Slower Growth in the Service Sector

Elena
05 Dec, 2005
New York City

Stocks opened weak on one-month jump in oil prices over $60 a barrel, raising concerns about holiday spending. An increase in deal news cushioned the decline with Guidant being the centre of attention after Boston Scientific offered $25 billion in cash and stock to acquire the company. The stock rose 10%. In another deal, Liberty Media agreed to acquire Provide Commerce for $477 million in cash, or $33.75 a share.

U.S. MARKET AVERAGES

U.S. stock markets opened lower Monday as crude oil prices rose back above $60 a barrel, raising investors'' concerns about spending before the holidays. However, merger and acquisition news with Guidant in the spotlight, softened the decline.

Boston Scientific ((BSX)) bid $25 billion in cash and stock for Guidant ((GDT)). Under the deal, Boston Scientific would buy each Guidant share for $36 in cash and $36 in stock, which is 14% over Johnson & Johnson’s offer of $22 billion. Boston Scientific’s shares fell 5.7%, while Guidant’s rose 10%.

Liberty Media ((L)) agreed to acquire Provide Commerce ((PRVD)) for $477 million in cash. Under the deal, each Provide Commerce share will be exchanged for $33.75 in cash. The transaction is likely to close in the second quarter of 2006.

Sears Holdings ((SHLD)) offered to acquire the public minority stage in Sears Canada for C$16.86 per share, an 8.7% premium over Friday's closing price. The company already owns 53.8% and the total purchase price for the rest of the stake, which is 46.2%, would be about C$835.4 million.

The world’s largest chip maker, Intel Corp ((INTC)) is planning to invest more than $1 billion in India to strengthen its operations in the country.

Ford Motor Co. ((F)) plans to close more than eight North American plants in order to revive faltering operations on the continent.

Auto stocks were notable losers in the early going, dragged by GM ((GM)). The housing sector posted a loss of about 1%. A rise in oil prices exerted pressure on airline stocks, with the sector now down about 1% as well.

Energy stocks climbed on the back of rising oil prices. The oil and natural gas sectors gained about 1.1%. The gold sector was another noteworthy mover to the upside.

The Dow Transportation Average dropped 1.4%, reaching its lowest level since mid-November. Yellow Roadway ((YELL)) slipped 2.8%, despite reaffirming its earnings guidance. JB Hunt ((JBHT)), Continental Airlines ((CAL)) and Ryder Systems ((R)) also posted notable losses.

The gaming sector declined by about 1.5%. Housing and auto stocks moved to the downside as well. The semiconductor sector fell 1.2% on profit-taking.

The Dow Jones industrial average was down 22.81 points, or 0.21%. The Standard & Poor''s 500 Index was down 2.70 points, or 0.21%. The technology-laced Nasdaq Composite Index was down 7.79 points, or 0.34%.

MOVERS AND SHAKERS

Noven Pharmaceuticals ((NOVN)) advanced after an FDA panel supported the approval of an ADHD skin patch. The stock rose 32%.

Boston Scientific ((BSX)) bid $25 billion in cash and stock for Guidant ((GDT)). Under the deal, Boston Scientific would buy each Guidant share for $36 in cash and $36 in stock, which is 14% over Johnson & Johnson’s offer of $22 billion. Boston Scientific’s shares fell 5.7%, while Guidant’s rose 10%.

RSA Security ((RSAS)) agreed to acquire privately-held online security firm Cyota, Inc. for about $145 million. RSA Security announced a restructuring of its engineering resources into 4 core locations around the world. The company also said it started a search for a new CFO after its CFO Jeff Glidden resigned. The stock slid 12%.

Copart ((CPRT)), vehicle auctioneer, posted Q1 earnings of $22.8 million, or 25 cents a share, compared with $22.7 million, or 24 cents a share last year, missing analyst estimates of 27 cents per share. Company’s quarterly revenue was $119 million, matching estimates. The stock dropped 11%.

ECONOMIC NEWS

Monday morning, the Institute for Supply Management released its report on business activity in the service sector in the month of November, showing that the pace of growth in the sector slowed from the previous month.

The report showed that the ISM's business activity index for the non-manufacturing sector fell to 58.5 in November from 60.0 in October. Economists had been expecting the index to fall to 59.0. A reading above 50 still indicates growth in the sector.

The slowdown in the pace of growth in the sector came in spite of some improvement in new orders growth, with the new orders index rising to 59.5 in November from 58.2 in October.

The report also showed an increase in the pace of expansion of employment in the service sector, as the employment index rose to 57.0 in November from 52.9 in October.

Additionally, the ISM said prices continued to increase, although at a slightly slower pace, with the prices index slipping to 74.2 in November from 78.0 in October.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished mixed with the Nikkei ending up 0.8% at 15,551,31, boosted by strong domestic capital-spending data which raised hopes for higher GDP and robust corporate results. Across the region, Taipei’s Weighted Index surged 1.9%, while Hong Kong’s Hang Seng fell 0.3%. The yen dropped 0.6% against the dollar.

European markets traded lower at mid-day, dragged by mining and healthcare shares, although losses were limited by gains in the oil and gas sector, as well as deal news with the U.K. Virgin Mobile in the spotlight. The German DAX 30 lost 0.2%, the French CAC 40 ended down 0.1%, and London’s FTSE 100 also fell 0.1%.

OIL, METALS, CURRENCIES

Crude oil prices jumped back to $60 a barrel on U.S. winter storm forecast. Light sweet crude for January delivery rose 73 cents to $60.05 a barrel in electronic trading on the Nymex. Heating oil gained 3 cents to $1.7990 a gallon, followed by gasoline, rising to $1.6210. Natural gas climbed 24 cents to $14.170 per 1,000 cubic feet. London Brent jumped 72 cents to $57.74.

European gold hovered near a 23-year high on inflation worries and strong interest in commodity investment. In London the precious metal was fixed at $505 per troy ounce, up from $503.50. In Zurich gold traded at $504.90, up from $502.05. In Hong Kong gold fell 30 cents to close at $506.25. Silver traded at $8.61, up from $8.53.

The U.S. dollar advanced against its major counterparts. The euro was quoted at $1.1700, down from $1.1714. The dollar bought 121.14 yen, up from 120.42. The British pound traded at $1.7308, down from $1.7340.