Natural Gas and Coal on the Move

Elena
03 Oct, 2005
New York City

According to a report, released by the Commerce Dept. construction spending in August rose 0.4% from 0.3% in July close to expectations of 0.5% increase. The ISM said that purchasing managers index rose to 59.4 in September from 53.6 in August, reflecting the 28th consecutive month of growth in sector. Economists had expected the index to fall to 52.0 due to the hurricane. The Tech and Utility sector stand among the best performers, rising 0.4% and 0.3% respectively.

U.S. MARKET AVERAGES

U.S. stock markets have been trading in a mixed fashion. Among the averages, the Nasdaq has been the best performer, rising 0.5%. Monday trading session lacks significant earnings news. In early trading the market sentiment was largely influenced by merger-and-acquisition deals and economic data, which put traders under selling pressure.

In the focus of Monday's session there are two pieces of economic data- the report of ISM and the Commerce Department report on construction spending.
Investors eagerly awaited the manufacturing index data for August, as concern about how the consumer will react to high oil prices after Katrina’s and Rita’s impact, was of primary importance to them. The ISM report showed that purchasing managers index rose 10.8% to 59.4 in September from 53.6 in August, well above economists’ expectations of 52.0. It also provided a relief to inflation worries and interest-rate hikes concerns by giving a clear indication that despite Katrina's impact, the economy remains steady and firm.

The construction spending report released lower-than-expected data, but still positive. According to the data released, construction spending in August rose 0.4% from 0.3% in July close to expectations of 0.5% increase.

Among sectors a strong support to the Nasdaq is provided by the Tech sector, rising 0.4% and Utilities, rising 0.3%. Biotech stocks have also advanced to lift the whole sector by 1.3%.

The biggest decliners are the Materials sector, down 0.6% as well as the Industrial sector which falls 0.5%. The influential Financials and Healthcare are also among the losers, both down 0.2%. The gold sector posts a considerable loss of about 2.1%. Insurance and gaming stocks are akso showing modest losses.

On the corporate news front a number of merger and acquisition deals deserve attention.

Standard & Poor's revealed that homebuilder Lennar ((LEN)) will be added to the S&P 500 index in the place of Gillette ((G)), which was acquired by Procter & Gamble ((PG)). Beazer Homes US ((BZH)) has been selected to replace Lennar ((LEN)) in the S&P MidCap 400, S&P said.

NTL ((NTLI)) announced that it has agreed to acquire Telewest Global ((TLWT)) for $6 billion, or $23.93 per share. The transaction will likely close in the first quarter of 2006.

MOVERS AND SHAKERS

NRG Energy ((NRG)) added 0.8% on Friday. The company said that it would acquire privately held company Texas Genco for $5.8 billion. The company will pay $4 billion in cash and $1.8 billion in stock, and assume $2.5 billion in debt. The company expects the transaction to close in the beginning of 2006. The deal comes four months after Duke Energy Corp. agreed to acquire its rival Cinergy Corp. for nearly $9 billion in stock.

R.H. Donnelley Corp. ((RHD)) will pay about $4.2 billion in cash and stock for Dex Media Inc. ((DEX)), according to the yellow pages publishers. Donnelley will also assume about $5.3 billion in debt. Donnelley gained 0.4% while Dex added 0.5% on Friday. The combined company will be the third-largest print and Internet directory publisher in the U.S.
Dex shareholders will own about 53% of the combined company.

Reliant Energy ((RRI)) announced its plans to sell its three power plants in New York City for $975 million to an investor group led by Madison Dearborn Partners and US Power Generating Co. The plants have a combined summer capacity rating of about 2,100 megawatts and Reliant acquired the units as part of its purchase of Orion Power Holdings in February 2002.

Altria Group Inc. ((MO)) upped 0.2% after Goldman Sachs raised its fair valuation to by $5-$90. The broker said the move echoes a raised calculation for its Philip Morris-USA tobacco business and a higher cash balance for 2006. Altria is currently thinking about the separation of its businessess in a bid to boost shareholder value.

The Semiconductor Industry Association reported a 3.2% increase in global semiconductor sales for August and that is likely to bring attention to the chip sector. Nevertheless, Vitesse Semiconductor ((VTSS)) lost 7.4% after the company narrowed its fiscal fourth-quarter revenue forecast to $48 million from its prior expectation of $52-$53 million.

ECONOMIC NEWS

Monday morning, the Commerce Dept. released its report on construction spending in the month of August, showing an increase in spending that came in slightly below economists' expectations.

The report showed that construction spending rose 0.4 percent in August following a 0.3 percent increase in July. Economists had been expecting an increase of about 0.5 percent.

The Commerce Dept. said that the increase in construction spending reflected increases in spending on both private and public construction.

The report showed that private construction spending rose by 0.4 percent in August while public construction spending rose by 0.5 percent.

The manufacturing sector saw continued growth in the month of September, according to a report from the Institute for Supply Management, with the pace of growth accelerating unexpectedly. The faster growth came in spite of the impact of Hurricane Katrina.

The ISM said that purchasing managers index rose to 59.4 in September from 53.6 in August, reflecting the 28th consecutive month of growth in sector. Economists had expected the index to fall to 52.0 due to the hurricane.

Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee said, “While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum.”

The report showed significant increases in both new orders and production, with the new orders index rising to 63.8 in September from 56.4 in August while the production index rose to 63.1 in September from 55.9 in August.

Employment also saw continued expansion in September, with the employment index edging up to 53.1 in September from 52.6 in August. This marks the third consecutive month of expansion in employment in the manufacturing sector.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished broadly in the red on economic data release in Japan. The Nikkei declined 0.4% on lower-than-anticipated tankan survey, which shows the index of business confidence among Japanese companies. Although the report prompted buying of steel and other overvalued shares, Nippon Steel fell 1.6%, but exporter issues like Honda Motor and Toyota Motor gained on the back of a sixteen-month high dollar, buying 114.00 yen. Across the region, markets in Hong Kong, South Korea, and Australia ended down.

European markets finished up on a day of high merger-and-acquisition activity with U.K. pharmacy chains Boots and Alliance Unichem announcing a merger deal, and talk that Spain’s Telefonica is interested in acquiring the Dutch telecom KPN. Weaker euro also supported markets by giving a boost to export-related issues. The German DAX 30 rose 0.8%, the French CAC 40 gained 0.4%, while London’s FTSE 100 added 0.4%.

ENERGY, METALS, CURRENCIES

Oil prices edged up on expectations of higher heating oil demand with the approaching winter season for the Northern Hemisphere, and growing concerns over the oil production recovery. Light sweet crude for November delivery rose 9 cents to $66.33 a barrel on the Nymex. Gasoline added 2 cents to $2.11 a gallon. London Brent gained 15 cents to $63.63.

Gold prices slipped in European trading. In London the precious metal closed at $465.60 per troy ounce, down from $470.50. In Hong Kong gold slid $9.50 to $464.25. Silver finished at $7.36, down from $7.49.

In European trading the U.S. dollar further strengthened against the other major currencies The euro was quoted at $1.1913, down from $1.2018. The dollar changed hands at 114.25 yen, up from 113.60. The British pound was trading at $1.7533, down from $1.7633.

EARNINGS NEWS

The Mosaic Company ((MOS)), fertilizer specialist, reported Q1 earnings of 18 cents a share, up vs. 16 cents a share in the same quarter last year. Sales for the period ended August 31 2005 totaled $1.4 billion, up vs. $720 million. Current earnings and sales figures resulted from the combined operations of the former Cargill Crop Nutrition and IMC Global Inc. Based on these companies’ combined results, the company would have earned 11 cents a share in the same quarter a year ago, on sales of $1.46 billion.

CORPORATE NEWS

NRG Energy ((NRG)) announced it has agreed to acquire Texas Genco ((LLC)) for about $4 billion in cash and $1.8 billion in stock. The deal also includes the assumption of about $2.5 billion in debt.

Exxon Mobil Corp. announced it has started production from the Sakhalin-1 Project in Russia. The first phase of the multiphase project is expected to produce 50,000 barrels a day of oil by the end of 2005 and 250,000 barrels a day at the end of 2006. The oil major also expects the gas production to reach 250 million cubic feet per day by the end of the decade.