Stocks Rebound, Fed Minutes

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

Market averages traded on light volume and responded positively to the release of Fed minutes of meetings. Nine of the ten voting members felt that raising rate was not necessary during the Aug 8th meeting. Only one voting member felt otherwise. However, future rate hikes are not discounted. Brokerage sector stocks fell. European and Latin American stocks closed up a fraction. Oil fell below $70.

[R]4:30PM Stocks reversed the course after the release of Fed minutes.[/R]

-Yield on 10-year bond closed at 4.83% and 30-year bond closed at 4.97%.
-Crude oil down 90 cents to close at $69.71 per barrel.
-Gold dropped $4.80 to close at $613.20 per ounce.

-Asian Markets closed higher led by a rise of 0.8% in Japan, 0.95% in Hong Kong and 0.75% rise in India and Australia.

-European Markets closed a fractionally higher. Switzerland closed up 0.6%, France and Spain up 0.25% but Norway and South Africa were down 1.25%.

-Latin American Markets were nearly unchanged. Mexico rose 0.3% and Argentina gained 0.2% but Brazil dropped 0.3%. Canada lost 0.81%.

Fed minutes of meeting released this afternoon affected trading sentiment in the stock market. Market averages were on the decline prior to release of minutes and got a lift on the release. Except one member, of the ten voting members in the Federal Open Market Committee, all other members felt that the raising rate at this time was not necessary.

Most members felt that the decision to not change interest rate at this time was a close call and additional increases could well be needed. The challenge to battle rising inflation and wages and need to balance that with slowing economy requires a constant vigilance. However, they felt the threat to the economic slow down, after rising rates for seventeen times in a row was sufficiently strong and needed a close supervision, and rates may have to be increased in the coming meetings.

In the stock market financial stocks led the decliners but housing, tech and retail stocks managed to rebound in the afternoon trading. Tiffany ((TIF)), Kohl’s ((KSS)) and Federated Department ((FD)) rebounded in the afternoon trading. But brokerage stocks failed to recover.

Goldman Sachs ((GS)) dropped $2.44, Lehman Bros. ((LEH)) lost $1.94, Bear Stearns ((BSC)) was down $4.09 and Merrill Lynch ((MER)) lost $1.29. Most stocks of large banks dropped a fraction.

Brinker International ((EAT)) rose 4.8% on the news that the company has set up a Dutch auction to purchase stocks worth up to $450 million in a price range of $35.25 and $38.50 per share. The company said that this offer to purchase 11.7 million shares represents 14% of its total outstanding shares as of Aug 17th.

Coachmen industries ((COA)) said that Claire Skinner, chief executive and chairwoman has decided to take an early retirement and resign from the company board. The board also approved a buy back of one million shares and cut its dividend in half to 3 cents.

[R]12:30PM European markets ended up on tech and mining stocks.[/R]
European markets closed in the positive, supported by gains for mining and technology stocks. Airlines also offered support boosted by oil prices retreat below $70 a barrel. The tech sector advanced, with STMicroelectronics and Infineon Technologies each rising 1.7% after Merrill Lynch reiterated its buy rating on STMicroelectronics. Miners such as Rio Tinto and BHP Billiton helped the resource sector higher. Copper miner Antofagasta added 2.9% after reporting an above-consensus 79% rise in first-half pretax profit. The German DAX 30 edged up 0.1%, while the French CAC 40 and London FTSE 100 both rose 0.5%.

Oil prices further declined, extending yesterday’s sell-off. Light crude October delivery fell 86 cents to $69.75 a barrel. London Brent October delivery slipped 98 cents to $69.84. The dollar traded mixed versus major currencies. The euro traded at $1.2758, down from $1.2787. The dollar bought 116.95 yen, down from 117.13. The British pound stood at $1.8906, down from $1.8952. European gold prices dropped. In London the precious metal traded at $609.50, down from $623.90 per ounce. In Zurich gold traded at $607.95, down from $614.48. Silver closed at $11.93, down from $12.31.


[R]11:30AM Weaker consumer confidence data weighed.[/R]
Stocks came under pressure after data showed consumer confidence in August sharply dropped, adding to recent concerns about the strength of economy. Consumer confidence index dropped to a nine-month low of 99.6 in August from 107 in July, well below forecast for a fall to 103. Mortgage lenders traded sharply lower after First Horizon National Corp. ((FHN)) said mortgage banking weakness and settlement of a lawsuit should reduce Q3 pretax earnings by $56 million. Shares of First Horizon slipped 3.5%, while Countrywide Financial Corp. ((CFC)) dropped 2.8%. A further decline by the oil price dragged shares of major oil companies. Exxon ((XOM)) shares fell 1.2%, Chevron ((CVX)) stock lost 1.2%, and ConocoPhillips ((COP)) fell 1.4%.

In corporate news, life insurance company Prudential Financial agreed to pay $600 million to settle charges with federal and state regulators that one of its units engaged in inappropriate mutual fund trading. The settlement with the Justice Department, covering trades totaling more than $2.5 billion made from 1999 to 2000, is the first in the market timing scandal in which an institution admitted to criminal wrongdoing. Shares of Apple Computer Inc. ((AAPL)) fell 2.5% after news that the company's dominant iTunes music store could face more competition.


[R]10:30AM The Sensex ended higher on lower oil prices and firm Asian stocks.[/R]
The Sensex on BSE advanced 87.33 points, or 0.75%, to close at 11,706.85, hitting an intra-day high of 11,739.77, its highest in three straight months. The turnover on BSE was Rs 2,653 crore, higher than Monday’s Rs 2,366 crore.

The market-breadth waned during the trading session. At close 1,240 shares advanced, 1,276 declined and 59 shares remained unchanged. Decliners outpaced advancers by a ratio of 1.02:1. In early trade, the market-breadth was strong as the advance-decline ratio reached 2:1. The Sensex on BSE traded in a narrow range of 11,690 and 11,739.

In trading today, Infosys gained 1.9%, to Rs 1,803, Wipro advanced 2.7%, to Rs 527, Satyam Computer added 0.8%, to Rs 818 and TCS edged up 0.7%, to Rs 990. Large-cap ONGC rose 2.3%, to Rs 1,225. Housing finance company HDFC gained 2% to Rs 1,290 on hopes of continued strong demand for home loans due to an ongoing housing boom. The stock surged in the second half of the trading session.

Other stocks which advanced included Reliance Communications adding 3.4% to Rs 310 on 17.8 lakh shares traded on BSE and car large-cap Maruti Udyog gaining 2.6% to Rs 856 on expectations that the government may not hike domestic fuel prices. Power equipment company BHEL advanced 1.8% to Rs 2,286 in the wake of the company statement on Tuesday that it will invest Rs 1,600 crore in modernisation and capacity expansion. ICICI Bank also added 1.4% to Rs 596 on optimism that interest rates may freeze in the near term.

Reliance Industries declined 0.5% to Rs 1,116. The stock experienced a weakness in the second half of trading after being higher and trading at Rs 1,125 - Rs 1,126 for a better part morning trade. Tata Steel also declined in the latter part of the day. The stock fell 2.2% to Rs 515.85, down from the session’s high of Rs 541. Hindustan Lever lost 2.2% to Rs 234.50. Tech Mahindra shed 2.7%, to Rs 537.50 on profit-taking, in the wake of strong performance on its first day of trading.

Cement stocks declined on Tuesday. Gujarat Ambuja shed 1%, India Cements was down 2% and Mangalam Cement sank 3%, all leading the decliners in the sector. UltraTech Cement ended the day higher by 2%. UltraTech which is part of the Aditya Birla Group, has proposed Rs 27-billion expansion plan over the next three years.

Select stocks, not part of the Sensex group soared. MRO-Tek, Goetze India, Manali Petro, GV Films, Hercules Hoists, Sterling Holiday Resorts, Gulshan Sugars, Rana Sugars, Batliboi, Indiabulls, Dalmia Cement, Surya Pharma, Praj Industries, Ambika Cotton, Era Construction, High Energy Batteries, Crest Animation Studios, and GMR Industries all gained between 5% and18% .


[R]9:45AM Stocks lacked direction at opening.[/R]
Stock markets lacked direction at opening with investors cautious ahead of FOMC meeting minutes and consumer confidence report. Oil prices continued to retreat, falling below $70 per barrel, contributing to some early strength in the airline sector. At the same time, the continued decrease by the price of oil led to significant weakness among energy stocks. Retailers, which posted solid gains Monday, extended their advance. Restoration Hardware Inc. ((RSTO)) surged 15% after the company said it swung to a quarterly profit and expects margin improvements. In the first hour of trading, the Dow Jones industrial average dipped 10.16, or 0.09%. The Standard & Poor's 500 index fell 1.27, or 0.10%, and the Nasdaq composite index fell 1.01, or 0.05%.

[R]Consumer confidence sharply dropped.[/R]
Tuesday morning, the Conference Board released its report on consumer confidence in the month of August, showing that its consumer confidence index fell much more than economists had been expecting. The report showed that the consumer confidence index fell to 99.6 in August from an upwardly revised 107 in July. Economists had been expecting a more modest decline to a reading of 103 compared to the 106.5 originally reported for the previous month. The steep decline by the index reflected deterioration in both consumers' assessment of current economic conditions and their outlook for the next six months. The Conference Board said that its present situation index fell to 123.4 in August from 134.2 in July, as those claiming conditions are good fell to 26.1 percent while those claiming conditions are bad rose to 16.7 percent. Consumers' assessment of labor market conditions was also less favorable, as those saying jobs are plentiful fell to 24.4 percent while those claiming jobs are hard to get rose to 21.1 percent. As mentioned above, consumers' outlook for the next six months also deteriorated, with the expectations index falling to 83.8 in August from 88.9 in July. The report showed that those anticipating business conditions to worsen rose to 12.9 percent while those expecting conditions to improve fell to 15.9 percent. The outlook for the labor market was also less favorable.


[R]9:00AM Stock futures indicated a flat to higher opening.[/R]
U.S. stock futures pointed to a slightly higher opening Tuesday, supported by expectations that the FOMC meeting minutes, due out later in the session, won’t reignite interest-rate jitters. The economic calendar Tuesday will also focus on the Conference Board's August consumer confidence data.

Among companies releasing quarterly results, Bayer ((BAY)) reported Q2 earnings climbed 11% from the prior year, driven by sales growth from continuing operations. In addition, Bayer said it launched restructuring program that includes the closing of certain cites and elimination of 1,500 jobs, especially in North America. In corporate news, shares of Boeing Co. ((BA)) rose 0.7% before the opening bell after the jet maker's board approved a plan to buy back up to $3 billion of its own shares. Coca-Cola Co. ((KO)) said it acquired a controlling holding in Kerry Beverages Ltd., a bottling joint venture it formed in 1993 with Kerry Group, a Hong Kong conglomerate.

BP PLC ((BP)) declined in London on news that federal regulators have begun criminal and civil investigations into whether it manipulated U.S. crude-oil and unleaded gasoline markets. Disclosure of the investigations comes as BP has been summoned before the House Energy and Commerce Committee to explain the recently discovered pipeline leak at its Prudhoe Bay, Alaska. S&P 500 futures were up 1.2 points, a touch above fair value. Dow Jones industrial average futures rose 15 points, and Nasdaq 100 futures gained 3.25 points.


Bayer, ((BAY)), German chemicals and pharmaceuticals company, reported a rise in Q2 adjusted profit, but said it would cut 1,500 jobs in the one division where sales declined, in CropScience. Earnings before interest and tax, including a week of Schering results and excluding the diagnostics unit it's agreed to sell and also excluding special items, advanced 14% to 928 million euros ($1.18 billion), with sales up 6% to 7.07 billion euros. It said it would meet its 2006 targets when not including Schering results, with better results than expected at HealthCare and MaterialScience but CropScience sales now seen falling for the year.

Retalix Ltd, ((RTLX)), Israeli producer of enterprise-wide software solutions, reversed to a Q2 loss from a year-earlier profit on 4.8% revenue decline. The loss was 13 cents a share, compared with profit of 13 cents in the year-earlier period. The adjusted loss was 6 cents versus net of 16 cents. The company missed analyst estimate of 4 cents of profit. Retalix reiterated that revenue from projects that were not completed in Q2 will be posted for Q3 and Q4. And it affirmed its full-year estimates for revenue and adjusted profit.

Sanderson Farms Inc, ((SAFM)), chicken producer, reported Q3 earnings of 16 cents a share, down from a profit of $1.19 a share a year-ago. Sales rose to $281 million from $277 million in the same period a year earlier. The company said the latest results include an income tax benefit of 10 cents a share. The company also added that market prices for all poultry products were lower in Q3 than those experienced in the same period a year earlier. The company topped analysts’ estimate for a loss of 5 cents a share.

Kirkland's Inc., ((KIRK)), home decor retailer, reported Q2 net loss narrowed to 29 cents a share, from a loss of 29 cents a share a year-ago. Q2 results of fiscal 2006 include a one-time charge of 2 cents a share. Net sales rose to about $91 million from $86.8 million. The company topped analysts’ expectations by a penny. Same-store sales fell 9% in Q2. For Q3, the company forecast a net loss of 18 cents to 22 cents a share. Net sales are expected to be $93 million to $96 million, with a same-store sales decrease of 6% to 9%.


[R]7:30AM Asian stocks ended higher on U.S. markets and weak oil prices.[/R]
Asian markets closed higher on Tuesday. The Nikkei 225 Average in Tokyo closed up 0.8% to 15,890.56. Nintendo, Sanyo, Suzuki Motor and Softbank advanced. Suzuki Motor advanced 3.5% after the Daiwa Institute of Research lifted its rating on the stock. Nintendo advanced 2.5%, while electronics-manufacturer Sanyo gained 2.6%.

Hong Kong's Hang Seng Index also finished up about 1% to 17,083.28 as property companies were in focus, with Hang Lung Properties gaining 3.27%.In South Korea, the Kospi index advanced 1.26%, with leading exporter Samsung Electronics rising 2.64%. Australia's S&P/ASX 200 advanced 0.86%. Beverage-maker Foster's Group advanced 9.2% after a newspaper reported it may be targeted for a takeover. China's Shanghai Composite advanced 0.04%.


[R]6:30AM European stocks advanced buoyed by pharma and tech stocks.[/R]
European markets traded higher by mid-morning. The FTSE 100 in London rose 0.5% to 5,909.5, the Frankfurt Xetra Dax advanced 0.2% to 5,864.49 and the CAC-40 in Paris added 0.1% at 5,169.49. Novartis rose 0.3% after Switzerland become the first European country to approve the company’s Lucentis drug as a treatment for a leading cause of blindness in people over 50. Bayer, the German drugs and chemicals group, topped expectations with second quarter core earnings up 14.1%.

The technology sector advanced on the back of news Elpida Memory of Japan predicted sales may double this year on demand for semiconductors in devices such as mobile phones and cameras. Infineon advanced 3%, STMicroelectronics gained 2.3% and ASML, which makes the equipment for making chips, gaining 2.2%. Earnings aside, Commerzbank slipped 1.3% after it said that it will take a 15.3% stake in Russia's Promsvyazbank by participating in a capital increase at the bank.

Oil prices recovered Tuesday as the market shifted its focus on Iran and other supply issues on signs that tropical storm Ernesto would avoid Gulf of Mexico oil facilities. Light sweet crude oil for October delivery rose 18 cents to $70.79 a barrel on the NYME.

The U.S. dollar fell against other major currencies in European trading Tuesday morning. The euro was quoted at $1.2811, up from $1.2787 late Monday in New York. The British pound was quoted at $1.9008, up from $1.8952. The dollar bought 116.73 Japanese yen, down from 117.13. Gold dealers in London fixed a recommended price of $618.85 at midmorning, down from $623.90 late Monday in New York.