Choppy Trading before Fed's Decision

Elena
25 Oct, 2006
New York City

Investors traded cautiously, awaiting the Fed Reserve''s decision on interest rates and an indication about the rates outlook. Tech stocks were driven higher by stronger-than-expected quarterly results from Amazon. Altria Group rose 3.4%, helping to limit losses on the Dow after setting a date to decide the spin-off of its Kraft Foods unit. The Dow declined after existing home sales data for September showed sales declined more than expected to 6.18 million units from 6.30 million in August.

[R]11:30AM Stocks were mixed. Tech stocks supported the Nasdaq.[/R]
Investors traded cautiously, awaiting the Fed Reserve's decision on interest rates and an indication about the rates outlook. The Nasdaq moved up as tech stocks were driven higher by stronger-than-expected quarterly results from Amazon ((AMZN)). Shares of the online retailer jumped 11.2% on better-than-expected profit and revenue. In contrast, the blue-chip index lost ground, dragged by Dow components Boeing ((BA)) and General Motors ((GM)) which released dim earnings views. Altria Group ((MO)) rose 3.4%, helping to limit losses on the Dow after setting a date to decide the spin-off of its Kraft Foods unit. The Dow was further dragged down by existing home sales data for September showed sales declined more than expected to 6.18 million units from 6.30 million in August. A notable increase by the price of oil contributed to some strength among energy stocks while also contributing to weakness among oil-sensitive stocks. The Dow Industrials were down 26 points at 12,102. The Nasdaq Composite index rose 9 points to 2,354 while the S&P 500 Index was up 2 points at 1,379.

[R]Existing home sales fell more than anticipated.[/R]
Wednesday morning, the National Association of Realtors released its report on existing home sales in the month of September, showing that existing home sales fell more than economists had been expecting. The report showed that existing home sales fell 1.9 percent to a seasonally adjusted annual rate of 6.18 million units in September from a 6.30 million unit rate in August. Economists had expected sales to fall to a 6.25 million unit rate. The report also showed that total housing inventory levels fell 2.4 percent to 3.75 million existing homes available for sale at the end of September. This represents a 7.3-month supply at the current sales pace. NAR added that the national median existing-home price for all housing types was $220,000 in September, which is down 2.2 percent from $225,000 in September of 2005.


[R]9:45AM The Dow fell, dragged by Boeing and GM. The Nasdaq gained on Amazon gains.[/R]
U.S. stock averages opened mixed, as the Dow slipped below the unchanged line, while the Nasdaq moved modestly higher. The Dow decline was largely due to steep losses by General Motors ((GM)) and Boeing ((BA)). Shares of Dow component Boeing ((BA)) fell 2% after the aerospace giant reported quarterly revenue below expectations, although its earnings came in above the estimates and the company raised its outlook for 2007. General Motors ((GM)) dropped 4%, despite posting narrower Q3 loss. Meanwhile, the tech-heavy Nasdaq benefited from earnings-inspired gains for Amazon ((AMZN)). The online retailer jumped 9% on better-than-expected quarterly results, prompting five brokerages to lift price targets on the stock. Some early strength in the semiconductor sector also supported the index, with KLA-Tencor ((KLAC)) leading the sector higher, rising 8% after the company forecast better-than-expected Q2 revenues. In midmorning trading, the Dow Jones industrial average was down 5.52, or 0.05%, at 12,122.36. The Standard & Poor''s 500 index was up 0.65, or 0.05%, at 1,378.03, and the Nasdaq composite index rose 5.63, or 0.24%, to 2,350.47. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.81% from 4.82% late Tuesday.


[R]9:30AM The FTSE 100 in London hit a fresh-year high on Wednesday.[/R]
The FTSE 100 in London rose 25.5 points, or 0.4%, at 6,208.0 at mid-day, its highest level since February 2001.

Advancers

Tate & Lyle led the advancers, up 3.5% as Deutsche Bank lifted its recommendation on the sugar and sweetener group from hold to buy, increasing its price target.

Mining stocks were in focus again. Vedanta Resources gained 3.3%, Xstrata rose 2.7% and Rio Tinto firmed 1.8%.

First Choice Holidays put on 2% after the travel group announced that despite a challenging market, it was on track to deliver strong underlying earnings growth.

Decliners

BSkyB shed 1.7% as the pay-TV broadcaster started trading without rights to the latest dividend payout.

Mid-cap stocks trading ex-div included Brit Insurance, down 2.2%, and Helphire Group, 1.7% lower. Northgate Information Solutions, the IT company, slumped 11.5% as takeover talks ended.

Other news

A consensus seems to be emerging about corporate pensions. It appears, schemes will be taken off the hands of the companies. Pensions are finally closed to new and existing members, and will be most likely passed to an insurance company or the like. Hence, the appearance in the UK of a number of new contenders for this business, among them Goldman Sachs.


[R]9:00AM Stock futures turned mixed ahead of the Fed’s decision.[/R]
U.S. stock futures reversed from earlier gains and turned to a lackluster trading, reflecting uncertainty ahead of the Fed Reserve’s decision on interest rates and disappointing news from Boeing Co. However, positive quarterly results released by General Motors and Amazon helped limit losses. The Fed is due to make its interest rate decision public at 2:15 p.m. ET. The economic calendar today also includes the release of existing-home sales for September.

Boeing ((BA)) reported better-than-expected Q3 earnings and raised its outlook for 2006, but posted lower-than-forecast revenue. The stock fell nearly 1% in the pre-opening hours. On an adjusted basis, General Motors ((GM)) exceeded forecasts reporting a better-than-forecast profit of $529 million and better-than-expected 3.5% sales growth. GM also narrowed the range of potential liability from auto parts maker Delphi Corp. The Dow component''s stock rose nearly 1% in pre-open trading. Ford Motor Co. ((F)) gained 1.6% in Germany. Shares of Amazon com. ((AMZN)) rallied 12% after reporting quarterly profit and revenue above the estimates. The company posted sales growth of 24%, though profit dropped 37% to $19 million, or 5 cents a share, from $30 million or 7 cents a share a year earlier.

Elsewhere, RadioShack ((RSH)) swung to a $16 million, or 12 cents a share, loss in Q3, with revenue down 11% to $1.06 billion and comparable store sales falling 9.6%. Analysts had expected a profit of 17 cents a share on revenue of $1.13 billion. The stock fell 1.2% to $18.67 in pre-open trading. . S&P 500 futures inched 0.30 of a point lower to 1,384.50 while Nasdaq 100 futures eked out a gain of 0.25 of a point to 1,726.50. Dow industrial futures slipped 3 points to 12,173.


[R]8:00AM General Motors reported narrower Q3 loss.[/R]
General Motors Corp. ((GM)) posted a Q3 loss of $115 million, or 20 cents a share, down from a year-ago loss of $1.7 billion, or $2.94 a share. The improved results came as the nation’s biggest automaker began to reap the benefits of its turnaround plan. The quarterly results include charges of $644 million, or $1.13 per share related to a number of items including goodwill impairment at GMAC and an increase in Delphi-associated restructuring charges. Excluding items, the Dow component earned $529 million, or 93 cents a share, with revenue totaling $48.82 billion, compared to $47.18 billion in the same period a year earlier. On the average, a analysts had been waiting for a profit of 49 cents a share. GM said that the strong adjusted earnings were due to its improved global automotive operations. The company also narrowed its estimated potential exposure to Delphi''s ((DPHIQ)) bankruptcy filing to between $6 billion and $7.5 billion on a pre-tax basis. The previous range was between $5.5 billion and $12 billion.


[R]7:30AM Asian markets finish mixed, Japan slips, HK closes flat.[/R]
Asian markets finished mixed on Wednesday. The Nikkei 225 Index fell 0.5% to finish at 16699.30. The benchmark index slipped, led by brokerage stocks, consumer lenders and electronics. Nomura Holdings reported a 2.5% fall and Aiful dropped 7.2%. Real-estate stocks also fell, with Mitsubishi Estate shedding 2.9%.

In Hong Kong, the Hang Seng Index closed flat, rising 0.02% to 18157.94. Rate-sensitive property companies, such as Cheung Kong and Hang Lung Properties, closed lower before the Fed interest-rate decision. Cheung Kong dropped 0.5%, while Hang Lung Properties lost 1.8% and Sun Hung Kai Properties fell 0.2%. China Mobile supported the index, rising 0.5%.

In Seoul, the Korea Composite Stock Price Index, or Kospi, gained 0.4% to 1371.43. Hyundai Engineering & Construction advanced 2.4% and GS Engineering & Construction moved higher 4.3%. Australia S&P/ASX 200 gained 0.7%. Singapore Straits Times Index advanced 0.9% and Taiwan Weighted Price Index swung from early gains to end 0.5% lower. Markets in Malaysia were closed for a public holiday.


[R]6:30AM European shares rise on Wednesday on strong earnings reports.[/R]
European markets advanced by mid morning on Wednesday. The FTSE 100 in London gained 0.3% to 6,199.8, Frankfurt Xetra Dax added 0.1% to 6,250.51, and the CAC 40 in Paris was 0.3% higher at 5,418.17.

Economic news

German business confidence has bounced back unexpectedly, with optimism about current conditions hitting a fresh 15-year high.The surge in the Munich-based Ifo business climate index, from 104.9 in September to 105.3 in October, coincided with an unexpected rise in French business confidence and followed three consecutive monthly falls.

Advancers

Michelin, the biggest tire maker in the world, gained 2% after it announced a 4.9% rise in quarterly sales, matching expectations. Raw materials costs remained a concern, the company said and would be 23% higher in 2006 than the previous year, but it still expected an operating margin close to 8%.

Moller Maersk, the Danish shipping and oilcompany, advanced 3.1% after it was reported that the Tierra Negra oilfield in Columbia, in which Maersk owns a 40% stake, may contain much more oil than previously forecast.

Nordea Bank, financial services group, gained 1.9% following its report of a forecast-beating 46% growth in third-quarter operating profit on strong revenue growth and slower cost increases.

Decliners

STMicroelectronics, a chipmaker, fell 1% despite reporting a 133% rise in third-quarter profit, as concerns arose over the outlook of the company for the fourth quarter.

Infineon, shed 0.8% after it revealed the cost of the insolvency of mobile phone group BenQ, one of its biggest customers.

Metrovacesa, a construction group, fell a further 1.9% having lost more than 8% in the previous session as questions remained about its inclusion in the Ibex index.

Oil and gold

December light, crude oil rose 10 cents to $59.45 a barrel in after-hours electronic trading on the NYME at 10:44 a.m. in London. Brent crude for December settlement advanced 17 cents to $60.03 a barrel on the ICE Futures exchange in London.

Gold traded in London at $581.60 bid per troy ounce, up from $581.00 late Tuesday.

Currencies

The U.S. dollar was mostly lower against other major currencies in European trading Wednesday morning. The euro traded at $1.2571, up from $1.2566 late Tuesday in New York. The British pound was quoted at $1.8764, up from $1.8742. The dollar bought 119.11 Japanese yen, down from 119.27.