Housing Jitters Knock S&P and Nasdaq

123jump.com Staff
07 Sep, 2006
New York City

Market averages accelerated the decline in the final hour of trading. Worries of economic slowdown, weakness in housing market and persistent nervousness on rising rates came to haunt traders. Sentiment deteriorated further as several home builders cut earnings outlook. Oil and gold dropped. Alcatel and Lucent shareholders voted for a merger of $10.8 billion. Microsoft warned that launch of Vista may be delayed in Europe.

[R]4:00PM Economic slow down worries led by housing market declines pressured market averages lower.[/R]

-Yield on 10-year bond dropped and closed at 4.79% and 30-year bond closed at 4.94%.[/R]

-Crude oil down 21 cents to close at $67.29 per barrel. Natural gas closed 30 cents lower to close at $5.7 per mBTU.

-Gold dropped $16.70 to close $618.90 per ounce, silver dropped 50 cents to $12.70 and copper dropped 4 cents to close at $3.64.

-Asian Markets were dragged down on the sell-off in tech stocks in Japan, Taiwan and South Korea. Japan dropped 1.7%, Hong Kong and Singapore lost 0.9%, South Korea edged 0.4% lower and India declined 0.7%.

-European Markets closed lower across the region led by 1.2% decline in the UK on profit warnings from engineering company Tomkins. Germany, the Netherlands and Spain lost 0.7%. France and Norway declined 1.1%.

-Latin American Markets closed lower and Brazil was closed for a national holiday. Mexico lost 0.2% and Argentina and Chile declined 0.4%. Canada dropped 0.8% on the weakness in tech and energy stocks.


[R]3:00PM China based New Oriental IPO soars 45%.[/R]
China based New Oriental and Education and Technology Group Inc. ((EDU)) soared 45% at the opening on its first day of trading. The company sold 8.5 million shares in the public offering at a price of $15 per share. The initial offer was estimated in the range of $11 to $13 per share for 7.5 million shares. The IPO was led by a team of underwriters including Credit Suisse, Goldman Sachs and W.R. Hambrecht & Co. More than 70% of shares changed hands with less than one hour of trading left.

Demand for English language classes is quite robust. The company ranks itself as the largest provider of private classes for the language and has 800,000 students enrolled in 2005. The company plans to use the proceeds of the offering to expand to private primary and secondary schools with a focus on broader education and technical skills.

The company’s revenue at the end of May 31, 2006 rose 19% to $96 million but earnings dropped 60% to $6.6 million.

The Company’s English language training courses for middle school and high school students are designed to supplement students’ regular school curricula and help students achieve better scores on English exams for admission into high schools or higher education institutions. The Company’s typical English courses for middle school and high school students last for eight to 16 weeks with classroom instruction one to four times per week for 90 minutes to five hours per visit. The Company also offers more intensive and condensed versions of its courses, in particular during the summer months when many academic institutions are on summer break.

[R]12:30PM European markets closed in the negative.[/R]
European markets ended Thursday trading session lower, dragged by a profit warning from Tomkins and U.S. market losses amid worries about the economic slowdown. Shares of engineering company Tomkins slipped 15% after releasing a profit warning about the state of the U.S. residential and automotive equipment markets. Commodity stocks were among the most notable decliners, as retreating oil prices exerted pressure on the sector. Among oil majors, BP fell 1.9%, Royal Dutch Shell dropped 1.4%, and Total declined 1.6%. The German DAX 30 closed down 0.7%, the French CAC 40 was lower by 1.1%, and London FTSE 100 tumbled 1.2%.

Oil prices fell to a five-month low after a weekly petroleum report showed an increase by gasoline stockpiles. Light crude October delivery fell 23 cents to $67.27 a barrel. Heating oil lost 2 cents to $1.8945, while gasoline inched up to $1.6485. Natural gas futures dropped 13 cents to $5.86 per 1,000 cubic feet. The U.S. dollar posted strength. The euro traded at $1.2733, down from $1.2807. The dollar bought 116.46 yen, down from 115.59. The British pound stood at $1.8748, down from $1.8842. European gold lost ground. In London the precious metal traded at $616.80, down from $636.90 per ounce. In Zurich gold traded at $617, down from $636.90. Silver closed at $12.57, down from $13.16.


[R]11:30AM Stocks remained weak on inflation anxieties.[/R]
Disappointing guidance from homebuilders and lingering inflation concerns pressured the U.S. stock markets in early trading on Thursday. Housing stocks helped to lead the market lower after Beazer Homes ((BZH)) and KB Home ((KBH)) both cut their full year earnings outlook. Beazer declined 5.81% to $36.14, while KB Home was down 2.95% to $39.20. Dow components Caterpillar Inc. ((CAT)) fell 1% and Boeing Co. ((BA)) dropped 1.1%. Hewlett-Packard Co.'s ((HPQ)) stock fell 1.2% after California's attorney general said his office sent out subpoenas in a probe of whether the computer maker may have used illegal means to investigate boardroom leaks. In late morning trading, the Nasdaq fell 8.64, or 0.40%. The Dow Jones industrial average fell 57.95, or 0.51%, and the Standard & Poor's 500 index was off 5.74, or 0.44%. Bonds were unchanged, with the yield on the benchmark 10-year Treasury note flat with the 4.80% seen late Wednesday. The yield hit a five-month low of 4.73% Friday.

[R]Crude oil inventories fell, gasoline stockpiles rose.[/R]
Crude oil inventories slipped in the most recent week, according to government statistics released Thursday. This reversed most of a surprise inventory build recorded in the previous week. Meanwhile, gasoline stockpiles edged higher. The Department of Energy's Energy Information Administration said that crude oil inventories slipped 2.2 million barrels in the week ended September 1. Specifically, the measure fell to 330.6 million barrels from the previous week's level of 332.8 million barrels. In the previous week, oil inventories broke a streak of declines, with an advance of 2.4 million barrels. Oil inventories for the September 1 week were 6.2% higher than last year, when the impact of Hurricane Katrina had much of the Gulf of Mexico's oil and gas facilities out of action. Meanwhile, gasoline inventories showed a week-over-week increase 700,000 barrels. This followed an advance of 400,000 barrels in the previous week. The level of gasoline inventories was 6.6% above last year. Distillate fuel oil had an inventory increase of 3.1 million barrels for the week ended September 1. This followed an advance of 1.3 million barrels reported in the previous week. The government usually released petroleum inventory data on Wednesdays. However, the announcement was delayed a day by Monday's Labor Day holiday.


[R]10:30AM The Sensex ends in negative territory in a volatile trading.[/R]
The Sensex lost 79.36 points, or 0.67%, to close at 11,853.85. The market-breadth was weak as 1246 stocks advanced, 1294 declined and 83 stocks remained the unchanged. The turnover on BSE was Rs 3,299 crore, compared to Wednesday’s Rs 3,084 crore. The turnover on NSE was Rs 6,290 crore.

Housing financing company HDFC spurted 4% to Rs 1,365 after the Union Cabinet approved a $720-million overseas real estate investment fund. Maruti Udyog advanced 2.3% to Rs 914.70 on the news that it will make 50,000 vehicles for Japan''''s Nissan Motor Company.

Suzuki and Nissan to invest $1.5 billion and build an auto plant at Manesar, Haryana to manufacture small car for the export market. The production is likely to begin in less than 30 months.

The auto sector was strong in late trading today. TVS Motors surged nearly 7% to Rs 118.55, Eicher Motor gained 3.6% to Rs 239.50, Punjab Tractors advanced 3.4% to Rs 238 and Tata Motors gained 1.7% to Rs 900. However, Bajaj Auto sank 2% to Rs 2,775 and Hero Honda declined 1.2% to Rs 710. With a sharp drop in crude oil price from a record high of $78 a barrel, hopes still exist that the government will not raise domestic fuel price.

Another company that gained was Jet Airways soaring 16% to Rs 688 on heavy volume. The sharp fall in global crude oil price is expected to benefit the air carrier. L&T closed up 0.8%, to Rs 2,577 after reaching to Rs 2,625 in the morning trade. Hindustan Zinc advanced 2.2% to Rs 638.50 on reports that it has raised zinc price by Rs 11,600 per tonne (6.4%) and lead price by Rs 2,800 a tonne.

Reliance Communications has reportedly place an order for 2 million handsets with Nokia and plans to sell them below Rs 2,000 (or $40) per unit. Currently only LG Electronics provides handset to the company at that price level. Reliance has more than 25 million cell phone service subscribers.

Several small cap auto sector companies rose. Munjal Auto spurted 10% to Rs 216, Clutch Auto gained 6% to Rs 116.55, Minda Industries climbed 5.7% to Rs 166, Goetze India gained 3.6% to Rs 332, Automotive Axles rose 3.5% to Rs 492, Omax Autos jumped 3.5% to Rs 97.75, Automobile Corporation of Goa gained 3% to Rs 340 and Denso India rose 2.2% to Rs 85.50.

Index heavy Reliance Industries lost 1.1%, to Rs 1,124 and Hindustan Lever dropped 0.6%, to Rs 237.55. Hindustan Lever reported on Thursday that it will sell 51% in Unilever India Shared Services to Capgemini S.A.

The sharp decline in the Nasdaq weighed on software stocks. Satyam Computer decreased 1.9% to Rs 798, Wipro sank 1.7% to Rs 515, Infosys slipped 1.6% to Rs 1,803 and TCS lost 0.7% to Rs 988.


[R]09:45AM Stocks opened down on slowing housing market.[/R]
Stocks markets were weak at opening, with negative sentiment generated by signs of slowing housing market amid disappointing guidance from homebuilders. Subsequently, the Philadelphia Housing Sector Index fell 1.7%, dragged by KB Home ((KBH)) and Beazer Homes ((BZH)) are posting notable losses after cutting their full year earnings forecasts. Significant weakness also emerged in the gold sector, as gold for December delivery dropped by $12.80. In the first hour of trading, the Nasdaq fell 8.77, or 0.40%.The Dow Jones industrial average fell 37.62, or 0.33%, and the Standard & Poor''s 500 index was off 4.43, or 0.34%. Bonds fell, with the yield on the benchmark 10-year Treasury note falling to 4.82% from 4.80% late Wednesday.

UTi Worldwide Inc, ((UTIW)), logistics and freight forwarder, reported its Q2 net income for fiscal 2007 rose to 24 cents a share, compared with 23 cents a share in the year-earlier period. Revenue at the company rose 30% to $890.1 million from $686.2 million. The company matched analysts’ forecast for earnings of 24 cents a share.

America''s Car Mart, ((CRMT)), retailer, reported that Q1 net income fell 15% to 35 cents a share, from 41 cents a share in the year-ago period despite 6.9% revenue growth. The company missed analyst expectations for earnings of 40 cents a share. The company reduced its 2007 earnings outlook to $1.50 to $1.56 a share, from $1.56 to $1.63 a share on difficult economic issues currently affecting a large part of Car-Mart''s customer base.

Fleetwood Enterprises Inc, ((FLE)), recreational vehicle maker, reported Q1 losses narrowed to 1 cent a share, from 53 cents a share a year earlier. If not for discontinued operations, the company would have had a profit of 1 cent a share vs. last year''s loss of 31 cents a share. The company beat analysts’ views for a loss of 12 cents a share. Q1 revenue fell 14% to $529.8 million from last year''s $616.5 million, with sales at its RV group down 12%, at its housing group down 29% and at its supply group down 6%. he company said it expects pressure on margins to continue through the fiscal second quarter due to weak motor home sales and highly competitive travel trailer market.

Movado Group Inc, ((MOV)), watch maker, reported Q2 earnings of 43 cents a share, up from a profit of 33 cents a share a year-ago. Sales rose 9.8% to $126.6 million from $115.3 million in the same period a year earlier. Same-store sales increased 9.3% for Q2. The company topped analysts’ forecasts for a profit of 39 cents a share.

ConAgra Foods Inc, ((CAG)), packaged food company, restated its outlook for annual earnings per share growth of 7% to 9% for 2008 to 2009. Sales are expected to grow 2% to 3% annually during the same period, the company said.

[R]Initial jobless claims fell more than expected.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended September 2nd. The report showed that jobless claims fell much more than economists had been expecting. The report showed that jobless claims fell to 310,000 from the previous week''s revised figure of 319,000. Economists had expected jobless claims to edged down to 315,000 compared to the 316,000 originally reported for the previous week. The Labor Department also said that the four-week moving average fell to 315,250 from the previous week''s revised average of 318,250. The decrease by the less volatile moving average comes after it rose in the three previous weeks. Additionally, the report also showed that continuing claims in the week ended August 26 rose to 2.492 million from the preceding week''s revised level of 2.477 million.


[R]8:30AM Stock futures pointed to a lower opening.[/R]
U.S. stock market futures declined Thursday pointing to a negative opening on growing concerns over global inflation due to the impact of higher oil prices and labor costs increases. Signs of slowing housing market also weighed on the sentiment. Home builder KB Home ((KBH)) fell 5.5% in electronic trading after it cut its forecast on Wednesday. Rival Hovnanian Enterprises Inc. ((HOV)) rose 2.1% in after market trading, despite news of a second straight quarter of declining earnings and orders. Hovnanian reported fiscal Q3 net income drop by 36%, while orders declined 26%.

Graphics chip maker ATI Technologies Inc ((ATYT)) fell 1.4%, dragging the Nasdaq futures after it warned that Q4 revenue would miss the revenue outlook. Following the news, shares of Advanced Micro Devices Inc. ((AMD)) moved lower 3.6%, even though the companies said they had satisfied U.S., Canadian and German antitrust conditions related to the acquisition. A report released by Merck & Co.''s ((MRK)) board said on Wednesday the drug maker''s top executives did not consciously put patients at risk in developing and marketing Vioxx, the arthritis drug withdrawn after a study showed it increased heart risks. In economic data, initial jobless claims and wholesale inventories for July are due out later in the session. S&P 500 futures were down 4.10 points, below fair value. Dow Jones industrial average futures fell 30 points, and Nasdaq 100 futures dropped 3.75 points.


[R]7:30AM Asian falls on Japan techs and HK property shares declines.[/R]
Asian markets ended lower on Thursday. The Nikkei 225 Average in Tokyo fell 1.67% to 16,012.41. Electronics conglomerate NEC Corp. was down 2.91% and Hitachi Ltd declined 2.68%. Sony decreased 1.58%. Carmakers also fell on concerns a rise in U.S. interest rates could crimp sales. Honda Motor led the decliners in the Japanese auto sector, falling 2.75%.

In Hong Kong, the Hang Seng Index closed down 0.94% to 17,096.44. The Hang Seng China Enterprises Index of Hong Kong-listed mainland shares fell 0.46%. Property stocks such as New World Development and Hang Lung Properties ;ed the decliners, dropping respectively 1.16% and 2.18%. South Korea Kospi Index fell 0.43%, with LG Electronics dropping 1.6%. The central bank of the country said Thursday morning it was keeping the benchmark overnight call rate target steady at 4.5%.

Australia S&P/ASX 200 lost 0.1%. Retailer Coles Myer fell 0.44% after saying Wednesday it had rejected a takeover bid from a leveraged buyout consortium. China Shanghai Composite Index fell 0.7% following three straight sessions of gains.


[R]7:15AM Europe slips on inflation fears and Tomkins issue.[/R]
European markets were lower by mid-day on Thursday. London’s FTSE 100 slipped 1% to 5,871.3, while Frankfurt’s Xetra Dax shed 0.5% to 5,781.56 and the CAC 40 in Paris lost 0.8% to 5,074.76. Tomkins, British engineering company, issued a profit warning about the state of the U.S. residential and automotive equipment markets only a month after its first-half results. The company plunged 13%.

Construction products supplier Wolseley lost 2.5% and Lafarge dropped 1.7%. Michelin declined 1.3%, while DaimlerChrysler fell 0.8%. A few companies advanced on strong earnings reports. Ahold rose 4% after the supermarket operator surpassed expectations with a 70% profit in its second quarter profit. Carrefour gained 1.2% after the retailer and the operator of supermarkets in France, Italy and Spain reported an 11% profit climb. InBev rose 2.5% after the brewer of Brahma and Stella Artois reported a 12% rise in its second-quarter profit.