Stocks Turn Green on 3% Oil Drop

Elena
30 Oct, 2006
New York City

A steep drop by the oil price helped U.S. stocks recover from earlier weakness, generated by lingering concerns about the strength of the economy and news from Wal-Mart of much-weaker-than-expected October same store sales growth. Energy stocks moved notably down as crude oil dropped 3%, or $1.95 to $58.80 a barrel. At the same time, the price decrease contributed to significant strength in the oil-sensitive airline sector.

[R]11:30AM A steep oil drop pushed stocks above the flat line.[/R]
A steep drop by the oil price helped U.S. stocks recover from earlier weakness, generated by lingering concerns about the strength of the economy and news from Wal-Mart ((WMT)) of much-weaker-than-expected October same store sales growth. Gains for Boeing ((BA)), General Motors ((GM)) and Hewlett-Packard Co ((HPQ)) helped offset declines.

Energy stocks moved notably down as crude oil steeply declined, down 3%, or $1.95 to $58.80 a barrel. At the same time, the price decrease contributed to significant strength in the oil-sensitive airline sector. Health insurance stocks posted significant weakness in morning trading, led by Humana ((HUM)) which dropped 5.5% after the company reported Q3 earnings that rose sharply year-over-year but came in below analyst estimates. semiconductors rallied, helped by a broker upgrade for KLA-Tencor ((KLAC)).

In corporate news, Goodyear Tire & Rubber Co. ((GT)) said it plans to close a plant in Tyler, Texas, three weeks after workers at the plant and 15 others went on strike. The move will slash about 1,100 jobs and is part of Goodyear's strategy to end some of its private label tire business. Shares of the company edged up 0.4%. Halliburton ((HAL)), oil field services provider, said Monday its board of directors declared a Q4 dividend of 7.5 cents per share.


[R]10:30AM The Sensex finishes above 13,000 points, due to earnings results.[/R]
The Sensex on BSE finished 117.45 points or 0.9% higher to end at all-time closing high of 13,024.26. The market-breadth was weak, though, as 1,404 shares declined on BSE and 1,126 shares advanced. 54 shares were unchanged. From the 30-Sensex stocks, 19 advanced while the rest declined. The turnover on BSE was Rs 3,715.86 crore. The turnover on NSE was Rs 8,423.57 crore.

Economic news

The Reserve Bank of India on Monday announced that underlying inflationary pressures are still present in the economy and it is uncertain whether the recent decline in crude oil prices would be sustained or not.

The government on Monday fixed the minimum support price of wheat at Rs 750 per quintal for the Rabi season, Finance Minister P Chidambaram announced.

Advancers

ICICI Bank led the advancers today, jumping nearly 4% to Rs 788. HDFC Bank also rose 3.3% to Rs 1,031. State Bank of India added 0.3% to Rs 1,096.55. The bank recovered after an initial fall after it reported a 2.5% drop in net profit for second-quarter of September 2006 on Saturday. With a surge in inflation, a section of the market anticipates RBI to raise short-term interest rates by 25 basis points.

Refinery shares gained on higher profits in second-quarter of September 2006 as they accounted for oil bonds to be issued by the government to compensate them for losses coming from selling petroleum products at subsidised rates. HPCL advanced 4% to Rs 319.75, BPCL rose 2.4% to Rs 400.50 and Indian Oil Corporation rose 0.7% to Rs 518.90.

Bharti Airtel has surged 2.7% to Rs 542 for the second day in a row supported by stronger-than-expected second-quarter results, which it released during trading hours on Friday. Reliance Communications rose 2.7% to Rs 395. On a consolidated basis, RCL has posted a net profit of Rs 702.34 crore for the quarter ended September 30, 2006 compared to a net loss of Rs 19 crore for the quarter ended September 30, 2005.

Index heavy Reliance Industries edged up 0.7% to Rs 1,232 after it rolled out its first fruit and vegetable store in Hyderabad, launching its $5.6 billion retail plan that includes hypermarkets and malls.
Infosys also jumped 1.4% to Rs 2,128. Oil exploration large-cap ONGC gained 2.4% to Rs 808.25. Dr Reddy’s Lab advanced 2.5% to Rs 749. It reported strong second-quarter results post trading hours on Friday.

National Aluminium Company advanced 4% to Rs 237. The company reported today a jump in net profit for second-quarter, September 2006 to Rs 595 crore (Rs 283 crore) Mahindra & Mahindra soared 3.9% to Rs 790 extending its post results rally. Engineering & construction large-cap L&T rose 2% to Rs 1,297. Hindustan Lever gained 0.7% to Rs 228.10. The company announces second-quarter results tomorrow.

Decliners

Tata Motors led the decliners, losing almost 5% to Rs 842.35. The company today reported 30.1% growth in net profit for second-quarter, September 2006 to Rs 442 crore (Rs 339 crore).

ITC lost 0.5% to Rs 186.75. ITC today posted 18.7% growth in net profit for second-quarter, September 2006 to Rs 679.60 crore (Rs 572.33 crore). ITC second-quarter net profit was below market expectations.

Steel large-cap SAIL fell 4.3% to Rs 87.20. ABB dropped 1.5% to Rs 3,640 even as it posted a 55.1% growth in net profit for third-quarter September 2006 to Rs 82.14 crore (Rs 52.94 crore).

Other decliners included Bhel slipping 1.59% to Rs 2,435.15, Wipro losing 1.39% to Rs 554.55, Gujarat Ambuja dropping 0.66% to Rs 119.80 and Ranbaxy shedding 0.58% to Rs 402.

Other news

After Cairn India which said on 12 October it would raise $2 billion through an IPO sometime in December 2006, Delhi-based real estate developer Parsvnath Developers announced on 26 October, it will raise Rs 1,000 crore from an IPO which will open for subscription on 6 November and end on 10 November.


[R]9:45AM Market opened in the negative as Wal-Mart sales weighed.[/R]
U.S. stocks started trading lower Monday, as lackluster same-store sales figures released by Wal-Mart reignited worries about the condition of the U.S. economy. In addition, the Commerce Department reported that consumer spending inched up 0.1% in September, the smallest increase in 10 months.

Dow component Wal-Mart ((WMT)) dropped 2.5% after the retailer said it expects October same-store sales to rise just 0.5%, its weakest gain in nearly 6 years. Another blue-chip stock, Verizon Communications Inc. ((VZ)) reported Q3 profit above analyst forecasts as a powerful showing by Verizon Wireless and the addition of the MCI long-distance business helped boost the phone company''s revenues 26%. The company reported earnings rise of $1.92 billion, or 66 cents per share, up from $1.87 billion, or 68 cents per share last year. Per-share results fell because Verizon has more shares outstanding than a year ago.

Shares of Yahoo ((YHOO)) gained 1.9% after broker Merrill Lynch upgraded the Internet services giant to buy from neutral. In corporate news, Goodyear Tire & Rubber Co. ((GT)) fell 2% after announcing plans to close a plant in Texas. In the first hour of trading, the Dow was down 8.17, or 0.07%, at 12,082.09. The Standard & Poor''s 500 index was down 1.24, or 0.09%, at 1,376.10, and the Nasdaq composite index was down 3.25, or 0.14%, at 2,347.37. Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.68% from late Friday.

[R]Personal income rose more than expected in September.[/R]
Monday morning, the Department of Commerce released its report on personal income and spending in the month of September, showing that personal income rose more than expected while personal spending rose less than expected. The report showed that personal income rose 0.5 percent in September following an upwardly revised 0.4 percent increase in August. Economists had been expecting income to increase by 0.3 percent compared to the 0.3 percent increase originally reported for the previous month. The increase in personal income was partly due to a notable increase in private wage and salary disbursements, which increased $31.0 billion in September compared with an increase of $10.1 billion in August. The Commerce Department also said that personal spending edged up 0.1 percent in September after an upwardly revised increase of 0.2 percent in August.

Spending was expected to increase 0.3 percent compared to the 0.1 percent increase originally reported for the previous month. With the revision to the August data, the modest increase in personal spending in September marked the slowest pace of spending growth since a 0.3 percent decline in September of 2005, when business activity was disrupted by Hurricane Katrina. As a result of the notable increase in personal income and the modest increase in personal spending, personal saving as a percentage of disposable personal income was a negative 0.2 percent in September compared with a negative 0.5 percent in August. The report also showed that core consumer prices, which exclude food and energy prices, edged up 0.2 percent in September after a revised 0.3 percent increase in August. With the increase, prices rose at an annual rate of 2.4 percent in September compared to a 2.5 percent year-over-year increase in August.


[R]9:30AM The FTSE 100 falls Monday morning on miners, weak US stocks[/R]
The FTSE 100 index in was 39.1 points lower to 6,121.8 close to the morning low of 6,117.5, having been weak all morning.

Advancers

UK insurer Standard Life led the advancers though after reports emerged over the weekend that French insurer AXA is considering a takeover approach for the group. Standard Life advanced 2.12%.

British Energy, Drax and Centrica extended their gains from last week on the back of news that Morgan Stanley is planning to invest $3bn in the carbon trading market. Drax is 1.49% higher, while Centrica is 0.83% up. British Energy is currently trading flat.

Autonomy improved slightly 0.05% after the infrastructure software house said it has entered into a multi-million pound contract with the UK government to deploy Autonomy IDOL Server software.

Decliners

Pearson fell 1.66% despite reporting nine-month total sales up 11% and operating profit up 26%. It said the fourth quarter is a key selling season in higher education and consumer publishing, but added it was confident that 2006 will be another good year.

Cadbury Schweppes sank 1.96%. The company will maintain its current revenue growth target from 2007 but will abandon a specific target for operating margins, took its toll. The chocolate group will look to grow annual revenues between 3 and 5% per annum and grow operating margins over time.

Kazakh-based miner Kazakhmys dipped 1.07%. The company announced a rise in production in copper for the third quarter but said the level of other metals mined fell in the period. Copper cathode production advanced 9% compared with the second quarter.

Argos-owner Home Retail Group was hit hard after JP Morgan started coverage on the retailer with an underweight recommendation.

Other news

The number of mortgage approvals in September were at their highest in more than two years, the Bank of England said on Monday, reinforcing expectations its monetary policy committee will increase interest rates to 5 per cent next month.

Britain has called for rapid action to combat global warming, with the publication on Monday of an alarming report that warns of an economic and environmental catastrophe.


[R]9:00AM Stock futures pointed to a lower start amid disappointing Wal-Mart sales.[/R]
Stock market futures indicated a weak opening, as Wal-Mart reported lower-than-forecast October sales which added to concerns about the health of the U.S. economy.

Wal-Mart ((WMT)) said same-store sales gained just 0.5% in October, its smallest rise in nearly 6 years, blaming the lower growth on disappointing apparel demand and disruption from store remodeling projects. The world''s largest retailer had previously predicted a sales rise between 2% and 4%. Wal-Mart shares fell 1.4% in electronic composite trading. At the same time, Yahoo ((YHOO) shares rose 2% after Merrill Lynch upgraded its stock to buy from neutral ahead of the seasonally-strong holiday period. American Power Conversion ((APPC)) shares jumped more than 26% after French electrical engineering company Schneider Electric agreed to buy the company for $6.1 billion.

On the earnings news front, Humana ((HUM)), health benefit company, said Q3 net income more than doubled to 95 cents a share, up from 28 cents a share, with revenue up 48% to $5.65 billion. However, results came in below expectations of 97 cents a share on revenue of $5.9 billion. Blue-chip telecommunications provider Verizon Communications Inc. ((VZ)) reported Q3 profit slightly above analyst estimates, while No. 1 U.S. radio company Clear Channel Communications Inc. ((CCU)) posted net income drop, despite revenue growth. S&P 500 futures were down 2.2 points, barely above fair value. Dow Jones industrial average futures fell 17 points, and Nasdaq 100 futures were down 1.25 points.


[R]8:00AM Schneider Electric offered $6.1 billion for American Power Conversion.[/R]
Schneider Electric, French electrical-equipment group, agreed on Monday to acquire American Power Conversion Corp. ((APCC)) for $6.1 billion in cash. Schneider’s offer is worth $31 for each APC share, a 30% premium to the Friday closing price. The deal is based on an enterprise value of $5.5 billion and will be financed through a combination of cash, debt and a 1.2 billion-euro ($1.5 billion) capital increase. Schneider expects the deal to complete in Q1 of 2007. It has been approved by APC’s board of directors, but still needs to be approved by APC shareholders. Lazard and Merrill Lynch are Schneider’s advisors for the deal, while Goldman Sachs is APC’s financial advisor.

The acquisition will make Schneider a world’s leader in the market for critical-power services, which ensure uninterrupted power supplies to data centers and production facilities. Schneider is planning to merge APC with its power-protection MGE UPS unit to strengthen its position in a secured power-market that''s expected to grow at 8% a year.

The transaction is expected to help Schneider''s earnings per share increase from 2007 and meet its criteria for three-year return on capital employed for acquisitions. By 2009, the combined critical power business is expected to generate annual sales of $4.1 billion to $4.3 billion, representing a 10% growth per year, from a pro forma $3.1 billion in 2006. Earnings before interest, taxes, depreciation and amortization should rise to $700 million to $800 million from $300 million, with the margin rising to 17% to 19% from a pro forma 10 %. Schneider expects the acquisition to generate over $3 billion of ‘value creation.’


[R]7:30AM Asian markets declined due to weak American economic growth.[/R]
Asian markets ended mostly lower on Monday. The Nikkei 225 Index shed 1.9% to end at 16351.85. Honda lost 3.3%, Kyocera fell 2% and Canon declined 3.4%. Banks and real-estate stocks also declined, with Mitsubishi UFJ slipping 2% and Mitsubishi Estate losing 1.2%. Softbank advanced 0.8% on news that a flood of customers wanted to switch their mobile phone service to the company.

In South Korea, the Kospi Index shed 1% to close at 1356.11. Tech shares and brokerage stocks led the decline. Samsung Electronics fell 1.8% and Samsung Securities was down 1.4%. In Sydney, the S&P/ASX 200 gained 0.8% to close at 5399.40. Stocks were buoyed by building-materials company Rinker Group, whose shares soared 26% among expectations that Cemex of Mexico will need to improved its $11.7 billion takeover offer.

In New Zealand, the NZSX-50 Index ended up 0.94% to 3754.83. Taiwan Weighted Price Index dropped 1.3% to 6995.20, while Singapore Straits Times Index shed 1.4% to 2691.60. Markets in Hong Kong were closed for a public holiday.


[R]6:30AM European shares declined on Monday on weak auto stocks.[/R]
European markets were lower, by mid morning on Monday. The FTSE 100 in London lost 0.6% to 6,124.5, Frankfurt Xetra Dax fell 0.7% to 6,218.24, and the CAC 40 in Paris shed 0.9% to 5,349.35.

Advancers

Italian bank Capitalia led the few advancers, up 1.1 %, on rumors that Santander of Spain as considering a bid. Santander denied the report.

Hennes & Mauritz, the Swedish fashion group, gained 1 % after Morgan Stanley raised its price target. The move reflected the new initiatives of the company of international expansion, home shopping, shoes and a new higher-priced former.

Decliners

Eiffage, the French construction and concessions group, was the worst performing stock on the Eurofirst 300. It fell 4.5% after Spanish constructor OHL denied speculation that the two companies were in talks to form an alliance.

Carmakers were weaker as Volkswagen of Germany attracted differing broker views following its forecast-beating results released on Friday. Other stocks in the sector also fell. BMW shed 2.1%, while Renault lost 1.1% and Porsche lost 1.9%.

Erste Bank in Austria fell 3.3% after it reported a 16% rise in third-quarter net profit that fell shy of expectations. Raiffeisen International, the main competitor of Erste Bank in eastern Europe, fell 2.4%. ABN Amro, the Dutch bank, fell 1.6% after announcing a 5.6% fall in third-quarter net profit.

Oil and gold

Oil prices edged up Monday tracking a terror alert in the petroleum-rich Gulf region last week and as traders watched for signs that OPEC nations were following through on announced production cuts. Light, sweet crude oil for December rose 7 cents to $60.82 a barrel on the NYME.

Gold opened Monday at a bid price of $602.30 a troy ounce, up from $596.80 late Friday.

Currencies

The European currency was in trading against the U.S. dollar on Monday, dipping nominally as investors pondered whether the European Central Bank would keep interest rates unchanged when it meets this week. In morning trading, the euro bought $1.2727 compared with $1.2736 in late New York trading on Friday. The British pound fell to $1.8985 from $1.8963 on Friday and the dollar dipped to 117.36 yen from 117.59 yen on Friday.