Higher Wholesale Prices Weigh

Elena
17 Jan, 2007
New York City

Wall Street opened below the flat line Wednesday, as a higher-than-expected PPI sparked interest rate worries in the market. The Labor Department said that wholesale prices rose by 0.9% in December, raising concerns that the Fed Reserve might raise interest rates to curb inflation. Homebuilder Lennar said that the company swung to a Q4 loss from a profit last year, missing estimates. Lennar posted a quarterly loss of $1.24 a share, compared with profit of $3.54 a share a year earlier.

[R]9:45AM Market opened below the flat line, as stronger-than-expected PPI weighed.[/R]
Wall Street opened below the flat line Wednesday, as a higher-than-expected PPI sparked interest rate worries in the market. The Labor Department said that wholesale prices rose by 0.9% in December, raising concerns that the Fed Reserve might raise interest rates to curb inflation. Investors also weighed another wave of earnings reports that showed strength in some sectors and weakness in others. JPMorgan Chase & Co. ((JPM)) and Mellon Financial Corp. ((MEL)) reported better-than-anticipated Q4 results, boosting confidence in the financial services industry. The airline sector also posted strength after the parent of American Airlines said it earned a narrow profit in Q4. AMR ((AMR)) said it earned $17 million, or 7 cents per share, compared to a loss of $600 million, or $3.46 cents per share a year ago. Analysts had expected AMR to announce a loss of 13 cents per share.

The technology sector saw a quarterly profit drop at Intel ((INTC)), with the chip maker posting a 39% decline in Q4. Intel also said that 2007 profit margins would be weaker than analysts had expected. The homebuilder sector got a boost after Lennar ((LEN)) CEO said the company would perform better in 2007 than it did in 2006. The company said that the company swung to a Q4 loss from a profit last year, missing estimates. Lennar posted a quarterly loss of $1.24 a share, compared with profit of $3.54 a share a year earlier. The stock climbed 4% in early trading. Further support to the sector was provided by other homebuilders. KB Home ((KBH)) rose 1.2%, Toll Brothers Inc. ((TOL)) gained about 1%, while Centex Corp. ((CTX)) climbed 1.5%. In the first hour of trading, the Dow Jones industrial average fell 19.14, or 0.15%, to 12,563.45. The Standard & Poor's 500 index was down 1.35, or 0.09%, at 1,430.55, and the Nasdaq composite index fell 6.04, or 0.24%, to 2,491.74.

[R]Industrial production gained 0.4% in December.[/R]
The Federal Reserve released its report on industrial production and capacity utilization in the month of December on Wednesday. The report showed that industrial production rose more than economists had been expecting. The report showed that industrial production rose 0.4 percent in December following a revised 0.1 percent decline in November. Economists had been expecting production to edge up 0.1 percent compared to the 0.2 percent increase originally reported for the previous month. The Fed noted that the downward revision to the November data reflected weaker data for a number of industries, particularly steel. The growth in industrial production in December came as output from the manufacturing and mining industries increased by 0.7 percent and 0.8 percent respectively, more than offsetting a 2.6 percent drop in output from the utilities industry. The Federal Reserve also said that the capacity utilization rate edged up to 81.8 percent in December from a downwardly revised 81.6 percent in November. The November capacity utilization rate was revised down from the 81.8 percent originally reported. Capacity utilization in the manufacturing industry rose to 80.4 percent in December from a downwardly revised 80.0 percent in November, while capacity utilization in the mining industry rose to 91.3 percent and capacity utilization in the utilities sector fell to 85.1 percent.


[R]9:30AM NY-2:30PM London The FTSE slips on DSG weak results.[/R]
The benchmark FTSE 100 Index declined 0.1% to 6210.00, by mid-day in London.

Economic news

Average earnings growth in the UK remained flat in the quarter to November, while the number of people claiming jobless benefits declined for the third straight month, according to official data released on Wednesday.

Decliners

DSG, the second largest electronics retailer in Europe, plunged 9.3%. Gross profit margins in the 8 weeks ended Jan. 6 fell 0.7%, the company announced, as it sold cheaper goods and its Italian business struggled.

Alliance & Leicester, the seventh- largest bank in U.K., dropped 1.7%. The shares were reduced to sell from neutral at Merrill Lynch.

Rio Tinto Group dropped 1.3%. The third-largest mining company in the world said quarterly iron ore production declined from a record because of extended maintenance at its mines in western Australia.

Ryanair Holdings, the biggest budget airline in Europe, fell 0.4%. The shares were reduced to sell from hold at ABN Amro Holding NV.

Advancers

SABMiller jumped 3.2%. The brewer of Pilsner Urquell and Peroni Nastro Azzurro sold more beer in the three months ended Dec. 31 after expanding in countries such as Colombia.

Centrica added 2.5%. Merrill Lynch. raised a recommendation on shares of the gas distributor to buy from neutral.

Home Retail Group, owner of the U.K. second- largest home improvement retailer, added 1.6%. The company expects annual profit at its Argos and Homebase chains to be near the top of analysts'' estimates.

Woolworths Group advanced 0.8%. The U.K. retailer agreed to buy book distributor Bertram Group Ltd. and said annual profit will meet analysts'' estimates after a sales drop slowed during the Christmas period.

Provident Financial, a U.K. lender to low-income households, added 2.5%. The company said it may sell its U.K. auto insurance business after it received offers.


[R]9:00AM Market futures pointed to a flat start, supported by J.P. Morgan earnings.[/R]
U.S. stock futures pointed to a flat market opening on Wednesday, with investors’ attention turned to Intel’s Q4 profit decline and flat profit margin outlook, as well as stronger-than-expected profit at J.P. Morgan ((JPM)). The financial services firm reported Q4 earnings jump of 68%, boosted by record investment-banking fees and strong markets. Company’s net income reached $4.53 billion, or $1.26 a share, up from $2.7 billion, or 76 cents a year ago, exceeding Wall Street expectations of 95 cents. Revenue rose to $16.9 billion in the quarter from $14.76 billion. Financial services company Mellon Financial Corp. ((MEL)) which is merging with Bank of New York in a $16.5 billion deal, also provided a boost to the Dow and S&P 500 futures. The company added 1% after reporting 14% profit increase in Q4 on a 52% surge in investment management fees. Net income rose to 57 cents per share, up from 50 cents per share a year ago.

While the Dow and S&P 500 futures were posting gains, the Nasdaq moved lower, pressured by Q4 results at Intel ((INTC)). The chipmaker fell 4% in early electronic composite trading after reporting 39% profit drop amid an industry price war. The company also warned that gross margins would not improve in 2007. In the housing sector, homebuilder Lennar Corp. ((LEN)) said Wednesday that the company swung to a Q4 loss from a profit last year, hurt by impairment charges related to the process of its inventory valuation analysis. Lennar posted a quarterly loss of $1.24 a share, compared with profit of $3.54 a share a year earlier, missing expectations of a loss of $1.11 a share. The company attributed the decline in revenues to lower home deliveries and lower average sales price. Looking ahead for the fiscal year 2007, Lennar said it would meet or exceed its fiscal year 2006 earnings per share. S&P 500 futures rose 1.7 points at 1,440.40 while Nasdaq 100 futures slipped 2.25 points at 1,853.50. Dow industrial futures rose 13 points.

[R]Producer price index rose o.9% in December.[/R]
Wednesday morning, the Department of Labor released its closely watched report on wholesale prices in the month of December. The report showed that prices rose by more than economists had been expecting. The Labor Department said that its producer price index rose 0.9 percent in December following an unrevised 2.0 percent increase in November. Economists had been expecting a more modest increase of about 0.5 percent. The bigger than expected increase in prices was partly due to a continued increase in energy prices, which rose 2.5 percent in December following a 6.1 percent increase in the previous month. A 7.1 percent increase in gasoline prices contribute to the increase in energy prices. A notable increase in food prices also led to the bigger than expected increase in wholesale prices, with food prices rising 1.7 percent in December after edging up 0.1 percent in November. This marked the biggest increase in food prices since October of 2003.

The increase in food prices was partly due to a significant rebound in prices for fresh and dry vegetables. Food prices are likely to continue higher in the coming months in light of the damage done to citrus crops by the recent winter storms. The report also showed that the core producer price index, which excludes food and energy prices, edged up 0.2 percent in December after rising 1.3 percent in November. The increase came in slightly above economist estimates of a 0.1 percent increase. The slowdown in the pace of core price growth compared to the previous month came amid slower growth in prices of light motor trucks, which rose 0.7 percent in December following a 13.7 percent increase in November. Some additional inflation data is due to be released on Wednesday, with the Labor Department due to release its consumer price index for December. Economists expect the index to increase 0.4 percent, while the core index is expected to increase 0.2 percent.


[R]8:00AM Intel reported Q4 profit drop of 35% but beat expectations.[/R]
Intel Corp. ((INTC)) reported late Tuesday a fourth straight quarter of profit decline, with Q4 earnings falling 35% compared to last-year same period but, still, coming in above the average analyst estimates. The world''s biggest chipmaker earned 26 cents a share, slightly exceeding forecasts of 25 cents. Intel cited a product and technology leadership, higher selling prices and record unit shipments as main factors, contributing to the quarterly results.

Fourth-quarter sales, boosted by new products, easily topped forecasts. Intel has 40 new products and is reducing costs. Sales fell 5% to $9.7 billion vs. views of $9.4 billion. Gross margin plunged to 49.6% vs. 61.8% a year earlier as price cuts squeezed profit.

Intel projected Q1 sales of $8.7 billion to $9.3 billion, compared to views of $8.935 billion. Analysts had expected flat profit in Q1 and a 60% gain in Q2. Intel shares fell 3% in after-hours trade.


[R]7:30 AM Asian markets closed mixed Wednesday with Japan up and China down.[/R]
Asian markets finished mixed on Wednesday. The Nikkei Index in Japan closed 0.3% higher at 17,261. Nippon Steel gained 0.9 and JFE Holdings rose 1.4%. Mitsubishi Estate advanced 2.9% and Mitsui Fudosan jumped 1.9%. On the other hand, Shinsei Bank dipped 6.1% after late Tuesday revising down its profit outlook for the year ending in March.

The Hong Kong Hang Seng Index gained 0.2% to 20,065. Cheung Kong advanced 0.6% after Lehman Brothers upgraded its target price on the stock. Henderson Land added 0.9% and Sino Land advanced 1.9%. In contrast, oil producers decline on the plunge in oil prices. PetroChina shed 4.4%, Cnooc slipped 1.5% and Sinopec fell 3.5%.

The Kospi Index in South Korea lost 0.7% to 1,379. Samsung Electronics closed 1.8% lower and Hynix Semiconductor declined 4.5%. LG.Philips LCD dipped 4.1% on weak Q4 results. The Shanghai Composite Index plunged 1.5% to 2,779. China Vanke, Poly Real Estate Group and China Merchants Property Development all ended 10% lower, the daily limit.

Australian S&P/ASX 200 shed 0.5% to close at 5,646. With a weak Q4 performance from Rio Tinto and a profit outlook reduced from its coal mining unit Coal & Allied, the miner shed 1.7% while rival BHP slipped 1.5%. Macquarie Bank lost 0.8%, St. George Bank dropped 1.9% and ANZ Bank gave up 0.8%. Taipei ended 0.5% higher at 7,834


[R]6:30 AM European stocks were higher Wednesday on strong tech sector.[/R]
European markets were higher on Wednesday. By mid-morning, the U.K. FTSE 100 index rose 0.1% at 6,221.10, the German DAX Xetra 30 index increased 0.2% at 6,728.33 and the French CAC-40 index advanced 0.1% at 5,596.90.

Advancers

ASML Holding shares rallied 4.9% after announcing that its fourth-quarter net income jumped to 205.5 million euros, or $265.2 million from 51.6 million euros a year ago, net sales rose 95% to 1.07 billion euros and that it intends to start another share buyback program.

Ericsson rose 1.7% after its Sony Ericsson mobile-phone joint venture with Japanese company Sony posted a fourth-quarter profit of 447 million euros, or $578 million from 144 million euros a year earlier, boosted by the sales of Walkman phones.

SABMiller advanced 3.5% after it said that its financial performance was in line with its expectations despite adverse price recovery.

Decliners

Miners fell on weaker commodity prices. Rio Tinto fell 1.5%. Output of iron ore, second- highest profit contributor of the company, dropped to 35.1 million metric tons in the three months ended Dec. 31 from 35.7 million tons in the previous quarter. Anglo American Plc, the world-second biggest mining company, dropped 1.5% on a decline in copper.

Shares in EADS slid 2.5% after it said that its Airbus subsidiary is likely to post a loss before interest and tax in 2006 after delays to its flagship A380 program resulted in increased costs.

Oil futures and commodity prices

Oil prices recovered Wednesday after plunging to 19-month lows after the oil minister of Saudi Arabia said further OPEC productions cuts were not necessary right now. Light sweet crude oil futures for February delivery rose 38 cents to $51.59 in electronic trading on the New York Mercantile Exchange. February Brent crude on London ICE futures exchange increased 40 cents to $52.02 a barrel.

Gold for immediate delivery fell as much as $1.60, or 0.3%, to $623.20 an ounce and traded at $624.60 in early trading. It settled at $624.80 in New York late yesterday. Copper for delivery in three months on the London Metal Exchange fell $56, or 1%, to trade at $5,659 a ton

Currencies

The euro lost some ground against the U.S. dollar on Wednesday despite lackluster economic reports from the United States. The 13-nation euro bought $1.2921 in morning European trading, compared with $1.2923 late Tuesday, as the dollar shrugged off a report by New York Federal Reserve that its Empire State Manufacturing index dropped to 9.1 in January from 22.2 in December.

The pound was also barely changed against the dollar, buying $1.9642, compared with $1.9626 on Tuesday. The dollar was slightly higher against the Japanese yen, edging up to 120.64 yen from 120.60 on Tuesday as speculation whether the Bank of Japan next interest rate move.