Retail Sales Fail To Excite Investors

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

Market averages declined in the afternoon trading. In the economic news Japan Central Bank left interest rates unchanged at 0.25% as expected by the market. July retail sales in the U.S. rose 1.4% led by 3.5% rise in auto sales and 2.5% rise in gasoline sales. Canadian miner Inco Ltd. attracted sixth bid for all cash offer of C$86 from the Brazilian mining giant CVRD. Pacific Sun, teenage retailer, dropped to $13.60, forty-month low.

[R]4:00PM July retail sales rose but market worried rising interest rates.[/R]

-Yield on 10-year bond closed at 4.967% and 30-year closed at 5.095%.
-Crude oil rose 40 cents to close at $74.40 per barrel.
-Gold closed down $1.60, after trading in $26 range to close at $638.10 per ounce.

-Asian Markets closed higher led by 1.5% rise in Thailand, 1.25% gain in Indonesia and 0.4% gain in India. South Korea fell 0.95% and Japan declined 0.4%.

-European Markets closed mostly unchanged with France and the Netherlands closing higher and Germany and Spain closing lower.

-In Latin American Markets Brazil and Argentina declined 1% but Mexico gained 1% at close.

Rise in July retail sales of 1.4% and ahead of inflation data next week, market averages traded lower in the afternoon. Traders continued to bet on odds of rising interest rates in the coming months with stronger than expected rise in retail sales. Consumers continued to buy expensive gasoline, discounted cars led the rise with 3.5% gain and expensive gasoline sales advanced 2.5% in the month. Outside the auto sector sales in all other categories rose 0.1%.

In a rapidly consolidating mining industry, Brazilian iron ore giant CVRD offered C$86 cash offer for the shares of Canadian nickel miner Inco Ltd. Of the other five bidders, the cash and stock offer from Teck Cominco Inc. of C$86 appears to be favored by the Inco share holders. CVRD, the Brazilian mining giant, has the financial wherewithal to pull the cash offer. The company is valued at $53 billion and has less than $5.1 billion in debt on its balance sheet. Recently Swiss mining giant Xastra won the three-way battle to gain a control of Canadian miner Falconbridge Ltd for C$ 23 billion.

In Asian news, Japan reported a decline in economic growth in the second quarter to an annualized rate of 0.8% from revised rate of 2.7% (from 3.1%) in the first quarter. The decline in economic activity was the result of faster rise in imports compared to exports in the period and slower government spending. Import in the period rose 1.8% and export rose 0.9% from the previous quarter. Central Bank in Japan also kept the overnight lending rate at 0.25% on Friday. Market had expected the bank not to raise the rate. The Central Bank has communicated to the market that the future interest rates hikes will occur at a gradual pace.

In South Korea Central Bank raised its target for call rate by 0.25% to 4.5%, the fifth rise in interest rate since last October in increments of 0.25%. The Central Bank Governor also hinted that the Bank is ready to stop its pre-emptive target in rate hikes if the economy continues to slow. Inflation in July rose at 2.3% from a year ago, well in the rage targeted by the Bank of 2.5% and 3.5%.

[R]12:30PM European markets closed largely lower.[/R]
European markets finished largely in the negative, dragged by U.S. market losses and further weakness in the telecommunications sector. Telecoms declined for a second day in a row on fears that operators may have to cut prices and brokerage downgrades in the sector. Deutsche Telekom dropped 3%, Vodafone Group lost 1.8% and BT Group lost 0.3%. Airlines and travel companies managed to recover from the steep losses posted Thursday, with Deutsche Lufthansa up 0.5% and Air France-KLM also up 0.5%. Companies in France gained on strong second-quarter GDP figures. Bank BNP Paribas climbed 1% and retailer Carrefour added 0.7%. The German DAX 30 lost 0.1%, London FTSE 100 fell 0.1%, while the French CAC 40 gained 0.2%.


Oil prices rose, recovering from over $2-dollar slump on Thursday. Light crude September delivery gained 42 cents to $74.42 a barrel. London Brent rose 55 cents to $75.83. The dollar traded mixed versus major currencies. The euro traded at $1.2754, down from $1.2784. The dollar bought 115.96 yen, up from 115.27. The British pound stood at $1.8946, up from $1.8922. European gold prices were mixed. In London the precious metal traded at $637.60, down from $640.70 per ounce. In Zurich gold traded at $640.63, up from $639.98. Silver closed at $12.17, up from $12.15.


[R]11:30AM Apple and economic slowdown worries weighed.[/R]
U.S. stocks traded in the negative, with investors shifting their focus away from a terror scare to economic slowdown. Strong July retail sales prompted the slowing will be not extreme, while an unexpectedly strong increase in business inventories suggested just the opposite. All sectors posted weakness except for consumer discretionary stocks, which were flat, reflecting the better-than-expected retail sales numbers. Apple Computer ((AAPL)) also weighed on sentiment on news it would delay its Q3 report because of irregularities related to past stock-option grants. In merger deals, Canadian Resort operator Intrawest Corp. agreed to be acquired by Fortress Investment Group LLC in a deal worth about $2.8 billion, or $35 a share including debt assumption. The offer represents a 32% premium to the stock's closing price of $26.51 on Thursday. Company’s shares soared 29%. In midmorning trading, the Dow Jones industrial average fell 28.02, or 0.05%. The Standard & Poor's 500 index fell 3.73, or 0.29%, and the Nasdaq composite index fell 8.13, or 0.39%. Bonds fell, with the yield on the 10-year Treasury note at 4.96%, up from 4.93% Thursday.


[R]10:30AM The Indian Sensex ends in the green in a volatile trading.[/R]
The Sensex in India moved up 43.29 points, 0.39%, to close at 11,192.46. The turnover on BSE was Rs 3,382 crore, higher than Thursday’s Rs 3,138 crore. The Sensex moved in a range of about 385 points between some vital intra-day tops and bottoms of the day. The market-breadth wa strong as 1,694 shares gained, 764 declined and just 68 shares were unchanged. Among the Sensex constituents, there were 17 advances to 13 declines.

Reliance Industries gained 3% to Rs 1,009.80. Reliance’s bid for the retail cooperative, Super Bazar, which has several shops in and around Delhi, was well above Rs 70 crore offered by Indian Labour Cooperative Society along with Indian Potash. IT large-cap Infosys gained 2% to Rs 1,742.90.

The top market gainer has been Hero Honda, though, gaining 3.58% to Rs 698.00. Other advancers included NTPC, which rose 2.72% to Rs 124.70. Cement shares were in focus on hopes of strong product prices in the medium term. Grasim rose 2.2% to Rs 2,197.70, UltraTech Cement gained 1.8% to Rs 751, and ACC rose 0.6% to Rs 880.90. Steel large-cap Tata Steel also rose 2.2% to Rs 527.80 and Steel Authority of India advanced 1.9% to Rs 77.80.

Some auto shares gained after a fall in oil price. TVS Motor added 3.3% to Rs 93, Eicher Motor rose 1.7% to Rs 224.50, Bajaj Auto notched up 1% to Rs 2,657.80, and Tata Motors advanced 0.6% to Rs 794. Great Eastern Shipping surged 6.5% to Rs 255.35. The company stated on Thursday that its board decided to petition the Bombay High Court, seeking an extension of deadline, which lapsed on 2 August, to demerge its offshore business.

Banking shares dipped on profit-taking occured. ICICI Bank moved back nearly 3% to Rs 582.50 and State Bank of India lost 0.6% to Rs 855.50. Power equipment makers edged higher. Siemens soared nearly 8% to Rs 1,009, Kalpataru Power jumped 7% to Rs 792, KEC International gained 4.8% to Rs 266.50, ABB rose 3% to Rs 2,774.85, Suzlon Energy advanced 1.8% to Rs 1,227 and Crompton Greaves added 1.1% to Rs 221.

Among other stocks, Thomas Cook India jumped 10% to Rs 577 after the travel services firm unveiled an 11-for-20 share-swap ratio for merging operations of moneychanger, LKP Forex, on Thursday and also announced a plan to buy Thomas Cook Thailand for 2.5 million euros. Gitanjali Gems surged 5% to Rs 148.70 as a few block deals were executed in the stock on BSE at Rs 145.20-Rs 147.75 per share. Volumes were a huge 43.4 lakh shares on BSE.


[R]9:45AM Stocks opened in the negative.[/R]
Stocks moved to the downside, hurt by news that Apple Computer would delay its latest quarterly report because of irregularities related to past stock-option grants. Apple's ((AAPL)) shares fell 1%. A growing scandal around the backdating of options has already resulted in 5 indictments and a series of restatement announcements at other firms. On Wednesday insurer UnitedHealth Group Inc. ((UNH)) said it would delay filing its quarterly report while it evaluates its stock options granted since 1994.

Disappointing news from semiconductors added to worries in the technology sector. Semiconductor maker Analog Devices Inc. ((ADI)) posted weaker-than-expected sales growth, sending its shares down almost 12%. Shares of graphics chip maker Nvidia Corp. ((NVDA)) fell 4.2% after the company said dates of some stock option grants were incorrect. The airline sector was among the worst performers in the early going, reversing gains made in late Thursday session. The gold sector was among the notable gainers, rising 1.2%. Retail stocks showed modest gains as well, following a strong quarterly report from department store operator Kohl’s ((KSS)) and better-than-anticipated July retail sales data. In opening trading, the Dow Jones industrial average fell 24.34, or 0.22%. The Standard & Poor's 500 index fell 2.80, or 0.22%, and the Nasdaq composite index fell 7.40, or 0.36%.

Adventrx Pharmaceuticals Inc, ((ANX)), biotech company, reported it swung to Q2 profit of 3 cents a share, up from a loss of $3.3 million, or 6 cents a share in the same period a year ago. Q2 included a gain on the fair market value of warrants of $18 million.

Metretek Technologies, ((MEK)), energy measurement product maker, reported Q2 net income rose to 25 cents a share, from 7 cents a share. Revenue improved to $36.2 million from $14 million on sales of distributed generation turnkey systems at its PowerSecure unit. The company cut the top end of its 2006 earnings guidance, now seeing net income between 76 cents to 80 cents a share.

Xanser Corp, ((XNR)), technology specialist, reported Q2 net income rose to 2 cents a share, compared to a year-ago loss of 5 cents a share. Revenue grew to $64.5 million from $43.5 million on the performance of its Furmanite information technology services unit.

National R.V. Holdings Inc., ((NVH)), recreational vehicle maker, reported its Q2 loss widened to 69 cents a share, from 53 cents a share in the year-earlier period. More than $5 million of the loss was attributable to defective fiberglass material used by the company and $1.1 million was attributable to a reserve established for a recall of defective tires. Sales in Q2 fell 11% to $110.2 million from $123.2 million.


[R]9:00AM Stock futures pointed to a flat opening.[/R]
U.S. stock futures indicated a flat to slightly higher opening of Friday session as disappointing news from semiconductor companies offset strong results from Kohl's Corp. Investor optimism on consumer spending was boosted by stronger-than-expected July retail sales which rose 1.4% on higher auto and gasoline sales, beating estimates of 0.8% increase.

Analog Devices Inc. ((ADI)) dropped 10% after the bell Thursday as the chip maker posted weaker-than-expected sales growth. Shares of graphics chip maker Nvidia Corp. ((NVDA)) fell 8% after the company said dates of some stock option grants were incorrect, according to preliminary results of a review.

Shares of Kohl's ((KSS)) rose 4% after the bell Thursday after the department store operator posted a better-than-expected quarterly profit and raised its earnings outlook. Kohl's posted Q2 earnings jump of 27.8% to 69 cents per share, up from 54 cents last year on higher revenues, beating estimates. Comparable store sales for the quarter grew 5.5%. Standard & Poor's 500 futures were up 0.3 point, barely above fair value.Dow Jones industrial average futures were up 2 points, and Nasdaq 100 futures were up 3 points.

[R]Retail sales jumped 1.4% in July, well above expectations.[/R]
Retail sales rose much more than expected in the month of July, according to a report released by the Department of Commerce on Friday. The sales growth was partly due to strong auto and gas station sales. The report showed that retail sales rose 1.4 percent in July following a revised 0.4 percent decrease in June. Economists had expected sales to increase by 0.8 percent compared to the 0.1 percent decrease originally reported for the previous month. A significant increase in auto sales contributed to sales growth, with sales by motor vehicle and parts dealers rising 3.1 percent in July after falling 2.5 percent in June. Auto sales were still down 9.4 percent year-over-year. Excluding auto sales, retail sales still rose by 1.0 percent in July after a revised 0.1 percent increase in June. Ex-auto sales had been expected to increase by 0.5 percent compared to the 0.3 percent increase originally reported for June. The increase in ex-auto sales was partly due to strong growth in sales at gas stations, which rose 2.5 percent in July following a 0.8 percent increase in June. The sales growth at gas stations was partly due to higher gas prices. Strong growth was also shown by electronics and appliance stores, building material and garden supplies dealers, and non-store retailers.


[R]8:00AM Airlines and travel companies rebounded.[/R]
Airlines and travel companies rallied Friday, recovering from sharp losses Thursday when they were hard hit by the discovery of a terrorist plot aimed at trans-Atlantic flights. However, experts repeatedly warned that airlines would likely be hit with higher security costs as airports tighten passenger checks in the long term.

Shares in British Airways PLC ((BAB)), rebounded from yesterday’s declines to gain 0.9% at 373.5 pence (US$7.09; euro5.51) on the LSE. On Thursday BA canceled around 400 flights from Heathrow and Gatwick after the authorities revealed they had thwarted a large-scale terror attack. BA said it expected the majority of its flights to operate on Friday, but warned of delays because of the new security regulations.

Among other European airlines, budget airline EasyJet rose 0.9%, Lufthansa was up 0.8%, while Air France-KLM climbed 1.4 %. Shares of travel companies also gained ground. Package tour operator MyTravel added 0.7%, while cruise line Carnival lifted 0.8%. In contrast, Ryanair Holdings PLC lost 0.5% due to the ban on hand baggage as from the beginning of 2006 the budget airline began charging customers for each bag they checked.


[R]7:30AM Japanese stocks fall as GDP disappoints, wile HK advances.[/R]
Asian markets were mixed on Friday. The Nikkei 225 Average ended the day down 0.42% to 15,565.02. Most Japanese exporters lost, with Honda Motor edging down 1.53% and electronics conglomerate Hitachi Ltd. declining 0.57%. Some telecoms gained, with Japan''s largest phone company, Nippon Telegraph and Telephone Corp up 1.24%. Internet provider Softbank Corp advanced 1.49%. Financial stocks were lower, with Mitsubishi UFJ Financial Group shedding 1.86%.

In Hong Kong, the Hang Seng Index pulled out a 0.16% gain to close at 17,249.95. New World Development and Henderson Land led the gainers. Cathay Pacific Airways moved up 1.87% on speculation it may gain passengers who shy away from U.S. and European carriers. Earlier in the week, Cathay reported better-than-expected earnings on strong passenger numbers. Consumer goods exporter Li & Fung led advancing Hang Seng Index components, adding 4.72% after reporting stronger-than-expected earnings.

Elsewhere around the region, South Korea''s Kospi index was down 0.94% as major exporters Hyundai Motor and Samsung Electronics lost ground. Australia''s benchmark S&P/ASX 200 dropped 0.08%, as telecom giant Telstra fell more than 1% a day after reporting disappointing full-year results. China''s benchmark Shanghai Composite closed down 0.01% and Taiwan''s Weighted index lost 0.11%.


[R]6:30AM European markets ignore bomb scare to open in positive territory.[/R]
European markets were higher on Friday morning. The FTSE 100 in London added 0.2% at 5,835.2, the Xetra Dax in Frankfurt was up 0.55 to 5,656.76, and the CAC-40 in Paris moved up 0.6% at 5,006.68. On the corporate front, ThyssenKrupp, the German steel and engineering group, topped expectations with pre-tax profits of ˆ806m, up from ˆ577m a year earlier. The stock eased however on profit-taking, losing 0.8%.

Michelin, gained 3% after the French tyre maker said it was planning to lift its tyre prices by 6-8% in reaction to higher raw material costs. AGF, the French insurer, advanced 2.4% following first-half net profit growth of 33%. Allianz, which owns 58% of AGF, moved up 1%. Fortis, the Belgian-Dutch financial group, rose 1.8% after JP Morgan raised its price target on the stock.

Crude oil prices partially recovered early Friday. Light, sweet crude for September delivery gained 24 cents at $74.24 on the NYME. Gold opened Friday at a bid price of $641.00 a troy ounce, up from $640.70 late Thursday. The U.S. dollar gained slightly on the euro Friday, as markets continued to absorb the thwarted terror plot in Britain.

The euro bought $1.2781, down slightly from $1.2784 in late New York trading. The British pound regained some ground to $1.8937, from $1.8922. The dollar also strengthened against the Japanese currency, to 115.70 yen, from 115.27 after weaker-than-expected Japanese economic growth data set off yen-selling.