Consumer Confidence Rises Unexpectedly

Elena
25 Jul, 2006
New York City

Stocks traded in a lackluster fashion, reflexing mixed earnings news and an unexpected jump in consumer confidence. The Conference Board said consumer confidence index for July rose 1.1 points to 106.5, vs. predictions of a 1.4-point drop. According to another report, existing home sales fell 1.3% to a seasonally adjusted annual rate of 6.62 million units in June from an upwardly revised rate of 6.71 million units in May.

[R]11:30AM Stocks turned to choppy trading.[/R]
U.S. stocks turned to lackluster trading, reflecting mixed earnings and economic data. Disappointing second-quarter results at UPS Inc. ((UPS)) and 3M Co. ((MMM)) raised concerns about the impact of higher lending rates on corporate profits, although McDonald's Corp. ((MCD)) and AT&T Inc. ((T)) supported the Dow Jones industrials, posting upbeat earnings. The transportation sector turned in one of the worst market performances, dragged by UPS ((UPS)), falling 14.8% after the package delivery company reported weaker than expected Q2 earnings and lowered its full-year guidance. Considerable weakness emerged in the brokerage sector, with Legg Mason ((LM)) falling 10.2% due to disappointing Q2 earnings. Additionally, profit taking contributed to some weakness in the computer hardware and networking sectors. Meanwhile, oil service stocks extended yesterday’s gains, despite a decline by the price of oil.

Housing stocks moved higher, pushing the Philadelphia Housing Sector Index up 1%. The strength in the housing sector was contributed by a report which showed that existing home sales fell less than economists had expected in the month of June. In other economic news, the Conference Board said that its consumer confidence index rose to 106.5 in July from a revised 105.4 in June. Economists had expected the index to fall to 104.0 in June compared to the 105.7 originally reported in June. In late morning trading, the Dow dropped 29.94, or 0.27%. The Standard & Poor's 500 index was down 1.90, or 0.15%, and the Nasdaq composite index lost 1.35, or 0.07%.Bonds pulled back, with the yield on the 10-year Treasury note rising to 5.06% from 5.04% late Monday.

[R]June existing home sales declined.[/R]
Tuesday morning, the National Association of Realtors released its report on existing home sales in the month of June, showing that sales fell compared to an upwardly revised reading for the previous month. The report showed that existing home sales fell 1.3 percent to a seasonally adjusted annual rate of 6.62 million units in June from an upwardly revised rate of 6.71 million units in May. Economists had expected sales to fall to a 6.60 million unit rate compared to the 6.67 million unit rate originally reported for May. The decrease in existing home sales came as sales in the South eased 2.3 percent and sales in the Northeast declined 3.5 percent. Sales in the Midwest and the West were unchanged. The report also showed that the national median existing-home price rose 0.9 to $231,000 in June from $229,000 in the same month last year. At the same time, total housing inventory levels rose 3.8 percent to 3.73 million existing homes available for sale at the end of June. This represents a 6.8-month supply at the current sales pace.

[R]Consumer confidence index increased.[/R]
The Conference Board released its report on consumer confidence in the month of July on Tuesday, showing that its consumer confidence index increased. Economists had been expecting the index to fall compared to the previous month. The report showed that the consumer confidence index rose to 106.5 in July from a revised 105.4 in June. The increase came as a surprise to economists, who had expected the index to fall to 104.0 in June compared to the 105.7 originally reported in June. The increase by the index reflected improvement in both consumers'' assessment of the current situation and the outlook for the months ahead. The present situation index rose to 133.0 in July from 132.2 in June, while the expectations index edged up to 88.8 from 87.5. Additionally, consumers expecting business conditions to improve fell to 16.4 percent while those expecting conditions to worsen fell to 11.1 percent. The outlook for the labor market was also mixed, with those expecting more jobs to be available falling to 14.4 percent while those expecting fewer jobs fell to 16.7 percent.


[R]10:30AM Sensex rallied on earnings, data, interest rates.[/R]
Market rallied in sympathy with the rising Asian markets but failed to attract higher daily turnover. For the last ten weeks of trading market has been trading at near low daily turnover volume for the year. However, at least for the day 1,622 stocks advanced, 751 declined and 73 stocks were unchanged. The ratio of advancing stocks to declining stocks has been trending downwards in the last ten weeks. Preliminary daily turnover volume was reported by Bombay Stock Exchange at $579 million (Rs 2,614 crores) or 10% higher than previous day but 50% lower than the peak reached in the first week in May.

Reserve Bank of India raised short term interest rates, what is widely called as repo rate, by 25 basis points to 6% and reverse repo rate by 25% to 7%. Market had already expected a similar rise in the rates. Reserve Bank did not change its GDP growth projection for the current fiscal year between 7.5% and 8%. However the Bank cautioned that lag in fuel prices are likely to fan inflation pressures in the coming months. The Bank also worried that rise in credit and money supply remained above its target levels.

Bank stocks rallied with the news, as most analysts had expected the rise and are still projecting healthy demand for consumer loans. Banks will now charge between 11% and 15% for consumer loans. Bank stocks rallied for the second day led by ICICI Bank advance of 5% to Rs 540, HDFC Bank gain of 4.6% to Rs 763 and UTI Bank rise of 7.5% to Rs 297. ICICI Bank reported a strong surge in profits yesterday.

After the close, Tata Motors reported 40% rise in earnings on 48% jump in revenue. The company’s unit volume sales rose 126,394 a steep jump of 44% from a year ago and domestic vehicle sales rose 63,082 a surge of 69%. Exports rose to 13,161 in the period a gain of 45%.


[R]9:45AM Stocks opened flat on mixed earnings reports.[/R]
U.S. stocks opened near the flat line, reflecting a batch of mixed earnings reports. Dow components Altria Group Inc. ((MO)) and DuPont Co. ((DD)) retreated despite positive Q2 results. 3M Co. ((MMM) slipped 5.4% on concerns about profit margins. McDonald''s Corp. ((MCD)) advanced nearly 1% on better-than-forecast earnings.

In early trading the transportation sector moved notably to the downside, with UPS helping to lead the sector lower, down 13.5%. Shares of JetBlue ((JBLU)) dropped 3.8% after the discount airline reported Q2 earnings above analyst estimates but provided disappointing guidance. Some brokerage stocks also came under pressure, with Legg Mason ((LM)) down 8% after reporting Q2 earnings that came in below analyst estimates. Meanwhile, oil service stocks posted some early strength, benefiting from an increase by the price of oil. Strength was also visible in the biotechnology sector, as Myogen ((MYOG)) boosted the sector on news of a delay in FDA approval of rival Encysive''s ((ENCY)) Thelin. In the first hour of trading, the Dow dropped 24.82, or 0.22 %. The Standard & Poor''s 500 index was down 1.23, or 0.1%, and the Nasdaq composite index added 1.24, or 0.06%. Bonds were flat, with the yield on the 10-year Treasury note steady at 5.04% from late Monday.


[R]9:00AM Tech stocks advanced on strong earnings.[/R]
U.S. stock futures were set to open little changed, taking a break from yesterday’s rally. However, tech stocks advanced, benefiting from Texas Instruments Inc.’s outlook. Texas Instruments ((TXN)), the biggest maker of chips for cell phones, reported higher quarterly profit and affirmed market expectations of robust growth. Company’s shares rose 3.5% in after-hours trading. Shares of SanDisk Corp. ((SNDK)), a maker of flash memory used in cell phones and digital cameras, jumped 15.3% after the bell after the company reported a quarterly profit above estimates. On a day of heavy earnings release from major companies, chemical manufacturer DuPont Co. ((DD)) reported lower Q2 profit, but the results beat analysts'' estimates. Among other Dow components, diversified manufacturer 3M Co. ((MMM)) posted quarterly results below expectations, while food and tobacco company Altria Group Inc. ((MO)) beat analysts'' estimates. McDonald''s Corp. ((MCD)) said quarterly profit rose to 67 cents a share, from 42 cents a share a year earlier, helped by a popular Happy Meal promotion and strong European sales. S&P 500 futures were down 0.5 point, but above fair value. Dow Jones industrial average futures were down 2 points, and Nasdaq 100 futures were up 4.75 points.

Altria ((MO)), the parent of Phillip Morris, reported adjusted earnings of $1.41 per share compared to analyst estimates of $1.37 per share. The company also raised its full year earnings guidance to $5.40 to $5.50 per share from $5.25 to $5.35 per share.

3M Co. ((MMM)), maker of diversified industrial and consumer products, said that its second-quarter net income climbed to $882 million or $1.15 a share, from $754 million, or 96 cents a share a year ago. Sales increased more than 7% to $5.69 billion from $5.29 billion in the prior-year period. Positive tax adjustment added 10 cents to net income, though this was overshadowed by expenses from an antitrust action and the management’s decision to sell the company’s branded pharmaceutical operations. The Dow component backed its earlier issued 2006 profit outlook of $4.55 to $4.65 a share, including 17 cents a share for stock options costs, while the third quarter earnings are expected to be $1.10 to $1.15 a share, including 4 cents a share for stock options expensing.

McDonald''s Corp. ((MCD)) said second-quarter net income advanced to $834.1 million or 67 cents a share, from $530.4 million, or 42 cents a share a year earlier. Net income includes 10 cents a share of income from the sale of Chipotle Mexican Grill shares and 2 cents a share of costs tied to impairment and a one-time impact from a tax law change. Total revenue increased to $5.57 billion from $5.1 billion, while global same-store sales added 5.5%.

AT&T Corp. ((T)), telecommunications company, reported 80% jump in quarterly net income to $1.8 billion, or 46 cents a share, from $1 billion, or 30 cents a share a year ago. Earnings totaled 58 cents a share before merger-related expenses tied to the purchase of AT&T by the ex-SBC. Revenue climbed 53% to $15.8 billion from $10.3 billion last year. The company plans to ramp up its share buyback program and repurchase $10 billion in stock by the end of fiscal 2007, with $2 billion to $3 billion this fiscal year.

The McGraw-Hill Companies Inc. ((MHP)) reported 13% increase in second-quarter net income to $221 million, or 60 cents a share, from $195 million, or 51 cents a share a year ago. Revenue climbed 4.9% to $1.5 billion. The company boosted its profit forecast to $2.44-$2.49 a share, from its previously issued guidance of $2.36-$2.41 a share. Record results at Financial Services, a solid performance in the U.S. college and university market, and effective cost containment were the main drivers of the successful performance in the quarter. Operating margin grew to 25.8%, up from 23.6% last year.

United Auto Group ((UAG)), auto retailer, said it earned $36.8 million, or 39 cents a share, in the second quarter versus $33.2 million, or 35 cents a share a year earlier. Revenue increased to $2.93 billion from $2.6 billion. The company now sees earnings of 37 to 40 cents in the third quarter and earnings of $1.35 to $1.40 a share for the full fiscal year.

Burlington Northern Santa Fe Corp. ((BNI)), railroad operator, said that its second-quarter net income jumped to $470 million or $1.27 a share, from $366 million, or 96 cents a share, a year ago. Revenue grew 18% to $3.7 billion bolstered by a 21% gain in coal revenue. The quarterly revenue included fuel surcharges of $425 million vs. $220 million last year.

Carlisle Companies Inc. ((CSL)), construction and industrial materials maker, said that second-quarter income increased to $56 million, or $1.80 a share, from $34.7 million or $1.11, a year earlier. Earnings from continuing operations totaled $1.76 a share. Sales for the quarter climbed to $692.7 million from $591.6 million last year. The company lifted its fiscal 2006 forecast to earnings from continuing operations of $5.25 to $5.45 a share, up from the earlier issued guidance of $5 to $5.20.

UPS ((UPS)), delivery company, said that its second-quarter net income jumped to $1.06 billion, or 97 cents a share, from $986 million, or 88 cents a share a year ago. Sales in the quarter grew more than 15% from last year’s levels to $11.74 billion. The company also guided third-quarter earnings to 87 cents to 91 cents a share and cautioned that 2006 earnings growth would be at the low end of the original 11% to 16% outlook.

Tuesday Morning ((TUES)), retail company, earned $2.9 million, or 7 cents a share, in the second quarter, down from $10.5 million, or 25 cents a share a year ago. Excluding special items, earnings declined to 8 cents a share from 25 cents last year. Sales slid 5.1% to $207.7 million. The average ticket rose from a year earlier but lower traffic in the company’s stores hurt the comparables. The management sees 2006 earnings at $1.05 and sales at $945 million.


[R]8:00AM Tokyo to approve U.S. beef imports.[/R]
Japan is close to an approval of resumption of U.S. beef imports this week after suffering growing pressure from Washington to reopen its beef market. Officials from Japan''s agriculture and health ministries are expected to decide soon on whether to allow U.S. beef back into Japan. Japan banned U.S. beef earlier this year amid concerns about mad cow disease, but agreed in principle to resume imports last month on the condition that Japanese inspectors found no problems at U.S. plants. The inspectors spent a month touring 35 U.S. meat processing facilities to find out if they meet Japanese guidelines. Japanese officials have not decided what to do if any problems are found at the U.S. plants. Health and agriculture officials were compiling a report on the inspections, and the government is expected to announce which facilities have been approved to provide beef for the Japanese market.