Early Rally Fizzles

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

Market averages lost early momentum as fresh questions arose on the durability of the recently brokered cease-fire in the Middle East. Oil and gold dropped, sparking a broad rally in the early hours of trading. As trading progressed investors worried about the inflation report on Tuesday. In Tokyo, Japan power cut halted trading for several hours but market closed 1.9% higher. Major European markets closed higher.

[R]4:00PM Market rally fizzled ahead of inflation data.[/R]

-Yield on 10-year bond closed at 5.003% and 30-year bond closed at 5.122%.
-Crude oil down 82 cents to close at $73.53 per barrel.
-Gold traded down $5 to close at $633.10 per ounce.

-Asian Markets closed mostly higher as led by 1.9% rise in Tokyo, 1.5% gain in Thailand and 1.1% advance in India.

-European Markets closed higher led by 1.23% rise in France and 1.13% advance in Germany and 1.0% rise in Belgium and Spain.

-Latin American Markets closed lower led by 1.2% fall in Argentina, 0.8% in Brazil and 0.3% in Canada.

Market rallied in the morning hours on the drop in oil price, rise in Asian and European stocks but rally lost its momentum in the afternoon as worries on inflation gripped investors. On Tuesday market is looking for a rise in core inflation between 0.2% and 0.3% in July compared to previous month. Several construction equipment related stocks traded near new lows for the year. Joy Global ((JOYG)), Caterpillar ((CAT)), Deere & Co. ((DE)) and Terex Corporation ((TEX)) traded near the low for the year. The expected slow down in the economy has driven down this stocks to a new low for the year.

Rise in gasoline and crude oil prices over the last three years have dampened several transportation stocks. Carnival Cruise ((CCL)) traded near 30-month low and United Airlines ((UAUA)), Continental Airlines ((CAI)) and AMR Corp ((AMR)), parent of American Airlines have also lost close to 50% of its value from the peak in this year.

PepsiCo Inc. ((PEP)) named Indra K. Nooyi as its first female CEO as of October 1. The current President and CFO will assume the role of Chief Executive from Steve Reinemund, 58 years old. Ms. Nooyi joined PepsiCo in 1994 and was appointed as CFO of the company in 2001. She will be the fifth CEO in 41-year history of the company. Ms. Nooyi was involved in the acquisition of Tropicana in 1998, Quaker Oats in 2001 and Pepsi’s restaurant and bottling businesses. The company has now surpassed its arch rival Coca Cola in market value last year. PepsiCo market value exceeds that of Coca Cola by about one billion at today’s stock price.

Whole Foods Market ((WFMI)) climbed near 7.5% on an analyst upgrade. The company stock gained more than $3.50 to close at $50.78 and has traded between $79.90 and $46.90. The analyst suggested that the company’s goal of achieving $12 billion by the year 2010 is aggressive but reachable, however it depends on the success in opening new stores and its success in penetrating in the UK market.

[R]12:30PM European markets gained ground.[/R]
European markets finished steeply in the positive, reflecting a significant decline by the price of oil and reduced measures at U.K. airports. Oil dropped more than a dollar after a cease-fire between Israel and Hizbollah took effect, easing supply concerns. Another factor sending oil prices down was BP’s announcement that it will pump 200,000 barrels of oil a day from the Prudhoe Bay field in Alaska during repairs. Among leading gainers were airline stocks which recovered on the news of the day. British Airways advanced 1.9%, while Lufthansa rose 2%. Automakers like Renault and Volkswagen also posted gains. The French CAC 40 climbed 1.2%, the German DAX 30 rose 1.1%, supported by upbeat GDP figures for the second quarter, and London FTSE 100 gained 0.9%.

Oil price dropped over a dollar as a cease-fire in the Middle East took effect and BP said it will be able to pump 200,000 barrels a day at the oilfield in Alaska, despite the repairs. Light crude September delivery fell $1.27 to $73.08 a barrel. Gasoline lost 7 cents to $1.9925 a gallon, while heating oil fell 3 cents to $2.0090. Natural gas declined 40 cents to $6.870 per 1,000 cubic feet. London Brent dropped $1.26 to $74.37. The dollar traded mixed versus major currencies. The euro traded at $1.2743, up from $1.2729. The dollar bought 116.40 yen, up from 116.26. The British pound stood at $1.8908, up from $1.8901. European gold prices declined. In London the precious metal traded at $627.60, down from $637.60 per ounce. In Zurich gold traded at $628.38, down from $640.63. Silver closed at $11.97, down from $12.17.


[R]11:30AM Market averages rallied.[/R]
Mideast cease-fire and lower oil prices boosted stocks and the three major averages rallied. The Dow and S&P 500 were supported by heavy equipment maker Caterpillar Inc. ((CAT)) which rose 1.7%, jet maker Boeing Co. ((BA)), up 1.3% and diversified manufacturer United Technologies Corp. ((UTX)), up 1.5%. The Nasdaq was helped by Cisco Systems ((CSCO)) which rose 2.4% on news the company is set to benefit from telecommunications companies upgrading their networks to handle next-generation services such as video.

Significant strength was posted by financial stocks. The shares of Charles Schwab Corp. ((SCHW)) rose 1.7% after it said its July client daily average trades rose 15% from year ago levels, to 245,200, but they fell 5% from June 2006. Net new assets brought to the company by new and current clients in July 2006 totaled $6.8 billion. Total client assets were $1.284 trillion at the end of July, up 12% from July 2005 and up 1% from June 2006.

Knight Capital Group ((NITE)) announced its average daily U.S. equity trade volume in July 2006 declined 1% to 775,000 from 768,000 in July 2005 and was off 6.4% from 828,000 in June 2006. Average daily dollar value traded in July was $7.03 billion, down 4% from $7.32 billion in July 2005 and off 11.2% from $7.91 billion in June 2006. Average daily U.S. equity share volume was 5.15 billion in July up 137.9% from 2.17 billion in July 2005 and up 27.6% from 4.04 billion in June 2006. Knight shares lost 0.8%. Shares of Ameritrade ((AMTD)) rose 1.9%, following announcement last week that its average client trades during July averaged 210,000 per day. In late morning trading, the Dow Jones industrial average rose 77.40, or 0.7%. The Standard & Poor''''s 500 index added 6.69, or 0.53%, and the Nasdaq composite index gained 19.79, or 0.96%. Bonds moved lower, with the yield on the benchmark 10-year Treasury note rising to 4.99% from 4.97% late Friday.


[R]10:30AM Sensex gained 1% due to decline in oil prices.[/R]
The Sensex in India ended 120.53 points, or 1.08% higher, to settle at 11,312.99. The turnover on BSE was Rs 2,821 crore, lower than Friday''s Rs 3,402.61 crore. The market-breadth was strong, as 1,837 shares rose on BSE, only 641 declined and 60 shares were unchanged. The index has soared since late July 2006 supported by sustained foreign funds inflow, strong quarterly results, normal rain in the month of July, and easing of worries of domestic rate hike.

Bajaj Auto led the gainers, surging 5% to Rs 2,788. Hero Honda led the decliners, falling nearly 2.2% to Rs 681.25. Refinery shares were in focus as the crude oil price declined. BPCL jumped 6% to Rs 325, Indian Oil Corporation rose nearly 6% to Rs 423 and HPCL surged 5.9% to Rs 235.95. ONGC rose 1.8% to Rs 1,216.50. The large-cap company is looking for stakes in many more overseas oil assets in collaboration with Chinese firms. IT large-cap Infosys rose 0.7%, to Rs 1,755.

Other auto stocks participated in the rally led by TVS Motor gaining 2.5% to Rs 95, Eicher Motor rising 2% to Rs 230.95, Mahindra & Mahindra advancing 1.3% to Rs 621. Tata Motors rose 1.1% to Rs 803 and small car maker Maruti Udyog gained 1% to Rs 802.45.

Reliance Industries rose 1.8% to Rs 1,030, extending Friday''s 3.1% gain. Housing finance large-cap HDFC advanced 3.6% to Rs 1,310 and shares of largest commercial bank State Bank of India gained 1.8% to Rs 874. Cipla surged 3.7% to Rs 250.45. Cellular service company, Bharti Airtel moved up 2.4% to Rs 414, as last week, the company posted strong subscription growth for July 2006.

Metal shares gained on hopes of strong demand. Hindustan Zinc rose 4.8% to Rs 573.70, National Aluminium Company gained 2% to Rs 199.50, Sterlite Industries gained 1.6% to Rs 401.55 and Tata Steel gained 1.1% to Rs 531. BSE Metal index rose 1.1% to 8,254.86. BHEL rose 1% to Rs 2176.05 after the company secured Rs 1,224 crore ($269 million) order for a thermal power plant in Uttar Pradesh.

Hero Honda led the decliners, falling 2.21% to Rs 681.25. ICICI Bank sank 1.11% to Rs 578.00, TCS shed 0.50% to Rs 963.40, HDFC Bank lost 0.31% to Rs 807.25 and Ranbaxy fell 0.27% to Rs 393.00.

Several small cap companies advanced during the trading session. Courier service company, Blue Dart Express jumped 15.8% to Rs 544. VisualSoft soared 11% to Rs 93.90 even as the company clarified that it has not finalized any corporate merger deal. Datamatics Technologies surged 13% to Rs 56.45 on strong volume of 24.8 lakh shares on BSE.


[R]9:45AM Stocks opened in the negative.[/R]
Stocks moved sharply higher at opening as Wall Street welcomed news of a cease-fire between Israel and Lebanon Monday and a significant decline by oil prices. Crude futures fell $1.18 to $73.17 a barrel on a reduced risk of a supply disruption in the Middle East and news that BP is planning to continue to produce oil from the western side of the Prudhoe Bay oil field. With no economic data and little corporate news of note, investors saw the cease-fire as a buying opportunity after last week''s losses.

The decrease by the price of oil contributed to significant strength among airline and other transportation stocks. The Amex Airline Index rose 2.8%, while the broader Dow Jones Transportation Average gained 1.5%. Some networking stocks also posted strong gains, with shares of Ciena ((CIEN)) rising 3% after Banc of America upgraded its rating on the company''s stock to Neutral from Sell. In other brokerage news, Ford Motor ((F)) gained 2.9% after Bear Sterns raised its rating on the stock to outperform from underperform, while General Motors ((GM)) lost almost 1% on downgrade from outperform to peer perform. In the first hour of trading, the Dow Jones industrial average rose 61.15, or 0.55%. The Standard & Poor''s 500 index added 6.97, or 0.55%, and the Nasdaq composite index gained 17.01, or 0.83%.


[R]9:00AM Stock futures pointed to a higher opening on oil drop and ceasefire.[/R]
U.S. stock futures indicated a positive opening Monday as oil prices declined 1.6% after a truce in the Middle East took effect, ending a five-week violent conflict between Israel and Hizbollah. BP’s announcement that it would be able to keep half its Prudhoe Bay field pumping also helped oil prices down. During the week, investors will be focused on inflation data, expected to give signal about the Fed Reserve’s next move. Lower oil prices may help lift shares in industrial conglomerates such as 3M Company ((MMM)) and chemical companies including Dow Chemical & Co. ((DOW)) and DuPont Co ((DD)). Shares in Whole Foods Market Inc. ((WFMI)) are expected to rise after analysts at JP Morgan upgraded the company''s stock to ‘neutral’ from ‘underweight.’ On the earnings front, Computer Associates Inc. ((CA)) and Agilent Technologies Inc. ((A)) are among the few S&P500 companies scheduled to report results on Monday. Standard & Poor''s 500 futures were up 7.3 points, above fair value. Dow Jones industrial average futures shot 64 points higher, and Nasdaq futures were up 10.50 points.

The Valspar Corp, ((VAL)), coatings specialist, reported Q3 net income rose to 51 cents a share from 44 cents a share in the same period a year ago. The company said current earnings include 1 cent a share in expenses related to its manufacturing rationalization plan and 1 cent a share for stock-expense compensation. They also include a favorable tax adjustment of 3 cents a share. Sales rose to $797.4 million from $725.4 million a year ago. The company beat analyst estimate for earnings of 49 cents a share.

Dillard''s Inc, ((DDS)), department store operator, reversed to Q2 profit of 20 cents a share, up from 15 cents a share loss in the year-ago period, helped by fewer markdowns, sales of furniture and strength in the Western region. Net income includes a gain of 11 cents a share from the sale of an interest in a mall joint venture, settlement proceeds of 5 cents a share related to the Visa Check/Mastermoney antitrust litigation. Results also include a charge of 17 cents a share for a memorandum of understanding reached in a current litigation case, and recognition of an income tax benefit of about 7 cents a share for the change in a capital loss valuation allowance. Net sales were about flat at $1.69 billion. Total revenue rose to $1.75 billion from $1.73 billion. Dillard''s said it achieved gross margin improvement of 110 basis points of sales in Q2.

Hewitt Associates Inc, ((HEW)), retirement plan consulting, swung to a Q3 net loss of $1.88 a share, down from a net income of 31 cents a share in the year-ago period. The company took $249 million of pretax non-cash charges related to challenges implementing contracts at its higher performance-based compensation unit. The core net loss was $1.85 a share, compared with income of 33 cents a share in the prior-year quarter. Revenue fell 1.1% to $714.4 million. The company missed analysts'''' forecasts for earnings of 32 cents a share.

Sysco Corp, ((SYY)), food products distributor, reported Q4 earnings fell to 41 cents a share, from 44 cents a share a year earlier. The results include 4 cents a share in stock option expenses. Revenue advanced 6.6% to $8.51 billion from last year''''s $7.98 billion. The company missed analysts'''' views by a penny.


[R]8:00AM Oil prices dropped a dollar after Mideast cease-fire.[/R]
After weeks of volatile trading, oil prices declined almost a dollar Monday following the long expected Mideast cease-fire and news that BP would be able to maintain half of its production at a large oil field in Alaska, an improvement from a previous decision to completely shut down the oil field after discovering a leak a week ago.

A U.N.-brokered cease-fire between Israel and Lebanon''s Hezbollah militants took effect at 0500 GMT Monday, ending a month of violence with more than 900 victims taken. Crude oil prices hit a record of $78.40 a barrel on July 14, as the market had worried that the conflict could affect oil supply if it extended into neighboring countries in the oil-rich region, and Iran in particular. Last week prices soared after BP''s initial announcement hen retreated on fears that the foiled trans-Atlantic airplane attacks could hurt jet fuel demand and consumer confidence.

Light sweet crude for September delivery fell 92 cents to $73.43 a barrel on the Nymex. September London Brent slipped 73 cents to trade at $74.90 a barrel. Natural gas futures fell 25 cents to $7.018 per 1,000 cubic feet. Gasoline futures dropped nearly 4 cents to $2.0270 a gallon, and heating oil futures fell slightly to $2.0254 a gallon.


[R]7:30AM Japanese stocks advance on strong company reports despite blackout.[/R]
Asian markets were higher on Monday. The Nikkei 225 Average in Japan was up 1.45% to 15,790.82 at 1:25 p.m. Tokyo time when a computer error caused by the blackout caused the index to stop updating. By the time markets closed at 3 p.m., index calculations had not resumed. However, all component stocks continued trading as usual. According to independent calculations, the Nikkei would have ended the day up about 1.9%. Fast Retailing Co, the operator of clothing chain Uniqlo, advanced 4.67%. Bridgestone Corp was up 4.59% after the Daiwa Institute of Research said it expects the company to return to strong profits next year despite weaker earnings recently due to high material costs.

Hong Kong''s Hang Seng Index finished the day up 0.23% to 17,290.01. Li Ka-shing''s Hutchison Whampoa rose 1.72% on local media reports, denied by the company, that it may list its retail businesses separately. South Korea''s Kospi Index was up 0.23% as exporters including Hyundai Motor and LG Electronics advanced. The country''s markets will be closed Tuesday for the Independence Day holiday.

Australia''s S&P/ASX 200 was up 0.45% despite a sharp drop by top telecom firm Telstra Corp. The Shanghai Composite Index, in China, ended down 2.2% on expectations the government would step up tightening measures after figures released Friday showed money supply grew by a faster than expected 18.4% in July.


[R]7:00AM European markets rose on oil price slump.[/R]
European markets were higher on Monday.The U.K. FTSE 100 index added 0.6% at 5,854, the German DAX Xetra 30 index rose 0.8% at 5,675 and the French CAC-40 index increased 0.8% at 5,027. Oil also was lower as BP said on Friday that it will pump 200,000 barrels of oil a day from the Prudhoe Bay field in Alaska during repairs; BP had initially said it would shut the entire 400,000 barrels a day field.

Airlines that are sensitive to oil prices rose. British Airways rose 1% and Lufthansa added 1.3%. German construction and infrastructure group Hochtief rose 2.2% after it said that its second-quarter profit rose 37% to 58.5 million euros ($74.6 billion) and sales rose 6% to 3.7 billion euros. Citigroup cut mobile-phone operator Vodafone Group to hold from buy, saying the company is worth over 150 pence a share if it executes well but that the market needs confidence that environmental factors won''t overwhelm management''s efforts.

Oil prices dropped nearly a dollar Monday as traders expected the upcoming Mideast cease-fire and responded to the positive news that BP would be able to maintain half of its production at a large oil field in the U.S. state of Alaska. Light sweet crude for September delivery fell .92 cents to $73.43 a barrel. September Brent at London''s ICE Futures exchange slipped .73 cents to trade at $74.90 a barrel.

Gold traded lower on Monday at $629.00 an ounce, down $12.60 an ounce from Friday''s close of $641.60. The euro was up against the U.S. Dollar, buying $1.2756 in early European trading, up from $1.2729 in New York late Friday. The British pound rose to $1.8928 from $1.8901.The dollar was a little higher against the Japanese currency, climbing to 116.35 yen from 116.26 yen.