Trade Deficit at $59 Billion

Elena
13 Oct, 2005
New York City

Oil inventories rose by 1 million barrels in the week ending Oct 7, climbing to 306.4 million barrels. September import prices index jumped 2.3%, the highest in 15 years. Export prices rose 0.1% after falling 0,1% in August. McDonald's Corp. released Q3 earnings outlook of 58 cents a share, exceeding expectations of 54 cents. The Web online engine Google and the cable company Comcast are to buy a stake in Warner Time's America Online for $5 billion.

U.S. MARKET AVERAGES

U.S. markets opened down and the three major averages have recently ticked further downward as the government reported U.S. import prices showed the largest gain in nearly 15 years on surging energy costs. The data release fanned inflation fears and more interest rate increases.

McDonald’s Corp. released a strong third-quarter earnings outlook of 58 cents a share. Google and Comcast Corp. are in discussions to buy shares in Time Warner Inc’s America Online for $5 billion.

Energy stocks are falling. The segment is now at its lowest level since August. The natural gas sector is leading the group lower, falling by more than 3%. The oil space is also weak, dropping by 2.2%. Utility and gold stocks are also showing losses.

There are few major sectors showing gains on the day. The computer hardware space posted modest gains at the start of trading, helped by a 1.6% advance in Gateway ((GTW)). The biotech space is also sitting above the unchanged mark.

ECONOMIC NEWS

The Department of Energy's Energy Information Administration revealed that crude oil inventories climbed by 1 million barrels for the week ended October 7, climbing to 306.4 million barrels from the 305.4 million barrels recorded in the previous week. This followed a decline of 300,000 barrels for the prior week and marked the first advance in crude inventories since mid-August. Oil inventories were 11.2% higher than their levels of the same time last year.

The Commerce Dept. report showed that the trade deficit widened to $59.0 billion in August from an upwardly revised $58.0 billion in July. Economists had expected the deficit to rise to $59.6 billion compared to the $57.9 billion originally reported for July.

The wider deficit came as an increase in the value of imports outpaced an increase in the value of exports. The report showed that imports rose 1.8 percent to $167.2 billion while exports rose 1.7 percent to $108.2 billion.

Separately, a report from the Labor Dept. showed that import prices rose rather sharply in September, reflecting a significant increase in petroleum prices. Export prices also showed a notable increase.

The report showed that import prices rose 2.3 percent in September after rising 1.2 percent in each of the three previous months. Excluding a 7.3 percent increase in petroleum prices, import prices increased by a more modest 1.2 percent.

At the same time, export prices rose 0.9 percent in September after falling 0.1 percent in August. Excluding a 1.4 percent drop in prices for agricultural exports, export prices rose by 1.1 percent.

A separate report from the Labor Dept. showed that initial jobless claims in the week ended October 8 fell to 389,000 from the previous week's revised figure of 391,000. Economists had expected a more significant decline to about 350,000.

MOVERS AND SHAKERS

Inflation fears have largely driven the recent declines, and economic issues are likely to play a large role in Thursday's trading as well. As usual, weekly employment data are due out before the opening bell, with economists expecting a dip in initial jobless claims to 350,000. A report on the trade deficit is also expected, with the measure projected to widen to $59.6 billion for August. Information on import and export prices is due to come out as well.

Hamburger chain McDonald's Corp. ((MCD)), a Dow component, posted strong sales for September and made profit predictions that exceeded analysts expectations, partly because of a rebound in Europe. The company said sales at stores open longer than a year increased 3.9% compared with last year when the company's same-store sales increase was 7.3% due to the launch of new products. McDonald’s jumped 1.1%.

DuPont ((DD)), also a Dow component, announced its plans to repatriate $9.4 billion in overseas earnings by the end of 2005 and said it will spend $115 million to replace equipment damaged by Hurricane Katrina. The company said it expects earnings for the third quarter to be equal with estimates. DuPont added 0.9%.

Internet stocks are expected to be active due to a report in The Wall Street Journal that a number of companies, including search engine Google ((GOOG)) and cable-television operator Comcast Corp ((CMCSK)), want to buy a stake in American Online, a unit of Time Warner Inc. ((TWX)). According to reports both companies are in discussions with Time Warner about buying a minority stake in America Online for as much as $5 billion.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks lost ground, reflecting U.S. markets losses Wednesday when all major averages hit five-month lows. The Nikkei lost 0.1% on trade surplus data. Across the region, South Korea’s Kospi dropped 1.9% on tech stocks, hurt by concerns over the sector’s earnings outlook. Samsung Electronics was the most notable decliner. Shares in Hong Kong added 0.3%, while stocks in Australia shed 0.8%.

European markets traded lower at mid-day on interest rate and inflation concerns overseas. However, regional markets were supported by corporate news and automakers Volkswagen and Peugeot Citroen. The German DAX 30 lost 0.4%, the French CAC 40 slipped 0.8%, and London’s FTSE 100 shed 0.9%.

ENERGY, METALS, CURRENCIES

Oil prices slightly retreated ahead of U.S. oil inventory report, ignoring the Department of Energy forecasts of increased global demand in the following year. Light sweet crude for November delivery slipped 12 cents to $64 a barrel in electronic trading on the Nymex. Heating oil fell 2 cents to trade at $1.99 a gallon. Gasoline declined to $1.8222. Natural gas lost 2 cents to $13.505 per 1,000 cubic feet. London Brent was flat at $60.58.

In European trading gold prices further declined. In London gold December contract traded at the recommended price of $471.25 per troy ounce, down from $475.60. In Hong Kong gold fell $6.80 to close at $471.45. Silver opened at $7.73, down from $7.83.

In European trading the U.S. dollar advanced against its major counterparts. The euro was quoted at $1.1977, down from $1.2015. The dollar changed hands at 114.74 yen, up from 114.43. The British pound was trading at $1.7475, down from $1.7494.

EARNINGS NEWS

Monsanto Company ((MON)), maker of genetically engineered seeds, reported Q4 loss of 47 cents a share, down from 16 cents a share in the year-ago period despite 3% revenue growth. Apart from one-time items, the company stated its loss from continuing business was 50 cents a share, beating analyst estimate of a loss of 51 cents.

Fairchild Semiconductor ((FCS)), global supplier of power semiconductors, reported a Q3 net loss of 17cents per share, down from a net income of 11 cents per share in the same period last year. Q3 loss included $4.2 million of restructuring expenses referring to employee payouts and certain asset impairments. Gross margin amounted to 20.8%, 90 basis points higher sequentially and 950 basis points lower than the comparable period last year.

Winnebago Industries ((WGO)), motor home manufacturer, reported Q4 earnings of 46 cents a share, down from a profit of 55 cents a share in the year-ago period on revenue decline, topping analysts’ expectation of 42 cents a share The company added that its performance was poor on a year-over-year basis due to lower sales volume and a shift in product mix to lower priced models.

LG Phillips LCD Co. ((LPL)), maker of liquid-crystal displays for computers, reported Q3 net profit dropped 22%. Net profit reached 227 billion won ($217.78 million) based on South Korean accounting standards. Third-quarter sales advanced 46% to 2.74 trillion won from 1.88 trillion won.

AMCORE Financial, Inc ((AMFI)), financial services provider, reported Q3 earnings of 50 cents a share, 2% up vs. 49 cents a share in the year-ago period. Average bank issued deposits grew 16 % and average loan balances respectively 11 % compared with the same period last year. Net interest income rose 7%.

Landstar System Inc. ((LSTR)), provider of transportation services to shippers, reported Q3 net income of 61 cents a share, up from 36 cents a share in the year-ago period on 28% sales growth, beating analysts’ forecasts of 46 cents a share. The company anticipates Q4 revenue to increase 10% to 14%, with profit reaching 46 cents to 51 cents a share.