Rates May Rise in Future

123jump.com Staff
30 Nov, -0001
New York City

The Fed

U.S. AVERAGES

The Fed raised short-term interest rate by 25 basis points. Fed raised Fed funds rate by 25 basis points to 3.5% and signaled that it plans to extend its campaign of measured rate hikes during the rest of the year.

Techs and semiconductor stocks traded higher led by advances in Cisco and Advanced Micro Devices upgrade. The industrial sector stocks are gaining as well despite disappointing earnings from Fluor Corp.

Airline stocks traded lower on rising fuel costs and led by a downgrade for Delta Airline stock. The stocks of biotech companies Elan Corp and BiogenIDEC are trading higher after the companies reported that they found no evidence of rare brain disease associated with TYSABRI drug.

Shares of LoJack are trading higher on better than expected earnings and Disney and Cisco are trading higher on the positive earnings expectations at the close.

IPO CALENDAR

In the busy IPO market four companies priced their offering. Ruth’s Chris Steak House priced 13 million shares at $18. The stock traded 10% up.

James River Group priced at 4.4 million at $18 per share, the stock traded up 10%. Seaspan Corp. priced 28.6 million at $21 per share and the share is trading below the offering price.

ECONOMIC NEWS

The tenth rate hike was widely expected by the market and the language of the Fed’s news transcript suggests that rates are likely to rise in the near future.

Fed stated in the statement that “aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually. Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.”

The falling oil prices, slower rise in productivity and faster build-up of inventories, and the expected rise in interest rate is all that investors are digesting this morning. At the end of the first hour of trading the averages are up close to 0.5% on Nasdaq and NYSE.

The rate hike may have been prompted by the latest revision on the economic growth rates dating back to 2002 and labor costs hikes in the recent months. The rise in labor cost as reported today has been low by historic standards but it has been revised higher in the past and the latest read on the labor cost is likely to be revised as well.

The fear of inflation is alive and palpable. The food and energy costs, though volatile, have tended higher in the last twelve months. The ten rate hikes in short-term rates have apparently not raised the long-term rates and Fed may have to act in the near future to raise the rates even more.

The government also released data on labor productivity and wholesale inventories.

The Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data--as measured by output per hour of all persons--for the second quarter of 2005. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were, 1.2 percent in the business sector and 2.2 percent in the non-farm business sector.

Productivity growth in the business sector reflected increases of 4.2 percent in output and 3.0 percent in hours. Output per hour increased more in the non-farm business sector because output grew more, 4.4 percent, and hours rose less, 2.1 percent, than in the business sector.

In manufacturing, the preliminary productivity changes in the second quarter were, 4.1 percent in manufacturing, 3.8 percent in durable goods manufacturing, and 5.0 percent in nondurable goods manufacturing.

Manufacturing productivity grew 4.1 percent in the second quarter as output increased 1.2 percent and hours declined 2.8 percent (seasonally adjusted annual rates). Output and hours in manufacturing, which includes about 13 percent of U.S. business-sector employment, tend to vary more from quarter to quarter than data for the aggregate business and non-farm business sectors.

The wholesale inventories in June rose 0.7% more than expected by economists. The text of the report from the U.S. Census Bureau is reported below.

Sales

The U.S. Census Bureau announced today that June 2005 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $297.3 billion, up 0.6 percent from the revised May level and were up 7.8 percent from the June 2004 level.

The May preliminary estimate was revised upward $0.1 billion. June sales of durable goods increased 0.3 percent from last month and were up 6.4 percent from a year ago. June sales of nondurable goods increased 0.8 percent from last month and were up 9.2 percent from last year. Sales of petroleum and petroleum products increased 3.5 percent from last month and sales of drugs and druggists’ sundries increased 2.1 percent.

Inventories

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $353.1 billion at the end of June, up 0.7 percent from last month and were up 10.2 percent from a year ago.

The May preliminary estimate was revised upward $0.6 billion or 0.2 percent. End-of-month inventories of durable goods increased 0.9 percent from May and were up 11.6 percent from last June.

Inventories of motor vehicle and motor vehicle parts and supplies increased 3.1 percent and inventories of machinery, equipment, and supplies were up 1.5 percent. End-of-month inventories of nondurable goods increased 0.3 percent from May and were up 8.0 percent compared to last June.

Inventories of drugs and druggists’ sundries decreased 0.8 percent from last month.

Inventories/Sales Ratio

The June inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.19. The June 2004 ratio was 1.16.


INTERNATIONAL MARKET NEWS

European markets closed up on strong resource stocks and U.S. markets gains, made on retreating oil prices and positive Labor Department data. Stocks were also supported by drug maker Elan, which advanced on news for its Tysabri drug. The German DAX 30 gained 1.5%, the French CAC 40 rose 1.1%, and London’s FTSE 100 climbed 0.2%.

Asian-Pacific markets ended mostly higher on regional oil and energy stock gains after the markets shrugged off record-high crude-oil prices of nearly $64 a barrel. The Nikkei advanced 1%, boosted by better-than-anticipated economic data. Among the gainers in the regional markets, South Korea’s Kospi added 1.2% and China’s Shanghai Composite rose 1.2%. Stocks in Hong Kong declined 0.4%; markets in Singapore were closed for a national holiday.

ENERGY, METALS AND CURRENCIES MARKETS

Crude-oil retreated from a record price-level on security concerns in Saudi Arabia and Middle East tensions. Light sweet crude for September delivery declined 28 cents to $63.66 a barrel. London Brent slipped 29 cents to trade at $62.41.

Gold futures declined in European trading, while the dollar climbed. In London gold closed at $433.35 per troy ounce, down from $435.65. In Hong Kong gold fell $2.30 to close at $435.75 per ounce. Silver closed at $6.96, down from $7.06.

The U.S. dollar advanced against other major currencies. At mid-day New York trading the euro was quoted at $1.2348. The greenback bought 111.99 yen. The British pound stood at $1.7841.

EARNINGS NEWS

KPN, Dutch telecommunications operator, said 2Q net profit was down to 10 euro cents a share, from 16 euro cents a share in the year-ago period due to the amortization of third-generation UMTS licenses.

Bradford & Bingley, U.K. mortgage lender, reported that first-half pre-tax profit increased 17 pence a share, compared to the same period last year, while underlying pre-tax profit was up to 150 million pounds, beating analysts' expectations of 145.7 million pounds.

Beiersdorf, the maker of Nivea hand cream, announced that its 2Q net income increased to 87 million euros, with sales up to 1.26 billion euros. It held to 2005 sales and margin forecasts.

Scottish & Newcastle, breweries operator, reported that first-half pre-tax profit rose 6.5% on 4.5% revenue growth, matching analyst estimate. The company will lift its dividend by 2.5% to 7.04 pounds a share.

Retalix, front- and back-office software provider, posted 2Q net income of 20 cents per share vs. 8 cents per share last year, beating market estimate of 17 cents per share for the quarter. 2Q revenue climbed 76.5% vs. 2Q last year.

NDS, provider of smart cards and set-top box software, reported 4Q net income of 38 cents per share vs. breakeven last year, beating analysts’ estimate of 22 cents per share.

Dampskibsselskabet TORM, operator of nearly 100 product tankers and bulk cargo carriers, reported 2Q net profit of $2.3 per share vs. restated $1.4 per share in the same quarter last year. Quarterly net revenues jumped to $132.1 million vs. $98 million last year.

Converium, treaty and facultative risks coverage provider, reported 2Q net profit of 48 cents per share vs. a net loss of $8.32 per share in 2Q last year.

IsoTis OrthoBiologics, reported 2Q net profit of 4 cents per share vs. a net loss of 13 cents per share in the same quarter last year. Revenues for the quarter rose to $7.53 million vs. $6.43 last year. The company backed its guidance of 20% revenue growth over 2004.

Sanders Morris Harris., institutional and retail brokerage company, posted 2Q earnings of 12 cents per diluted share vs.16 cents last year. 2Q revenue for the quarter was $30.5 million vs. $28.7 million last year.

MCI, facilities-based network operator, posted 2Q earnings of 19 cents per share vs. a loss of 22 cents per share a year ago. Revenues for 2Q fell 10% to $4.7 billion, but operating expenses decreased by 11%.


EchoStar, direct broadcast satellite TV provider, reported basic earnings per share of $1.89 vs. 18 cents last year on an 18% increase of revenue, beating expectations of earnings at 44 cents per share.


Hypercom, electronic payment solutions provider, posted 2Q net loss of 32 cents a share compared with a loss of 20 cents a share last year on 1.5% higher revenue, missing expectations of earnings of 3 cents a share.

Rita Medical Systems, medical devices manufacturer, reported 2Q net loss of 3 cents per share, up from a loss of 11 cents a year ago on 156% revenue growth.

Silicon Image, chip maker, posted 2Q earnings of 12 cents a share vs. 0 cents a year ago on 17% higher revenue.

Constar International, supplier of PET plastic containers, reported 2Q net loss of 63 cents per share compared with a loss of 32 cents a year earlier on sales increase of 17.4%.

NTL, cable TV services provider, reported 2Q net income of 86 cents a share, up from a net loss of $2.87 a share on revenue of $482.5 million, beating expectations of a net loss of $1.20 a share.

CORPORATE NEWS

Suez, French utility company, proposed to buy out the remaining 49.9% stake of Electrabel, Belgian power company, for $136 billion in cash and stock.

Bombardier Aerospace revealed that Global Wings, Inc., of Tokyo has placed a firm order for a new Bombardier Learjet 45 XR business jet. This new sale comes after the recent orders for an additional three Bombardier business aircraft placed by Asian operators. The actual list price of these four transactions combined is valued at over US$80 million. Bombardier also added that the customer deliveries of its ultra long-range business jet, Global Express XRS are due to start in 1Q 2006, offering even more range at higher speed.

The Boeing Company ((BA)) confirmed that Turkish Airlines has exercised options for 8 Boeing Next-Generation 737-800s. The airplanes are due for delivery in 2008 and are worth an estimated $542 million at list prices. The options were part of an order placed by Turkish Airlines in 2004 for 15 Boeing 737s.

Goodyear Tire & Rubber Co. ((GT)) revealed the completion of the sale of its stake in Goodyear Sumatra Plantations to Bridgestone Corp. for approximately $62 million. The decision to sell the 95% stake was in accordance with the company's strategy to focus on core business activities. The transaction, which is subject to post-closing adjustments, is not seen to significantly affect the company's ability to buy natural rubber for its operations.

Cardiac Science Inc. ((DFIB)) disclosed the settlement of its patent infringement lawsuit it had brought against privately held Defibtech, in the U.S District Court. As per settlement, Cardiac Science would receive a cash payment of $925 thousand. Cardiac Science added that the allegations of infringement by Defibtech of United States Patent and all of Defibtech's assorted counterclaims have been fully resolved. Other terms and conditions of the settlement remain confidential.

Ford Motor Co. ((F)), expanding a broad cost-reducing measure in its unprofitable North American auto segment, said it plans to restructure and cut staff in its North American sales and marketing operations. Ford didn't reveal how many jobs would be cut by the moves. Ford earlier announced its plans to cut up to 2,700 salaried jobs in North America this year.

OTHER NEWS

Bank of China is involved in negotiations for four foreign partners to take a considerable share in its business, obviously aiming at reducing the investors’ risk and giving the bank access to a wide range of f financial know-how. At present the bank is negotiating with U.K.’ Royal Bank of Scotland, the world’s sixth-biggest bank by capitalization.


FOMC MEETING NEWS RELEASE

The following is a copy of unedited Fed news release after the FOMC meeting.
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-1/2 percent.

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually. Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.
In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 4-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.