Surprising Rise in Oil Inventories

Elena
21 Dec, 2005
New York City

Wednesday morning session broke the recent lackluster trading pattern with averages rising on intense merger-and-acquisition activity in the technology and pharmaceutical industries, robust third-quarter GDP growth of 4.1%, easing inflation concerns and strong quarterly earnings from FedEx which posted 33% net income rise for the Q2, well above expectations.

U.S. MARKET AVERAGES

U.S. stock markets advanced Wednesday, breaking the recent lackluster pattern of trading. Socks were strongly supported by a great amount of merger-and-acquisition news, robust earnings from FedEx, and upbeat third-quarter GDP data which eased inflation concerns.

The Commerce Department released a downward revision of GDP for the third quarter which showed that he U.S. economy grew at fastest pace in a year and a half. The third-quarter GDP rose at an annual rate of 4.1%, despite surging oil prices and hurricanes, following a 3.3% rise in Q2.Economists had been expecting a 4.3% increase in July –September industrial output.

Acquisitions in the technology and pharmaceutical industries promised to inject strength to lagging sectors. Google Inc., Seagate Technologies and IBM Corp. announced major purchases, while Allergan Inc. said it will buy Inamed Corp.

Allergan Inc. agreed to pay more than $3 billion for Inamed Corp., offering a deal that topped Medicis Pharmaceutical Corp.''s first bid.

Seagate Technology offered $1.9 billion in shares for Maxtor Corp., a hard disk making rival, that values each share at a 60% premium to Tuesday''s close. This came after Google and Time Warner finally announced their AOL deal, with Google taking a $1 billion stake in the America Online unit.

Arden Realty Inc., a real estate investment trust valued at more than $3.1 billion, is near a deal to be bought by General Electric Co. and other investors.

Disk drive stocks advanced through much of the morning to post a gain of 6.6%, moving to a new multi-year high. The Dow Jones Transportation Average gained 2.5% rising to a new all-time peak.

The biotech sector rebounded from early-week losses to rise by 1.8%. The airline group was also strong, posting a gain of 1.7%.

AIG ((AIG)) climbed 2% to stand out among the Dow components. Caterpillar ((CAT)), DuPont ((DD)), McDonald''s ((MCD)) and Pfizer ((PFE)) showed significant strength as well, each climbing by more than 1.5%. IBM ((IBM)) rose about 1.7% on its deal to acquire Micromuse ((MUSE)).

There were only 2 blue chips posting losses on the day, AT&T ((T)) and Microsoft ((MSFT)).

In late morning trading, the Dow Jones industrial average rose 77.00, or 0.71%. The Standard & Poor''s 500 index climbed 8.66, or 0.69%, while the Nasdaq composite index added 15.94, or 0.72%.

Bonds continued the previous session''s selloff, with the yield on the 10-year Treasury note rising to 4.49% from 4.47% late Tuesday.

MOVERS AND SHAKERS

Seagate Technology ((STX)) agreed to offer $1.9 billion of its shares for rival hard disk maker Maxtor Corp ((MXO)) in a deal expected to lift earnings by 20% in the first year after completion. Seagate said it expects revenue attrition, but sees $300 million in annual operating expenses from greater scale, reduced supply chain costs, and combined R&D efforts. Seagate also reaffirmed December and fiscal 2006 guidance. Maxtor’s shares climbed 48%.

Shipping company FedEx Corp (( FDX)) reported second-quarter 33% jump in profit of $1.53 per share vs. $1.15 a year ago on 10% revenue growth, easily beating its own and Wall Street's expectations. The strong quarterly results are due to higher demand for its services and lower advertising costs. The stock rose 3.2%.

Family Dollar Stores ((FDO)) reported Q1 profit of $51.4 million, or 32 cents a share, from $54.4 million, or 32 cents, a year ago, beating estimates of 31 cents a share. Earnings per share remained flat despite the decline in net income because there were fewer shares outstanding. Sales advanced to $1.51 billion from $1.38 billion in last year''s first quarter. The discount retailer forecast Q2 earnings of 45 cents to 50 cents a share and full-year earnings at $1.30 to $1.39 a share. Company’s shares rose 3.8%.

GSI Group Inc ((GSIG)) , a supplier of precision motion components, lasers and laser systems said that it authorized a stock repurchase program of up to 1.5 million shares. GSI shares rose 2.9%.
Nike Inc. ((NKE)) , footwear and apparel company, reported Q2 profit rise of 15%, or $1.14 a share, up from 97 cents in the year-ago period on 10% revenue growth, beating estimates by 11 cents a share, but the company also reported a sharp slowdown in orders scheduled for future delivery. The stock dropped 5.2%.

ECONOMIC NEWS

Crude oil inventories recorded another build in the latest week, according to government statistics released Wednesday, but stocks of gasoline and distillate fuel oil experienced a draw down.

The Department of Energy''s Energy Information Administration revealed that crude oil inventories rose by 1.3 million barrels for the week ended December 16, climbing to 322.5 million barrels from the prior week''s level of 321.2 million barrels. This followed an advance of 900,000 barrels in the previous week. Oil inventories were 12.4% higher than their levels of the same time last year.

Gasoline inventories also posted a week-over-week decline of 300,000 barrels, the government said, compared to the previous week''s 1.8-million-barrel advance. Gasoline stocks were 4.8% below their levels of last year. Inventories of distillate fuel oil fell by 2.8 million barrels in the most recent week.

Wednesday morning, the Department of Commerce released its final report on third quarter gross domestic product, showing that GDP growth was downwardly revised. The downward revision came as a surprise to economists.

The report showed that third quarter GDP rose at an annual rate of 4.1 percent, down from the previous estimate of 4.3 percent, although still above the 3.3 percent growth seen in the second quarter. Economists had expected third quarter GDP growth to be unrevised.

The Commerce Dept. said that the lower than previously reported growth reflected a downward revision to consumer spending for durable goods as well as several other smaller downward revisions that were partly offset by an upward revision to exports of services.

Despite the downward revision, the third quarter GDP growth remained the strongest rate of growth since the first quarter of 2004. The growth reflected strong consumer spending, equipment and software spending, federal government spending, and residential fixed investment.

However, the report also showed that the index of consumer prices excluding food and energy rose 1.4 percent in the third quarter, an upward revision from the previous estimate of 1.2 percent growth. The price growth still remained below the 1.7 percent increase seen in the second quarter.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished largely in the positive, led by the Nikkei which hit a fresh five-year high of 2.02% to 15,957.57, boosted by exporter issues like Honda Motor and other strong sectors, including the real estate sector with Mitsubishi Estates in the lead. Across the region, South Korea’s Kospi rose 1%, Hong Kong’s Hang Seng advanced 0.5%, and Sydney All Ordinaries climbed 0.9%.

European stocks closed higher, lifted by strong energy and metals stocks, corporate news from Philips Electronics, and strong U.S. markets start. The German DAX 30 rose 0.5%, the French CAC 40 gained 0.7%, and London’s FTSE 100 gained 0.6%.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $58 a barrel on petroleum report, which showed an increase in oil inventories but decline in distillate fuels. Light sweet crude for January delivery gained 6 cents to $58.15 a barrel on the Nymex. Heating oil traded at $1.5110. Gasoline traded at $1.7258. Natural gas rose 21 cents to $13.870 per 1,000 cubic feet.

Gold prices declined in European trading. In London gold closed at $493.60, down from $502.10 per troy ounce. In Zurich the precious metal fell to $492.10 from $507.35. In Hong Kong gold fell $12 to close at $493.95. Silver closed at $8.29, down from $8.51.

The U.S. dollar advanced against its major counterparts in European trading. The euro was quoted at $1.1817, down from $1.1863. The dollar bought 117.42 yen, down from 117.06. The British pound traded at $1.7412, down from $1.7541.

EARNINGS NEWS

Actuant Corp. ((ATU)), diversified industrial company, posted Q1 net profit of 70 cents a share, up from 62 cents a share in the year-earlier period, topping analyst expectations of 66 cents a share. Sales climbed 42%, boosted by acquisitions. On a same-business basis, sales were flat after falling 5% the year earlier.

ATI Technologies ((ATYT)), maker of graphics card, reported an 88% decline in profit. Adjusted earnings per share of 10 cents fell from 28 cents a year ago despite revenue growth to beat analyst forecasts for earnings of 4 cents a share.

Palm Inc. ((PALM)), maker of handheld devices, reported its fiscal Q2 net profit soared to $5.02 a share, up from 48 cents a share in the year-earlier period as it booked a tax-related gain and revenue climbed 18%. The results topped analysts'' estimates and the company issued an upbeat outlook for the current quarter. If not for the tax benefit and other items, earnings would have been 47 cents a share, down from 53 cents a share. Analysts expected the company to post a profit before items of 43 cents a share.

Nike Inc. ((NKE)), athletic footwear and apparel company, reported that Q2 profit advanced 15% to $1.14 a share, up from 97 cents in the year-ago period. Earnings beat analysts'' estimate by 11 cents a share. Revenue rose 10% from the comparable period. Strong sales and higher margins at its Nike brand businesses in the U.S. and the Americas drove the better-than-expected earnings.

Jabil Circuit Inc. ((JBL)), electronic systems company, reported a Q1 profit of 37 cents a share, up from 27 cents a share in the year-ago period on revenue growth. The company posted core earnings of 44 cents share, beating the analysts’ estimates for 42 cents a share.

Joy Global Inc. ((JOYG)), a provider of mining equipment and services, posted a Q4 net income of 45 cents a share, up from 16 cents a share in the year-ago period, in line with the analysts’ expectations. Net sales for Q4 advanced 36%. Coal prices in the U.S. remain strong, particularly in the Powder River Basin. The non-U.S. coal business will increasingly be driven by the emerging markets of China, Russia and India.

ATI Technologies ((ATYT)), maker of graphics card, reported an 88% decline in quarterly profit. Adjusted earnings per share came to 10 cents a share, down from 28 cents a share a year ago despite revenue growth, beating analyst forecasts for earnings of 4 cents a share.

FedEx Corp. ((FDX)), package delivery company, reported Q2 earnings of $1.53 a share, up from a profit of $1.15 a share a year-ago on 10% revenue growth, beating analyst estimate of $1.40 a share. The company stated it saw a sharp improvement in its operating margins to 9.8% from 8.2% a year ago due to strong customer demand and a disciplined pricing approach.

CarMax Inc., ((KMX)), car seller, reported Q3 earnings of 25 cents a share, up from a profit of 17 cents a share in the year-ago period on 17% sales growth, topping analyst estimate of 21 cents a share. The latest results include a gain of 3 cents a share related to the company''s Auto Finance operations. The company also said it will no longer provide a forecast of its financial outlook on a quarterly basis. Instead, it will only provide an estimate of same-store used unit sales and earnings per share for the full year.