Core PPI Falls Short of Expectations, Lifting Stocks
A softer-than-expected core
has stocks poised to go higher this morning.
Increased energy prices helped drive the headline PPI up 0.5% in August, exceeding the 0.3% increase forecast by economists polled by
Reuters
. But the core rate, which excludes food and energy costs, unexpectedly declined by 0.1%. Economists had expected a 0.1% gain.
Stock futures and bonds were higher on the news. At 9:15 a.m., the
S&P 500
futures were up 14.7, about 10 points above fair value and indicating a big jump at the open. The 30-year Treasury was up 17/32 to 101, its yield falling to 6.052%.
The market needed this sort of reassurance from the core rate, despite the growing conventional wisdom that rates aren't going any higher this year. (Twenty-three of the 30 primary dealers of government debt polled by
Reuters
think the
Fed
won't move until 2000.) Since the Aug. 24 rate hike, weakness in Treasuries and financial stocks, along with the strength of energy stocks, suggests that investors are still very nervous about inflation.
"It looks great," said Paul Rich, a trader
BT Brokerage
TheStreet Recommends
. "We've been stuck in a trading range for so long. I don't necessarily think
the PPI will take us out of that trading range, but today it looks great."
Technology was already looking very strong in premarket trading. And the buzz over a possible earnings shortfall at
Chase
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, notwithstanding, the financial sector should rebound nicely from its recent swoon, Rich said.
The banks can't but be helped by the developments overnight in Tokyo, where the
Bank of Japan
finally gave foreign-exchange markets what they'd been expecting for so long. Prompted by the upward pressure that yesterday's stronger-than-expected
gross domestic product
report had on the yen, the BOJ intervened, spending an estimated $2 billion to buy dollars and sell yen. Finance Minister
Kiichi Miyazawa
confirmed that Japanese authorities took action.
More a case of brake-tapping than of drastic currency manipulation, the intervention wasn't able to curb hot demand for yen. The BOJ brought the dollar up to 110 yen, but the greenback subsequently fell back below the 109 level, and was lately quoted at 109.25 yen.
The yen's late resurgence cut into an early surge in Tokyo stocks. The
Nikkei
finally closed up 33.46 to 17,711.02.
In Hong Kong, stocks were relatively flat -- not at all a bad thing to be after the
Hang Seng's
3.7% advance yesterday. The benchmark index held onto the previous session's gains nicely, inching forward 1.05 to 13,855.93 after running into resistance at the 14,000 level. Optimism over China's bid to enter the
World Trade Organization
may have helped ward off profit-taking;
President Clinton
will meet this weekend with Chinese President
Jiang Zemin
at the
Asia-Pacific Economic Cooperation
summit in New Zealand.
Indonesian stocks rebounded sharply despite massing hostility from the international community over its handling of the crisis in East Timor, including the U.S.' suspension of military ties with Indonesia and an Australian boycott of Indonesian wheat.
The
Jakarta Stock Exchange
composite index gained 17.36, or 3.2%, to 555.38. Sentiment may have been boosted by a growing sense that the violence in East Timor may be ready to subside, though reports of the militia's terrorization of East Timorese civilians continue to filter out.
European markets were surging toward midday in the wake of the PPI. The Paris
CAC
was up 47.29, or 1%, to 4764.71, while Frankfurt's
Xetra Dax
was up 74.15, or 1.4%, to 5511.01. In London, the
FTSE
was up 17.4 to 6278.0.
Friday's Wake-Up Watchlist
By
Tara Murphy
Staff Reporter
Mergers, Acquisitions and Joint Ventures
An investment group lead by
Broadcom
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President and CEO Henry T. Nicholas III are reportedly close to inking a letter of intent to acquire the
Anaheim Angels
and
Mighty Ducks
from
Disney
(DIS)
for between $400 million to $500 million,
The New York Times
reported.
Illinois Tool Works
(ITW)
hammered out an agreement to acquire
Premark International
(PMI)
in a $3.4 billion deal. Under the agreement, shareholders of Premark, a commercial food-equipment maker, will receive ITW stock with a market value of $55 for each Premark share. But the amount may vary, based on ITW's average share price in the 20 trading days before closing. Deerfield, Ill.-based Premark will become a wholly owned subsidiary of ITW.
Old Kent Financial
undefined
announced its plans to buy
Grand Premier Financial
undefined
in a deal valued at $394 million. Old Kent said it would assume a one-time charge of $30 million.
Merrill Lynch
(MER)
unveiled plans to take a 14.3% interest in the electronic trading system,
Archipelago Holdings
, which will start transacting orders in Big Board-listed stocks,
The Wall Street Journal
reported.
Earnings/Revenue Reports and Previews
GenCorp
(GY)
posted third-quarter earnings of 53 cents a share, beating both the five-analyst estimate of 52 cents and the year-ago 42 cents.
National Semiconductor
(NSM)
reported a first-quarter profit of $57 million, or 25 cents a share, including a gain. The profit for the quarter ended Aug. 29 put the Santa Clara, Calif., chip concern ahead of schedule in returning to the black and reversed the year-ago loss of 63 cents a share. The 19-analyst estimate called for a loss of 14 cents a share. National Semi didn't release per-share figures excluding the gain, but said pretax profit excluding the gain was $1.2 million.
Analyst Actions
Wachovia Securities
rolled out coverage of
eBay
(EBAY)
with a long-term buy rating and a price target of 208.
ING Barings
cut its rating on
HealthSouth
(HRC)
to a hold from a buy. Yesterday, the company said it decided not to spin off its inpatient operations to shareholders and would instead keep its divisions under one business. HealthSouth also announced plans to restructure management at its outpatient services, a move that will result in charges of between $250 million and $300 million by the end of the year.
J.P. Morgan
also sliced its rating on the shares to a long-term buy from a buy.
ABN Amro
raised its price target on Illinois Tool to 100 from 93 and maintained its buy rating on the stock.
Morgan Stanley Dean Witter
raised its rating on
MidAmerican Energy
(MEC)
to outperform from neutral.
PaineWebber
upped its rating on
TC Pipeline
undefined
to a buy from an attractive.
PaineWebber cut its rating on
Tosco
undefined
at attractive from a buy.
PaineWebber lowered its rating on
Ultramar Diamond
undefined
to a neutral from an attractive.
Donaldson Lufkin & Jenrette
upped its rating on
Union Pacific
(UNP)
to a buy from an accumulate.
Warburg Dillon Read
upped its rating on
Veritas
undefined
to buy from hold and set a price target of 28. The stock closed Thursday at 21.
Offerings and Stock Actions
Children's Place
(PLCE)
said it iced plans for a 3 million-share offering by selling stockholders, citing a drop in its share price.
Miscellany
Leasing Solutions
undefined
said it would be delisted from the
New York Stock Exchange
if it fails to meet the NYSE listing requirements.
Law enforcement officials said wire transfer company
Torfinex
, which is connected to the
Bank of New York
(BK)
money-laundering investigation, seems to have operated illegally in the U.S., channeling millions of dollars out of Russia,
The Wall Street Journal
reported.
Hechinger
, a home-improvement retailer, said it plans to liquidate its business rather than reorganize,
The Wall Street Journal
reported.
