U.S., World Markets on the Edge

Arthi Gupta, Mayank Mehta and Sanjay Barot
25 May, 2010
New York City

Global and U.S. stocks plunge after the IMF warns of financial conditions in Spain and rising tensions in Korean peninsula. Commodities and crude oil dropped sharply. US, China pledge economic cooperation.

[R]9:35 AM New York – Global and U.S. stocks plunge after the IMF warns of financial conditions in Spain and rising tensions in Korean peninsula. Commodities and crude oil dropped sharply. US, China pledge economic cooperation.[/R]

U.S. indexes open sharply lower after markets in Asia drop more than 2% and in Europe trade as low as 3.5% on the rising tensions in the Korean peninsula.

The markets in Asia and Europe plunged sharply following IMF''s warning about Spain''s financial condition and four banks merged in Spain as the banking industry consolidates on the mounting losses.

Investors were jittery following the news that North Korean Premier Kim Jong-Il ordered the military to be prepared for action after South Korea alleged that its neighbor was responsible for the sinking of its warship. Moreover, lingering concerns about European debt worries and the prospect of the Greek debt contagion spreading to Spain and Portugal remain in focus.

The International Monetary Fund warned Spain that it faces major challenges and the economy needs ""far-reaching and comprehensive reforms"" to ensure its recovery.

European Union leaders warned today that the continent''s economy would stagnate unless governments make major reforms to promote growth. Large debts in some countries make it difficult to implement stimulus measures to revive economies.

The worsening European debt crisis “may limit the pace of the global recovery,” Adam Posen, a member of the Bank of England’s Monetary Policy Committee said in a speech yesterday.

Chinese President Hu Jintao called Monday for close coordination with the United States on global issues, while renewing his request to Washington to respect its core interests and major concerns on sensitive issues, including those on Taiwan and Tibet.

U.S. Treasury Secretary Timothy Geithner on Tuesday welcomed a pledge by China''s top leaders to pursue currency reform as part of a broader agenda aimed at boosting domestic consumption and helping rebalance global growth.

In a statement at the close of a two-day Strategic and Economic Dialogue, Geithner said letting markets have more sway on currency values will benefit China by giving it more tools to keep inflation contained.

He also cited progress in persuading Beijing to let U.S. firms compete more equally in Chinese markets. Geithner said the U.S. would press for greater accessibility to China''s markets for American products. China, for its part, called for easing restrictions on the import of high-tech American equipment.

Four regional savings banks in Spain have announced to merge operations to form a single group worth around €135 billion in assets.

The merger deal, which includes Caja de Ahorros de Mediterraneo, Cajastur, Caja de Extremadura and Caja Cantabria, is intended to consolidate the finances of the banks involved.

The euro hit a four-year low to $1.2192 on the euro-zone debt crisis.

Apparel maker Phillips-Van Heusen Corp. said that it slipped to a first quarter loss, hurt by costs related to its recent acquisition of Tommy Hilfiger. However, the company''s quarterly earnings per share, excluding items, came in above analysts'' expectations. The company also raised its full year revenue and non-GAAP earnings outlook.

Filtration systems maker Donaldson Co. Inc. said that its third-quarter profit surged by 85.9% over last year, driven by higher sales, and strong margin.

AutoZone Inc. said its third quarter net income rose on strong sales of automotive replacement parts and several new store openings.

Commodities, Currencies and Yields

Dollar edged higher against euro to $1.2196 and decreased against the Japanese yen to 89.37.

Crude oil decreased $2.49 to $67.72 a barrel for a front month contract, natural gas edged lower $0.01 cent to $4.00 per mBtu and gasoline decreased 5.480 cents to 191.60 cents.

Gold decreased $1.60 in New York trading to close at $1,192.40 per ounce, silver closed lower $0.245 to $17.67 per ounce and copper for the front month delivery decreased 8.450 cents to $3.03 per pound.

Yields on 10-year U.S. bonds increased to 3.09% and on 30-year U.S. bonds traded at 3.99%.

Stock Movers

AAR Corp., the aircraft parts and maintenance provider plunged 10.7%.

Neurocrine Biosciences, Inc. surged 48.3% after the drug company announced positive results from its Phase III study for the treatment of endometriosis.

Phillips-Van Heusen Corporation, the apparel maker declined 3.7%.

Sun Healthcare Group, Inc. rose 3.0% after the care provider today announced that it intends to separate the company into two separate publicly traded companies.

Telvent GIT, S.A, the IT company fell 0.7%.

Earnings Review

AutoZone, Inc. ((AZO), the manufacturer of automotive replacement parts reported third quarter sales rose 9.6% to $1.82 billion from $1.66 billion a year ago. Net income in the quarter rose 16.7% to $202.7 million or $4.12 per diluted share compared to net income of $173.7 million or $3.13 per share a year ago.

Medtronic, Inc. ((MDT)), the medical-device company reported fourth quarter sales rose 9.7% to $4.2 billion from $3.83 billion a year ago. Net income in the quarter rose 826% to $954.0 million or 86 cents per diluted share compared to net income of $103.0 million or 9 cents per share a year ago.

Phillips-Van Heusen Corporation ((PVH)), the apparel maker said first quarter revenues rose 11% to $619.0 million from $557.4 million a year ago. Net loss in the quarter was $27.6 million or 53 cents per diluted share compared to net income of $24.7 million or 48 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 298.51 or 3.06% to 9,459.89, Hang Seng index in Hong Kong decreased 682.26 or 3.47% to 18,985.50 and CSI 300 index in China lower 59.53 or 2.07% to 2,813.94. ASX 200 index in Australia decreased 130.10 or 2.96% to 4,265.30. The FTSE Bursa KL Composite index in Malaysia closed lower 23.56 or 1.85% to 1,250.13.

The Kospi Index in South Korea decreased 44.10 or 2.75% to close at 1,560.83. SET index in Thailand closed lower 23.02 or 3.09% to 721.29 and JSE Index in Indonesia decreased 95.49 or 3.66% to 2,514.12. The Sensex index in India decreased 447.07 or 2.71% to 16,022.48.

Europe Markets Review

In London FTSE 100 Index closed lower 136.72 or 2.70% to 4,932.89, in Paris CAC 40 Index decreased 121.44 or 3.54% to 3,309.49 and in Frankfurt DAX index traded lower 166.22 or 2.86% to 5,639.46. In Zurich trading SMI decreased 133.99 or 2.16% to 6,072.60.