Oil and Gold Surge

Elena
03 Jan, 2006
New York City

Stocks erased early gains to turn mixed at mid-day on disappointing economic data and oil prices above $63 a barrel. The ISM manufacturing index fell to 54.2 in Dec, less than the 57.5 reading expected by economists and off from a reading of 58.1 in Nov. The Commerce Department reported that construction spending rose 0.2% in Nov, far less than 0.7% gain expected. Bonds moved higher, with the yield on the 10-year Treasury note falling to 4.37% from 4.40%.

U.S. MARKET AVERAGES

U.S. stocks opened sharply higher on upgrades of Johnson & Johnson and Google, but disappointing economic data on the nation's manufacturing sector and a sharp rise in crude oil sent stocks mostly lower. In addition, investors eagerly awaited the FOMC minutes release.

Investors’ fears that rising interest rates will slow down economy were strengthened by two reports pointing to slower economic growth. The ISM’s manufacturing index fell to 54.2 in December, less than the 57.5 reading expected and off from a reading of 58.1 in November, showing growth in the industrial sector but at a slower pace.

In addition, the Commerce Department reported that November construction spending rose 0.2%, far below expectations of 0.7% increase.

Gold miners Goldcorp ((GG)) and Newmont Mining ((NEM)) moved to new 52-week highs. Engelhard ((EC)) broke sharply higher in the mid-morning, reaching a new peak, on news that BASF offered to buy the company for $4.9 billion in cash.

Pilgrim's Pride ((PPC)) dropped to a new 52-week low on lowered quarterly guidance. Overstock.com ((OSTK)) hit a fresh low, adding to recent weakness.

The Dow Jones industrial average fell 14.40, or 0.13%. The Standard & Poor''s 500 index rose 0.06, nearly flat, to 1,248.35, and the Nasdaq composite index lost 8.44, or 0.38%.

Bonds reversed course and moved higher, with the yield on the 10-year Treasury note falling to 4.37% from 4.40% late Friday.

MOVERS AND SHAKERS

BriteSmile ((BSML)) agreed to sell its professional teeth whitening associated centers assets to Discus Dental for $35 million, using the proceeds from the sale to reduce debt, to sell its spa centers business and to continue legal claims. The company’s shares surged 46.7%.

Piper Jaffray lifted its price target on Google ((GOOG)) to $600 from $445, citing a belief that 2006 will be a ‘banner year’ for the company. The stock gained 1.3%.

Pilgrim''s Pride Corp. ((PPC)) lowered its Q1 earnings outlook to a range of 36 to 41 cents a share, citing worse-than-expected performance in its Mexico operations. Analysts, on average, expected the company to post earnings of 82 cents a share. The company said it plans to further restructure its turkey business, and expects to cut 300 jobs. The stock slid 20.4%.

JetBlue ((JBLU)) was downgraded at Merrill Lynch to neutral from buy. The stock dropped 6.7%.

Digitas ((DTAS)) agreed to acquire Medical Broadcasting Co., a privately held provider of healthcare interactive marketing services, for $30.4 million in cash and stock with the deal expected to close in the first quarter. The company said the consideration will consist of $22.4 million in cash and $8 million in Digitas common stock. Digitas hopes the acquisition will add to earnings in 2006. The company’s shares declined by 3.3%.

ECONOMIC NEWS

The Department of Commerce released its report on construction spending in the month of November on Tuesday, showing that spending rose much less than economists had been expecting.

The report showed that construction spending rose 0.2 percent to $1.146 trillion in November from a revised $1.144 trillion in October. While the growth lifted spending to a record high, economists had been expecting an increase of about 0.7 percent.

The Commerce Dept. said that spending on private construction rose 0.2 percent to $892.4 billion in November from a revised $891.0 billion in October. The increase came as non-residential construction spending rose 0.6 percent while residential construction spending was unchanged.

The report also showed that public construction spending rose 0.3 percent to $253.9 billion in November from a revised $253.2 billion in October. Education construction spending rose 1.3 percent while highway construction spending rose 1.6 percent.

Tuesday morning, the Institute for Supply Management released its report on business activity in the manufacturing sector in the month of December, showing that the pace of growth in the sector slowed more than economists had been expecting.

The report showed that the ISM''s purchasing managers index fell to 54.2 in December from 58.1 in November. While a reading above 50 indicates growth in the sector, economists had expected a more modest decline to a reading of 57.5.

The slowdown reflected a decline in the rate of growth of both new orders and production, with the new orders index falling to 55.5 in December from 59.8 in November while the production index fell to 57.0 in December from 60.6 in November.

Growth in employment in the manufacturing sector also slowed in December, as reflected by a decrease by the employment index. The employment index fell to 52.7 in December from 56.6 in November.

The report also showed a significant slowdown in the pace of price growth, with the prices index falling to 63.0 in December from 74.0 in November. The ISM noted that the upward pricing spiral has been a source of continuing concern for manufacturers.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks advanced Tuesday, boosted by economic optimism and continuing momentum in last-year outperforming benchmarks. Taiwan’s Weighted index led the gainers, rising 1.4%, followed by Singapore’s Straits Times, up 0.6% on greater-than-expected GDP Q4 growth. South Korea’s Kospi reversed from early gains to close higher by 0.4% after reaching an all-time high. Japan, China and New Zealand were closed for the New Year holiday.

European stocks jumped sharply higher Tuesday to reach multi-year highs, lifted by oil and gas companies and upbeat German employment data. However, as U.S. markets failed to provide further upward momentum, averages slightly slipped at close. The German DAX 30 rose 0.3%, the French CAC 40 climbed 0.6%, and London’s FTSE 1000 rose 0.8%.The euro gained 1.1 % to $1.1940.

OIL, METALS, CURRENCIES

Crude oil prices rose above $63 a barrel on cold weather and speculative buying. Light sweet crude for February delivery surged $2.03 to $63.05 a barrel. Heating oil gained 5 cents to $1.8185 a gallon. Gasoline added 3 cents to $1.755 a gallon. Natural gas slipped 32 cents to $10.91 per 1,000 cubic feet.

European gold traded higher Tuesday on inflation concerns. In London gold rose to $528.40 per troy ounce, up from $513. In Zurich the precious metal advanced to $528.10 from $516.55. In Hong Kong gold rose $5.40 to close at $519.80. Silver closed at $9.03, up from $8.59.

The U.S. dollar fell against other major currencies. The euro was quoted at $1.1960, up from $1.1828. The dollar bought 116.72 yen, down from 117.78. The British pound traded at $1.7374, up from $1.7179.

EARNINGS NEWS

Watsco, Inc ((WSO)), distributor of air conditioning, heating and refrigeration equipment, has declared regular quarterly cash dividends of 20 cents per share on both its Common Stock and Class B Common Stock. The cash dividends are payable on January 31, 2006 to shareholders of record as of January 13, 2006. Watsco’s goal is to build a national network of locations that provide the finest service and product availability for HVAC contractors, assisting and supporting them as they serve the country''s homeowners and businesses.

Walgreen Co ((WAG)), drugstore chain, announced that Q1 of 2006 profit advanced to 34 cents per share, up from 32 cents per share in the same time last year on strong demand for prescriptions and the growth of higher-margin generic drug sales. The company missed the analysts’ expectations by a penny. Earnings in the most recent quarter were reduced by 2 cents a share for employee stock option expenses.

X-Rite, Inc. ((XRIT)), provider of color measurement solutions, has declared a Q4 cash dividend of 2 1/2 cents per share on its common stock. The dividend is payable February 14, 2006, to shareholders of record at the close of business on January 17, 2006. X-Rite reported 21,235,899 shares outstanding on January 3, 2006.

COORPORATE NEWS

Dow component Johnson & Johnson was upgraded to overweight from neutral by J.P. Morgan, with the broker expecting 2006 guidance to be a positive catalyst for the stock.

J.P. Morgan also upgraded Baxter International Inc. to overweight from neutral. Separately, Baxter agreed to license Innovata's Adept adhesion reduction biomaterial for an undisclosed sum.

Wyeth agreed to develop and market antibody-like drugs from privately-held Trubion Pharmaceuticals in a deal worth up to $800 million. Wyeth, which signed two biotech pacts in December, will pay $40 million upfront with milestones potentially reaching $800 million. Wyeth also agreed to take a stake in Trubion if the company goes public.

Affiliated Computer Services Inc. is reportedly close to selling itself to a consortiumof private equity investors for $8 billion in a deal that may close by the end of the week.