Fed Hikes By 25 Bp

123jump.com Staff
29 Jun, 2006
New York City

Market remained in the holding pattern till the Fed decision on rate hike. The 17th rate hike now takes short-term rates to 5.25%, as expected by market. Fighting inflation has taken preceedent over the economic growth. Fed is worried that recent inflationary pressures arising from the rise in energy prices needs to be countered. In the last two years the Fed has raised rates seventeen times. Oil rose in late afternoon and gold is $15.

[R]3:00PM The Fed raised short term rates by 25 basis points to 5.25%.[/R]
After six weeks of turmoil and mixed signals from the Fed regarding the direction of interest rates, The Fed increased short term by 25 basis points to 5.25%. The 17th consecutive rate hike by the Fed in less than two years is an effort by the Fed to stem the inflation. The inflation fighting has taken precedent over slowing the economic. In an effort prevent the economy from going into a recession, Fed kept short-term rates at historic low of 1% for more than ten months between mid-2003 and 2004. Since then the Fed has been steadily raising rates, seventeen times in the last two years to fight inflation. Energy and food prices have contributed to the inflation pressures during the last two years. Historic low rates have also created what most people perceive as ‘regional bubbles’ in the housing market, pushing prices to unrealistic levels in many regions of the country. Fed’s belt-tightening may be a necessary, but it may be too late to prevent the so called housing market bubble. Unless the Fed gets serious of belt-tightening further, runaway budget deficit and housing market bubble conditions may persist. Despite the rise in interest rates, the U.S. Congress has not shown any inclination to stem the budget deficit. Unless the Congress gets serious, the fate of dollar may be bleak.

[R]12:30PM European markets surged ahead of U.S. rates decision.[/R]
European markets rallied sharply Thursday with a strong boost from Wall Street solid gains ahead of the Fed Reserve’s decision on interest rates. Commodities-related stocks were the most notable gainers for a second day in a row, with Xstrata rising 5.6%, Antofagasta, up 5%, and Vedanta Resources climbing 6.7% on higher metals prices. Oil majors like BP and Royal Dutch Shell also moved notably higher as crude oil price surged above $73. The German DAX30 soared 2.3%, the French CAC 40 climbed 2.2%, and London FTSE100 rallied 2%.

Oil prices climbed above $73 on unexpected gasoline supply decrease. Light crude July delivery gained $1.13 to $73.32 a barrel. Gasoline added 6 cents to $2.27 a gallon. London Brent rose $1.36 to $72.77. The dollar was mixed versus major currencies. The euro traded at $1.2537, down from $1.2550. The dollar bought 116.14 yen, down from 116.40. The British pound stood at $1.8104, down from $1.8185. European gold prices moved higher. In London the precious metal traded at $589.05, up from $579.95 per ounce. In Zurich gold traded at $589.45, up from $578.65. Silver closed at $10.45, up from $10.24.


[R]11:30AM Stocks averages rallied more than 1% on upbeat data.[/R]
U.S. stock markets rallied Thursday morning, despite uncertainty about the Federal Reserve's decision on interest rates. The strength was contributed by upbeat Gross Domestic Product data that boosted optimism about corporate profits. Gold stocks posted particularly strong gains as the price of the precious metal moved sharply higher, sending the Amex Gold Bugs Index up 3%. The networking sector stood out among advancers, supported by networking hardware and software maker 3Com ((COMS)), up 9.5% after reporting a narrower Q4 loss and revealing plans to close about 21 facilities and cut 250 jobs. The Amex Networking Index rose 1.8%. The health insurance sector continued to show considerable strength, with Cigna ((CI)) and Health Net ((HNT)) turning in two of the sector's best performances. Some transportation, brokerage, and energy stocks also showed significant gains. Meanwhile, some individual stocks came under pressure, with shares of Red Hat ((RHAT)) falling down 8.7% after the company reported Q1 earnings that rose year-over-year but came in below analyst estimates. In midday trading, the Dow added 81.52, or 0.74%, after climbing almost 122 points earlier. The Standard & Poor's 500 index was up 9.52, or 0.76%, and the Nasdaq composite index jumped 16.84, or 0.8%. Bonds recovered ground after sliding to historic lows, with the yield on the 10-year Treasury note tapering to 5.22% from 5.25% late Wednesday.


[R]10:30 AM The benchmark Sensex fails to hold onto gains.[/R]
The Indian Sensex advanced 32.46 points, to settle at 10,162.16. The turnover on BSE was $600 million or Rs 2,803 crore compared to Wednesday’s $803 million or Rs 3,624 crore. The market breadth was nearly even as 1,187 stocks advanced, 1,158 declined, and 78 stocks were unchanged.

ICICI Bank was among the decliners, losing 3.4% to Rs 472. In contrast, HDFC Bank soared 3.2% to Rs 750. State Bank of India edged down 0.8% to Rs 709. Investors anticipated RBI to lift interest rates in its credit policy on 25 July. Early this month, RBI had hiked short term interest rates by 25 basis points. Gas transmission firm GAIL India was off 3% to Rs 245.50. GAIL announced on Thursday it will jointly bid with Brazilian Petrobras for oil blocks in India, that are being offered by the government under a new exploration licensing policy. Oil exploration large-cap ONGC edged up 1% to Rs 1,044. The stock pulled back from a session’s high of Rs 1,068. Tata Steel lost 1.3% to Rs 507.70 on 2 million shares volume. Hindustan Lever declined 2.4% to Rs 210.90 on 0.6 million tradig volume.

Among the gainers were Reliance Industries, which advanced 0.7% to Rs 1,008.50. The stock pulled back from a session’s high of Rs 1,030. Auto shares gained. Tata Motors advanced 1.7%, to Rs 755 following news reports that it had aproved plans to roll out the Indigo and Indica models fitted with fuel efficient DiCOR. Auto industry leader Maruti Udyog advanced 0.8%, to Rs 730 on expectation of an increase in vehicle prices this week. Hero Honda climbed 1.6% to Rs 770 but But Bajaj Auto shed 2.6% to Rs 2,611. Engineering & construction large-cap L&T advanced almost 3%, to Rs 2,130.


[R]9:45AM Stocks extended advance on strong GDP data.[/R]
Stocks extended gains in early trading as string economic news lifted market sentiment ahead of the Federal Reserve's decision on interest rates later in the session. The Nasdaq rose more than 1%, as news of stronger-than-expected first-quarter U.S. economic growth boosted optimism about corporate profits. The price of gold moved higher, helping the gold sector become one of the market's best performances, with the Amex Gold Bugs Index rising 2.4%. Significant strength was visible in the health insurance sector, with Cigna ((CI)) helping to lead the sector higher on news that its board increased the company's stock buyback authorization by $500 million. Other healthcare-related stocks also moved to the upside, with shares of Tenet Healthcare ((THC)) up 4.6% after the company agreed to pay $725 million to settle a Justice Department probe related to Medicare payments. The market also benefited from strength in the networking, brokerage, and energy sectors. In the first hour of trading, the Dow Jones industrial average climbed 66.68, or 0.61%. The Standard & Poor's 500 index was up 9.58, or 0.77%, and the Nasdaq composite index jumped 19.58, or 0.93%. Bonds recovered ground after sliding to historic lows, with the yield on the 10-year Treasury note tapering to 5.23% from 5.25% late Wednesday.


[R]9:00AM Stocks futures traded higher ahead of FOMC meeting.[/R]
Stocks pointed to a strong opening ahead of FOMC meeting. The Federal Reserve will be the main focus Thursday, as the Federal Open Market Committee is due to announce its decision on rates in the afternoon. The Fed is widely expected to raise rates by a quarter point for the seventeenth consecutive time, but there are also expectations that the bank will raise rates by a half a point, trying to keep inflation contained. Meanwhile, the Commerce Department reported that gross domestic product climbed to 5.6%, while the Labor Department said that initial jobless claims increased by a seasonally adjusted 4,000 to 313,000 for the week ending June 24. In corporate news, shares of Disney ((DIS)) could see increased activity after the entertainment giant announced that it named former Procter & Gamble ((PG)) Chairman and Chief Executive John E. Pepper Jr. to succeed George J. Mitchell as non-executive chairman. McDonald's ((MCD)) was upgraded to buy at Merrill Lynch on hopes for higher sales and margins. Dow Jones futures were recently up 40 points, S&P 500 futures rose 4.6 points, and Nasdaq futures rose 4 points.

[R]Initial jobless claims rose a little more than expected.[/R]
The Department of Labor released its report on initial jobless claims in the week ended June 24 on Thursday, showing that jobless claims rose a little more than economists had been expecting. The report showed that jobless claims rose to 313,000 from the previous week's revised figure of 309,000. Economists had expected jobless claims to increase to 310,000 compared to the 308,000 originally reported for the previous week. The Labor Department also said that the four-week moving average fell to 305,500 from the previous week's revised average of 311,500. With the decrease, the less volatile moving average fell for the fourth consecutive week. The report also showed that continuing claims in the week ended June 17 rose to 2.409 million from the preceding week's revised level of 2.355 million.


[R]First-quarter GDP growth was upwardly revised to 5.6%[/R]
Thursday morning, the Department of Commerce released its final revision to first quarter gross domestic product, showing that GDP growth was upwardly revised in line with economic estimates. The report showed that first quarter GDP growth was upwardly revised to 5.6 percent compared to its previous estimate of 5.3 percent. Economists had been expecting GDP growth to be revised up to 5.6 percent. The Commerce Department said that the upward revision to first quarter GDP growth was primarily due to a downward revision to imports, which are a subtraction in the calculation of GDP. The upwardly revised GDP growth compares to the 1.7 percent growth that was seen in the fourth quarter. The Commerce Department said that the acceleration 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.

Monsanto Co, ((MON)), seed and herbicide manufacturer, reported that its Q3 net income surged to $1.21 a share, from 17 cents a share in the year-earlier period, helped by a 91-cents-a-share write-off in the 2005 period related to acquisitions. The company added that sales advanced more than 15% in the quarter to $2.35 billion from $2.04 billion. The company topped analysts’ forecasts for earnings of $1.20 a share.

American Greetings Corp., ((AM)), greeting-card maker, reported that Q1 income dropped to 24 cents a share, from 35 cents a year earlier. Earnings from continuing operations were 25 cents a share. The company missed analysts’ forecasts for earnings of 26 cents a share. Sales declined to $406.6 million from $439.5 million a year earlier. The company said Q2 and fiscal 2007 earnings will be hurt by costs from its strategic card and scan-based trading initiatives.

ATI Technologies Inc., ((ATYT)), maker of graphics chips, reported Q3 net income of $31.9 million, or 12 cents a share, a reversal from a loss of $445,000 in the year-ago period. The company had a loss of nil cents a share in Q3 of fiscal 2005. On an adjusted basis, the company said it would have earned 16 cents a share for the latest quarter. Revenue came to $652.3 million from the prior year's $530.2 million. The company missed analysts’ forecasts for quarterly earnings of 15 cents a share.

Worthington Industries Inc. ((WOR)), metal processing company, reported that its fiscal Q4 profit grew 46% to 67 cents per share, from 46 cents per share in the year-ago period helped by the sale of its stake in a Mexican steel processing joint venture. Net sales advanced to $822 million from $817 million. Boosting the bottom line was a $26.6 million gain, or 14% a share, from the April sale of a 50% ownership of its stake in the Mexican joint venture. The company topped analysts’ view for a profit of 40 cents per share.


[R]8:00AM BP traders allegedly manipulated propane prices.[/R]
Allegations by Federal investigators that BP traders illegally manipulated propane prices in 2004 threaten to hurt the oil and gas industry's image. BP PLC and other major oil companies testified before Congress, emphasizing in interviews that recent soaring prices for gasoline and other fuels resulted from market forces beyond their control.

The Commodity Futures Trading Commission said that BP traders, having the consent of senior management, ‘purchased enormous quantities of propane to establish a dominant’ position in the market and then withheld fuel in order to drive prices higher. Details of the alleged scheme, as well as internal company documents and recorded conversations, were outlined in a civil lawsuit the CFTC filed against BP Products North America Inc.

BP denied any wrongdoing, but a former employee admitted taking part in a conspiracy and agreed to cooperate with criminal prosecutors. Apart from potential criminal charges, each defendant could be fined as much as $120,000.


[R]7:15 AM Asian markets gain on the back of U.S. advances.[/R]
Asian markets closed higher on Thursday. Japan's Nikkei 225 index gained 1.58% to finish at 15121.15. The oil sector emulated the gains of its U.S. counterparts. Refiner Nippon Oil soared 5%, supported by low valuations and an announcement Wednesday that it would hike wholesale prices. Other gainers included TDK, which advanced 2.37% and Olympus, which gained 3.09%. In Hong Kong, the benchmark Hang Seng Index gained slightly 0.78% to end at 15865.22. South Korean shares gained for the third session in four, with the Kospi advancing 2% to close at 1263.02. Samsung Electronics advanced 1.7%. Kookmin Bank added 2.9% and Hyundai Motor climbed 1.9%. Korea Exchange Bank put up 3.3%, in spite of the news that prosecutors raided its Seoul headquarters in connection with the investigation into Lone Star's purchase of a controlling stake in the bank in 2003. Elsewhere in the region, the Weighted Price Index of the Taiwan Stock Exchange edged up 1%, to 6607.39 and Sydney's S&P/ASX200 index also finished 1% higher at 4997.2.


[R]6:30 AM European stocks rally, led by oil and banks shares.[/R]
European markets traded higher by mid-morning. The U.K. FTSE 100 index increased 0.7% at 5,719, the German DAX Xetra 30 index gained 0.8% at 5,501 and the French CAC-40 index advanced 0.8% at 4,812. On the corporate front, energy and financial stocks led the gainers, with oil companies benefiting from stable crude prices near recent highs of $72 a barrel. Norway’s Statoil gained 2.6%, while Repsol of Spain added 1.1% and Finnish refiner Neste Oil climbed 2.9%. Britain’s BP advanced 1.5% despite facing pressure from the US futures trading regulator, which lodged a complaint to a district court in Illinois alleging propane price manipulation. Financial sector advances came in spite of increasing expectations that the European Central Bank will continue hiking eurozone interest rates, cooling credit demand. But as markets advanced, so did French insurer Axa by 2.1%, Zurich Financial by 1.8% and Dutch life insurer Aegon by 2.5%.

The August oil contract finished 27 cents higher at $72.19 a barrel, while gold bullion opened Thursday at a bid price of $581.20 a troy ounce, up from $579.95 late Wednesday. The dollar edged down against the European currency. The euro purchased $1.2543 in morning European trading, compared with $1.2550 in New York late Wednesday. The British pound slipped to $1.8163 from $1.8185. The dollar was slightly higher against the Japanese currency, inching up to 116.51 yen from 116.40 yen