Two-Days, Oil Drops 9%

123jump.com Staff
04 Jan, 2007
New York City

Two-day drop in oil price of 9% took center stage today. Traders and investors took a note of suddden drop in oil price, two-year low, lifted retail stocks but hurt the stocks in energy complex. Other than teen age apprael retailers, most companies falied to meet December retail sales forecast. Of the 51 companies reporting sales only 23 managed to beat the estimates. Intel rose 4% on broker upgrade and Cisco rose on $830 million buyout of IronPort Systems.

[R]4:15PM NY – 10:30PM Frankfurt – 3:00AM Mumbai[/R]

- Yield on 10-year U.S. bond closed at 4.62% and 30-year bond closed at 4.72%.

-Crude Oil closed $2.72 or 4.66% lower to close at $55.60 per barrel and natural gas closed up 1.4 cents to $6.17 per mBTU.

-Gold dropped 1.3% or $8.10 per ounce, silver rose 9 cents to close at $12.71 and copper dropped 4.4 cents to close at $2.606 per pound. Sharp decline in metals prices affected trading several emerging markets including Russia, Indonesia, Peru and Brazil.

-Asian Markets closed lower across the region led by 1.9% in Hong Kong, 1.7% in Thailand, 1.1% in India and Australia. Singapore and Indonesia lost 0.5% and South Korea lost 0.8%.

-European Markets closed lower across the region on the weakness in mining, banking and energy stocks. Norway lost 2.4%, France dropped 0.65% and the U.K. lost 0.5%. Germany and the Netherlands lost 0.25% but Spain and Switzerland managed to gain 0.05%.

-Latin American Markets closed lower led by 1.2% decline in Argentina, 0.9% loss in Brazil and 0.2% fall in Mexico. Chile closed 0.5% higher.


[R]2:30PM NY – Retail stocks gained on lower oil price and mixed same store sales report.[/R]
Same store retail sales for December was reported by 51 companies according to International Council of Shopping Centers Survey. Of the reporting companies only 23 managed to beat the expectations, 25 missed the expectations and three matched estimates. Luxury retailers reported better than expected sales. Saks reported sales growth of 11%, Nordstrom registered a gain of 9%. J.C. Penney ((JCP)) reported a sales gain of 2.6% and Federated Department ((FD)) registered a rise of 4.4% in sales during the last month.

During the late afternoon trading retail stocks registered gains on lower crude oil price. In New York trading, crude oil dipped 3% or $1.50 to $56.82 per barrel on higher than expected weekly inventory. Nordstrom ((JWN)) is up $1.10 to $52.49 and Guess ((GES)) is up $2.86.

[R]1:00PM European markets closed down, dragged by miners and oil majors.[/R]
European stocks closed down Thursday amid uncertainty related to inflation and economic growth after minutes from the Federal Reserve''s latest monetary-policy meeting. Miners were among the heaviest decliners, with BHP Billiton, and Rio Tinto falling more than 3.5% as copper prices continued to decline. Oil companies like Royal Dutch Shell and Total fell 1.2% amid a sharp decline by the oil price. Brokers also weighed. HSBC Holdings fell 1% in London after ABN Amro downgraded the banking group to sell from hold. ABB shares fell 3% in Switzerland after it was downgraded by Prudential Equity Group, citing valuation. Among other movers of the day, shares of German chemicals and pharmaceutical company Merck KGaA rose 6.5% after a report that it may sell its generic-drugs division in a deal of over 4 billion euros. The French CAC 40 was the biggest decliner, falling 0.7%, followed by London FTSE 100, down 0.5%, and the German DAX 30, down 0.3%.

Crude oil prices slipped below $57 a barrel on ample supplies. Crude oil February contract tumbled $1.49 to $56.83 a barrel. London Brent slipped $1.65 to $56.31 The U.S. dollar advanced against its major currency rivals. The euro was quoted at $1.3083, down from $1.3165. The dollar bought 119.34 yen, down from 119.35. The British pound was quoted at $1.9433, down from $1.9505. European gold prices declined. In London, gold traded at $627.10 per troy ounce, down from $635.25. In Zurich, the precious metal traded at $626.65 per ounce, down from $635.90. Silver closed at $12.74, down from $12.88.


[R]11:30AM The Nasdaq moved higher, helped by semiconductors.[/R]
The U.S. stock markets turned mixed in late morning trading, as expectations of lower gasoline prices offset concerns about consumer spending. Oil prices dropped $1.60 to $56.72 a barrel after the government reported inventories of gasoline, heating oil and diesel fuel rose more than expected in the last week of 2006. Energy stocks were among the most notable decliners, with Exxon Mobil ((XOM) falling 1.2%. Chevron Corp. ((CVX)) and British Petroleum PLC ((BP)) also declined. The Dow was also pressured by notable losses posted by McDonald''s ((MCD)), down 1.6%, AT&T ((T)), down 1.6%, and DuPont ((DD)), lower by 1.2%. Disappointing data on the services sector and December retail sales further pushed blue-chip stock lower. However, retailers, which suffered weakness earlier in the session, recovered on speculations that lower gasoline prices could boost consumer spending.

In contrast, the Nasdaq moved above the flat line. The advance by the tech-heavy average was largely contributed by strength in the semiconductor sector. Intel ((INTC)) climbed 3.8%, helping to lead the sector higher after Banc of America raised its earnings estimates for the semiconductor giant. Strong gains by some biotechnology and internet stocks also provided a boost. In late morning trading, the Dow Jones industrial average fell 10.25, or 0.08%, to 12,464.27. The Standard & Poor''s 500 index was down 0.89, or 0.06%, at 1,415.74, and the Nasdaq composite index added 13.59, or 0.56%, to 2,436.75.


[R]Crude oil inventories fell, while gasoline stockpiles gained.[/R]
Crude oil inventories fell in the most recent week, according to government statistics released Thursday. Meanwhile, gasoline stockpiles experienced a significant build. The Department of Energy''s Energy Information Administration said that crude oil inventories slipped 1.3 million barrels in the week ended December 29. Specifically, the measure dipped to 319.7 million barrels from the previous week''s level of 321 million barrels. Oil inventories for the December 8 week were 1.2% lower than last year. Meanwhile, gasoline inventories showed a week-over-week increase of 5.6 barrels. The level of gasoline inventories was 0.7% above last year. Distillate fuel oil also had an inventory increase during the week ended December 29. Stockpiles of these products, which include heating oil, rose 2 million barrels.

[R]Factory orders gained 0.9% in November.[/R]
The Department of Commerce released its report on new orders for manufactured goods in the month of November on Thursday, showing that orders rebounded less than expected after a steep decline in the previous month. The report showed that orders rose 0.9 percent in November following a revised 4.5 percent decline in October. Economists had expected orders to increase 1.4 percent compared to the 4.7 percent decrease originally reported for the previous month. The increase in orders came as new orders for manufactured durable goods rose 1.6 percent in November following an 8.1 percent decrease in October. The Commerce Department also said that new orders for manufactured non-durable goods increased slightly. The Commerce Department added that shipments of manufactured goods rose 0.1 percent in November, matching the increase that was seen in the previous month. At the same time, inventories edged up 0.2 percent in November after rising 0.3 percent in October. Subsequently, the inventories-to-shipments ratio edged up to 1.24 in November from 1.23 in October.

[R]Business activity slowed in December.[/R]
Thursday morning, the Institute for Supply Management released its report on business activity in the services sector in the month of December. The report showed that the pace of growth in the sector slowed compared to the previous month. The Institute for Supply Management said its index of business activity in the sector fell to 57.1 in December from 58.9 in November, with a reading above 50 indicating growth in the sector. Economists had expected the index to fall to 57.0. The slowdown in the pace of expansion in the sector was partly due to slower new orders growth, with the new orders index falling to 54.4 in December from 57.1 in November. At the same time, the report showed an acceleration in the pace of employment growth, as the employment index rose to 53.3 in December from 51.6 in the previous month. Additionally, the report showed that the pace of price growth also accelerated during with month, with the prices index rising to 59.1 in December from 55.6 in November.


[R]10:30AM NY – 9:00PM Mumbai - The Sensex in India declines on the weakness in large caps.[/R]
The Sensex on BSE closed 143.21 points, or 1.02%, lower at 13,871.71. The market-breadth was strong as mid-caps and small-caps were in focus. There were almost three advancers for every two decliners on BSE. For 1,525 shares that advanced, 1,085 declined on and 65 stocks remained unchanged. Of the 30 stocks in the Sensex, 24 declined, while the rest advanced. The turnover on BSE was Rs 4,508 crore higher than Rs 4,312 crore on Wednesday. The turnover on NSE was Rs 8,556.02 crore, compared to Rs 8,154.36 crore on Wednesday.

Economic news

The Hinduja group is likely to become the third bidder, alongside Reliance Communications Ltd. and Vodafone Group Plc for mobile phone operator Hutchison Essar Ltd. The price tag is rumored to be between $17billion and $20 billion. Hinduja official said that the Hinduja Group would like to buy at least 51% in the fourth-largest mobile phone operator in India.

Arcelor Mittal, the largest steel maker in the world, is to bid for a controlling stake in Indian iron ore exporter Sesa Goa Ltd. The company is valued at 80 billion rupees or $1.7 billion. Tata Steel, Sterlite and Jindal Steel & Power and Essar Steel are other companies reported to be seeking 51% stake in the company owned by Japanese conglomerate Mitsui Ltd. According to local newspapers Mitsui has appointed investment bankers to find a buyer for its stake.

The Indian cabinet approved on Thursday a levy exemption for ready-made garments in an effort to improve their competitiveness globally. The government has approved partial lifting of the ban on sugar exports as domestic prices fell and supply improved.

The Reserve Bank of India intends to allow financially strong cooperative banks in urban areas to open more branches and raise funds. The Reserve Bank will also encourage weaker banks to merge to help the consolidation process.

In trade today

Info Edge was the most-active stock with a turnover of Rs 120.60 crore followed by Unitech and Reliance Industries.

Advancers

Dr Reddy led the advancers, up 1.81% to Rs 823.15, on 2.89 lakh shares. L&T also gained 0.93% to Rs 1,490, for the second day in a row, following statement from the company on Wednesday that it had secured an overseas order worth over Rs 400 crore. Tata Motors added 0.90% to Rs 947.50, after the company ADR surged 6.1% on Wednesday to $21.69.

Shares of oil refineries ended higher as crude oil futures declined below $59 a barrel. HPCL advanced 4.08% to Rs 288, Indian Oil Corporation gained 4.46% to Rs 469.80 and BPCL was 1.95% higher to Rs 345. Indian Oil Corporation has sold oil bonds worth Rs 806 crore in the secondary market.

Outsourcing company Hinduja TMT advanced 2.24% to Rs 772.55 as it prepares to bid for a controlling stake in mobile phone operator Hutchison Essar.

Decliners

ITC led the decliners, down 3.76% to Rs 168.75. It had hit a high of Rs 176.85 in opening trade. The stock declined on the news of 10% plunge in wheat prices. Hero Honda shed 3% to Rs 755, Reliance Communications lost 1.96% to Rs 463.55 and BHEL dipped 1.15% to Rs 2,275

IT shares were under selling pressure after rallying for two days. Satyam Computer slipped 2.53% to Rs 502.10, as a block deal of 14.2 lakh shares was made in the stock on BSE at Rs 514.50. Other decliners included TCS off 0.92% to Rs 1,269.50, Wipro plunging 2.43% to Rs 605.25 and sector leader Infosys off 1.28% to Rs 2,283.

Index heavy Reliance Industries shed 0.34% to Rs 1,280.40 on 11.47 lakh shares.

Metal stocks declined on weaker metal prices globally. Copper and zinc lost 4% each on the MCX, as copper price fell below $6,000 per ton for the first time in eight months on the LME. Sterlite Industries was down 1.67% to Rs 538, Hindalco lost 3.12% to Rs 174, Jindal Stainless shed 3.56% to Rs 119, SAIL dipped 3.10% to Rs 89.40, and Hindustan Copper edged 0.60% lower to Rs 91.


[R]9:45AM Market opened lower amid disappointing retail sales.[/R]
U. S. stocks started trading lower Thursday morning as disappointing monthly retail sales raised concerns about the outlook for corporate profits. Retail chains like Federated Department Store., Gap Inc., Limited Brands Inc., and Target Corp. posted lower-than-expected same-store sales during the month of December. Discount retailer Target Corp. ((TGT)) said Thursday its December same-store sales rose 4.1%, slightly below the expected rise of 4.5%. Net sales rose 9% to $9.25 billion. For January, Target forecast a same-store sales gain of 3.5% to 5.5%. Hot Topic ((HOTT)) stood out as a notable decliner, falling 18.3% after the apparel retailer cut its Q4 guidance due to weaker-than-expected December same-store sales.

The disk drive sector turned in one of the market''s worst performances in morning trading. Komag ((KOMG)) dropped 3.6% Adaptec ((ADPT)) lost 1.1% and Hutchinson ((HTCH)) slipped 3.5%, leading the sector down. Resource stocks showed considerable weakness, contributing to the early losses. Energy stocks moved further down, as the price of oil extended its recent decline, falling to $57 a barrel. Shares of Exxon ((XOM)) declined 1.4%. Similarly, a continued decrease by the price of gold dragged down gold stocks. In the first hour of trading, the Dow Jones industrial average fell 15.78, or 0.13%, to 12,458.74. The Standard & Poor''s 500 index was down 4.27, or 0.30%, at 1,312.36, and the Nasdaq composite index shed 4.55, or 0.19%, to 2,418.61.

[R]9:30AM NY – 3:00PM London FTSE 100 lower as weak metals hit the market.[/R]
The FTSE 100 in London slipped 0.62% to 6,280 in mid-afternoon session.

Economic news

The service sector in the UK grew at its fastest pace in almost a decade last month, while companies are displaying increasing optimism about the coming year, a survey released on Thursday showed.

Decliners

Kazakhmys, Vedanta and Antofagasta were firmly in negative territory impacted the overall market trend negatively, down 4.69%, 4.40% and 4.10% respectively. Xstrata fell worst, down 5.30% as falling copper prices weighed on the miners.

Oil prices declined 4% on Wednesday to below $59 a barrel due to milder than usual weather in North America, with the conditions set to continue well into next week. BP, Shell and Cairn Energy fell, 0.97%, 1.71% and 4.56% respectively.

Dutch bank ABN Amro downgraded British Gas owner Centrica to hold from buy and reduced its earnings estimates for 2008-09 by 8% and 6% respectively on valuation grounds.

St James'' Park Group, a consortium backed by Polygon Global Opportunities Master Fund, has pulled back of bid talks with English Premiership football club Newcastle United, bringing shares of the soccer club down 8.07%.

Advancers

Online electronic trading platform business FastFill announced that it has received an approach regarding a possible offer for the company, which supported a 13.73% surge in the shares of the company.

In the wake of the sale of Dolcis, clothes and shoes retailer Alexon saw same-store sales for the rest of the group for the 22 weeks ended 30 December decline 4% compared with the previous year. The shares of the company advanced 3.73%.


[R]9:00AM Market futures declined on rate worries and disappointing retail sales.[/R]
U.S. stock futures pointed to a negative market opening on continuous concerns that the Fed Reserve may not cut interest rates in the short term. Market also digested December retail sales which turned out to be lower than previously expected. On the economic news front, the Labor Department reported that 329,000 newly unemployed workers filed applications for jobless benefits, an increase of 10,000 from the previous week, marking the highest level since late November. Thursday''s economic agenda also includes the Institute of Supply Management''s non-manufacturing index for December, weekly energy supplies statistics, as well as November factory orders.

Among companies releasing quarterly results, Monsanto Co. ((MON)), agricultural products maker, said its Q1 earnings surged 53% to 16 cents a share, up from 11 cents last year on strong sales, The company said it sees full-year results at the top end of its previous guidance. The stock fell 2.5% in pre-market trading, as the top end of its guidance range was still below analysts'' expectations. In corporate news, Cisco Systems ((CIS)) said it agreed to buy privately held IronPort Systems for $830 million. S&P 500 futures shed 2.80 points to 1,422.00 and Nasdaq 100 futures declined 5.50 points to 1,773.50. Dow industrial futures dropped 24 points to 12,506.

[R]Initial jobless claims rose more than expected.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended December 30, showing that jobless claims increased by much more than economists had been expecting. The report showed that jobless claims rose to 329,000 from the previous week''s revised figure of 319,000. Economists had expected jobless claims to edge up to 320,000 from the 317,000 originally reported for the previous week. The Labor Department also said that the less volatile 4-week moving average rose to 317,500 from the previous week''s revised average of 316,250. The report also showed that continuing claims in the week ended December 23 fell to 2.446 million from the preceding week''s revised level of 2.522 million. The data may shed some light on the monthly employment report that is due to be released on Friday. Economists currently expect the report to show that U.S. economy added around 115,000 jobs in December, while the unemployment rate is expected to remain at 4.5 percent.


[R]8:00AM Retailers reported weaker-than-expected December same-store sales.[/R]
Retail companies will be in the spotlight on Thursday, due to the release of December same-store sales. Rainstorms and warmer winter weather are expected to have negatively influenced retailers’ holiday sales. The increasing popularity of gift cards and robust online shopping, which is not included in same-store results, are also considered to have hurt sales. The International Council of Shopping Centers is projecting that December same-store sales will rise at the low end of its 2.5% to 3.5% forecast.

Following Wal-Mart’s ((WMT)) report of better-than-expected same-store sales, Costco Wholesale and American Eagle Outfitters posted surprisingly strong data. Costco Wholesale Corp. ((COST)) said that December same-store sales rose 9%, higher than the projected 5.7% increase. Total sales rose 14% to $7.24 billion from $6.37 billion a year earlier. Costco stated that the current reporting period included 34 selling days vs. 33 a year earlier, providing a 3% boost to the latest data. J.C. Penney Corp. ((JCP)) also reported positive results, saying December sales at department stores open at least a year rose 2.6%, slightly higher than estimates of 2.4% growth. Total department store sales rose 4.2% to $2.96 billion.

Among retailers releasing disappointing results, Bebe Stores Inc. ((BEBE)) reported a 4% increase in sales at stores open at least a year, missing analyst estimates of an increase by 6.3%. Total retail sales for the five weeks ended Dec. 30 climbed 13.5% to $95.6 million. The apparel retailer cut its Q2 earnings forecast, due to lower-than-expected sales and higher-than-planned markdowns. Limited Brands Inc. ((LTD)) posted a 4% advance by its December same-store sales, coming in below expectations of a gain by 9.3%. Net sales for the period rose 6% to $2.03 billion. Likewise, Federated Department Stores Inc. ((FD)) said sales rose 4.4%, below expectations of a 5.5% rise.

Pier 1 Imports Inc. ((PIR)) said that December comparable sales dropped 10.7%, below forecasts for a 9.4% decline. Total sales fell 10.9% to $242.5 million. Wilsons The Leather Experts Inc. ((WLSN)) said Thursday that same-store sales slipped 23% for the five weeks ended Dec. 3, blaming warmer-than-expected weather. Total sales for the period dropped to $75.7 million from $110.2 million. Gap ((GPS)) was also among the big misses, with sales down 8%, worse than the 5% drop expected by analysts. The retailer also cut its profit forecast for the year. Chico''s FAS ((CHS)) said December same-store sales fell 2% from last-year levels, meeting estimates. Total sales jumped 12% to $193.2 million from last year''s $172.6 million. The specialty apparel and accessories retailer said it expects Q4 earnings of 12 to 15 cents a share, below forecasts of 21 cents a share.


[R]7:30 AM Asian markets mostly fell Thursday, Japan, China gained.[/R]
Asian markets finished mostly lower on Thursday. The Nikkei 225 Average finished the day 0.7% higher at 17353.67. Toyota advanced 1.6% and Nissan gained 1.5%, while Fuji Heavy, the maker of Subaru-brand cars, surged 4.7% on a local newspaper report that top shareholder Toyota will supply compact cars for sale in Europe with Subaru badges. Technology stocks also performed well, with Hitachi up 6.1%, Toshiba gaining 2.6%, Mitsubishi Electric advancing 3.9%, and Sony rising 1.8%.

In China, the Shanghai Composite Index rose 1.5% to 2,715.71. Air China soared 9.9%, China Southern Airlines advanced 4.2%. Sinopec, the largest refiner by capacity in Asia, surged 9.9% on higher global oil prices. In Hong Kong, the Hang Seng Index fell 1.9% to 20,025.58. China Construction Bank was off 4.9%, Bank of China lost 3.8%, ICBC sank 4.3%, while Bank of Communications tumbled 8.5% and Ping An plummeted 8.8%.

In South Korea, banks and construction shares led losses in the stock market. The Korea Composite Stock Price Index, or Kospi, shed 0.9% to 1,397.29. Investors worry that tougher mortgage loan rules will impact negatively bank profit margins and damp the property market. Koomin Bank, the largest Korean bank by assets, shed 1.7%, while Hyundai Engineering & Construction was down 2.3%.

In Australia, the S&P/ASX Index 200 declined 1.1% to end at 5,563.90. BHP Billiton fell 4.4% and Rio Tinto shed 4.2% after London Metal Exchange copper declined 4.0% on Wednesday.


[R]6:30 AM Europe declined on Thursday as copper hit commodity exchanges.[/R]
European markets were lower on Thursday. By mid-morning, the U.K. FTSE 100 shed 0.8% to to 6,269.2, Frankfurt Xetra DAX also slid 0.8% to 6,638.72 and CAC 40 in France declined 1% to to 5,557.56.

Decliners

BHP Billiton and Rio Tinto shed more than 3% in London as copper prices plunged further. Antofagasta, the owner of three copper mines in Chile, dipped 3.9%. Steelmakers were also down. Vallourec, the French maker of steel tube, shed 3.4%, Mittal Steel slid 4.2% and ThyssenKrupp of Germany shed 3%.

Oil and gas producers declined on a 4% drop in crude prices overnight. Austrian OMV was down 2.4%, Total in France slipped 1.8%, while Repsol of Spain was 1.5% lower.

Carmakers were hit after sales in US fell last month. Volkswagen AG and DaimlerChrysler AG declined as shares of Volkswagen fell 1.4% and DaimlerChrysler, shed 1%. BMW dropped 1.8%. The biggest luxury carmaker in the world had the recommendation on its stock cut to hold from buy at Citigroup Investment Research.

Advancers

Akzo Nobel NV gained 2.3%. The Dutch chemicals maker announced an initial public offering of its pharmaceutical unit Organon is still the preferred option after a newspaper reported today that the company is in talks with at least two private equity firms about the sale of Organon. Carnival Plc, a cruise-ship operator, gained 2.5% as Morgan Stanley raised its share-price forecast on the stock with 15%.

Oil and gold

Crude oil for February delivery on the New York Mercantile Exchange declined $2.73 from settlement price on Friday to a six-week low of $58.32 a barrel. Gold traded in London at $625.25 per troy ounce, down from $635.25 late Wednesday.

Currencies

The U.S. dollar rose against other major currencies in European trading Thursday morning. The euro traded at $1.3101, down from $1.3165 late Wednesday in New York. The British pound traded at $1.9430, down from $1.9505. The dollar bought 119.37 Japanese yen, up from 119.35.