Market Awaits Rate Move

Elena
20 Sep, 2005
New York City

Housing starts index for Aug declined by 1.3%. Goldman Sachs posted 3Q earnings of $3.25 a share vs. $1.74 last year, beating expectations of $2.31 a share. Circuit City Stores reported 2Q profit of 1 cent per share, exceeding estimates of a loss of 3 cents per share. The company raised its 2005 sales outlook to 5%-8% growth from previous 3%-6%.

U.S. MARKET AVERAGES

U.S. major averages opened higher just as futures had predicted and have slightly advanced since opening on the back of strong quarterly earnings reports from Circuit City Stores and Goldman Sachs.
Falling oil prices also gave a boost to the stock markets, despite the continuous threat of tropical storm Rita approaching the Gulf Coast. In early Tuesday trading oil prices eased back below $67 a barrel. Natural gas, heating oil and gasoline prices also retreated after an enormous jump Monday by more than $4 a barrel.

But recently traders’ attention has shifted from oil prices to the forthcoming Fed Reserve decision on interest rate, which is seen to rise in contrast to earlier expectations of a temporary halt of the hike due to the impact of Katrina.

Investors also digested the Commerce Department report which showed that construction of new homes for August dropped by 1.3% compared with a decline of 1.5% in July.

The Nasdaq has advanced 0.4%, the Dow and S&P 500 are showing gains of about 0.2%.
Bonds edged lower ahead of the Fed meeting, with the yield on the 10-year Treasury note rose to 4.26 percent from 4.25 percent late Monday.

MOVERS AND SHAKERS

The retailer Wal-Mart ((WMT)) fell 0.14% in premarket trade after the company announced it was stepping into Central American market. The company bought a part of the Central American top retailer from Dutch retailer Royal Ahold ((AHO)).

Goldman Sachs ((GS)) added 2.2% after the company posted third-quarter revenue of $7.3 billion, up from $4.5 billion a year earlier. This revenue was high above the analysts’ estimates.

Circuit City Stores Inc. ((CC)) jumped 11.2% after the company reported a second-quarter profit of $1.3 million. A year ago it has a loss of $11.9 million and analysts’ forecasts were about a loss again.

Entergy Corp. ((ETR)) said it expects between $750 million and $1.1 billion in reparation expenses from Hurricane Katrina. The company also warned Entergy New Orleans may bankrupt. Electric power distributor is likely to be active after the market opening.

Coca-Cola Enterprises ((CCE)), Pepsi Bottling Group ((PBG)) and PepsiAmericas ((PAS)) were downgraded at Lehman Brothers. The broker pointed a recent rise in energy prices as a reason for this move. Coca-Cola Enterprises dropped 0.7% in the early trading.

ECONOMIC NEWS

Tuesday morning, the Department of Commerce released its report on housing starts in the month of August, showing a notable decline compared to the previous month. Building permits, which offer an indication of future starts, also showed a notable decline.

The report showed that housing starts fell 1.3 percent to a seasonally adjust annual rate of 2.009 million units in August from a downwardly revised 2.035 million unit rate in July.

Economists had expected housing starts to fall to a 2.040 million unit rate from the 2.042 million unit rate originally reported for July.

Notable declines in the Northeast, the Midwest, and the South contributed to the decrease in housing starts. At the same time, housing starts in the West rose 13.3 percent in August.

As mentioned above, the report also showed that building permits fell 2.2 percent to a seasonally adjusted annual rate of 2.124 million units in August from a downwardly revised 2.171 million unit rate in July.

The decrease in building permits exceeded the expectations of economists, who expected a decrease to a 2.129 million unit rate from the 2.167 million unit rate originally reported for July.


INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed Tuesday session with solid gains. The Nikkei climbed 1.5%, reaching a four-year intraday high on the back of financial, automotive and commodity-related stocks. South Korea’s Kospi rose to an all-time peak of 1.4% to 1190 after North Korea agreed to abandon its nuclear weapons program. Among the leading gainers were Samsung Electronics, Korea Electronic Power and steelmaker Posco. Across the region, Hong Kong’s Hang Seng gained 1.7% and Thailand’s SET index jumped 2%. The dollar bought 111.55 yen.

European markets traded in the positive at mid-day dealings, supported by surging oil and automakers shares. Investors were also awaiting the U.S. Fed Reserve’s decision on interest-rate hikes. The German DAX 30 rebounded from Monday’s sharp declines after the general election and rose 0.6% on the back of automakers like Volkswagen and BMW. The French GAC 40 and London’s FTSE 100 were mainly boosted by oil stocks like BP, Royal Dutch Shell, Total and climbed 0.6% and 0.2% respectively.

ENERGY, METALS, CURRENCIES

Oil prices declined over $1 despite the threatening tropical storm Rita which caused the crude-oil jump of more than 4$ a barrel Monday. Light sweet crude October delivery fell $1.17 to $66.25 a barrel in electronic trading on the Nymex. Heating oil lost 6 cents to $1.9750 a gallon, while gasoline fell 7 cents to $1.9680. London Brent dropped 96 cents to trade at $64.65.

Gold advanced in European trading. In London the precious metal traded at the recommended price of $470.00 per troy ounce, up from $467.50. In Hong Kong gold rose $12.40 to close at $470.25. Silver was trading at $7.34 per ounce, down from $7.37.

The U.S. dollar was mixed against the other major currencies in European trading. The euro was quoted at $1.2150, up from $1.2142. The dollar changed hands at 111.42 yen, down from 111.46. The British pound traded at $1.8022, down from $1.8026.

EARNINGS NEWS

Goldman Sachs, ((GS)) investment banking company, posted 3Q profit OF $3.25 a share, driven by the best performance in four years in its investment banking business. The company’s total revenue increased 81% to $12.3 billion from the year-ago period of $8.9 billion. Analysts’ forecasts for the fiscal 3Q earnings were $2.38 a share. The company announced that investment banking revenue rose 14% compared to last year’s levels, to just over $1 billion from $890 million a year ago.

Circuit City Stores Inc., ((CC)) retailer of consumer electronics, reported 2Q net earnings from continuing operations amounted to 1 cent per share, compared with a net loss from continuing operations of 6 cents per share for the same period of fiscal 2005 results. Total sales rose 7.8 % to $2.56 billion from $2.38 billion in the same period a year ago, with consolidated comparable store sales increasing 5.3 % from the prior year.

Swift Transportation Co. ((SWFT)) announced it's lowering its profit outlook for 3Q to a range of 30 cents to 33 cents a share, excluding non-cash expenses for accelerating stock options and a charge to be taken by the trucking firm for the asset impairment. The company had been looking for earnings of 33 cents to 46 cents a share, prior to this announcement. The analyst estimate stands at 41 cents. Including the special items, Swift fixed quarterly earnings at 11 cents to 14 cents a share. The company said increased fuel costs will subtract 4 cents to 6 cents a share from earnings.

FactSet Research, ((FDS)) provider of financial and economic information, posted fiscal 4Q earnings of 37 cents a share, up vs. 30 cents a share in the year-ago period on revenue growth, beating analysts’ forecasts of 36 cents a share. Subscriptions increased 23% to $336.5 million. For its fiscal 1Q, the company expects revenue of $88 million to $90 million, which is above analyst projections of $83 million.