Retailers and Home Builders, Lower Market

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

Rising oil, weak retail sales, earnings warnings from a home builder and widening conflict driven by Israel aggression all contributed to the makret sell-off. June retail sales declined 0.1%, oil traded as high as $79 per barrle and gold climbed back to $668 per ounce. D R Horton missed earnings estimates and lowered fiscal earnings guidance. Continued violence in the Mid-East threatens the world oil price. Bank of Japan raised interest rate to 0.25% after five year of zero-rate policy.

[R]4:00PM Weaker than expected retail sales, slowing housing market and rising oil pushed market averages to a triple-digit decline for the third day of this week.[/R]

-Nasdaq closed down 16.76 points, Dow down 106.94 and S&P down 6.10.

-Yield on 10-year bonds closed at 5.06% and 30-year bond closed at 5.112%.
-Crude oil surged to $79 but settled at $77 per barrel up 30 cents.
-Gold gained $13.60 per ounce to close at $668.

-Asian Marketsclosed lower across the region. Australia, Thailand, Taiwan, Korea and Philippines closed down more than 2%. Japan closed 1.7% lower on interest rate hike.

-European Markets closed lower on higher oil. Near 2% decline in Germany led the decline of more than 1% in all major markets. Russia closed lower 0.2% and S. Africa lost 1.4%.

-Latin American Marketsclosed lower dragged by international markets. Mexico closed down 2% and Brazil declined 0.5%.

Weaker than expected retail sales in June, higher oil prices and earnings warnings from a home builder affected trading sentiment. Market remained under pressure on the continued violence in Middle-East and lack of restraint on both sides of Arab and Israel conflict. Israel offensive in the region is likely to widen conflict and further destabilize the oil price.

June retail sales declined 0.1% from May but were up 5.9% from a year ago. The weak retail sales missed the consensus view of 0.4% rise as reported in a survey conducted by Dow Jones and CNBC.

Stocks in retail, transportation, and housing and semiconductor sector sold-off. Apparel retailer Chico’s ((CHS)), J C Penny ((JCP)), Abercrombie & Fitch ((ANF)) and American Eagle ((AEOS)) and Urban Outfitters ((URBN)) declined the most. In the tech sector EMC ((EMC)) fell on earnings and Sandisk ((SNDK)), Marvel ((MRVL)) and Advanced Micro Devices ((AMD)) declined on the weakness in the semiconductor sector.

Housing stocks were in decline on the earnings revision from D. R. Horton ((DHI)). The company reported lower earnings for third quarter of 93 cents vs. $1.17 per share a year ago. The company missed estimate of $1.30 per share. The company also lowered its earnings guidance for the fiscal year 2006 to $3.65 from $5.25 to $5.35 per share guidance. The stock declined 7% at close.

General Electric ((GE)) reported second quarter earnings of 47 cents vs. 41 cents a year ago on revenue rise of 9% to $39.9 billion. The company benefited from the lower tax rate on a sale of assets. The company CEO also said that the revenue in China, Russia and India gained 18%.

Bank of Japan raised interest rate by 0.25% for the first time since August 2000, after a zero rate policy for five years in a row. Markets across Asia fell on the news. Tokyo closed to a three-week low on the decline of 1.7% to 14,845. South Korea declined 2.3%, Taiwan, Indonesia, Australia lost slightly more than 2% and Thailand lost 1.6% on the news. Japanese exporters fell on the rising oil price and slowing U.S. retail sales. Cannon, Sony, Toyota Motors and Mitsubishi fell by a fraction. Hong Kong market index fell 1.04% led by a decline in Chinese shipping companies China Merchants (5.4% loss) and Cosco Pacific (4% loss). In India market average fell 1.7% on the rising oil prices. Autos, cement and IT stocks led the decliners.

[R]12:30PM European markets closed sharply lower.[/R]
European markets closed deep in the red for a second day in a row due to surging oil prices and weakness on Wall Street. Crude oil hovered below the $78 a barrel amid ongoing unrest in the Middle East. LVMH Moet Hennessy, the luxury goods maker, and truck maker Man AG were among the top decliners, each losing 3%. The German DAX 30 closed down 1.9% and 5% lower for the whole week, with warning from SAP contributing to the decline. The French CAC 40 slipped 1.5%, while London FTSE 100 fell 1%.

Oil prices surged to $78 amid escalating violence in the Middle East, the standoff with Iran over its nuclear program. Light crude August delivery rose to $78.40 a barrel. London Brent surged 26 cents to $76.95. The dollar traded higher versus major currencies. The euro traded at $1.2632, down from $1.2692. The dollar bought 116.34 yen, up from 115.33. The British pound stood at $1.8346, down from $1.8442. European gold prices advanced. In London the precious metal traded at $665.80, up from $645.50 per ounce. In Zurich gold traded at $666.55, up from $647.95. Silver closed at $11.59, down from $11.39.


[R]11:30AM Stock markets traded down on surging oil.[/R]
Surging oil prices of nearly $78 a barrel, weaker retail sales, and bland earnings at General Electric sent stocks deeply in the red. In economic news, the Department of Labor reported that import prices increased modestly by 0.1%, while export prices notably rose by 0.8%. Petco Animal Supplies jumped $8.43 to $27.88 after it agreed to be taken private for $29 per share, or $1.68 billion. In late morning trading, the Dow tumbled 101.33, or 0.93%.

The housing sector posted significant weakness, dragged by D.R. Horton ((DHI)), falling 7.9% on forecast Q3 and full year earnings will come below analyst estimates. The continued increase by the price of oil contributed to considerable weakness among airline stocks, sending the Amex Airline Index lower by 2.6%. The defense sector was also weak, with Dow components United Technologies ((UTX)) and Boeing ((BA)) posting significant losses of 4.2% and 3.1% respectively. Meanwhile, gold stocks continued to buck the downtrend as the price of the precious metal extended a recent upward move. The Standard & Poor's 500 index dropped 8.36, or 0.67%, and the Nasdaq composite index declined 18.04, or 0.88%. Bonds fluctuated, with the yield on the 10-year Treasury note flat at 5.07% from late Thursday.


[R]Import prices increased modestly, while export prices notably increased.[/R]
The Department of Labor released its report on import and export prices in the month of June on Friday, showing that import prices increased modestly while export prices showed a more notable increase. The report showed that import prices rose 0.1 percent in June following an upwardly revised 1.7 percent increase in May. Economists had been expecting prices to increase 0.3 percent compared to the 1.6 percent increase originally reported for the previous month. The modest increase in import prices came as prices of petroleum imports gave back some ground after surging higher in the two previous sessions. Petroleum import prices fell 1.4 percent in June after rising 6.1 percent in May and 11.0 percent in April. Excluding petroleum imports, import prices rose 0.4 percent in June compared to a revised 0.7 percent increase in May. The report also showed that export prices increased by 0.8 percent in June after a revised 0.6 percent increase in May. The increase was partly due to a significant increase in prices of agricultural exports, which rose 2.4 percent in June following a 0.6 percent increase in May. Excluding agricultural exports, export prices rose 0.6 percent in June compared to a revised 0.7 percent increase in May.


[R]10:30AM Indian Sensex sheds nearly 2% due to oil price increase.[/R]
The Sensex in India shed 180.28 points, or 1.6%, to close at 10,678.22. The turnover on BSE was $500 million (Rs 2,604) crore compared to Thursday’s Rs 2,523 crore. The market-breadth was weak, on the exchange 1,363 shares declined, 1,001 advanced and 82 shares were unchanged.

Oil exploration company ONGC declined 1.4% to Rs 1,099.40, after an initial increase caused by surge in global crude oil price. Gas transmission and distribution firm, GAIL India, lost nearly 4%, to Rs 247. Record high oil prices depressed refinery and auto shares. Among refiners, BPCL lost 3.7%, to Rs 316, and HPCL sank nearly 3%, to Rs 214.45.

Among auto stocks, Tata Motors lost nearly 4% to Rs 739, Ashok Leyland was off 3.6% to Rs 34, Maruti Udyog declined 1.7% to Rs 800 and M&M was down 1.6%, to Rs 586. Bajaj Auto shed 2.4%, to Rs 2,640 ahead of its Q1 results which are scheduled for tomorrow. Analysts have forecast between 45% and 53% growth in Bajaj Auto’s net profit (before extra-ordinary and prior period items) to between Rs 302.90 crore - Rs 320.80 crore from Rs 209 crore in Q1 June 2005.

Index large-cap, Reliance Industries rebounded towards the end of the trading session after being weak almost throughout the day. Reliance Industries closed flat at Rs 1,074, off a session-low of Rs 1,051.10 on a huge 17.3 lakh shares traded on BSE. HDFC Bank declined 2% to Rs 731. The private sector bank today posted strong Q1 June 2006 numbers. HDFC Bank has reported a strong 30.3% growth in Q1 June 2006 net profit to Rs 239.30 crore from Rs 183.53 crore.

Engineering & construction large-cap L&T shed 2.7%, to Rs 2,190, cellular services company Bharti Airtel lost 2.7% to Rs 361 and PSU power equipment company Bhel declined nearly 2% to Rs 1,925. Hindalco sank nearly 4% to Rs 175 as the stock turned ex-dividend today (dividend Rs 2.20 per share).

Among the gainers were select second line IT shares, surging on hopes of strong first-quarter numbers. Polaris Software surged 10% to Rs 91.70. The stock advanced on huge volume of 36.9 lakh shares on BSE. Aftek Infosys gained nearly 14% to Rs 56.80. The scrip rose on a heavy volume of 32.2 lakh shares. Sonata Software gained 13% to Rs 27.60, Onward Tech added 20% to Rs 59.75, Orient Info gained 18.5% to Rs 18.20, Geometric Software climbed 9.6% to Rs 99, Datamatics Technologies gained 7% to Rs 49.35, Tulip IT Services was up 5% to Rs 269 and RS Software rose 5% to Rs 61.60.


[R]9:45AM Stocks traded in a lackluster fashion at opening.[/R]
U.S. stocks opened the Friday session in a lackluster fashion as weak June retail sales fed speculation the Fed Reserve might stop raising interest rates. Some traders appeared reluctant to continue selling stocks, and others were unwilling to go bargain hunting amid growing concerns about rising tensions in the Middle East and the impact of record oil prices of $78 a barrel. In economic news, retail sales fell unexpectedly in June by 0.1%, vs. the expected 0.4% sales increase. Excluding gasoline sales, June retail sales fell 0.2%.

EMC Corp.((EMC)) added to investors’ worries over corporate profits as the software maker said earnings slid 5% last quarter, after warning earlier this week of a possible miss. Housing stocks came under pressure, with D.R. Horton ((DHI)) falling 9.7% and leading the sector lower after it forecast Q3 and full year earnings below analyst estimates. Transportation stocks continued to move to the downside, as crude continued to set new all-time highs. Airlines were particularly hard hit in the early sell off, with AMR ((AMR)) and Continental ((CAL)) standing among the worst performers in the group, with losses of 3.2% and 2.4%, respectively. On the other hand, commodity stocks showed some strength in the early going. The rise in oil prices pushed up energy stocks. The gold sector posted strength as the price of gold extended a recent upward move. In the first hour of trading, the Dow Jones industrial average fell 9.28, or 0.09%. The Standard & Poor's 500 index fell 0.89, or 0.07%, and the Nasdaq composite index fell 6.75, or 0.08%.


[R]9:00AM Stock futures pointed to a lower opening on weaker retail sales.[/R]
U.S. stock futures pointed to a weaker opening Friday after a government report showed retail sales unexpectedly dropped in June. The Commerce Department said retail sales declined by 0.1% last month, compared with expectations of a 0.4% rise. In earnings news, shares of General Electric ((GE)) moved lower in pre-market trading even though the industrial, financial services and media conglomerate reported Q2 earnings that came in line with analyst estimates. Standard & Poor's 500 futures were down 0.2 point, but still above fair value. Dow Jones industrial average futures were down 11 points, and Nasdaq 100 futures were down 0.5 point.

General Electric, ((GE)), industrial conglomerate, reported a 4% rise in Q2 earnings to 47 cents a share, in line with analysts’ estimates. It also reaffirmed its guidance for 2006. Sales at the company rose 9% to $39.9 billion, after organic sales grew 8%. General Electric said the results reflect strong top and bottom-line growth at its commercial finance unit, demand for products and services at its infrastructure division and strong profitability at healthcare, consumer finance and industrial operations.

Regions Financial Corp, ((RF)), financial holding company, reported Q2 net income advanced to 75 cents a share, from 53 cents a share in the year-ago period, beating analysts expectations for earning of 64 cents a share. Net interest margin grew 4.24%.

Sensient Technologies Corp, ((SXT)), synthesizer of flavors, fragrances and colors, reported that Q2 income advanced to 40 cents a share, from 34 cents a year ago on revenue growth. The company forecast fiscal 2006 earnings at $1.38 to $1.42 a share.

Popular Inc, ((BPOP)), financial-services provider, reported that Q2 net income dropped 26% as net fell to 34 cents a share, from 48 cents in the year-earlier period. The return of the company on assets narrowed to 0.8% from 1.16% in the quarter while return on equity shrank to 10.72% from 17.06%. The net interest margin narrowed to 3.23% from 3.35%. The company said it must continue restructuring its mortgage business in the U.S. and increase deposits and new loans in all its markets.


[R]8:00AM Bank of Japan raised interest rates for the first time in six years.[/R]
For the first time in six years, Japan's central bank raised interest rates Friday, ending an era of zero percent interest. The decision boosts the Bank of Japan's key overnight call rate to 0.25% from 0.069%, giving a clear signal that the world's second-largest economy has pulled out of a decade-long slump. Raising rates signifies that deflation has been overcome and that the economic recovery is gathering speed. ‘Today's decision will contribute to ensuring price stability and achieving sustainable growth in the medium and to long term,’ the BOJ said in a statement released after the policy board's unanimous 9-0 vote to raise rates at the end of a two-day meeting.

The move which was widely anticipated by analysts and investors, puts Japan in line with monetary policy in the United States and Europe, where central banks are also tightening their money policy. In June, the European Central Bank raised its key interest rate to 2.75%, while the Federal Reserve has lifted the fed funds rate 17 times straight to 5.25%.

Japan lowered rates to zero in 2001 in an attempt to jump-start the beleaguered economy and wipe out a destructive trend of deflation, which eroded corporate earnings and workers' paychecks.


[R]7:30AM Tokyo falls on interest-rate rise and Middle East tensions.[/R]
Asian markets declined on Friday. Japan's benchmark Nikkei Stock Average ended down 1.7% to 14,845.24. Electronic and industrial exporters fell on concerns that high energy costs will slow consumption in the key U.S. market, and that a rate rise will boost the yen, making Japanese goods more costly overseas. Shares of Toshiba fell 2.1%. Canon closed down 1.9%. Conglomerate Sony dropped 1.2%.

South Korean shares plunged to their lowest level in more than two weeks. The Korea Composite Stock Price Index, or Kospi, settled down 2.33% at 1255.13. Shares in technology company Samsung Electronics shed 2.7%, after the company said that net profit fell 11% in the second quarter due to weak demand for its mobile phones.

In Hong Kong, the benchmark Hang Seng Index shed 1.04% to 16135.71. Chinese shipping-container company China Merchants, was the biggest blue-chip decliner, dropping 5.4%. Its peer Cosco Pacific lost 4% on oil-price worries. Shares of phone company PCCW were off 1% as investors remained jittery towards the growth prospect of the company.

Elsewhere in the region, the Weighted Price Index of the Taiwan Stock Exchange shed 2.1% to 6428.03, its lowest closing level since June 21. And Australia's benchmark S&P/ASX 200 index was down 2.3% to end at 4966.1.


[R]6:30AM Europe plunges due to oil price rise and geopolitical tensions.[/R]
European markets traded lower by mid-morning session. The U.K. FTSE 100 index lost 0.5% at 5,733, the German DAX Xetra 30 index sank 1.1% at 5,468 and the French CAC-40 index shed 0.9% at 4,809. Oil hit auto investors, as Volkswagen came off 1% while BMW lost 0.8% and Peugeot also fell 0.8%. Renault attracted early focus in light of its prospects for an alliance with General Motors with a meeting between the two carmakers scheduled for Friday. Renault declined 1% in Paris.

Chipmaker Infineon Technologies lost 1.3% after 34 U.S. states were expected to file a lawsuit on Friday against seven makers of DRAM memory chips, alleging that price-fixing from 1998 to 2002 forced up the prices of computers that use them.

Energy price boosted, oil and gas companies bucked the trend, with BP Royal Dutch Shell and Total all higher on the back of the rising oil price. Stada Arzneimittel of Germany also advanced, up 1.3% after it said it has agreed to buy Serbian generic drugmaker Hemofarm for 485 million euros ($617 million) in cash. Food equipment maker Enodis surged 9.2% after it said its board is considering a takeover proposal from the Manitowoc Co.

Oil prices topped $78 per barrel Friday, near record highs, as mounting tensions in the Middle East raised concerns of a possible disruption of oil supply. Light sweet crude for August delivery was up $1.35 to $78.05 a barrel. The Brent contract for August at London's ICE Futures exchange, which expires at the close of trading Friday, surged $1.16 to $77.85 per barrel. Gold opened Friday at a bid price of $660.60 a troy ounce, up from $645.50 late Thursday.

The dollar gained against the euro and the yen Friday after Japan's central bank hiked interest rates for the first time in almost six years. The U.S. dollar was trading at 116.05 yen, up from 115.24 yen late Thursday in New York. The euro fell to $1.2657 on Friday, down from $1.2692 in late New York trading. The British pound also slipped to $1.8366, from $1.8442.