Markets Decline by More than 1%

123jump.com Staff
16 Aug, 2005
New York City

Worries of inflation driven by food and energy are finally catching with investors. July higher read on inflation put market in the sell-off mood that began in the morning picked up steam in the final hour. Retailers earnings shine but stocks do not. Wal-Mart falls on cautious outlook, Home Depot raises the annual outlook, J C Penney same store sales and earnings rise, Estee Lauder shares up 10% and Deere down 11%.

U.S. MARKET AVERAGES

Market was under pressure right at the opening bell and never recovered. Market had lot to digest on earnings and economic data.

The U. S. stock markets were focused on economic data releases, including consumer prices, housing starts and industrial production reports for July. The July CPI was up 0.5% higher than 0.4% anticipated industrial production rose modest 0.1% due to weaker output from mining and utilities and home builders continued to build at a rate of 2.04 million and new building permits came in at all-time high of 2.167 million.

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.

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.

Market also had to digest earnings from several retailers including Wal-Mart, Home Depot, Staples, J C Penney and Estee Lauder.

In general earnings releases have outperformed the expectations, except Wal-Mart expressed caution for the rest of year and displayed some worries that core customer base may be affected by the rising oil prices.

Shares of BJ’s Wholesales Club, Applied Films, American Eagle Outfitters, Deer & Company and Dick’s Sporting Goods declined on earnings and lower revenue concerns.

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.

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.

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.

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. At close in NY, U.S. light sweet crude lost 19 cents to $66.08 a barrel. Gasoline September future rose 1.1% to $1.9836 a gallon and natural gas rose 2.2% to $9.753 BTU. At close in London, Brent added 12 cents to reach $65.70.

Gold declined in European trading as the U.S. dollar advanced. In mid-morning London trading gold stood at the recommended price of $440.85 per troy ounce, down from $441.35. In Hong Kong the precious metal fell $1.50 to close at $441.25. Silver opened at $6.96 per ounce, up from $6.95.

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

Home Depot, building materials seller, announced 2Q net profit was up to 82 cents a share from the year-ago period on 11.7% revenue growth, with same-store sales up 4%, beating analyst estimate of 79 cents earnings a share.

Wal-Mart, retailer, posted 2Q earnings of 67 cents per share, up vs. 62 cents per share in the same period last year on sales increase, beating analyst estimate of 65 cents per share.

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 from 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 by the end on this month.

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.


ECONOMIC NEWS

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.

INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION

Industrial production increased 0.1 percent in July after a gain of 0.8 percent in June. Manufacturing output increased 0.1 percent in July; excluding motor vehicles and parts, manufacturing production rose 0.4 percent. The output at utilities rose 0.7 percent, and production at mines declined 1.3 percent.

At 119.4 percent of its 1997 average, industrial production in July was 3.0 percent above its year-earlier level. In July, capacity utilization for total industry declined 0.1 percentage point, to 79.7 percent, a rate 1.3 percentage points below its 1972--2004 average.

Market Groups

The output of consumer goods declined 0.5 percent in July. The production of consumer durable goods fell 1.6 percent; a drop of 2.9 percent in the output of automotive products contributed heavily to the decrease.

The index for appliances, furniture, and carpeting declined 0.6 percent, and the index for home electronics recorded a rise of about the same amount. The production of consumer non-durables was unchanged.

A decline in the production of paper products offset a rise in the output of clothing, and the indexes for foods and tobacco and for chemical products were unchanged.

The production of consumer energy products edged down 0.1 percent. The production of business equipment moved up 1.3 percent in July—the eighth consecutive month of increases. The index for transit equipment rose 0.2 percent; a rise in the output of medium and heavy trucks more than off-set declines in the production of light motor vehicles and of civilian aircraft.

The output of information processing equipment moved up 2.0 percent, and the index for industrial and other equipment rose 1.2 percent. The production of defense and space equipment moved up 1.5 percent and was 10.4 percent higher than its year-ago level.

The index for construction supplies rose 0.7 percent in July, and the output of business supplies edged up 0.1 percent. The output of materials was unchanged in July. A rise of 0.2 percent in the production of non-energy materials counterbalanced a decline of 0.7 percent in energy materials.

Continued gains in the output of semiconductors boosted the index for durable goods materials, which rose 0.4 percent; the output of nondurable materials slipped 0.1 percent, as the output of paper materials and of chemical materials decreased.

Industry Groups

Production in manufacturing increased 0.1 percent in July, as a gain in the output of durables more than offset a decline in the production of non-durables.

Capacity utilization in manufacturing was unchanged at 78.3 percent, a rate 1.3 percentage points above its rate a year earlier but 1.5 percentage points below its 1972--2004 average. Within durable goods manufacturing, which rose 0.4 percent, the production of motor vehicles and parts fell 2.3 percent and reversed much of its June increase.

The index for nonmetallic mineral products also registered a small decline, but production for all other major categories of durables remained unchanged or increased.

The largest gains—2.3 percent each—were recorded in the index for computer and electronic products, which stood 16.4 percent higher than its level a year earlier, and the index for primary metals, which turned up after three consecutive months of decline.

The output of nondurable manufacturers decreased 0.2 percent; the production of petroleum and coal products fell sharply, and the indexes for paper, printing and support, and chemicals registered smaller declines. The output of non-NAICS manufacturing industries (publishing and logging) declined 0.2 percent.

Utilities output rose 0.7 percent in July as temperatures remained higher than average, and capacity utilization rose to 87.9 percent, its highest rate since February 2004. Mining output fell 1.3 percent, partly because of hurricane-related shutdowns of oil and gas platforms in the Gulf of Mexico; the operating rate declined 1.1 percentage points, to 87.5 percent.

By stage of process, capacity utilization for industries in the crude stage stepped down 1.0 percentage point, to 85.6 percent. For industries in the primary and semi-finished stages, the operating rate rose 0.2 percentage point, to 80.5 percent; for industries in the finished stage, utilization was unchanged at 77.9 percent.


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