Oil Prices Climb

Elena
12 Jan, 2006
New York City

U.S. stocks traded lower Thursday morning on rising oil and downgrades of Dow components Coca-Cola and J.P. Morgan Chase. Investors preferred consolidating recent gains to taking advantage of the upbeat economic news released. Trade deficit in November declined by 5.7% to $64.2B after hitting a record of $68.1B in October. Economists had expected a narrower deficit of $66 B. The number of initial jobless claims rose by 17,000 last week to 309,000 vs. expectations of an increase by 24,000.

U.S. MARKET AVERAGES

U.S. stock averages traded lower Thursday on rising oil prices and brokerage downgrades of Dow industrials components Coca-Cola and J.P. Morgan Chase, but market's decline came as no surprise after the major indexes reached new 4 1/2-year highs Wednesday for the second time in a week, and the urge to consolidate those gains overcame good economic news.

The Commerce Department reported that the trade deficit declined by 5.7% in November to $64.2 billion after hitting a record of $68.1 billion in October. Economists had expected a narrower deficit of $66 billion.

In other economic news, the Labor Department reported that the number of initial jobless claims rose by 17,000 last week to total 309,000. Economists had been expecting an increase of 24,000. The figures indicate continued strength in the labor market.

Goldman Sachs downgraded The Coca-Cola Co. to in-line from outperform and cut Anheuser-Busch Cos. to underperform from in-line.

Dow component J.P. Morgan Chase was downgraded to market perform from outperform by Piper Jaffray, as the broker believes healthy capital markets and synergies from its merger with Bank One are fully figured into the shares.

U.S. crude oil futures for February delivery rose more than $1, on fears of supply disruption amid escalating tension over Iran's resumption of nuclear work.

The airline sector continued to move to the downside, adding to losses posted in earlier trading. The housing sector also extended losses on profit taking.

Energy stocks have resumed thier advance as oil prices jumped on fears of a possible conflict with Iran with the oil sector up about 1.6%. The disk drive sector was an outstanding gainer with a gain of about 1.6%.

Apple ((AAPL)) extended its 52-week high on continuous gains. SanDisk ((SNDK)) and AMD ((AMD)) built on their peaks as well. Identix ((IDNX)) broke to a fresh peak on a deal to merge with Viisage Technology ((VISGD)).

Trans World Entertainment ((TWMC)) added to recent weakness to set a new low.

In midday trading, the Dow Jones industrial average fell 35.23, or 0.32%. The Standard & Poor''s 500 index lost 1.70, or 0.13%, and the Nasdaq composite index dropped 1.88, or 0.08%.

Bonds edged up on news of the narrowing trade gap, with the yield on the 10-year Treasury note falling to 4.44% from 4.45% late Wednesday

MOVERS AND SHAKERS

Apple Computer ((AAPL)) was upgraded to outperform from peer perform at Bear Stearns, citing an improved revenue and earnings growth rate, reduced risks for transition to Intel and an increased clarity into new product. Analyst Andrew Neff established a year-end stock price target of $105, and raised his 2006 earnings estimate to $2.53 a share from $2.12 and his 2007 forecast to $3.14 a share from $2.42, due to a less-than-expected seasonal decline iPod sales in the fiscal second quarter and an earlier-than-anticipated transition to Intel. Apple’s shares rose 2.5%.

Alliance Capital Management Holding L.P ((AC)) and Alliance Capital Management L.P. said that Q4 earnings of Alliance Holding may approach or slightly exceed $1 per unit vs. earlier guidance of 75 cents to 90 cents per unit on higher base fee revenues attributable to strong investment performance and net inflows, and performance fees approximately 6 cents per unit above the high end of earlier expectations. The stock rose 5.7%.

France Telecom ((FTE)) was downgraded by both Morgan Stanley and Goldman Sachs following the company''s warning on sales growth. The stock fell 1.6%.

D.R. Horton ((DHI)) board approved a 10-cent a share increase in the homebuilder''s quarterly dividend. The dividend represents an 11.1% increase over the previous 9-cent cash payout. The company’s shares lost 1.3%.

ECONOMIC NEWS

Before the start of trading on Thursday, the Department of Commerce released its report on the U.S. trade deficit in the month of November. The report showed that the trade deficit narrowed more than economists had expected.

The Commerce Dept. said that the trade deficit narrowed to $64.2 billion in November from a revised $68.1 billion in October. Economists had expected the deficit to come in at $66.0 billion compared to the deficit of $68.9 billion originally reported for October.

The narrower trade deficit came as the value of exports rose while the value of imports fell. The report showed that exports rose 1.8 percent to $109.3 billion in November, while imports fell 1.1 percent to $173.5 billion.

The increase in the value of exports reflected a rise in exports of goods, particularly capital goods, consumer goods, and industrial supplies and materials. At the same time, imports of goods fell, reflecting decreases in imports of industrial supplies and materials and consumer goods.

Despite the decrease in November, the trade deficit for the first 11 months of 2005 came in at $661.8 billion compared to the annual record of $617.6 billion in 2004. Economists expect that the annual deficit for 2005 will top $700 billion.

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended January 7. The report showed that jobless claims increased compared to a significantly downwardly revised reading for the previous week.

The report showed the jobless claims rose to 309,000 from the previous week''s revised figure of 292,000. Economists had been expecting jobless claims to come in at 325,000 compared to the 318,000 originally reported for the previous week.

The Labor Department also said that 4-week moving average fell to 311,500 from the previous week''s revised average of 317,000. This marked the second consecutive decline for the moving average, which fell to a 5-month low.

The report also showed that continuing claims rose to 2.702 million in the week ended December 31 from the preceding week''s revised level of 2.690 million.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks rallied on strong technology shares, lifted by analyst upgrades and corporate news. China’s Shanghai Composite was the outstanding leader among gainers, surging 1.3% to 1,226.704. The Nikkei hit a new five-year high of 0.5% to 16,445.19, followed by South Korea’s Kospi, up 0.6%, and Hong Kong’s Hang Seng rising for the eighth consecutive session with a gain of 0.4%.

European stocks declined on weak telecom stocks, hurt by warning from France Telecom of worse-than-expected sales growth in 2006. The broader market remained steady as the European Central Bank left interest rates on hold at 4.5%. The German DAX 30 fell 0.1%, the CAC 40 slipped 0.2%, while London’s FTSE 100 was steady at 0.03% on stronger oil stocks.

OIL, METALS, CURRENCIES

Crude oil prices neared a three-month high on supply concerns as tension over Iran’s nuclear ambitions increased. Light sweet crude for February delivery gained 96 cents to $64.90 a barrel. Heating oil gained 2 cents to $1.7493 a gallon. Gasoline climbed 2.5 cents to $1.7576. Natural gas gained 4 cents to $9.254 per 1,000 cubic feet. London Brent rose $1.01 to $63.18.

Gold prices retreated from $550 levels as investors locked in gains. Gold for February delivery dropped $3.10 to $547 per troy ounce. March silver slipped 9 cents to $9.005. Copper for March delivery lost over a cent to $2.082 a pound.

The U.S. dollar gained against the euro as the European Central Bank left interest rates unchanged and U.S. economic data showed narrower trade deficit in November. The euro was quoted at $1.2035, down from $1.2136. The dollar bought 114.04 yen, down from 114.75. The British pound stood at $1.7624, down from $1.7645.

EARNINGS NEWS

LG.Philips LCD Co., ((LPL)), reported that Q4 profit surged to 328 billion won (US$337 million; euro277 million), up from 35 billion won (US$36 million; euro30 million) from a year earlier on strong demand for liquid crystal displays used in televisions. The result was above analysts’ expectations of a net profit of 291.4 billion won (US$299 million; euro246 million).

RadioShack Corp, ((RSH)), consumer electronics retailer, announced Q4 total sales of $1.67 billion versus total sales of $1.59 billion for Q4 in the year-ago period, an increase of 5%. RadioShack''s quarterly comparable store sales grew by 4%.

Fortune Diversified Industries Inc., ((FFI)), telecommunications and human-resources consulting company, reported Q1 net income advanced 20% to 8 cents a share, up from 7 cents a share in the year-ago period on 45% higher revenue. The business-solutions segment, which includes the HR business, was particularly strong in the period.

Schiff Nutrition International Inc., ((WNI)), producer of vitamins and nutritional supplements, reported that Q2 net income fell 56% to 6 cents a share, down from 13 cents in the year-ago period on 20% lower sales. Sales dropped to $35.5 million from $44.3 million. Sales fell as some private-label lines were discontinued and branded-product sales declined.

MGIC Investment Corp. ((MTG)), mortgage insurance company, reported Q4 net income of $1.44 per share, up 3.6% from $1.39 in the same period last year. Q4 total revenues were $370.9 million, down 8.0 % from the comparable period last year. The decline in revenues resulted from a 8.2 % decrease in net premiums earned to $305.1 million. Net premiums written for the quarter were $316.7 million, down from $336.4 million in Q4 last year, a decrease of 5.9 %.

CORPORATE NEWS

Guidant ((GDT)) revealed that it reached a new deal to be acquired by Johnson & Johnson ((JNJ)) as it offered a higher value of $23.2 billion, an increase compared to J&J''s previous bid, but still below the $25 billion offered by Boston Scientific ((BSX)).