Europe Declines on Rate Concerns

Elena
27 Jun, 2006
Frankfurt

European markets reversed from earlier gains, made on the back of higher Wall Street start. European trading volume was very thin as investors remained cautious ahead of FOMC meeting on Thursday. The German DAX 30 tumbled 1%, the French CAC 40 dropped 0.6%, and London FTSE 100 fell 0.5%.

[R]12:30PM European markets closed down ahead of rates decision.[/R]
European markets reversed from earlier gains, made on the back of higher Wall Street start with General Motors providing a solid support. European trading volume was very thin as investors remained cautious ahead of FOMC meeting on Thursday. Resource stocks gave a boost to the market sentiment, with BP and Royal Dutch Shell rising on higher oil prices. The German DAX 30 tumbled 1%, the French CAC 40 dropped 0.6%, and London FTSE 100 fell 0.5%.

Oil prices climbed above $72 amid Iran’s tensions. Light crude July delivery gained 35 cents to $72.15 a barrel. Gasoline added 2 cents to $2.197 a gallon, while heating oil added 2 cents to $2. Natural gas futures rose 8 cents to $6.05 per 1,000 cubic feet. London Brent rose 54 cents to $71.27. The dollar lost ground versus major currencies. The euro traded at $1.2596, up from $1.2580. The dollar bought 116.17 yen, down from 116.28. The British pound stood at $1.8239, up from $1.8234. European gold prices moved higher. In London the precious metal traded at $593.60, up from $579.20 per ounce. In Zurich gold traded at $593.40, up from $578.70. Silver closed at $10.60, up from $10.10.


[R]11:30AM Stocks dipped in late trading, awaiting Fed Reserve policy meeting.[/R]
After the initial strength, stock markets turned lower as traders stayed on the sidelines ahead of a Fed Reserve statement on Thursday, expected to shed light on the outlook for interest rates. The pullback by the major averages was partly due to significant weakness in the semiconductor sector, with chip maker Marvell ((MRVL)) turning in one of the sector''s worst performances after the company agreed to acquire Intel''s ((INTC)) communications and application processor business for $600 million. Broadcom ((BRCM)) and AMD ((AMD)) are also posted notable losses. The Philadelphia Semiconductor Index dropped 2.7%. The brokerage sector also moved to the downside, led by TD Ameritrade ((AMTD)) and E*Trade ((ET)). The Amex Securities Broker/Dealer Index fell 1%. Weakness was also visible among some networking and airline stocks. The losses by airline stocks were due to a continued increase by the price of oil, up 60 cents to $72.40 a barrel.

At the same time, the price increase contributed to significant strength among energy stocks. Shares of Exxon Mobil Corp. ((XOM)), the world''s largest publicly traded oil company, led advancers on both the Dow and on the S&P 500. Utilities stocks also performed well in morning trading, with shares of Duke Energy ((DUK)) up 1.2% on agreement to sell its commercial marketing and trading business to Fortis. Stocks showed little reaction to economic reports on Thursday morning. The Conference Board said its index of consumer sentiment rose more than expected in June, while the pace of sales of existing homes fell in May, roughly in line with expectations. In late morning trading, the Dow Jones industrial average dropped 57.55, or 0.52%. The Standard & Poor''s 500 index was down 5.05, or 0.4%, and the Nasdaq composite index fell 17.56, or 0.82%. Bonds recouped some recent losses but remained at historic lows, with the yield on the 10-year Treasury note slipping to 5.21% from 5.24% late Monday.

[R]Existing home sales fell less than expected.
The National Association of Realtors released its report on existing home sales in the month of May on Tuesday, showing that existing home sales fell a little less than economists had been expecting. The report showed that existing home sales fell 1.2 percent to a seasonally adjusted annual rate of 6.67 million units in May from a downwardly revised 6.75 million unit rate in April. Economists had been expecting the report to show that existing home sales fell to an annual rate of 6.65 million units in May compared to the 6.76 million unit rate originally reported for April. The report also showed that total housing inventory levels rose 5.5 percent to 3.60 million existing homes available for sale at the end of May. This represents a 6.5-month supply at the current sales pace.

[R]Consumer confidence rose in June.[/R]
Tuesday morning, the Conference Board released its report on consumer confidence in the month of June, showing that its consumer confidence index rose more than economists had expected. The increase reflected an improvement in the outlook for the next six months. The Conference Board said that its consumer confidence index rose to 105.7 in June from an upwardly revised 104.7 in May. Economists had expected the index to increase to 104.0 compared to the 103.2 originally reported for May. The increase by the consumer confidence index came as a decrease by the present situation index was offset by an increase by the expectations index. The report showed that the present situation index fell to 132.7 in June from 134.1 in May, while the expectations index rose to 87.6 from 85.1. The improvement in the outlook for the next months reflected some optimism about the outlook for the labor market. The Conference Board said that those expecting more jobs to become available in the next six months increased to 15.6 percent in June from 14.8 percent in May.


[R]10:30 AM Indian Sensex inched up in a volatile trading.[/R]
The Sensex in India finished 108.95 points higher, or 1% and closed at 10,151.01. Total turnover on the Bombay Stock Exchange was 150 million shares (15 crore shares) with a total market value of $809 million (Rs 3,644 crore), 20% higher than a normal daily volume. ITC surged 6.20%, to Rs 176.20. HDFC rose 4.20% to Rs 1,089.90, amid reports that the company will take 25% in unlisted L&T Urban Infrastrcuture for $20 million or Rs 95 crore. Large-cap Reliance Industries stabilzed and hit a high of Rs 1,010.95, before its annual meeting of shareholders. It advanced 0.45%, to Rs 985.55.

Metal stocks surged after South Korea''s POSCO announced on Tuesday it will hike prices of key steel products by up to 8.3% in July. Tata Steel soared 4.61% to Rs 518.60. The company has got approval to build ferrochrome smelter in South Africa for Rs 550 crore. The government controlled steel company SAIL jumped 6.15%, to Rs 80.20 after announcing plans to form a joint venture with Jaiprakash Associates in order to set up a 2-million-tonne cement plant in Chhattisgarh. Accordingly, SAIL will take 26% stake in the joint venture and the rest will be held by Jaiprakash. i-flex Solution soared 6.12%, to Rs 1,056 on selection of its Flexcube as a core banking solution by three financial institutions in Africa. Three premier financial institutions in Africa, East African Development Bank, Uganda, Imperial Bank, Kenya, and United Bank SC, Ethiopia, have selected Flexcube as their core banking solution.

Reliance Communication Ventures led the decliners, slumping 5.20% to Rs 228.90. Reliance Energy shed 1.80% to Rs 438 and pharma large-cap Ranbaxy ended down 2.80% to Rs 360.75. ONGC, lost 0.07% to Rs 1,062. ONGC’s Q4 March 2006 net profit plummeted 18.74%, to Rs 3,085.89 crore. Total income for the period declined to Rs 12,528.23 crore. United Western Bank declined 5%, to Rs 21.90. TVS Motor shed 3%, to Rs 95.45 on weak Q4 and FY results. The company’s Q4 March 2006 net profit was down 39% to Rs 29.09 crore as compared to Rs 47.92 crore in Q4 March 2005.


[R]9:45AM Stocks advanced on merger deals.[/R]
Stocks moved higher at the start of trading, as some merger deals and corporate news generated positive sentiment amid cautiousness ahead of FOMC meeting. Stock markets advanced, led by gains in General Motors Corp. ((GM)) and Univision Communications Inc. ((UVN)). Price target upgrade on the shares of Dow component GM sent the stock up 2.3% to $41.02. Shares of Univision also offered support, rising 6.4% after a $12.3 billion offer for the largest U.S. Spanish-language broadcaster. Early gains by commodities-related stocks also contributed to the initial upward, with energy stocks moving higher amid a continued increase by the price of oil. Metal stocks also showed strength, reflecting an increase in the metal prices. At the same, some weakness emerged in the semiconductor sector, dragged by chip maker Marvell ((MRVL)) which dropped 11.4% after the company agreed to acquire Intel''s ((INTC)) communications and application processor business for $600 million. In the first hour of trading, the Dow Jones industrial average gained 6.09, or 0.06%. The Standard & Poor''s 500 index was up 1.26, or 0.1%, and the Nasdaq composite index added 2.74, or 0.13%. Bonds recouped some recent losses but remained at historic lows, with the yield on the 10-year Treasury note slipping to 5.23% from 5.24% late Monday.

CKE Restaurants Inc, ((CKR)), quick-service and fast-casual restaurants company, reported that same-store sales advanced 4.7% for the four weeks ended June 19. The performance broke down to a 4.7% rise for its Carl''s Jr. locations and a 4.6% rise for its Hardee''s locations. The company attributed the positive results in this period for Carl''s Jr. to the continued promotion of its Bacon Swiss Crispy Chicken Sandwich and strong sales of its Jalapeno Burger product. It added Hardee''s benefited from continuing promotion of its Philly Cheesesteak Thickburger.

Eagle Materials Inc, ((EXP)), building materials firm, reported that it is improving its Q1 and fiscal 2007 earnings estimates due to volume growth and stronger pricing in wallboard and cement operations. The company said it''s upping its Q1 guidance by 10 cents a share to a range of $1 to $1.10 a share, and fiscal earnings to a range between $4.40 and $4.70 a share from $3.67 to $4 a share. Analysts expected Q1 earnings of $1.10 and fiscal year earnings of $4.55.

Stride Rite Corp, (SRR)), shoemaker, reported Q2 net income advanced to 46 cents a share, from 32 cents a share on 21.6% net sales growth, topping analysts expectations for earnings of 37 cents a share.. The company backed its full-year earnings forecast of 82 cents to 88 cents a share and said it expects sales growth for the year in a range of 20% to 22%.


[R]8:00AM Univision Communications’s board approved a sale of $12.3 billion.[/R]
Univision Communications Inc. agreed to sell the nation''s largest Spanish-language broadcaster for $12.3 billion in cash to a consortium of investors. The figure agreed upon late Monday equals $36.25 a share, which a 13% premium to Univision''s closing stock price on Monday. The group of investors will also assume about $1.4 billion in debt. The consortium, led by private equity firms Texas Pacific Group Inc. and Thomas H. Lee Partners, also includes Madison Dearborn Partners LLC, Providence Equity Partners Inc., and media mogul Haim Saban. The acquiring group said in a joint statement that Univision ‘is an outstanding media brand with exceptional positions in the fastest-growing markets in the country, world-class assets, strong management, popular programming and unmatched ratings.’ Last week the consortium bid $35.50 a share, or just under $11 billion total, but the broadcaster rejected the group''s initial bid as too low. Each of the private equity groups is expected to invest around $1 billion initially and Saban somewhat less, the person said. The deal, which is subject to the approval of shareholders and regulators, is expected to close in the fourth quarter of 2006 or first quarter of 2007. Univision shares fell 2.79%, to close Monday at $32.03 on the Nymex.


[R]7:15 AM Asian markets finished mixed, Japan gains slightly.[/R]
Asian markets ended mixed Tuesday. The Nikkei 225 Index rose 0.13% to 15171.81, with steel shares continuing Monday''s rise on news of the likely merger between Arcelor and Mittal Steel. The merger is expected to accelerate the continuing wave of consolidation in the global steel industry. Japan steelmaker Nippon Steel was among the gainers, adding 1.92%. JFE Holdings also rose 2.84% and Sumitomo Metal Mining gained 3.23%. Hong Kong stocks closed slightly down as investors waited on the Fed''s decision. The Hang Seng Index shed 0.19% to 15774.70. Hong Kong follows U.S. monetary policy because its currency is pegged to the U.S. dollar. South Korean and Taiwan shares led regional gainers, as both indexes advanced 0.8%. The Korea Composite Stock Price Index, or Kospi, advanced to 1247.54, extending the previous session''s gain. Taiwan stocks also gained, ending up at 6572.39, as legislators failed to approve an opposition-led effort to hold a referendum to oust the president. China''s shares ended higher Tuesday. The Shanghai Composite Index advanced 0.4% to 1639.55. The Shenzhen Composite Index gained 0.2% to 424.66. Australia''s S&P/ASX advanced 0.7% at 5000.50, while New Zealand''s NZX 50 Index gained 0.7% to 3613.417.


[R]6:30AM Europe erases early gains.[/R]
European markets rose slightly in mid-morning trade. London’s FTSE 100 gained 0.1 %to 5,685.3, while Frankfurt’s Xetra Dax was unchanged at 5,514.46 and the CAC 40 in Paris climbed 0.1% to 4,806.5. On the corporate front, Banca Monte dei Paschi di Siena advanced 1.5% after it announced it was looking to integrate with Finsoe, the holding company which owns a controlling stake in Italian insurer Unipol. Anglo Irish Bank climbed 1.3% as recent losses presented investors with a good buying opportunity. Oil stocks added some weight to European gains. Overnight, US crude advanced to $72 a barrel for the first time in two weeks on fears that increasing demand for gasoline would sap US stockpiles. France’s Total advanced 0.9%, while Norway’s Statoil added 2.1%. France’s Suez climbed 1.2% after the utility was upgraded by UBS from ‘neutral’ to ‘buy’.

Crude oil advanced 51 cents at $72.31 a barrel by 0930 GMT, reaching a two-week high after rising 93 cents on Monday. London Brent crude advanced 52 cents to $71.24. Gold in London traded at $587.70 per troy ounce, up from $579.20 late Monday. The dollar gained against the European currency. The euro traded at $1.2578, down from $1.2580 late Monday in New York. The greenback bought 116.36 Japanese yen, up from 116.28. The British pound traded at $1.8223, down from $1.8234.