Rate Worries Pressure US Stocks

Elena
05 Jan, 2007
New York City

U.S. stock markets opened Friday trading session in the negative, reflecting rate concerns, raised by stronger-than-expected employment rate in December, steeply lower oil prices and a profit warning from Motorola. Best Buy rose 1.4% after the consumer electronics retailer said same-store sales rose 7%. Circuit City erased earlier gains made on its report that December same-store sales rose 4.2%.

[R]9:45AM Market opened lower amid rate concerns and Motorola sales warning.[/R]
U.S. stock markets opened Friday trading session in the negative, reflecting rate concerns, raised by stronger-than-expected employment rate in December, steeply lower oil prices and a profit warning from Motorola. Best Buy ((BBY)) rose 1.5% after the consumer electronics retailer said same-store sales rose 7%. Circuit City ((CC)) erased earlier gains made on its report that December same-store sales rose 4.2%. In earnings news, Global Payments ((GPN)) posted 11% profit rise in Q2 to 42 cents per share, up from 37 cents per share last year on 9% revenue growth The stock dropped 10.5%. In the first hour of trading, the Dow Jones industrial average fell 28.44, or 0.23%, to 12,452.25. The Standard & Poor's 500 index was down 4.90, or 0.35%, at 1,413.44, and the Nasdaq composite index was down 13.06, or 0.53%, at 2,440.37. Prices plummeted in the Treasury market, with the 30-year bond price dropping more than a full point after the jobs report. The yield on the benchmark 10-year Treasury note soared to 4.70%from 4.61% late Thursday.

[R]December employment rate increased more than expected.[/R]
Friday morning, the Department of Labor released its report on the employment situation in the month of December, showing that the U.S. economy added more jobs than economists had been expecting while the unemployment rate remained unchanged. The report showed that non-farm payrolls increased by 167,000 in December following an upwardly revised increase of 154,000 in November. Economists had expected an increase of about 100,000 jobs compared to the increase of 132,000 jobs originally reported for the previous month. The better than expected job growth reflected gains in several service-providing industries, including professional and business services, health care, and food services.

Service-providing industries added 178,000 jobs in December, more than offsetting a decrease of 11,000 jobs in goods-producing industries. The drop in jobs in goods-producing industries was largely due to a continued decline in manufacturing jobs. The Labor Department also said that the unemployment remained unchanged at 4.5 percent in December, which was in line with economist estimates. In the previous month, the unemployment rate edged up to 4.5 percent from 4.4 percent due to an increase in the size of the labor force. The report also showed that average hourly earnings increased by $0.08 or 0.5 percent in December to $17.04. With the increase, the year-over-year growth in average hourly earnings edged up to 4.2 percent in December from 4.1 percent in November.


[R]9:30AM NY – 2:30PM London The FTSE retreats on utilities, oil and gas stocks.[/R]
The FTSE 100 in London shed 16.8 points, or 0.3%, to trade at 6,270.2 in mid-morning session.

Decliners

Scottish & Southern Energy suffered heavy losses of 3% while International Power shed 2.3%. Kelda Group declined 1.3%. Cairn Energy also lost 2%, hit by weaker oil prices as crude dropped below $56 a barrel. Royal Dutch Shell was off 1% and BG Group lower by 1.5%.

Miners declined on copper prices which hit 9-month lows on continuing demand worries. BHP Billiton retreated 1.5% while Lonmin traded 1.4% lower.

CSR, Bluetooth maker for mobile phone components, continued to trade in the red after recently being accused of violating a wireless connections technology patent. It was down 2.5%.

Games Workshop Group were down by 8.4% following a profit warning. The company, which makes and sells figurines, announced that full year sales, and therefore profits, are likely to miss current market expectations.

Advancers

Support services firm Cape announced that earnings for the full year will top market expectations as its strong first half performance has continued throughout the second half of the year and will yield a positive set of full year results.

The retail sector attracted attention a day after well received results from fashion group Next. Merrill Lynch was moved to reiterate buy advice and the previous target price, with increased profit and earnings forecasts.

Supermarket leader Tesco was in focus, up 2.22%, as well as rival William Morrison, 1.39% higher, while J Sainsbury advanced 0.84% before the trading update next Thursday.


[R]9:00AM Market futures traded down, despite strong employment data.[/R]
U.S. stock futures remained in the negative territory even after stronger-than-expected December payrolls data eased concerns about an economic slowdown. The Labor Department released an employment report Friday which showed that the jobs market ended 2006 on a positive note. Total nonfarm payroll employment increased by 167,000 in December to 136.2 million, following increases of 86,000 in October and 154,000 in November. The number of new jobs added to the economy in December exceeded analysts'' forecasts for a gain of around 115,000. The Labor Department also said that the jobless rate fell from 4.9% at the beginning of the year to 4.5%. Average hourly earnings jumped by 0.5%, higher than the 0.3% rise expected. U.S. stock futures remained in the negative territory even after stronger-than-expected December payrolls data eased concerns about an economic slowdown.

Friday pre-market sentiment was considerably hurt by a profit warning from handset maker Motorola Inc., as well as downgrades of Dell Inc. and Exxon Mobil. A move by China to limit growth also contributed to the weakness. Motorola ((MOT)) dropped nearly 10% in pre-opening hours as the mobile phone maker cut its Q4 earnings and sales forecast, citing lower margins and average selling prices due to an unfavorable geographical and product mix of mobile-phone sales. Dell Inc. ((DELL)) fell 1.9% in pre-open after J .P. Morgan cut the computer maker to underweight from neutral on concerns over its enterprise business. Dow component Exxon Mobil ((XOM)) was downgraded at Lehman to equal-weight on concern over slowing production growth. Elsewhere, shares of Circuit City Stores ((CC)) and Best Buy ((BBY)) gained 4% each after reporting same-store sales increase and ahead of quarterly earnings release. S&P 500 futures were down 5.6 points, below fair value. Dow Jones industrial average futures fell 38 points, and Nasdaq 100 futures fell 8 points.


[R]8:00AM Motorola cut its Q4 earnings and sales forecast.[/R]
Motorola Inc. ((MOT)) slashed its Q4 earnings and sales forecast, citing lower margins and average selling prices due to an unfavorable geographical and product mix of mobile-phone sales. It sold 66 million units in the quarter, up 48% from last year and 23% from Q3 levels. The world''s No. 2 mobile phone maker said that Q4 sales will come in the range of $11.6 billion to $11.8 billion, lower than earlier guidance of between $11.8 billion and $12.1 billion.

The company projected earnings per share in a range of 13 cents to 16 cents a share, including 10 cents of charges on investment-related losses, stock compensation expenses and taxes. The profit projections came in below analysts’ expectations of earnings of 39 cents a share on sales of $11.99 billion.

Goldman Sachs predicts that Motorola will see several quarters of average-selling-price weakness. It also warned that product differentiation, a key driver of Motorola''s recent gains, is likely to decrease because of the introduction of some thin products in the first half of 2007 by Nokia.

Motorola shares were down 9.4% in pre-market trading.


[R]7:30 AM Asian markets closed mostly down with Japan lower and HK higher.[/R]
Asian markets ended mostly lower on Friday. IN Japan, the Nikkei 225 index closed down 262.08 points, or 1.5%, to 17,091.59. Exporters were hit by profit-taking. Toyota Motor shed 2.4%, while Honda fell 3%. Toshiba Corp advanced 1.6% though, after the Nikkei daily reported the second-largest machinery maker in Japan intends to market a new boiling-water reactor for nuclear power plants. The stronger yen also hurt exporters of consumer electronics. Canon Inc dipped 2.1% while camera maker Nikon slipped 3.8%.

The Hang Seng Index in Hong Kong bucked the downtrend and gained 0.9% to 20,211.28. Mainland financial shares ended mixed. Shares of Industrial & Commercial Bank of China added 0.4%, while Bank of China lost 0.5%. Mainland insurer China Life Insurance declined 3.3%. The Shanghai Composite in China ended 1.9% lower to 2,664.85, while Singapore Straits Times index rose 0.3%.

Australia S&P/ASX 200 pared early gains to finish down 0.2% at 5,572.00, while New Zealand''s NZSX-50 advanced 0.2% to 4,035.27. Shares of the largest mining company in the world, BHP Billiton, fell 0.9%, while Rio Tinto shed 1.5%. Resource companies declined, tracking drops in energy prices. Australian Woodside Petroleum lost 1.9%


[R]6:30 AM European markets slipped on Friday on weaker commodities, tech stocks.[/R]
European markets were lower on Friday. The FTSE 100 in London shed 0.5% to 6,255.5, Frankfurt Xetra Dax fell 0.6% to 6,636.94, the CAC 40 in Paris lost 0.5% to 5,546.44.

Decliners

Credit Suisse downgraded its rating on world number one handset maker Nokia from outperform to neutral. Nokia shed 3.4 %. French rival Alcatel-Lucent dipped 1.2%, while Ericsson of Sweden, whose Sony-Ericsson joint venture is the world fourth-biggest handset maker, slipped 0.9%.

Alstom, the French engineering group, also fell 4.2% after Citigroup reduced its recommendation from hold to sell, on the premise that investors were paying too much for the stock

Energy stocks were weak as oil prices declined on the back of strong US inventories. The producers worst affected were Statoil of Norway, which fell 2.2% and British BG Group, down 2.2%.

Total, the largest oil refiner in Europe, dropped 1.1% and Royal Dutch Shell Plc, the biggest oil company in the region, decreased 0.9%.

Advancers

Weakening oil prices gave a boost, however, for airline stocks in Europe. German Lufthansa led the advancers, up 2.6% and Air France-KLM gained 1.9% and Irish Ryanair added 1.7%.

Telecommunications shares advanced, paced by Royal KPN NV, the largest Dutch phone company, and Telecom Italia SpA, the biggest phone operator in Italy. KPN added 1.4% as did Telecom Italia.

Oil and gold

Crude oil stayed virtually the same in New York, ready for its biggest weekly decline since April 2005, as mild U.S. weather reduced consumption and fuel stockpiles jumped. Crude oil for February delivery traded at $55.52 a barrel, down 7 cents, on the New York Mercantile Exchange in early trade. Brent crude for February settlement rose 8 cents to $55.19 a barrel on the London-based ICE Futures exchange.

Gold rose for the first day in three in London on speculation investor demand will increase because of declines in the dollar. Gold for immediate delivery rose $1 to $623 an ounce in early trade in London. Silver rose 1 cent to $12.605 an ounce in London while platinum gained $5 to $1,125.50 and palladium increased $4.50 to $341.50.

Currencies

The dollar advanced slightly on the euro, extending its rally begun earlier in the week and ahead of the release of key payroll data in the U.S. later Friday. The euro bought $1.3080 in early trading, barely down from $1.3087 in New York late Thursday. The British pound also declined to $1.9403 against the dollar, down from $1.9427 overnight. Against the Japanese yen, the dollar bought 118.15, down from 119.10 yen in New York.