Market Index rose to 16 in November from a downwardly revised 15 in October.

U.S. mortgage applications slumped to their lowest in four months last week as interest rates climbed, according to industry data released today.

The Mortgage Bankers'' Association reported that mortgage applications volume fell 14.4% on a weekly basis in the week ending November 21.

The refinance index fell 16.5% to its lowest level since July 2010, while the purchase index fell 5%, marking the first weekly decline after three consecutive weekly increases.

Weak Home Construction

According to a report released by the Commerce Department on Wednesday, new residential construction in the U.S. fell by much more than expected in the month of October, with the report also showing a smaller than expected increase in building permits.

Housing starts fell 11.7% to an annual rate of 519,000 in October from the revised September estimate of 588,000. The Commerce Department also said that building permits rose 0.5% to an annual rate of 550,000 in October from the revised September rate of 547,000.

CPI in Check

The U.S. Labor Department released a report on Wednesday showing that total consumer prices for October rose by less than expected with a drop in prices for used cars and trucks partly offsetting a jump in energy prices.

The Labor Department said that its consumer price index rose 0.2% in October after edging up 0.1% in September. The energy index rose 2.6%.

Fed Officials Defend QE2

Officials from the Federal Reserve have backed last week''s comments Treasury Secretary Timothy Geither, who assured that the U.S. is not pursuing a ""weak dollar"" policy in support of the nation''s exporters.

The slumping dollar is merely an unintended by-product of the Fed''s attempts to support the economy with a series of asset purchases and unusually low interest rates, according to New York Fed President William Dudley and Fed Vice Chair Janet Yellen.

Dudley told CNBC''s Steve Liesman that the accusation that the Fed was aiming to weaken the dollar are ""off base.""

In an interview with the Wall Street Journal, Yellen echoed Dudley''s remarks on the dollar. ""The purpose of (QE) is not to push down the dollar,"" she said.

In another statement, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said the $600 billion quantitative easing scheme has set the stage for the economy to grow gradually in the coming months.

Lockhart dismissed the notion that the additional stimulus was extended to deliberately weaken the dollar. “The purpose of the policy is to strengthen the U.S. economy, which is in the world''s interest,” he said.

Lael Brainard, Under Secretary of the Treasury said on Tuesday that the U.S. will continue to pressure China to allow the yuan to rise more freely in the coming months. He further added the U.S. will be working closely with other G20 nations to create a set of indicators to help measure and reduce imbalances in the global economy.

""We are working hard to ensure that China makes progress in allowing its exchange rate to appreciate in response to market forces,"" he said.

GM to Boost IPO Size

General Motors Co. is looking to now boost the size of its initial public offering by 31% amid stronger-than-expected investor demand. According to reports, GM is now expected to boost the IPO size by about 31% to 478 million shares of common stock.

The revised offering will increase proceeds up to $15.8 billion and price each share at $33 from the initial range of $27 to $29. If the underwriters for the offering exercise an overallotment option, the IPO could increase to 550 million shares, bringing the value to around $18.2 billion.

Sara Lee Wins EU Approval

Sara Lee Corp., the packaged consumer products maker said it got the European Commission''s approval to sell its global Body Care and European detergents businesses to Anglo-Dutch consumer products maker Unilever plc. As part of the ruling, Unilever is required to divest the Sanex brand in the European market after it acquires the business from Sara Lee.

Boeing signed a deal to buy privately held CDM Technologies, a software engineering company that specializes in real-time transportation and logistics planning systems for the U.S. Military for undisclosed terms.

Potash Corp. of Saskatchewan Inc Share Buyback

Potash Corp. of Saskatchewan Inc., the Canadian fertilizer maker said on Tuesday that its board of directors has approved a $2 billion share repurchase program. The announcement comes just days after mining giant BHP Billiton Group withdrew its $40 billion hostile offer to acquire the company.

Human Genome Sciences, Inc. announced that an advisory panel recommended to the U.S. Food and Drug Administration for the approval of Benlsyta or belimumab for the treatment of autoantibody-positive patients with active systemic lupus erythematosus.

Earnings Review

BJ''s Wholesale Club, Inc. (BJ), the warehouse club chain operator reported third quarter net sales rose 4.8% to $2.57 billion from $2.45 billion in the prior year period on comparable club sales rise of 2.5%. Net income in the quarter increased 32.2% to $22.96 million or 43 cents per diluted share, compared to net income of $17.37 million or 32 cents per share in the year-ago quarter, mainly reflecting strong net sales and comparable club sales growth.

Bob Evans Farms, Inc. ((BOBE)), the restaurant company reported second quarter net sales fell 1.8% to $417.0 million, from $424.8 million in the prior-year quarter. Net income for the quarter dropped 50% to $7.79 million or 26 cents per diluted share, compared to net income of $15.48 million or 50 cents per share last year.

Chico''s FAS, Inc. ((CHS)), the specialty retailer reported third quarter net sales improved 8.1% to $483.02 million from $446.86 million in the prior year''s third quarter. Consolidated comparable store sales grew 3.1% for the current quarter compared with a 12.8% rise for the same period a year ago. Net income in the quarter increased 27% to $28.84 million or 16 cents per diluted share, compared to net income of $22.74 million or 13 cents per share last year.

Giant Interactive Group Inc. ((GA)), the online game developer reported third quarter net revenue rose 17% to RMB338.7 million, from RMB290.2 million in the prior-year quarter. Net income in the quarter increased 5.6% to RMB208.7 million or RMB 0.89 per share, compared to net income of RMB197.7 million or RMB 0.84 per share in the previous-year quarter.

Griffon Corporation ((GFF)), a maker of communication systems, building and plastics products said fourth quarter revenue increased 6% to $348 million from $328 million last year. Net loss for the quarter was $1.7 million or 3 cents per diluted share, compared with net income of $11.9 million or 20 cents per share a year ago.

Target Corporation ((TGT)), the discount retailer reported third quarter sales increased 3.0% to $15.2 billion from $14.8 billion in 2009, due to a 1.6% increase in comparable-store sales combined with the contribution from new stores. Net earnings in the quarter rose 23% to $535 million or 74 cents per diluted share, compared to net earnings of $436 million or 58 cents per share in the year-ago quarter.

VanceInfo Technologies Inc. ((VIT)), the IT services firm reported third quarter net revenues soared 39% to $55.9 million, from $40.2 million in the third quarter of 2009. Net income in the quarter surged 33.9% to $7.7 million or 18 cents per diluted share, compared to net income of $5.8 million or 14 cents per share in the third quarter of 2009.