Market Ignores Record Trade Deficit

123jump.com Staff
14 Dec, 2005
New York City

October deficit suggests that the U.S. may be set to cross $725 billion in deficit in 2005. Record oil and natural gas import contributed to deficit in month. U.S. recorded deficit with Canada, EU, Japan and China. Last trade surplus was recorded in 1964 and in 1972-73. Apple shares closed down 3% on double downgrades on valuation. 10-year bond yield fell to 4.44%.

U.S. MARKET AVERAGES

Market traded weak in the morning hours as record October trade deficit put the equity market and dollar under pressure. However weakness in the oil, copper, gold and silver gave support to the falling averages. Energy stock rose as oil fell. Sharp rise in shares of Boeing ((BA)) helped market to regain momentum in the large cap stocks. Dow Jones Industrial Average gained in the session as shares of Honeywell soared 4.5%. The reaffirmed the 2006 revenue and earnings guidance in line with Wall Street expectations.

Nasadaq took hit in today’s session on double downgrade for Apple Computer ((AAPL)) stock. Shares of Apple fell as much as 6% before recovering to a loss of 3% on downgrades from Bear Stearns and Bank of America on valuation consideration. Shares of Electronic Arts ((ERTS)) came also under pressure on the report that November hardware sales were up 9.5% and software sales were down 18%. Shares of other game makers including Take Two Interactive ((TTWO)) and THQ Inc ((THQI)) were down.

Another month another trade deficit, except that this time it was approaching record level. Commerce Department reported October trade deficit of $68.9 billion on back of 2.7% rise in import and 1.7% rise in import. It seems that at this rate the annual deficit will cross $725 billion in 2005 and approach $1 trillion in 2006.

Suntech Power Holdings Co. Ltd ((STP)) priced 26.4 million shares at $15 and saw its shares rise close to $21 before close. Chinese based solar technology company is the second IPO to be priced this year in the solar technology field after SunPower Corp ((SPWR)) priced its IPO less than a month ago.

Falling bond market yield supported rise in housing and consumer stocks. Share of D R Horton ((DRI)), Toll Bros ((TOL)), Lennar ((LEN)) and Hovnanian ((HOV)) rose as yield on 10-year dropped to 4.44%.

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%.

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%.

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%.

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%.

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.

As mentioned above, the wider trade deficit came as the value of imports rose 2.7 percent to $176.4 billion in October from $171.8 billion in September, while the value of exports rose 1.6 percent to $107.5 billion in October from $105.8 billion in September.

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 closed mixed, reflecting stronger euro and weak exporter-related issues and auto stocks. The German DAX 30 fell 0.4%, the French CAC 40 lost 0.4%, while London’s FTSE 100 advanced 0.3%, boosted by retailers like Marks & Spencer, Kingfisher and aerospace companies like BAE Systems. The euro rose 0.7% to $1.2040.

OIL, METALS, CURRENCIES

Crude oil prices slipped but kept hovering over $61 a barrel on oil inventory report. Light sweet crude for January delivery fell 47 cents to $60.90 a barrel on the Nymex. Heating oil added 1 cent to $1.8475, while gasoline was flat at $1.6420. Natural gas dropped 70 cents to $14.679 per 1,000 cubic feet.

Gold prices declined despite a drop in the U.S. dollar as investors kept digesting the increased interest rate. In London gold closed at $510.85 per troy ounce, down from $522.80. In Zurich the precious metal fell to $511.45 from $522.95. In Hong Kong gold dropped $7.30 to close at $515.60. Silver closed at $8.41, down from $8.59. In New York price of ounce of gold fell $14.60 to $509.50 and that of silver fell 12 cents $8.465.

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 $1.2028, up from $1.1962 The dollar bought 117.24 yen, up from 119.90. The British pound stood at $1.7743, up from $1.7697.

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.