Stocks Fall Despite Unchanged Interest Rate

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

As market reached close Dow lost 58.91 points, Nasdaq was down 13.35, and S&P declined 5.51. Stocks fell after the Federal Reserve left interest rates unchanged. This is the first pause in more than two years. Direct TV reported Q2 earnings of 36 cents a share, almost tripling, compared to 12 cents a share a year ago. Clear Channel posted Q2 earnings of 39 cents a share compared to year-ago earnings of 40 cents a share. Oil declined 67 cents to close at $76.31.

[R]4:00PM Stocks rose briefly before declining despite Fed keeping interest rates the same.[/R]

-Yield on 10-year bond closed at 4.93% and 30-year bond closed at 5.01%.
-Crude oil lost 67 cents to close at $76.31.
-Gold lost $2.20 to close at $650.90.

-Asian Markets were mixed, being led by Japan which closed ahead at 2.05%. Indonesia lost 0.53%.

-European Markets closed mixed, led by S. Africa which gained 0.53%, and Germany which gained 0.45%. Netherlands declined 0.20%.

-Latin American Markets were mixed, led by a 0.63% gain in Canada. Mexico lost 0.03%.

[R]12:30PM European markets closed mixed.[/R]
European markets closed mixed in a light trading session ahead of U.S. Fed Reserve’s decision on interest rates. Positive earnings reports from several insurance companies generated some positive sentiment. Shares of Germany''s Hannover Re rose 1.1% on 2% rise in Q2 net profit and optimism about a very good result in 2006. Swiss reinsurance company Converium gained 1.1% on news its Q2 profit rose 33.3%. Outside the sector, German steelmaker Salzgitter gained 4.2% after it said that it will sell a 17% stake in France''s Vallourec, producer of steel tubes. The German DAX 30 rose 0.5%, the French CAC 40 gained 0.2%, while London FTSE 100 lost 0.2%.

Oil prices hit record highs on news BP was halting production at the biggest oilfield in the U.S., possibly for months. Light crude September delivery traded at $76.55 a barrel. London Brent surged to $77.90. The dollar traded lower versus major currencies. The euro traded at $1.2840, up from $1.2839. The dollar bought 114.96 yen, down from 115.07. The British pound stood at $1.9072, up from $1.9061. European gold prices declined. In London the precious metal traded at $644.38, down from $650.50 per ounce. In Zurich gold traded at $644.78, down from $650.38. Silver closed at $12.18, down from $12.40.


[R]11:30AM Choppy trading ahead of Fed’s decision.[/R]
Stocks have been trading in a lackluster fashion since opening, with the three major averages moving up and down as traders seem reluctant to make any significant moves ahead of the release of the Federal Reserve''s decision on interest rates. Most economists expect the Fed to leave interest rates unchanged, but others predict another quarter point rate hike.

Despite the uncertainty over Fed’s decision, the interest-rate sensitive utilities sector showed some strength. At the same time, the interest-rate sensitive housing sector declined, dragged by Pulte Homes ((PHM)) and Hovnanian ((HOV)). Shares of Dow component International Business Machines Corp. ((IBM)) rose 1.2% after an appeals court reversed a lower court decision that IBM''s shift to a new pension plan had discriminated against older employees. In late morning trading, the Dow Jones industrial average rose 35.78, or 0.32%. The Standard & Poor''s 500 index added 2.92, or 0.23%, and the Nasdaq composite index gained 4.13, or 0.2%. Bonds edged lower ahead of the Fed meeting, with the yield on the 10-year Treasury rising to 4.93% from 4.92% late Monday.


[R]10:30AM India surges due to strong performance by large-caps.[/R]
The Sensex in India ended 202.33 points higher, or 1.87%, to 11,014.97. The Sensex moved in a range of 188 points between the highs and lows of the day. The turnover on BSE was Rs 2,130 crore, lower than the average turnover but higher than Monday''s Rs 2,040 crore. The market-breadth was strong with 1,574 shares that advanced and only 838 that declined. A total of 81 shares remained unchanged. Among the Sensex constituents, 27 advanced while only 3 declined.

ICICI Bank was the major gainer, rising 4.91% to Rs 596 on a high volume of 25.59 lakh shares. Other banking stocks also surged, as SBI climbing 2.69% to Rs 832.80 and HDFC Bank advancing 1.21% to Rs 813. ONGC gained 2.80% to Rs 1,194.05 as well, as oil prices rose sharply on Monday. Other advancers included Bharti Airtel surging 3.32% to Rs 405, Tata Motors notching up 2.21% to Rs 766 and ITC gaining 2.64% to Rs 172.90.

Other banking stocks also rallied. Bank of Rajasthan soared 7.50% to Rs 33, United Western Bank added 7.32% to Rs 21.25, Federal Bank gained 2.12% to Rs 180.75, Oriental Bank of Commerce was up 4.16% to Rs 172.75, Bank of Baroda moved up 3.40% to Rs 239, Kotak Mahindra Bank edged up 0.91% to Rs 287 and Vijaya Bank advanced 2.16% to Rs 45.

Index large-cap Reliance Industries surged 2.38%, to Rs 977.70 on 12.67 lakh shares on BSE. It moved in a range of Rs 979 and Rs 940. ICICI Bank was the most-traded stock on BSE with a total turnover of Rs 151.03 crore followed by Reliance Industries with Rs 122.84 crore and SBI with Rs 76.67 crore.

Tyre shares were in demand, rising for the second consecutive day, due to a fall in the price of natural rubber in the domestic and international markets. The decline in rubber price, on a sustained basis, augurs well for the tyre sector. Even after the recent fall, prices of natural rubber are too high. The commodity constitutes approximately 40% of the total input costs in the manufacture of tyres. TVS Srichakra advanced 10.11% to Rs 73, CEAT added 5% to Rs 89.10, JK Industries surged 6% to Rs 104.25, Goodyear India notched up 3.16% to Rs 97.80, Apollo Tyres edged up 1% to Rs 285 and MRF moved up 0.80% to Rs 3,266.

Other stocks also advanced. Ashok Leyland gained 1.80% to Rs 36.95, Great Eastern Shipping jumped 4% to Rs 232.90 on 10.06 lakh shares and IST surged 5.38%, to Rs 49 on plans to set up an IT special economic zone in Gurgaon and acquisition of Neil Builders.

BHEL led the decliners, falling 0.91% to Rs 2,166, surging to a high of Rs 2,219.95 in early trade, ahead of its board meeting today to consider proposals for bonus shares and a stock-split. Ranbaxy lost 0.43% to Rs 395.50 and Hero Honda fell 0.19% to Rs 668.75.


[R]9:45AM Stocks opened higher on rates optimism and mergers.[/R]
U.S. stocks opened higher on optimism the Fed Reserve will keep its key interest rate steady at 5.25%. Yet a Labor Department report on productivity signaled threatening inflation increase. Economists fear that slower productivity and higher costs could lead businesses to increase prices, thus triggering inflation.

Merger-and-acquisition news dominated the headlines Tuesday. Food service company Aramark Inc. ((RMK)) agreed to be taken private by a group of investors led by its chairman in a deal worth $8.3 billion, including the assumption of $2.3 billion in debt. Under the terms of the offer, shareholders of Aramark, will receive $33.80 in cash for each share of Aramark common stock they hold. The offer tops a $32 a share bid in May by the same buyout group. Aramark shares dropped 1%. In another deal, metal products maker Aleris International ((ARS)) agreed to a $1.7 billion takeover offer from private equity firm Texas Pacific Group. Company’s shares shot up 24%.

In earnings news, Caremark Rx Inc. ((CMX)), pharmaceutical service provider, posted 20% jump in second quarter profits and lifted its full-year forecasts. Packaged food producer Sara Lee Corp. ((SLE)) posted Q4 profit after a year-ago loss, beating estimates. In early morning trading, the Dow Jones industrial average rose 30.89, or 0.28%.The Standard & Poor''s 500 index added 3.01, or 0.24%, and the Nasdaq composite index gained 3.50, or 0.17%. Bonds were little changed ahead of the Fed meeting, with the yield on the 10-year Treasury note steady at 4.92% from late Monday.

[R]Labor productivity and costs rose more than expected.[/R]
Tuesday morning, the Department of Labor released its preliminary report on labor productivity and unit labor costs in the second quarter. The report showed that productivity and labor costs both rose more than economists had expected. The Labor Department said that productivity in the non-farm business sector rose 1.1 percent in the second quarter compared to an upwardly revised increase of 4.3 percent in the first quarter. Economists had been expecting second quarter productivity to grow by about 0.9 percent compared to the 3.7 percent growth originally reported for the previous quarter. The report also showed that unit labor costs rose 4.2 percent in the second quarter following an upwardly revised increase of 2.5 percent. The increase in the second quarter exceeded economist estimates of a 3.8 percent increase in unit labor costs. Unit labor cost growth in the first quarter was revised up from the 1.6 percent increase previously report.


[R]9:00AM Stock futures pointed to a higher start ahead of FOMC meeting.[/R]
U.S. stock futures moved higher Tuesday morning, supported by strong beliefs the Fed Reserve would pause in its two-year monetary tightening cycle at a meeting later today. The Federal Open Market Committee is expected to halt a run of 17 straight interest-rate rise, keeping its key rate steady at 5.25%. A number of merger deals also helped lift sentiment. Shares of McData Corp. ((MCDT)) jumped 32% before the opening bell on Inet after Brocade Communications Systems Inc. ((BRCD)) said it agreed to buy the company for $713 million. Also on the deal front, aluminum products maker Aleris International Inc. ((ARS)) said it agreed to be acquired by Texas Pacific Group Ventures Inc. in a $1.7 billion deal. Nokia ((NOK)) said it had agreed to buy U.S. digital music distributor Loudeye Corp. ((LOUD)) for $60 million.

On the earnings front, Clear Channel Communications Inc. ((CCU)) posted a lower quarterly profit, while Sara Lee Corp. ((SLE)) posted a slight quarterly profit. Shares of eye care products maker Bausch & Lomb Inc. ((BOL)) may be in focus after the company warned of 79% decline in its 2006 pretax earnings, compared to previous forecast. Cisco Systems ((CSCO)) is expected to post results after the market''s close. Standard & Poor''s 500 futures rose 1.9 points, above fair value. Dow Jones industrial average futures were up 19 points, and Nasdaq 100 futures gained 3 points.

Aleris, ((ARS)), aluminum products maker, reported its Q2 profit more than doubled to $1.75 a share, compared to 60 cents a share a year ago. Revenue in Q2 rose to $1.01 billion from $603.6 million last year.

Polo Ralph Lauren ((RL)), fashion brand, reported Q1 net income rose to 74 cents a share, from 48 cents a share in the year-ago period. Net sales increased to $903.3 million from $694.6 million. The company beat analysts’ forecasts for earnings of 67 cents a share.

Sara Lee Corp, ((SLE)), consumer products company, reported it swung to fiscal Q4 net income of 1 cent a share from a year-ago loss of 19 cents. On a continuing operations basis, the company reported a loss of 15 cents a share versus year-ago income of 38 cents. Sales from continuing operations advanced to $4.1 billion from $4.03 billion last year. The company, which is the process of shedding businesses, added it expects to complete the spin off of its Hanesbrands Inc. apparel business on Sept. 5, with the company trading on the New York Stock Exchange the following day.

Overseas Shipholding Group, ((OSG)), tanker company, reported Q2 earning of $1.52 a share, down from $2.89 a share in the same period a year ago, when it benefited from gains on vessel sales. The company said total shipping revenue fell to $230.8 million from $238.4 million a year earlier. Time charter equivalent revenue shed 5% in Q2 to $216.3 million from $228.6 million a year ago. Time charter equivalent revenue represents shipping revenue less voyage expenses. The company was in line with analysts’ estimates for earnings of $1.52 per share.

Gold Kist Inc, ((GKIS)), chicken company, reported a fiscal Q3 loss of 14 cents a share, down vs. a profit of 87 cents a share a year earlier on revenue decline, due primarily to a decline in average boiler prices and competing meats. The company met analysts’ expectations for a loss of 14 cents a share.


[R]8:00AM Texas Pacific to buy Aleris for $1.7 billion.[/R]
Aleris International Inc. ((ARS)), aluminum and zinc producer, announced that it agreed to be acquired by Texas Pacific Group for $1.7 billion in cash. The private-equity firm also agreed to assume or repay $1.6 billion of debt, with debt financing committed by Deutsche Bank. The deal''s expected to be completed early next year. Under the terms of agreement Aleris stockholders will receive $52.50 for each common share, a premium of nearly 27% to Aleris''s Monday closing price of $41.39.

Aleris, formed in the 2004 merger of Imco Recycling Inc. and Commonwealth Industries Inc., ranks as one of the largest recyclers of aluminum and zinc in the world and one of North America''s leading manufacturers of common-alloy sheet from recycled aluminum, serving customers in transportation, building and construction, and consumer durables industries. Texas Pacific will acquire a company that operates 50 production facilities in North America, Europe, South America and Asia. Last week, Aleris completed the purchase for about $1.1 billion of rolling and extrusion businesses previously.


[R]7:30AM Japanese stocks soared, leading the entire region higher.[/R]
Asian markets finished higher on Tuesday. The Nikkei 225 Average gained 2.05% to close at 15,464.66 as exporters such as Toyota and Fujitsu led the gainers. Toyota Motor gained 2.65% and Honda Motor added 2.67%. Electronics maker Fujitsu Ltd advanced 2.33%. Oil explorer Inpex Holdings jumped 2.73% and refiner, Nippon Oil Corp, rose 1.96%.

Hong Kong''s Hang Seng Index gained 0.56% to finish the day at 17,048.20 as telecom, property and energy shares all put in a strong showing. China Mobile, Henderson Land and CNOOC Ltd. were among the advancing stocks.

China''s Shanghai Composite gained 2.1%, South Korea''s Kospi Index advanced 1.67% and Australia''s S&P/ASX 200 index added 1.27%, with miners BHP Billiton and Rio Tinto climbing in spite of a strike in a key Chilean copper mine jointly owned by the two firms. Korean mobile-phone maker, LG Electronics, rose 1.7%.


[R]6:30AM European markets advanced as crude oil prices eased.[/R]
European markets rose on Tuesday. The FTSE 100 in London was 0.2% higher at 5,842.6, the Xetra Dax in Frankfurt nudged up 0.8% to 5,668.78 and the CAC-40 in Paris advanced 0.5% at 4,983.28. In spite of the retreat most oil companies advanced with Neste Oil up 1.4%, Norsk Hydro gaining 0.9% and Statoil adding 0.8. The sector as a whole though was pushed lower by BP’s 1% retreat in continued fallout from its shutdown of the Prudhoe Bay field.

Metrovacesa, the Spanish property company, advanced 2.7%, as Spain’s stock market regulator said it would not rule on an improved offer for Metrovacesa until September. Salzgitter advanced 5% after the German steel maker sold its entire 17% stake in Vallourec, a French steel tube manufacturer. Vallourec shares slipped 4.4%.

Rheinmetall, a German car parts and defense group, plunged 3.8% on disappointment with a 1.4% rise in first-half operating profit and Swiss reinsurer Converium rose 0.7% after beating forecasts with second-quarter net profit.

Light sweet crude oil for September delivery declined 28 cents to $76.70 a barrel in midmorning, while September Brent at London''s ICE Futures exchange fell 41 cents to $77.89 a barrel. Gold traded at $646.00 an ounce, down $2.50 an ounce from Monday''s close of $648.50.

The euro on Tuesday continued its slight slip against the U.S. dollar ahead of a meeting by the Federal Reserve. The euro purchased $1.1.2835 in early European trading, marginally below its level of $$1.2839 in New York late Friday. The British pound fell to $1.9052 from $1.9061. The dollar gained advanced the Japanese currency, rising to 115.08 yen from 115.07 yen.