Weak Oil Leads to Mixed European Close

Elena
25 Sep, 2006
New York City

European markets closed mixed Monday, reflecting sharply lower crude oil futures. Continuing consolidation in the pharmaceutical sector provided some help. The German DAX 30 gained 0.3%, boosted by automakers like BMW and Volkswagen which rose 1% on weak oil prices. The French CAC 40 added 0.1%, while London FTSE 100 slipped 0.4%, dragged by weak commodities futures.

[R]12:30PM European markets closed mixed.[/R]
European markets closed mixed Monday, reflecting different reactions to sharply lower crude oil futures. Continuing consolidation in the pharmaceutical sector with a multibillion-dollar merger deal in the spotlight, provided some help. Germany’s Schwarz Pharma rallied 16.7% at 88.25 euros a share after Belgium''s UCB agreed to pay 4.4 billion euros in cash and stock for the company. Shares of other European drug companies in Europe also rose, with Shire Plcrose, up1.8%, Stada Arzneimittel, higher by 3.5%, and Elan, up 4.8%. The German DAX 30 gained 0.3%, boosted by automakers like BMW and Volkswagen which rose 1% on weak oil prices. The French CAC 40 added 0.1%, while London FTSE 100 slipped 0.4%, dragged by weak commodities futures. BP fell 1.8% after announcing it may fully restore Alaskan production in a week.

Oil prices dropped to a six-month low below $60. Light sweet crude November delivery dropped 39 cents to $59.53 before bouncing back to $60.16. London Brent November contract lost 88 cents to $59.53. Gasoline lost a penny to $1.46 a gallon. Natural gas futures fell 10 cents to $4.52 per 1,000 cubic feet. The U.S. dollar gained ground versus major currencies. The euro traded at $1.2737, down from $1.2787. The dollar bought 116.55 yen, up from 116.45. The British pound stood at $1.8988, down from $1.9006. European gold declined. In London the precious metal traded at $585.10, down from $586 per ounce. In Zurich gold traded at $584.25, down from $585.25. Silver closed at $11, down from $11.13.


[R]11:30AM stocks lost direction amid home sales data.[/R]
Stocks lost direction, reversing from early strength, provided by oil prices which fell to six-month lows when BP PLC said it had permission to restart the eastern half of Alaska''s Prudhoe Bay oil field. Market sentiment was hurt by existing home sales data, showing that sales fell to a seasonally adjusted annual rate of 6.30 million units, slightly down from expectations. The National Association of Realtors reported that the median home price for August was $225,000, compared with a revised $230,000 in July, marking the fist median price decline since 1995. The drop was the second-biggest in the survey''s 38-year history.

Energy stocks extended recent decline, with Exxon Mobil Corp. ((XOM)) fell 1%, while BP ((BP)) fell 1.7%, and Chevron Corp. ((CVX)) dropped 1.02%.In company news, tobacco stocks fell after a federal judge granted class action status to millions of ‘light cigarette’ smokers for a potential $200 billion lawsuit against tobacco companies. Altria Group Inc. ((MO)) fell 4.5%; Reynolds American Inc. ((RAI)) fell 2.6%, Loews Corp. ((LTR)) lost 0.5%. In late morning trading, the Dow Jones industrial average fell 0.64, or 0.01%. The Standard & Poor''s 500 index fell 0.03 to 1,314.75, and the Nasdaq composite index rose 2.98, or 0.13%.Bonds rose, with the yield on the 10-year Treasury note at 4.56%, down from 4.59% Friday.


[R]Existing home sales fell less than anticipated.[/R]
Monday morning, the National Association of Realtors released its report on existing home sales in the month of August, showing that sales fell a little less than economists had expected. NAR said that the data shows that the housing market is at a more sustainable pace. The report showed that existing home sales fell 0.5 percent to a seasonally adjusted annual rate of 6.30 million units in August from a 6.33 million unit rate in Ju1y. Economists had expected sales to fall to a 6.25 million unit rate. The report also showed that total housing inventory levels rose 1.5 percent to 3.92 million existing homes available for sale at the end of August. This represents a 7.5-month supply at the current sales pace, which marks the highest supply since April of 1993.


[R]10:30 The benchmark index declines in final hour of trading on selling pressure.[/R]
The Sensex on BSE retreated 63.19 points, to settle at 12,173.59. The market-breadth, positive at the opening, turned negative later, as small and mid-caps sank. Against 988 shares that advanced, 1,495 declined and 78 stocks remained unchanged. From the 30-Sensex stocks, 21 declined while the rest advanced. The turnover on BSE was Rs 3,228 crore. The turnover on NSE was Rs 6,168.62 crore.

Most active stocks

Reliance Industries was the most-active stocks on BSE with a total turnover of Rs 206.70 crore, followed by Tulip IT Services (Rs 150.65 crore) and Tata Steel (Rs 103.27 crore).

Advancers

Tata Steel led the gainers, up 2.33%, to Rs 508.25 on a high volume of 20.40 lakh shares. It had traded in a range of Rs 513.45 - Rs 491.65. Tata Motors advanced 1.10%, to Rs 844.50, on a volume of 4.89 lakh shares. It dropped from the day high of Rs 857.45. The company plans to invest about Rs 400 crore in Argentina. The venture will be part of an agreement that the company signed recently with Fiat.

Index heavy Reliance Industries advanced 0.98%, to Rs 1,166.50, on a volume of 17.70 lakh shares. It has struck gas in an exploration block off the east coast, the potential of which is yet to be ascertained.

Among non-Sensex stocks, construction and mining firm Atlanta listed on BSE today at Rs 170, over the IPO price of Rs 150. The stock hit a low of Rs 170 and a high of Rs 209.50. It finished at Rs 192.30 on a high volume of 1.12 crore shares.

Decliners

Grasim led the decliners, down 2.10%, to Rs 2,466 on a volume of 42,528 shares. Reliance Communications was down 2% to Rs 340.25, ITC shed 1.84% to Rs 184.25 and HLL declined 1.65% to Rs 253. Hindustan Zinc slipped 1.21%, to Rs 598, after it cut zinc prices by Rs 400 per tonne.

IT stocks witnesses intense selling. Hexaware Technologies sank 3.90% to Rs 152.90, TCS lost 1.60% to Rs 1,026, HCL Technologies dipped 0.72% to Rs 555.40, Tech Mahindra sagged 0.87% to Rs 595, Satyam Computer edged down 1.10% to Rs 828.50, Wipro declined 1.10% to Rs 514 and Infosys Technologies moved down 0.71% to Rs 1,817.

Other news

Himachal Futuristic Communications Ltd. plans to start manufacturing CDMA phones and other mobile devices in April next year. CDMA technology vendor Qualcomm, of San Diego, California, announced Monday that it has signed a licensing deal with HFCL for use of its CDMA2000 technology, including a patent license to develop, manufacture and sell CDMA2000 products.

Faced with intensifying competition, the domestic banking sector stated the need for creating six or seven banks of the size of the State Bank of India to compete globally. The industry chamber FICCI also said that the industry need to diversify markets beyond big cities, reduce transaction cost, increase labour flexibilities and improved human resource management to achieve growth in this sector.

Adlabs Films Limited plans to launch Fm radio station network of 54 stations reaching what company claims to 20% of population by the end of April 2007. The company controlled by Anil Ambani Group plans to invest along with partners upto 400 crore rupees.


[R]9:45AM Stocks opened higher amid six-month-low oil prices.[/R]
Stock markets opened higher as crude oil futures, trading at a six-month low, below $60 a barrel, generated positive sentiment. The price of natural gas also sagged, falling near its three-year low. Commodities prices were dragged down by signs of a slowing U.S. economy. On Monday, BP PLC said it had permission to restart the eastern half of Alaska''s Prudhoe Bay oil field, which should expand oil inventories.

Among Monday’s movers, Warrior Energy Services Corp. ((WARR)) surged 67% after Superior Energy Services agreed to buy it for $175 million in cash and 5.3 million Superior Energy common shares. Sirva Inc. ((SIR)) rose 9% after it said it reached an agreement to receive investments of $60 million from ValueAct Capital and $15 million from MLF Investments, both Sirva shareholders. Time Warner ((TWX)) was upgraded to overweight from equal weight at Morgan Stanley, which cited the belief that the partial spin-off of its Time Warner Cable asset could be a positive catalyst. The stock gained 1.4%.

In early trading, significant weakness emerged in the tobacco sector, as Dow component Altria ((MO)) fell 4.6% after a U.S. District Court Judge granted class action status to millions of smokers in a lawsuit that alleges that tobacco companies deceived smokers into thinking that light cigarettes were safer.

Walgreen Co. ((WAG)) fell 2.5% after reporting Q4 net income rose on higher sales. The drug store operator said it earned $412.3 million, or 41 cents a share, compared to $329 million, or 32 cents a share, meeting expectations. Same-store sales rose 9.7%. In the first hour of trading, the Dow Jones industrial average gained 58.19, or 0.51%.The Standard & Poor''''s 500 index rose 4.72, or 0.36%, and the Nasdaq composite index rose 9.53, or 0.43%. Bonds rose, with the yield on the 10-year Treasury note at 4.57%, down from 4.59% Friday. The yield on the 10-year Treasury bill is at a seven-month low as bond traders anticipate a weakening economy.


[R]09:00AM Retreating crude oil boosted stock market futures.[/R]
A sharp decline by crude oil futures boosted U.S. stock market futures Monday, helping them recover after Friday’s losses brought about economic slowdown concerns. Crude-oil futures dropped as low as $59.52 in electronic trading. Corporate news at Hewlett-Packard also contributed to the positive mood. Hewlett-Packard ((HPQ)) is expected to be in the spotlight again after announcing late Friday that CEO Mark Hurd will take on Patricia Dunn''s role as chairman. Company’s shares added 0.9% in Frankfurt.

Citigroup downgraded household appliance manufacturer Whirlpool Corp. ((WHR)) to sell from hold. In other broker news, Lam Research ((LRCX)) rose 2.5% in pre-open trading after CIBC World Markets upgraded the semiconductor equipment maker to sector outperformer from sector performer. SanDisk ((SNDK)) fell 2.4% before the bell as Merrill Lynch downgraded the memory card maker to neutral from buy, citing the risk of sharply lower memory prices. Warrior Energy Services ((WARR)) surged 65% in pre-open trading to $23.59 after agreeing to be bought by Superior Energy Services ((SPN)) for $175 million in cash and 5.3 million in shares. S&P 500 futures rose 3.25 points at 1,329.25 and Nasdaq 100 futures rose 6 points at 1,647.00. Dow industrial futures were up 31 points.


[R]8:00AM UCB agreed to buy Schwarz Pharma for $5.6 billion.[/R]
Belgium''s UCB agreed Monday to buy Germany''s Schwarz Pharma in a deal worth $5.6 billion, or 4.4 billion euros in cash and shares, a 20% premium to Friday''s close. The proposal values Schwarz Pharma at 91.1 euros using Friday''s closing prices.

The deal, which is the third multibillion-dollar takeover in the European pharmaceutical industry in the past five days, comes after bid offers by Germany''s Merck KGaA to buy Switzerland''s Serono for $13.3 billion, and Denmark''s Nycomed to buy the pharmaceutical operations of Germany''s Altana for $5.8 billion. Owing to these mergers, the price of Schwarz Pharma has risen, as UCB is offering 28% more than the German company''s value before those announcements.

The combined companies are expected to have annual revenue of more than 3.3 billion euros, global leadership in neurology and a more diversified product portfolio. They expect more than 300 million euros a year in synergies after three years, and hope the deal will lift adjusted earnings in the second year. Financial advisers for UCB were Braveheart Financial Services and Lazard, while Rothschild advised Schwarz Pharma.


[R]7:30AM Asian markets finish mixed on Monday, the Nikkei ends flat.[/R]
Asian markets finished mixed on Monday. Japan''s Nikkei 225 Average ended unchanged at 15,633.8. Shares of Toyota Motor gained 0.3% to 6,290 yen after the company said exports, including those of its related Daihatsu Motor and Hino Motors units, surged 47%. Honda Motor Co rebounded from negative territory to end unchanged after the company reported exports rose 31%. Mazda Motor Corp rose 1% after the auto maker said exports for the month rose 7.1%. Nissan Motor Co and Mitsubishi Motors Co. fell in August from a year earlier.

Shares of brokerage Nomura Holdings fell 1.5% on worries that a broader economic slowing could hinder trading volumes. Shares of NEC Corp. were down 0.3%, reflecting weakness in the export-dependent technology sector and shares of Sony Corp. shed 0.8%.

The Hang Seng Index in Hong Kong fell 0.2% to 17,568.7. Hong Kong-listed shares of Standard Chartered PLC fell 2.5%, giving back some of its 5% gain Friday. The China Enterprises Index, was up 0.3% at 7,123.8. Taiwan Weighted Index rose 0.4% at 6,911.21. Shares listed in Singapore and Malaysia traded flat. South Korea Kospi rose 0.5%, while New Zealand leading share index fell 0.3%.


[R]6:30AM European shares advance on Monday on oil prices and merger deals.[/R]
European markets were higher by mid-morning on Monday. The FTSE 100 in London added 0.4% to 5,844.7, while the Xetra Dax in Frankfurt was up 0.9% to 5,933.70 and the CAC-40 in Paris rose 0.7% to 5,179.89.

M&A Activity

Schwarz Pharma in Germany agreed to be bought by Belgian drug making rival UCB for around 4.4 billion euros in shares and cash. UCB shed 2.6% and Schwarz climbed 17.9%. UCB''s offer, using Friday''s closing price, is valued at 91.10 euros a share. UCB will issue new shares to fund the stock component of the deal.

Advancers

The fact oil prices have resumed their downward trend should at least offer some help to many stocks. Ryanair, the Irish airline, rose 3.1%. Crucell, rose 1.95 on speculation the Dutch biotech company may receive regulatory approval this week for its Quinvaxem vaccine for five childhood diseases. Union Fenosa rose 4.9% after ACS, the Spansih construction company, reportedly gave a buy order to bank Caja Madrid for 6% of the Spanish power company, aiming to take its stake to 40%. ACS was 1.1%.

Decliners

The oil sector was weak. BP fell 1.4% and Statoil dropped 4% and Norsk Hydro fell 3.6 %. Getronics, the Dutch IT services group, fell 2.9% after Deutsche Bank started the stock as a sell. The broker said challenges remained in the core business and working capital management must remain tight to avoid a future cash crunch.

Oil and gold

Oil prices fell below $60 a barrel for the first time in six months Monday. Light, sweet crude for November delivery fell 98 cents to $59.57 a barrel. November Brent crude on London''s ICE Futures exchange dropped $1.04 at $59.37 a barrel. Gold traded in London at $589.50, up from $586.00 late Friday.

Currencies

The U.S. dollar was mixed against other major currencies in European trading Monday morning. The euro bought $1.2772, down from $1.2787 late Friday in New York. The British pound traded at $1.9031, up from $1.9006. The dollar bought 116.57 Japanese yen, up from 116.45.