Weaker GDP Calms Inflation Worries

Elena
25 May, 2006
New York City

The Commerce Department released its revised report on Q1 GDP, which showed that GDP grew at an annual rate of 5.3% compared to the 4.8% growth previously reported. The increase was primarily due to upward revisions to private inventory investment and exports. The report also showed that consumer prices, excluding food and energy prices, rose 2% in Q1, unchanged from the previous report.

[R] 9:45AM Stocks advanced in early trading.[/R]
Stocks advanced at opening after a report showing less-than-expected growth in Q1 economic activity calmed investors' worries about inflation and fears of higher interest rates. The Commerce Department revised quarterly GDP to an annual rate of 5.3% from an initial reading of 4.8% last month, that figure came in below forecasts for a 5.8% gain. Meanwhile, the GDP's inflation component was left unchanged at a 3.3% growth rate, further easing the market's fears of escalating prices. Fewer claims for jobless benefits last week signaled that the job market was also strong. In the first hour of trading, the Dow gained 34.66, or 0.31%. The Standard & Poor's 500 index was up 6.52, or 0.52%, and the Nasdaq composite index climbed 14.12, or 0.65%. Bonds slid further, with the yield on the 10-year Treasury note edging up to 5.05% from 5.04% late Thursday.


[R]First-quarter GDP climbed 5.3%, compared to 4.8% previously reported.[/R]
Thursday morning, the Department of Commerce released its revised report on first quarter GDP growth, showing that first quarter GDP growth was revised up less than expected. The Commerce Department said that first quarter GDP grew at an annual rate of 5.3 percent compared to the 4.8 percent growth previously reported. Economists had expected a more significant upward revision to 5.9 percent growth. The increase compared to the previously reported rate of growth was primarily due to upward revisions to private inventory investment and exports. The upward revisions were partly offset by downward revisions to consumer spending for services and equipment and software spending. The revised first quarter GDP growth compares to the modest 1.7 percent growth seen in the fourth quarter. The Commerce Department said that the acceleration compared to the fourth quarter reflected an upturn in consumer spending on durable goods, an acceleration in exports, an upturn in federal government spending, and an acceleration in equipment and software spending. The report also showed that consumer prices, excluding food and energy prices, rose 2.0 percent in the first quarter, unchanged from the previous report. The price growth in the first quarter compares to a 2.4 percent rate of growth in the fourth quarter.

[R]Initial jobless claims dropped less than economists had expected.[/R]
The Department of Labor released its report on initial jobless claims in the week ended May 20 on Thursday, showing that jobless claims fell less than economists had been expecting. The report showed that jobless claims fell to 329,000 from the previous week''s revised figure of 369,000. Economists had expected jobless claims to fall to 315,000 from the 367,000 originally reported for the previous week. The Labor Department also said that the four-week moving average rose to 337,000 from the previous week''s revised average of 333,750. This marked the fifth consecutive increase by the less volatile moving average. The report also showed that continuing claims in the week ended May 13 rose to 2.42 million from the preceding week''s revised level of 2.382 million.


[R]9:00AM Stock futures pointed to a slightly higher start on Wal-Mart upgrade.[/R]
U.S. stock futures indicated a slightly higher opening, supported by Wal-Mart which gained on a brokerage upgrade. Dow industrial component Wal-Mart ((WMT)) rose 2% to $48.95 on Inet after Banc of America Securities raised the stock to a ‘buy’ from ‘neutral’. Internet auctioneer eBay Inc. ((EBAY)) jumped over 2% in pre-market trading after Prudential Equity Group raised its investment rating on the stock to overweight from neutral weight’. In other research news, Banc of America cut its price target on shares of XM Satellite Radio Holdings Inc. ((XMSR)) to $25 from $30, sending the stock down 2.3% to $13.44 on Inet. Traders were cautious, awaiting a report on gross domestic product, which could shed light on the outlook for U.S. interest rates. Economists expect U.S. growth in the Q1 to be revised upward to a robust 5.7% from an initial estimate of 4.8% released in late April by the Commerce Department. S&P 500 futures were up 4.60 points, a shade above fair value. Dow Jones industrial average futures increased by 28 points, and Nasdaq 100 futures were up 7 points.

Flowers Foods Inc, ((FLO)), bakery products maker, reported that Q1 net income advanced 15% to 37 cents a share on 11% revenue growth on sales of Nature''s Own products. Earnings from continuing operations at the company were 36 cents a share, topping analyst estimate by three cents.

Patterson Companies, ((PDCO)), dental products distributor, reported it Q4 earnings advanced to 41 cents a share, up from 36 cents a share a year ago on 11% revenue growth, with sales in its largest business, Patterson Dental, up 11% and sales from its veterinary unit 19% higher. The company met analysts’ views.

Sanderson Farms Inc, ((SAFM)), poultry producer, reported it reversed to a Q2 loss of 83 cents a share, down from a net income of $1.32 a share a year earlier. The company added that sales fell to $225.1 million from $259.2 million. The company also said that results reflect a combination of sluggish demand for poultry products in the domestic market coupled with a decline in export levels that has depressed market prices. The company missed analyst estimate for a loss of 47 cents a share.

Big Lots Inc, ((BLI)), closeout retailer, reported Q1 net income advanced 76% to 12 cents a share, with sales up 5%. The company said its earnings from continuing operations of 13 cents a share topped analyst forecasts, and raised its earnings from continuing operations expectations to a new range of 44 cents to 49 cents a share. Q2 comparable store sales are forecast to rise 1% to 4%, and it expects to narrow its quarterly loss from continuing operations to a range of 7 cents to 10 cents a share.

Genesco Inc, ((GCO)), footwear, headwear and accessories retailer, reported Q1 net income advanced to 40 cents a share, up from 34 cents a share a year earlier. The company added that earnings from continuing operations totaled 41 cents a share. Sales advanced to $315 million from $286.1 million. The company met analyst estimate.


[R]8:00AM Mastercard Corp. begins trading with an IPO price of $39, lower than expected.[/R]
The world’s No 2 credit-card brand Mastercard Corp. will begin trading Thursday on the NYSE with an initial public offering price of $39, below the originally expected range of $40/$43. The $2.39 billion offering will go down as one of the largest in two years.

The lower IPO price resulted from a volatile market and concerns about its increasing legal problems. Similarly, on Wednesday erratic market conditions led to a lackluster IPO from Vonage Holdings whose stock fell 13% below its initial offer price. But the main investors’ worries are related to Mastercard’s legal and regulatory problems. Architects of the IPO designed the flotation as a defensive move against a legal assault by retailers who consider fees too high and continued regulatory concern over antitrust issues. Still, the chance of possessing one of the leading financial services brands in the world is definitely luring and the price seems affordable even for the smallest investors.

On Thursday 61.52 million shares, representing a 46% stake in the company, will begin trading under the symbol MA. The deal values MasterCard, owned by its 1,400 member banks, as an almost $6 billion company. Proceeds from the deal will mostly be used to redeem Class B shares, allowing the banks to begin unwinding their stakes. MasterCard will also use about $650 million raised in the public flotation to fund a war chest to protect itself from legal troubles. MasterCard and its rival Visa International have been participants in legal battles over what are known as interchange fees. Merchant groups have already filed a class-action suit alleging unlawful price fixing of fees that hurt both merchants and consumers.


[R]7:30AM Japanese benchmark Nikkei falls, followed by most Asian markets.[/R]
Asian markets finished lower. Japan’s benchmark Nikkei 225 Average was down 213 points, or 1.34% to close at 15693.75. The Nikkei declined on weakness in banking shares. Mitsubishi UFJ, the world-largest bank in terms of assets, fell 3.5%. Another major, Sumitomo Mitsui Financial Group shed 1.7%. Auto makers also declined as Toyota was down 1.6%, while Honda Motor Co lost 1.7%. Hong Kong''''s Hang Seng Index dropped 0.9% to 15,675.36. The China Enterprise Index, a yardstick of China stocks listed on the Hong Kong Stock Exchange, shed 2.8% to 6,556.78. South Korean benchmark Kospi was the lead declining market, shedding 2.82% to 1295.76. Singapore''''s Straits Times Index dropped 1.5%, while the Shanghai Composite Index declined 1.3%. Markets in Indonesia were not opened today for a public holiday.


[R]6:30AM European shares plunge after initial gains.[/R]
On the corporate front Euronext stocks were down 4.5%, following the announcement of Atticus, which has 9% of the operator, to leave with the management to decide which the best offer was. That impacted negatively hopes of a higher bid placed by Atticus. Deutsche Börse was down 4.4%, after it said that it would improve its offer but would not overpay. Danone advanced 2.2%, on the brokerage front, after Merill Lynch added the company to its Europe 1 Focus List on valuation basis. ProSiebenSat.1 advanced 2.6% after Deutsche Bank raised the broadcaster’s level from ‘hold’ to ‘buy’.

Crude oil dipped 20 cents to settle at $70.06 a barrel by 0535 GMT, after shedding $1.90 or 2.7 % on Wednesday. London Brent crude advanced 13 cents to $69.35. Gold gained on Thursday after plunging in U.S. trade, with bargain-hunters and physical buyers slowly moving into the market on dollar frailty. Spot gold advanced to $647.30 an ounce before slipping to $644.90/645.70 by 0933 GMT, against $639.20/640.00 late in New York on Wednesday. The dollar rose against the euro. The euro bought $1.2761 in morning European trading, down from $1.2773 in New York late Wednesday. The British pound fell to $1.8687 from $1.8717. The dollar was virtually unchanged against the Japanese currency, edging up to 112.71 yen from 112.69 yen.