Stocks Edge Higher on Oil Reserve Release

Elena
31 Aug, 2005
New York City

Early gains were trimmed after U.S. 2Q economic growth was revised slightly lower to a 3.3% annualized rate vs. 3.4% previously.Tiffany released 53% net income rise on 11% sales growth. United Natural Food posted strong 4Q earnings and sales report. Sanofi-Aventis raised its full-year guidance.

U.S. MARKET AVERAGES

The U.S stock markets made a flat opening of the Wednesday session overshadowed by 2Q GDP report, released before the bell and continuous uncertainty about the impact of Katrina on the U.S. oil facilities, but stocks gained some ground after U.S. Energy Secretary Samuel Bodman announced a decision made by the Bush administration to release some oil from the Strategic Petroleum Reserves.Oil prices had climbed as high as $70.65 a barrel in the pre-trading electronic trading but eased after the announcement.

Investors were also relieved by solid GDP figures for the second quarter, although 2Q GDP growth was unexpectedly revised downward to 3.3% growth compared with earlier reported figures of 3.4% and missing expectations of 3.5%.

Goldman Sachs was chosen as lead underwriter for Bank of China's highly anticipated multi-billion dollar IPO.

Late Tuesday, Sigma Designs Inc. reported 2Q 25% revenue growth as compared with the first, beating expectations. The company's second-quarter net income, however, fell 86% as chipsets revenue slipped while operating costs increased.

Tiffany & Co. , jewelry retailer, posted 2Q earnings of 35 cents a share vs. 22 cents a year ago, beating estimates of 24 cents a share on sales rise of 11%. The company raised its full-year guidance.

Culp Inc., NCI Building Systems are also expected to release reports.

ECONOMIC NEWS

The Commerce Department released the second-quarter GDP report which showed unexpected downward revision of 3.3% growth from previously reported 3.4%, disappointing economists’ expectations of 3.5% increase.
The 2Q GDP growth compares to 3.8% in the first quarter and according to the Commerce Dept. the decline reflects a downturn in private inventory investment as well as increase in consumer spending, exports, equipment and software spending. The downward revision is also attributable to the upward revision of imports and downward revision to consumer spending.
In addition, the report indicated 1.6% rise in the 2Q of the index for prices excluding food and energy compared with 2.4% growth in the first quarter.

Other economic data expected to be released Wednesday includes the New York NAPM August index of regional business activity and the Chicago PMI index for August in the afternoon the previous reading. Economists see a drop in the reading to 61.0 in August from 63.5 in July.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed the trading session mixed, reflecting surging crude-oil prices, boosted by the devastating impact of Hurricane Katrina on U.S. oil facilities, as well as accelerating U.S. inflation data. The Japanese stocks lost 0.3% on sharper-than-expected decrease in July industrial output of 1.1%. Among the decliners were the parts maker TDK and chip maker Advantest. Hong Kong’s Hang Seng fell 0.6%, while South Korea’s Kospi gained 0.4% reversing early losses in oil-sensitive stocks. The dollar was near a three-week high against the yen at 111.35.

European markets traded in the positive territory at mid-day as oil stocks gained ground, U.S. markets rebounded from sharp declines overnight and earnings reports provided some boost. Shares of oil majors like BP, Royal Dutch Shell and Total were sent higher. The French drug maker Sanofi-Aventis led the earnings reports, releasing upbeat quarterly news. The German DAX 30 added 0.5%, the French CAC 40 rose 0.6%, and London’s FTSE gained 0.7%.The euro added 0.03% on lower-than-expected unemployment rate in France for July.

ENERGY, METALS AND CURRENCIES MARKETS

Crude-oil prices declined from highs above $70 a barrel after the U.S. Energy Secretary announced that the Strategic Petroleum Reserves will lend oil to partially compensate losses, caused by Hurricane Katrina. Light sweet crude drooped 41 cents to $69.40 a barrel after slipping to $68.91 right after the loan from SPR was announced. London Brent fell 48 cents to $67.09.

Gold advanced as record-high crude-oil prices raised the appeal for the precious metal. In London gold for immediate delivery rose $1.10 to reach $432.70 per ounce, after falling $5.30 on Tuesday and closed at $431.60 as large speculators sold their holdings. This year gold has declined nearly 1.3%.

The U.S. dollar lost further ground against the euro due to concerns over oil prices following the damage done by Hurricane Katrina. The euro bought $1.2219 in morning European trading, up from $1.2205 the night before in New York. The dollar advanced against the Japanese yen, buying 111.42 yen, up vs. 111.35 on Tuesday, but fell against the British pound, which bought $1.7862, up from $1.7842 the night before.

EARNINGS NEWS

Sigma Designs, digital media processors maker, reported 2Q net profit of 0 cents per share, down vs. a net profit of 5 cents per share for the same period last year on 2% revenue decline for the comparable period . The company posted 25% net revenue growth compared with the previous quarter. The rise in revenue is mainly due to better sales performance with regard to the IP video applications.

VA Software, open-source software and web publisher, posted Q4 net loss of 2 cents per share, down vs. a loss of a penny a share for the same period last year despite 34% revenue growth. The stock gained 12 percent in after-hours trading after the announcement.

Sanofi-Aventis, French drugmaker, lifted its 2005 earnings forecast after announcing that 2Q adjusted net income advanced 26% to 1.55 billion euros. Sales were up 6.5% to 6.69 billion euros. The company also said that higher promotional costs boosted selling and general expenses by 1.2% to 2.03 billion euros. Research and development expenses were down by 1% to 979 million euros. It now envisages at least 20% growth in adjusted earnings for the year.

SWS Group, investment firm, announced that it will delay releasing 4Q financial results to review accounting for certain adjustable ratio securities. The company plans to wait until it files its annual report with the Securities and Exchange Commission to release the financial reports, as its fiscal year ended on June 24. The securities in question are 5-year notes issued in fiscal 1999 as a hedge on appreciated stock of Knight Trading Group. The securities matured in June 2004. SWS shares declined 20 cents to $16.35 in afternoon trading on the NYSE.

United Natural Foods, distributor and retailer of natural and organic foods, posted 4Q net income of 28 cents per share, up vs.23 cents per share for the same period last year on a 21.6% increase in net sales, totaling $543.0 million. Wholesale revenue growth rose 19.3% for the current quarter compared to the previous year. The acquisition of Select Nutrition Distributors and higher fuel costs both had a negative impact on earnings per share. The Company has suffered higher than expected external costs associated with its compliance efforts under Section 404 of Sarbanes-Oxley.

CORPORATE NEWS

The Mortgage Bankers Association unveiled a 4.5% decline of its market composite index of mortgage application volume on a seasonally adjusted basis for the week ended August 26. The MBA reported that its purchase index fell 3.6% for the week, while its refinancing index decreased 5.4%.

Goldman Sachs, Allianz, and American Express have signed a memorandum of understanding to invest $3 billion for a 10% stake in Industrial & Commercial Bank of China. The investment would be made after the bank is set up as a stockholding company in mid-October.

After three-week-long negotiations Boeing submitted its final offer for another three-year contract with the mechanics who assemble its jetliners, but will most probably fail to meet the workers’ requirements as according to the unions the offer which includes an increase in pension benefits has little improvement compared with the previous ones.

MCI is near a $315 million settlement with 15 states and the District of Columbia, which have claimed the company owes them a total of about $750 million in back taxes from when it operated as WorldCom. Resolution of the claims will remove a lingering risk for MCI, which has agreed to sell itself to Verizon Communications for $8.4 billion. Under the companies' agreement, Verizon could cut its payment for MCI by as much as 21 cents a share, or about $68 million, if MCI's liabilities top $1.78 billion.