Fed Hikes Rate to 4.25%

Elena
13 Dec, 2005
New York City

Tuesday morning session was marked by cautious trading amid mixed earnings news and disappointing. Fed raised fed fund rate to 4.25%, the 13th rate hike since June 2004. Lehman Bros posted 41% profit rise in Q4 on 28% revenue rise, beating estimates. Best Buy Co reported fourth-quarter net income rise of 25 cents a share, but missed estimates of 30 cents a share. Cendant Corp. cut guidance compared with prior estimates.

U.S. MARKET AVERAGES

U.S. stocks traded in a lackluster fashion on Tuesday morning on mixed earnings news and disappointing November retail sales growth. In addition, Wall Street investors were cautious, awaiting the Federal Reserve''s latest decision on interest rates. Another quarter-percentage-point rate increase is expected, but investors are mostly interested in the outlook for rates and whether the long streak of rate hikes will end soon.

On the economic news front, the Commerce Department reported November retail sales growth of 0.3% which came slightly below economists'' estimate of 0.4%. Slowing sales at department and specialty stores raised concerns about the strength of the holiday shopping season, but the report also said that auto sales rebounded after a three-month decline, while gasoline sales fell as prices pulled back from record levels.

Electronics retailer Best Buy Co. ((BBY)) fourth-quarter profit drop was somewhat offset by improved earnings guidance from consumer products maker Procter & Gamble Co ((PG)).

Procter & Gamble said it expects Q2 earnings and sales to come in at the higher end of its guidance ranges, or 68 cents to 69 cents a share with sales higher by 25% to 26%. The company attributed its new sales outlook to strong performance from both the P&G and Gillette businesses and better-than-expected pricing contribution.

Best Buy Co Inc. posted Q3 7% earnings drop, hurt by higher expenses that outpaced a 10% sales increase, misses analyst estimates.

Investment bank Lehman Brothers posted a 41% jump in quarterly earnings on strength in investment banking and growth in transaction fees.

The retail sector dropped at the start of trading on disappointing November retail sales report. The computer hardware sector continued to weigh on the major averages after Hewlett Packard dropped on lowered guidance. The airline sector also traded in the negative.

The natural gas sector steadily advanced to post a gain of 1.9%. The drug sector rose by 1%, testing its 50-day moving average, a level it was last above in the second half of September.

In late morning trading, the Dow Jones industrial average lost 1.91, or 0.02%. The Standard & Poor''s 500 index was up 0.32, or 0.03%, and the Nasdaq composite index dropped 4.24, or 0.19%.

Bonds advanced, with the yield on the 10-year Treasury note sliding to 4.52% from 4.55% late Monday.

MOVERS AND SHAKERS

Best Buy Co., Inc ((BBY)) posted third-quarter earnings of $138 million, or 28 cents a share, up from $125 million, or 25 cents a share, a year earlier. Total revenue rose 10% to $7.3 billion, and sales at stores open at least one year rose 3.3%. The quarterly results failed to meet expectations of 30 cents a share, and revenue of $7.34 billion. The stock dropped 10.7%.

CuraGen ((CRGN)) said its Phase II trial of velafermin, which treats oral mocositis in patients receiving chemotherapy, failed to meet its primary endpoint. While velafermin reduced oral mucositis in come instances, the results were not statistically significant. The stock fell 22%.

Insmed Inc ((INSM)), biopharmaceutical company, said the Food and Drug Administration has approved Iplex to treat growth failure in children with severe primary IGF-1 deficiency or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormones. The company said that Iplex is entitled to seven years of marketing exclusivity for the treatment of primary IGFD. Company’s shares rose 24.7%.

Celanese Corp. ((CE)) raised its 2005 earnings per share outlook to a range of $2.10 to $2.20, from the previous range of $1.95 to $2.05, citing continued strength of its Ibn Sina joint venture in Saudi Arabia, lower personnel costs, and a lower tax rate. The Dallas-based chemicals company also said it expects 2006 earnings in a range of $2.50 to $2.90. Thre stoch gained 6.9%.

ECONOMIC NEWS

The Department of Commerce released its report on November retail sales on Tuesday, showing that sales growth came in slightly below economist estimates. At the same time, the report showed a notable upward revision to October sales.

The Commerce Dept. said retail sales rose 0.3 percent in November, matching a revised increase in October. Economists had been expecting sales to grow by 0.5 percent in November compared to the 0.1 percent decrease originally reported for October.

The November sales growth was partly due to a rebound in sales by motor vehicle and parts dealers, which rose by 2.6 percent in November after falling 1.3 percent in October.

Excluding auto sales, total sales fell 0.3 percent in November compared to a 0.8 percent increase in October. The decrease in ex-auto sales surprised economists, who had been expecting an increase of 0.1 percent.

The decrease in sales outside the auto sector was partly due to a 5.9 percent drop in sales by gasoline stations, which reflected a drop in gas prices. Sales by gas stations fell 0.6 percent in October.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mixed with gains capped ahead of a key Bank of Japan survey Wednesday. The Nikkei hit a five-year intraday high of 15,782.30 to close up 0.3%, boosted by strong steel and metals stocks. Among regional markets, Hong Kong’s Hang Seng lost 0.3%, Australia’s All Ordinaries fell 0.5%, while South Korea’s Kospi gained 0.2%.

European stocks closed slightly higher on strong energy stocks and ahead of U.S. Fed Reserve interest rate meeting today. The German DAX 30 gained 0.2%, the French CAC 40 advanced 0.4%, and London’s FTSE 100 added 0.1%. The euro fell 0.2% against the dollar to $1.1930.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $61 a barrel after the IEA predicted recovery in global oil demand next year. Light sweet crude for January delivery gained 20 cents to $61.50 a barrel on the Nymex. Heating oil rose 4 cents to $1.8125, while gasoline added 3 cents to $1.6440. Natural gas climbed 58 cents to $15.42 per 1,000 cubic feet. London Brent futures fell 9 cents to $59.35.

Gold prices declined for the first time in eight sessions ahead of Fed Reserve meeting. Gold in London closed at $524.30 per troy ounce, down from $536. In Zurich the precious metal fell to $522.95 from $583.03. In Hong Kong gold dropped $12.25 to close at $522.90. Silver closed at $8.59 from $9.07.

The U.S. dollar advanced against other major currencies. In European trading the euro was quoted at $1.1930, down from $1.1980. The dollar bought 120.12 yen, up from 119.75. The British pound stood at $1.7705, down from $1.7749.

EARNINGS NEWS

Lehman Brothers ((LEH)), investment banking services provider, reported a Q4 net profit of $2.76 a share, up from $1.96 a share in the year-ago period on 28% increase in revenue, topping analysts’ expectations of $2.64 a share. Lehman Brothers generated revenue of $3.7 billion vs. $2.9 billion in the fourth quarter of 2004. Banking revenue increased 34% to a record $817 million. Analysts polled by Thomson First Call expected per-share earnings of on revenue of $3.6 billion.

Best Buy Co Inc.((BBY)), consumer electronics retailer, posted Q3 earnings of 28 cents a share, up from 25 cents a share in the year-ago period on 10% revenue growth and 3.3% same store sales increase, missing analyst estimate of 30 cents a share.

Engineered Support Systems Inc., ((EASI)), provider of military electronics products and logistics services, reported Q4 earnings from continuing operations of 55 cents a share, up from a year-ago equivalent profit of 51 cents a share in the same period last year on 2% revenue growth, missing analyst estimate by a penny.

Tupperware Brands ((TUP)), food storage producer, predicted a 2005 sales rise of 6% to 7%, and earnings of $1.02 to $1.07 a share. If not for items, the company expects earnings of $1.45 to $1.50 a share, in line with analyst expectations of earnings a share of $1.49. For 2006 it forecasts sales of $1.75 billion to $1.8 billion, including a $35 million item related to foreign currency, and earnings of $1.41 to $1.51 a share, including foreign currency.

Cendant Corp ((CD)), travel & real estate services provider, warned that Q4 earnings from continuing operations are estimated at 23 cents a share, at the low end of a 23 cent to 26 cents a share range, on continuing challenges at its travel distribution services business. The company stated it believes issues at its international online operations will be addressed by the actions it is takings.

Isonics ((ISON)), materials company, announced a revenue growth in its semiconductor division of 50% sequentially. More than 90% of the rise is attributable to sales of 300 million silicon wafers. Isonics'' previous expectation was that revenue would go up 25% sequentially in the quarter. The company noted that, while revenue is advancing, its silicon wafer business is still not profitable.

CIT Group, Inc. ((CIT)), financial services company, announced that it is restating 2005 financial results on a technical interpretation of the derivative accounting rules. Earnings for the Q3 came at $1.02, down vs. $1.06 a share in the same period last year. The group stated it did not qualify for hedge accounting.