North Korea's Nuclear Tests Weigh

Elena
05 Jul, 2006
New York City

Stock markets opened down on concerns over North Korea''s nuclear ambitions and high oil prices. With no corporate earnings and little economic data, investors focused on the release of the Commerce Department''s latest report on factory orders. New orders for manufactured goods in May increased $2.6 billion or 0.7% to $399.9 billion, following a 2% decrease in April.

[R]9:45AM The Dow and Nasdaq tumbled.[/R]
U.S. stock markets came under pressure in early trading, as news of a series of missile tests by North Korea inspired traders to lock in profits. North Korea launched seven missiles Wednesday, sending stocks around the globe down, with investors worried that the disagreement between North Korea and the United States could intensify. A large number of sectors suffered declines in the early going. The Nasdaq led the major averages lower with a decline of 1.2%. Technology stocks were among the most notable decliners, with the disk drive space falling by 1.8%, followed by the networking and software sectors, each falling by more than 1.4%.

Semiconductors posted significant weakness, dragged by Marvell Technology ((MRVL)) which dropped 5.4% after it received a request from the U.S. SEC and federal prosecutors over its executive stock compensation plans. Home building stocks were also weak, with Hovnanian ((HOV)) leading the group lower with a decline of 3.2%. Ryland ((RYL)) and Beazer Homes ((BZH)) also dropped more than 3%. Transportation stocks also fell as crude oil neared $74 per barrel. In the first hour of trading, the Dow Jones industrial average fell 61.71, or 0.55%. The Standard & Poor''s 500 index lost 8.15, or 0.64%, and the Nasdaq composite index dropped 22.47, or 1.03%. Bonds fell along with stocks, with the yield on the 10-year Treasury note rising to 5.21% from 5.15% late Monday.


[R]9:00AM Stock futures pointed to a higher opening.[/R]
U.S. stock futures indicated a weaker market opening, resuming trading after the Independence Day Holiday. The trading session is expected to be volatile with worries about North Korea weighing on market sentiment. Stocks dropped across Europe and Asia after North Korea launched at least seven missiles. General Motors ((GM)) is also seen in the spotlight on news that Renault and Nissan CEO is set to meet his counterpart at GM later this month in Detroit. In economic news, the Commerce Department is due to release a report on factory orders in the month of May, with economists expecting orders to edge up 0.1% in May following a 1.8% drop in April. On the corporate front, Citigroup raised its rating on McGraw-Hill Cos. Inc. to ‘buy’. Jefferies & Co. lowered its rating on chip supplier Atheros Communications Inc. ((ATHR)) to ‘hold’ and cut its price target to $20 from $30.S&P 500 futures fell 5.2 points, below fair value. Dow Jones industrial average futures slid 44 points and Nasdaq futures were down 8.50 points.

Wilson Bowden, ((WLB)), home builder, reported that completions in the first half of the year declined 2.5% to 2,135, while the forward order book at the end of the period advanced 52% at 2,266 units. The company added that the average selling price per units climbed 6% to $382,000, reflecting a 3.1% increase in average unit size. Wilson Bowden also added that, as expected, margins remain under pressure because 50% of completions come from sites bought in the last two years, a period in which cost inflation has exceeded selling price gains. The company announced it continues to expect 2006 performance to be in line with expectations.

Oce NV, ((OCENY)), Dutch printing company, reported that its Q2 net profit advanced 6.1% to 12.2. million euros ($15.6 million) on 22.3% revenue growth. The company added that it has introduced a more aggressive pricing policy for its printing systems, which resulted in a fall in gross margin to 41.3% from 41.8%. The increase in sales from its new pricing policy will feed through to increased servicing revenue along with higher toner and ink sales.

Quest Software Inc, ((QSFT)), custom software applications developer, reported that it plans to restate certain past financial results to reflect proper recognition of expenses related to stock option grants. The company anticipates the restatement to result in material additional expenses. Quest intends to restate results for the fiscal years 2000 through 2005 and Q1 of fiscal 2006. The company plans to report its revenue for its fiscal Q2 on August 8.


[R]8:00AM Refco neared a deal with customers from Bermuda unit.[/R]
One of the U.S. biggest commodity brokerages Refco and nearly two dozen subsidiaries collapsed into bankruptcy proceedings, following an accounting scandal last year. Resolution of those cases has been complicated by dozens of lawsuits filed by RCM customers and creditors.
More than 50 customers of Refco Inc.''s unregulated Bermuda unit struck a deal that would allow them to retrieve $2.3 billion from the unit. However, a single holdout customer retains the power to scuttle the pact. If the certain commodities trader doesn''t agree to join the deal within two weeks, court proceedings would begin to liquidate Refco Capital Markets.

Under the settlement, RCM customers holding securities accounts would recover more than 70% of the value of their claims. Customers who hold foreign-exchange accounts would get more than 26% of the value of their claims. The foreign-exchange customers, moreover, would get an advance payment of $221 million once the deal takes effect. A third class of customers would get back the precious metals they deposited with RCM, or the proceeds from the sale of those metals.

Nearly two dozen customers, including Moscow-based hedge fund VR Global Partners and U.S. food company Cargill Inc., have signed the pact, but the customer with the single biggest claim against RCM hasn''t agreed. If an agreement can''t be reached within two weeks, RCM''s bankruptcy case will be converted from a Chapter 11 reorganization to a Chapter 7 liquidation.


[R]7:30 AM Asian markets fell in the wake of North Korea missile launches.[/R]
Asian markets finished lower on Wednesday. The Japanese Nikkei 225 Index led the decline, shedding 0.73% to end the day at 15523.94. Exporters led Japanese decliners Wednesday. Nikon lost 0.49%, while Nintendo slumped 2.76%. Auto makers also suffered, with Honda plunging 2.17% and Toyota losing 1.16%. Nissan, whose board Monday announced it was open to bringing General Motors into its partnership with Renault, declined 1.9%. The Korea Composite Stock Price Index, In Seoul, sank 2.1% in opening minutes amid worries over the North Korea missile test, but then rebounded into positive territory briefly before slipping back. The benchmark index finished the session down 0.5% at 1279.85. The Hang Seng Index in Hong Kong fell 0.62% to 16267.18. Fixed-line phone company PCCW shed 0.89% amid concerns that negotiations over the potential sale of its telecom and media assets were at an impasse. China Netcom, which holds a 20% stake in PCCW and opposes the sale of the Hong Kong company''s core assets to foreign bidders, dropped 3.87%. China''s benchmark Shanghai Composite Index surged 2.2% as the Bank of China''s initial public offering of yuan-denominated Class A shares made its trading debut in Shanghai. Elsewhere around the region, Taiwan''s Weighted index shed 1.11%. Australia''s S&P/ASX 200 edged down 0.15%.


[R]6:30AM Europe fell by mid-morning on bank statement and North Korea scare.[/R]
European markets traded lower by mid-morning on Wednesday. The U.K. FTSE 100 index shed 0.4% at 5,860, the German DAX Xetra 30 index slipped 0.5% at 5,700 and the French CAC-40 index dropped 0.5% at 4,960. Among the decliners was British bank Alliance & Leicester losing 6.3% in London in the wake of France''s Credit Agricole announcement that it decided not to make an offer for Alliance & Leicester. Agricole slipped 0.3%. Tire makers, Continental and Michelin, each lost more than 1.5%, after Japan''s Sumitomo Rubber warned on 2006 profitability levels following higher raw material costs. Advancers included Irish building materials company CRH gaining 1.2% after it said that, due to an improved performance in each of its business segments. France''s Scor also advanced 4% after agreeing to buy German reinsurer Revios for 605 million euros ($775 million) from Globale Re.

Light sweet crude oil was traded over $73 a barrel, down 51 cents at $73.42. Gold was fixed in London at a recommended price of $625.75 bid per troy ounce at midmorning, up from $621.80 late Tuesday. Silver traded in London at $11.28 per troy ounce, up from $11.24. The dollar was up against the European currency. The euro traded at $1.2762, down from $1.2791 late Tuesday in London. The British pound traded at $1.8439, down from $1.8446. The dollar bought 115.04 Japanese yen, up from 114.58.