Day Two of Sell-off

123jump.com Staff
05 Oct, 2005
New York City

Down down 1.2%, S&P down 1.5% and Nasdaq down 1.7%. Inflation scare, lack of progress in the restart of energy production in the Gulf of Mexico and survey indicating slowing service sector of the economy caused a steep decline for the second day in a row. Mortgage application and energy inventories declined in the previous week. All sectors suffered decline in the market.

U.S. MARKET AVERAGES

Morning doldrums in the market quickly turned into steep losses at the close. Concerted campaign of inflation fight by three regional Fed Reserve presidents, report on slower growth in service economy and uncertainty in the energy region of Gulf of Mexico all contributed to the market slide at the end of the day.

On Tuesday three Federal Reserve Bank presidents comments as interpreted by market suggested that fighting inflation could lead to higher interest rates. Market also paid a close attention to the slow down reported in the service economy by ISM survey this morning. Mortgage loan application declined for the week ending Sept 30th by 1.1%. Department of Energy reported that inventories of crude oil, gasoline and distillate declined in the same week and much of the region’s production facility of oil and gas remains shut.

Auto sector was under focus as GM declared in a news conference in Tokyo that it will sell its entire stake of 20% in Fuji Heavy industries. The cash generation move was widely seen as declining fortunes of General Motors.

Refiners, miners, coal producers, casinos led the decliners of the day. Not a single sector was spared in today’s sell-off.

P F Chang’s China Bistro ((PFCB)) reported restaurant sales declined less than 1% for the existing location. Market had feared worst and stock jumped 9.56% at the close. Decline in customer traffic was off-set by a 1% rise in price at the menu. Stock has declined 31% in less than three months from the peak of $65.12 before today’s rise.

MOVERS AND SHAKERS

The carmaker General Motors Corp. ((GM)) said it was selling its entire interest in Fuji Heavy Industries Ltd, which owns the Subaru car brand, because it intents to concentrate its Asia-Pacific strategy toward high-growth markets. The company said cash proceeds received and any potential gain on the Fuji Heavy sale will be recorded in the fourth quarter. At the same time, the Detroit news posted that General Motors and the United Auto Workers are close to an agreement that would save the company $1 billion in annual health care costs. General Motors dropped 3.1% yesterday.

The auto-parts maker Delphi Corp. ((DPH)) declined 16.6% after New York Times reported the company will only keep from Chapter 11 bankruptcy protection if it can bring forth concessions from General Motors, its former parent, and from the United Auto Workers' union. The bailout could cost several billion dollars.

Viacom ((VIA)) could gain because of the preliminary prospectus with the Securities and Exchange Commission filed for the separation of the company into two divisions. Viacom first planned this move in June and said its purpose is to unlock the value in its cable networks and filmed entertainment businesses. Viacom fell 1.1% yesterday.

Yum Brands Inc ((YUM)) was one of the few stocks to rise. The company earnings were up 16% on strong growth in China. The operator of Taco Bell, KFC and Pizza Hut fast-food restaurants added 1.8% yesterday.

The fast-food giant Wendy's International ((WEN)) was down 2.4% after it announced a 5% lower third-quarter same-store sales and warned Hurricanes Katrina and Rita and together with higher beef prices would narrow earnings for the period by 4 cents.

Bank of America cut Harley-Davidson ((HDI)) to sell from neutral due to worries over rising retail inventory and slowing demand. Analysts also believe the lackluster customer response to the motorcycle maker's 2006 models will lead to decline in wholesale unit shipments.

Maytag ((MYG)) was downgraded by Prudential to underweight from equal-weight, pointing weak earnings, a more challenging macro environment and weakening consumer spending.

ECONOMIC NEWS

Crude oil inventories ticked down again in the most recent week, according to government data released Wednesday, though the decline was far less steep than in the previous week. Meanwhile, stocks of gasoline dropped sharply, reversing most of the gains it recorded in the prior period. The Department of Energy's Energy Information Administration revealed that crude oil inventories dropped by 300,000 barrels for the week ended September 30, falling to 305.4 million barrels from the 305.7 million barrels recorded in the previous week. This followed a decline of 2.4 million barrels for the prior week. Even with the recent declines, oil inventories remain 11.8% higher than their levels of the same time last year.

Gasoline inventories posted a week-over-week decline of 4.3 million barrels, the government said, reversing most of the previous week's 4.4-million-barrel advance. Gasoline stocks are now 4.6% below their levels of last year. Inventories of distillate fuel oil fell by 5.6 million barrels in the most recent week.

The ISM said that its business activity index for the service sector fell to 53.3 in September from 65.0 in August. While a reading above 50 still indicates growth in the sector, economists had expected a more modest decline to about 59.7.

The slowdown in the pace of growth in the sector was partly due to a slower rate of growth in new orders, with the new orders index falling to 56.5 in September from 65 in August. New export orders and imports also increased at slower rates. Additionally, the report showed a notable slowdown in the pace of employment growth, with the employment index slipping to 54.9 in September from 59.6 in August.

The ISM noted that only eight of 17 non-manufacturing industry sectors report increased activity in September compared to 13 that reported increased activity in August.

The Mortgage Bankers Association revealed that its market composite index of mortgage loan application volume decreased by a seasonally-adjusted 1.1% for the week ended September 30. The MBA's purchase index fell by 1.9% for the period, adding to declines in the prior 2 weeks of 3.4% and 2.6%. The organization said its refinance index was basically flat in the most recent week, ticking up by just 0.1%.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished broadly down, reflecting declines of U.S. markets after three Fed Reserve officials gave indications of a further interest-rate hike, used as a means to fight rising inflation. The Japanese Nikkei lost 0.4%, Hong Kong’s Hang Seng declined by 1.2%, South Korea’s Kospi also fell 1.2% as investors locked in recent gains. Australian shares slipped 2.1% on heavy losses in mining stocks.

European markets fell across the region, reflecting heavy losses in mining and oil stocks, as well as lingering concerns over U.S. inflation. The German DAX 30 lost 1.2%, the French CAC 40 fell 1.2%, and London’s FTSE 100 also slipped 1.2%.

ENERGY, METALS, CURRENCIES

Oil prices rose after the weekly petroleum report was released. Light sweet crude for November delivery lost $1.11 to $62.79 a barrel on Nymex. Heating oil lost 3 cents to $2.014 a gallon, while gasoline dropped 10.7 cents to $1.9078 a gallon. Natural gas fell 10 cents to $14.12 per 1,000 cubic feet.

Gold prices declined in European trading. In London the precious metal closed at $464.10 per troy ounce, down from $465.60. In Hong Kong gold fell $1.80 to close at $465.65. Silver finished at $7.33, down from $7.43.

In European trading the U.S. dollar slid against its major counterparts. The euro was quoted at $1.1950, up from $1.1918.The dollar changed hands at 113.84 yen, down from 114.30. The British pound was trading at $1.7609, up from $1.7587.

EARNINGS NEWS

Yum Brands ((YUM)), operator of fast food restaurants, posted Q3 earnings of 72 cents a share, up from a year-earlier profit of 61 cents a share on strong revenue growth. Excluding items, the company gained 71 cents a share, beating the analysts’ estimate for a profit of 70 cents a share. The company raised its full-year outlook to earnings of $2.64 a share, excluding items, slightly above the analysts’ forecasts for earnings of $2.63 a share.

Wolverine World Wide Inc.((WWW)), footwear maker, posted a Q3 profit rise of12 % on strong sales for all three of its major brands. Quarterly profit advanced to 42 cents per share, up from 37 cents per share in the same period last year, topping analysts’ expectations of earnings of 41 cents per share. Sales increased 7 %.

Wolverine World Wide Inc. ((WWW)) footwear maker, posted a Q3 profit rise of12 % on strong sales for all three of its major brands. Quarterly profit advanced to 42 cents per share, up from 37 cents per share in the same period last year, topping analysts’ expectations of earnings of 41 cents per share. Sales increased 7 %.

Vail Resorts, Inc ((MTN)), mountain resorts operator, reported a Q4 net loss of $1.00 per share, up from a net loss of $1.03 per share for the same period a year ago. Excluding the previously announced charges for early extinguishment of debt in fiscal 2004 and the net loss from sale of businesses in fiscal 2005, the Company's net loss for Q4 of fiscal 2005 would have been 76 cents per share, using a normalized tax rate, up from a net loss which would have been 90 cents per share in the previous fiscal year. The company reported record fiscal year Resort revenue, up 8.2% over last fiscal year, net income of $23.1 million compared to a net loss of $6.0 million last year, record fiscal year Resort Reported EBITDA of $167.5 million, 15.8% higher than last year's $144.6 million.

CORPORATE NEWS

The Dow Jones industrial component General Motors announced a decision to sell its 20 % stake in Subaru maker Fuji Heavy Industries, with 8.7% being sold to Toyota Motor for $315 million and the remaining 11.4% sold into Fuji Heavy's buyback plan.. GM will file an 8-K with the Securities and Exchange Commission to cut its FHI value by $700 million to $800 million.

Delphi Corp. is preparing to make a bankruptcy filing as early as this week, but may not carry it out depending on the concessions it can win from its former parent General Motors and the United Automobile Workers union.