Core Inflation at 0.1%

Elena
14 Oct, 2005
New York City

The Labor Dept. said that consumer prices rose 1.2% in September on higher energy prices, exceeding expectations of a 0.9% rise. Another report showed that retail sales in September increased by 0.2%.The Federal Reserve reported that industrial production fell by 1.3% in September, mostly due to hurricane-related issues.

U.S. MARKET AVERAGES

In a session of bullish news on both the economic and corporate fronts, the three major averages were sent higher. The stocks have been trading in the positive with major U.S. equity indices showing gains of about 0.3%.

The Labor Department reported that September Consumer prices soared by the largest amount in more than 25 years. The increase is 90% due to Hurricanes Katrina and Rita, which sent energy prices 12% higher. The news exceeded by far economists’ expectations of a gain of around 0.9 %. The concern is that the surge in energy prices will cause consumers to cut back their spending in other areas, a development that would make the economic hit from Katrina and Rita much more severe. However, the good news, showing strong underlying ecomonic growth , is that core inflation rose 0.1% versus expectations of a rise of 0.2%.

In other economic news, the Commerce Department reported that retail sales slightly increased to 0.2% in September, compared with the huge 1.9% drop in retail sales in August.

Meanwhile, the Federal Reserve reported industrial production fell by 1.3% on hurricane-related issues. The report showed the biggest one-month drop in more than 23 years.

On corporate news front, General Electric ((GE)) posted strong Q3 earnings, which came in line with analysts’ expectations, while Boston Scientific ((BSX)) released disappointing Q3 profit.

The airline sector is up 2.7%, recovering from losses recorded during the first 3 days of the week. The HMO sector is among the best performers of the day, boosted by UnitedHealth ((UNH)) which advances more than 2.2% on strong quarterly results.

Energy stocks continue to show weakness. Although standing at its lows for the session, the segment did not move below Thursday's intraday nadir, which was its lowest level in about 2 and a half months.

Boeing ((BA)) is the best Dow component performer, rising by 1.8%.Home Depot ((HD)) and Altria ((MO)) are also strong, posting gains of 1.5% and 1.3% respectively. Hewlett-Packard ((HPQ)) and Caterpillar ((CAT)) are each up a little less than 1%.

GM ((GM)) is the worst performing Dow component, falling by 1.5%, extending losses after Delphi announced its bankruptcy.

MOVERS AND SHAKERS

General Electric Co. ((GE)) is expected to gain after the industrial conglomerate reported third-quarter revenue that beat analyst expectations. The company’s third-quarter net income increased to $4.68 billion, or 44 cents a share, compared with $4.07 billion, or 38 cents a share, for 2004.

Carmaker General Motors Corp. ((GM)) has informed the United Auto Workers union that an agreement must come within a few days. This agreement has a purpose to cut the company’s $5.6 billion annual U.S. health-care bill. Otherwise the company could act unilaterally to cut UAW health-care expenses, according to The Wall Street Journal report. General Motors added 1.7%.

Ford Motor Co. ((F)) could be under pressure after Citigroup cut the company to “sell” and reduced its price target by $3. The company gained 3.5% yesterday.

Chip maker Texas Instruments ((TXN)) fell 2.2% after Bear Stearns downgraded its rating to “peer perform” from “outperform” because of increased competition, pricing pressure and a slower expected growth rate for its digital light processing business in 2006.

Continental Airlines Inc. ((CAL)) was upgraded by Lehman Bros to “equal-weight” from “underweight”, citing hopes that industry fundamentals are improving as domestic carriers finally begin to cut down capacity. The broker said that Continental will surely benefit from an improving domestic pricing environment. Continental jumped 3.8%.

United Parcel Services Inc. ((UPS)) is expected to gain after J.P. Morgan upgraded the company to “overweight” from “neutral”, pointing multiple potential drivers of growth including international parcel, supply chain services and acquisitions. The broker said that the domestic market is stabilizing. UPS fell 0.9% yesterday.

Hilton Hotels Corp. ((HLT)) is in talks to acquire the hotel division of British company Hilton Group Plc. for 3.6 billion pounds ($6.3 billion). The deal would unite the North American and British-based international Hilton brands for the first time in more than 40 years. Hilton Group ((HG)) was up 12.1% in London trading..

ECONOMIC NEWS

Consumer prices rose particularly sharply in the month of September, according to a report from the Department of Labor, with the increase exceeding economist estimates. The sharp rise in prices was largely due to a significant increase in energy prices.

The Labor Dept. said that consumer prices rose 1.2 percent in September after rising 0.5 percent in each of the two previous months. Economists had been expecting a somewhat more modest increase of about 0.9 percent.

Industrial production fell more than expected in September, according to a report from the Federal Reserve, reflecting the impacts of Hurricanes Katrina and Rita and a strike at a major aircraft producer. The report also showed a bigger than expected drop in capacity utilization.

The Federal Reserve said that industrial production fell 1.3 percent in September following an upwardly revised 0.2 percent increase in August. This marks the steepest monthly drop in 23 years.

Economists had been expecting a much more modest decline of about 0.4 percent compared to the 0.1 percent increase originally reported for August.

Friday morning, the Department of Commerce released its closely watched report on retail sales in the month of September, showing that sales rebounded modestly after falling sharply in August.

The report showed that retail sales rose 0.2 percent in September following a revised 1.9 percent drop in August. Economists had expected sales to increase by 0.3 percent compared to the 2.1 percent decline originally reported for August.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished mostly in the negative territory on expectations of U.S. inflation data and speculations over interest rates increases. The Nikkei lost 0.2%. Across the region, Hong Kong’s Hang Seng fell 1%, South Korea’s Kospi shed 0.3%, and Australia’s All Ordinaries slipped 0.5%.

European markets reversed early losses and closed the session in the positive after better-than-expected U.S. inflation news was released. A strong support to the market sentiment was provided by the British-based Hilton Group, which advanced after confirming that it is in talks to sell its hotels to North American Hilton Hotels Corp for $6.3 billion. The German DAX 30 advanced 0.5%, the French CAC 40 gained 0.3%, and London’s FTSE 100 rose 0.2%.

ENERGY, METALS, CURRENCIES

Oil prices sharply dropped below $62 a barrel on lower gas and distillates demand. Light sweet crude for November delivery slid $1.48 to $61.60 a barrel on the Nymex. Heating oil fell over 8 cents to trade at $1.915 a gallon. Gasoline reached a 12-month low of $1.6775, down 8 cents. London Brent fell $1.15 to $58.99.

In European trading gold prices declined. In London gold December contract closed at $466.70 per troy ounce, down from $470. In Hong Kong gold fell 70 cents to close at $470.75. Silver closed at $7.62, down from $7.71.

In European trading the U.S. dollar lost ground against its major counterparts. The euro was quoted at $1.12077, up from $1.1989. The dollar changed hands at 113.98 yen, down from 114.71. The British pound was trading at $1.7656, down from $1.7538.

EARNINGS NEWS

General Electric Co. ((GE)), supplier of electricity, posted Q3 profit of 44 cents a share, up from 38 cents a share in the year-ago period on a 9% sales increase, matching analyst estimate The company forecasted that Q4 earnings would be 56 cents to 58 cents a share.

Knight Ridder ((KRI)) reported Q3 net earnings of $3.56 per share, up vs. 99 cents in the year-ago period. The results included $207.9 million, or $2.92 per share, from earnings on the sale of the company's interest in Detroit Newspapers, the Detroit Free Press and the Tallahassee Democrat, and 2 cents as a result of classifying these entities as discontinued operations.

Unitedhealth Group, Inc ((UNH)), health-care provider, announced that Q3 net income advanced 20% to 64 cents a share, up from 52 cents a share in the same time last year on 15%revenue growth, beating analyst estimate by a penny. The company stated that it bought back 4 million shares in Q3.

First Data Corp. ((FDC)), provider of electronic commerce and payment solutions, posted Q3 net income of 54 cents per share on consolidated revenue of $2.7 billion and cash flow from operating activities $796 million. 6.1 million shares were repurchased for $251 million at an average price of $41.45 in Q3, leaving an authorized $1.3 billion in the company's buyback program.

Regions Financial Corp. ((RF)), financial services provider, reported Q3 profit net income of 55 cents per share, unchanged from last year’s, as merger costs from last year's merger with Union Planters affected results. Excluding merger-related and other costs of $25 million, the company earned 61 cents per share, beating on basis analysts’ forecasts by a penny.

BB&T Corporation ((BBT)) posted Q3 net income of 80 cents per share, up 8.1% from 74 cents per share in the same time last year. Apart from the effects of merger-related items from both 2005 and 2004, operating earnings for Q3 of 2005 increased 7.3% compared with the year-ago period, while operating earnings per share increased 8.1% compared to the same quarter last year.

E.W. Scripps Co. ((SSP)), media company, reported Q3 earnings of 50 cents per share, up from 34 cents per share in the year-ago period on stronger results from its cable network business and Shopzilla, beating analysts’ forecasts of 37 cents per share.

A.O. Smith Corp ((AOS)), maker of motors and water heating equipment, posted Q3 earnings of 32 cents a share, up from 10 cents a share in the year-ago period on sales growth, in line with analysts’ forecasts. Apart from charges related to restructuring activities, the company gained 39 cents a share, up from 10 cents a share in the same time last year.

Marshall & Ilsley ((MI)), financial services firm, posted Q3 net income of 78 cents a share, up from 69 cents a share in the same period last year, beating analyst estimate of 76 cents a share The company added that Q3 included gains of 2 cents a share from the sale of stocks from a tender offer. Return on average assets based on net income for Q3 totaled 1.66%, up from 1.63% for the comparable period. Return on average equity based on net income totaled 16.49%, down from 17.58%.

Boston Scientific Corp ((BSX)), medical device maker, posted Q3 earnings of 42 cents a share, down from 47 cents a share in the year-ago period, missing analyst estimate of 44 cents a share. Including $616 million in charges primarily related to its Medinol settlement agreement, the company lost 33 cents a share in the latest quarter. Sales rose 2% in Q3.