Inflation and Commodities Weigh

Elena
15 May, 2006
New York City

Stock futures were sitting below the flat line, suggesting a third consecutive weak session Monday. Market sentiment was negatively affected by continuous interest rate concerns and inflation worries ahead of data on producer prices tomorrow. Sharp declines in commodities prices also contributed to the downward trend. Oil and gold fell 2%, zinc and copper dipped nearly 10%.

[R] 9:00AM Stock futures were set to open lower on inflation worries[/R]
U.S. stock futures indicated a weak opening with continued interest rate concerns and inflation worries weighing on pre-market sentiment ahead of government report on producer prices due out on Tuesday. The report is expected to give an indication of the pace of inflation in the domestic economy. Energy and mining stocks also contributed to the downward move, pressured by sharp declines in commodities markets. On Monday gold fell sharply, following a 26-year high last week. Gold producer Newmont Mining Corp. fell almost 1% to $55.80 on the Inet electronic brokerage system. Oil prices also dropped steeply, sending shares of oil firm ConocoPhillips down 0.8% to $64.68. S&P 500 futures were down 3.1 points, below fair value. Dow Jones industrial average futures fell 20 points, and Nasdaq 100 futures were down 9.5 points.

In corporate news, New York City-based Verizon Communications Inc. ((VZ)) is reportedly close to a merger deal with the UK''s largest mobile operator Vodafone Group PLC''s ((VOD)) 45% stake in Verizon Wireless for about $48 billion. The total deal value will be $56 billion, including $8 billion debt.

Target Corp, ((TGT)), merchandise discount stores operators, reported its Q1 profit advanced to 63 cents a share, from 55 cents a share on 12.1% revenue growth and same-store sales advancing 5.1%. The company missed analysts’ expectations by a penny

Proliance International Inc, ((PLI)), maker of heat exchange and temperature control products, reported that it lost 33 cents a share in Q1, down from a profit of 35 cents a share a year ago. Net sales came to of $91.34 million, up from $48.31 million in the comparable period last year. A year ago, the company reported a $3.9 million advance on the sale of discontinued operations.

PFSweb Inc, ((PFSW)), business software and services firm, reported that Q1 net loss broadened to 5 cents a share, from a penny a share in the year-earlier period. The company added that revenue rose to $110.7 million from $81.9 million. If not for items, the company would have earned 2 cents a share.


[R]8:00 AM Ernst & Young withdrew a report on China’s banks’ loans.[/R]
Ernst & Young, international accounting company, declared a report on China’s banks’ loans invalid as upon further research, the firm found that the data provided were factually erroneous.

Ernst & Young had earlier issued a report suggesting that China’s banks had accumulated bad loans for up to $911 billion, but having revised the figures, the firm stated that this number cannot be supported. The Ernst & Young report put the amount of nonperforming loans held by the ‘Big Four’ state banks at $385 billion. Two of those banks, the Bank of China and the Industrial and Commercial Bank of China are planning to sell shares to international investors in massive initial public offerings in Hong Kong. China''''s official estimate of the amount of nonperforming loans held by its four big state banks is $133 billion. The figure is much lower than in years past due to massive write-offs of bad loans left over from years of lending to insolvent state industries and economically unsound construction projects.

Monday morning the yuan''s official rate was set at 7.9982 yuan per dollar, breaking through the psychologically important level of 8.0 yuan for the first time in more than a decade. Traders consider that this move might signal Beijing''s willingness to allow its currency to appreciate faster.


[R]7:30 AM Asian shares closed down led by Nikkei.[/R]
Asian benchmarks finished lower Monday with Japan’s Nikkei down for the fifth consecutive session, losing 199.52 points down, or 1.2% to close at 16,402.26 with significant drops in brokerage and export shares. Automakers led the decliners with Honda Motor down 2.6% and Toyota Motor slipping 2.2%. Shares of Softbank rose 3.9% on the news that the internet company was developing new products together with Apple. South Korea''s Kospi index was the biggest loser, dropping as much as 2.6%. Hong Kong''s Hang Seng Index slipped as much as 1.8% to 16,595.58. The Shanghai Composite Index beat the trend, advancing 2.6% to a two-year high after the yuan passed the eight-per-dollar mark on Monday. On Friday, the benchmark which tracks both A and B shares, rallied 4.2%, totaling a weekly advance of 11.3%.


[R]6:30AM Europe tumbles in early trading on inflation and interest rates.[/R]
European markets extended their losses in early trading, following worrisome news about the continuing rise of commodity prices and their impact on equity stocks. London’s FTSE 100 shed 1% in early trading, Frankfurt’s Xetra Dax slid 0.9 %, the French CAC 40 declined 1.1%. Oil stocks dropped in Europe following the fall in crude prices due to reports that the surging energy costs would affect global demand and consumer sentiment. Norway’s Statoil fell 2.9 %, Total in France edged 1% down, and Repsol in Spain lost 1%. Financial stocks were also hit on fears of rising interest rates. France’s CNP Insurances fell 3.6% and Allied Irish Bank declined 2.8%.

Oil continued its decline as IEA on Friday outlined the risk of soaring energy costs hitting consumption. Light crude fell $1.19 to $70.85 a barrel by 3:34 a.m. EST, London Brent crude shed $1.48 to $70.84. Precious metals also fell, with gold losing $21.80 to $692.50 an ounce. The dollar braked the losing momentum in early trading on Monday, gaining ground on the euro and the yen due to the declining commodity futures such as gold and oil. The euro bought $1.2842, down from $1.2898 late Friday. The dollar edged up against the yen, standing at 110.21 yen from 109.95 yen in late Friday trading.