Higher Core PPI Weighs

Elena
17 Oct, 2006
New York City

A bigger-than-expected rise in core wholesale inflation put futures under pressure Tuesday. The Labor Department said the biggest decline in the seasonally adjusted producer price index in three years. It said that wholesale prices dropped 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years. Meanwhile, the core producer price index surprisingly rose 0.6%, as the prices of motor vehicles jumped at the fastest rate in more than 15 years.

[R]9:00AM Stock futures declined on higher core PPI index.[/R]
A bigger-than-expected rise in core wholesale inflation put futures under pressure Tuesday. The Labor Department said the biggest decline in the seasonally adjusted producer price index in three years. It said that wholesale prices dropped 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years. Meanwhile, the core producer price index surprisingly rose 0.6%, as the prices of motor vehicles jumped at the fastest rate in more than 15 years.

Quarterly releases before the opening bell came from corporate heavyweights United Technologies, Merrill Lynch and Johnson & Johnson. United Technologies Corp. ((UTX)) reported Q3 earnings of $996 million, or 99 cents a share, up from a year-ago profit $821 million, or 81 cents a share, exceeding expectations of 96 cents on billion of $11.92 billion. The company raised its 2006 earnings guidance. Johnson & Johnson ((JNJ)) said Q3 net earnings rose to $2.76 billion, or 94 cents a share, from $2.54 billion, or 85 cents a share, beating estimates of 93 cents on revenue of $13.08 billion. Sales to customers rose to $13.29 billion from $12.31 billion. Shares of the two companies gained by 1% in pre -open. Merrill Lynch ((MER)) reported doubled third-quarter earnings, beating analyst estimates. Quarterly profit was $3 billion, or $3.17 per share, compared to $1.36 billion, or $1.40 per share last year. The latest results included a gain of $1.1 billion, or $1.17 per share, from the combination of Merrill's investment management unit with BlackRock. The stock rose 2% in pre-open trading. S&P 500 futures fell 4.60 points at 1,371.50- and Nasdaq 100 futures dropped 10.75 points at 1,730.50. Dow industrial futures were down 30 points at 12,002.


[R]8:00AM Wal-Mart is reportedly bidding $1 billion for a Chinese hypermarkets chain.[/R]
Wal-Mart Stores Inc. is reportedly bidding about $1 billion for a chain of 100 hypermarkets in China. The retailer plans to buy the hypermarkets from Taiwanese Trust-Mart, The Wall Street Journal reported, citing people familiar with the transaction. If the deal completes, Wal-Mart will become the country''s biggest food and department store network. The Financial Times said Wal-Mart had emerged as the leading bidder for the chain but no agreement had been reached. The New York Times said that Wal-Mart expects to close the deal by the end of 2006, but still needs approval by the government.

The purchase would vault the company past its rival, Carrefour SA of France, in the number of hypermarkets in China. According to newspaper reports, Wal-Mart outbid Carrefour for the Trust-Mart purchase. Wal-Mart has 66 stores in China and is planning to increase in size fivefold in the next five years. Wal-Mart''s purchase of Trust-Mart will take place at different stages. Initially, Wal-Mart will acquire 31 stores, while the remainder of Trust-Mart''s stores will be bought over the next three years as each outlet meets various criteria.


[R]7:30AM Asian markets close mostly lower as recent gains were erased.[/R]
Asian markets ended lower on Tuesday. Japan''s Nikkei 225 index lost 0.49% to finish at 16,611.59. All Nippon Airways fell 1.89%, while tire maker Bridgestone dropped 1.38%. Sony, which earlier Tuesday said that it may lower its fiscal-year earnings forecast due to battery recall problems, plunged 1.84%. Nissan Motor Co shares fell 1.9% after Deutsche Securities lowered its rating, citing a slower-than-expected turnaround in operations.

The Korea Composite Stock Price Index, or Kospi, fell 0.4% to 1,351.30. LG Electronics, South Korea largest home appliance manufacturer by revenue, which initially advanced slightly on better-than-expected third-quarter earnings, closed 0.2% lower.

Hong Kong Hang Seng Index closed flat, adding 0.03% at 1,8014.84. In Taiwan, shares shed on profit-taking after they hit in the previous session a five-month high. The Weighted Price Index of the Taiwan Stock Exchange sank 1% to close at 7,075.13.

Australia S&P ASX/200 closed down 0.6%, easing back from a five-month high Monday. Shares traded in New Zealand rose 0.3%. Singapore''s Straits Times Index fell 0.9%. Australian-listed Woodside Petroleum''s shares advanced 1.3%.

Japanese government officials stated Tuesday they welcomed the decision by the central bank of Russia to begin holding some of its foreign exchange reserves in yen.


[R]6:30AM European markets end winning streak due to emerging profit-taking.[/R]
European markets were lower on Tuesday. By mid morning, the FTSE 100 in London slipped 0.2% to 6,157.8, Frankfurt Xetra Dax shed 0.8% to 6,137.87, and the CAC 40 in Paris lost 0.7% to 5,324.88.

Advancers

There were only a few advancers on Tuesday. Total of France gained 1% while in the UK BP added 1.7%.

Decliners

Spanish oil company Repsol fell 5.5% in spite of Sacyr Vallehermoso, the construction group, announcing it had built a 9% stake over recent sessions and wanted to extend its holding to 15%.

JP Morgan reduced its rating on the Spanish retail banking sector to underweight, with downgrades for both Banesto and Banco de Sabadell, which fell 1.5% and 1.5%, respectively.

BBVA, which remains the top pick of JP Morgan in the sector, nevertheless fell 1.8% after Deutsche Bank downgraded it from buy to hold. Santander, which was among the top picks of both JPM and Deutsche, shed 2%. Natexis, the securities devision of French mutual lender Banques Populaires, fell 4.1%.

Oil and gold

Oil prices rose above $60 a barrel Tuesday as traders are awaiting an OPEC meeting later in the week for a clearer price direction. Cold weather forecasts in the U.S. also prompted traders to bid up the cost of home-heating fuels. Light, sweet crude for November delivery rose 24 cents to $60.18 a barrel in Asian electronic trading on the New York Mercantile Exchange

Gold traded in London at $594.90 a troy ounce, up from $592.55 late Monday.

Currencies

The U.S. dollar was lower against most other major currencies in European trading Tuesday morning. The euro was quoted at $1.2531, unchanged from late Monday in New York. The British pound was quoted at $1.8666, up from $1.8612. The dollar bought 118.63 Japanese yen, down from 119.11.