Oil, Deficit and Inflation Drive Market Lower

Elena
13 Sep, 2005
New York City

The trade deficit in goods and services in July was $57.9 billion, down 2.6percent from June. Exports were $106.2 billion, up 0.4 percent, and imports were $164.2 billion, down 0.7 percent from June. Electronics retailer Best Buy sent the whole sector down 1.2% on disappointing earnings report and trades 9% lower at the opening.

U.S. MARKET AVERAGES

The three major U.S. averages have been continuously falling during the first trading hour with rising oil prices and disappointing earnings report from Best buy being responsible for the decline.
Crude-oil prices which have been slipping for the last three days swung to the upward direction again to rise 36 cents to $63.70 a barrel and provide pressure to the market.
Best Buy, electronics retailer, posted worse than-expected quarterly report and caused fears of slowdown in consumer spending.

The economic data released was largely ignored by investors as it does not reflect Katrina’s impact.

Retailer sector was sent down 1.2% by the disappointing report from Best Buy. Another notably declining sector is the gold sector.

There are hardly any sectors moving considerably higher.
Insurance stocks made modest gains.

The Dow Jones industrial average fell 37.65, or 0.35 percent, to 10,645.29.

Broader stock indicators also lost ground. The Standard & Poor's 500 index dropped 2.84, or 0.23 percent, to 1,237.72, and the Nasdaq composite index slid 5.00, or 0.23 percent, to 2,177.83.

MOVERS AND SHAKERS

Ford Motor Co. ((F)) gained 1.7% after the company offered buyouts for 5,000 United Auto Workers union members. Ford and Visteon ((VC)), a parts maker, agreed to move 17 auto parts plants and six other offices to the new entity managed by Ford.

Nokia ((NOK)) jumped 3.4% after the company increased third-quarter earnings and sales guidance, pointing strong volume of sales and a low decline in selling prices.

Knight-Ridder ((KRI)) is expected to be under pressure due to the announcement from the company that its third-quarter earnings from continuing operations will be about 20% lower than the previous year, noting a disappointing August, newsprint hikes and unfavorable comparisons with 2004.

ECONOMIC NEWS

The U.S. trade deficit narrowed unexpectedly in the month of July, according to a report from the Department of Commerce. However, the decline is expected to be short-lived due to the impact of Hurricane Katrina.

The Commerce Dept. said that the U.S. trade deficit narrowed to $57.9 billion in July from an upwardly revised $59.5 billion in June. The decrease came as a surprise to economists, who had expected the trade deficit to widen to $60.0 billion from the $58.8 billion originally reported for June.

Tuesday morning, the Department of Labor released its report on wholesale inflation in the month of August, showing an increase in prices that came in slightly below expectations. However, the report did not include the impact of Hurricane Katrina.

The Labor Dept. report showed that the producer price index, a closely watched indicator of wholesale inflation, rose 0.6 percent in August following a 1.0 percent increase in July. The increase came in slightly below economist expectations of an increase of 0.7 percent.

While the data shows that inflation was well contained before the hurricane hit, the fact that the report does not include the impact of the hurricane may limit its significance. Traders may subsequently express some continued uncertainty about the Federal Reserve's interest rate decision at its meeting next week.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished the trading session mixed, recovering from early losses with the Nikkei flat at 0.04% after recent gains. Hong Kong’s Hang Seng declined 0.9% on oil and property stocks. China’s Shanghai Composite gained 1.6%, the highest level in 5 months on optimism over nontradable share reform. South Korea’s Kospi was steady at 0.02%. In currency markets the dollar bought 110.35 yen.

European stocks declined in mid-day dealings on falling crude-oil prices and forthcoming general elections in Germany, and even the lifted earnings and sales outlook from Nokia could not offset losses. The German DAX 30 slid 1.7% on profit-taking and concerns that economic reforms could be stopped after the election. The French CAC 40 lost 0.7%, London’s FTSE 100 also fell 0.7%.

ENERGY, METALS, CURRENCIES

Oil prices slid for the third consecutive session on expectations of lower demand growth. Light sweet crude for October delivery dropped 19 cents to $63.15 a barrel. Gasoline prices slightly fell to $1.8725 a gallon, while heating oil remained flat at $1.8125. London Brent lost 23 cents to $61.57 a barrel.

Gold price climbed in European trading. In London the precious metal was traded at the recommended price of $448.70 per troy ounce, up from $447.30. In Hong Kong gold fell $1 to $448.35. Silver traded unchanged at $6.97 per ounce.

The U.S. dollar was mixed against its major counterparts in European currency trading. The euro was quoted at $1.2285, up from $1.2281. The greenback changed hands at 110.83 yen, up from 110.16. The British pound was quoted at $1.8216, up from $1.8190.

EARNINGS NEWS

Factory Card Outlet & Party Corp., ((FCPO)) chain-store operator, posted 2Q net income of 30 cents a share, down vs. 56 cents in the same period a year ago despite a slight quarterly sales growth, missing analyst estimate of 59 cents a share. Comparable-store sales shed 0.5%.

J. Crew Group Inc., retailer, reported it reversed to a 2Q profit of $2 million from the previous year loss of $14 million. Operating earnings rose to $20 million from $8 million in 2Q a year ago, while revenue advanced to $229 million from $188 million. The company is privately owned but reports results on account of its publicly traded debt.

Rockwell Collins ((COL)) reaffirmed its guidance for 2005, saying it still expects earnings of $2.15-$2.20 per share on revenues of about $3.45 billion. Looking further ahead, the company predicted earnings for fiscal 2006 of $2.45-$2.55 per share on revenue between $3.8 and $3.9 billion. Wall Street analysts had a consensus earnings forecast of $2.19 per share for 2005 and $2.50 per share for 2006.

Jo-Ann Stores ((JAS)) revealed the resignations of CFO Brian Carney and General Counsel Valerie Gentile Sachs, both effective at the end of the month. The fabric and craft retailer stated that both executives were leaving for jobs at other companies. Jo-Ann Stores said Jim Kerr, VP and controller, and Don Tomoff, treasurer, will lead the finance team during the transition period.

Rural/Metro ((RURL)) revealed earnings for the fourth quarter of $2.95 per share, including $2.87 per share related to a deferred income tax benefit. In the same period last year, the provider of emergency transportation earned $0.06 per share. The company reported revenue for the period of $137.4 million, up from $124.8 million.

CORPORATE NEWS

Nokia ((NOK)), the world’s largest handset maker, raised its 3Q earnings and sales outlook on better-than-expected cell phone prices and increased volumes. The company released revised earnings of 18 to 19 euro cents per share, up from 14 to 17 euro cents previously projected. Sales are seen between 8.4 billion to 8.5 billion euros, up from 7.9 to 8.2 billion euros.

A buyout group which includes Clayton Dubilier & Rice, as well as Carlyle Group and Merrill Lynch Global Private Equity agreed to buy Ford Motor Co.'s Hertz unit for $5.6 billion, ending an auction among private-equity firms. The acquiring group will also assume around $10 billion in Hertz debt.