Higher Wages Boost Spending

Elena
26 May, 2006
New York City

Stocks opened higher, extending recent gains on the back of mild economic data which raised hopes that the Fed Reserve will cease interest-rate increases. The Commerce Department said both personal spending and income rose in April, helped by improved wages. Personal spending growth of 0.6% met estimates, while a 0.5% rise in income came in below expectations of 0.7%. Consumer prices, excluding food and energy prices, rose 0.2% in April after a 0.3% increase in March.

[R] 9:45AM Stocks advanced on personal income and spending data.[/R]
Stocks moved to the upside at opening after posting a significant strength in Thursday session. The early positive sentiment was generated by key economic data on personal income and spending which raised hopes that interest rates have risen enough to keep economic growth under control. The inflation component of the Commerce Department''s report on personal income and spending showed that consumer prices, excluding food and energy prices, rose 0.2% in April after a 0.3% increase in March. However, core prices rose at an annual rate of 2.1% in April compared to the 2% annual rate of growth seen in the previous month. The increase in April marked the fastest annual rate of growth since March of 2005.

The broker/dealer sector moved significantly higher, up 1.8%. The airline sector was another notable mover to the upside, up 1.2%, helped by a slight moderation in oil prices, ticked up by 1.2%. Gold and energy stocks posted weakness in the opening hours of Friday trading. In the opening minutes, the Dow Jones industrials climbed 32.02 points to 11,243.07, the Nasdaq Composite rose 8.41 points to 2,206.65, and the S&P 500 gained 2.54 points to 1,275.42. Bonds stayed flat despite the mild economic news, with the yield on the 10-year Treasury note unchanged at 5.07% from late Thursday.

[R]Personal income grew less than expected, while personal spending growth met expectations.[/R]
Friday morning, the Department of Commerce released its report on personal income and spending in the month of April. The report showed that personal income rose less than expected while personal spending growth met expectations. The Commerce Department said that personal income increased by 0.5 percent in April, matching the increase seen in the previous month. Economists had been expecting personal income to increase by about 0.7 percent. At the same time, the report also showed that personal spending rose 0.6 percent in April following a downwardly revised 0.5 percent increase in March. The increase in personal spending came in line with economist expectations. Nonetheless, many traders were focused on the inflation component of the report, which showed that consumer prices, excluding food and energy prices, rose 0.2 percent in April after a 0.3 percent increase in March. The report also showed that April consumer prices, excluding food and energy prices, rose 2.1 percent year-over-year compared to the 2.0 percent annual rate of growth seen in the previous month. The increase in April marked the fastest annual rate of growth since March of 2005. The faster pace of inflation may raise some concerns about the outlook for interest rates, as the Federal Reserve has said that its upcoming decisions on rates will be heavily dependent on the outlook provided by incoming economic data.


[R]9:00AM Stock futures were mixed ahead of economic data.[/R]
U.S. stock futures were mixed Friday, ahead of the long holiday weekend and several economic data releases, including the April core personal consumption expenditure deflator and data on April personal income and personal consumption expenditure. On Friday steelmakers are expected to be in the spotlight after Arcelor agreed to merge with Russia''s Severstal. Other European steelmakers like Corus Group advanced after the deal on consolidation hopes. Brokerages may draw attention after three of them, Goldman Sachs, Merrill Lynch & Co., and Charles Schwab drew upgrades. General Motors ((GM)) was upgraded for a second time in three days, with Prudential raising its rating of stock to overweight. Large-sized women''s apparel company Chico''s FAS posted a 20% sales increase and Weight Watchers International''s $250-million buyback plan. Dow Jones futures were recently up 12 points, S&P 500 futures eased 0.7 of a point, and Nasdaq futures were down 0.8 of a point.

Rex Stores Corp, ((RSC)), consumer electronics retailer, reported Q1 earnings of 13 cents a share, down from a profit of 48 cents a share a year-ago. The company added that it incurred $600,000 in stock option expense in Q1. Sales declined to $86.1 million from $87.9 million in the same period a year ago while same-store sales inched 0.5% higher in Q1.


[R]8:00AM Lay and Skilling were found guilty on Enron-related charges.[/R]
On Thursday, chairman Kenneth Lay and former president Jeffrey Skilling of former Enron Corp., were found guilty on Enron-related charges. A jury capped a four-month-long fraud and conspiracy trial, returning guilty verdicts against the two executives. Kenneth Lay, Enron''s founder, was convicted of all six counts in the main trial, as well as of four charges of bank fraud and making false statements to banks in a separate non-jury trial before U.S. District Judge Sim Lake. Skilling was convicted of 19 counts of fraud, conspiracy and insider trading. About 5 years ago Skilling sold 500,000 shares of Enron stock for $15.5 million, for which he was convicted of insider trading. He was acquitted on the remaining nine insider trading charges.

Lake set Sept. 11 as sentencing date for Skilling and Lay. Skilling faces a maximum of 185 years in prison. For Lay, the fraud and conspiracy convictions carry a combined maximum punishment of 45 years. Jurors found out that the men, who received millions in pay and stock options, had repeatedly lied to cover up accounting tricks and business failures that led to the company''s 2001 destruction. The collapse wiped out more than $60 billion in market value, almost $2.1 billion in pension plans and 5,600 jobs.

Skilling remains free on $5 million bond, which restricts him to the continental U.S. Lay submitted his passport and posted a $5 million bond secured with property. The Enron founder also was ordered to stay in the Southern District of Texas or Colorado. The government''s victory caps a 4 1/2-year investigation that resulted in 16 guilty pleas from ex-Enron executives, including former Chief Financial Officer Andrew Fastow and former Chief Accounting Officer Richard Causey.


[R]7:30AM Asian stocks advance on positive overseas sentiment.[/R]
Asian markets finished higher. Japan’s benchmark Nikkei 25 Average advanced 1.77% to close at 15970.76 points. Among gainers in Tokyo were Toshiba Machine, advancing 2.8% and Nippon Steel, climbing 2.6%. Banking and other financial sector shares also recovered some of their losses Friday after Thursday’s sell-off. Resona Holdings soared 7.3% and Mitsui Sumitomo Insurance reported a 2.9% gain. Hong Kong stocks recouped, led by property and export companies. The Hong Kong’s Hang Seng Index advanced 1.3% to 15895.10. South Korea’s Composite Stock Price Index, or Kospi, finished up 2.1% at 1322.43, hitting a six-month low on Thursday. Kookmin Banksurged 7.4%, SK Telecom advanced 5.1% and Hyundai Marine & Fire Insurance rose 7.4%. Taiwan’s Weighted Price Index advanced 0.3% to 6879.51 and Shanghai Composite Index climbed 1.4% to 1613.89. The Shenzhen Composite Index advanced 2% to 404.43 and Australia''s S&P/ASX200 index gained 1.6% to 5053.7.


[R]6:30AM Europe advances in the morning on Arcelor and U.S. higher close.[/R]
European markets started higher in the morning session of trading. On the corporate front, Arcelor, still fighting a hostile takeover bid from Mittal Steel, announced that it had agreed to buy Russia’s Severstal. Despite the deal, Arcelor fell 4.1%, while its rival Mittal Steel gained 2.8%. Another steel maker, Thyssen Krupp, also added 4.2%. Natexis Banque Populaire, an investment bank soared 10% on hopes that the merger with Caisse d’Epargne’s IXIS can now proceed. Deutsche Börse jumped 3.9% and Euronext climbed 2.4% after being upgraded both by Credit Suisse to ''outperform''.

Crude oil advanced 15 cents to $71.47 a barrel by 0247 GMT; London Brent crude gained 17 cents at $70.88. Gold bullion opened Friday at a bid price of $650.80 a troy ounce, higher than $643.75 late Thursday. The dollar gained against the euro. The euro bought $1.2785 in morning European trading, down from $1.2793 in New York late Thursday. The British pound remained virtually unchanged, moving up to $1.8718 from $1.8717. The dollar advanced to 111.92 Japanese yen from 111.76 yen.