Stocks Advance on CPI

Elena
15 Dec, 2001
New York City

Total CPI for Nov. fell 0.6%, below an expected 0.4% decline, while the more closely watched core rate rose 0.2%, matching expectations.In the week ending Dec. 10, the advance figure for seasonally adjusted initial claims was 329,000, an increase of 1,000 from last-week revised figure of 328,000. In earnings news, both Lennar and Bear Stearns posted strong Q4 earnings, well above estimates, but Goldman Sachs missed the Reuters Estimates consensus of $3.36 by a penny.

U.S. MARKET AVERAGES

U.S. stock averages opened higher although in pre-market trading futures pointed to a lower opening. A strong initial support to the market sentiment was provided by data generating optimism that the pace of inflation has been contained, lending support to the view that the Federal Reserve may not need to raise interest rates much further.

The U.S. Labor Department revealed Thursday morning that the consumer price index, a key gauge of consumer inflation, dropped by 0.6% in November - its steepest fall since 1949. An 8% drop in energy prices, including a 16% slide in gasoline prices, contributed significantly to the decline. Core CPI, which excludes the volatile food and energy sectors, ticked up by 0.2% in November, matching both October''s increase and economists'' expectations.

In a separate report, the Labor Department announced that initial jobless claims came in at 329,000 in the week ended December 10, up 1,000 from the previous week''s revised level of 328,000. Economists had expected a decline in claims for the week.

In earnings news, Bear Stearns ((BSC)) released Q4 earnings of $2.90 per share, up from $2.61 per share last year, exceeding Wall Street’s estimates of $2.63 per share. Revenues for the period rose 3% to $1.9 billion. In addition, Bear Stearns revealed a 12% increase in its quarterly dividend to a level of $0.28 per share. The company also authorized up to $1.5 billion for stock repurchases.

Goldman Sachs ((GS)) reported Q4 profit of $3.35 per share, up from $2.36 per share last year and in line with analyst estimate. The company said net revenues for the period came in at $6.29 billion, up from last year''s mark of $4.58 billion.

Merck ((MRK)) revealed a series of measures, including changes in marketing and sales meant to drive greater efficiency and a focusing of R&D efforts in 9 priority disease areas. The drug giant predicted an additional $1 billion in savings through 2010 from its business process redesign, raising its total expected savings by the end of the decade to $4.5-$5.0 billion. Merck reaffirmed its 2005 and 2006 earnings guidance.

Altria Group ((MO)) will be in focus, as the Illinois Supreme Court is expected to rule on a $10.1 billion judgment levied against the firm''s Philip Morris USA unit in a case involving smokers who bought light cigarettes believing they were safer than regular ones. Shares of Altria rose sharply on Tuesday after an analyst said that a positive outcome was likely in the case.

Early Thursday, yields are coming back a bit, with the 10-year yield up 3.4 basis points to 4.484%.

ECONOMIC NEWS

The number of people filing for first-time unemployment benefits ticked up in the most recent week, according to government data released Thursday, disappointing economists, who had, on average, expected the measure to fall.

The U.S. Department of Labor revealed Thursday that initial jobless claims came in at 329,000 for the week ended on December 10, an advance of 1,000 from the previous week''s revised total. Economists had expected the number of claims to moderate during the week.

The Department of Labor released its report on consumer prices in the month of November on Thursday, showing that prices fell more than economists had expected due largely to a steep drop in energy prices.

The Labor Dept. said that its consumer price index (CPI) fell 0.6 percent in November following a 0.2 percent increase in October. The decrease marked the steepest drop in prices in over 50 years. Economists had been expecting a more modest decrease of about 0.4 percent.

The drop in consumer prices was largely due to a steep decline in energy prices, which fell 8 percent in November after falling 0.2 percent in October. The decline in energy prices seen in the past two months comes after significant increase in July, August, and September.

The core CPI, which excludes food and energy prices, rose 0.2 percent in November, matching the increase seen in the previous month. The increase by the core CPI came in line with economist estimates.

The bigger than expected decrease by the CPI is likely to generate optimism that the pace of inflation has been contained, lending support to the view that the Federal Reserve may not need to raise interest rates much further.
INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished generally higher with the Nikkei falling for a second consecutive session. The Japanese bellwether dropped 1.4%, hurt by weaker dollar and declining exporter-related issues. The dollar slid to 115.83 yen. Among other regional markets, Hong Kong’s Hang Seng advanced 0.6%, South Korea’s Kospi rose 0.3%, and Australia’s all Ordinaries gained 0.2%.

European stocks slightly advanced at mid-day trading, supported by chemical stocks like BASF and Laanxess, but gains were limited by weaker mining stocks like BHP Billiton and Rio Tinto. The German DAX 30 inched up 0.1%, followed by the French CAC 40 and London’s FTSE 100 which also added 0.1%. The euro was 0.3% higher against the dollar at $1.2010.

OIL, METALS, CURRENCIES

Crude oil prices slipped on increased crude oil inventories, easing winter supply concerns. Light sweet crude for January delivery fell 43 cents to $60.42 a barrel in electronic trading on the Nymex. Heating oil lost 2 cents to $1.8217, while gasoline marginally fell to $1.6350. Natural gas dropped 49 cents to $14.190 per 1,000 cubic feet. London Brent declined 24 cents to $59.36.

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.

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

Lennar Corp., homebuilder, reported its Q4 profit advanced 53 % to $3.54 per share, up from $2.29 per share in the year-ago period, well above analysts’ estimates of $3.34 per share, as the company improved its building process and generated higher revenue.

Pier 1 Imports, Inc. ((PIR)), home-furnishings retailer, reversed to a Q3 loss of 8 cents a share, down from a year-ago profit of 22 cents a share and is likely to report negative comparable sales on heavy promotional environment. Sales fell 2.4%, with comparable sales going down 6.5%. The company announced it now expects to post December comparable sales down in the negative mid-single digit range.

Viad Corp ((VVI)), trade show and event organizer, announced full year income for 2006 will be $1.51 to $1.62 per share, excluding an expected stock option expense of 6 cents a share. The company''s 2005 previous guidance was for $1.38 to $1.42 a share, if not for a 2 cents a share impairment loss. The company stated Q1 income in 2006 will drop from 2005 because of negative show rotation but show rotation should go up in the Q2 and Q3.

Nordson Corp ((NDSN)), provider of precision dispensing equipment, reported Q4 earnings of 80 cents a share on sales growth, beating analyst estimate for a profit of 66 cents a share. The company stated that its strong results were due to volume growth, particularly in its advanced technology business..