Market Fights Inflation

Elena
16 Aug, 2005
New York City

Investors are digesting news on higher-than-anticipated inflation and as a result the U.S. market is trading in the negative territory. Crude-oil hovers over $66 a barrel. Wal-Mart lowers guidance, Home Depot raises outlook.

U.S. MARKET AVERAGES

U. S. stock markets are focused on economic data releases, including consumer prices, housing starts and industrial production reports for July.

Fed's campaign of steady interest rate hike will continue as energy and food prices continue to rise. However the core inflation remains under control. Overall energy prices in July increased 3.8% including gasoline price hike of 6.1%. Housing and medical-care prices rose 0.4% but prices of new automobiles fell 1% for the first time in 30 years.

New residential construction declined in July from previous month but grew at slower pace compared to a year ago. In home construction fell 5.4% after rising more than 11% in June. Home construction in July in South fell after rising at a brisk rate in June.


In corporate news

Wal-Mart , the world’s largest retailer, announced 2Q net income rise of 6%, or 67 cents a share compared with 62 cents a year ago on 10.2% higher sales. The quarterly results beat analysts’ expectations of 65 cents a share, but failed to meet revenue forecasts of $77.46 billion due to higher gasoline prices.

Home Depot, home-improvement store chain, posted 14% profit increase in the 2Q on higher sales. The company earned 82 cents per share, up from 70 cents last year on revenue of $22.31 billion. Same-store sales increased 4% in the second quarter.

Home Depot’s shares dropped 56 cents to $41.05 on Commerce Department report.

Staples, office products retailer, posted 2Q 20% profit rise of 20 cents a share vs. 16 cents a year ago on 12% higher revenue of $3.47 billion.

Shares fell 14 cents to $22.18 in early trading.

Hewlett-Packard is expected to report higher sales and profit later in the day.

Gateway reported it swung to a profit in the 2Q on record sales, but lowered its sales and profit outlook for2005.

ECONOMIC NEWS

The following is the unedited transcript of the news release from the U.S. Census Bureau.

NEW RESIDENTIAL CONSTRUCTION IN JULY 2005

The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new residential construction statistics for July 2005:

BUILDING PERMITS

Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 2,167,000.

This is 1.6 percent above the revised June rate of 2,132,000 and is 2.5 percent above the July 2004 estimate of 2,114,000.

Single-family authorizations in July were at a rate of 1,686,000; this is 2.0 percent above the June figure of 1,653,000. Authorizations of units in buildings with five units or more were at a rate of 381,000 in July.

HOUSING STARTS

Privately-owned housing starts in July were at a seasonally adjusted annual rate of 2,042,000. This is 0.1 percent below the revised June estimate of 2,045,000, but is 2.8 percent above the July 2004 rate of 1,986,000.

Single-family housing starts in July 2005 were at a rate of 1,711,000; this is 0.5 percent above the June figure of 1,703,000. The July rate for units in buildings with five units or more was 289,000.

HOUSING COMPLETIONS

Privately-owned housing completions in July were at a seasonally adjusted annual rate of 1,833,000. This is 6.3 percent below the revised June estimate of 1,956,000 and is 2.9 percent below the July 2004 rate of 1,888,000.

Single-family housing completions in July 2005 were at a rate of 1,609,000; this is 3.6 percent below the June figure of 1,669,000. The July rate for units in buildings with five units or more was 189,000.

New Residential Construction data for August 2005 will be released on Tuesday, September 20, 2005, at 8:30 A.M. EDT.

The unedited copy of the news release is attached below. For the full transcript please visit the site

http://www.bls.gov/news.release/cpi.nr0.htm


CONSUMER PRICE INDEX: JULY 2005

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The July level of 195.4 (1982-84=100) was 3.2 percent higher than in July 2004.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.5 percent in July, prior to seasonal adjustment. The July level of 191.0 was 3.3 percent higher than in July 2004.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.4 percent in July on a not seasonally adjusted basis. The July level of 113.4 (December 1999=100) was 2.6 percent higher than in July 2004. Please note that the indexes for the post-2003 period are subject to revision.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U, which was unchanged in June, increased 0.5 percent in July. Energy costs advanced sharply, increasing 3.8 percent in July after falling 0.5 percent in June.

Within energy, the index for petroleum-based energy rose 6.1 percent in July, accounting for over one-half of the increase in the overall CPI. Energy services increased 1.1 percent.

The index for food increased 0.2 percent in July. The index for fruits and vegetables, which fell 1.2 percent in June, increased 1.6 percent in July. The index for all items less food and energy increased 0.1 percent for the third consecutive month. A decline in new vehicle prices--down 1.0 percent in July--was more than offset by increases in the indexes for airline fares and for lodging away from home.


INTERNATIONAL MARKET NEWS

Asian-Pacific markets ended mixed after edging higher in early trading on retreating crude-oil prices and U.S. equity gains. The regional markets were also helped by overnight advance in Wall Street as investors bought tech stocks. The banks were the leading losers, falling from recent highs. The Nikkei rose 0.5% extending last-week gains on restored confidence in the economic recovery of the country. Averages in Hong Kong fell 0.2% and in South Korea dropped 1.2%.

European markets finished in the negative territory deserting earlier highs after a low start of the U.S. stocks, reflecting economic data. Telecommunication stocks stayed in the spotlights throughout the whole session, reflecting sector consolidation moves, with Deutsche Telecom down 0.7% and KPN down 1.2%. The German DAX 30 lost 0.5%, the French CAC 40 declined 0.8%, and London’s FTSE 100 fell 0.2%.


ENERGY, METALS AND CURRENCIES MARKETS

Oil prices resumed their way upward, reflecting higher inflation figures. U.S. light sweet crude gained 3 cents to $66.30 a barrel. Gasoline was traded at $1.87 a gallon. London Brent added 12 cents to reach $65.70.

The U.S. dollar advanced for the third consecutive session, reflecting higher consumer prices for July. The dollar stood at $1.2330 against the euro, up from $1.2367. The U.S. currency rose against the yen to trade at 109.60, up from 109.25.

EARNINGS NEWS

J.C. Penney, department store retailer, posted 2Q earnings from continuing operations of 46 cents a share, up vs. a year-earlier equivalent profit of 22 cents a share on strong operating performance and the positive impact of its ongoing buyback program, beating analysts’ expectations of 40 cents a share. Same-store sales rose 4.2% in the July period.

Applied Films, posted a 4Q net loss of 20 cents a share, down from a profit of 18 cents a share in the same period last year on revenue decline of 25%.

Dick's Sporting Goods, sporting goods retailer, posted 2Q earnings of 45 cents a share, up vs. 34 cents a share in the year-earlier period on sales increase, matching analyst estimate.

Estee Lauder, skin care, makeup, fragrance and hair care products manufacturer, announced that 4Q net income form continuing operations was down to 30 cents a share from 31 cents in the year-earlier period. Aside from a tax charge for repatriated foreign earnings, income from continuing operations would have been 42 cents a share, or 1 cent ahead of analysts' expectations. Sales for the period ended June 30 were up, beating of analysts'
estimates.

American Eagle Outfitters, merchandise goods seller, announced that 2Q profit rose to 37 cents a share vs. 20 cents in the same period last year on strong sales performance, beating analysts’ forecasts by a penny.

TJX, apparel and home fashions retailer, announced that 2Q profit advanced to 25 cents a share, up from 23 cents in the year-earlier period on sales growth, with same-store sales up 1%, missing analyst estimate by a penny.

National RV Holdings, motor homes manufacturer, posted a preliminary 2Q net profit of 53 cents a share, up from 24 cents a share in the same period last year. Preliminary second-quarter sales were up 3%.

CORPORATE NEWS

Delta Airlines, announced a decision to sell one of its regional feeder subsidiaries to Sky West for $425 million, but the company added that the sale won’t be able to cover a new cash reserve needed to secure a new credit-card processing deal.

OTHER NEWS

China reported a solid growth of 16.1% of its industrial output for July, reflecting strong exports, which is expected to keep the bullish tendency, despite the revaluation of the yuan.