Labor-Cost Jump Pulls Stocks Lower

Elena
06 Sep, 2006
New York City

Labor cost growth was revised up to 4.9% compared to the preliminary reading of 4.2% growth. Second-quarter productivity was revised to 1.6%, up from the 1.1% level reported a month ago. However, Ford Motor Co. helped to limit the downward trend, rallying 2.3% on news that it had hired former Boeing executive Alan Mulally to run the company.

[R]09:45AM Stocks opened down on labor-cost growth.[/R]
Stock markets opened in the negative amid renewed inflation worries after productivity data showed that Q2 unit labor costs reached a 16-year high. Labor cost growth was revised up to 4.9% compared to the preliminary reading of 4.2% growth. Second-quarter productivity was revised to 1.6%, up from the 1.1% level reported a month ago. However, Ford Motor Co. ((F))helped to limit the downward trend, rallying 2.3% on news that it had hired former Boeing executive Alan Mulally to run the company.

In early trading, significant weakness emerged in the disk drive sector, as reflected by the 3.5% loss shown by the Amex Disk Drive Index. Energy stocks also came under pressure, as the price of oil has extended a recent downward move. Additionally, technology stocks moved back to the downside, contributing to a steep decline by the Nasdaq. In the first hour of trading, the Dow Jones industrial average fell 44.19, or 0.39%. The Standard & Poor's 500 index was down 6.55, or 0.50%, and the Nasdaq composite index dropped 17.22, or 0.78%.

Fairchild Semiconductor, ((FCS)), high-performance power products company reported it raised its guidance for sequential Q3 sales to flat to up 2%, as continued healthy order rates has led to lower-than-anticipated cancellation rates. The company had previously expected sequential sales to be just flat. Over the previous four years, Q3 sales had averaged a sequential decline of 2%.

Panera Bread Co., ((PNRA)), bakery-cafes operator, reported that August same-store sales advanced 1.3%. The company cut its Q3 same-store sales growth target to 2% to 3% from 3% to 4%.

Pathmark Stores Inc. ((PTMK)), supermarket operator, reported its Q2 loss widened to 17 cents a share, from 12 cents a year ago. Sales for Q2 rose fractionally to $1 billion, while same-store sales gained 0.5%. The company missed analysts’ views for a loss of 12 cents a share on sales of $1.01 billion. Pathmark said results were hurt by lower pharmacy profitability because of the new Medicare Part D program, higher costs for utilities, self-insured workers'' compensation and general liability claims, and medical and pension costs, among other expenses.

Tullow Oil Plc, ((UK:TLW)), independent oil and gas producer, reported first-half net profit advanced 51% to 95.4 million pounds as revenue climbed 54% to 311 million pounds. The company said it expects year-end production at 75,000 barrels of oil equivalent per day from a current level of about 70,000 boepd. Tullow Oil doubled its interim dividend to 2 pence a share.


[R]9:00AM Stock futures pointed to weak start on Intel’s job cuts.[/R]
U.S. stock futures indicated a weak opening on Wednesday amid Intel Corp.’s job-cutting restructuring plan. Intel ((INTC)) stock slipped 1.3% to $19.74 in electronic trading after the chip maker said it will cut a total of 10,500 workers, or 10% of its work force, by the middle of 2007. The cuts came at the low end of the 9,000 to 15,000 jobs analysts expected would be shed. Futures extended losses after data showed Q2 unit labor costs were revised higher than expected, raising concerns about new interest-rate hikes.

Yet, news that Ford Motor Co. ((F)) named an outsider as its new CEO is expected to lend support to market sentiment. Ford rose 4% in European trading after the automaker named former Boeing Co. executive Alan Mulally president and chief executive office. Following the news, Citigroup Inc. upgraded Ford''s stock. Among other companies in focus, Sony Corp. ((SNE)) said it would delay the European launch of its PlayStation 3 game machine due to inadequate supply of a key component. Quarterly earnings from home builder Hovnanian Enterprises ((HOV)) are expected on Wednesday. S&P 500 futures were down 5.90 points, below fair value. Dow Jones industrial average futures fell 40 points, and Nasdaq 100 futures dropped 9 points.

[R]Productivity growth and labor costs rose in Q2.[/R]
Wednesday morning, the Department of Labor released its revised report on productivity and labor costs in the second quarter. The report showed upward revisions to both productivity and unit labor cost growth. The Labor Department said that productivity in the non-farm business sector rose 1.6 percent in the second quarter compared to the preliminary reading of 1.1 percent. Economists had been expecting productivity growth to be revised up to 1.5 percent. The relatively modest productivity growth in the second quarter compares to the unrevised 4.3 percent growth that was reported for the first quarter. The report also showed that second quarter unit labor cost growth was revised up to 4.9 percent compared to the preliminary reading of 4.2 percent growth. The upward revision came as a surprise to economists, who had expected cost growth to be revised down to 4.0 percent. The labor cost growth in the second quarter compares to first quarter growth of 9.0 percent, which was revised up sharply from the 2.5 percent growth previously reported.


[R]8:00AM Bertelsmann AG agreed to sell BMG Music to Vivendi.[/R]
Bertelsmann AG, German media conglomerate, agreed to sell its music publishing arm to Vivendi SA for $2.1 billion, with part of the price paid for keeping itself a privately held company. Bertelsmann said the transaction was approved by the supervisory boards of both companies. France''s Vivendi said that the acquisition had been approved by its management board and the supervisory board but was awaiting regulatory approval from various countries'' competition authorities.

Bertelsmann expects to receive the funds before the end of 2006. Bertelsmann''s chief financial Thomas Rabe said the sale of the unit will help pay back the $5.76 billion of debt raised to finance the buyback of the 25% stake in the company held by Groupe Bruxelles Lambert. BMG Music Publishing generated $475 million of revenue and $104 million of earnings before interest, taxes and depreciation and amortization for fiscal 2005. Bertelsmann expects that the sale will increase net income by approximately $1.28 billion.

BMG Music Publishing, which owns the rights to more than 1 million songs by world famous recording artists, is expected to be absorbed by Universal Music Publishing Group, making it the largest music publisher by catalog size.


[R]7:30AM Japan falls on profit-taking, HK down on HSBC fears.[/R]
Asian markets were broadly lower on Wednesday. The Nikkei 225 Average in Japan slipped 0.6% to 16284.09. Profit-taking pushed stocks lower, with Internet firms Yahoo Japan and Softbank and paper makers such as Oji Paper leading the decliners. Yahoo Japan and Softbank were under pressure after brokerage firm Credit Suisse assigned its lowest underperform investment rating to the companies. Yahoo Japan fell 3.9% and Softbank tumbled 5.6%, while Oji ended 3.2% lower.

Hong Kong Hang Seng Index shed 1.03% to close at 17258.51. Shares declined on blue-chip HSBC, on worries that index funds will sell the bank before changes in the Hang Seng Index Monday. China Mobile sank 1.9% as traders judged a rally which took the blue chip to a five-year high Monday may have been overdone. Hutchison Whampoa lost 0.7% on concerns about extended losses at its third generation cell-phone networks in Europe.

South Korea Kospi Index declined 0.31% to 1357.01. Tech stocks led shares lower as program selling was sparked off after four straight days of increases. Australia S&P/ASX 200 fell 0.71% to 5113.80. Astonishingly weak GDP data and negative technical factors caused a bearish reversal in the stock market. In Taipei the market ended 0.69% lower at 6688.40. Stocks finished lower, as political uncertainty led to profit-taking. Shanghai Composite Index was the only major index to close in the green, edging up 0.5% to end at 1672.12.


[R]6:30AM European shares declined slightly Wednesday on weaker autos.[/R]
European markets were lower by mid-morning on Wednesday. The U.K. FTSE 100 index shed 0.2% at 5,972, the German DAX Xetra 30 index lost 0.2% at 5,874, the French CAC-40 index declined 0.1% at 5,167. Peugeot led the decliners, shedding 1.2%, and DaimlerChrysler lost 0.5%, after Lehman Brothers downgraded both companies to equal-weight and cut the broader European car sector to neutral.

Dutch chip equipment maker ASML jumped 2.7% following its statement that it expects third-quarter unit orders to be substantially higher than previously indicated. IT consulting company Atos Origin advanced 2.2%, after it reported that its preparing for profit and growth to rebound in 2007, after it posted a lower first-half profit. Hotels owner Accor advanced 0.8% as its first-half net profit climbed a stronger-than-forecast 54%.

U.S. light crude oil declined 52 cents to $68.08 a barrel, having fallen as far as $67.77 a barrel earlier this week, its lowest since May 22. Gold traded at $637.0 an ounce on Wednesday, up $8.10 an ounce from Tuesday''s close of $628.90.

The euro advanced slightly against the U.S. dollar on Wednesday after falling the day before. In early European trading, the euro bought $1.2815, up slightly from $1.2812 the night before in New York. The dollar gained to purchase 116.23 Japanese yen, up from 115.93 the day before, while the British pound fell slightly to $1.8940 from $1.8943 in New York.