U.S. Stocks Struggle After Housing Starts Drop 22.5%

Arthi Gupta
16 Mar, 2011
New York City

U.S. indexes struggle on a persistent radiation leak concerns in Japan and resurfacing of sovereign debt worries in Europe. U.S. housing starts in February were the lowest in 27 years and building permits dropped to their lowest on record set in April 2009.

[R]10:10 AM New York – U.S. indexes struggle on a persistent radiation leak concerns in Japan and resurfacing of sovereign debt worries in Europe. U.S. housing starts in February were the lowest in 27 years and building permits dropped to their lowest on record set in April 2009.[/R]

U.S. indexes traded lower as investors battle a growing list of worries from the Middle East to North Africa to sovereign debt stress to Japan and the spread of radiation leaks originating from northeastern Japan.

The investors sold stocks in the early trading as tensions reached a new high in Bahrain and G8 foreign ministers failed to agree on a military solution.

European markets traded lower as investors focused on the sovereign debt stress in the peripheral European nations. The latest downgrade of Portuguese debt reawakened the worries that the bailout cost of European sovereign debt may increase.

However, the benchmark index in Japan rebounded 5.6% as investors focused on the rebuilding efforts and nuclear radiation leak worries were on the back burner for now.

In addition, rising tensions in the Middle East and North Africa also played a role in market jitters. Violence gained momentum in Bahrain and Iran denounced the presence of Saudi Army in the small nation on the edge of Saudi Arabia.

The White House warned on Tuesday that there was no military solution to the ongoing crisis in Bahrain, and urged the unrest-hit island kingdom to try and find a political solution that would address the needs of the Bahraini people.

A two-day summit of G8 foreign ministers ended in Paris on Tuesday, with the world powers failing to agree on a joint French-British proposal to enforce a no-fly-zone over Libya. However, the G8 ministers urged the United Nations to mount pressure on Qaddafi to step down from power using other means, including economic sanctions.

Reports suggest that Gaddafi’s loyalists appeared to gain the upper hand against rebels in at least one coastal city of the country.

A fire broke out again at the building housing the No 4 reactor of Tokyo Electric Power Co’s Fukushima Daiichi nuclear power plant, the electric utility said on Wednesday.

Tepco said fire appears to have occurred because a previous outbreak had not been fully extinguished. Tepco also said an estimated 70% of the nuclear fuel rods had been damaged in the No 1 reactor and 33% at the No 2 reactor according to several media reports.

The Bank of Japan offered $43 billion or 3.5 trillion yen on Wednesday, reports said. The central bank injected around 55.6 trillion yen since Monday.

U.S. Fed Holds Rates

The Fed maintained its near-zero benchmark interest rate and said it expects to follow through with its planned purchase of $600 billion in longer-term Treasury securities by the end of June.

The Fed also said overall conditions in the labor market appear to be improving gradually, although it noted that the unemployment rate remains elevated.

U.S. Homebuilder Confidence Improves

U.S. homebuilder confidence improved modestly in March, according to a report released by the National Association of Home Builders on Tuesday.

The NAHB/Wells Fargo Housing Market Index edged higher to 17 in March from 16 in February, reaching its highest level since May of 2010.

U.S. Mortgage Applications Drop

U.S. mortgage applications decreased 0.7% from one week earlier, according to data from the Mortgage Bankers Association''s Weekly Mortgage Applications Survey for the week ending March 11.

Refinancing activity increased 0.9% but new purchase applications slipped 4%. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79% from 4.93%.

U.S. Housing Starts Fall

Housing starts in the U.S. fell more than estimated in February following an unexpectedly strong jump in January. The new home starts annual rate dropped to 27 year low reached in April 2009.

U.S. Commerce Department today said new home construction in February was started at annual rate of 479,000, 22.5% below the revised January starts of 618,000.

New building permits also dropped to a rate of 517,000 in February, 8.2% below the revised January rate of 563,000.

The 517,000 new building permits issued in February marks a record low, according to Commerce Department figures, with 20.5% lower from a year ago month.

U.S. Producer Prices Soars

The U.S. Labor Department said producer price index surged 1.6% in February following a 0.8% increase in January with substantial increases in food and energy prices.

Excluding the jumps in food and energy prices, the core producer index edged higher 0.2% in February after rising 0.5% in January.

Google Plans Mobile-payment Service

Google Inc. is working on a mobile-payment service that would allow shoppers to use their mobile phones rather than credit cards to pay for goods in retail stores, according to media reports on Tuesday.

The company is said to be working with electronic payments solutions company VeriFone Systems Inc. for the installation of thousands of special cash-register systems at merchant locations.

Earnings Review

Kirkland Lake Gold Inc. ((KGI.TO)), the operating gold mining company said third quarter revenue surged 311.5% to C$25.43 million from C$6.18 million, as restated, in the comparable period last year. Net income in the quarter was C$4.21 million or C$0.06 per share compared with a restated loss of C$4.9 million or C$0.08 per share a year earlier.

Pacific Sunwear of California, Inc. ((PSUN)), the specialty retailer reported fourth quarter net sales declined 10% to $262.96 million from $292.56 million last year. Net loss for the quarter narrowed 3.6% to $35.19 million or 53 cents per diluted share compared to net loss of $36.50 million or 56 cents per share in the previous year.

rue21, Inc. ((RUE)), the fashion apparel and accessories retailer reported fourth quarter net sales increased 22.3% to $190.09 million from $155.39 million in the comparable quarter a year ago. Net income for the quarter advanced 41% to $10.89 million or 44 cents per diluted share compared to net income of $7.72 million or 32 cents per share in the fourth quarter of previous year.

Systemax Inc. ((SYX)), the direct marketer of brand name and private label products reported fourth quarter sales rose 7% to $1.01 billion from $938.2 million a year earlier. Net income for the quarter fell 31% to $12.7 million or 34 cents per diluted share compared to net income of $18.4 million or 49 cents per share for the year-ago quarter.