Rise in Oil Inventories

Elena
14 Dec, 2005
New York City

The U.S. October trade deficit unexpectedly rose to an all-time high of 4.4% in October to $68.9 billion, surpassing the old record of $66 billion in September as oil shipments soared and the United States set deficit records with China, Europe, Canada and Mexico. The Labor Dept report showed that import and export prices in November fell 1.7% and 0.9% respectively.

U.S. MARKET AVERAGES

U.S. stocks slightly advanced at opening as crude oil futures dropped in anticipation of strong petroleum inventory report from the Department of Energy, but lately the market has found it difficult to keep its early advance.

News was mixed Wednesday morning. The Commerce Department said that the U.S. trade deficit unexpectedly rose to an all-time high in October as oil shipments soared and the United States set deficit records with China, Europe, Canada and Mexico. So far this year, the trade deficit is running at an annual rate of $718 billion, far surpassing last year''s $617.6 billion imbalance.

Investors were still digesting the Fed Reserve decision to increase interest rate. In addition, the Fed signaled its cycle of interest rate hikes may be nearing an end. Tuesday''s hike was the Fed''s 13th straight rate increase.

In corporate news, Bear Stearns cut its rating on Apple to peer perform from outperform. Citigroup cut its rating on video game publisher Electronic Arts to hold from buy.

Defense contractor General Dynamics Corp. ((GD)) agreed to acquire Anteon International Corp. ((ANT)) for $2.1 billion, or $55.50 per share in order to expand its training and technology services to the U.S. military. The deal includes $100 million debt and is expected to close by the end of the second quarter of 2006.

Boeing Co. ((BA)) won a $10 billion order from Qantas Airways Ltd. for 65 Boeing 787 Dreamliner jets, with an option for an additional 50 planes.

FPL Group Inc. ((FPL)), the parent of utility Florida Power and Light, is in advanced talks to acquire Constellation Energy Group Inc. for more than $11 billion.

The decline in treasury yields supported a number of sectors to rise, including the utility sector, with bank stocks also showing modest advances. The housing sector showed strength, despite industry data, showing a decline in mortgage loan application volume.

There were few standouts to the downside in early going. The gold sector dipped at the start of the session, posting only amodest loss.

In the first hour of trading, the Dow Jones industrial average rose 32.34, or 0.3%. The Standard & Poor''s 500 index rose 2.71, or 0.21%, and the Nasdaq composite index rose 1.73, or 0.08%.

The 10-year yield is down 5.3 basis points to 4.482%, moving to the low end of a recent trading range.

MOVERS AND SHAKERS

Apple Computer ((AAPL)) was downgraded to peer perform from outperform by Bear Stearns on valuation and maintaining estimates. Bear Stearns said the valuation reflects much of the near-term optimism and is 7% above its year-end 2006 fair value. The stock fell 3.4%.

Baidu.com ((BIDU)), Internet search provider, said it will release a total of up to 3 million outstanding ordinary shares from lock-up restrictions, effective Dec. 19, thus allowing the sale and transfer of shares by shareholders who were subject to the restrictions as of Dec. 2. The stock fell 5%.

SciClone Pharmaceuticals ((SCLN)) reported mixed results in trials of its Zadaxin drug. SciClone said it and Sigma-Tau S.p.A. have found from interim results from a Phase 2 trial that Zadaxin with dacarbazine chemotherapy showed a dose-dependent response for patients with advanced-stage malignant melanoma. But SciClone said the first Phase III trial of the drug with pegylated interferon alpha didn't show a statistically significant benefit compared with pegylated interferon alone in treating Hepatitis C. Company’s shares slid 39.2%.

Arena Pharmaceuticals Inc. ((ARNA)) said it had seen positive results from its Phase IIb clinical trial for APD356, its drug candidate for the treatment of obesity. Arena said APD356 was generally well-tolerated at all doses investigated in the trial and there were no apparent effects on heart valves or pulmonary artery pressures. Company’s shares rose 23%.

ECONOMIC NEWS

Crude oil inventories ticked higher in the most recent week, according to government data released Wednesday, adding to a rebound recorded in the previous period. Stocks of gasoline also moved higher.

The Department of Energy's Energy Information Administration revealed that crude oil inventories rose by 900,000 barrels for the week ended December 9, climbing to 321.2 million barrels from the prior week's level of 320.3 million barrels. This followed an advance of 2.7 million barrels in the previous week. Oil inventories were 11.7% higher than their levels of the same time last year.

Gasoline inventories posted a week-over-week advance of 1.8 million barrels, the government said, compared to the previous week's 2.7-million-barrel climb. Gasoline stocks were 4.1% below their levels of last year. Inventories of distillate fuel oil ticked down by 100,000 barrels as well in the most recent week.

Wednesday morning, the Department of Labor release its report on import and export prices in the month of November, with a steep drop in prices for petroleum imports contributing to a notable decline in import prices.

The report showed that import prices fell 1.7 percent in November following a 0.3 percent increase in October. Economists had been expecting a much more modest decrease of about 0.5 percent.

The decrease in import prices was largely due to a significant decline in prices for petroleum imports, which fell 8 percent in November after falling 1 percent in October. Excluding petroleum imports, total import prices fell by a more modest 0.2 percent.

The report also showed that export prices fell 0.9 percent in November following a 0.7 percent increase in October. Prices for agricultural exports fell for the third time in the past four months, falling by 0.3 percent.

The U.S. trade deficit unexpectedly widened in October, according to a report from the Department of Commerce, reaching a new record high. The wider deficit came as an increase in imports outpaced an increase in exports.

The report showed that the trade deficit widened to $68.9 billion in October from a revised $66.0 billion in September. The increase surprised economists, who had been expecting the deficit to narrow to $62.8 billion.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mixed, following U.S. central bank interest rate increase. The Nikkei had its sharpest drop in two months, falling down nearly 2% on disappointing business sentiment survey and steel stocks sell-off. Across the region South Korea’s Kospi fell 0.25, while Australia’s All Ordinaries advanced 0.2%, followed by Hong Kong’s Hang Seng, up 0.2%.

European stocks traded mixed at mid-day, reflecting stronger euro and weak exporter-related issues and auto stocks. The German DAX 30 fell 0.4%, the French CAC 40 lost 0.2%, while London’s FTSE 100 advanced 0.2%, boosted by retailers like Marks & Spencer, Kingfisher and aerospace companies like BAE Systems. The euro rose 0.7% to $1.2025.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $61 a barrel ahead of oil inventory report, expected to show declines. Light sweet crude for January delivery gained 2 cents to $61.39 a barrel on the Nymex. Heating oil slightly fell to $1.8210, while gasoline edged up to $1.6493. Natural gas dropped 14 cents to $15.235 per 1,000 cubic feet. London Brent futures gained 3 cents to $59.55.

Gold prices declined nearly $10 despite a drop in the U.S. dollar as investors kept digesting the increased interest rate. In European trading gold February delivery lost $9 to trade at $515.10 per troy ounce.

The U.S. dollar sharply dropped against other major currencies on record trade deficit and after the Fed Reserve hinted it might soon stop interest rate hikes. In European trading the euro was quoted at $1.2018, up from $1.1940. The dollar bought 118.60 yen, up from 119.90. The British pound stood at $1.7724, up from $1.7696.

EARNINGS NEWS

Cubic Corp. ((CUB)), service electronic products manufacturer, reported Q4 earnings of 19 cents a share, down from 35 cents a share in the year-earlier period, missing analysts’ expectations of 21 cents a share Sales rose to $219 million from $185 million.

Winnebago Industries Inc. ((WGO)), motor homes and self-contained recreation vehicles manufacturer, reported Q1 earnings of 44 cents a share, down from 57 cents a share in the year-earlier period, beating analyst estimate of earnings of 42 cents a share. Sales fell to $232.3 million from $266.1 million.

Charles River Laboratories International, Inc. ((CRL)), research tools and integrated support services provider, restated its 2005 guidance and announced it envisages 2006 earnings in the range of $2.07 to $2.13 a share on revenue up 7% to 9%. In addition, the company intends to repatriate up to $150 million of its accumulated income earned outside the U.S.

Powell Industries, Inc. ((POWL)), electrical energy systems maker, announced it reversed to a Q4 net profit of 17 cents a share, up from a net loss of 2 cents a share in the year-ago period on 70% sales growth.

Argon ST, Inc. ((STST)), a maker of systems and sensors for military applications, announced that Q4 net income soared 95% to 29 cents a share from the year-ago period matching analysts’. Sales more than doubled. Argon envisages fiscal 2006 revenue in the range of $330 million to $345 million.