25 Basis Points Hike

Elena
01 Nov, 2005
New York City

The worst performer of the session has proved to be the Utilities sector,currently down 2.1%, on disappointing Q3 earnings reports from Ameren, PPL Corp, and TXU Corp. Weakness in the Treasury market have also weighed on sentiment with bonds under pressure on the Oct ISM Index, up 84%, the highest since May 2004.

U.S. MARKET AVERAGES

U.S. stock markets have kept in a holding mode, trading below the flat line as investors have locked in recent gains, eagerly awaiting the FOMC meeting. Market sentiment has also been overweighed by weakness in tech stocks, pressured by disappointing preliminary third-quarter results from computer giant Dell, down by 8%. The company released lowered earnings forecast on sales decrease as well as revenue outlook far below expectations. It also announced it would take a third-quarter charge of $450 million to restructure its consumer unit and replace some faulty PC circuits.

Two economic reports were released today. The Commerce Department said that construction spending in September reached an all-time high, rising 0.5% to $1.120 trillion from a revised $1.115 trillion in August. In another economic news release, ISM reported that manufacturing sector grows at a slower pace with the manufacturing index up at 59.1% last month, down from September's 59.4%.

Bonds have been under pressure ever since the prices paid component in the Oct ISM Index rose to 84.0 - the highest since May 2004, raising inflation fears.

The utility sector has declined through most of the morning, though presently off its intraday low. The Dow Jones Utilities Index is down about 2.1%, erasing a significant share of gains from the previous two sessions. Bank, drug and housing stocks are posting modest losses.

Energy stocks traded lower at the start, but have turned to the upside and are now showing modest advances. The oil service space is leading the group, with an advance of 1%.

Google ((GOOG)) has continued extending its 52-week high, gaining on its quarterly earnings report. Computer Sciences Corp. ((CSC)) has jumped to a fresh peak on reports that it could receive a $12 billion takeover bid. EDS ((EDS)) has ticked to a new high ahead of earnings release.

Dell ((DELL)) is the most conspicuous mover to the downside, reflecting disappointing preliminary Q3 results.Masco ((MAS)) has dropped to a fresh nadir as well, with quarterly results and guidance dragging it lower by about 4%.

On the earnings front, consumer goods retailer Procter & Gamble ((PG)) reported Q3 income rise of 77 cents a share, vs. 70 cents a share a year ago on 8% revenue growth, beating estimates by a penny. Colgate-Palmolive ((CL)), consumer products maker, released Q3 profit of 67 cents per share against 58 cents last year, in line with expectations. CMS Energy ((CMS)), energy services company, posted Q3 loss of $1.21 a share, vs. a profit of 34 cents a year ago, despite a revenue growth.

In takeover news, defense contractor Lockheed Martin Corp. ((LMT)) and three private equity firms are considering a bid for Computer Sciences Corp. ((CSC)), a technical services provider, according to a report in the Wall Street Journal.

MOVERS AND SHAKERS

Computer maker Dell Inc. ((DELL)) announced third-quarter earnings would come at the low end of the company’s estimates, while sales would be below analyst expectations. The company cited as a reason for this negative results the shortfall on weakness in its U.S. consumer and U.K. business operations. Dell''s revised forecast brought up downgrades from financial brokers Bear Stearns and UBS Investment. Rival Apple Computer Inc. ((AAPL)) was also under pressure on Dell’s news. Dell stock lost 8%, while Apple stock was down 1%.

Consumer products company Procter & Gamble ((PG)) presented profit results that came in slightly ahead of analyst estimates as unit volume rose 6% in the period. Rival household products maker Colgate-Palmolive Co ((CL)) also reported strong results. Procter & Gamble stock added 1.2%, while Colgate-Palmolive stock gained 1.5%.

The Wall Street Journal reported that Lockheed Martin Corp. ((LMT)) and three private-equity firms are focusing on an aquisition price of about $64-$65 a share for Computer Sciences Corp. ((CSC)). Computer Sciences stock was up 15%.

ECONOMIC NEWS

Tuesday morning, the Department of Commerce released its report on construction spending in the month of September, with spending reaching a new all-time high.

The report showed that construction spending rose 0.5 percent to $1.120 trillion in September from a revised $1.115 trillion in August. Economists had been expecting spending to increase by 0.5 percent.

The increase in spending was largely due to a 0.6 percent increase in private construction spending, which came as a 1.0 percent increase in residential construction more than offset a 0.3 percent drop in non-residential construction.

At the same, public construction spending was roughly unchanged in September, as a 0.9 percent drop in highway construction offset a 1.3 percent increase in educational construction.

Activity in the manufacturing sector expanded for the 28th consecutive month in October, according to a report from the Institute for Supply Management, although the pace of growth slowed from September. The pace of growth was still stronger than expected.

Activity in the manufacturing sector expanded for the 28th consecutive month in October, according to a report from the Institute for Supply Management, although the pace of growth slowed from September. The pace of growth was still stronger than expected.

The ISM said that its purchasing managers index fell to 59.0 in October from 59.4 in September, with a reading above 50 indicating growth in the sector. Economists had expected the index to fall to 57.0.

The report showed that the new orders index slipped to 61.7 in October from 63.8 in September, while the production index came in at 62.0 in October compared to 63.1 in September.

At the same time, the report showed some improvement in employment in the sector, with the employment index rising to 55.0 in October from 53.1 in September.

The ISM said that the prices index surged up to 84.0 in October from 78.0 in September. The agency noted that 70 percent of supply executives reported paying higher prices in October.

INTERNATIONAL MARKETS NEWS

Asian-Pacific Benchmarks ended mostly higher, awaiting the U.S. Fed Reserve decision on interest rate, expected to be increased by a quarter of a percentage point to 4%. In Japan trading in stocks and convertible bonds was suspended because of a computer glitch, but when trading was resumed at mid-afternoon, the Nikkei jumped 1.9%, reaching a four-year peak. Other regional gainers were South Korea’s Kospi, up 2.7% and Hong Kong’s Hang Seng, up 1.3%. Shanghai closed down.

European markets rebounded from early losses and closed mixed, supported by Swiss banking giant USB and British media group Pearson. The German DAX 30 declined 0.1% on news that another election will be held next March, while the French CAC 40 gained 0.1%, and London’s FTSE 100 climbed 0.5 %.

ENERGY, METALS, CURRENCIES

Crude oil futures further declined below $60 a barrel on broad-based selling of oil stocks, caused by warmer weather forecasts. U.S. light sweet crude December delivery fell 15 cents to $59.61 on the Nymex. Heating oil slipped to $1.8180 a gallon, while gasoline slightly rose to $1.5950. London Brent lost 14 cents to $57.86 on London’s ICE Futures Exchange.

Gold futures declined in Europe. In London gold closed at $459.60 bid per troy ounce, down from $465.40. In Zurich the precious metal traded at $459.40, down from $465.60. In Hong Kong gold prices fell $6.30 to close at $465.95. Silver closed at $7.82, up from $7.63.

The U.S. dollar kept trading in a mixed session against major currencies ahead of U.S. Fed Reserve decision on interest rate increases. The dollar rose to a two-year high against the yen, trading at 116.66, up from 116.35. The euro was quoted at $1.1992, up from $1.1984. The British pound stood at $1.7616, down from $1.7985.

EARNINGS NEWS

Colgate-Palmolive Co ((CL)), maker of consumer products, reported a Q3 profit of 67 cents per share, up from 58 cents a share in the year-ago period on stronger sales and the benefits of a restructuring program, in line with analyst expectations of 67 cents per share.

Viacom Inc. ((VIA)), media conglomerate, posted a Q3 net income of 45 cents per share, up from a loss of 28 cents per share in the same period last year on 10% revenue growth. If not for special items, the profit of 47 cents per share tops analysts'' forecasts of 45 cents per share.

Entergy Corp ((ETR)), electric power production company, reported Q3 net income of $1.65 a share, up vs. $1.22 a share in the year period on revenue growth and especially on higher usage of air-conditioning linked to unusually warm weather, beating analysts'' estimate of $1.58 a share. The company added that it continues to target annual earnings growth in the 5% to 6% range but that it is unable to affirm its 2005 outlook due to the impact of recent hurricanes.

Procter & Gamble ((PG)), consumer goods retailer, reported Q3 earnings of 77 cents a share, up from 70 cents a share a year-earlier, beating analyst estimate by a penny. Sales rose 8% in Q3. The year-ago results include a gain of 3 cents a share from a unit sale. P&G envisages earnings of 66 to 69 cents a share in the December quarter, including Gillette''s operations, with sales growth of 23% to 26%.

CMS Energy ((CMS)), energy services company, posted Q3 loss of $1.21 a share, down from a quarterly profit of 34 cents a share in the year-earlier period despite revenue growth. After breaking out a charge of $385 million for higher natural gas costs at its Midland Cogeneration plant, CMS stated earnings totaled 54 cents a share, up 11 cents a share in the year-ago period, beating on that basis analyst estimate of of 16 cents a share.

TRW Automotive Holdings Corp.((TRW)), automotive systems supplier, reported quarterly earnings or 10 cents a share, down from 13 cents a share in the year-earlier period despite 6.5% revenue growth, topping analysts’ forecasts of 2 cents a share. Debt rose from the previous quarter on the impact of seasonal factors. The company predicts Q4 earnings of 23-38 cents a share.

Marsh & McLennan Cos. ((MMC)), insurance broker, announced that Q3 net income advanced to 12 cents a share, up from 4 cents a share in the same period last year. Excluding special items, earnings per share in Q3 amounted to 35 cents a share, down from 42 cents a share a year ago, missing analyst expectations of 38 cents per share.

Rowan Cos. ((RDC)), an offshore driller, reported an almost eight-fold rise in Q3 net income to 67 cents a share, up against 9 cents a share in the year-ago period on revenue growth, beating analyst expectations of 42 cents a share. Q3 included gains on asset sales and a hurricane-related damage loss, which combined to contribute 18 cents a share. The company announced that its 97% of its offshore rigs were operational in Q3, unchanged from a year ago, and its average daily rates per rig in the Gulf of Mexico advanced 60% from Q3 last year.

Martin Marietta Materials Inc. ((MLM)), producer of aggregates for the construction industry, reported that Q3 net income advanced to $1.65 a share, up from $1.12 a share in the same period last year on revenue growth, beating analyst estimate of $1.44 a share. The company stated that income from continuing operations rose to $1.61 a share from $1.10 a share.