Inflation Tightens the Grip on Market

Elena
17 Aug, 2005
New York City

Higher-than-anticipated inflation, Hewlett-Packard 2Q exceeds expectations, Nordstrom releases earnings and revenue growth, Applied Materials reports earnings and sales decline.

U.S. MARKET AVERAGES

U.S. stock futures are flat in the first hour of trading on higher inflation data.
The major averages keep high levels of trading with the Nasdaq in the lead, rising 0.3%

The computer hardware sector rebounded after declining more than 3% Tuesday on Gateway earnings report.

Gold sector lost ground on strengthening dollar, falling 1.5%.
Housing stocks also have a weak trading session, going down almost 1%.

In the stock market

Nordstrom, luxury retailer, reported 2Q earnings of $148.9 million, or 53 cents a share vs. 37 cents a year ago on 7.8% revenue growth to 2.1$ billion with same-store sales increase of 6.2%.

Hewlett-Packard reported 3Q earnings of 36 cents a share excluding special items and exceeded expectations of 31 cents a share.

Appliance Materials, chip maker, posted 3Q 27% sales and 16% earnings decline on industry slowdown. The company earned $369.6 million, or 23 cents a share, down from $440.6 million, or 26 cents a share, beating estimates by a penny, but missing revenue forecasts of $1.65 billion.

Big Lots posted wider 2Q loss of 12 cents a share, mainly attributable to charges

Other companies expected to report today are:
Ross Stores, Medtronic, Network Appliance

ECONOMIC NEWS

The wholesale price index reported largest increase in nine months of 1% during July. Many of the factors driving the wholesale inflation are the same that are driving the consumer price inflation.

The wholesale index measures the rate of inflation before it reaches at the consumer level.

The only difference between the two reports was that the automobile prices declined in the consumer price inflation by 1% whereas at the wholesale level measurement they increased by 1%.

The PPI data showed that the prices rose for energy by 4.4%, electricity by 0.7%, gasoline by 10.9%, natural gas by 3.7% but for food dropped by 0.3%. The prices for pharmaceuticals rose by 1.3%.

INTERNATIONAL MARKET NEWS

Asian benchmarks closed broadly down, reflecting U.S. markets decline overnight, oil prices and profit-taking. The Nikkei had a day of volatile trading. It opened lower, following losses in Wall Street, later recovered on gains in banks and property developers and eventually finished the session down 0.35%. Among the decliners in the regional markets, Hong Kong’s Hang Seng was flat on blue chip losses, South Korea’s Kospi shed 0.3%, and Singapore’s Staits Times dropped 1.1%. The dollar traded in the upper 109-yen range.

European markets traded under pressure in the morning session, hurt largely by sharp overnight decline in U.S. averages and poor reception of Nestle and Adecco earnings reports. The German DAX 30 slipped 0.65% on merger and acquisition speculations in the telecom sector, the French CAC 40 dropped 0.48%, and London’s FTSE lost 0.56% after several major companies began trading without having dividend rights.

ENERGY, METALS AND CURRENCIES MARKETS

Oil prices slightly lowered to $66 a barrel ahead of U.S. report, expected to show another fall in gasoline stocks. U.S. contract for light sweet crude declined 8 cents to $66 a barrel. London Brent lost 17 cents to $64.91.

Gold futures went down as the U.S. dollar rose on the back of wholesale prices data. Gold for December delivery lost $3 to trade at $448.50 per ounce on the NYMEX. September silver fell 7.3 cents to $6.97 per ounce.

Copper prices declined 3.3%, or 5.65 cents to $1.658 a pound after yesterday’s record closing at $1.7145.

The U.S. dollar climbed against the other major currencies. The euro stood at $1.2278, down from $1.2346. The dollar changed hands at 109.97 yen, up from 109.50. The British pound was quoted at $1.8062, down from $1.8075.

EARNINGS NEWS

Talbots, women’s and children's classic apparel marketer, posted 2Q earnings of 35 cents a share, up from 34 cents in the same period last year, beating analyst estimate by a penny. Same-store sales gained 6.7%.

Too, specialty retailer, reported 2Q net income advanced to 12 cents a share from 5 cents a share in the same time last year on sales growth, beating analyst estimate by a penny.

Eaton Vance, mutual funds management company, announced 3Q earnings of 29 cents a share, up vs. 25 cents per share for the same period last year on revenue growth, matching analysts’ forecasts.

Big Lots, retailer, reported 2Q net loss widened to 12 cents a share from 7 cents a share in the year-ago period despite revenue growth.

Hewlett-Packard, high-tech equipment maker, posted fiscal 3Q results of 3 cents per share profit, down vs. 19 cents per share for the year-ago period. Excluding one-time tax adjustments, the earnings would have been 36 cents per share compared to 24 cents per share for the comparable period last year, beating, on that basis, analyst estimate of 31 cents per share.

Nestle, food company, posted first-half net profit rise of 32% to 3.68 billion Swiss francs up vs. net profit of 2.78 billion francs in the year-ago period on sales growth.

Adecco, Swiss staffing agency, announced that its 2Q net profit was up 5% to 100 million euros from the year-ago period, missing analysts' expectations of 107 million euros. Revenue for the period rose 6%, matching forecasts.

CORPORATE NEWS

Deutsche Telecom AG and KPN NV announced termination of their talks on a possible bid for U.K.’s wireless operator O2 PLC as the two sides involved could not reach an agreement on the price for O2’s German operations. KPN failed to buy all of O2 last year on valuation issues.

Qwest Communications and its largest union reached a contract agreement late Tuesday, putting the final touches on a tentative pact after several days of intermittent negotiations, removing the threat of a strike by 25,000 telephone workers in 13 states.

OTHER NEWS

The annual consumer-price inflation for July reached its highest level of 2.3% mainly due to higher energy costs, but also helped by a number of products like cars, bank charges and insurance premiums. On this basis the Bank of England is expected to keep interest rates unchanged for the rest of 2005.