Earnings, Downgrades and Deficit

123jump.com Staff
12 Jul, 2006
New York City

Market averages reversed the earlier course in the mid-afternoon as tech stocks declined. Analysts downgrade on IBM and Dell pushed tech heavy Nasdaq down near 2%. Apple Computer fell on analyst comments. Oil and gold gained. European markets closed higher on earnings expectations. Mexico and Brazil closed lower. India rebounded with 3% rise, one day after bombings. U.S. trade deficit in May rose to $63.8 billion, sixth largest deficit ever.

[R]4:30PM Widening trade deficit, earnings short fall and tech stock downgrades push market averages lower.[/R]

-Nasdaq closed down 38.63 points, Dow down 121.59 and S&P 500 down 13.92.
-Yield on 10-year bond closed at 5.14% and 30-year bond closed at 5.18%.
-Crude oil gained 79 cents to lose at $74.95 per barrel.
-Gold advanced $8.10 to close at $651.20 per ounce.

-Asian markets closed higher led by 3% rise in India and 0.5% gain in Australia.
-European markets closed higher led by 0.5% rise in France, Germany and Switzerland. Norway and South Africa gained 1.7% and 1.5% respectively. Russia gained a fraction on higher oil price.
-Latin American stocks fell, led by a near 1% decline in Argentina and Brazil. Mexico fell 0.8%.

Decline in tech stocks dragged Nasdaq down 38 points and led a decline in broader markets. Market averages gained as much as 0.6% in the morning trading, but in the afternoon trading managed to slide from its peak and closed sharply lower. Analyst downgrade on IBM and Dell assisted the decline in tech stocks. IBM revenue guidance was cut by an analyst at J P Morgan citing ‘competitive environment’ to $21.81 billion from $21.99 billion. Another analyst at UBS cut earnings guidance for Dell ((DELL)) to 31 cents from 33 cents and revenue guidance to $14 billion from $14.2 billion. The analyst lowered the price target to $24 from $26. Gannett ((GCI)) fell on earnings shortfall, Brunswick Corp ((BC)) fell on guidance for operating earnings of 93 to 94 cents vs. forecast of 96 cents. Cooper & Tire ((CTB)) fell on the news that S&P500 will replace the stock with Windstream Corp ((WINWI)).

May trade deficit was recorded at $63.8 billion lower than $65.5 billion projected by economists. Higher oil prices, widening trade with China and rising imports from around the world contributed to the sixth largest ever deficit. While most economists on Wall Street rejoiced the lower than expected deficit, but fail to point out that U.S. is set to report $800 billion annual deficit or more than 7% of its GDP, highest ever recorded in the last one hundred years. Price of imported oil contributed to the rising deficit but American continue to import more oil despite higher oil price.

European shares rose on mining and automobile stocks as euro fell against dollar. Renault and DaimlerChrysler gained near 1%. Mining stocks Antofagasta and Vedanta Resources 3% at close. Online gaming stocks PartGaming fell 4% and Sportingbet declined 3% on the news that U.S. is likely pass tighter restriction on Internet based gambling.

British Petroleum ((BP)) is reported in deal with Russian Rosneft to invest $1 billion in its scheduled IPO and sell its Mexican assets for $2.2 billion to Rosneft. The company denied that two transactions are linked.

Mexican and Brazilian stocks fell on the back of weakness in New York trading. In Mexico IPC index fell close to 0.8% on the continued political worries of the Presidential election outcome. General weakness in the market dragged down home builders, telecoms and cement stocks. Cement maker Cemex ((CX)) traded 0.5% lower. The company stock is to split in Mexico on July 17 and in New York on July 24.

[R]12:30PM European markets closed higher.[/R]
European markets finished in the positive, supported by renewed optimism for strong quarterly results in the new earnings season, as well as gains for resource stocks and automakers. Top gainers were miners like Antofagasta and Vedanta Resources. A decline of the euro versus the dollar boosted automakers like DaimlerChrysler and Renault. The German DAX 30 rose 0.4%, the French CAC 40 climbed 0.6%, and London FTSE 100 edged up 0.1%.

Oil prices advanced to $75 after the world powers agreed to send Iran back to the United Nations'' Security Council for possible punishment. Light crude August delivery rose 69 cents to $74.85 a barrel. Gasoline futures gained 5 cents to $2.26 a gallon. The dollar traded higher versus major currencies. The euro traded at $1.2688, down from $1.2771. The dollar bought 115.61 yen, up from 114.11. The British pound stood at $1.8326, down from $1.8458. European gold prices advanced. In London the precious metal traded at $653.40, up from $633.80 per ounce. In Zurich gold traded at $653.95, up from $633.75. Silver closed at $11.71, up from $11.39.


[R]11:30AM Stock markets traded down.[/R]
U.S. stocks fell on Wednesday after European antitrust regulators fined Microsoft Corp. ((MSFT)) and weekly government data on U.S. oil inventories boosted crude prices. Microsoft shares declined 1.1% to $22.85 after EU regulators fined the world''s largest software maker about $357.3 million for defying a 2004 antitrust ruling. Crude extended gains to $74.70 a barrel after the U.S. oil data showed crude inventories fell more than expected. In late morning trading, the Dow Jones industrial average fell 46.90, or 0.42%. The Standard & Poor''s 500 index fell 5.68, or 0.45%, and the Nasdaq composite index fell 18.80, or 0.88%. Bonds fell, with the yield on the 10-year Treasury note at 5.13% up from 5.11% Tuesday.

[R][Crude oil inventories steeply dropped.[/R]
Crude oil inventories declined sharply during the most recent week, according to government statistics released Wednesday. This added to a recent string of draw downs. Meanwhile, gasoline inventories ticked lower as well, reversing part of the previous week''s advance. The Department of Energy''s Energy Information Administration said that crude oil inventories fell by 6 million barrels for the week ended July 7. Specifically, the measure slipped to 335.3 million barrels from the previous week''s level of 341.3 million barrels. This continued a recent string of declines, with inventories dropping by 2.4 million barrels in the previous week and by 3.4 million barrels in the week before that. Oil inventories for the July 7 week were 2.4% higher than last year. Meanwhile, gasoline inventories showed a week-over-week decline of 400,000 barrels. This followed an advance of 700,000 barrels in the previous week. The level of gasoline inventories was 0.8% below last year. Distillate fuel oil had an inventory advance of 2.6 million barrels during the week. This built on a recent streak of gains, including an advance of 1 million barrels in the previous week.

[R]10:30AM Infosys Technologies boosts the benchmark Sensex.[/R]The Sensex in India soared 315.74 points, or 2.9%, to 10,930.09, its highest closing level in nearly two months since 19 May 2006. The turnover on BSE was $600 million (Rs 3,120 crore), higher than Tuesday’s $500 million (Rs 2,414 crore). The market breadth moved towards positive during the close, with winners outnumbering losers by 9:1 on the Mumbai Stock Exchange. Overall 1,257 shares rose on BSE, 1,093 declined and 80 shares were unchanged.

Infosys surged and its results as well as forecasts helped boost a host of other IT stocks. The company advanced 7.8%, to Rs 3,397 on a huge volume of 1.31 million shares. Infosys turns ex-bonus (1:1 bonus) on the bourses tomorrow. Infosys reported a 50.3% growth in consolidated Q1 June 2006 net profit to Rs 800 crore from Rs 532 crore in Q1 June 2005. Sales rose 45.5% to Rs 3,015 crore from Rs 2,071 crore.

Many other IT stocks ended up, following Infosys performance. TCS climbed 7.4% to Rs 1,900, HCL Tech rose 8.9% to Rs 554.50, Wipro gained 3.9% to Rs 515, I-flex advanced 4% to Rs 1,285 and Satyam Computer added 4.4% to Rs 751.

Index large-cap Reliance Industries, having a huge 11.9% weightage in the Sensex, gained nearly 5%, to Rs 1,098.80 on 3.3 million shares. Engineering & construction company L&T gained 3.7% to Rs 2,250 on hopes of strong Q1 June 2006 results. The company has a strong order-book of $6 billion or Rs 24,000 crore.

Metal shares gained supported by firm metal prices on the London Metal Exchange. Hindalco advanced 7% to Rs 179.80, Sterlite Industries rose 4% to Rs 439 and Hindustan Zinc gained 2.7% to Rs 608.90. Cement stocks also recovered from their lower level on hopes of strong Q1 numbers. Gujarat Ambuja Cements gained 3.3%, to Rs 109.25, ACC advanced 2% to Rs 836, Grasim gained 2% to Rs 1,995 and UltraTech Cement climbed 1.8% to Rs 747.

Reliance Communications surged nearly 8%, to Rs 271.85 on 2.8 million shares. Power equipment company, BHEL, gained 2.2% to Rs 1,980. Car major Maruti Udyog jumped nearly 4% to Rs 818 on three times more than normal volume.

[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.