Fisher Foils

123jump.com Staff
06 Oct, 2001
New York City

Dallas Fed president's speech led market to believe that interest rates may be rising in bigger increment than the current measured pace. Same-store sales from sixty retailers indicated that holiday sales may be a cause of concern. Initial claims of unemployment rose for the previous week.

U.S. MARKET AVERAGES

Market averages are adjusting to the concerted campaign of Fed officials against inflation, but with pains. Three averages are down on day three of sell-off. For the day, Dow closed down 0.3%, Nasdaq down 0.87%, and S&P down 0.4%. International markets closed lower as fears of U.S. economic slowdown spread to Asia and Europe. Markets in Japan closed down 2.4%, in London and Frankfurt down 1.0% and Paris down 1.3%.

Latest effort on part of Fed presidents’ campaign appears to prepare market that interest rate hikes of 50 basis points may be necessary to stem the inflation. It is widely perceived that the current regime of 25 basis point rate hike may not be enough if energy prices do not weaken soon. Dallas Fed President Richard W. Fisher said at a meeting in Dallas that inflation shows “little inclination” of weakening.

In a hawkish speech he also noted that “Inflation has been on a slight upward tilt the past couple of years. Readings on core inflation have been within the acceptable range of 1 to 2 percent, but they are edging closer to the upper end of the Fed’s tolerance zone, with little inclination to go in the other direction. As a result, we are in a tightening phase of monetary policy. At the last meeting of the Federal Open Market Committee, I joined eight other members in voting for the 11th straight quarter-point increase in the federal funds rate, raising it to 3.75 percent.”

At least for today crude oil was down 2%. Oil, gasoline and heating oil all declined for the second day.

Same-store sales for the September months were released by sixty retailers with discounters leading the pack. Apparel retailers showed a mixed performance led by Abercrombie & Fitch ((ANF)), Chico’s ((CHS)), and Charming Shoppes ((CHRS)). Wal-Mart ((WMT)), Target ((TGT)) and Costco ((COST)) delivered better than expected performance.

MOVERS AND SHAKERS

Dow component Merck ((MRK)) rose 0.6%% after it was announced that a study indicated effectiveness of a company anti-cancer vaccine. The experimental vaccine showed success in pivotal studies, preventing nearly 100% of growths that can lead to the deadly disease. The vaccine is aimed at four types of the human papillomavirus, or HPV.

General Electric ((GE)), also a Dow component, was up 2.5% after the company said its third-quarter earnings will be at the top of its expected range, and also increased its range for 2005 earnings to $1.81-$1.83 a share, from previous outlook for $1.80-$1.83 a share. General Electric said it would earn 44 cents a share, matching the analysts forecast. The company’s previous forecast was for income of 43 cents to 44 cents a share.

Retailer Wal-Mart ((WMT)) added 1.1% after the company posted a 3.8% increase in September same-store sales, equal to its expected results. Another retailer Target ((TGT)) also upped 0.6% after it reported same-store sales near the top expectations. The company said September sales rose 5.6% at stores open at least a year, and it maintained its profit forecast for the rest of the year.

Retailer Kohl's ((KSS)) posted a loss of 0.4% due to the news of a 0.2% decrease in monthly same-store sales. The company was disappointed with sales of cold-weather products. The company backed its third-quarter earnings forecast of 43 cents to 46 cents per share, and said it expects a shift in weather-related demand into October.

Federated Department Stores ((FD)) rose 2.2% after the U.S. biggest department store chain said that same-store sales were below its target of 2% to 3% growth due to lost sales from stores closed because of Hurricanes Katrina and Rita and other factors.

ECONOMIC NEWS

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended October 1, showing an unexpected increase. The report may raise some concerns about the strength of the monthly employment report due to be released on Friday.

The Labor Dept. said that jobless claims rose to 390,000 from the previous week's upwardly revised figure of 369,000. Economists had expected jobless claims to decline to 350,000 from the 356,000 originally reported for the previous week.

The report also showed that the 4-week moving average rose to 404,500 from the previous week's upwardly revised average of 388,750. This marks the eighth consecutive increase for the less volatile 4-week moving average.

Additionally, the Labor Dept. also said that continuing claims in the week ended September 24 rose to 2.905 million from the preceding week's revised level of 2.787 million.

As mentioned above, the Labor Dept. is due to release its September employment report on Friday, with economists expecting the report to show that the U.S. economy lost 150,000 jobs in September. The decrease is expected to reflect the impact of Hurricanes Katrina and Rita.

INTERNATIONAL MARKET NEWS

All Asian-Pacific benchmarks closed in the red, posting heavy losses on sharp declines of U.S. equity markets. The Japanese Nikkei was the biggest decliner, down 2.4% with Kyocera, Honda Motor and Fanuc among the leading losers. Across the region, South Korea’s Kospi fell 2% with decliners including Samsung Electronics and Posco, Hong Kong’s Hang Seng tumbled 2.1%, and Australia’s All Ordinaries was down 2.1%. The dollar bought 113.97 yen.

European markets finished in the red, reflecting U.S. inflation concerns. Interest-rate decisions also weighed on the sentiment. The Bank of England decided to leave the rate at 4.5%, followed by the European Central Bank which left the key rate unchanged at 2%. The German DAX 30 lost 1%, the French CAC 40 fell 1.3%, and London’s FTSE 100 slipped 1%.

ENERGY, METALS, CURRENCIES

Oil prices dropped to a two-month low, reflecting signs of weakening U.S. gasoline demand due to high pump prices. Light sweet crude for November delivery lost $1.24 to trade at $61.55 a barrel on the Nymex. Heating oil dropped 6.48 cents to $1.95 a gallon. Gasoline futures slid 7.2 cents to $1.83 a gallon. Natural gas prices fell by 82 cents to $13.36 per MBTU. London Brent lost $1.58 to $58.54.

Gold prices climbed in European trading on the back of weaker dollar. In London the precious metal closed at $471.40 per troy ounce, up from $464.10. In Hong Kong gold rose 50 cents to close at $466.15. Silver closed at $7.51, up from $7.33.

In European trading the U.S. dollar declined against its major counterparts. The euro was quoted at $1.2130, up from $1.1954.The dollar changed hands at 113.54 yen, down from 113.93.The British pound was trading at $1.7723, up from $1.7630.

EARNINGS NEWS

Costco Wholesale Corp. ((COST)), retailer, reported a Q4 profit rise of 19.5% to73 cents a share on 10.3% revenue growth and announced its intentions to buy back another $1 billion in shares. The company said the quarter included 7 cents in tax benefits; apart from those benefits, its earnings of 67 cents topped analysts’ forecasts of 64 cents a share. Comparable sales increased 11% in September, with overall sales up 13% to $5.14 billion.

Marriott International Inc. ((MAR)), lodging industry operator, reported 12% Q3 net income rise to 65 cents per share, beating the analyst estimate by a penny, and up from 56 cents per share in the year-ago period on revenue growth at the company's hotels, boosted by higher room rates. The latest quarter incorporated a charge of 5 cents per share for writing down the value of the company's investment in a Delta Air Lines leveraged aircraft lease. Excluding the charge, net income was 70 cents per share.
ATI Technologies, Inc. ((ATYT)), graphics chipmaker, reported a Q4 loss of 41 cents a share on revenue decline from $60 million from the Q3 to $470 million, missing the analysts’ forecasts for a loss of 30 cents a share. Excluding one-time items, the company reported a loss of 12 cents a share.

RPM International, ((RPM)), specialty paints manufacturer, announced that Q1 net income dropped to 40 cents a share, from 44 cents a share in the year-earlier period, missing the analysts’ forecasts of 48 cents a share. Without asbestos-related costs, net income in the current period was 47 cents a share. The company stated that its Q2 will be """"""""""""""""particularly challenging"""""""""""""""" because of Hurricanes Rita and Katrina.

Schnitzer Steel Industries, Inc., ((SCHN)), recycler, posted Q4 net income of $1.11 per share, down from $1.22 per share in the same period last year on revenue decline. The company posted for the fiscal year ended August 31, 2005, record net income of $4.72 per share, up vs. $3.58 per share in the year-ago period on revenue of $853.1 million, up from $688.2 million for the 2004 fiscal year.

CORPORATE NEWS

Goody's Family Clothing ((GDYS)) has reached an agreement to be acquired by an affiliate of Sun Capital Partners for $8.00 per share in cash. The company said it expects a definitive agreement within the next 48 hours. Separately, Goody's reported a 5.5% drop in September same-store sales.