Slowing Service Sector Growth

Elena
05 Jun, 2006
New York City

Stocks dropped at the start of trading on Monday on concerns about a sharp rise by the price of oil. Iran''s threat to cut its oil exports if Western nations punished or attacked it over its nuclear arms program and fears ofanoter devasrtating hurricane season sent crude futures up to $73.33 a barrel.

[R] 9:45AM Surging oil dragged stocks at opening.[/R]
Surging oil prices hurt market sentiment Monday, sending stocks below the flat line at opening. Crude futures advanced on Iran''s threat to cut its oil exports if Western nations punished or attacked it over its nuclear arms program. The threat added to supply concerns arising from fears of another devastating hurricane season. A barrel of light crude jumped $1 to $73.33 on the Nymex. Selling pressure remained subdued, with gains by energy and metal stocks helping to limit the downside for the broader markets. Investors remained cautious, awaiting clues whether the Fed Reserve will continue increasing the interest rate. Market also awaited more clues on the economy''s health from the Institute of Supply Management''s services index later in the session. In the first hour of trading, the Dow Jones industrial average lost 61.06, or 0.54%. The Standard & Poor''s 500 index was down 5.49, or 0.43%, and the Nasdaq composite index dropped 12.23, or 0.55%. Bonds were flat after last week''s rally, with the yield on the 10-year Treasury note unchanged at 5% from late Friday. Selling pressure remained subdued, with gains by energy and metal stocks helping to limit the downside for the broader markets.

[R]Business activity in the service sector slowed down.[/R]
Monday morning, the Institute for Supply Management released its report on business activity in the service sector in the month of May, showing that the pace of growth slowed compared to the previous month. At the same time, the report showed an acceleration in the pace of price growth. The ISM said that its index of business activity in the service sector fell to 60.1 in May from 63.0 in April, with a reading above 50 indicating growth in the sector. The May reading came in roughly in line with economist estimates of 60.0. The slowdown in the pace of growth in the sector was partly due to a slower rate of new orders growth, with the new orders index falling to 59.6 in May from 64.6 in April. New orders still grew for the 38th consecutive month. On the other hand, the report also showed that employment expanded at a faster rate in May, as the employment index rose to 58.0 in May from 56.5 in April. The ISM noted that eleven industries reported increased employment. Additionally, as mentioned above, the ISM said that the prices index rose to 77.5 in May from 70.5 in April. With the increase, the index reached its highest level since September of 2005, when it came in at 78.4.


[R]9:00AM Stock futures indicated a weak start on rising oil.[/R]
U.S. stock futures declined at the start of the new week, following an increase in the price of oil on fears that Iran might jeopardize global supplies if punished by the West over its nuclear program. Crude prices rose $1.22 to $73.55, prompting worries about inflation''s impact on the economy and stock prices. Investors were also awaiting clues about the Fed Reserve’s intentions on interest rates with Chairman Ben Bernanke speaking at a panel discussion with his EU peer Jean-Claude Trichet, and BOJ Deputy Governor Toshiro Muto in Washington.

In pre-market trading, shares of Chesapeake Energy Corp. ((CHK)) rose 1.4% after the natural gas company announced the acquisition of Barnett Shale sites. Shares of chip maker SanDisk ((SNDK)) jumped 3.3% on Inet to $56.95 after Bear Stearns raised its investment rating on the company to ‘outperform’. Boeing Co. ((BA)) is expected to be actively traded on news that the Federal Aviation Administration was close to the completion of flight range rules, expected to benefit the aircraft manufacturer. Standard & Poor''s 500 futures were down 2.5 points, below fair value. Dow Jones industrial average futures were down 25 points, and Nasdaq 100 futures were down 4.5 points.


Cutera Inc, ((CUTR)), provider of laser and other light-based aesthetic systems, revised its earnings guidance following its settlement of patent litigation with Palomar Medical Technologies Inc. For Q2, Cutera anticipates a net loss of 89 cents a share and adjusted net income of 8 cents, missing analysts’ estimates of Q2 net income of 12 cents a share.

Ansys Inc., ((ANSS)), maker of simulation software, reported it expects earnings of 7 to 15 cents a share on revenue of between $57 million and $60 million for Q2. On an adjusted non-GAAP basis, the company expects earnings of 36 to 37 cents a share on revenue of between $64 million and $65 million for the June quarter. The company announced that the updated outlook reflects its recently completed acquisition of Fluent Inc.

Camden Property Trust, ((CPT)), real estate investment trust, announced it reaffirmed forecasts for funds from operations of 85 to 90 cents a share in Q2 and $3.50 to $3.70 a share for the full year. Analysts’ estimates are for funds from operations of 89 cents a share for the June quarter.

Highwood Properties Inc, ((HIW)), real estate investment trust, reported Q4 net income jumped to $1.9 million, or 3 cents a share, from $144,000 a year earlier. Funds from operations for Q4 declined 16% to 43 cents a share. Highwood announced the funds from operations figure was hit by 14 cents a share of impairments and other charges, including from depreciation and redemption charges.

Beldon CDT Inc, ((BDC)), high-speed electronic cables manufacturer, reported it will take a Q2 impairment charge of $2 million and severance charges of $3.6 million over several quarters as it moves cable production to Mexico and closes two plants with 315 employees in the U.S. The company forecasts Q2 adjusted earnings to be above the top end of its April forecast of 37-42 cents a share. Analysts’ are for earnings of 40 cents a share.


[R]8:00AM Oil prices climbed on a threat by Iran’s supreme leader.[/R]
Crude oil prices jumped Monday, reflecting a threat by Iran''s supreme leader that his nation could put the world''s oil supply in danger if the West punished Tehran over its nuclear program. Iran''s Ayatollah Ali Khamenei addressed Western nations in a speech Sunday, saying: ‘If you make any mistake [punish or attack Iran], definitely shipment of energy from this region will be seriously jeopardized.’ Mr. Khamenei said the U.S. and its allies would be unable to secure oil shipments passing out of the Gulf through the strategic Strait of Hormuz to the Indian Ocean. On Monday OPEC President Edmund Daukoru encouraged the international community to work to solve geopolitical tensions sending oil prices up. Daukoru, who is also Nigeria''s petroleum minister, said his main concern about high oil prices was that they would divert investment away from fossil fuels and into alternative sources of energy.

Light, sweet crude for July delivery rose $1.02 to $73.35 a barrel in mid-afternoon Asian electronic trading on the Nymex in Singapore. The contract rose Friday to $72.33 after eight foreign workers on a drilling rig off the coast of Nigeria were kidnapped and released Sunday. July Brent crude futures on London''s Intercontinental Exchange Futures rose $1.03 to $72.06 a barrel.


[R]7:30AM Japanese stocks finish lower, Singapore and Korea gain.[/R]
The Nikkei 225 closed at 15,668.31, down 0.77%, reversing about half of Friday''s advance. Video-game maker Nintendo fell 1.3% and optics and electronics company Nikon dropped 2.7%. Auto stocks plunged too, as Toyota shed 1.3% and Honda Motor fell 1.20%. In Hong Kong, the Hang Seng Index advanced 0.7% to 16,016.23. The Hang Seng China Enterprises Index of Hong Kong-listed mainland shares rose 1.5%. Shares in Cathay Pacific and companies connected with unlisted Dragonair were suspended from trading Monday morning after the Hong Kong Standard business newspaper said that Cathay Pacific almost finalized a deal to take over Dragonair. In Hong Kong afternoon trading, the Bank of China gained 2.16%, while local subsidiary BOC Hong Kong advanced 1.02% after an upgrade by Merrill Lynch. Elsewhere in the region, Korea''s Kospi index fell 0.6% and Singapore''s Straits Times Index was down 0.4%. Australia''s S&P/ASX 200 advanced 0.8%, while the Shanghai Composite rose 0.9% due to miners on both exchanges profiting from a rebound in metal prices.


[R]6:30AM Europe falls, struck by oil prices and weak dollar.[/R]
Stocks with the greatest exposure to the plunging dollar suffered the worst in early trade. Luxury goods makers, which are closely connected to the US export market, dropped – led by Luxottica, the Italian designer eyewear company, losing 2.4%. LVMH, the French maker of Louis Vuitton fashion accessories, shed 1.4%, while Christian Dior dropped 0.5%. Carmakers were also struck by advancing raw materials costs. Of the German groups, DaimlerChrysler dropped 1.4%, BMW fell 1.1% and Volkswagen shed 1.2%. French Renault declined 1%, and Peugeot lost 1%.

Light, sweet crude oil for July delivery advanced $1.02 to $73.35 a barrel and July Brent crude futures on London''s ICE Futures advanced $1.03 to $72.06 per barrel. In morning trading, the dollar fell against the euro. The European currency advanced to $1.2979 - the highest it has been since May 5 last year. It then pulled back slightly to $1.2957, up from $1.2917 late Friday in New York. The British pound advanced to $1.8856 from $1.8828 on Friday, while the dollar edged up slightly to buy 111.78 Japanese yen, from 111.62 in New York.