Lackluster Market Averages

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

Market averages opened higher and stay in the plus column till mid-day trading. Chicago Fed President talked of the need of higher inflation and Atlanta Fed President talked of careful balance between inflation and growth. Market averages declined and never recovered for the rest of the day. Toll Bros reported 19% lower earnings and lowered annual earnings. European and Asian markets closed higher. Oil fell 30 cents and gold lost $1.20. A terrorist suspect shot dead by police in Mumbai, India.

[R]4:00PM Hawkish talk from the Fed governors fails to impress the markets.[/R]

-Yield on 10-year closed at 4.82% and 30-year closed at 4.96%.
-Crude oil fell 30 cents to close at $73 per barrel.
-Gold fell $1.20 to close at $628 per ounce.

-Asian Markets closed higher led 1.3% rise in Japan and Taiwan and 1.01% rise in South Korea. Hong Kong gained 0.83% and India closed 0.1% lower in volatile trading.

-European Markets closed fractionally higher led by 0.46% rise in France and 0.41% gain Germany. South Africa gained 1.2% and Russia closed up 1.4%.

-Latin American Markets closed mixed. Mexico closed up 0.5%, Argentina gained 0.7% but Brazil fell 1.2%.

Market averages opened on a higher note on better-than expected earnings from Toll Bros. The positive momentum in the market was roiled after hawkish comment from Chicago Fed President Michael Moskow. His comments indicated that higher interest rates may be needed to fight the inflation. Atlanta Fed President in the earlier speech cautioned that the Fed must carefully weigh the “the slippery slope of trading inflation for growth.’’

Despite hawkish comments from several Fed Board of Governors, several analyst’ believe that Fed is behind the curve in containing inflation. The hawkish talk is not always followed up with consistent policy of fighting inflation. Inflation is everywhere but in the measure used by the Fed. Steep rise in housing prices, food and energy prices and ever rising service costs such as education, legal service and other business services are not reflected in the Fed’s measure of inflation. Fed’s annual target of core inflation range between 0.2% and 0.3% is also very accommodative. At this rate of inflation the dollar loses 50% of its purchasing power in less than forty years.

Advanced Micro Devices ((AMD)) projected that the company plans to gain 30% of global market for computer processor by the year 2009. The company stock rose 7%. Toll Bros ((TOL)) gained 2.5% on reporting lower but better than guided earnings for the quarter.

Markets in Asia rallied led by a sharp rise in Japan, Hong Kong and Taiwan. Markets in Europe gained a fraction despite a business survey in Germany reporting a growing pessimism for the economic growth in the year 2007. Germany is set to raise its Value Added Tax in 2007 to 19% from 16% and Italy is set to raise income and other taxes in the year.

[R]3:00PM Advanced Micro Devices rise 7% on forecast.[/R]
AMD ((AMD)), computer chip maker, rose 7% or $1.68 to $25.09 on the positive forecast that it intend to capture 30% of the global market share for computer processor by 2009. Separately Bear Stearns upgraded the stock to ‘outperform’ from ‘peer perform’. The broker thinks that there is a significant opportunity to grow unit shipment without affecting the unit prices in the near term.

The market averages see-sawed around the neutral line in the afternoon trading. In the absence of any economic news, trading in oil and gold dominated the news. Toll Bros. ((TOL)) rose 88 cents to $25.64 on the lower earnings in the morning. The company reported 19% lower earnings but beat the lowered revised guidance issued two weeks ago.

[R]1:05PM European exchanges closed higher led by France and Germany.[/R]
European shares closed higher led by a gain of 0.46% in France, 0.41% rise in Germany, 0.3% advance in Switzerland and fractional losses in the U.K. and Norway.

European insurers led the decliners. Old Mutual fell 2% in the UK, Allianz ((AZ)) in Germany fell 0.96%, AXA dropped 0.91% and Assurances Generales de France lost 0.4% at close in Paris.

Building materials and infrastructure companies were on the rise. Lafarge ((LAF)) gained 1.4% on the news report in La Tribune that its roofing business has received as many as fourteen interested bids. Saint Gobain gained 0.9% and Alstom rose 4.2%. Brick maker Wienerberger, world’s largest brick maker, fell 4% at close after reporting 5% drop in profit on higher energy costs to operate kilns to fire bricks.

Swiss travel agency and tour operator Kuoni, rose in the early trading and reported 10% rise in revenue and better-than-expected rise in profit for the first half.

Swiss holding company Investor gained 3% on the news that it agreed to tender its share in WM-Data. Logica-CMG offered $1.7 billion to purchase WM-Data. The Investor and co-founder of WM-Data collective own 53% of voting rights and 23% of stocks in the company.

Intercontinental Hotels stock fell more than 1%. The company reported 30% rise in the first-half earnings and revenue per available room gained 11% on constant exchange rate. However, investors were disappointed that company did not declare special dividend or any plan to share the cash flow.

[R]12:30PM European shares close higher, despite weakening confidence in Germany.[/R]
A survey of analysts conducted by ZEW economic institute’s index of analysts’ dropped sharply to (5.6) in August from 15.1 in July. The negative reading indicates that analysts expect the economy to slowdown in the first half of next year. The German economy has been leading the European economic recovery after nearly five years of stagnation. However, value-added-tax in Germany is expected to rise from 16% to 19% next year. Economists are worried that this rise in tax will lower the economic growth from 3% to 2% next year.

[R]12:00PM Light trading day on stock exchanges.[/R]
Light trading, worries in the oil trading and bullish comments from Advanced Micro Devices dominated trading sentiment in the morning trading. At mid-day trading volume on New York Stock Exchange was less than 760 million shares with market averages trading in the positive column. Dow up 22 points Nasdaq up 12 points and S&P 500 up 3.96 points.

Stocks of various exchanges were trading higher at mid-day. Chicago Board of Trade ((BOT)) was up $2.37 to $117.42 and International Securities Exchange ((ISE)) was up $2.16 to $44.73. NYSE Group ((NYX)) was up 5 cents to $57.95, however, Chicago Mercantile Exchange ((CME)) was down 40 cents to $454.40.


[R]10:30AM Volatility erases early gains in India.[/R]
The Sensex on BSE ended 9 points lower, to finishing at 11,502.62. The index lost 117 points from the day’s high of 11,619.86. The turnover on BSE was Rs 3,063 crore higher than Monday's Rs 2,687 crore. The market-breadth ended in negative territory in contrast to a strong breadth earlier during the day, as blue-chips retreated in late trading. On BSE, 1,284 shares declined, 1,237 stocks advanced and 67 shares were unchanged.

Refinery shares plummeted as crude price strengthened. HPCL dipped 6% to Rs 269, BPCL sank 6% to Rs 348 and Indian Oil Corporation plunged 5% to Rs 446.50. Refinery shares surged last week as a sharp decline in crude oil prices eased worries about their losses on marketing of petrol and diesel. Power equipment large-cap BHEL shed 2.3%, to Rs 2,229.

Pharmaceutical company Ranbaxy lost 2% to Rs 392.45, while Dr Reddy’s Lab shed 2.3% to Rs 1,438 on profit-taking after a recent rally. Hindustan Lever fell 1.78% to Rs 231.65 and Tata Motors sank 1.88% to Rs 843.05. Other auto shares also dropped on fears of possible rise in domestic retail prices. Ashok Leyland was off 1.4% to Rs 39.65, Mahindra & Mahindra lost 1% to Rs 657, Bajaj Auto shed 1% to Rs 2745 and car large-cap Maruti Udyog slipped 0.7% to Rs 834.

Index large-cap Reliance Industries declined in late trading from the positive territory it held for most of the trading session. The stock edged down 0.89% to Rs 1,058.50. It came sharply off the session’s high of Rs 1,084.80. Software large-cap, Infosys, was off 1.2% to Rs 1,776.

HDFC Bank led the advancers. HDFC Bank gained 2.31% to Rs 856.10, Reliance Energy moved up 2.28% to Rs 458.55, HDFC jumped 1.95% to Rs 1,315, Hindalco advanced 1.49% to Rs 163.80 and Tata Steel rose 1.14% to Rs 514.05. Sterlite Industries gained 3% to Rs 416 in the wake of its approval of the sale of its power transmission division to focus on the metals business. Biocon advanced 2% to Rs 387. Paper company, Ballarpur Industries, rose 2.4% to Rs 113.50 following its report of a 68% surge in net profit in Q4 June 2006 to Rs 67.88 crore.

[R]9:45AM Market averages post gains in the early trading.[/R]
Market averages in the first half hour of trading are indicating rising trend. Buy orders for tech stocks, small cap stocks and companies with international earnings are trading higher. Caterpillar, Google, MasterCard, Apple, Jones Lang LaSalle and Manitowoc are trading up 1%.

Bear Stearns upgraded XM Satellite Radio ((XMSR)) lifting the stock higher by 97 cents. Toll Bros ((TOL)) reported 19% decline in earnings but managed to deliver better than lowered expectations two weeks. The stock opened 80 cents or 3% higher in the early trading.

In the morning trading gold is trading $4 per ounce lower and oil is near unchanged. Market is awaiting formal response from Iranian government to the call from the U.N. to halt uranium enrichment program.

[R]9:15AM Toll Brothers report Q3 profit decline of 19%.[/R]
The luxury home builder, Toll Bros. ((TOL)) reported third quarter earnings of $1.07 compared to $1.27 a year ago. The company reported in the quarter revenue of $1.53 billion vs. $1.55 billion a year ago and earnings of $174.6 million compared to $215.5 million a year ago.

In the fourth quarter ending October 2006, the company expects to deliver between 2,500 and 2,800 homes at an average price of between $695,000 and $705,000.

Chairman and Chief Executive Officer, Robert I. Toll also said that the continuing malaise in the housing market is the result of an oversupply of inventory and a decline in confidence. The speculative buyers of 2004 and 2005 are now sellers; builders that built speculative homes are trying to move them by offering large incentives and discounts; and some anxious buyers are canceling contracts for homes already being built. This overhang in supply and the aggressive discounting of many builders is undermining consumer confidence and keeping buyers on the sidelines as they continue to worry about the direction of home prices.

The company also noted in the press release that it has lowered its position of lots it controls through options and direct ownership. At the end of the third quarter the number of lots controlled by the company decreased to 82,900 from 91,200 at the end of the second quarter.

The Company revised its earnings guidance for fiscal 2006 to between $4.41 and $4.63 per share, compared to its previous guidance of between $4.69 and $5.16 per share.

[R]7:30 Japanese benchmark index leads regional indexes higher.[/R]
Asian markets finished higher on Tuesday. The Nikkei 225 Average in Japan finished 1.3% higher at 16,181.17. Honda advanced 2.3%, while Nikon gained 2.2%, reversing declines on Monday. Star Micronics surged 4.8% after the company lifted its earnings forecast for the year to February on Monday. Shares of Nippon Oil advanced 3.7% in the wake of reports that the company will begin selling hydrogen-powered fuel cells to residential customers as early as next year. Japanese financial stocks were also higher, led by Nomura Holdings, which gained 3%. Nikko Cordial added 1.9%, and Daiwa Securities Group gained 3.2%.

Hong Kong''s Hang Seng Index ended up 0.83% at 17,149.75. Energy stocks led the gainers. PetroChina moved up 3.2% on hopes of strong first-half earnings. Other Chinese oil-related companies also gained. Cnooc gained 2.7%, Sinopec increased 1.3% and China Oilfield Service surged 8.8%.

In South Korea, shares ended higher on solid program buying, helped by foreign futures purchases. Brokerage shares gained on expectations of rising commissions following the Kospi's rise above 1330. Daewoo Securities advanced 3.9% and Hyundai Securities surged 4.6%. Telecom shares spurted on attractive valuations after the sector lost ground in late July and early August, hit by worries over higher marketing costs.

Other indexes around the region also gained, shares in Taiwan advanced 1.3%, Shanghai's Composite Index rose 0.8%. In China, stocks were led by mining companies after metal prices soared Monday in the international market. Shandong Gold-Mining soared 5.1%, Zhongjin Gold advanced 2.9%, Jiangxi Copper spurted 5%, and Yunnan Copper added 4.9%. Australia's S&P ASX/200 advanced 0.3% to 5076.2, boosted by gains in resource-related shares.

[R]6:30AM European markets move up slightly on gains in construction stocks.[/R]
European markets were slightly higher by mid-morning on Tuesday. The U.K. FTSE 100 gained 0.2% at 5,924, the German DAX 30 index edged up 0.3% at 5,810 and the French CAC 40 index advanced 0.4% to 5,122. French building materials company Lafarge advanced 1.3% following a report from the French newspaper La Tribune that its roofing business has been the focus of at least 12 investment funds, as well as the Austrian company Wienerberger.

Swiss holding company Investor gained 2.2% in the wake of its agreement to tender its shares in WM-Data, the IT consultancy group, to Anglo-Dutch group LogicaCMG, which said on Monday it was buying WM-Data. Acciona, the Spanish builder, climbed 1.3% after it reported following the close on Monday, a forecast-beating 38% rise in first-half net profit. French heavy engineering group, Alstom, surged 3.8% after its statement that it had won a lucrative contract to build a coal-fired electricity generating plant in the US.

Oil prices moved slightly Tuesday ahead of Iran's formal response to a U.N. plan meant to encourage the country to suspend uranium enrichment, although Tehran has already indicated it will not do so. Light sweet crude for September delivery fell 9 cents to $72.36 a barrel. Gold traded higher on Tuesday at $627.50 an ounce, up $5.90 an ounce from Monday's close of $621.60.

The euro moved slightly down against the U.S. dollar Tuesday after reaching its highest level since June the previous day. The euro bought $1.2881 in early European trading, down from $1.2892 in New York late Monday. The British pound edged up to $1.8938 from $1.8934. The dollar rose to 116.04 Japanese yen from 115.80 yen.

[R]5:00AM Gold and copper rally amid tensions and criticism.[/R]
December gold moved up $13.50 to close at $635.20 a troy ounce on Monday, while September silver advanced 31 cents to end at $12.35 an ounce. October platinum added $18.50 to close at $1,242.10 an ounce, while September palladium gained $10.90 to finish at $345.20 an ounce. The September copper contract rose 8.50 cents to settle at $3.5195 per pound on the NYME.

The front-month September light, sweet crude oil contract settled up $1.31 to $72.45 a barrel. September gasoline shed 3.03 cents to $1.9360 a gallon and September heating oil rose 4.32 cents to $2.035 a gallon. September natural gas ended down 10.7 cents at $6.624 a million British thermal units. September Arabica coffee finished 3.75 cents higher at $1.07 a pound and December gained 3.80 cents to $1.1095. Futures on raw sugar in foreign ports for October settled down 0.04 cent at 12.14 cents a pound while March sank 0.02 cent to 12.82 cents.