Bonds Decline, Stocks Rise

123jump.com Staff
31 May, 2006
New York City

Market averages rebounded after declining for most of the last week and yesterday. Decline in oil and precious metals prices helped investors to step-in. Stocks in Europe staged a mild rebound, rising 1% across the region at close. Latin American averages closed higher on the release of Brazil Q1 GDP growth of 3.4% beating the estimates of 2.7%. FOMC meeting minutes showed policymakers grappling with the rate hike decision.

[R]4:00PM Market averages pared back gains of the day after the release of FOMC minutes of the meeting.[/R]

-Dow closed up 73.88 points, Nasdaq up 141.14 and S&P up 10.25.
-Yield on 10-year bond closed at 5.12% and 30-year bond at 5.21%.
-Crude oil fell 74 cents to $71.29 per barrel.
-Gold rose $11.40 to close at $642.50 per ounce. Silver closed down 61 cents and copper down 5 cents.
-Markets in Asia closed down between 2% and 3%. Japan closed 2.47% lower.
-Nine major markets in Europe rose by 1% or better led by 1.6% rise in Spain.
-Latin Markets closed higher with Brazil gaining 0.7% and Mexico declining 1%.

Market averages pared back some of the gains after rising for the most of the day. FOMC minutes of meetings discussed various facets of the economy and left a door open for raising rates in the future. The policy makers worried the impact of rising oil and metals prices and impact of speculative home building. The committee noted that decline in housing prices from its peak in the third quarter and rising levels of home inventories has cooled price appreciation considerably. Non-residential construction has been robust but lower than attained in the year 2000. In the household sector, consumer credit continued to grow slowly and mortgage debt rise has moderated due to higher rate of interest rate and falling housing values. The policy makers worried that the inflation pressures are rising and its longer term impact but felt that in the short term inflation is contained.

Sun Microsystems ((SUNW)) released a restructuring plan involving lay-offs, consolidating real estates and operating and earnings goals for the long-term. The company plans to reduce its world-wide staff, in the next six months, between 4,000 and 5,000 people or 11% or 13% of its total of 37,500. The company will sell its Newark campus and exit from its leased facility in Sunnyvale, California. The company has targeted operating income of 4% in the fourth quarter of fiscal 2007 and 10% in the long-term. The stock closed up 8 cents in regular trading hours to $4.63.

[R]12:30PM European markets closed sharply up.[/R]
European stocks finished sharply higher, recovering from steep declines Tuesday, with the help of telecom and other defense stocks. Strong opening of U.S. markets also contributed to the upbeat mood. The telecom sector was the best performing European segment, leading major averages up. Deutsche Telekom gained 2.6%, its French peer Telecom France rose 4.2%, and U.K. Vodafone Group closed up 2.7%. Utilities stocks were also strong, with International Power and British Energy two of the U.K. market's biggest gainers, benefiting in part from U.S. utility NRG Energy, which rejected an $8 billion bid from rival Mirant Corp. The German DAX 30 climbed 1.3%, the French CAC 40 gained 0.7%, and London FTSE 100 rose 1.3%.

Oil dropped over $1 after the U.S. signaled a willingness to hold joint direct talks with Iran on its nuclear program if certain conditions were met. Light crude July delivery fell $1.58 to $70.45 a barrel. London Brent crude lost $1.32 to $69.73. Gasoline slipped 6 cents to $2.0875 a gallon. Natural gas futures rose slightly to $6.14 per 1,000 cubic feet The dollar gained some ground in European trading. The euro traded at $1.2836, down from $1.2865. The dollar bought 112.31 yen, up from 112.17. The British pound stood at $1.8719, down from $1.8829. European gold prices declined. In London the precious metal traded at $645.90, down from $660.25 per ounce. In Zurich gold fell to $646.60 from $664.75. Silver closed at $12, down from $13

[R]11:30AM Retreating oil prices boosted stocks.[/R]
A decrease in oil prices by over 2% and economic data showing economic expansion in the Midwest pushed stocks steeply higher. The declining oil price contributed to significant strength among airline stocks, sending the Amex Airline Index up 2.7%. Notable advance was shown by the semiconductor sector, as reflected by the 1.9% gain of the Philadelphia Semiconductor Index. Among semiconductor stocks, ATI Technologies ((ATYT)), graphics chip maker, climbed 8.9% on speculations that the company could merge with Advanced Micro Devices ((AMD)).

Among other advancing stocks, Monsanto ((MON)), agricultural and chemicals company, gained 4.4% after raising its earnings outlook to the range from $2.50 a share to $2.55 a share for fiscal 2006. Shares of Tiffany & Co ((TIF)) rose 3.8% after the company reported Q1 earnings rose to 30 cents a share from 27 cents on 6% revenue growth, beating estimates. Semtech Corp. ((SMTC)) climbed 9% after reporting Q1 net income rise to 16 cents a share from 14 cents in the year-earlier period due to sales increase. The board also approved a $50 million share-buyback program. Shares of NRG Energy Inc. ((NRG)) jumped 17.3% after the power company Mirant Corp. ((MIR)) said it made an unsolicited offer to buy NRG for $8 billion but was rejected.

Shares of U.S. plane maker Boeing rose 1.3%, while shares of industrial conglomerate United Technologies Corp. gained 0.7%. In midmorning trading Wednesday, the Dow gained 83.00, or 0.75%.The Standard & Poor's 500 index was up 9.12, or 0.72%; the Nasdaq composite index added 15.95, or 0.74%. Bonds edged up alongside stocks, with the yield on the 10-year Treasury note slipping to 5.06% from 5.08% late Tuesday.


[R]10:30AM Sensex plunged 675 points to recover half of its losses in volatile trading.[/R]
Sensex in India closed 388.02 points lower, or 3.60%, on 10,398.61. The turnover on BSE came to $780 million or Rs 3,521 crore, higher than $715 million or Rs 3,215 crore. The market breadth on was negative in the first half of trading but recovered in last session and 413 shares advanced compared to 2,005 declined and 41 shares were unchanged. Weakness in rupee, global emerging markets pull back and commodities prices worries brought another day of volatility. Market at its lowest plunged 675 points before regaining half the losses near the close.Indian rupee dropped to a three-year low of 46.55 to a dollar.

The decliners included ITC slumping 6.62% to Rs 164.95 on 4.9 million shares. Tata Steel also dived 6.07% to Rs 514.25 on 3.44 million shares. ONGC lost 6% to Rs 1,109 on reports that it will probably share a large subsidy burden of oil marketing companies. Grasim shed 5.10% to Rs 1,781 while L&T slid 5.73% to Rs 2,310. Tata Chemicals shed 3.1% to Rs 228 after it reported 42.03% decline inquarterly net profit. Bombay Dyeing plunged 10% to Rs 665 on higher loss in the fourth quarter. The company reported a net loss of $1.64 million (or 7.4 crore) vs. $ 0.75 million (or Rs 3.44 crore) a year ago. Total revenue declined whopping 24% in the quarter to Rs 219 crore from a year ago.

Auto stocks lost as well. Hero Honda Motors was down 4.2% to Rs 754 and Bajaj Auto lost 2.65% to Rs 2,754 on worries about pressure on margins and higher fuel prices. Gainers included Reliance Industries, which saw a strong recovery from the day’s low of Rs 918.60. It closed 0.5% up, at Rs 960 on 3.3 million shares. HDFC Bank advanced 0.49% to Rs 754 on 66,998 shares. Dr Reddy’s traded up 0.23% to Rs 1,374, after it advised a 1:1 bonus issue. Bajaj Hindustan, plunging to a low of Rs 355.50 during the day, finished up 12%, to Rs 454.80 on 374,000 shares. Indiabulls Financials soared 7.42% to Rs 302 after falling to a low of Rs 263.

[R] 9:45AM Stocks opened in the positive.[/R]
U.S. stocks advanced at opening as traders took advantage of buying stocks at reduced levels after the significant weakness posted Tuesday. Nevertheless, buying interest remained subdued as investors awaited the release of the minutes of the May FOMC meeting, expected to shed some light on the outlook for interest rates. Gold stocks posted considerable gains in early trading, benefiting from a notable increase by the price of the precious metal to $664.30 an ounce. The Amex Gold Bugs Index surges 2.5%. The airline sector was another notable advancer, moving back to the upside after turning in one of the market's worst performances on Tuesday. The Amex Airline Index rose 1.4%. The brokerage sector moved to the upside on bargain hunting. Falling crude futures eased investors' inflation anxiety as traders awaited data expected to show increased domestic oil reserves.

Despite the price decrease, significant strength was also visible in the oil service sector, with the Philadelphia Oil Service Index up 1.4%. Among stocks, Costco ((COST)) said that despite higher sales its Q3 profit grew 12%, missing analyst estimates. The stock was down nearly 1%. ADC Telecommunications ((ADCT)) dropped 16% after it agreed to acquire fellow equipment maker Andrew Corp. ((ANDW)) in a $2 billion stock swap worth $12.76 per share. ADC also posted a 32% drop in quarterly earnings. In the first hour of trading, the Dow gained 42.42, or 0.38%. The Standard & Poor's 500 index was up 5.68, or 0.45%, and the Nasdaq composite index added 8.57, or 0.4%. Bonds edged up alongside stocks, with the yield on the 10-year Treasury note slipping to 5.07% from 5.08% late Tuesday.


[R]9:00AM Stock futures indicated a strong opening.[/R]
U.S. stock futures indicated a higher opening Wednesday, recovering from the heavy sell-off yesterday. Investors were focused on economic data with the Fed Reserve’s FOMC meeting minutes due out later in the day. Investors will search for hints on the outlook for interest rates after two years of rate hikes by the Fed. In corporate news, Costco Wholesale Corp. ((COST)) posted a profit slightly below analysts' expectations, while earnings from Tiffany & Co. Inc. ((TIF)) were above estimates. In deal news, equipment maker ADC Telecommunications Inc. ((ADCT)) agreed to buy Andrew Corp. ((ANDW)) in an all-stock deal worth about $2 billion. Shares of Andrew rose 22.7%. Shares of NRG Energy Inc.((NRG)) rose 23% in pre-market trading after power company Mirant Corp. ((MIR)) said it made an unsolicited offer to buy NRG for $8 billion but was rejected. Mirant shares were not trading on Inet. S&P 500 futures were up 5.10 points, slightly above fair value. Dow Jones industrial average futures were up 35 points, and Nasdaq 100 futures were up 7 points. The Dow Jones industrial average fell 1.6% on Tuesday on worries over consumer spending, with all 30 companies ending down for the first time since September 2004.


[R]8:00AM The America Channel Sued Comcast and Time Warner.[/R]
The America Channel, a startup cable television channel, sued cable giants Time Warner Inc. and Comcast Corp. on Tuesday trying to thwart their plans to acquire bankrupt Adelphia Communications Corp. Comcast and Time Warner agreed jointly last year to buy Adelphia, the nation's fifth-largest cable operator, for $17.6 billion, and divide up its systems between them. Comcast and Time Warner were accused of price-fixing and bid-rigging in their submission of a joint bid instead of competing against each other to acquire Adelphia's assets. Comcast serves more than 26 million cable TV customers, while Time Warner has more than 13 million. Adelphia, which filed for Chapter 11 bankruptcy in 2002 has over 5 million subscribers. The America Channel claimed in its lawsuit that the deal violated federal antitrust laws and would reduce competition in the cable TV industry. The lawsuit accused Time Warner and Comcast of conspiring to monopolize local cable systems and of using their alleged monopoly power to refuse to deal with independent networks. Except for seeking an injunction to block the Adelphia deal, TAC is also seeking monetary damages of about $1 billion.


[R]7:30AM Tokyo benchmark closed down on U.S. stocks and oil.[/R]
Asian markets finished lower. The Nikkei index shed 392.12 points, or 2.5%, to 15467.33, reaching its lowest close since Feb. 20. Among the decliners were Canon, dropping 4.2%, Nikko Cordial losing 2.39%. Real estate companies also declined, with Sumitomo Realty & Development down 2.9%. Steelmakers JFE Holdings reported 1% decline. Auto and bank stocks took no exception, as Honda Motor dropped 2.5% and Mizuho Financial Group lost 1.5%. Australian benchmark S&P/ASX 200 index plunged 103.7 points, or 2%, to finish at 5001.7 points on the day's low. BHP Billiton lost 3.8% and Rio Tinto was down also 3.8%. Singapore's Straits Times Index fell 2.3% in afternoon trade, to close at 2383.87 points.


[R]6:30AM Oil, banks and telecoms help Europe reverse into profit.[/R]
European markets rose by mid morning. London’s FTSE 100 recouped 0.5% to 5,679.5 , Frankfurt’s Xetra Dax edged up 0.2% to 5,633.39 and the CAC 40 in Paris added 0.1% to 4,896.27. On the corporate front, the telecom sector performed robustly. France Telecom rose 2.3% and Dutch operator KPN advanced 1.6%. Telecom Italia gained 1.6% while Spain’s Telefonica climbed 1.5%. Steel shares remained closely watched, as Corus, the Anglo-Dutch group, posted quarterly earnings below a year-ago level. The company announced that good results will be seen in the next six months. In other news from the sector, the much-talked-about merger of Arcelor with Severstal prompted investors into considering legal action to make Severstal launch a full bid for Arcelor.

Crude oil for July delivery slipped 4 cents to $71.99 a barrel by 0710 GMT, a day after prices advanced 66 cents to their highest close in two-and-a-half weeks on oil demand from China. Brent crude remained unchanged at $71.05 a barrel. The euro gained against the dollar. In morning European trading the euro bought $1.2873, up from $1.2865 the evening before in New York. The dollar slipped to purchase 111.97 Japanese yen from 112.17 the day before, while the British pound advanced slightly to $1.8837 from $1.8829 in New York.