Record Oil Pressures Stocks

Elena
07 Jul, 2006
New York City

The industrial conglomerate 3M contributed to the weakness of Dow with a decline of 7% after it cut its Q2 and 2006 profit forecasts due to lower-than-expected sales. Advanced Micro Devices Inc. fell 65 cents to $23.18 after cutting its revenue forecasts. The announcement also send Intel Corp. lower, down 12 cents at $18.73. Record oil prices also weighed, with traders worrying that higher energy prices would hurt consumer spending.

[R]11:30AM The Dow and Nasdaq declined.[/R]
U.S. stocks fell on profit warning from 3M Co., record oil prices, and jobs data. Just before the quarterly earnings period manufacturing bellwether 3M ((MMM)) warned that it expects Q2 earnings, excluding special items, to fall below previous expectations. The company’s shares dropped 7%, leading blue chips and the S&P 500 lower. Along with weaker-than-expected job, the Labor Department reported growth in average hourly earnings that raised inflation concerns and weighed on stocks.

Oil company shares rose as U.S. crude prices hit a new all-time high, sending the Amex Oil Index up 1%. Technology stocks also came under pressure following disappointing guidance from Advanced Micro Devices ((AMD)) and Business Objects ((BOBJ)). The weakness in the tech sector contributed to the loss by the tech-heavy Nasdaq. Among tech stocks, some networking and disk drive stocks posted notable losses, contributing to a 1.5 % loss by the Amex Networking Index and 1% loss by the Amex Disk Drive Index. The airline sector moved notably lower on the surging oil price, sending the Amex Airline Index down 1.7%. In late morning trading, the Dow Jones industrial average fell 86.37, or 0.77%.The Standard & Poor's 500 index lost 3.17, or 0.25%, and the Nasdaq composite index dropped 14.22, or 0.66%. Bonds rallied for a second straight session, with the yield on the 10-year Treasury note falling to 5.14% from 5.18% late Thursday.


[R]10:30AM Sensex finishes down on a sell-off at the end of session.[/R]
The Sensex in India declined 258.44 points, or 2.4%, to settle at 10,509.53. The turnover on BSE was $670 million or Rs 3,016 crore, higher than Thursday's $600 million or Rs 2,700 crore. The market-breadth was weak as 1,708 shares declined, 690 advanced and 71 shares were unchanged.

Ashok Leyland reported that its June sales of vehicles jumped 22% to 6,397 from a year ago of 5,243. Local telephone company, MTNL reported that Motorola has emergerd as the lowest bidder for equipment tender order worth $120 million for 2 million GSM standard telephone lines.

Banks, IT and auto shares sank while cement shares pared gains. Banks led the decliners. State Bank of India lost 3.6%, to Rs 721, Bank of Baroda declined 3.5%, to Rs 201, Canara Bank sank 3.5%, to Rs 196, Oriental Bank of Commerce was off 3.3%, to Rs 167, Bank of India shed 3%, to Rs 98.30 and Punjab National Bank lost 2.9%, to Rs 325. Housing finance large-cap HDFC dipped 5% to Rs 1,163 as 51,736 shares were traded on BSE.

Reliance Industries (RIL) lost 4%, to Rs 1,035.35 on 2.26 million shares. IT shares were also hit in the sell-off.

In corporate news HCL Tech received outsourcing order from Skandia worth $780 million. In market trading, Wipro declined 4% to Rs 470.90, TCS sank 2.8% to Rs 1,752, Satyam Computer lost 2% to Rs 693.50, and Infosys shed 1.3% to Rs 3,120. Auto shares were not spared either. M&M was down nearly 3% to Rs 599.10, Hero Honda shed 2.7% to Rs 755.15, Tata Motors weakened 2.2% to Rs 779, Maruti Udyog lost 2% to Rs 787 and Bajaj Auto was off 1.6% to Rs 2,725.

Cement shares declined too. ACC declined 1.8% to Rs 799, Grasim lost 2.6% to Rs 1,905, and Gujarat Ambuja Cements also shed 2.3% to Rs 100.40. The oil sector was also under pressure. GAIL India lost 1.4% to Rs 245.50 and ONGC ended flat at Rs 1,102. ONGC and GAIL, on Friday, signed an agreement under which ONGC will supply gas for 15 years to GAIL. BPCL was off 5.6% to Rs 330, HPCL lost3.9% to Rs 224.60 and Indian

Among the few advancers were ICICI Bank, which advanced nearly 2% to Rs 495. Two block each of 2 million shares, were traded on BSE at Rs 499 and Rs 500 near the end of the trading session. India Cements advanced 2.3%, to Rs 165.10 and Jindal Steel & Power climbed 2.2% to Rs 1,500.


[R]9:45AM Stocks opened lower on corporate profit warnings.[/R]
Stocks moved lower at the start of trading, reflecting corporate profit warnings, record-high oil prices, and a jobs creation report. The Labor Department report showed weaker-than-expected June employment growth and a bigger-than-expected increase in average hourly earnings, but raised worries that the economy was cooling too quickly. Record oil prices also weighed, with traders worrying that higher energy prices would hurt consumer spending. A barrel of light crude set an intraday record of $75.78 before retreating to $75.65.

Technology stocks showed significant weakness in early trading. The semiconductor sector posted a notable decline on the heels of lowered guidance from Advanced Micro Devices ((AMD)). Shares of AMD slipped 4.7% on warning of 6% drop in Q2 revenue. The Philadelphia Semiconductor Index dropped 2%. Outside the tech sector, shares of Dow component 3M ((MMM)) came under pressure after the diversified manufacturer forecast Q2 earnings below analyst estimates. The 7% loss by 3M contributed to the decline by the Dow. In the first hour of trading, the Dow Jones industrial average fell 35.32, or 0.32%. The Standard & Poor''s 500 index lost 4.49, or 0.35%, and the Nasdaq composite index dropped 16.40, or 0.76%.

[R]June jobs increased less than expected.[/R]
Friday morning, the Department of Labor released its closely watched report on the employment situation in the month of June. The report showed that the U.S. economy added fewer jobs than economists had been expecting. The report showed that the U.S. economy added 121,000 jobs in June following an upwardly revised increase of 92,000 in May. Economists had expected an increase of 185,000 compared to the increase of 75,000 originally reported for May. The Labor Department said that several service-providing industries and mining saw continued employment growth, although it noted that the construction and retail sectors lost jobs during the month of June. At the same time, the report also showed that the unemployment rate remained unchanged at 4.6 percent. Some economists had been expecting the unemployment rate to edge up to 4.7 percent. Additionally, the Labor Department said that average hourly earnings rose 0.5 percent to $16.70 in June. The increase exceeded economist estimates of an increase of about 0.3 percent.


[R]9:00AM Stock futures jumped on weaker jobs data.[/R]
U.S. stock futures advanced Friday morning, following a weaker-than-expected job growth, suggesting that the Fed Reserve might pause its cycle of interest rate hikes. The U.S. Labor Department reported that 121,000 nonfarm payroll jobs were created in June, below economists'' expectation of 185,000 jobs and up an upwardly revised 92,000 in May. The unemployment rate stayed at a five year low of 4.6%, in line with expectations.

Despite the positive sentiment generated by the data, some technology stocks could come under pressure following two warnings in the sector. Advanced Micro Devices ((AMD)) dropped 5% on warning of 6% drop in Q2 revenue. Business Objects ((BOBJ)) said that Q2 earnings and revenues would come below its previous guidance. Shares of the business software developer dropped more than 25% in pre-market trading. On the other hand, shares of 3M ((MMM)) posted some strength in pre-market trading after J.P. Morgan upgraded its rating on the diversified manufacturer to Overweight from Neutral, citing valuation. Shares of AmerUS ((AMH)) are expected to rise as the company confirmed that it is in talks to be acquired by Britain''s largest insurer Aviva. Standard & Poor''s 500 futures were up 4.1 points, above fair value. Dow Jones industrial average futures were up 36 points, and Nasdaq 100 futures were up 4 points.

WebMethods Inc, ((WEBM)), maker of business software applications, reported it now anticipates a loss of 12 to 15 cents a share for its Q1 on revenue of between $44 million and $45.5 million. The loss estimate includes $600,000 in expenses for amortization of intangibles, $2.7 million in stock-based compensation costs, and $200,000 in income tax expense. The company''s previous guidance was for earnings of 1 to 5 cents a share on revenue of $51 million to $53 million. The analyst estimate is for a profit of 7 cents a share on revenue of $52.5 million. The company attributed the lower view to its failure to expect additional steps in the customer procurement process in its previous estimate.

Bell Industries Inc., ((BI)), provider of technology services, announced that the tech-solutions side received contracts that will bring in $30 million of revenue in 2007. Bell anticipates to add about 500 new jobs in the next six months. Bell added that the deals involve customer-relationship-management solutions for a leading broadband-phone group, and services to a major computer maker and a consumer-products company.

LaBranche & Co, ((LAB)), specialist firm, expects to report a Q2 loss of $23 million and an operating loss of 8 cents a share. The company will miss analyst forecasts for earnings of 8 cents a share. The estimate includes a non-cash loss of approximately $17 million in connection with the decline of the estimated fair value of the restricted shares of NYSE Group Inc common stock held by LaBranche. The firm said it saw a decline in its principal trading revenue and market-making business to approximately $20 million dollars, from $47 million.


[R]8:00AM Cingular was accused of deceiving customers.[/R]
Cingular acquired AT&T Wireless Services Inc. for $41 billion in October 2004, and promised that the customers of both companies would see uninterrupted and even improved service as a result of the ‘combined network’, but instead it degraded their reception in an effort to persuade them to sign new contracts. A federal lawsuit alleges breach of contract and violations of consumer protection laws, seeking class-action status on behalf of the more than 20 million customers AT&T Wireless had at the time of the merger. The lawsuit, based on complaints received by the Foundation for Taxpayer and Consumer Rights in Santa Monica, seeks up to treble damages for fees and charges paid by the AT&T Wireless customers.

Cingular spokesman said that the company had not had a chance to review the lawsuit. He also said that the company eventually plans to dispose of the older cell phone technology used by the AT&T Wireless network, called TDMA, but insisted that it is still maintaining that system for now. The majority of Cingular''s nearly 56 million customers use a newer GSM system, and many companies no longer make TDMA-compatible phones. Cingular spent $6.5 billion on network improvements and integration in 2005, and has spent the same amount this year, Owen said.


[R]7:30AM Asia closes broadly higher on receding N.Korea jitters.[/R]
Asian markets closed mostly higher. Japan''s Nikkei 225 settled at 15307.61, down 0.09%, after giving back morning gains. Auto makers reported some of the best gains in Japan, with Toyota Motor climbing 1.5% and Honda Motor advancing 1.1%. Electronics exporters were mixed. Sony shed 0.4%, while Toshiba added 0.3%. Hong Kong''s Hang Seng Index closed 0.11% down at 16459.78, and South Korea''s Kospi index ended with a 0.79% gain. In Hong Kong, metal stocks were in demand, with Jiangxi Copper up 3.4% and aluminum producer Chalco up 1.7%. Phone company PCCW advanced 0.9% after local news media said that a Hong Kong consortium may bid for its telecom and media assets. Bank stocks outperformed the market after Citigroup reported that Hong Kong banks'' strong fundamentals weren''t fully reflected in their valuations. HSBC Holdings gained 0.4%.Australia''s S&P/ASX 200 advanced 0.29% at 5135.30 and Indonesia''s Jakarta Composite settled 0.59% higher at 1347.90. China''s Shanghai Composite slipped 0.14% and Singapore''s Straits Times Index was down 0.12% at 2445.13, while Taiwan''s Weighted index edged up 0.02% at 6660.61.


[R]6:15AM European stocks trade lower due to tech shares and U.S. payrolls report.[/R]
European markets traded lower in mid-morning session. The U.K. FTSE 100 index lost 0.4% at 5,868, the German DAX Xetra 30 index decreased 0.5% at 5,666 and the French CAC-40 index slipped 0.5% at 4,940. Chip makers Infineon Technologies lost 0.6% and STMicroelectronics weakened 1.7% after U.S. company Advanced Micro Devices Inc. late Thursday cut its second-quarter revenue guidance after posting lower sales of entry-level and mainstream mobile and desktop processors. Software maker Business Objects fell more than 27% in Paris after it revised its second-quarter earnings and revenue guidance lower after posting lower-than-expected license revenue. The airline sector provided some respite, as budget airline operator easyJet advanced 7.2% following its statement that it carried 15.6% more passengers in June than a year ago. The company also raised its profit growth guidance for the year. Also in the sector, Ryanair gained 2.3% and Air France-KLM increased 0.5% after it said that passenger numbers advanced 5.9% to 6.6 million in June.

Oil prices dropped below $75 a barrel Friday after a U.S. weekly petroleum supply snapshot showed an unexpected rise in domestic gasoline stocks. Light, sweet crude oil for August delivery shed 34 cents to $74.80 a barrel. Gold opened Friday at a bid price of $631.10 a troy ounce, up from $629.30 late Thursday. The euro was unchanged against the U.S. dollar on Friday after the European Central Bank''s president promised strict measures to curb inflation. The European currency was at $1.2774 in morning trading, unchanged from its level the night before in New York. The British pound gained after the Bank of England kept its own interest rate unchanged for the 11th consecutive month, rising to $1.8377 from $1.8367 the night before. The dollar also slipped against the Japanese currency, dropping to 115.01 yen from 115.15 yen.