Weaker Retail Sales Weigh

Elena
13 Oct, 2006
New York City

U.S. stock markets opened below the unchanged mark as investors reacted to a report showing an unexpected drop in September retail sales and an inline-with-estimates earnings report from General Electric failed to inspire. The Commerce Department reported 0.4% decline in retail sales last month, largely due to a 9.3% drop in spending on gasoline.

[R]9:45AM Market opened lower on weaker retail sales.[/R]
U.S. stock markets opened below the unchanged mark as investors reacted to a report showing an unexpected drop in September retail sales and an inline-with-estimates earnings report from General Electric failed to inspire. The Commerce Department reported 0.4% decline in retail sales last month, largely due to a 9.3% drop in spending on gasoline. A rise in crude-oil prices was also contributed to the weakness. Light, sweet crude gained 92 cents to $58.78 a barrel in premarket electronic trading on the Nymex.

General Electric ((GE)), diversified manufacturer, dropped 1.4% after reporting Q3 net income rise of 6%, matching forecasts, helped by 12% sales growth. Another Dow component, Microsoft ((MSFT)), gained 0.5% after it said it remains on track for the release of its Windows Vista operating system worldwide to volume license business customers in November with general availability following in January. Among stocks driven by analyst comments, Altria Group ((MO)) added 0.7% after UBS upgraded the stock to neutral from reduce, citing valuation. Yahoo ((YHOO)) fell 1% after broker Thomas Weisel downgraded the Internet company to peer perform from outperform. In the first minutes of trading, the Dow Jones industrial average fell 15.37, or 0.13%, to 11,932.33. The Standard & Poor's 500 index was down 1.06, or 0.08%, and the Nasdaq composite index was off 4.78, or 0.20%, at 2,341.40.


[R]Import and export prices dropped in September due to steeply lower petroleum prices.[/R]
The Department of Labor released its report on import and export prices in the month of September on Friday, showing that import prices pulled back sharply after trending higher in recent months. The report showed that import prices fell 2.1 percent in September after rising 0.8 percent in each of the two previous months. The decrease marks the first drop in import prices since a 0.1 percent drop in March. The drop in import prices was largely due to a steep drop in petroleum import prices, which fell 10.3 percent in September after rising 2.1 percent in August. Excluding petroleum imports, import prices rose 0.1 percent in September. Export prices also fell in September, dropping by 0.5 percent following a 0.4 percent increase in August. This marked the first drop in export prices since November of 2005. A decrease in agricultural export prices contributed to the decrease, with agricultural export prices falling 0.7 percent in September after rising 0.9 percent in August. Nonetheless, export prices still fell 0.5 percent excluding the drop in agricultural export prices.

[R]Retail sales unexpectedly fell in September.[/R]
Friday morning, the Department of Commerce released its report on retail sales in the month of September, showing that sales fell unexpectedly. The decrease was partly due to a steep decline in sales at gas stations. The report showed that retail sales fell 0.5 percent in September after edging up by 0.1 percent in August. The drop in sales came as a surprise to economists, who had expected retail sales to increase 0.2 percent. The drop in retail sales was due in large part to a steep decline in gas station sales, which fell 9.3 percent in September after falling 1.3 percent in August. The decrease came as the price of gasoline pulled back well off its recent highs. The Commerce Department also said that sales, excluding auto sales, fell 0.5 percent in September following a 0.2 percent increase in August. Economists had been expecting ex-auto sales to come in unchanged. Meanwhile, the report showed some growth in sales at clothing and clothing accessories stores, where sales rose 3.0 percent in September after falling 0.2 percent in August.


[R]9:30 AM The FTSE 100 retreats from earlier record highs, still trading positive.[/R]
The FTSE 100 in London was 24.60 points, or 0.40% higher, at 6,145.90, at 2:22 pm GMT.

Advancers

A surge for oil prices on Friday supported the energy sector higher, and BP gained 1.8% while BG Group advanced 1.6%. In the volatile mining stocks, BHP Billiton rose 1.7%, while Kazakhmys added 1.7%.

Vodafone had quitted Carphone and chosen rival chain Phones4U as its exclusive retailer for contract customers in the UK. Vodafone shares gained 1.2%.

Decliners

Financial shares declined Bradford & Bingley shed 1.1% as ABN Amro reduced its rating from buy to hold while HBOS lost 0.6% after a downgrade from Goldman Sachs. Barclays fell 0.4% after HSBC downgraded the bank from neutral to underweight. The same broker however, lifted its rating on Lloyds TSB from underweight to neutral and raised its price target from. Lloyds shares gained 2.6%.

Other blue-chip decliners included Alliance & Leicester, down 0.9%, and Amvescap, off 1.7%. Carphone Warehouse fell another 6% after Orange stated it was considering changes to its high street strategy.

Other news

Lloyds TSB is close to its long-awaited first sale of bonds backed by residential mortgages with a 5.62 billion pounds deal that is set to add to an upbeat market for such securitisations in Europe this year.

Evraz, second biggest steelmaker in Russia on Thursday backed away from the idea of large scale mergers and said it had no intererest in linking up with the Anglo-Dutch Corus steel business.


[R]9:00AM Stock futures were steady amid General Electric earnings report.[/R]
U.S. stock market futures were steady after industrial bellwether General Electric released in-line-with-estimate Q3 results and Yahoo came in focus after a broker downgrade. The Dow looked ready to continue the strong rally they started on Thursday when it hit an all-time high of 11, 947.70, pushed higher by optimism over corporate earnings. The blue-chip index looked to advance past 12,000 Friday a day after reaching its fifth record close in two weeks. On Thursday, upbeat results at leading companies lifted the Dow to a record high. McDonald''s ((MCD)) rose 2.38% after saying systemwide same-store sales rose 9.8% in September. Warehouse chain Costco Wholesale Corp. ((COST)) jumped 7.7% after reporting its fiscal Q4 profit rose 1%. Yum Brands Inc. ((YUM)) advanced 8.26% on 12% profit growth in Q3.

General Electric Co. ((GE)), industrial products, financial services and media conglomerate, reported Q3 profit growth of 6% to 48 cents a share, up from 44 cents a year ago, boosted by strong orders across the company. Revenue climbed 12% to $40.86 billion from $36.37 billion. Results included a loss from discontinued operations of $100 million and adjustments related to the Genworth and GE Insurance Solutions divestitures. The company project 2006 earnings in the range of $1.97 to $1.99 a share, above the average analyst estimate of $1.98 a share. In broker news, Yahoo ((YHOO)) was cut to peer perform from outperform at Thomas Weisel on beliefs that the company may have a difficult time achieving medium-term consensus earnings expectations.


[R]7:30AM Asian markets jumped buoyed by strong U.S. close.[/R]
Asian markets closed higher on Friday. The Nikkei 225 Average in Tokyo finished the day 1.02% higher at 16536.54. Stocks bounced back due to retail shares surging on news of solid earnings, while oil producers advanced on a rally in crude-oil futures.

Aeon gained 3.6%, Daiei moved up 3.7% and Maruetsu advanced 5.8% as Aeon announced it got exclusive negotiation rights to buy a stake in Daiei from Marubeni, which owns a 44.6% voting rights stake in Daiei.

Hong Kong Hang Seng Index rose 0.65% to 17988.86. HSBC Holdings rose 0.6% and China Mobile jumped 1.6%, near a six-year high. South Korea Kospi Index ended 1.26% higher at 1348.60. Leading advancers included state-run Korea Gas which rose 3.6% on positive September liquefied natural gas sales, up 5.6% from a year earlier.

Shanghai Composite Index added 0.4% to close at 1784.66. In China, gains in large-capitalized companies that forecast strong earnings pushed the stock market higher, with China Southern and Shenzhen Development Bank leading advancers.

Taipei advanced 1.21% to 7068.80 and Australia S&P/ASX 200 ended 0.58% higher at 5290.00. Australian stocks closed higher with help for mining and petroleum stocks. BHP Billiton rose 1.6% while Rio Tinto gained 3.1%. Woodside Petroleum rose 1.4%.


[R]6:30AM European markets lower on profit taking in the banking sector.[/R]
European markets were flat-to-lower by mid morning on Friday. The FTSE 100 in London was little changed at 6,122.4, the CAC 40 in Paris was 0.1% lower at 5,355.08 and Frankfurt’s Xetra Dax also remained flat at 6,161.34.

Advancers

Oil stocks were higher as crude prices held above $58 a barrel after a surprise drop in heating oil stocks. Neste Oil, the Finnish refiner, gained 1.5%, while Norsk Hydro rose 1.4%. Michelin, the French tyre maker, gained 2.4% after Deutsche Bank raised its price target for the company.

Decliners

Banks dipped in early trading. Intesa fell 2.1%, Sanpaolo shed 2.3%, while Santander lost 0.7%. Credit Suisse downgraded both Intesa and Sanpaolo from overweight to neutral, telling investors to lock in profits.

French cosmetics group L''''Oreal shares slipped 2.9% after the company said that sales invoiced in North America have been held back by turbulence in the distribution sector.

Oil and gold

Oil prices gained Friday on news that U.S. heating oil inventories dropped and that Norway ordered production shut down at two offshore platforms, sharply reducing flows from the world''''s third-largest oil exporter. Light, sweet crude oil for November delivery gained 33 cents to $58.19 a barrel on the NYME.

Gold opened Friday at a bid price of $577.85 a troy ounce, up from $577.03 late Thursday.

Currencies

Against the euro, the U.S. dollar traded at $1.2551, from $1.2556 late yesterday. It was also at 119.41 yen, from 119.38.