China Lifts Rates

Elena
27 Apr, 2006
New York City

U.S. stocks opened in the negative on disappointing earnings news and China''''s decision to raise interest rates. The Chinese central bank lifted its key base rate to 5.85%, the first rise since October 2004. Exxon Mobil dropped 2% after reporting quarterly earnings rise which failed to meet estimates. Alcatel also reported net income drop. Dow component Honeywell was downgraded to underweight from neutral by J.P. Morgan on concerns over environmental liabilities.

[R] 9:45AM Stocks opened in the negative.[/R]
U.S. stocks opened lower, in line with futures predictions, with averages losing ground after yesterday’s advance. The market weakness was largely contributed by disappointing earnings and China''s decision to raise interest rates. The news fueled worries that global demand and corporate profits could slow. Exxon Mobil came under pressure after reporting Q1 earnings and revenue that fell short of analyst estimates. The loss from the oil giant and the continuous drop in the price of oil led to weakness in the oil sector. Networking stocks reversed from gains Wednesday and moved to the downside, with Alcatel ((ALA)) helping to lead the sector lower after reporting a Q1 profit that fell year-over-year. In the opening minutes, the Dow Jones industrials fell 46.99 points to 11,307.50, the Nasdaq Composite index declined 13.26 to 2,320.37 and the S&P 500 dropped 5.23 points to 1,300.18.

[R]Initial jobless claims climbed over expectations.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended April 22. The report showed that jobless claims rose much more than economists had been expecting. The report showed that jobless claims rose to 315,000 from the previous week's revised figure of 304,000. Economists had expected claims to edge up to 305,000 compared to the 303,000 originally reported for the previous week. The less volatile 4-week moving average also increased, rising to 308,500 from the previous week's revised average of 305,750. The increase comes after the average moved lower for four consecutive weeks. The report also showed that continuing claims in the week ended April 15 rose to 2.449 million from the preceding week's revised level of 2.427 million.


[R]9:00 AM Stock futures indicated a negative market opening.[/R]
U.S. stock futures pointed to a sharply lower start, following the announcement that China raised its interest rates to 5.85%. Market sentiment was deeply hurt as the news came at a time when market seems worried about further interest rates increases, awaiting the Federal Reserve Chairman Ben Bernanke testimony before Congress about the U.S. economic outlook. A number of disappointing earnings from major companies also generated negative sentiment. Oil giant Exxon Mobil ((XOM)) reported Q1 net income rise of $8.4 billion or $1.37 per share from $7.86 billion or $1.22 per share last year, but came below analyst estimates of $1.46 per share. Phelps Dodge ((PD)) and Lucent ((LU)) also released quarterly declines. Dow component Microsoft ((MSFT)) is also due to release its quarterly results after market close. The software giant is expected to post income growth of 33 cents a share from 28 cents a year ago. Dow Jones futures were recently down 44 points, S&P 500 futures dropped 5.8 points, and Nasdaq 100 futures fell 7.5 points.

Crude oil prices declined on easing domestic supply concerns, although worries about Iran’s nuclear program weighed. Light sweet crude June delivery fell 64 cents to $71.29 a barrel. London Brent dropped 78 cents to $71.31. Gold prices sharply dropped after China raised its interest rates, raising concerns about lower demand. Gold traded at $631.70 per troy ounce from $637.50. The U.S. dollar was steady ahead of Ben Bernanke’s testimony before Congress. The euro traded at $1.2439, down from $1.2451. The dollar bought 114.70 yen, up from 114.69. The British pound was quoted at $1.7846, up from $1.7841.

Terra Industries Inc, ((TRA)), nitrogen and methanol producer, reported a Q1 net loss of 27 cents a share, down from a profit of 3 cents a share in the year-ago period due to revenue decline. The company added Q1 was more difficult and less active than expected but that it expects a better Q2. The company missed analysts’ forecasts for earnings of 7 cents a share.

AutoNation Inc., ((AN)), automotive products retailer, reported Q1 earnings from continuing operations of 37 cents a share, up from a profit of 33 cents a share a year-ago. Q1 results include a charge of a penny per share from stock option expensing. Revenue advanced 4% in Q1. The company met analyst views for a profit of 37 cents a share.

Kellogg Co, ((K)), cereal and packed-foods maker, reported that Q1 income advanced to 68 cents a share, up from 61 cents a year earlier. If not for stock-option expense, earnings would have been 71 cents a share. Sales rose to $2.73 billion from $2.57 billion in Q1 last year. The company beat analysts'' estimates of 63 cents a share.

Reynolds American, ((RAI)), tobacco company, reported Q1 earnings of $2.34 a share, up from $1.90 a share in the year-ago period. If not for non-recurring items, earnings would have been $1.89 a share, topping analyst estimate for earnings of $1.87 a share. The company affirmed its expectations for 2006 earnings of $8 to $8.40 a share.

OfficeMax Inc, ((OMX)), office products retailer, reported Q1 net earnings loss of 37 cents a share, down from a loss of 7 cents a share a year-ago. If not for special items, such as charges related to restructuring activities, the company would have posted earnings of 77 cents a share. Sales in Q1 advanced to $2.42 billion from $2.32 billion in the same period a year ago. Same-store sales were up 1.2%. If not for the charges, the company would have topped analysts’ estimate for a profit of 33 cents a share.

Janus Capital Group Inc., ((JNS)), asset manager, reported Q1 net income came to 17 cents a share, up from 9 cents in the year-ago quarter on revenue growth, matching analysts expectations for earnings of 17 cents a share.

Asbury Automotive Gorup Inc, ((ABG)), automobile retailer, reported Q1 earnings of 37 cents a share, up from 29 cents a share in the year-ago period. If not for non-recurring items, earnings would have risen to 43 cents a share from 37 cents a share. Revenue advanced 8% on new vehicle retail revenue rising 7% and used vehicle retail revenue increasing 13%. Same-store retail revenue advanced 6%. The company beat analysts’ expectations by a penny.

Coca-Cola Enterprises, ((CCE)), soda distributor, reported Q1 earnings of 3 cents a share, down from a profit of 10 cents a share a year-ago despite 3% revenue growth. Items, such as restructuring charges aside, the company earned 9 cents a share in Q1, in line with analyst estimate of analysts.

Rockwell Automation Inc, ((ROK)), maker of automation and control systems, reported that Q2 net income dropped to $146.5 million, or 81 cents a share, from $150 million, or 79 cents a share in the year-ago period, but in Q2 there were more outstanding shares. The company added its Q2 net income included 2 cents a share charge for legal matters. The company beat analysts’ forecasts for earnings of 75 cents a share.

Timken Co., ((TKR)), bearings manufacturer, reported that Q1 net income increased 13% to 70 cents a share, from 63 cents a share in the year-earlier period on revenue growth. Items not taken into account, net income advanced to 71 cents a share from 64 cents a share, topping analysts’ forecasts for earnings of 68 cents a share.


[R]8:15AM European averages dropped at mid-day.[/R]
European markets sharply declined at midday, reflecting weaker commodity and energy stocks, mixed earnings reports and deal talk involving companies like Siemens, Alcatel, and France Telecom. Metals prices moved lower after China lifted its base interest rate to 5.85%. Major mining companies like Rio Tinto and BHP Billiton sent the resource sector down 4%, while oil and gas giants Royal Dutch Shell and BP helped the energy sector down 2%. Alcatel fell 5.9% on lower profit, while Siemens dropped 3.1% after it agreed to buy Diagnostics Products Corp. for $1.86 billion. The German DAX 30 dropped 0.7%, the French CAC 40 lost 0.9%, and London FTSE 100 declined 0.8%.


[R]7:45AM Asia markets closed mixed.[/R]
Asian-Pacific benchmarks finished mixed. The Nikkei advanced on optimism about strong corporate earnings outlook, bolstered by upbeat quarterly results from Japanese companies and continuously falling oil prices. The index rose 0.3% to 17,114.54, supported by blue-chip automakers. Honda Motor reported record sales and profits to advance 5.3%, Nissan Motor, up 2.9%, and Toyota Motor, up 0.5%. Taiwan Weighted index reversed from earlier gains to close down 0.5% on profit taking in tech stocks which offset gains in financial and other companies. Hong Kong’s Hang Seng closed higher by 0.4%, boosted by property stocks. South Korea’s Kospi ended flat, but hit a new closing high.