MarketView for August 11

Summary

Stock prices were higher on Monday, sending the three major equity indexes into positive territory once again  as oil prices closed lower for a sixth consecutive day, which in turn pointed towards an increase in both consumer and business spending. The gains built on the market's best week since last April.

The fall in the price of oil helped to add some momentum to the share prices of retailers in advance of quarterly earnings reports from Wal-Mart and others, as well as energy-sensitive airline shares. Goldman Sachs wrote in a note to clients that Wal-Mart may increase its profit forecast.

Apple helped the NASDAQ outperform the Dow Jones industrial average and the S&P 500 after Steve Jobs, Apple’s CEO, told the Wall Street Journal that heavy demand for iPhone software downloads was continuing. According to the article, Jobs indicated that iPhone users had downloaded more than 60 million programs for the device in the month since Apple opened an online software marketplace.

Amazon.com saw its share price gain over 9 percent after Citigroup said the online retailer's Kindle book reader was on track to become one of the top electronics gifts of the 2008 holiday season.

U.S. crude oil futures fell as concerns regarding lower global demand combined with a stronger dollar sent crude oil prices lower, despite the conflict between Russia and Georgia. Yet, crude futures ended off their lows for the session, which helped take the steam out of the stock market's rally in the last hour of trading.

Bank shares were higher overall but lost some ground during the last hour of trading after a Federal Reserve survey showed banks in the United States further tightened their lending standards and terms in all major loan categories, especially for consumer loans, in the past three months amid a weakening economic outlook.

Shares of Ciena rose on word that Morgan Keegan had raised its rating on the telecommunications equipment makers' shares.

Price of Crude Falls Once Again

Oil prices fell on Monday as a drop in crude imports by China outweighed concerns over supply disruptions stemming from the conflict between Russia and Georgia. As a result, domestic crude futures for Sept. delivery settled down 75 cents per barrel at $114.45, after touching a low of $112.72, extending losses that have dragged oil off a record high above $147 a barrel hit on July 11. London Brent crude settled down 66 cents per barrel at $112.67.

China's crude imports unexpectedly fell 7 percent in July to a seven-month low in the steepest monthly drop since January 2005, as refiners balked at soaring crude costs amid lagging domestic fuel prices. The drop in Chinese imports added to wider concerns about demand. Consumption in the United States and other developed economies has fallen due to high fuel prices.

Rising demand from China and other developing economies sent oil on a six-year rally that drove prices up sevenfold to their peak in July. Additional buying support this year came from investors buying oil to hedge against inflation and the weak dollar.

The dollar has been rallying against the euro since last week as investors have reassessed the effect of the U.S. economic slowdown on the rest of the world.

Crude prices have fallen despite the potential for the conflict to disrupt key transportation links for Caspian Sea oil producers, including Azerbaijan and Kazakhstan. Georgia's oil ports of Supsa and Batumi, which export Azeri crude, have reduced shipments while the Georgian port of Poti has been shut. Kazakhstan also stopped shipments of its crude from Batumi.

The cutbacks come after a fire in eastern Turkey on the Baku-Tblisi-Ceyhan pipeline last week halted loadings of Azeri Light crude shipped to the Turkish port of Ceyhan. The blaze was extinguished on Monday and repairs may take one to two weeks, or longer, a source at the pipeline consortium said, forcing BP Plc to cut output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oil fields.

OPEC President Chakib Khelil, speaking on a visit to Iran, urged members of the oil exporters' group to stick to agreed targets on output. Apparently OPEC is overshooting its informal output target, with Saudi Arabia leading the way as a result of a pledge  to meet rising demand and help tame runaway oil prices. The producer group meets on September 9 to decide on future output policy.

UPS Looking To Buy TNT NV

The word on the Street is that United Parcel Service is in talks to buy Dutch rival TNT NV. TNT shares jumped following the comment and an earlier report in Britain's Sunday Telegraph newspaper that UPS was planning a 10 billion euro ($15.2 billion) bid for TNT.

UPS has a market value of $66.26 billion while TNT is valued at about $14.24 billion. TNT shares have swing wildly in July and August, first on talk that FedEx had prepared, and then abandoned, a bid for TNT.

TNT shares have risen 14 percent in the past week on market talk of a UPS bid.

TNT's express delivery unit, which accounts for two-thirds of sales, is seen as the key attraction for its rivals because of its relative resilience in an economic downturn. TNT also has a mail operation in the Netherlands, where it enjoys a partial monopoly.

Word on the Street is that buying TNT would boost UPS and FedEx in Europe, where they are estimated to have 9 and 5 percent market share respectively compared with TNT's 24 percent share.