Rising Oil, Merger Talks

albena
30 Nov, -0001
New York City

Futures were higher despite oil hitting a new record high Monday after the United States closed its embassy in Saudi Arabia on terrorism threat. Tech stocks offer some support on talk of Cisco considering a takeover of cellphone maker Nokia. Fed meeting is expected to lead interest rate hike by 25 basis points. This week's treasury auction will be closely watched to monitor the level of foreign Central Bank's participation.

U.S. AVERAGES

Oil hit another record high Monday on concerns that the United States may face a gasoline shortage and rising tensions in the Middle East.

The stock market in the coming week will focus its attention on earnings and Fed’s treasury auction and Governors’ meeting on Wednesday.

The U.S. budgetary shortfall of at least $57 billion in July is expected to be met with 5 and 10 year government bonds. The nature and level of participation from central banks around the world will be closely watched by the market.

The market after a two week rally and trading close to 4-year highs appears to be in the mood to take profit. The rise in employment wages, dollar and commodities prices such as oil and copper has stoked fears of inflation.

Several tech stocks are scheduled to release earnings this week. Dell, Cisco, Analog Devices and Nvidia are few tech leaders to release earnings. Other companies to release earnings include Disney, Delphi, Visteon, Federated Department Stores, Target, Kohl’s and DreamWorks Animation.

ECONOMIC NEWS

No major economic releases are scheduled Monday.

Economists expect that in three of the four remaining Fed meeting in the year 2005, central bank is likely to raise interest rate by a quart point in each of the meetings. The next U.S. Fed meeting of Governors is on August 9th.

While the U.S. unemployment level remained low and stable at 5% according the Department of Labor, vast number of new jobs created in the economy remained in the low paying industrial sectors such as retail and low-end manufacturing jobs. The U.S. economy has not created more than 2.5 million annual jobs since the early eighties.

For the month of July 2005, lowest unemployment was reported in professional, managerial and office occupation category of 2.3% and highest unemployment was reported in production category of 7.1%.

The July job creation of 207,000 is not likely to be sustained in the rest of the third and fourth quarter of this year.

INTERNATIONAL MARKET NEWS

Asian-Pacific markets closed mixed with the Nikkei down 1% in morning trading ahead of parliamentary vote on privatization of Japan’s postal system, but as the reform proposal was rejected, the index rebounded and ended up 0.11%. Among the gainers in the regional markets, Australia’s All Ordinaries climbed 0.7%, China’s Shanghai Composite rose 0.9%. Averages in Taiwan and South Korea declined 1% and 0.3% respectively. The dollar was recently trading at 111.91 yen.

European stocks advanced at mid-day trading, boosted by soaring crude-oil prices and telecom equipment maker deal talk involving Nokia and Marconi. The German DAX 30 climbed 0.7%, the French CAC 40 added 0.8%, and the U.K.’s FTSE 100 rose 0.5%.

ENERGY, METALS AND CURRENCIES MARKETS

Crude-oil futures hit a new record peak of nearly $63 a barrel on fuel supplies concerns and Middle East tensions. Light sweet crude for September delivery gained 46 cents to trade at $62.77 a barrel. London Brent advanced 51 cents to reach $61.58.

Gold futures declined together with the falling U.S. dollar. In London gold was fixed at recommended price of $436.85 per troy ounce, down from $437.00. In Hong Kong gold lost $1 to close at $437.05 per ounce. Silver opened at $7.10 per ounce, lower from $7.13.

The U.S. dollar lost ground against other major currencies in early European trading. The euro traded at $1.2385 dollars, up from $1.2340. The greenback bought 111.66 yen, down from 112.04. The British pound was quoted at $1.7869, up from $1.7759.

During the last week, copper prices rose 1.7% after climbing 4.5% in the previous two weeks and 13% since the beginning of the year. The five-week miners strike at Asarco, unit of Grupo Mexico is still not settled and no immediate solution to the strike is seen. According to the London Metals Exchange, the world copper inventory level is still below one-day global consumption. The copper prices are likely to peak in October.

IPO MARKET

The success of Chinese Internet company IPO, Baidu.com ((BIDU)), only highlights investor's appetite for companies with growth prospects. 32 of the last 50 of the total 125 IPOs priced so far this year are trading above their offer price.

125 initial public offerings have been priced so far this year. During the first week of August, 12 IPOs are priced and 6 companies filed to go public. Of the last 50 IPOs, 32 are currently trading up, 9 are trading down, and 9 are unchanged from their offer price.

EARNINGS NEWS

Lamar Advertising, outdoor advertising company, announced 2Q net profit was up to 18 cents a share from 7 cents a share in the year-ago period on revenue growth.

Conns, home-appliances retailer, announced 2Q same-store sales increased 12.1% with total sales for the period soaring to 21% on better performance in staffing levels, training and execution on the sales floor.

Standard Chartered, Asia-focused bank, posted 1Q net profit rise to $956 million, up from $727 million in the same period last year. The company raised its dividend to 18.94 cents from 17.06 cents and announced it's on course to achieve its goals for the year.

Degussa, German specialty chemicals group, reported 2Q profit was slightly down to 96 million euros from 102 million euros in the same period last year despite sales growth and lower than the consensus forecast of 114 million euros.

Mobilcom, German telecom operator, posted 2Q net profit increase to 25.3 million euros, followed by strong growth in its wireless services unit and soaring sales, matching market estimate.

LabOne, laboratory services provider, announced 2Q net profit increased to 44 cents a share, up from 36 cents a share in the year-ago period on revenue growth.

El Paso, Houston energy provider, reversed to a 2Q loss of 38 cents a share, vs. net income of 1 cent in the year-ago period on revenue decline, missing analyst estimate of 13 cents a share.

SciClone, life-threatening diseases therapeutics developer, reported a 2Q net loss of 4 cents a share, up from 6 cents a share in the same period last year on revenue growth.

CORPORATE NEWS

Citigroup ((C)) plans an expansion program of bank acquisitions in growth markets such as Latin America, Asia and Eastern Europe once a regulatory ban stopping such big purchases is lifted next year. Management hopes to make more acquisitions such as that of KorAm Bank in South Korea, which Citigroup bought last year for $2.7 billion.

Yahoo Inc. ((YHOO)), online media company, is in advanced talks to acquire about 35% of Alibaba.com, China's biggest homegrown e-commerce company, for almost $1 billion. Alibaba operates Taobao.com, an online auction site, and Alibaba.com, an online trading site. The deal would be the biggest investment by a foreign company in China's Internet industry.

Four Chinese airlines and Boeing Co. ((BA)) signed agreements for the sale of 42 Boeing 787 jets at a total price of $5.04 billion. Air China Ltd. and China Eastern Airlines Corp. will each buy 15 planes, Shanghai Airlines Co. will buy 9 planes, and Xiamen Airline Co. will buy 3 planes, according to reports.

Kerr-McGee ((KMG)) has reached deals to sell its North Sea operations for about $3.5 billion in cash. The transactions consist of the sale of interests in 4 non-operated fields and related exploratory acreage and facilities to Centrica plc for $566 million and the sale of all remaining North Sea assets to Maersk Olie og Gas AS for $2.95 billion. Kerr-McGee stated that the agreements also call for the acquirers to assume $182 million in carrying value of abandonment obligations and $175 million in derivative liabilities.

Hovnanian Enterprises ((HOV)) revealed that it has acquired the assets of privately-held homebuilder First Home Builders of Florida for an undisclosed cash amount. The company said the acquisition target is ranked first in the greater Fort Myers-Cape Coral market and had revenues of $308 million in 2004.

Nokia ((NOK)) could be the target of a Cisco ((CSCO)) bid, according to reports over the weekend. A Nokia spokeswoman said the company wouldn't comment on market rumors.

The Nasdaq Stock Market plans to withdraw from a system that links the nation's major stock markets, as part of a program to improve its technology and compete more directly against the New York Stock Exchange. The Nasdaq plans could be announced today and then sent to the SEC for approval. They already have been approved by Nasdaq's board.

RadioShack Corp. ((RSH)) said that it has executed an overnight share repurchase transaction of 20 million shares of the company's stock for about $500 million. The transaction was financed with about $300 million in short-term borrowing and $200 million in cash. About $200 million of the short-term borrowing is expected to be paid back through a sale-leaseback of the company's new corporate headquarters. The sale-leaseback transaction is scheduled to close this fall.

Italian dairy concern Parmalat SpA is suing JPMorgan Chase & Co. and UniCredito Italiano SpA for $5.4 billion in damages for the banks' role as co-lead managers of Parmalat bonds issued from 1994 through 2001.

OTHER NEWS

Japan's upper house of Parliament rejected a postal-system reform proposal that included creation of one of the world's largest banks, sending the government into a crisis. After the 125-108 defeat of his legislative package, Prime Minister Junichiro Koizumi called an emergency Cabinet meeting to dissolve Parliament and schedule a national election for Sept. 11.