GDP Growth at 3.8 - Market Update

Market Update Analysis:

GDP Growth at 3.8%

Author: Elena Todorova
123jump.com
Last Update: 2:10 PM EDT October 29 2005

The U.S. Commerce Department revealed that Gross Domestic Product for the third quarter grew at an annual rate of 3.8%, an acceleration from the 3.3% growth rate shown during the previous 3-month period, and above expectations of 3.6% increase. Personal consumption expenditures climbed by 3.7% in the third quarter, the government said, an acceleration from the 3.3% growth recorded in the previous period.

U.S. MARKET AVERAGES

Better-than-anticipated growth of Gross Domestic Product in the third quarter sent the three major averages higher with the Dow and S&P climbing 1.7%, and the Nasdaq rising 1.3%.The Commerce Department said economic activity expanded 3.8% in the July-September quarter, beating economists' forecast for 3.6% and rising over the 3.3% increase in the second quarter. The upbeat news brought a great relief to the market, signaling that the economy is strong enough to withstand the destructive impact of hurricanes Katrina and Rita.

The airline sector has expanded earlier advance and is now rallying 3.7%. The natural gas space has rebounded from yesterday’s weakness and is currently higher by about 2%. The retail and computer hardware sectors continue posting considerable gains.

Among the gaining stocks of the day, GlaxoSmithKline (GSK: chart) is setting a 52-week high, adding gains to yesterday’s jump on upbeat earnings report. Express Scripts (ESRX: chart) is also adding to Thursday''s earnings-inspired advance, expanding its peak.

Among the distingushed losers of the day Bristol-Myers (BMY: chart) has dropped to a new 52-week low on disappointing quarterly results. Maxim Integrated Products (MXIM: chart) and International Rectifier (IRF: chart) have also declined on earnings news. News Corp. (NWS: chart) has edged further lower, adding to its recent losses.

On the earnings front, Microsoft posted fiscal first-quarter earnings rise of 24% on strong demand, but lowered guidance. Baker Hughes Inc., oil services company, said third-quarter net profit rose 61% on price increases, productivity improvements, and a lower effective tax rate. Bristol-Myers Squibb, drug maker, reported Q3 27% net income increase, but adjusted earnings missed estimates. The company lowered its full-year outlook.Overseas, Deutsche Bank reported a 46% rise in net income during the third quarter on sales and trading revenue, as well as growing mutual fund sales in Germany

MOVERS AND SHAKERS

Software giant Microsoft (MSFT: chart) reported a 24% increase in first-quarter profit, although it issued lower estimates. The company announced that profit for the three months ended September 30 increased to $3.14 billion, up from $2.53 billion for the same period a year ago. This year''s earnings include a charge of $361 million connected to the company’s legal settlement with RealNetworks Inc. (RNWK: chart). Microsoft stock jumped 0.5%.

KLA-Tencor’s (KLAC: chart) announced earnings and revenue outlooks that were lower than expectations. The company’s shares fell 5.4%.

ECONOMIC NEWS

Even with the impact of Hurricanes Katrina and Rita during the period, economic growth accelerated during the third quarter, according to government data released Friday.

The U.S. Commerce Department revealed that Gross Domestic Product, a broad measure of the economy, grew at an annual rate of 3.8% in the July-to-September quarter. This was an acceleration from the 3.3% growth rate shown during the previous 3-month period.

The government reported that a pick up in personal consumption expenditures and in federal government spending contributed to the acceleration of GDP growth, as did a smaller decrease in private inventory investment. These factors were partially offset by decelerations in exports, in residential fixed investment, and in state and local government spending.

Personal consumption expenditures climbed by 3.7% in the third quarter, the government said, an acceleration from the 3.3% growth recorded in the previous period. However, excluding the volatile food and energy sectors, personal consumption expenditures advanced by just 1.3%, a decline compared to the second quarter''s 1.7% growth rate.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed broadly down with the Nikkei falling 0.5% on disappointing industrial production report, showing 0.2% output increase versus expectations of a 2% growth. The other regional markets finished the session with heavy losses. South Korea’s Kospi dropped 2.2%, Hong Kong’s Hang Seng declined 1.2%, and Australia’s All Ordinaries lost 1.1%.

European markets rebounded from mid-day losses to close mostly higher, supported by stronger U.S. equity markets and gains from Deutsche Bank and GlaxoSmithKline. The German DAX 30 gained 0.4%, the French CAC 40 finished flat, and London’s FTSE 100 climbed 0.7%.

ENERGY, METALS, CURRENCIES

Crude oil prices steadied slightly over $61 a barrel on winter season worries. Light sweet crude December contract fell 7 cents to $61.02 a barrel on the Nymex. Heating oil fell marginally to $1.8529 a gallon. Gasoline inched down to $1.5900. London Brent lost 16 cents to $59.

Gold futures closed mixed in European trading. In London gold closed at $470.30 per troy ounce, down from $472.80. In Zurich it traded at $473.35, up from $473.15. In Hong Kong the precious metal rose 40 cents to close at $474.05. Silver closed at $7.70, up from $7.80.

In European trading the U.S. dollar gained ground against its major counterparts. The euro was quoted at $1.2104, down from $1.2143. The dollar changed hands at 115.46 yen, up from 115.31. The British pound was trading at $1.7783, down from $1.7843.

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