Fed worries on Oil Price and Pace of Recovery

123jump.com Staff
30 Nov, -0001
New York City

News on oil, MidAmerican purchase of PacifiCorp for $4.5 B cash plus debt, and news on Dollar and gold drove investors on selective buying. OECD trims the developed economy foreacast, Vodafon in the UK narrows loss, Gruner+Jahr to sell the U.S. magazine group for $350 million to Meredith, and Microsoft and Google in race to enhance visual search experience.

The Federal Reserve Board and the Federal Open Market Committee released the minutes of the Committee meeting held on May 3, 2005. The minutes of meetings released today showed that policy makers are now worried of the pace of economic recovery and rate of inflation may be affected by rising oil prices. While the members of the committee are increasingly worried with the pace of the economic recovery but the current softness is believed to be ‘transitory’.

The rising oil prices and labor costs were viewed by the report this morning from OECD to be detrimental but the member of the committee view the impact of this price to be transitory.

The National Association of Realtors said that April existing-home sale jumped 4.5% to a seasonally adjusted 7.18 million with the national average median home price rose to 206,000.

David Lereah, NAR’s chief economist, said sales had been expected to hold at high levels. “A new record is a bit unexpected, but so is the performance of mortgage interest rates which have been lower than forecast,” he said. “When we look at recent job gains, we see all the positive factors coming together to coincide with a powerful demographic demand for housing.”

Federal Reserve has been active in raising short-term interest rates however the rise in interest rate had no impact on the mortgage rates in the last three months. Despite rise in short-term interest rates mortgage rates have fallen to 5.83% in April from 5.96% in March.

The NAR report also noted the housing activity by region and price movement by type of housing. Total housing inventory levels rose 5% at the end of April to 2.48 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace.

Existing condominium and cooperative housing sales also hit a record, increasing 4.8 percent to a seasonally adjusted annual rate of 899,000 units in April from a level of 858,000 units in March. Last month’s sales activity was 10.7% above the 812,000-unit pace in April 2004.

The median condo price was $223,600, up 18.4 percent from the same month a year ago. Condo sales last month accounted for 12.5% of market activity.

Single-family home sales rose 4.5% in April to a record seasonally adjusted annual rate of 6.28 million from a level of 6.01 million in March. Last month’s sales activity was 5.0 percent above the 5.98 million-unit pace in April 2004. The median single-family home price was $203,800 in April, up 15.1 percent from a year earlier.

Regionally, the home resale pace in the South jumped 7.4 percent from March to a annual rate of 2.74 million units in April, in the Midwest rose 5.8 percent to a annual rate of 1.64 million, in the Northeast increased 4.3 percent to a annual pace of 1.20 million, and in the West held even at an annual rate of 1.61 million.
Fitch Ratings lowered its credit rating for GM Corp. to junk or high risk level following the similar move by rating agency S&P on May 5th. GM’s unsecured 30-year bonds trade at yield of 11.85% which carried interest rate of 8.375%. GM carried total of $291.8 billion in debt and Ford Motor carries debt of $161 billion. GM and Ford shares were trading lower by a fraction.

This morning Bertelsmann, German based media group, said today that it will sell its U.S. magazine business. The $400 million group includes titles such as Fast Company and Family Cirlce. Later in the day, Iowa based Meredith Publications agreed to buy for $350 million a group of publications Parents, Fitness, Child and Family Circle from a unit of German media company Bertelsmann.

Markets in the opening hours traded on the news on oil, dollar, gold and merger news.

Oil traded above $49 at $49.05 on several conflicting news from OPEC, worries on the refinery capacity shortage this summer in the U.S. U.S. dollar traded mixed against currencies in Europe and Japan. Gold inched higher in the early morning trading in NY.

Dillard's retailer posted 1Q profit of 46 cents per share vs. 64 cents last year due to disappointing sales. The company missed estimates of 54 cents a share. The stock is down 8% in the morning trading.

Perry Ellis, clothing maker, reported 1Q profit rise of 8% or 89 cents per share exceeding analysts' estimates of 83 cents per share and reaffirming its 2006 outlook.

Gamestop, entertainment software retailer, announced 1Q record sales increase of 27.7% and net earnings of 19 cents per diluted share which translates to 23 % increase from the same period last year. The stock is up 4.5% in the morning trading.

Williams Sonoma, home retailer, reported 1Q profit jump of 22% on higher sales & revenue, and net earnings of 22 cents a share vs. 18 cents a year ago beating estimates by 3 cents. The stock is trading unchanged.

Toro posted 2Q record net earnings of $1.33 per diluted share vs. $1.0 last year on 14% sales growth. The company raised 2006 guidance. The stock is down 5.7%.

Applied Imaging released 1Q net loss of 11 cents a share vs. 16 cents last year.

MidAmerican Energy agreed to buy PacifiCorp for $5.1 billion in cash and assume $4.3 billion in debt. Warren Buffet controlled combined company will serve 3 million natural gas customers in six contiguous states in the North Western U.S. region. The combined company will have $10 billion in revenue.

Vodafone, UK mobile phone operator, reported lower net loss for the current fiscal year, lowered the revenue outlook to 6%-9% revenue growth for the next year, declared dividend of 4.07 pence. Total loss narrowed to British pound of 7.54 billion from 9.02 billion pounds.

Paris based club of developed nations, OECD, reduced the economic growth forecast for Europe to 2.6% from 2.9%, and raised that for the U.S. to 3.6% from 3.3% and that for Japan lowered to 1.5% from 2.1%.

European shares closed lower on higher oil price, weaker forecast from Vodafon, and lower pre-tax earnings from low-cost airline easyJet. The auto, airlines, and select tech stocks were weak across the region. Indexes in France, Germany, UK, and Netherlands closed lower by a fraction.

Taiwan stocks closed higher supported by second-half optimism for LCD panel market outlook. The shares of AU Optronics and Quanta Display traded up by 0.7% and 0.6% respectively.

Japanese shares index Nikkei closed higher despite the data from Ministry of Trade and Industry that in March economic activity index fell 0.5% from previous month lower than the estimates of 0.4%.

Asian markets on Tuesday closed unchanged except Thailand index lost 1.04% and Australia closed up 0.74%. Higher oil prices and lower dollar helped resources companies in Australia and News Corp stock traded up on the recent Star Wars sequel.