Wholesale Inflation Spikes on Food, Energy Costs

Elena
15 Mar, 2007
New York City

U.S. stocks opened mixed, reflecting higher-than-expected inflation at the wholesale level and initial jobless claims drop. Investors'' hopes of interest rate cuts dampened, as wholesale prices unexpectedly jumped 1.3% in February amid a big increase in energy prices and food costs. Even excluding food and energy prices, the core PPI rose 0.4%, double the 0.2% rise that analysts were predicting.

[R]9:45AM Wall Street opened mixed amid higher-than-expected wholesale inflation.[/R]
U.S. stocks opened mixed, reflecting higher-than-expected inflation at the wholesale level and initial jobless claims drop. Investors' hopes of interest rate cuts dampened, as wholesale prices unexpectedly jumped 1.3% in February amid a big increase in energy prices and food costs. Even excluding food and energy prices, the core PPI rose 0.4%, double the 0.2% rise that analysts were predicting. In merger-and-acquisition news, Cisco Systems ((CSCO)) said that it agreed to acquire the online meeting company WebEx Communications ((WEBX)) in a deal worth $3.2 billion in cash, or 57 per share. That represents a 23% premium over WebEx's closing price of $46.20 on Wednesday on the Nasdaq Stock Market. Shares of WebEx surged 24%, wkile Cisco lost 0.3%.

Financial shares were notable gainers in morning trading, boosted by deal news in the sector. Shares of CBOT Holdings ((BOT)) rallied about 15% after rival InterContinental Exchange ((ICE)) made a surprise bid to acquire the company for about $10 billion. Shares of Bear Stearns ((BSC)) gained 1.9% after it said Q1 net income rose 8%, beating analyst expectations. Dow components J.P.Morgan d ((JPM)) and Citigroup ((C)) rose 1% each.

Airline stocks moved higher in early trading, with Continental Airlines shares leading advancers after J.P. Morgan upgraded the carrier's stock to neutral. Continental Airlines ((CAL)) rose 3.4%, Mesa Air Group ((MESA)) shares rose 2.1%, and UAL Corp. ((UAUA)) gained 2%. Telecoms were trading mostly lower, dragged by Sprint Nextel ((S)), down 1.3%. AT&T ((T)), Verizon Communications ((VZ)) lost 0.6% each, while Juniper Networks ((JNPR)) rose 2.3%. In the first hour of trading, the Dow Jones industrial average fell 18.42, or 0.15%, to 12,114.98. The Standard & Poor's 500 index slipped 1.86, or 0.13%, to 1,385.31, and the Nasdaq composite index rose 2.14, or 0.09%, to 2,373.88.

[R]Wholesale inflation jumped 1.3% on food and energy costs.[/R]
Thursday morning, the Department of Labor released its closely watched report on producer price inflation in the month of February, showing that prices rose much more than economists had expected amid a rebound in energy prices. The report showed that the producer price index rose 1.3 percent in February after an unrevised 0.6 percent decrease in January. The rise in prices came in well above economist estimates of an increase of about 0.5 percent. A rebound in energy prices contributed to the bigger than expected increase in prices, with energy prices rising 3.5 percent in February after falling 4.6 percent in January. Gasoline prices rose 5.3 percent following a 13.0 percent drop in the previous month.

The notable increase in prices was also partly due to a continued increase in food prices, which rose 1.9 percent in February following a 1.1 percent increase in January. This marked the third consecutive month that food prices rose more than 1 percent. The Labor Department also said that the core producer price index, which excludes food and energy costs, rose 0.4 percent in February after rising 0.2 percent in each of the two previous months. Economists had been expecting another 0.2 percent increase. The bigger than expected increase in prices is likely to raise some concerns about the pace of inflation, which in turn will likely offset optimism that the Federal Reserve will lower interest rates in the near future.


[R]9:30AM London bounced back Thursday on M&A and large-cap rally.[/R]
The UK market was higher on Thursday. By mid-day, the FTSE 100 was 100 points higher at 6,101.4.

Advancers

Imperial Tobacco rallied after finally making a cash bid for Franco-Spanish rival Altadis following months of speculation. Imperial shares were 6.9% higher while BAT gained 2.2% in sympathhy and in anticipation of a consolidation in the sector.

The benchmark index was further bolstered by strong resultss from Prudential and William Morrison and confirmation from Cadbury Schweppes that it was considering a sale of its US drinks division. Cadbury shares were 5% higher. Prudential firmed 4.4 % and William Morrison was 3% higher. J Sainsbury was 4.3% higher on continued reports that the CVC consortium was close to tabling an offer for the supermarket. Mining stocks were also higher, with BHP Billiton up 4.4%.

In the mid-caps, it was another year of excellent progress for Aegis Group, 4.4% higher, on Thursday, as the media buyer posted a 16% rise in underlying pre-tax profit and added its prospects were promising.

Decliners

The only large-cap decliner was AstraZeneca, the pharmaceuticals group, down 0.2%. Also, Industrial products firm Chapelthorpe plunged by more than a fifth after it warned that the current financial year will be hit by slow trade and problems at its umbrella frames unit. Chapelthorpe was down 22.5%.


[R]9:00AM U.S. stock futures pointed slightly higher ahead of inflation data.[/R]
U.S. stock futures traded moderately higher Thursday, taking a lift from solid gains in intraday trading yesterday that gave signals the market is on the rebound. As investors’ optimism spread across global markets, Asian and European stocks gained some ground after the steep decline in the previous session, with the Nikkei 225 bouncing back 1.1% and the FTSE 100 rising 1.2%. Traders were also eagerly awaiting core inflation data that is expected to remain subdued. Manufacturing surveys and weekly jobless claims are also due for release.

Shares of subprime mortgage lenders continued to bounce along with the overall market. Accredited Home LendeAmong ((LEN)) climbed 19% in the pre-open. Among pre-market earnings headlights, Bear Stearns ((BSC))reported Q1 earnings increase to $553.7 million, or $3.82 a share, from $514.2 million, or $3.54 a share, a year earlier. The results beat analyst estimates of $3.80 a share. In corporate news, InterContinentalExchange ((ICE)), electronic commodities trading platform, said it made an unsolicited bid to merge with CBOT Holdings ((BOT)) in a deal that values CBOT shares at $187.34 each. That represents a 12.8% premium to CBOT''s closing price on Wednesday. CBOT shares rose 17% in pre-open trading, while ICE shares gained 3.1. S&P 500 futures gained 2.90 points to 1,404.60 and Nasdaq 100 futures climbed 4.50 points to 1,773.00. Dow industrial futures rose 27 points to 12,276


[R]8:30AM Asian stocks advance on Thursday with Japan leading the rally.[/R]
Asian markets ended higher on Thursday. Tokyo Nikkei 225 rose 1.1% to end at 16,860.39. Mitsubishi Heavy Industries advanced for a second straight day after saying it had won a contract to supply two nuclear reactors to a U.S. utility. The group rallied 9.2%. Among export-oriented shares, Canon added 1.1%, while Toyota gained 1.6% and Honda Motor Co added 1%. Bucking the trend in Tokyo, shares in Nikko Cordial shed 0.3%.

In Hong Kong, the Hang Seng Index advanced 0.7% to close at 18,969.44. Shares of Hong Kong-listed China Resources Enterprises rose 1.1% after the company said it would sell its Hong Kong petroleum distribution business to Sinopec, as part of a restructuring to focus on its consumer operations. In the tech sector, gainers included China Mobile, which added 2.5%.

Around the region, Australia S&P/ASX 200 ended 1.9% higher, boosted by gains in BHP Billiton, up 2.3%, after Merrill Lynch made a small upward adjustment to the profit outlook of the miner. Seoul Kospi added 1.4% to end at 1,426.93, Singapore Straits Times Index closed 1.4% higher at 3,094.60 and Taiwan Weighted Price Index settled 1.7% higher to close at 7,695.96. China Shanghai Composite Index finished 1.6% higher at 2,951.69.


[R]8:00AM NY-7:00PM Mumbai Sensex closes marginally higher on global market recovery.[/R]
The Sensex on BSE finished 14.23 points, or 0.11%, higher at 12,543.85. The market-breadth was positive as there were three advancers for every two decliners. For 1,474 stocks that advanced on BSE, 1,090 declined and 73 remained unchanged. Of the 30 stocks in the Sensex, 13 advanced and 17 declined. The turnover on BSE was Rs 3,834.63 crore, compared with Rs 4,284 crore on Wednesday. The turnover on NSE was Rs 7,776.71 crore, higher than Rs 8,670.09 crore onWednesday.

Economic and corporate news

Insurance companies are likely to have more flexibility investing in corporate bonds and mortgage-based securities as the Insurance Regulatory and Development Authority may issue guidelines by the end of the month. Insurance companies will be able to invest in all highly rated, or minimum AA+, corporate issuances. Mortgage-based securities will now be categorised as approved investment.

Vodafone of the UK and its Indian partner Essar today announced they would be working to become the largest mobile operator in India, and seek opportunities in the telecom space in the Middle-East.

Trading highlights

MindTree was the most-active stock with a turnover of Rs 570.50 crore followed by Reliance Industries and Idea.

Advancers

Dr.Reddy led the advancers, surging 4.4% to Rs 675. The company has withdrawn from the race to acquire the generic drugs unit of Merck. Other gainers included ITC and Infosys advancing 3% each to Rs 147 and Rs 2,078, respectively. ITC rallied on reports that its food unit is likely to bid for Patak, UK, which stands at about 200 million pounds, or $387 million. Hindalco was up 2.1% to Rs 131 and TCS gained 1.9% to Rs 1,236. NTPC added 1.2% at Rs 141.

Decliners

SBI led the decliners, down 2.7% to Rs 922, on 7.70 lakh shares. HDFC and Tata Motors dropped over 2.5% each to Rs 1,514 and Rs 726, respectively. Other decliners included HDFC Bank, Bajaj Auto and Cipla shedding around 1.5% each to Rs 918, Rs 2,491 and Rs 227, respectively. BHEL was down 1.1% to Rs 2,007 and ICICI Bank lost 0.9% to Rs 822.

Reliance Industries declined 0.1% to Rs 1,285.1, on 11.45 lakh shares. Reportedly, Reliance is looking at buying a stake in Carrefour of France, the second-largest retailer after Wal-Mart. This would promote the largest private sector group in India to the ranks of the world top retailers. Reliance was looking at the possibility of buying the 13% stake held by the Halley family, Carrefour largest shareholder, although talks have not yet started.