Trade Deficit Widens

Elena
12 Jul, 2006
New York City

Stocks opened near the flat line Wednesday, reflecting a government report on trade deficit and a decline for Microsoft Corp. following an unfavorable EU antitrust ruling. The Commerce Department reported the trade imbalance rose by 0.8% in May to $63.8 billion, mainly due to higher oil prices. The increase was smaller than the 2.5% rise that economists expected but still represented the sixth largest deficit in history.

[R]9:45AM Stocks opened near the flat line on economic report and Microsoft.[/R]
Stocks opened near the flat line Wednesday, reflecting a government report on trade deficit and a decline for Microsoft Corp. following an unfavorable EU antitrust ruling. The Commerce Department reported the trade imbalance rose by 0.8% in May to $63.8 billion, mainly due to higher oil prices. The increase was smaller than the 2.5% increase that economists expected but still represented the sixth largest deficit in history. Microsoft Corp. ((MSFT)) fell about 1.5% after the EU fined the software company $357 million for failing to obey its 2004 antitrust order to share program code with rivals. Semiconductor stocks also moved to the downside, dragged by notable losses for STMicroelectronics ((STM)), Infineon ((IFX)), and Broadcom ((BRCM)).

The gold sector showed continued strength as the price of the precious metal moved further upside after showing a strong upward move in the previous session. Some biotechnology stocks also posted strong gains, with Genzyme ((GENZ)) up 4%, helping to lead the sector higher after reporting better-than-expected Q2 earnings and revenues. However, shares of Genentech ((DNA)) dropped 3.4% after the company reported strong Q2 earnings but disappointing sales of its colon cancer drug Avastin. In the first hour of trading, the Dow Jones industrial average rose 9.85, or 0.09%.The Standard & Poor's 500 index rose 0.13, or 0.01%, and the Nasdaq composite index fell 6.12, or 0.29%.


[R]The U.S. trade deficit widened less than economists had expected.[/R]
Wednesday morning, the Department of Commerce released its report on U.S. international trade in goods and services in the month of May, showing that the U.S. trade deficit widened less than economists had expected. The Commerce Department said that the trade deficit widened to $63.8 billion from a revised $63.3 billion in April. Economists had expected the deficit to widen to $64.6 billion from the $63.4 billion originally reported for the previous month. The wider trade deficit came as an increase in imports outpaced an increase in exports, with imports rising to $182.5 billion in May from $179.3 billion in April while exports increased to $118.7 billion from $115.9 billion. The report also showed that the goods deficit widened to $70.1 billion in May from $69.6 billion in April while the services surplus was virtually unchanged at $6.2 billion. Imports of goods increased to $154.3 billion in May from $151.4 billion in April while exports of goods rose to $84.2 billion from $81.8 billion. At the same time, imports of services rose to $28.2 billion in May from $27.9 billion in April while exports of services rose to $34.4 billion from $34.1 billion. The Commerce Department also said that the politically sensitive trade deficit with China widened to $17.7 billion in May from $17.0 billion in April.


[R]9:00AM Stock futures pointed to a flat opening.[/R]
U.S. stock futures showed slight weakness, indicating a flat market opening Wednesday. Tech stocks are expected to be under pressure after European antitrust regulators fined Microsoft Corp. The EU fined the world''s largest software maker about $357 million for not complying with a 2004 antitrust ruling.

In earnings news, shares of Genentech Inc. ((DNA)) dropped more than 2% after the close on Tuesday. The biotechnology company reported Q2 earnings that increased from last year and beat analysts'' estimate on higher revenues, boosted by strong sales of its cancer drugs, including colon cancer drug Avastin. The company also raised its outlook for non-GAAP earnings per share growth for the full year 2006 to about 55% to 60% from its prior outlook of a 45% to 55% growth. Media company Gannett ((GCI)) drug maker Genzyme Corp. ((GENZ)) and M&T Bank Corp. ((MTB)) are scheduled to report quarterly results on Wednesday.

In merger news, Premier Foods agreed to buy the UK and Irish businesses of Campbell Soup Co. ((CPB)) for $846 million. Trading may also be impacted by traders'' reaction to the release of the Commerce Department''s report on U.S. international trade in goods and services. The trade deficit widened to $63.8 billion from a revised $63.3 billion in April. Economists had expected the deficit to widen to $64.6 billion from the $63.4 billion originally reported for the previous month. Standard & Poor''s 500 futures were down 0.90 point, but slightly above fair value. Dow Jones industrial average futures were down 4 points, and Nasdaq 100 futures were down 2 points.

Infosys Technologies,((INFY)), IT company, reported a Q1 profit of 62 cents a share, up from a profit of 43 cents a share a year-ago, beating analyst estimate for earnings of 55 cents a share on 38.7% revenue growth. Infosys expects earnings of 64 to 65 cents a share for Q2 and $2.70 to $2.73 a share for the year.

Wolverine World Wide Inc., ((WWW)), sneaker maker, reported Q2 profit grew 7.4% to 25 cents a share, with revenue up 10.5%, led by the performance of its Merrell brand. Q2 included 3 cents a share expenses from stock incentives and investment spending. The company lifted 2006 earnings and revenue guidance. It now expects 2006 earnings between $1.38 and $1.42 a share, up from $1.34 to $1.40. The company beat analyst expectations for earnings of 23 cents a share.

Ruby Tuesday ((RI)), dining restaurants operator, reported Q4 net income of 53 cents a share, up 22% from the 40 cents of a year ago on 23% revenue growth while same-store sales at company-owned restaurants rose 2.9%. The company beat analysts’ estimate for earnings of 51 cents a share.

Genentech Inc, ((DNA)), biotechnology company, reported Q2 net earnings of 49 cents a share, up from 27 cents a share in the year-ago period. Operating revenue advanced to $2.2 billion from $1.53 billion. If not for one-time items, Genentech per-share profit amounted to 56 cents vs. 30 cents in Q2 of 2005. The company topped analysts views for earnings of 47 cents a share.

Gannett Inc,((GCI)), newspaper publisher, reported a Q2 net income of $1.31 a share, down from $1.37 a share despite revenue growth to $2.03 billion from $1.91 billion, matching analysts expectations earnings of $1.31 a share on revenue of $2.02 billion.


[R]8:00AM Microsoft was fined $357 million by the EU.[/R]
Microsoft Corp. ((MSFT)) was fined $357 million by the EU because the software maker failed to obey a 2004 antitrust order to share program code with rivals. In addition, the EU threatened penalties of $3.82 million a day beginning July 31 unless the company supplies ‘complete and accurate’ technical information to developers to help them make smoothly working software with its ubiquitous Windows operating system.

Microsoft immediately said it would appeal the fine in court and ask if the ‘unprecedented’ fine was justified.

The company said it has a team of 300 people working full-time on a framework to supply the information and six of seven installments have already been delivered. Microsoft General Counsel Brad Smith said despite the fines, Microsoft ‘remains totally committed to full compliance’ with the 2004 antitrust decision, adding that the company had handed over ‘thousands of pages’ of technical documents to EU experts. He said claims made by the EU were unfair and that revisions of requested information were delivered ‘promptly.’

The EU imposed daily fines of 1.5 million euros ($1.91 million) from Dec. 15 to June 20 when it decided that Microsoft was still violating EU law. The EU had already imposed a record 497 million euro ($613 million) fine on Microsoft in 2004 and ordered it to hand over communications code to rivals.

In the first quarter Microsoft earned $2.98 billion on revenues of $10.9 billion. The EU can fine a company up to 5% of its annual global revenue. This would mean a fine of 4.28 million euros ($5.47 million) a day out of Microsoft''s daily revenue of 85.7 million euros ($109.47 million).


[R]7:30AM Asian markets end mostly lower.[/R]
Asian markets ended mostly lower on Wednesday. The Nikkei 225 Average in Tokyo ended lower 1.45% at 15,249.32. Data from the Bank of Japan released Wednesday showed Japan''s domestic corporate goods prices rose 3.3% in June from a year earlier, marking the 28th consecutive monthly increase. Honda Motor led decliners among Japanese automotives, falling 2.5%. Shares of Toyota Motor traded down 1.3%, while Nissan Motor retreated 1.4%.

Hong Kong''s Hang Seng Index reversed early loses to close 0.19% up at 16,522.21. The China Enterprises Index, which tracks Hong Kong-listed shares of companies incorporated on the mainland, advanced 0.38% at 6,826.65. The index had traded flat for much of the day. Hong Kong''s flagship carrier Cathay Pacific Airways which recently won expanded landing rights in China, was up 0.36%.

In Seoul, the Korea Composite Stock Price Index, or Kospi, closed down 0.3% at 1296.69. Telecom shares ended weaker on expectations of poor second-quarter results after companies were fined in late June for offering illegal subsidies to attract customers and increased expenses for marketing, analysts said. SK Telecom, South Korea wireless operator, ended down 1.5% and KT Freetel lost 3.9%.


[R]6:30AM Europe extends early gains by mi-morning.[/R]
European markets were higher by mid-morning. The U.K. FTSE 100 index gained 0.4% at 5,882, the German DAX Xetra increased 0.9% at 5,663 and the French CAC-40 index rose 0.6% at 4,945. U.K. retailer and business services group GUS advanced 1.2% after it said that same-store sales in the three months ending June 30 at its Argos retail division advanced 7%. Luxury goods supplier Burberry Group increased 1.3% reporting that underlying revenue climbed 12% in its first quarter.

Alcatel which fell 5.9% on Tuesday after soon-to-be-acquired Lucent Technologies warned of a revenue shortfall, inched up 0.3%. U.K. oil company BP fell 0.2%, despite rises for most of the energy sector with oil trading above $74 a barrel, after it reportedly is planning to take a $1 billion stake in Russian oil company Rosneft. Switzerland’s Roche rose 1.1% after majority-owned Genentech reported an 80% profit rise and lifted its fiscal-year earnings guidance.

Oil prices stood firm at above $74 a barrel, raising gold''s attractiveness as a hedge against inflation. Gold traded on Wednesday near five-week highs, supported by firm oil prices and nervousness following bomb attacks which killed more than 180 people in India''s financial hub of Mumbai. Gold was quoted at $642.00/643.00 an ounce by 0958 GMT, against $642.10/644.10 late in New York. The dollar was trading at 114.37 yen in Tokyo mid-afternoon, up 0.26 yen from late Tuesday in New York. The euro fell to $1.2768 from $1.2771.