Higher GDP Growth Supports Averages

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

Market averages gained a fraction at close on light trading. Averages meandered for the most of the day. Second quarter GDP was revised to 2.9% from 2.5% for Spring quarter. Inventory led manfacturing helped the GDP growth. Costco lowered earnings target. European markets closed higher but Latin American markets closed mixed. Asian markets were lied by higher by Taiwan and Hong Kong. Oil rose but traded lower. Altria raised dividend 7.5% to 86 cents a share.

[R]4:00PM Lackluster trading kept market averages in check.[/R]

-Yield on 10-year bonds closed at 4.78% and 30-year bond closed at 4.93%.
-Crude oil gained 39 cents to close at $70.10 per barrel.
-Gold advanced $7 to close at $620.20 per ounce.

-Asian Markets closed higher led by 1.65% in Taiwan, 1.2% in Hong Kong and 0.65% in Singapore. Philippines and Thailand dropped 0.25% and Indonesia 0.54%.

-European Markets closed higher led by 1.1% rise in Norway, 0.7% gain in the U.K., 0.4% advance in Germany and 0.2% rise in Spain and Switzerland.

-Latin American Markets closed near unchanged mark led by 0.55% rise in Mexico, 0.45% in Chile but Argentina and Brazil fell 0.82% and 0.07%.

Revision of second quarter economic growth rate, downward bias in oil trading and earnings warning from Costco weighed on stock market trading.

The light trading on NYSE and Nasdaq trading systems continued today reflecting historic trend over the last five years. Trading volume on NYSE was less than 1.6 billion and on Nasdaq 1.3 billion shares.

Second quarter economic growth rate was revised to 2.9% from the previous estimates of 2.5% but lower than the expected rate of 3% by private economists. The inventory built up helped manufacturing sector in the economy in the Spring quarter.

Costco ((COST)) lowered the earnings projection for the current quarter ending Sept 3. The company forecasted earnings between 68 cents and 71 cents from 77 cents for the quarter. The company also lowered earnings for the year to $2.23 and $2.26 from $2.33. The company reported that August sales rose 11% to $4.55 billion from a year ago. Total company-wide same store sales rose 7%.

[R]12:30PM Tech stocks such as Alcatel, Ericsson and Nokia led advance in Europe.[/R]
European markets ended in the positive territory, reflecting strength posted by tech shares and quarterly results released by Euronext and Corus. Technology shares like Alcatel, Ericsson, and Nokia led advancers. Alcatel rose 4% after Merrill Lynch said the company is its top pick in the European telecom-equipment sector, with the best risk-reward profile. Earnings were in focus, with stock-exchange operator Euronext up 3.1% on 63% profit jump, while steelmaker Corus Group lost 1.8% after the company reported 52% profit drop in Q2. The German DAX 30 gained 0.4%, the French CAC 40, was 0.4%, while London FTSE 100 rose 0.7%.

Oil prices slipped below $69 on strong crude and gasoline inventories. Light crude October delivery fell 91 cents to $68.80 a barrel. Gasoline fell 3 cents to $1.76 a gallon, while heating oil lost 3 cents to $1.916. Natural gas dropped 28 cents to $6.60 per 1,000 cubic feet. London Brent October delivery slipped 38 cents to $69.48. The dollar traded mixed versus major currencies. The euro traded at $1.2821, down from $1.2822. The dollar bought 117.08 yen, up from 116.63. The British pound stood at $1.9048, up from $1.8979. European gold prices gained ground. In London the precious metal traded at $617.60, up from $609.50 per ounce. In Zurich gold traded at $618.18, up from $607.95. Silver closed at $12.44, up from $11.93.

[R]11:30AM Stock markets advanced on GDP data and oil drop.[/R]
The major U.S. equity indices moved to the upside after showing a lack of direction in early trading. In late morning trading, health insurance stocks posted strength, helped by Health Net ((HNT)), rising by 3.4%. Some defense, airline, and healthcare provider stocks also posted notable gains. Financial stocks rallied in late morning trading Wednesday on easing concerns about the housing market, interest rates and the economy. Broadly, the Amex Securities Broker/Dealer Index rose 0.8%. The Philadelphia Bank Index added 0.2% and the S&P Insurance Index rose 0.3%.

At the same time, energy stocks helped to limit the upside for the broader market amid a continued decrease by the price of oil. Among companies in focus, Cendant Corp. ((CD)) rose 2.1% after the company approved the final stage of its reorganization plan, which includes changing its name to Avis Budget Group Inc. Costco Wholesale ((COST)) dropped 4.2% after the warehouse retailer warned its Q4 and full-year results will miss expectations. In late morning trading, the Dow Jones industrial average rose 16.41, or 0.14%. The Standard & Poor's 500 index picked up 0.56, or 0.04%, and the Nasdaq composite index rose 9.99, or 0.46%. Bonds continued their advance, with the yield on the benchmark 10-year Treasury note at 4.77%, down from Tuesday's 4.79%

[R]Crude and gasoline inventories increased.[/R]
Crude oil inventories showed a surprising build in the most recent week, according to government statistics released Wednesday. This halted a recent streak of declines. Meanwhile, gasoline stockpiles also edged higher. The Department of Energy's Energy Information Administration said that crude oil inventories rose 2.4 million barrels in the week ended August 25. Specifically, the measure climbed to 332.8 million barrels from the previous week's level of 330.4 million barrels. This broke a recent streak of declines that included a fall of 600,000 barrels in the previous week. Oil inventories for the August 25 week were 6.2% higher than last year. Meanwhile, gasoline inventories showed a week-over-week increase 400,000 barrels. This matched the advance posted in the previous week. The level of gasoline inventories was 4.6% above last year. Distillate fuel oil had an inventory increase of 1.3 million barrels for the week. This repeated the advance of 1.3 million barrels reported in the previous week.


[R]10:30AM Large-caps late-hour rally helps India end in positive territory.[/R]
The Sensex on BSE gained 17.07 points, or 0.15%, to close at 11,723.92. The Sensex traded in a range of 113 points, with a high degree of volatility, which is expected till futures and options contract expiration on Thursday.

The market-breadth was positive in early trading, but turned negative as selling pressure hit small-cap and mid-cap stocks. Sensex average managed to recover in afternoon trading, with 1,064 shares advancing, 1,461 declining and 72 were unchanged. The turnover on BSE was Rs 2,607 crore, down from Tuesday’s Rs 2,715 crore. Of the thirty stocks in the Sensex index 17 declined while 13 advanced.

Ranbaxy Laboratories led the advancers, climbing 2.40% to Rs 405, after the company got a favorable ruling from a Norwegian court involving two patents on Atorvastatin. Index large-cap Reliance Industries advanced 1.11% to Rs 1,129.15. Reliance Industries was the most-active stock on BSE with a turnover of Rs 135.74 crore followed by Tata Steel with Rs 76.67 crore and Tech Mahindra with Rs 64.61 crore.

Other stocks that advanced included ITC gaining 1.85% to Rs 188, Grasim rising 1.62% to Rs 2,260 and SBI adding 1.20% to Rs 932.15. Refinery stocks also advanced on renewed buying as crude oil price sank below $70 a barrel, its lowest in more than two-months. HPCL gained 4.30%, to Rs 283, BPCL jumped 5.86% to Rs 373.25, Indian Oil Corporation ended up 1.66% to Rs 493.50, IBP inched up 1.10% to Rs 486.50, Chennai Petroleum advanced 1.4% to Rs 201 and Kochi Refineries surged 6.05% to Rs 163.

Reliance Energy led the decliners plunging 2.40% to Rs 437.45, Bajaj Auto lost 1.20% to Rs 2685 and NTPC shed 1.92% to Rs 125. Reliance Communications declined 1%, to Rs 306.

Metal stocks experienced pressure today in the wake of reports that steel prices may be reduced by Rs 750 to Rs 1,000 per tonne, from 1 September 2006, to match global metal prices. Tata Steel sank 2.20% to Rs 515.65, SAIL was off 2.80% to Rs 75.10, Essar Steel declined 3.43% to Rs 36.60, Tata Sponge lost 1.93% to Rs 111.50, Hindustan Zinc plunged 4.23% to Rs 577.20, Sterlite Industries slid 3.60% to Rs 421 and Hindalco shed 1.37% to Rs 173.10.

Jay Bharat Maruti surged 10.83% to Rs 110.50 on hopes that it will soon announce a record date for bonus issue. United Phosphorus jumped 3.67% to Rs 240 on purchase of crop protection products from Bayer CropScience AG, Germany. Infotech Enterprises gained 1% to Rs 212 following its wholly-owned subsidiary, Infotech Enterprises America, signing of an agreement with IBM to jointly provide services to assist clients across the globe.


[R]09:45AM Upbeat GDP data boosted indexes.[/R]
An upward revision to second-quarter GDP boosted market indexes at opening. The Commerce Department reported that gross domestic product rose 2.9%, higher than the original estimate of 2.5%, but below economists' expectations of an increase by 3%. U.S. stocks also gained on comments from Federal Reserve official Richard Fisher which soothed concerns about inflation. However, within the first hour of trading stock markets turned mixed.

Utility stocks contributed to the early slide. PSEG ((PEG)) dropped more than 4% on news that its merger with Exelon was now likely not to be completed. Transportation stocks also showed weakness in the early going, with low-cost air carrier JetBlue ((JBLU)) down more than 2.5% following an analyst downgrade. Trucking stocks also fell, including a nearly 2% slide in JB Hunt ((JBHT)).

However, gold and HMO stocks showed modest gains. The insurance sector also advanced. In the first hour of trading, the Dow Jones industrial average fell 5.60, or 0.05%. The Standard & Poor's 500 index dropped 0.86, or 0.07%, and the Nasdaq composite index fell 2.33, or 0.11 percent, to 2,169.97. Bonds continued their advance after continued economic news, with the yield on the benchmark 10-year Treasury note at 4.77% from Tuesday's 4.79%.


Bombardier Inc, ((CA:BBDA)), aerospace firm, reported that Q2 net income dropped due to year-earlier profit from discontinued operations. Net profit came to 3 cents a share, against 6 cents in the year-earlier period. The year-ago figure reflected $107 million from discontinued operations. Q2 earnings from continuing operations before special items were 3 cents versus 2 cents. Revenue fell 3.2% to $3.52 billion.

Layne Christensen Co., ((LAYN)), drilling services and related products company, said Q2 earnings rose to 47 cents a share, up from 35 cents a share a year earlier on 76% revenue growth, with sales from its water and wastewater infrastructure unit rising 94%, primarily due to the purchase of Reynolds Inc.

DSW Inc, ((DSW)), footwear retailer, reported Q2 earnings of 35 cents a share, up from a profit of 28 cents a share a year-ago. The year-ago results include $3.9 million of interest expense. Sales grew in Q2 to $301.3 million from $276.2 million in the same period a year earlier. Same-store sales increased 2.2%. The company topped analysts’ estimate for a profit of 30 cents a share. Looking ahead, the company reiterated its estimate for earnings of $1.24 to $1.27 a share for fiscal 2006 with same-store sales projected to rise between 3% and 5%. DSW also reaffirmed plans to open 30 stores in 2006.

Rex Stores Corp., ((RSC)), consumer electronics retailer, said Q2 earnings fell to 13 cents a share, from 70 cents a share a year earlier. Income from synthetic fuel limited partnership investments dropped to $700,000 from last year's $10.4 million, as the buyer of the company's partnership interest in the certain synthetic fuel investments, Progress Energy ceased production at its facilities on the increased likelihood that tax credits would be phased out due to higher oil prices. Revenue for Q2 fell to $82.1 million from last year's $82.5 million, while same-store sales increased 3.5%.

Natural Foods Inc, ((UNFI)), food distributor, reported Q4 earnings of 30 cents a share, up from a profit of 28 cents a share a year-ago on 14.1% sales rise The company matched analysts’ estimate for a profit of 30 cents a share. Looking ahead, company said it expects earnings of $1.25 to $1.30 a share, excluding items, on revenue of between $2.7 billion and $2.8 billion in fiscal 2007.


[R]9:00AM Stock futures gained on strong GDP data.[/R]
Stock index futures slightly advanced after government data showed U.S. Q2 growth came in-line with economists' estimates. The government's second estimate of GDP was revised upward to 2.9%, near the 3% revision analysts were expecting. S&P 500 futures were up 1.5 points, slightly above fair value. Dow Jones industrial average futures rose 13 points, and Nasdaq 100 futures were up 2.75 points.

[R]The U.S. Gross domestic product rose 2.9%.[/R]
The U.S. economy grew faster than previously estimated in the second quarter, according to a report released by the Department of Commerce on Wednesday. However, growth was revised up slightly less than economists had expected. The report showed that the U.S. gross domestic product rose at an annual rate of 2.9 percent in the second quarter. While this represents an upward revision from the advance reading of 2.5 percent, economists had been expecting growth to be revised slightly higher to about 3.0 percent.

The Commerce Department said that the upward revision reflects higher than previously estimated readings on exports of goods, non-residential structures, private inventory investment, and state and local government spending. The upward revisions were partly offset by a downward revision to residential fixed investment. Despite the upward revision, the second quarter GDP growth is still well below the 5.6 percent rate of growth that was reported for the first quarter. The deceleration in the pace of growth compared to the first quarter reflects slower growth in spending on durable goods and equipment and software as well as slower federal government spending.

The report also showed a downward revision to the pace of price growth in the second quarter, as it said consumer prices, excluding food and energy prices, rose at an annual rate of 2.8 percent in the second quarter compared to the 2.9 percent rate of growth previously reported. The pace of price growth in the second quarter still represents a significant acceleration from the 2.1 percent rate of growth reported for the first quarter.


[R]8:30AM Stock futures indicated a flat opening on Costco profit warning.[/R]
U.S. stock futures were sitting near the flat line Wednesday morning following a profit warning from Costco Wholesale and an advance by the oil price. Crude oil futures rose 52 cents to $70.23 a barrel before the weekly petroleum report, expected to show a decline in crude and gasoline inventories.

Costco Wholesale Corp. ((COST)) said Wednesday that Q4 profit would come in below analyst expectations, citing lower-than-expected profit margins and an income-tax charge. The No. 1 U.S. wholesale club operator forecast earnings per share of 68 cents to 71 cents for the quarter and $2.23 to $2.26 for the fiscal year ending Sept. 3. Analysts expected it to earn 77 cents for the quarter and $2.33 for the year. Company’s shares dropped 6.1% in pre-market trading.

Among other companies in focus, Novell Inc. ((NOVL)) may decline after beginning an internal review of its stock-option grants that could result in not filing its quarterly results on time. Novell estimated that Q3 revenue fell a weaker-than-forecast 4%. Euronext, the European stock exchange operator that agreed to merge with the NYSE Group Inc. ((NYX)), reported a 63% profit jump. It also set a date for a vote on the merger. S&P 500 futures rose half a point at 1,305.60 and Nasdaq 100 futures were flat at 1,576.00. Dow industrial futures edged up 5 points.


[R]7:30AM Japan falls on media report, HK gains on Fed’s decision.[/R]
Asian markets were mixed on Wednesday. In Tokyo, the Nikkei 225 Average ended the day 0.12% lower to 15,872.02. Shares in Rakuten sank by their daily limit of 8.5% on rumors a weekly magazine intended to publish a damaging report about the company. Internet and cellular provider Softbank Corp. plunged 3.33%. Toshiba rising 2.53%, and Canon Inc up 2.15% led the advancing blue-chips in Tokyo.

Hong Kong's Hang Seng Index closed up 1.18% to 17,284.71. Shares were led higher by rate-sensitive property stocks on expectations that U.S. rate rise cycle will come to an end soon. Developer Sun Hung Kai Properties gained 1.6%, and Cheung Kong Holdings edged up 1%. Henderson Land surged 3.9%.

The Shanghai Composite Index notched up 0.3% as the yuan hit its highest level against the dollar since being revalued last July. Australia's S&P/ASX 200 was flat, edging down 0.01%. Beverage company Foster's Group shed 0.64% after denying rumors it had been approached about a takeover. In South Korea, the Kospi index dropped 0.24%. Taiwan's Weighted index gained 1.65%, with PC-maker Acer adding 7% after Merrill Lynch upgraded it to buy from neutral.


[R]6:30AM European markets were higher lifted by tech and transport shares.[/R]
European markets were higher by mid-morning on Wednesday. London FTSE 100 rose 0.4% to 5,910.2, while Frankfurt’s Xetra Dax added 0.4% to 5,867.3. In Paris, the CAC 40 advanced 0.5% to 5,184.13. Transport stocks were in demand, led by Moller-Maersk, the Danish container shipping group, which reported upbeat full-year guidance in the previous session. Its shares gained 4%.

EADS, continued to benefit from speculation about Russian stakebuilding, as state bank Vneshtorgbank was reported by the Russian press on Tuesday to have accumulated a 5% stake in EADS. Also in the transport sector, Deutsche Post, the German logistics and delivery group, advanced 1.8%, while Dutch group TNT gained 1.7%.

Crude oil for October delivery gained 19 cents to $69.90 a barrel, supported by an expected decline in U.S. crude and gasoline stocks in statistics due later on Wednesday and Iran's determination to press ahead with its nuclear program.

Gold was trading around $614.20 an ounce, up a little from late New York trade and off a five-week low of $606.80 struck earlier on Tuesday. The euro was steady against the U.S. dollar in early European trading Wednesday, holding onto gains made as the chances of higher U.S. interest rates appeared to wither. The euro bought $1.2830, compared with $1.2831 in New York late Tuesday. The British pound slipped slightly to $1.8986 from $1.8989 on Tuesday, while the dollar was at 116.95 Japanese yen, up from 116.61 yen.