Volatile market Awaits Job Report

123jump.com Staff
03 Aug, 2006
New York City

Weak earnings from Prudential, Sprint Nextel, Transocean, Starbucks and Medtronics pressured averages in the opening hours of trading. Trading community has ignored for the most part weaker than durable goods orders report for the month of June and kept its focus on the job report due tomorrow. Crude oil price fell below $75 in sympathy with the weather reports and weekly natural gas report. Bank of England and Central Bank in Europe raised rates by 25 basis points.

[R]4:00PM Market staged a mid-day reversal and teen retailers reported better same-store sales.[/R]

-Yield on 10-year bond closed at 4.981% and 30-year bond closed at 5.069%.
-Crude oil lost 35 cents to close at $75.46.
-Gold declined $7.10 to close at $650.50.

-Asian Markets were mixed, being led by Philippines which closed ahead at 2.13%. Japan gained 0.04%. Indonesia lost 1.05%.

-European Markets closed lower today, led by U.K. which declined 1.58%, and Norway which lost 1.33%.

-Latin American Markets traded higher, led by a 0.93% gain in Brazil. Mexico gained 0.89%. Argentina lost 0.20%.


[R]12:30PM European markets closed steeply down on interest-rate hikes.[/R]
European markets closed deeply in the red, reflecting an unexpected interest-rate hike by the Bank of England, weakness among food and oil stocks, as well as negative sentiment on Wall Street. The Bank of England raised its key rate by a quarter-point to 4.75%, raising fears that interest-rate hikes might hurt economic growth. Following suit, the European Central Bank made a quarter-point rate hike to 3%, which was a widely expected move. Among movers, shares of oil majors like Total and BP declined along with the price of crude oil. The food sector was focused on Anglo-Dutch Unilever which dropped 5.8% after reporting a 35% profit rise, but lower margins. Banking stocks like Societe Generale and Barclays also posted weakness. The leading decliner across the region was London FTSE 100, falling 1.6%, followed by the French CAC 40, down 0.9%, and the German DAX 300, down 0.7%.

Oil prices retreated as fears that the tropical storm in the Gulf of Mexico could damage facilities receded. Light crude September delivery fell 76 cents to $75.05 a barrel. Gasoline lost 6 cents to $2.2740 a gallon, while heating oil fell 3 cents to $2.0980. London Brent dropped 56 cents to $76.33. The dollar traded mixed versus major currencies. The euro traded at $1.2813, up from $1.2798. The dollar bought 114.81 yen, up from 114.55. The British pound stood at $1.8896, up from $1.8779. European gold prices traded lower. In London the precious metal traded at $642.25, down from $654 per ounce. In Zurich gold traded at $644.35, down from $653.80. Silver closed at $12.03, down from $12.15.


[R]11:30AM Blue chips moved higher on P & G.[/R]
Stocks traded narrowly mixed Thursday, reflecting investor worries on interest rates following a pair of rate hikes overseas. However, economic data releases pointed to a slowing economy, which raised hopes that the Fed might pause in its rate hiking strategy. The ISM''s service sector index for July came in at 54.8, lower than the 56.5 reading expected by economists. June factory orders rose 1.2%, less than the 1.7% increase expected.

At the same time, U.S. blue-chip stocks moved to the upside after Procter & Gamble Co. ((PG)) shares rose 1.3% on news rival Unilever reported higher revenue. The Anglo-Dutch consumer goods maker reported a rise in sales growth. In late morning trading, the Dow Jones industrial average rose 19.29, or 0.17%. The Standard & Poor''s 500 index lost 1.04, or 0.08%, and the Nasdaq composite index dropped 0.58, or 0.03%. Bonds fell slightly in response to the European rate hikes, with the yield on the benchmark 10-year Treasury note rising to 4.97% from 4.96% late Wednesday.


Durable goods orders increased less than expected.
The Department of Commerce released its report on new orders for manufactured goods in the month of June on Thursday. The report showed that orders grew by less than economists had been expecting. The report showed that new orders for manufactured goods rose 1.2 percent in June following an upwardly revised 1.0 percent increase in May. Economists had expected orders to increase by 1.8 percent compared to the 0.7 percent increase originally reported for May. The increase in orders for manufactured goods reflected a downwardly revised 2.9 percent increase orders for durable goods. Last week, the Commerce Department said durable goods orders rose 3.1 percent compared to a 0.3 percent increase in May. At the same time, a decrease in orders for non-durable goods helped to offset the increase in orders for durable goods. The report showed that orders for non-durable goods fell 0.7 percent in June. The report also showed that shipments fell 0.3 percent in June following a 2.5 percent increase in May, while inventories rose 0.8 percent in June after rising 0.7 percent in May. Subsequently, the inventories-to-shipments ratio edged up to 1.16 in June from 1.15 in May.


Business activity in the service sector fell more than expected.
Thursday morning, the Institute for Supply Management released its report on business activity in the service sector in the month of July. The report showed that the pace of growth in the sector slowed more than economists had expected. The ISM said that its index of business activity in the sector fell to 54.8 in July from 57.0 in June. While a reading above 50 indicates growth in the sector, economists had been expecting a more modest decrease to a reading of 56.5. The decrease by the index was partly due to a slowdown in the pace of new orders growth, with the new orders index falling to 55.6 in July from 56.6 in June. Nonetheless, new orders still grew for the 40th consecutive month. At the same time, the repot showed that employment expanded at a faster pace, as the employment index rose to 54.5 in July from 52.0 in June. Inventories also saw faster growth than in the previous month. The ISM also said that its reading on inflation in the service sector showed an acceleration in the pace of price growth. The prices index rose to 74.8 in July from 73.9 in June.

[R]10:30AM The Sensex notches modest gain after hitting record high earlier.[/R]
The Sensex in India ended with a gain of 46.97, on 10,923.16, reaching the 11,000 mark earlier in the trading session. The market-breadth was strong. For 1,488 shares that advanced, 975 declined and 72 shares were unchanged. The turnover on BSE was Rs 2,931 crore, higher than Wednesday’s Rs 2,666 crore.

Ranbaxy led the gainers, advancing 3% to Rs 389.50 in the wake of a U.S. federal appeals court decision to invalidate a secondary Pfizer patent, paving the way for an earlier launch of a generic form of Lipitor, the U.S. pharma company’s cholesterol drug. ICICI Bank climbed 1.1% to Rs 554.05 after its ADR advanced 2% on Wednesday to $ 26.55.

HDFC Bank also notched up 1.8% to Rs 794 as its ADR advanced 0.7% on Wednesday to $ 53.45. Housing finance large-cap HDFC gained 1.7% to Rs 1,212, raising lately home loan rates across the board by 50 basis points. Bharti Airtel advanced 1% to Rs 397.45 after reporting that it had given a $107 million outsourcing contract to IBM. Grasim also moved up 1.79% to Rs 2,116.40 and Bajaj Auto gained 1.48% to Rs 2,581.00.

Sugar stocks soared due to reports that the government had partially lifted its ban on sugar exports. Dwarikesh Sugar surged 12% to Rs 121, Dhampur Sugar jumped 10.8% to Rs 109, Balrampur Chini Mills advanced 7% to Rs 96.80, Bannari Amman Sugar climbed 5% to Rs 1,020.30 and DCM Shriram Consolidated advanced 5% to Rs 83.90.

Reliance Industries slipped 0.5% to Rs 985, sharply off the session’s high of Rs 1,007.45. As for reports, Reliance Industries has raised petrochemical prices between 3% and 9% in August 2006. Hindustan Lever also lost 1.8% to Rs 223.75 and cigarette large-cap ITC slid 1.3% to Rs 171. Oil exploration company ONGC was off 1.4% to Rs 1,176. Other decliners included BHEL with a loss of 1.60% to Rs 2,118.75, Dr Reddy''s lost 0.75% to Rs 1,407.95 and ACC shed 0.67% to Rs 861.95.

Great Eastern Shipping lost 1.6% to Rs 219.65 following the company comment that its board had decided not to proceed with the demerger of its offshore business as the six-month timeline to complete the process had passed.


[R]9:45AM Stocks opened in the negative.[/R]
U.S. stock markets opened in the negative, reflecting growing concerns about further interest rate increases after a pair of European central banks raised interest rates. Mixed monthly retail sales also contributed to the negative mood. The stock market''s decline came despite a slight rise in weekly first-time unemployment claims. First-time claims rose to 315,000, up from 301,000 the previous week.

Wal-Mart Stores Inc. ((WMT)) gained 0.3% after reporting a 2.4% gain in same-store sales. Limited Brands Inc. ((LTD)), operator of retailers such as Victoria''s Secret and Bath & Body Works, rose 3.6% after posting a 7% jump in same-store sales. Target Corp. ((TGT)) posted a lower-than-expected 3.1% increase in same-store sales, sending company’s shares down 1%. Gap Inc. ((GPS)) dropped 3% after the clothing retailer said its sales dropped 4 percent for July.

The early weakness was partly due to some disappointing earnings news. Conglomerate Tyco International Ltd. ((TYC)) said its quarterly profits fell from a year ago due to one-time charges and stock option expenses. In midmorning trading, the Dow Jones industrial average fell 29.86, or 0.27%.

Commodity stocks were among the worst performers in the first half hour of trading. Oil prices fell as the storm in the Caribbean lost strength overnight, dragging energy stocks lower. The gold sector also declined in the early going, sliding by about 1.8%. The coal sector continued the profit taking that began in the previous session. Telecommunications stocks also came under pressure in early trading, with Sprint Nextel ((S)) helping to lead the sector lower after the company reported Q2 earnings that fell sharply year-over-year. Internet stocks moved modestly higher during Thursday''s early trading, with eBay ((EBAY)) rising 1.5%. The drug, chemical and bank sectors also posted some strength. The Standard & Poor''s 500 index lost 6.08, or 0.48%, and the Nasdaq composite index dropped 14.16, or 0.68%. Bonds fell in response to the European rate hikes, with the yield on the benchmark 10-year Treasury note rising to 4.98% from 4.96% late Wednesday.


[R]Initial jobless claims rose more than expected.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended July 29. The report showed that jobless claims rose more than economists had been expecting. The report said that initial jobless claims rose to 315,000 from the previous week''s revised figure of 301,000. Economists had expected jobless claims to increase to 305,000 compared to the 298,000 originally reported for the previous week. The Labor Department also said that the four-week moving average rose to 313,750 from the previous week''s revised average of 313,500. The increase comes after the less volatile moving average fell in the two previous weeks. The report also showed that continuing claims in the week ended July 22 rose to 2.498 million from the preceding week''s revised level of 2.469 million. The bigger than expected increase in jobless claims may raise some concerns about the strength of the July employment report due to be released on Friday. The report is expected to show that the U.S. economy added 150,000 jobs in July.


[R]9:00AM Stock futures pointed to a lower start on rates worries[/R]
U.S. stock futures moved lower, following a surprising interest-rate increase by the Bank of England''s which raised concern about more global rate increases. Negative sentiment was also generated by disappointing sales report from Starbucks Corp. ((SBUX)), weighing on the outlook for consumer spending. Starbucks shares dropped 9.6% before the bell on the Inet.

The Bank of England on Thursday surprisingly hiked its key interest rate by a quarter point to 4.75%. That move was followed by the European Central Bank''s raising interest rates, also by a quarter point, to 3%. The Fed Reserve will meet on Tuesday to decide on rates.

Automaker Ford Motor Co. ((F)) on Wednesday said its Q2 loss was more than double what it previously reported due to higher pension-related costs. Ford shares dropped 4%. Medical device maker Medtronic Inc. ((MDT)) warned its quarterly revenue and earnings would fall short of expectations due to a decline in the U.S. market for its implantable devices. The stock dropped more than 9% on Inet. S&P 500 futures were down 5.30 points, below fair value. Dow Jones industrial average futures fell 36 points, and Nasdaq 100 futures were down 7.75 points.


Cooper Tire & Rubber Co, ((CTB)), manufacturer of replacement tires, reported its Q2 loss widened to 34 cents a share, from 11 cents a share, in the year-ago period. On a continuing operations basis, the company lost 10 cents a share in Q2. Sales advanced to $624.8 million from $510.9 million in the same period a year earlier. The company missed analysts’ estimate for a loss of 7 cents a share.

Patterson-UTI Energy Inc, ((PTEN)), provider of onshore contract drilling services, reported that Q2 net income more than doubled on 63% higher revenue. Net reached $1 a share, from 43 cents, in the year-earlier period. The company beat analysts’ expectations for earnings of 95 cents for PTEN. Revenue grew to $637 million from $390 million.

LaBranche & Co. Inc, ((LAB)), holding company, reported that it swung to a Q2 loss of 37 cents a share, from year-ago net income of 14 cents a share. Revenue fell to $53.2 million from $77.7 million. Included in the revenue figure was a pre-tax loss of approximately $30.3 million in connection with the decline of the estimated fair value of the restricted shares of NYSE Group, Inc. common stock held by LaBranche. If not for charges, LaBranche lost 9 cents a share in the latest period, missing on that basis analysts’ forecasts for earnings of 11 cents a share..

Investment Technology Group, ((ITG)), electronic trading firm, reported its Q2 profit rose 60% to 63 cents a share from 41 cents a share in the year-ago period. Total revenue for Q2 rose to $153.6 million from $102.2 million. The company beat analysts’ expectations for earnings of 55 cents a share.

Revlon Inc, ((REV)), mass-marketer of cosmetics brands, reported Q2 net loss more than doubled to 21 cents a share, from a loss of $ 10 cents a share in the year-ago period. Sales rose 1% to $321 million. Adjusted loss before interest, taxes, depreciation and amortziation narrowed to $20 million from $24 million. The company topped analysts’ forecasts for a loss of 23 cents a share.


[R]8:00AM Starbucks reported 16% profit rise and 6% same-store sales growth in Q3.[/R]
Starbucks ((SBUX)) reported it earned $145 million, or 18 cents a share in Q3, up from $125.5 million, or 16 cents, in the year-ago period, beating estimates of 17 cents a share. The 16% profit rise and 23% growth in revenue to $1.96 billion are due to new outlets, along with same-store sales gains. Same-store sales at the Seattle-based coffee chain rose 6%.

For the quarter, company-operated retail revenues rose 22% to $1.7 billion, largely on the back of 955 new stores and same-store sales growth. Starbucks added that its July revenue climbed 20% to $596 million on a same-store sales increase of 4%, vs. expectations of 6.4% and a 7% rise in July of 2005.

Starbucks forecasted earnings from 72 cents to 73 cents a share for the full year, up from 61 cents in fiscal 2005 and in-line with analyst estimates. Revenue growth of for the year will be about 20%, with same store sales up 3% to 7%. Starbucks also said it expects to open at least 2,000 net new stores on a global basis in fiscal 2006, an increase of 200 new stores than its previous target, leading it to boost its estimate of capital expenditures to $800 million from a previous $750 to $775 million.

Federated Department Stores ((FD)) posted same-store sales rise of 3.3%, slightly higher than forecasts of 3.2%. Total sales rose 61.3% to $998 million. For Q2 Federated said total sales rose 65.5% to about $6 billion. Federated expects same-store sales to increase by 3% to 4% in August.

Costco Wholesale ((COST)), warehouse-club store chain, reported that July sales rose 11%, while same-store sales rose 7%, slightly above estimate of a 6.8% rise.

Bebe Stores ((BEBE)), retailer, said same-store sales rose 10% in July, exceeding expectations of a 4% climb.

Limited Brands ((LTD)) said its July same-store sales rose 7%, beating estimates of 4.5%.

Mother’s Work ((MWRK)) said July same-store sales rose 3.9%, slightly beating analyst expectations of a 3.3% rise.

Wal-Mart Stores Inc. ((WMT)), the world''s largest retailer, posted a 2.4% rise in July sales from stores open at least a year, matching forecast.

Gap Inc. ((GPS)), the apparel retailer, posted a 4% drop in July sales from stores open at least a year.

Chico-s FAS ((CHS)), retailer, said same-store sales rose 4.9% in July from the same period a year ago, but came in below the estimated figure of 5.6%.

Nordstrom ((JWN)), the pricey department-store retailer, said same-store sales climbed 5.3%, ahead of analyst forecast of a 4.6% gain.


[R]7:30AM Asian markets ended mixed ahead of U.S. and Japan economic data.[/R]
Asian markets ended mostly mixed on Thursday. The Nikkei 225 Index gained slightly, advancing 0.04% to close at 15470.37. Retailers, seafood industry stocks, and some electronics issues climbed. Fast Retailing added 1.4%, and Nippon Suisan Kaisha jumped 6.3%. Among electronics stocks, Canon nudged 0.9% while Sony shed 0.4%. Marine transport stocks offset gains, with Mitsui O.S.K. Lines plunging 1.6%.

Hong Kong shares closed slightly higher as a gain in HSBC supported the benchmark index. The Hang Seng Index advanced 0.1% to 17048.42, though gains were limited due to the concerns over the FOMC meeting. Other advancers included China Construction Bank which climbed 2.4%, Bank of Communications rising 1.9% and Bank of China gaining slightly 0.6%.

South Korea’s Composite Stock Price Index, or Kospi, fell 0.2% to 1292.05, as shares closed lower on institutional selling and caution ahead of the Fed meeting, with bank and telecom shares leading the decline. Taiwan markets closed slightly while digesting news of slow progress in cross-strait relations. Shares in China were flat for the second day running, as advances in banks were offset by concerns about the impact of a wave of new initial public offerings. Shares in Australia, New Zealand and Singapore climbed.


[R]6:30AM Europe markets lower on expectation of ECB rate call.[/R]
European markets were lower Thursday morning. London’s FTSE 100 shed 0.6% to 5,898.2, while Frankfurt’s Xetra Dax slipped 0.8% to 5,638.20 and in Paris, the CAC 40 dropped 0.6% to 4,997.17. Earnings were again the focal point in Europe, and the oil sector suffered as French producer Total, reporting a 16% rise in second-quarter net profit, fell just shy of market expectations and its shares fell 1.5%.

Finnish refiner Neste Oil lost 6.2% unexpectedly reporting weak second-quarter operating profit. Numico sank 2.8% as better-than-expected second-quarter earnings were overshadowed by sales that sank just shy of expectations and Danone, posting record first-half sales on Wednesday, shed 0.9% while Swiss group Nestle shed 1.9%.

Financial stocks gained as Société Générale, said net profit in the second quarter climbed nearly 38%, topping forecasts on strong growth in its investment banking operations. The shares climbed 0.2% and the UK’s Barclays too said that booming investment banking growth led to a better-than-forecast 37% rise in first-half profits lifting its shares 1.1%.

Oil prices rose slightly Thursday morning after a jump the day before on news that U.S. crude and gasoline inventories had fallen, and a tropical storm was gaining strength in the Caribbean. Light sweet crude for September delivery was up 4 cents to $75.85. London ICE Brent crude was trading 22 cents lower at $76.67 by 0915 GMT on Thursday.

Gold traded at $646.50 an ounce, down $2.20 an ounce from Wednesday. The euro lost ground against the U.S. dollar ahead of Thursday''''s European Central Bank interest rate decision. The euro bought $1.2760 in early European trading, down from $1.2798 in New York late Wednesday. The British pound dropped to $1.8746 from $1.8779. The dollar also climbed to 114.76 Japanese yen from 114.55 yen.