Declining Oil, Rising Rates

Elena
27 Sep, 2005
New York City

The Conference Board released a report, showing that consumer confidence in September dropped to 86.6 from 105.5 in August, although economists had expected a more modest decline of 98.0. The Department of Commerce released data, indicating that new home sales fell 9.9% to a seasonally adjusted annual rate of 1.237 million units in August from the revised July rate of 1.373 million units. Economists had expected sales to fall to a 1.363 million unit rate.

U.S. MARKET AVERAGES

The major U.S. market averages have been trading slightly below the flat line, posting modest losses. The indices edged up at the start of the trading session but found it difficult to rise higher as economic data, showing part of Katrina’s and Rita’s impact weighed on the market sentiment. In addition, traders await the Fed Reserve’s chairman speech, expected to give signs about another interest rate increase.

Disappointing economic data release showed that consumer confidence in September dropped to 86.6 from 105.5 in August, although economists had expected a more modest decline of 98.0.

The Department of Commerce released a report showing that new home sales fell 9.9% to a seasonally adjusted annual rate of 1.237 million units in August from the revised July rate of 1.373 million units. Economists had expected sales to fall to a 1.363 million unit rate.

Crude oil futures have slipped after the broad rally on Monday, but still raise worries about oil supply as Rita’s damage is being assessed. Oil majors have started giving assessments from the storm, stating that impact was less than expected, but oil and gas stocks declined. Exxon Mobil fell by 0.7%, Chevron Corp. declined by 0.6%. A barrel of light crude was quoted at $65.45, down 37 cents.

The gold sector, which has been volatile throughout the past week, posts a steady decline of 2.8%. Semiconductor sector is another notable loser, down 1.2%.

Only a few sectors post considerable gains with the HMO sector rising by 1% on a New York Times report that WellChoice ((WC)) is in talks to be acquired by WellPoint ((WLP)).

At mid-day trading the Dow Jones industrial average rose 0.95, or 0.01 percent, to 10,444.58. The Standard & Poor's 500 index fell 1.64, or 0.13 percent, to 1,213.99, and the Nasdaq composite index fell 4.19, or 0.2 percent, to 2,117.27.
Bonds fell, with the yield on the 10-year Treasury note rising to 4.31 percent from 4.29 percent late Tuesday.

MOVERS AND SHAKERS

Taser International Inc. ((TASR)) fell 8.9% after the stun gun company said that a previously came out abuse by the Securities and Exchange Commission has now been viewed formal. The company also said that the examination has been expanded to include possible illegal receiving of material non-public information by some people outside of the company trying to manage the stock price.

WellChoice Inc. ((WC)) jumped 8% due to a media report that another insurer WellPoint ((WLP)) is planing to buy it for $6.5 billion in cash and stock

Pepsi Bottling Group Inc. ((PBG)) is expected to be in play, because the company reported third-quarter net income of $205 million, or 82 cents a share, as compared to $191 million, or 73 cents a share, for the same period in 2004. Analysts had been expecting earnings of 78 cents a share and the company planned record earnings per share for fiscal 2005.

J.P. Morgan rearranged its ratings on some oil companies today.

The broker upgraded Chevron Corp. ((CVX)) to overweight from underweight, pointing the company's more desirable direction following the acquisition of Unocal.

The broker also upgraded BP ((BP)) to overweight from neutral, citing the company's exposure to both U.S. refining and natural gas prices is allowing a benefit from the current product strength.

J.P. Morgan upgraded Royal Dutch Shell ((RDS)) to overweight from neutral, because it believes the stock could be a good protection advantage given the broker's forecast of crude weakness later this year.

The broker downgraded Exxon Mobil ((XOM)) to neutral from overweight, pointing the recent rise in the shares. Total ((TOT)) was downgraded to neutral from overweight to follow a non-impressive combination of valuation and potential catalysts in comparison to other stocks.

ECONOMIC NEWS

Consumer confidence plummeted in September, according to a report from the Conference Board, with concerns about Hurricane Katrina and soaring gasoline prices contributing to the decline.

The Conference Board said that its Consumer Confidence Index fell to 86.6 in September from 105.5 in August. With the decrease, the index hit its worst level since October of 2003. Economists had expected a somewhat more modest decline to about 98.0.

The Conference Board also said that the outlook for the next six months turned considerably pessimistic, with the Expectations Index falling to 71.7 in September from 93.3 in August.

Tuesday morning, the Department of Commerce released its report on new home sales in the month of August, showing that sales fell even more than economists had expected.

The report showed that new home sales fell 9.9 percent to a seasonally adjusted annual rate of 1.237 million units in August from the revised July rate of 1.373 million units. Economists had expected sales to fall to a 1.363 million unit rate.

The report also showed that the seasonally adjusted estimate of new houses for sale at the end of August was 479,000. The Commerce Dept. said that this represents a supply of 4.7 months at the current sales rate.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed broadly higher, led by all-time high indexes in South Korea and Australia. Seoul’s Kospi rose 0.3% to 1,209,63, adding to Monday’s gains of 2.6%, boosted by banking stocks. Sydney’s All Ordinaries climbed 0.3% to 4,629 with BHP Billiton and Macquire Bank among the gainers. Across the region, rising oil capped gains and The Nikkei lost 0.62%, while Hong Kong’s Hang Seng fell 0.55%. The dollar traded at 112.34 yen.

European markets finished in the negative territory, reflecting a decline in German economic confidence after the deadlocked elections and oil prices, holding over $65 a barrel. The German DAX 30 slid 0.7%, the French CAC 40 declined 0.4%, while London’s FTSE lost 0.1%.

ENERGY, METALS, CURRENCIES

Oil prices eased back after a broad rally session Monday but still cause concerns over oil supply as Rita’s damage to the refineries is still being assessed. Light sweet crude November delivery slipped 34 cents to $65.48 a barrel on the Nymex. Heating oil fell to $2.0570 a gallon, while gasoline was up 3 cents to $2.1580. London Brent declined 23 cents to trade at $63.70.

Gold lost ground in European trading. In London the precious metal closed at $459.40 per troy ounce, down from $463.30. In Hong Kong gold rose $4.40 to close at $465.95. Silver traded at $7.22, down from $7.27.

The U.S. dollar held its strong positions against the other major currencies in European trading ahead of Fed Reserve’s talk on interest rates. The euro was quoted at $1.2014, down from $1.2153. The dollar changed hands at 113.21 yen, up from 112.32. The British pound was trading at $1.7675, down from $1.7755.

EARNINGS NEWS

Pepsi Bottling Group Inc., ((PBG)) bottler of Pepsi-Cola beverages, reported 3Q net income increased to 82 cents per share, up from 73 cents per share in the a year ago period on strong sales of Aquafina, Tropicana and Lipton teas in the U.S., meeting analysts' forecasts for profit of 78 cents per share on sales of $3.14 billion. Excluding a 4-cent gain related to a high fructose corn syrup litigation settlement in the latest quarter, and a 2-cent increase from the settlement of certain international tax audits last year, Pepsi earned 78 cents per share against 71 cents for the same period last year. Revenue advanced to $3.21 billion from $2.93 billion last year.

Lennar ((LEN)) homebuilder, reported 3Q net income advanced to $2.06 per share, up 50% vs. $1.36 per share in the same period last year, beating analyst estimate of earnings of $1.98 a share. The company lifted its target for full-year 2005 earnings per share to $8.10 from $7.80 and announced new orders in the 3Q advanced 24% from a year earlier.

Stride Rite Corp. ((SPR)) footwear marketer, reported 3Q profit earnings of 21 cents a share, up from 16 cents in the same time last year on sales growth, beating the analysts’ estimate of 17 cents a share.

Jabil Circuit ((JBL)) electronic circuit board assemblies, subsystems and systems producer, reported 4Q earnings of 34 cents a share, up from 22 cents a share in the same period last year on 25% revenue growth. Excluding one-time items, Jabil posted earnings of 37 cents a share, up from 27 cents a year earlier. By that measure, the company tops analysts’ estimates of a profit of 36 cents a share.

CORPORATE NEWS

Audiovox ((VOXX)) announced an intention to take an inventory mark down of about $3.7 million. The step has been taken largely because of a competitor's unexpected sharp price cuts for satellite radios. The company now expects to lose from 16 to 18 cents per share in the third quarter on revenue of about $123 million, which is below previous revenue forecasts of $135 million

Gene Logic ((GLGC)), drug discovery and development services provider announced an agreement with Pfizer ((PFE)), a pharmaceutical company, to reposition a number of drug candidates from Pfizer’s portfolio that are not currently in active development.