Broad Rally in Retail and Energy Sectors

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

Strong May factory orders provided much needed boost to the market. The rally narrow in its scope broadened in the afternoon to include energy, leisure, retailers, miners, Internet and tech stocks. The overnight trading in oil at higher prices persisted in the European trading and continued in the session in NY with oil closing up 84 cents. The retailers rallied in anticipation of better same-store sales for the month of June as Walgreen reported 7.8% rise.

U.S. MARKET AVERAGES

The session’s rally focused on energy and retails stocks broadened in the late afternoon to include tech, leisure and Internet stocks. Factory orders strength in May gave much needed foundation to the session’s broad rally.

First Albany raised sales and earnings forecast for Apple Computer. The bank raised revenue target for the fiscal third quarter from $3.3 billion to $3.4 billion and earnings to 34 cents from 29 cents. The revised revenue expectations are based on 5 million iPod unit sales and 2.8 million Tiger operating system sales.

Retail stocks advanced during the session as investors await monthly sales figures this week. Walgreen reported 7.8% rise in same store sales and Wal-Mart raised its June same-store sales forecast to 4.5% from 2%-4%.

Boston Scientific shares surged more than 5% after Delaware jury found that Johnson & Johnson interfered with the stent patent of the company.

Shares of EMC were in demand as several traders bid up the price in anticipation of the potential bid from Cisco.

Hurricane season is here. Two hurricanes have been formed in the last few hours which are likely to pass through Gulf of Mexico’s oil producing region. The uncertainty of the direction of the hurricane is adding to the oil price rise.

Following in the footsteps of AMD, Broadcom has filed lawsuit against Qualcom claiming unfair licensing practices. The company claim indicates Qualcom engages in monopolistic practices, broad cross-licensing agreements and discriminatory royalties from its partners and customers.

ECONOMIC NEWS

New orders for manufactured goods in May increased $11.1 billion or 2.9 percent to $394.1 billion, the U.S. Census Bureau reported today. This was at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 0.7 percent April increase.

Shipments, down following two consecutive monthly increases, decreased $0.1 billion to $390.8 billion. This followed a 0.7 percent April increase. Unfilled orders, up following two consecutive monthly decreases, increased $10.5 billion or 1.9 percent to $563.7 billion. This was at the highest level since the series began and followed a 0.1 percent April decrease.

The unfilled orders-to-shipments ratio was 3.94, up from 3.85 in April. Inventories, up seventeen of the last eighteen months, increased $0.1 billion to $484.6 billion. This was also at the highest level since the series began and followed a slight April decrease. The inventories-to-shipments ratio was unchanged at 1.24.

INTERNATIONAL MARKETS

As leaders of the world’s wealthy nations converge in Scotland to discuss the agenda for the G-8 summit chaired by the Prime Minister of Britain, the group appears to be increasingly disconnected with the demands of their nations’ population and driven by narrow political beliefs. The coming shortage of oil, lack of global trade growth and miseries of farmers in the developing nations, and growing Asian economies which has diminished the importance of Italy and Russia as global powers are the current realities that G-8 nations are not willing to address. Neither Euro nor dollar is likely to gain support in the coming weeks.

Japanese Prime Minister Junichiro Koizumi registered a slim victory when the lower house of the Parliament approved bills to privatize Japan’s postal system in spite of the revolt by the ruling party. Next the bill will be submitted to the upper house as their approval is needed for the legislation to be enacted.

Asian-Pacific markets ended mostly lower ahead of U.S. markets re-opening after the extended weekend break and crude-oil prices heading towards the $60 a barrel mark. The Nikkei lost 0.3%, Hong Kong’s Hang Seng slipped 0.4%, and South Korea’s Kospi fell 0.3%. In Tokyo the dollar rose against the yen to a new 10-month high of $112.13.

European stock averages closed lower in six of the eight exchanges. The U.K. and Dutch exchanges were up by a fraction. But markets in Germany and France were down by 0.43% and 0.28% for the day. Energy stocks were higher as oil in London and NY traded close to $60. Shares of BP rose close to a three-year high but that of airlines lost altitude. The tire maker Michelin and Continental shares lost market value as investors worried that rising rubber prices will hurt profit margin.

were steady at mid-day standing on the flat line as investors waited on U.S. markets re-opening after a three-day weekend for the Independence Day holiday and as oil prices started rising again towards the $60 a barrel level.

Sanyo Electric reported that it plans to lay-off 14,000 people in the next three years. The company management hopes that the 15% reduction in staff will reverse the last year’s loss of 171 billion Yen.

Young Broadcasting lowers the revenue guidance from $205 to $209 million to $200 to $204 million for the year 2005. The 10 TV station operator said that it faces weakness in the San Francisco market and general sluggishness in the nationwide market.

OIL, METALS AND CURRENCIES

The euro slid to a 13 and-a-half-month low against the dollar on expectations of a positive U.S. economic outlook. The euro fell to $1.1869 in early European trading and at mid-day it recovered to $1.1879. The greenback rose against the yen, too, reaching a new 10-month high of $111.97. The British pound slid to $1.7530 from $1.7590 ahead of a Bank of England meeting.

U.S. oil prices gained 55 cents to $59.60 as crude-oil prices hovered close to $60 a barrel on approaching hurricane season and supply concerns. U.S. crude-oil companies are close to their highest levels for six years. Last week OPEC suspended talk of increasing production by a further 500,000 bpd.

The option contracts to buy oil at $80 per barrel in December 2005 has jumped from 77 in January this year to 6,900 this month. There is an increasing perception among oil traders that the oil price may climb higher than $80 if the U.S. attacks Iran and OPEC is unlikely to raise its production in coming months.

U.S. gold futures slipped to a 3 and-a-half-week low in early trading falling below $425 an ounce as the strong dollar gave way to speculative selling in the metals after the long holiday weekend. On the NYME August delivery traded down $3.10 at $ 425.70 an ounce.

Copper prices extended its rally as Placer Dome’s Copper mine in Zaldivar, Chile entered into the strike. Workers demand for better pay and healthcare is the reason for the strike. Chile, largest copper producer in the world and the mine produces one percent of the world’s copper production. The world copper prices may rally in the coming days if the strike continues. The management anticipates that the strike may reduce the output of the mine by 25% depending on strike’s duration.

Lufthansa AG is allowed to proceed with its $374.7 million takeover of Swiss International Air Lines after being given clearance from the European Union. EU approval followed the U.S. antitrust regulators’ clearance to the deal given over the weekend. The company officials expect the deal to be finished by 2006 the earliest.

EARNINGS AND CORPORATE NEWS

Wal-Mart, retailer, lifted its outlook for June same-store sales to 4.5% up from previous forecast of 2% to 4% growth citing demand for seasonal and general merchandise.

Pixar Animation Studios said it will miss its 2Q earnings forecast because of higher-than- expected returns by retailers. The company sees earnings of 10 cents per share against previously announced 15 cents a share.

Bausch & Lomb, eye care company agreed to acquire Shandong China Tai Freda Pharmaceutical Group from Sino Biopharmaceutical for $200 million cash, and an additional 15% for $54.5 million held by other entities. The acquisition is considered to be neutral to 2005 earnings, but will add 5 to 10 cents a share to 2006 earnings.

Phillips-Van Hausen updated its 2Q and 2005 outlook projecting earnings of 17 to 18 cents per share and $1.53 to $1.58 per share respectively. The results include the effects of the secondary common stock offering and the related costs.

Collegiate Pacific, sports clothing & equipment retailer, said that it acquired a majority stake in Sport Supply Group from Emerson Radio for $32 million in cash. The acquisition will increase earnings per share by an unspecified amount.

Mohawk Industries, carpet and floor coverings maker, agreed to acquire Belgian flooring maker Unlin Holding NV for $2.65 billion. Mohawk gained the latest victory by buyers in the same industry over private-equity firms. In the last 13 years the company made 18 acquisitions expanding in range of products. 1Q sales rose 7.4% compared to last year.

CHINA RELATED

China Construction Bank has agreed to sell $1 billion of stake to Singapore’s Temasek, government entity with $54 billion to invest, in its planned IPO later this year. This is the second investment in the bank in less than six weeks, last month Bank of America agreed to acquire 9 percent for $3.5 billion.

The war of words between China and the U.S. escalated as angry officials from China demanded that ‘the U.S. stop politicizing of economic and commercial issues and stop interfering in normal commercial exchanges between the enterprises of two countries’. Last week U.S. Congress passed a non-binding resolution urging Washington to block bid by CNOOC for the oil company Unocal.

Hong Kong’s major banks raised prime lending rate by half a percentage point which has raised the mortgage rates by 2% since the beginning of the year. The HK Monetary Authority in its attempt to keep up with the rates in the U.S. has raised the rates by 1.25% in less than four months.