Weaker-Than-Expected PPI Energizing Stocks

The PPI gained 0.2% in July, against a forecast of 0.3% in the <I>Reuters</I> poll.

Author:: Thomas Lepri
Publish date:: Aug 13, 1999 9:20 AM EDT

A weaker-than-expected July

Producer Price Index

is putting a shine on stocks this morning.

The PPI gained 0.2% in July, against a forecast of 0.3% in the

Reuters

poll. The core rate, which excludes the food and energy sectors, was flat. Economists had expected a gain of 0.1%.

Treasuries and stock futures jumped on the report and its suggestion that the

Fed

may not tighten beyond the expected 25-basis-point hike at its Aug. 24 meeting.

The question on everybody's mind, though, is whether today's opening rally will hold.

"At first glance, it looks very good," said Paul Rich, a trader at

BT Brokerage

. "Anything at this point will help this market. I kind of think we will sustain it."

Rich said he remains skeptical as to whether Tuesday's selloff might have signaled a bottom, though. "I haven't seen a lot of independent selling -- the selling has been very orderly, not panicky, so I don't see it bottoming yet," he said.

"But a couple of anti-inflationary reports like this, and we'll be in great shape," Rich continued. "We'll see this thing take off like a rocket."

At 9 a.m., the

S&P 500

futures were up 11.3, putting them nearly 13 points above fair value and indicating a strong open. The 30-year Treasury was lately up 24/32 to 99 28/32, putting the yield at 6.13%.

While looking westward to today's PPI, Tokyo markets were greeted by an upward revision of Japan's January-March GDP growth rate, to 2% from the initial 1.9%. The news wasn't totally unexpected,

Economic Planning Agency

boss Taichi Sakaiya having said Tuesday that the revision could go either up or down. The report sent the yen higher against the greenback, muting any buying the revised data might have inspired, as investors sold export-oriented stocks. The Nikkei gained 12.20 to 17,435.17.

The

Bank of Japan

said it will stick to the easy-money policy it formulated on Feb. 12, which means trying to keep the unsecured overnight call rate as low as possible. That's meant a rate of about 0.03% since early April.

For the first time in a while, Sino-Taiwan tensions and worries over a possible devaluation of the yuan are not the reasons being given for the latest decline in Hong Kong stocks. The

Hang Seng

fell 171.57, or 1.4%, to 12,608.18 after

Morgan Stanley Capital International

said it would rebalance its benchmark international indices. If the rebalancing happened today, Hong Kong's weighting would fall to about 26% from the current 33%, according to an MSCI executive director, John Fildes.

After opening flat to lower, the big European bourses were running up on the friendly PPI number. London's

FTSE

was up 29.3 to 6182.6, while the Paris

CAC

was up 44.67, or 1%, to 4410.33. Frankfurt's

Xetra Dax

was up 64.25, or 1.3%, to 5191.68.

Friday's Wake-Up Watchlist

Brian Louis

Staff Reporter

Mergers, acquisitions and joint ventures

Disney

(DIS) - Get Report

will sell its

Fairchild Publications

magazine division, which includes

Women's Wear Daily

Los Angeles

and

Jane

magazines, as well as many trade publications,

The New York Times

reported, citing execs involved in the deal. There are two bidders for the titles:

Conde Nast Publications

and

Hearst Magazines

. S.I. Newhouse Jr., the chairman of Conde Nast, has offered $650 million for the Fairchild group, the

Times

reported, citing the Disney exec.

Falcon Building Products

is selling its air power tools division,

DeVilbiss Air Power

, to

Pentair

(PNR) - Get Report

for $460 million.

Lucent

(LU)

is buying

Xedia

, a privately held developer of Internet access routers for wide-area networks, for about $246 million in stock.

Two top execs of a proposed three-way aluminum merger refused to rule out a potential counterbid for

Reynolds Metals

(RLM) - Get Report

, for which

Alcoa

(AA) - Get Report

bid earlier this week,

Reuters

reported. The execs were from Canada's

Alcan

(AL) - Get Report

and France's

Pechiney

(PY) - Get Report

. Alcan, Pechiney and

Alusuisse Lonza

earlier this week set a three-way merger.

Time Warner

(TWX)

and

Advance Publications

have suspended plans for a television network aimed at women, only two months after announcing an ambitious strategy to combine their cable assets and women's content,

The Wall Street Journal

reported.

Earnings/revenue reports and previews

The world's largest household appliance maker, Sweden's

Electrolux

(ELUX)

, forecast higher 1999 profits.

Analyst actions

PaineWebber

upgraded

Flagstar Bancorp

(FLGS)

to buy from attractive.

PaineWebber upgraded

KeySpan

(KSE)

attractive from neutral.

Lehman Brothers

upgraded

Philips Electronics

(PHG) - Get Report

to buy from outperform.

Merrill Lynch

downgraded

Stewart Enterprises

(STEI)

to near-term neutral from near-term accumulate and the firm downgraded it to long-term accumulate from long-term buy. After the close Stewart warned it expects to earn 25 cents to 27 cents a share in the third quarter, lower than the current three-analyst estimate of 29 cents a share; and 17 to 19 cents a share in the fourth quarter, below the current nine-analyst estimate of 25 cents a share.

PaineWebber downgraded

Teligent

(TGNT)

to attractive from buy.