Trade Deficit Sparks Inflation Fears

Elena
13 Oct, 2005
New York City

A number of economic reports were released today. The Energy Department said that oil inventories rose by 1 million barrels in the week ending Oct 7, climbing to 306.4 million barrels. The Labor Department reported that September import prices index jumped 2.3%, the highest in 15 years. Export prices rose 0.1% after falling 0,1% in August. August trade deficit was recorded at $59 billion. Initial jobless for the previous week were reported at 389,000.

U.S. MARKET AVERAGES

U.S. stock averages have been volatile throughout the morning session, falling below and rising above the flat level, affected by a large quantity of economic news. Presently, only two of the ten economic sectors post gains. Stocks turned higher after the Energy Department reported an increase in refining capacity and crude oil inventories and sent oil prices down. The upbeat news provided signs of recovery in the energy industry. The inflation worries, which have accompanied the market sentiment for weeks, grew even bigger when the Commerce Department reported a sharp jump in import prices of 2.3%, the biggest one in 15 years.

The news on import prices overshadowed a report on the nation's trade deficit, which rose to $59 billion in August, up from $58 billion the month before but less than economists had expected. Much of that increase can be attributed to higher oil prices.

Disappointing news was released by the Labor Departmentt, reflecting Hurricane Katrina's continuous impact on employment. The report said that first-time jobless claims fell to 389,000 last week from 391,000 the week before.

The Tech sector is posting modest gains of 0.4%, pushing the Nasdaq average just above the flat level. Semiconductor sector has recovered from yesterday’s decline and is currently up 0.9%.

The Energy sector is the biggest decliner, down by 2.8% as oil prices pulled back about 1%, together with gasoline and natural gas. The Utilites also drop.

Among the gaining stocks Apple Computer ((AAPL)) is a notable advancer, rising by 4.3%, erasing losses from Wednesday. Texas Instruments ((TXV)) and Microsoft ((MSFT)) also stand out as bright spots in the sector.

There are very few stocks moving to new 52-week highs. LAM Research ((LRCX)) has reached a new peak on strong earnings report. Johnson Controls ((JCI)) is setting a new high on earnings outlook and an upgrade from Deutsche Bank.

Among the large number of stocks reaching new 52-week lows, Comcast ((CMCSK)) is the most notable loser on news that the company is in talks, along with Google ((GOOG)), to take a stake in Time Warner's ((TWX)) AOL.

ECONOMIC NEWS

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.

The report also showed that the four-week moving average fell to 395,750 from the previous week's un-revised average of 404,500. The decrease comes on the heels of eight consecutive weekly increases.

As mentioned above, many traders are looking ahead to the key data that is due to be released on Friday, including reports on consumer prices and retail sales.

MOVERS AND SHAKERS

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 closed in the negative territory, extending earlier losses on interest rate and inflation concerns overseas. However, regional markets were supported by corporate news and automakers. The German DAX 30 lost 0.6%, the French CAC 40 slipped 0.1%, and London’s FTSE 100 shed 1.4%. The Turkish stocks dropped 3.2% on news of the deadly bird-flu virus, found in the country.

ENERGY, METALS, CURRENCIES

Oil prices fell below $63 a barrel on U.S. oil inventory report, showing an increase in oil inventories, which is the first in seven weeks. Light sweet crude for November delivery slipped $1.22 to $62.75 a barrel on the Nymex. Heating oil fell 6 cents to trade at $1.967 a gallon. Gasoline declined almost 7 cents to $1.76. Natural gas fell 2%.

In European trading gold prices further declined. In London gold December contract closed at $470 per troy ounce, down from $475.60. In Hong Kong gold fell $6.80 to close at $471.45. Silver finished at $7.71, down from $7.83.

In European trading the U.S. dollar further advanced against its major counterparts. The euro was quoted at $1.1931, down from $1.2015. The dollar changed hands at 114.94 yen, up from 114.43. The British pound was trading at $1.7478, 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.