U.S. Stocks Struggle on China Weakness

Arthi Gupta, Mayank Mehta and Sanjay Barot
29 Jun, 2010
New York City

U.S. stocks trade lower after markets in China fell sharply and Asian markets traded lower. Federal Reserve Governor Kevin Warsh said central bank should resist from expanding the balance sheet. Tesla prices its public offering of 13.3 million shares at $17 a share.

[R]9:45 AM New York – U.S. stocks trade lower after markets in China fell sharply and Asian markets traded lower. Federal Reserve Governor Kevin Warsh said central bank should resist from expanding the balance sheet. Tesla prices its public offering of 13.3 million shares at $17 a share.[/R]

U.S. stocks fall after shares plunged in the Shanghai market, Asian markets declined after the Agricultural Bank of China offered shares at lower-than-expected price and weaker economic outlook in China and European markets slumped on funding concerns in the euro-zone.

China''s Shanghai Composite average tumbled 4.27% to a 14-month low after the Conference Board stated that the leading indicators'' index for April, released earlier on June 15, has been revised downwards to a gain of 0.3% against 1.7% growth reported in the earlier report. The private researcher blamed the downward revision on the calculation error.

Federal Reserve Governor Kevin Warsh on Monday warned the central bank against buying up more assets and expanding its already bloated balance sheet.

""Any judgment to expand the balance sheet further should be subject to strict scrutiny,"" Warsh said at an event in Atlanta, Georgia. ""I would want to be convinced that the incremental macroeconomic benefits outweighed any costs owing to erosion of market functioning, perceptions of monetizing indebtedness, crowding-out of private buyers, or loss of central bank credibility.""

Warsh said the Fed''s balance sheet of $2.3 trillion should be considered independently of the policy rate. Warsh said that inflation and long-term inflation expectations remain subdued but that financial conditions had become less supportive of growth. At its latest meeting last week, the Fed held interest rates near zero and guided low interest rate for an ""extended period.""

Tesla Motors, Inc., the electric carmaker announced on Monday that it has priced its initial public offering of 13.30 million common shares at $17.00 per share, above its estimated offering price range. The Palo Alto, California-based company said the shares will begin trading today under the ticker symbol ""TSLA.""

With the revised pricing, the company is now expected to raise an estimated $225 million compared to the $100 million it estimated in late January.

Tesla intends to use a portion of the net proceeds from this offering to fund planned capital expenditures, working capital and other general corporate purposes. The company would also set aside 50% of the net proceeds from this offering and the concurrent private placement proceeds to fund project costs of the anticipated powertrain and Model S manufacturing facilities.

Google Inc.''s Chief Legal Officer David Drummond said today, in its official blog post, that it would end the automatic redirection of Chinese users of Google.cn to its Hong Kong search engine – Google.com.hk. The move is to support the renewal of its Internet Content Provider or ICP license, which is due for renewal on Wednesday.

Google revealed that talks with the Chinese government officials indicated that ICP license will not be renewed, as they found the redirect arrangement unacceptable. The blog noted that without an ICP license, Google cannot operate as a commercial site and it would effectively go dark in China.

According to reports, a departure from China would deprive Google of an estimated $600 million in annual revenues from China''s near 338 million Internet users.

Commodities, Currencies and Yields

Dollar increased against euro to $1.2194 and decreased against the Japanese yen to 88.73.

Crude oil decreased $1.55 to $76.70 a barrel for a front month contract, natural gas edged lower $0.02 cent to $4.71 per mBtu and gasoline decreased 3.830 cents to 209.93 cents.

Gold decreased $0.20 in New York trading to close at $1,238.40 per ounce, silver closed lower $0.093 to $18.62 per ounce and copper for the front month delivery decreased 9.100 cents to $2.99 per pound.

Yields on 10-year U.S. bonds increased to 2.97% and on 30-year U.S. bonds traded at 3.96%.

Stock Movers

Bank of America Corporation fell 1.7% after the bank, along with the two other largest U.S. debit-card issuers Wells Fargo & Co. and JPMorgan Chasse & Co. may lose $1.38 billion in annual revenue from the proposed cap on credit card swipe fees considered by the U.S. Congress, Moody’s Investors Service said in a report today.

ConAgra Foods, Inc. rose 0.3% after the packaged-food company announced today that it has completed the acquisition of the assets of American Pie, LLC.

General Mills, Inc. rose 0.9% after the maker of cereals declared an increase in the quarterly dividend rate to 28 cents per share, payable Aug. 2, 2010, to shareholders of record July 12, 2010.

Earnings Review

Barnes & Noble, Inc. ((BKS)), the electronic reader and e-books seller said fourth quarter sales rose 18% to $1.32 billion from $1.12 billion a year ago. Net loss in the quarter was $32.0 million or 58 cents per diluted share compared to net loss of $2.7 million or 5 cents per share a year ago.

Micron Technology, Inc. ((MU)), the memory chip maker said third quarter sales rose 106.3% to $2.29 billion from $1.11 billion a year ago. Net income in the quarter was $939.0 million or 92 cents per diluted share compared to net loss of $301.0 million or 37 cents per share a year ago.

Standard Microsystems Corporation ((SMSC)), the chipmaker said first quarter sales rose 55.5% to $97.2 million from $62.5 million a year ago. Net income in the quarter was $627,000 or 3 cents per diluted share compared to net loss of $9.2 million or 42 cents per share a year ago.

Zep Inc. ((ZEP)), the sanitizers and cleaners maker said third quarter sales rose 24.4% to $153.0 million from $123.0 million a year ago. Net income in the quarter fell 3.7% to $5.2 million or 23 cents per diluted share compared to net income of $5.4 million or 25 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 123.27 or 1.27% to 9,570.67, Hang Seng index in Hong Kong decreased 477.78 or 2.31% to 20,248.90 and CSI 300 index in China lower 124.76 or 4.59% to 2,592.02. ASX 200 index in Australia decreased 38.80 or 0.88% to 4,345.70. The FTSE Bursa KL Composite index in Malaysia closed lower 5.70 or 0.43% to 1,319.84.

The Kospi Index in South Korea decreased 24.27 or 1.40% to close at 1,707.76. SET index in Thailand closed lower 5.31 or 0.66% to 799.09 and JSE Index in Indonesia decreased 62.36 or 2.11% to 2,893.37. The Sensex index in India decreased 240.17 or 1.35% to 17,534.09.

Europe Markets Review

In London FTSE 100 Index closed lower 101.92 or 2.01% to 4,969.76, in Paris CAC 40 Index decreased 94.16 or 2.63% to 3,482.29 and in Frankfurt DAX index traded lower 137.52 or 2.23% to 6,019.70. In Zurich trading SMI decreased 95.31 or 1.51% to 6,215.84.