Market Fears Future Hikes

123jump.com Staff
30 Nov, -0001
New York City

The ninth rate hike of 25 basis points in a year by Fed had many traders worried of how many more to come. The fed rates have tripled in the last twelve months but mortgage rates have not. Fed's tone for inflation fight at 'measured pace' has not changed. Not many sectors were spared after the Fed rate hike report in the afternoon as market continued its slide towards close.

MARKET AVERAGES

In the first hour of trading market has found some enthusiasm from buyers. Even though personal income is up only 0.2% compared the estimate of 0.3%. The U.S. net investment deficit with the rest of the world grew by $327.5 billion in 2004 from 2003. Labor market picture improved slightly with the initial claims of unemployment declined by 6,000 by last week.

This afternoon Federal Reserve raised the fed funds rate by 25 basis points as expected to 3.25%. Fed left little doubt that more hikes are to follow and market sold-off the minute the report was released. Fear was shared across many sectors.

ECONOMIC NEWS

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-1/4 percent. The report from the Fed noted the following.

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained.

Commerce Department reported personal income and consumption for the month of May.

Personal income increased $23.5 billion, or 0.2 percent, and disposable personal income increased $16.0 billion, or 0.2 percent, in May, according to the Bureau of Economic Analysis. Personal consumption expenditures increased $0.5 billion, or less than 0.1 percent. In April, personal income increased $65.4 billion, or 0.6 percent, DPI increased $41.9 billion, or 0.5 percent, and PCE increased $55.4 billion, or 0.6 percent, based on revised estimates.

Private wage and salary disbursements increased $6.2 billion in May, compared with an increase of $39.7 billion in April. Goods-producing industries' payrolls increased $3.6 billion, compared with an increase of $7.1 billion; manufacturing payrolls increased $2.2 billion, compared with an increase of $2.9 billion. Services-producing industries' payrolls increased $2.6 billion, compared with an increase of $32.6 billion. Government wage and salary disbursements increased $1.8 billion, compared with an increase of $1.9 billion.

The U.S. net investment position deteriorated in 2004 from 2003 according the Commerce Department.

The U.S. net international investment deficit position at yearend 2004 was $2,484.2 billion (preliminary) with direct investment valued at current cost, as the value of foreign investments in the United States exceeded the value of U.S. investments abroad. At yearend 2003, the U.S. deficit in net international investment position was $2,156.7 billion.

The $327.5 billion change in the net investment position from yearend 2003 to yearend 2004 was largely due to substantial net foreign purchases of U.S. Treasury securities and U.S. corporate bonds. The impact of these net purchases was partly offset by appreciation of most foreign currencies against the U.S. dollar, which raised the dollar value of U.S.-owned assets abroad, especially of U.S.-owned foreign stocks. In addition, increases in stock market prices raised the value of U.S. holdings of foreign stocks somewhat more than they raised the value of foreign holdings of U.S. stocks.

With direct investment valued at the current stock market value of owners’ equity, the net investment position was ($2,542.2 billion) at yearend 2004, compared with ($2,372.4 billion) at yearend 2003.

Labor department reported in the weekly unemployment report a slightly better labor market. In the week ending June 25, the advance figure for seasonally adjusted initial claims was 310,000, a decrease of 6,000 from the previous week's revised figure of 316,000. The 4-week moving average was 323,500, a decrease of 10,250 from the previous week's revised average of 333,750.

INTERNATIONAL MARKETS

Asian markets ended mixed as investors were cautious in their movements awaiting key economic data due out later in the U.S and Japan. The Nikkei closed almost flat, South Korea’s Kospi added 0.9%, Taiwan’s Taiex climbed 0.2%, but China’s Shanghai Composite tumbled 2.2% led by steelmakers. The dollar traded at 110.23 yen.


EARNINGS AND CORPORATE NEWS

MBNA, one of the largest credit card issuer, has agreed to be acquired by Bank of America for $35 billion. The bank will issue 0.5009 shares of BofA and $4.125 cash for each share valuing it at 31% higher than the share price of MBNA at $27.50 per share. BofA plans to cut 6,000 jobs to achieve its overall savings goal of $850 million.

Boeing has named James N. McNerney CEO of 3M as its new CEO. Mr. McNerney has been on the board of Boeing and he has said in the past that he has been happy at 3M. Boeing has been with permanent CEO since Mr. Harry Stonecipher, the CEO, was forced out. Boeing stock is up close 6.5%.


3Com, communications-technology company, posted 4Q loss of 15 cents per share compared with 5 cents last year on higher expenses after acquisition.

BMC Software, enterprise-management software firm, reported 4Q decrease in profit of 7 cents a share vs. 16 cents for the comparable last-year period due to lower demand. Analysts had expected a profit of 10 cents per share.

CHC Helicopter reported 4Q earnings decline to 44 cents a share compared with 61 cents last year.

PalmSource, mobile-device software company, posted 4Q net profit of $1.12 compared with a loss of 23 cents last year on large asset sale gain.

Research In Motion, reported 1Q doubled profit of 67 cents a share vs. 28 cents a year earlier on strong consumers’ interest in the company’s BlackBerry wireless-email devices.

Robbins & Myers, machinery maker, announced 3Q profit decline of 14 cents a share compared with 26 cents a year ago on weak pharmaceutical orders. The company cut its 2005 outlook from previous 85 to 95 cents a share to the range of 63 to 68 cents a share.

US Dataworks, developer of payment processing solutions posted 4Q loss of 5 cents per share vs. 1 cent for the prior-year same period.


OIL, METALS AND CURRENCIES

At the end of the day oil closed up 11 cents to $56.61 per barrel. Oil has receded from the recent record oil prices. However, the weekly Energy Department report showed that the U.S. continues to import record amount of gasoline and oil and demand is growing at least 2% a year.

Gold fund some buying in the morning hours but the after more than an hour of trading the gold is unchanged in the Nymex trading.