Wall Street Recedes on Euro Worries; Boeing in $18 Billion Deal

Arthi Gupta
14 Nov, 2011
New York City

U.S. stock were mixed after Italy appointed technocrat as prime minister and bond yields in the euro zone rose. Boeing signed the largest aircraft deal of $18 billion with Emirates Air. Bank of America agreed to sell its stake in China based bank and increased customer services fees.

[R]11:30 AM New York – U.S. indexes declined after Italy appointed technocrat as prime minister and bond yields in the euro zone rose. Boeing signed the largest aircraft deal of $18 billion with Emirates Air. Bank of America agreed to sell its stake in China based bank and increased customer services fees to pass on higher bonus cost.[/R]

U.S. stocks eased in the early hours of trading after the bond yields on the euro zone rose and stayed near elevated levels.

Market indexes were on the slide after recession worries also resurfaced as the economies in Europe weaken and growth in the production in the region remained weak.

European indexes declined after Italy sold €3 billion of 5-year bonds at higher yield. However, the markets rallied in early trading after Mario Monti was appointed as the new Italian prime minister.

Italy Appoints New Prime Minister, Bond Market Sceptical

Mario Monti, an economist and former member of the European Commission was on Sunday appointed Italy's new prime minister succeeding Silvio Berlusconi. Berlusconi fulfilled his pledge to resign after the parliament passed austerity measures this weekend.

Monti-led government of technocrats received the backing of three leading political parties including the conservative party controlled by the former Prime Minister Berlusconi.

However, the task ahead for technocrat led Monti-government is not easy. Italian economy has stagnated for more than a decade, labor markets are rigid and tax evasion is widespread. In addition, the government debt is still growing.

Italy's sovereign debt estimated at €1.9 trillion or $2.7 trillion and the country's debt-to-GDP ratio at 120% is way above the EU limit of 60%. Also, the yield on Italian 10-year bonds rose to a record high of 7% on Wednesday and is likely to stay at a level that the economy cannot sustain.

The Italian Treasury sold €3 billion of five-year bonds at 6.29% yield, up from 5.32% at the last auction on Oct. 13. The yield declined from 6.45% in Friday’s trading and the bid-to-cover ratio improved to 1.47 from 1.34 last month.

However, sceptical markets drove up the yields of Spain, Italy and France in trading.

In the secondary market, the yield on the 10-year bonds increased 20 basis points to 6.62% and Spanish bond yield increased 17 basis points to 5.96%.

In Paris, the CAC-40 Index declined 21.59 or 0.7% to 3,127.79 and in Frankfurt; the DAX Index edged lower 22.04 or 0.4% to 6,034.99.

Asian Markets Rebound, Japan GDP Expands

In Asia, Japan's gross domestic product rose an annualized 1.5% in the third quarter of 2011 following a 0.5% contraction in the second quarter, the Cabinet Office said today. The economic activities rebounded after exports surged and production disruptions eased and electricity shortage that was feared did not materialize.

Markets in Shanghai increased 1.9%, in Tokyo gained 1.1%, in Hong Kong rose 1.9% and in Mumbai lost 0.4%.

Boeing, Emirates in Record $18 Billion Deal

Boeing and Dubai-based Emirates Airline announced an order for 50 Boeing 777-300ERs with a value of $18 billion, making it the single largest commercial airplane order in value in Boeing's history.

The order also includes an option for an additional 20 of the popular twin-aisle commercial jetliner for about $8 billion.

Separately, the company forecasted that airlines in the Middle East will need 2,520 planes by 2030 worth about $450 billion, with 34% of the total to replace the current aircraft in operation.

Boeing also said that it had received an order for six 787 Dreamliners from Oman Air.

Peabody Nears Acquisition of Macarthur

Peabody Energy Corp. races to complete its A$4.9 billion acquisition of Australia-based Macarthur Coal Ltd. on Monday, after the U.S. coal miner said it has acquired 87.8% of the shares in the Australian coking coal miner.

Peabody could potentially reach the 90% stake level in today's trading when the offer price will rise to A$16.25 per share from the current price of A$16 per share.

BofA Sells Shares of China Construction Bank

Bank of America Corporation agreed to sell approximately 10.4 billion common shares of China Construction Bank Corporation through private transactions with a group of investors. The sales are expected to generate an after-tax gain of approximately $1.8 billion.

Bank of America also quietly last week increased fees for several customer services including minimum checking account fees, minimum balance requirements for many accounts and also wire debit card replacement fees.

The troubled bank that was bailed out by the U.S. Treasury has been looking for ways to increase customer fees after the bank struggled to increase revenues and failed acquisitions of Merrill Lynch and Countrywide Financials.

Shareholders have lost more than $70 billion after the bank’s acquisition spree came to an abrupt halt after the subprime lending crisis that erupted in early 2008.

Earnings Review

Ctrip.com International, Ltd. ((CTRP)), the Chinese travel services provider reported third quarter revenues grew 20% to RMB 974.7 million from RMB 812.2 million in the year-ago quarter.

Net income in the quarter rose 1.6% to RMB 325.3 million compared to net income of RMB 320.1 million in the year-ago period. Earnings per ADS rose to RMB 2.13 from RMB 2.11 in the year-ago quarter.

Dynegy Inc. ((DYN)), the electric utility said third quarter revenues decreased 33.4% to $516 million from $775 million in the comparable period. Net loss in the quarter widened 212.5% to $75 million or 61 cents per diluted share compared with net loss of $24 million or 20 cents per share loss in the prior-year period.

J. C. Penney Company, Inc. ((JCP)), the retailer reported third quarter total net sales declined 4.8% to $3.99 billion from $4.19 billion in the prior-year quarter. Net loss in the quarter was $143 million or 67 cents per diluted share compared to a profit of $44 million or 19 cents per share last year.

Lowe's Companies, Inc. ((LOW)), the home improvement retailer stated third quarter sales rose 2.3% to $11.9 billion, from $11.6 billion in the third quarter of 2010 on comparable-store sales increase of 0.7%. Net earnings in the quarter fell 44.3% to $225 million or 18 cents per diluted share compared to net earnings of $404 million or 29 cents per share in the third quarter of 2010.