Nasdaq Up 2%, Dow Up 1%

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

Market opened in the upbeat mood and closed with more than 1% gain. Dow rose 1.2%, Nasdaq advanced 2.2% and S&P 500 gained 1.3%. Core rate of wholesale inflation in July fell unexpectedly sparking a broad rally. Wal-Mart reported its first decline in earnings in ten years. Wal-Mart earnings fell 26% from a year ago but the company kept its earnings forecast for the year. Home Depot earnings rose 5.3%. Existing-home sales fell 7% in the second quarter.

[R]4:15PM Lower than expected wholesale inflation data sparked a rally.[/R]

-Yield on 10-year bond closed at 4.933% and 30-year bond closed at 5.052%.
-Crude oil closed down 53 cents to $73 per barrel.
-Gold closed down $6.30 to $626.80 per ounce.

-Asian Markets closed mostly unchanged with Japan down 0.3%, Singapore down 0.4% and Australia down 0.7%. Markets in India and South Korea were closed.

-European Markets closed higher led by 1.6% rise in Switzerland, 1.5% gain in Germany and 1.4% jump in France. South Africa and Russia closed higher as well.

-Latin American Markets surged led by 2.0% rise in Brazil and 1.8% gain in Argentina. Mexico rose 0.98%.

Traders were primed for a rally with the release of July wholesale inflation report. The producer price index for the month rose 0.1% after gaining 0.5% in June and core rate of inflation after deducting energy and food prices fell 0.3%. This unexpected rise in core PPI rate kept buyers in charge and quickly large cap and tech stock rallied in the opening hours. When looked at the entire production chain a different picture emerges on the inflation rate. The prices of raw materials, also known as crude goods, in the month rose 3.1% and intermediate goods rose 0.5%. For the last twelve months prices of crude goods rose 34% and intermediate goods gained 7.9%. In the month gasoline price rose 0.7% after gaining 6.3% in June and 2.2% in May. With the soon to be released consumer price inflation in the CPI report market is now expecting the CPI in July to rise 0.4% and core CPI to gain 0.3%.

The rally was sustained for much of the day despite an earnings decline reported by Wal-Mart. Wal-Mart reported 26% decline in earnings on the account of sale of loss-making German operation. The company reported second quarter earnings of 50 cents vs. 67 cents a year ago on revenue gain of 11%. The first decline in earnings since the year 1996, the company also stated that the sales at its U.S. stores 6.9% and a decline in operating margin. The company set its third quarter earnings forecast at 59 cents to 63 cents per share and kept its full-year forecast at $2.88 to $2.95 per share.


[R]12:30PM European markets advanced on U.S. inflation data.[/R]
European markets posted solid gains Tuesday as benign U.S. inflation data cheered investors, bringing them back into the market. In corporate news, the biggest Swiss bank UBS rose 3.9% after reporting 47% profit growth in the second quarter. Hennes & Mauritz gained 3.6% on 2% same-store sales growth in July and 11% increase in overall sales. In the health care sector, Sanofi-Aventis rose 2.5% after the company and partner Bristol-Myers filed for a preliminary injunction ordering Apotex Inc. and Apotex Corp. to halt sales of a generic version of the drug Plavix. The German DAX 30 led gainers with 1.5% advance, followed by the French CAC 40, up 1.4%, and London FTSE 100, up 0.5%.

Oil price hovered over $73 a barrel ahead of oil inventory report Wednesday. Light crude September delivery fell 8 cents to $73.45 a barrel. London Brent dropped 22 cents to $74.08. The dollar traded lower versus major currencies. The euro traded at $1.2783, up from $1.2719. The dollar bought 116 yen, down from 116.67. The British pound stood at $1.8958, up from $1.8878. European gold prices declined. In London the precious metal traded at $621.40, down from $627.60 per ounce. In Zurich gold traded at $622.20, down from $628.38. Silver closed at $11.98, up from $11.97.


[R]11:30AM The Nasdaq jumps 1.66%.[/R]
The three major market averages posted considerable advance Tuesday, with the Nasdaq and S&P500 up more than 1% as benign inflation report which helped ease worries about further interest rate increases by the Fed Reserve. The technology sector led gainers, with personal computer maker Dell ((DELL)) up 3% after the company announced the recall of 4.1 million notebook computers to replace batteries made by Sony because of a risk of fire. The S&P Retail Index rose 1.7% after Home Depot Inc. ((HD)) reported profits that beat estimates pushing their shares 3.3%higher. Significant strength also emerged among financial stocks. In morning trading, the Dow Jones industrial average rose 101.90, or 0.92%. The Standard & Poor's 500 index rose 13.30, or 1.05%, while the Nasdaq composite index rose 34.34, or 1.66%. Bonds rose sharply on the government's inflation report, with the yield on the benchmark 10-year Treasury falling to 4.93% from late Monday's 5%.


[R]9:45AM Stocks rallied at opening on weak PPI.[/R]
Stocks jumped sharply higher at opening as weaker-than-expected July PPI renewed hopes the Fed Reserve will not raise interest rates in the short term. The Labor Department said prices at the wholesale level edged up by 0.1%, the smallest amount in five months in July as falling food prices helped offset higher energy costs.

Earnings reports from giant retailers were also in the spotlight. Wal-Mart Stores Inc ((WMT)) lost 0.5% on lower quarterly profit because of a charge for selling its German stores. Home Depot Inc. ((HD)) rose 3.4% as the home improvement retailer reported higher quarterly profit on improved sales. The company also said profit and sales growth this year would come in at the low end of its previous forecast. Staples Inc. ((SPLS)) rose 2.5% after posting 19% profit jump in Q2 driven in part by market share gains in North America.

In other news, shares in Dell Inc. ((DELL)) rose 1.9% supporting the Nasdaq even after the personal computer maker said it will recall 4.1 million notebook computer batteries because they could overheat and catch fire. In morning trading, the Dow Jones industrial average rose 75.00, or 0.68%. The Standard & Poor's 500 index rose 8.58, or 0.68%, while the Nasdaq composite index rose 20.56, or 0.99%.


[R]Wholesale prices rose modestly by 0.1%, while core prices fell 0.3%.[/R]
Tuesday morning, the Department of Labor released its report on wholesale prices in the month of July. The report showed that prices rose less than economists had expected, while core prices fell unexpectedly. The Labor Department said that its producer price index edged up 0.1 percent in July following a 0.5 percent increase in June. Economists had expected the report to show a somewhat more significant increase of about 0.4 percent. The increase by the producer price index in July marked the smallest increase since the index fell 1.2 percent in February. The modest increase in prices came in spite of a notable increase in energy prices, which rose 1.3 percent in July after rising 0.7 percent in June. The increase in July marked the biggest increase since prices surged up 4.0 percent in April.

The rise in energy prices was partly offset by a decrease in food prices, which fell 0.3 percent in July after jumping 1.4 percent in June. The drop in food prices came as prices of eggs for fresh use fell 26.1 percent in July after surging up 27.7 percent in the previous month. As mentioned above, the report also showed that the core producer price index, which excludes food and energy prices, fell 0.3 percent in July after rising 0.2 percent in June. The decrease came as a surprise to economists, who had expected the index to increase 0.2 percent. The drop in core prices was partly due to a 3.1 percent decrease in prices for light motor trucks as well as lower prices for passenger cars, pharmaceutical preparations, civilian aircraft, mobile homes, newspaper circulation, railroad equipment, and integrating and measuring instruments.


[R]9:00AM Stock futures pointed to a higher start on PPI.[/R]
U.S. stock futures recovered from earlier weakness after government data showed a lower-than-expected increase in producer prices in July. The U.S. PPI rose at a 0.1% rate in July, versus a 0.5% increase in June as falling food prices helped offset higher energy costs. Core prices fell 0.3% last month, from a rise of 0.2% in June.

Several retail giants posted mixed quarterly reports. Wal-Mart ((WMT)) posted its first profit decline in a decade, with Q2 earnings falling 26% to 50 cents per share from 67 cents a year ago due to a hefty $863 million charge related to the sale of its German stores. Still, the world's biggest retailer maintained its profit forecast for the full year. Home Depot ((HD)), the world's largest home improvement retailer, reported a 5.3% jump in Q2 earnings to 90 cents a share, up from 82 cents a share a year ago on 16.7% revenue growth, but said profit and sales growth this year would come in at the low end of its previous forecast. Home Depot shares fell 0.8% to $33 in pre-market trading. Staples ((SPLS)) posted 19% profit jump in Q2 driven in part by market share gains in North America. Standard & Poor's 500 futures were up 9.30 points, above fair value. Dow Jones industrial average futures rose 77 points, and Nasdaq 100 futures were up 17.75 points.

The Home Depot Inc., ((HD)), home improvement store chain, reported a 5.3 % jump in Q2 earnings to 90 cents a share, compared with a profit of 82 cents a share, for the same period a year ago on a strong rise in sales. However, it said its earnings growth for the year will be at the low end of its previous guidance. Excluding the tax charge, Home Depot reported earnings of 93 cents a share, topping analyst forecasts by a penny.

Wal-Mart, ((WMT)), retailer, reported Q2 net income fell 26% to 50 cents a share, after taking a $863 million loss on the agreed sale of its German operation to Metro AG. From continuing operations, Wal-Mart net income rose 5% to 72 cents a share, with revenue up 11% to $85.43 billion, driven by international acquisitions. The company matched analysts' expectations for earnings of 72 cents a share.

Barr Pharmaceuticals Inc, ((BRL)), pharmaceutical company, reported that Q4 net income almost doubled to 76 cents a share, from 40 cents in the year-earlier period on 18% higher revenue. Revenue reached $351.7 million from $280.5 million. Adjusted earnings were 84 cents against 77 cents. The latest per-share number includes 4 cents of stock-option expense. The company topped analysts'' estimates of 73 cents a share.

Dick's Sporting Goods Inc, ((DKS)), full-scale sporting goods retailer, reported that Q2 net income rose 25% to 47 cents a share, from 38 cents a share in the year-ago period. Revenue climbed 18% to $734 million. The company beat analyst forecast for earnings of 44 cents a share. Dick's said it expects third-quarter profit of 3-4 cents a share, including stock option expenses of 7 cents a share.

G&K Services Inc, ((GKSR)), uniform renter, said that Q4 net income rose 15% to 51 cents a share, with revenue up 10% to $227 million, topping analysts'' polled expectations for Q4 earnings of 49 cents a share. Revenue growth, productivity improvements and a lower effective tax rate offset record energy costs, higher interest expense and the impact of hurricanes, G&K added.

Deere & Co, ((DE)), agricultural equipment maker, reported Q3 net income rose 12.6% to $1.85 a share, from $1.58 a share a year ago. Total revenue for the period rose 7.6% to $6.27 billion, topping analysts'' expectations for earnings of $1.81 a share. The company said operating profit from its equipment manufacturing divisions rose to $583 million from $500 million, reflecting improved selling prices, partially offset by the impact of planned lower manufacturing volumes in its agricultural division. Deere added it expects Q4 net income to be around $200 million and net income for the full year to be around $1.625 billion on the back of a 2% to 3% rise in equipment sales for the year.

Fossil Inc, ((FOSL)), watch and accessories maker, reported Q2 income rose to 16 cents a share, from 13 cents a year ago. Sales for the period increased to $259.2 million from $226.2 million. The company topped analysts'' views for earnings of 12 cents a share on sales of $250.1 million. For fiscal 2006, Fossil raised its earnings outlook to about $1.11 a share, including stock-option expense and a lower share count. The company's prior target was for earnings of $1.07 a share.

BJ's Wholesale Club Inc, ((BJ)), reported its Q2 net income fell to 39 cents a share, from 44 cents a share in the year-ago period. Results for the period included 5 cents a share in expenses for stock-based compensation. Net sales rose to $2.09 billion from $1.98 billion. Total revenue rose to $2.14 billion from $2.02 billion. The company beat analyst forecasts by a penny. The company also announced revised earnings guidance for the full year in the range of $1.69 to $1.77 a share.


[R]8:00AM Xstrata is on the verge of acquiring Falconbridge for $17.05 billion.[/R]
Swiss miner Xstrata PLC is close to the completion of its $17.05 billion acquisition of Falconbridge Ltd. after securing 92.1% of the Canadian nickel and copper miner Tuesday. The merger is expected to bring greater commodity and geographic diversification, resulting in lower cost of capital for the combined group. After a year-long bidding war with Canada's Inco Ltd., Xstrata said it succeeded in taking control of Falconbridge. Falconbridge rejected Xstrata's initial C$52.50 a share offer, preferring local rival Inco, which withdrew after Xstrata raised its bid offer in July.

In accordance with its plans, Xstrata extended its revised all-cash C$62.50 a share offer until Aug. 25 to ensure full control of Falconbridge after its shareholders approved the tie-up on Monday. If Xstrata doesn't take 100% control of Falconbridge by Aug. 25, the company will have to extend the offer again or undertake a compulsory acquisition of the outstanding shares that it doesn't own which would take up to 30 days under Canadian law.

Investec upgraded its recommendation on Xstrata to ‘buy’ from ‘hold’ with a price target of £26 ($49.09), noting that on a pro-forma basis for the combined entity that there is upside of around 18% on the share price. In midday trading, Xstrata's shares were down 1.4% at £21.89 in a broadly lower U.K. market.


[R]7:30AM Japanese stocks fall despite strong machinery gains.[/R]
Asian markets were mixed on Tuesday. The Nikkei 225 Average in Tokyo closed the day down 0.26% to 15,816.19, a day after a 1.9% rally during a power outage. Komatsu was up 2.6% and Kubota advanced 1.3% as stronger-than-expected machinery-order data released last week continued to lift industry stocks. Nippon Oil slipped 1.7% and Showa Shell Sekiyu was off by as much as 2.7%. Sony Corp. lost 0.4% on news that computer maker Dell Inc. was recalling more than four million laptop batteries containing Sony components.

In Hong Kong, the Hang Seng index shed 0.09% to 17,274.07. Developers performed well in Hong Kong. Henderson Land was up 1.1% and New World Development advanced 1.3%. The Shanghai Composite in China moved up 1.6% following a local newspaper reporting that regulators may allow insurance companies to invest a larger portion of their assets in stocks. Australia's S&P/ASX 200 index closed at 4,936, down 0.71%. BHP Billiton sank 1.1% and oil producer Woodside Petroleum was off 3%.


[R]6:30AM European markets fall by mid-morning on profit taking.[/R]
Euroepan markets were lower by mid-morning on Tuessay. The FTSE 100 in London fell 0.3% to 5,855.3, while Xetra Dax in Frankfurt fell 0.3% to 5,675.72, while in Paris, the CAC 40 shed 0.1% to 5,041.85. Atlas Copso, the Swedish engineer company, fell 1.5%, while Xstrata, the London-listed miner, shed 1.4%.

Drugs stocks offered the market some support. Britain's Shire led the gainers, climbing 5.3%, Sanofi-Aventis gained 1.4 % after it said on Monday that along with US partner Bristol-Myers Squibb, it had requested a preliminary injunction to halt sales by Apotex of a generic form of their Plavix anti-clotting treatment. Dutch chemicals group, Akzo Nobel, rallied 3% after it said it was seeking shareholder approval to spin off its pharmaceuticals operations and float up to 30 per cent of its Organon Biosciences unit.

Oil prices continued to fall Tuesday as the market responded to a nearly day-old cease-fire in Lebanon. Light sweet crude oil for September delivery fell 28 cents to $73.25 a barrel, while September Brent at London's ICE Futures exchange shed 35 cents to $73.95 a barrel. The U.S. dollar was trading at 116.48 yen, down from 116.67 yen late Monday in New York. The euro rose to $1.2746 from $1.2719.