Nasdaq Drops 1%

123jump.com Staff
02 Oct, 2006
New York City

Market averages traded lower with no clear direction. Nasdaq led the decline with a loss of 1%. Oil dropped more than 2% on worries that more production cuts are not likely. Report on manufacturing showed a slowing level of activity and construction spending rose 0.3% in August. Stock markets in Peru and Saudi Arabia led the world at the end of Q3 with a gain of 115% and a loss of 33% respectively. Emerging markets are ahead of New York and European markets for the year by a factor of two.

[R]4:00PM Nasdaq dropped 1% in lackluster trading.[/R]

-Yield on 10-year bond closed at 4.6% and 30-year bond closed at 4.78%.

-Crude oil dropped $1.49 to $61.43 per barrel and natural gas closed nearly unchanged to close at $5.62 per mBtu.

-Gold dropped 90 cents to close at $597.90, silver gained 10 cents to $11.70 and copper dropped 3.50 cent to close at $3.4295.

-Asian Markets closed higher across the region. Singapore led the advance with a rise of 1.2%, Taiwan gained 1.1%, Japan rose 0.8% and Australia rose 0.6%. India was closed for 137th birthday of Mahatma Gandhi. Philippines, Thailand and Indonesia fell between 0.4% and 0.5%. Indonesia led the Asian markets with a gain of 40% in local currency at the end of the third quarter.

-European Markets closed slightly lower in the region led by a sharp decline in online gambling stocks in the UK. Switzerland and Norway led the decliners with a loss of 0.5%, Spain, Netherlands and France dropped 0.15% and Germany and UK lost less than 0.1%. Online gambling stocks fell between 25% and 55% in the UK and Austria. Saudi Arabia closed down with a loss of 33% for the year at the end of the third quarter. Russia led the European markets at the end of third quarter with a gain of 35% for the year.

-Latin Markets were led by a steep rise of 1.71% in Brazil and a drop of 1.45% in Mexico. Brazil’s President Lula received 48.6% of the vote in the election, less than 50% needed to avoid a runoff. Market in Peru finished third quarter with a yearly gain of 115% in local currency and 124% in dollar, leading the exchanges around the world.

[R]12:30PM European shares closed lower.[/R]
European markets finished below the flat line, pulled down by weaker technology stocks and steep losses in online gambling shares. A broker downgrade of Apple Computer, as well as a stronger euro dragged the tech sector, sending shares of software maker SAP down by 1.1% and chipmaker STMicroelectronics, down 1.3%. About $7.5 billion of market value was wiped off gambling stocks after the U.S. Congress passed a bill that would prohibit U.S. financial services firms from processing payments to these. London FTSE 100 ended lower by 0.1%, with shares of PartyGaming down 56% and Sportingbet, down 64%. However, gains for utilities like Kelda Group and miners, including Lonmin, helped offset declines. Shares of British water company AWG rose 4.9% after agreeing to accept a 2.2 billion-pound ($4.1 billion) bid from a consortium called Osprey. The German DAX 30 edged down 0.1% and the French CAC 40 lost 0.1%.

Oil prices sharply dropped after investors shrugged off a decision by Nigeria and Venezuela to cut their oil production. Light sweet crude November delivery lost $1.66 to $61.25. London Brent November contract slipped $1.02 to $61.46. The U.S. dollar lost ground versus major currencies. The euro traded at $1.2764, up from $1.2648. The dollar bought 117.71 yen, down from 118.11. The British pound stood at $1.8849, up from $1.8710. European gold prices advanced. In London the precious metal traded at $599.90, up from $595.70 per ounce. In Zurich gold traded at $599.95, up from $594.95. Silver closed unchanged at $11.60.

[R]11:30AM Market traded in a lackluster manner.[/R]
On the first day of the fourth quarter, stocks traded in a lackluster manner, reflecting mixed economic data, falling oil prices and merger news. The Institute for Supply Management said the manufacturing sector grew at the slowest pace in more than a year in September due to weaker U.S. auto sales and a slowing housing market. The Commerce Department said construction spending in August rose 0.3% after falling 1% in July.

Although the broader markets showed a lack of direction, Myogen ((MYOG)) helped to lead the biotechnology sector higher after it announced it agreed to be acquired by Gilead Sciences ((GILD)) at a 50% premium. A broker downgrade of Apple’s ((APPL)) stock dragged the tech sector, but solid gains for Hewlett-Packard and General Motors helped the Dow higher. Hewlett-Packard shares ((HPQ)) rose 2.7% after on positive comment about the computer and printer maker in Barron''s. General Motors Corp. ((GM)) was up 1.7% after its South Korean unit GM Daewoo Auto & Technology Co. said that its sales in September increased 27.6%, boosted by rising demand for its new models.

The gold sector rallied. The utilities and housing sectors also showed some strength, while oil service stocks came under pressure amid a notable decrease by the price of oil, down $1.21 at $61.70 a barrel. Transportation, computer software stocks and brokers also moved to the downside. In late morning trading, the Dow Jones industrial average rose 6.72, or 0.06%, to 11,685.79. The Standard & Poor''s 500 index was up 0.16, or 0.01%, at 1,336.01, and the Nasdaq composite index fell 3.14, or 0.14%, at 2,255.29. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.62% from 4.63% late Friday.

[R]The pace of growth in the manufacturing sector slowed.[/R]
The Institute for Supply Management released its report on business activity in the manufacturing sector in the month of September on Monday, showing that the pace of growth in the sector slowed more than economists had expected. The report showed that the purchasing managers index fell to 52.9 in September from 54.5 in August. While a reading above 50 indicates growth in the sector, economists had expected a more modest decline to a reading of 53.5. The slowdown in the pace of growth in the manufacturing sector was partly due to slower production growth, with the production index falling to 56.1 in September from 56.6 in August. At the same time, the new orders index came in unchanged at 54.2. The report also showed that employment contacted in September after seeing some growth in the previous month. The employment index fell to 49.4 in September from 54.0 in August, with a reading below 50 indicating contraction. The ISM also said that its prices index fell to 61.0 in September from 73.0 in August, although the reading still indicates notable price growth.

[R]Construction spending rose unexpectedly.[/R]
Monday morning, the Department of Commerce released its report on construction spending in the month of August, showing that spending increased unexpectedly compared to the previous month. The report showed that construction spending rose 0.3 percent to $1,200.7 billion in August from a revised $1,196.8 billion in July. The increase came as a surprise to economists, who had been expecting spending to fall 0.3 percent. With the increase in August, construction spending is 4.4 percent above the August 2005 estimate of $1,150.3 billion. The increase in construction spending came as spending on private construction edged up 0.1 percent in August, reflecting growth in both residential and non-residential construction spending. Spending on public construction showed a notable increase, rising 1.1 percent compared to the previous month on higher spending on educational and highway construction.

[R]9:45AM Market opened lower.[/R]
U.S. stocks opened below the flat line Monday after Wal-Mart Stores ((WMT)) said September same-store sales came in at the low end of a forecast. The New York Times reported that the retailer is capping wages, hiring more part-time workers and scheduling more workers on nights and weekends to create a cheaper workforce. Company''s shares slipped nearly 2%. The early weakness came as traders were nervous ahead of the release of key economic data later this morning. Oil service stocks posted notable losses in early trading following a decrease in the price of oil.

In corporate news, casino operator Harrah''s Entertainment Inc. ((HET)) received a $15.05 billion offer from private equity firms Apollo Management and Texas Pacific Group. The stock rallied 19%. Drug research company Gilead Sciences Inc. ((GILD)) agreed to pay a 50% premium to acquire biopharmaceutical concern Myogen Inc. ((MYOG)) for $2.5 billion. In the first hour of trading, the Dow Jones industrial average rose 8.33, or 0.07%, to 11,687.40. The Standard & Poor''s 500 index was up 0.32, or 0.02%, at 1,336.17, and the Nasdaq composite index fell 2.17, or 0.10%, at 2,256.26.

[R]09:00AM Stock futures declined on Wal-Mart sales and Apple downgrade.[/R]
Stock market futures reversed from earlier gains to move slightly down, as Wal-Mart reported disappointing sales results and the stock of Apple Computer was downgraded. The news offset the positive impact of an acquisition and a possible merger deal.

Dow component Wal-Mart ((WMT)) fell 2% after posting September same-store sales rose 1.8%, just below the mid-point of its 1% to 3% forecast range. Apple ((APPL)) fell 2% to $75.40 in pre-open trading after Citigroup downgraded shares to hold as the broker sees little potential for higher-than-expected revenue in the third or fourth quarter of the year. Positive news for the whole tech sector was brought be the Semiconductor Industry Association, which said that worldwide sales of semiconductors reached an all-time monthly record of $20.5 billion in August, up 10.5% from a year ago.

In merger-and-acquisition news, shares of Myogen ((MYOG)) surged 48% to $51.74 in pre-open trading after Gilead Sciences ((GILD)) said it will acquire the biotech company for $2.5 billion, or $52.50 a share in cash. The bid represents a 50% premium to Friday''s closing price. Shares in Gilead shares slipped 5.6% to $64.87. Harrah''s Entertainment ((HET)) jumped 12% on news that the company was in talks to be acquired in one of the biggest leveraged buyout deals ever. S&P 500 futures were down 0.7 point, but above fair value. Dow Jones industrial average futures down 13 points, and Nasdaq 100 futures were down 2.25 points.

[R]8:00AM Gambling companies tumbled on Congressional legislation.[/R]
British online gambling companies tumbled Monday after the U.S. Congress passed legislation prohibiting the use of credit cards, checks and electronic fund transfers for online gaming. On Saturday, the House of Representatives and the Senate passed the legislation as part of a port securities bill.

Shares of companies, such as Sportingbet PLC and PartyGaming PLC, moved steeply to the downside. PartyGaming plunged 60% to 43 pence (81 cents), shares in 888 sank 48% to 76 pence ($1.42), while Sportingbet shares dropped 67% to 60 pence ($1.12).

PartyGaming, the world''s biggest online gambling company, said it would pull out of the United States if President Bush signs the legislation into law, while Sportingbet, which does more than 60% of its business in the United States, said the impact of the legislation was unclear. Sportingbet PLC also said it terminated takeover talks with World Gaming PLC. Another gaming company, 888 Holdings PLC, said that following the legislation, it is suspending online betting operations in the U.S. The company interprets the legislation as a Congressional intent to treat Internet gaming as illegal.

[R]7:30AM Asian markets rise on upbeat Japanese economic sentiment.[/R]
Asian markets were higher on Monday. The Nikkei 225 Average in Tokyo finished the day up 0.8% to 16,254.3, its highest close in nearly a month. After the release of the tankan, Honda Motor shares gained 2.5%. Shares of Fuji Photo Film advanced 2.8% but Sony Corp. shares fell 1.1% as a recall of laptop batteries made by one of the firm subsidiaries widened.

On Friday, Toshiba Corp. announced they were joining several other computer-makers in recalling lithium-ion batteries manufactured by Sony. Softbank Corp shares slipped 2% following Friday 7.2% gain. Mitsubishi Heavy Industries shares gained 2% after the company said it would sell compact nuclear reactors to U.S. utilities starting in 2011. Airline shares dropped as a recent recovery in crude-oil prices suggested that fuel costs may not retreat as much as expected. All Nippon Airways shares dipped 1.1%.

Australia''s S&P/ASX 200 added 0.5%. Woodside Petroleum was up 1.2% as crude-oil prices continued to recover. Miners gained in Australia, with BHP Billiton up 0.9% and Rio Tinto up 0.3%. The Taiex index in Taiwan rose 1.1%, while South Korea Kospi index gained 0.2%. Hong Kong and mainland China stock exchanges were closed Monday for National Day.

[R]6:30AM Merger hopes and commodities lift Europe on Monday.[/R]
European markets were higher by mid-morning on Monday. The FTSE 100 in London climbed 0.2% to 5,972.7, Frankfurt Xetra Dax added 0.3% to 6,021.65 and in Paris, the CAC 40 gained 0.2% to 5,261.69.

In focus

There was activity again in the utilities sector. EDP in Portugal gained 2.3% after reports in the Spanish press that it could form a friendly merger with Spain’s Gas Natural.

Advancers

RWE gained 1.8% , while Enel, which HSBC initiated at neutral, rose 0.2%. Ahold added 0.5% on reports its US Foodservice unit could be the target of private equity bids.

Decliners

PartyGaming led the declines, falling 55.6%. Austria’s Bwin Interactive fell 17.3%. Telekom Austria fell 6.8% after investment bank UBS cut its rating on the company from buy to neutral and lowered its price target.

Oil and gold

Light, sweet crude for November delivery rose 12 cents to $63.03 a barrel in electronic trading on the NYME. November Brent crude on the ICE futures exchange in London rose 22 cents to $62.70 a barrel. Gold opened Monday at a bid price of $602.20 a troy ounce, up from $595.70 late Friday.

Currencies

The euro bought $1.2672 in morning European trading, compared with $1.2678 in New York late Friday. The British pound slid to $1.8689 from $1.8710. The dollar climbed Monday to 118.27 Japanese yen from 118.11 yen.