Futures Gain despite Slower Economic Growth

Elena
21 Dec, 2006
New York City

U.S. stock market futures erased some of the earlier gains but kept above the flat line after a government report showed that the economy grew at a slightly slower pace in Q3 than previously reported. The Commerce Department said GDP grew at a 2% annualized pace in Q2, down from an earlier estimate of 2.2% growth. In another report, the Labor Department said initial jobless claims rose 9,000 to 315,000 last week.

[R]9:00AM Stocks futures traded up, despite slower economic growth in Q3[/R]
U.S. stock market futures erased some of the earlier gains but kept above the flat line after a government report showed that the economy grew at a slightly slower pace in Q3 than previously reported. The Commerce Department said GDP grew at a 2% annualized pace in Q2, down from an earlier estimate of 2.2% growth. In another report, the Labor Department said initial jobless claims rose 9,000 to 315,000 last week.

In earnings-related news, Nike ((NKE)) reported an 8% profit rise, driven by 10% sales growth, but gross margins were flat from the year-ago period, at 43.4%. Bed Bath and Beyond ((BBBY)) unveiled a less-than-forecast 6% profit rise on 12% sales. The company posted Q3 net earnings of 50 cents a share, up from 45 cents a share a year ago, missing estimates of 52 cents a share. Accenture ((ACN)) is expected to advance after the consulting firm reported a 32% profit rise and lifted its annual profit outlook. General Mills ((GMS)) reported a stronger-than-forecast 4% profit rise and lifted its annual profit outlook.

In merger-and-acquisition news, defense contractor Raytheon Co. ((RTN)) confirmed it would sell its Raytheon Aircraft Co. unit to GS Capital Partners and Onex Partners for about $3.3 billion. Europe’s biggest drug maker GlaxoSmithkline said it would buy U.S. biotech company Praecis Pharmaceuticals Inc ((PRCS)) for an agreed $54.8 million. S&P 500 futures were up 0.4 points, above fair value. Dow Jones industrial average futures rose 6 points, and Nasdaq 100 futures gained 3.75 points.

[R]Third-quarter GDP rose at a slower-than-expected 2% pace.[/R]
The Department of Commerce released its final report on third quarter gross domestic product on Thursday, showing that the pace of GDP growth was unexpectedly revised downward compared to the previous estimate. The report showed that GDP growth was revised down to 2.0 percent compared to the preliminary estimates of 2.2 percent growth. Economists had been expecting the pace of GDP growth to be unrevised from the previous reading. The revised reading reflects a more notable slowdown compared to the 2.6 percent pace of GDP growth reported for the second quarter.

The Commerce Department said that the downward revision to third quarter GDP growth primarily reflected a downward revision to consumer spending on services. The report also showed that the slowdown in the pace of GDP growth compared to the second quarter reflected an acceleration in imports and a larger decrease in residential fixed investment. Decelerations in consumer spending on services, private inventory investment, and state and local government spending also contributed to the slowdown in GDP growth. At the same time, increases in equipment and software spending, consumer spending on durable goods, and federal government spending helped to offset some of the slowdown.

[R]Initial jobless claims rose by 9,000.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended December 16, showing that jobless claims rose roughly in line with economist estimates. The report showed that jobless claims rose to 315,000 from the previous week's revised figure of 306,000. Economists had expected jobless claims to increase to 315,000 from the 304,000 originally reported for the previous week. At the same time, the Labor Department also said that the less volatile 4-week moving average fell to 325,750 from the previous week's revised average of 327,750. The report also showed that continuing claims in the week ended December 9 rose to 2.520 million from the preceding week's revised level of 2.475 million.


[R]8:00AM Raytheon agreed to sell aircraft-making unit to Goldman Sachs Capital Partners for $3.3 B.[/R]
Raytheon Co. ((RTN)) confirmed it had agreed to sell its aircraft-making unit to Goldman Sachs Capital Partners ((GS)) and Onex Partners in a deal worth $3.3 billion. Raytheon is an industry leader in defense and government electronics, space, information technology, technical services, and business and special mission aircraft. The company expects proceeds of $2.5 billion after tax. It also considers a buyback of $750 million in stock. Raytheon plans to retire $1 billion in debt and report the aircraft unit as a discontinued operation.

It sees earning in the range of $2.35 to $2.45 a share from continuing operations in 2006 on sales between $20 billion and $20.5 billion, and $2.75 to $2.90 a share on revenue between $21.3 billion and $21.8 billion in 2007. It earlier projected 2006 earnings from continuing operations between $2.70 and $2.80 on sales between $23.1 billion to $23.6 billion, and earning $2.95 to $3.05 a share from continuing operations on revenue of $24.6 billion to $25.1 billion in 2007.


[R]7:30AM Asian markets in broad decline Thursday, despite the advance in Japan.[/R]
Asian markets fell broadly on Thursday. The Nikkei 225 stock index in Japan gained 0.22% to end at 17,047.83, its highest finish since May 9. Steelmakers advanced on reports that Nippon Steel was about to gain control of Usiminas of Brazil by acquiring a majority stake. Nippon Steel edged 0.5% higher and Kobe Steel added 0.51%.

Toyota Motor Corp advanced 1.7% while Honda rose 1.1%. Electronics and entertainment conglomerate Sony moved 0.2% up. Machinery-related shares advanced as well, boosted by hopes of strong capital expenditure on new factory investment. Komatsu Ltd. Gained 3.4% and industrial robot-maker Fanuc Ltd gained 1.3%.

In Hong Kong, the Hang Seng Index shed 0.1% to 19,222.84. Bank of China gained 1.6% and China Construction Bank also moved up 2.2%, but falls in HSBC and China Mobile weighed on the overall market. HSBC shed 0.3% and China Mobile slipped 0.3%.

Thursday, the Stock Exchange of Thailand benchmark SET index shed 2% to 676, with investors attributing the decline to profit-taking and concerns over a weaker Thai baht against the U.S. dollar that could trigger a sell-off.

South Korean stocks also closed slightly lower on profit-taking in banking and telecommunications shares. The Korea Composite Stock Price Index, or Kospi, dropped 0.4% to 1436.47. Kookmin Bank was off 1.1% and Shinhan Financial Group lost 2.3%.

Malaysia KLSE Composite rose 0.2%. Singapore Straits Times Index added 0.3% and Taiwan Weighted Price index put up 0.4%. Other markets around the region included Australia S&P/ASX 200 shedding 0.3% and New Zealand NZX-50 moving 0.5% higher.


[R]6:30AM European stocks retreated slightly Thursday in thin trading.[/R]
European markets declined slightly in early trade on Thursday. The FTSE 100 in London was 0.1% lower at 6,188.9, Frankfurt Xetra Dax was down 0.1% at 6,582.24, while the CAC 40 in Paris was up fractionally at 5,516.44.

Advancers

Publicis Groupe, the French advertising company, advanced 4.7% following its announcement after the close on Wednesday that it was buying Digitas, the US interactive advertising agency, valuing the company at $1.3 billion.

French utility Suez traded 2% higher as it said its Belgian subsidiary Electrabel had increased its stake in Societe Hydro-Electrique du Midi in france from 40% to 99.6%.

Richemont, luxury goods group, gained after Swiss watch exports rose 13% yearly in November. Richemont moved up 3%.

Ryanair Holdings advanced 0.3% after it said that it is withdrawing its offer to buy Aer Lingus as the European Commission competition body announced it would open an investigation into the takeover bid. Aer Lingus shares gave up 0.4%.

Decliners

Vodafone Group shares dipped 1.4% on reports that of tabling a bid for Hutchison Essar at $13.5 billion. Shares in Sanofi-Aventis slipped 0.2% after its CEO told the a newspaper that the company would like to buy a biotech if one was available.

Oil and gold

Crude oil declined from a three-month high on talks that warmer-than-usual weather will reduce demand for heating fuel amid rising inventories. Crude oil for February delivery fell 56 cents, or 0.9%, to $63.16 in electronic trading on the New York Mercantile Exchange. Brent crude oil for February settlement fell as much as 62 cents to $62.61 a barrel in electronic trading on the ICE Futures exchange.

Gold gained in London as the dollar retreated against the euro, making some investors buy the metal as an alternative investment. Gold for immediate delivery in London rose $2.11, or 0.3%, to $622.55 an ounce.

Currencies

The U.S. dollar was mixed against other major currencies in European trading Thursday morning. The euro traded at $1.3172, down from $1.3178 late Wednesday. The British pound traded at $1.9682, up from $1.9644. The dollar bought 118.15 Japanese yen, down from 118.34.