Weak Opening Weaker Closing

123jump.com Staff
13 Sep, 2005
New York City

Inflation worries on the reported wholesale inflation and stubborn trade deficit put market in the sell-off mode at the opening. Rise in oil price drove the July trade deficit rise of 12% from a year ago. The export rose 10% and import rose 11.3% from a year ago. Best Buy failed to win over investors and dropped 11% on lower earnings outlook for the current quarter.

U.S. Market Averages

Market’s early sell-off on inflation and trade deficit report was only accelerated by weak earnings from Best Buy. The weak opening in the morning hours was rekindled by inflation worries and stubborn July trade deficit.

Even though the rise in August wholesale inflation was reported at 0.6%, lower than anticipated 0.7%, and core inflation was almost non-existent, as per the report, it failed to keep investors guessing the Hurricane Katrina impact.

July trade deficit of $57.9 billion was driven by rising oil imports and slower rise in export. Total July exports of $106.2 billion and imports of $164.2 billion resulted in a goods and services deficit of $57.9 billion, $1.6 billion less than the $59.5 billion in June, revised. July exports were $0.4 billion more than June exports of $105.8 billion. July imports were $1.1 billion less than June imports of $165.3 billion.

Market did not pay attention to the fact both trade deficit and wholesale inflation were reported below the forecasted levels of 0.7% for inflation and $60 billion for the deficit. Market focused on the inflation that may be caused by Hurricane Katrina and that in the coming month deficit could be even higher if oil prices do not fall.


Refiners and select tech sector drove stocks higher in an otherwise a down day. Consumer staples, retailers, casinos, and home builders were down.

Shares of Best Buy came under heavy pressure after reporting second quarter earnings of 37 cents missing the estimates by one penny on lower than forecasted revenue.

Shares of SanDisk, flash memory designer, were up 6% after broker revised stock rating on better outlook for the current and the next quarter. Electronic Arts shares were up close to 5% after broker upgrade based on xbox 360 release and on hope that it will help sales growth. Applied Materials shares were up 2% on broker upgrade.

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 non-tradable share reform. South Korea’s Kospi was steady at 0.02%. In currency markets the dollar bought 110.35 yen.

ENERGY, METALS, CURRENCIES

At the opening Oil prices started rising after recent declines on bullish market and ahead of U.S. inventory data, expected to show low levels of gasoline supplies. At mid-day light sweet crude for October delivery gained 45 cents to $63.79 a barrel on the Nymex but closed 23 cents lower at $63.11 per barrel. Gasoline prices rose by more than a penny to $1.8916 a gallon, while heating oil rose by 2.5 cents to $1.8402. London Brent advanced 41 cents to $62.21 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.
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EARNINGS NEWS

Factory Card Outlet & Party Corp., 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 Collin 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 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 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, 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.

Sanofi Aventis signed a distribution agreement with a small drug maker for an authorized generic version of allergy medicine Allegra. The company vowed to continue fighting Teva and Barr Pharmaceuticals over their jointly launched Allegra generic.