North Korea's Tests Weigh

Elena
09 Oct, 2006
New York City

Stock market futures traded lower Monday, as investors seemed likely to lock in profits due to concerns about North Korea''s nuclear test and climbing oil prices. Following the news, shares of South Korea''s KOSPI dropped 2.4%. Trading on Wall Street is expected to be light as the bond market is closed for the Columbus Day holiday.

[R]09:00AM Stock futures pointed to a weaker start amid North Korea’s nuclear testing.[/R]
Stock market futures traded lower Monday, as investors seemed likely to lock in profits due to concerns about North Korea's nuclear test and climbing oil prices. Following news that North Korea had successfully carried out an underground nuclear test, the yen dropped to an eight-month low against the dollar, gold and oil prices moved significantly higher and moderately weighed on global stock markets. Crude oil for November delivery climbed nearly 1%t in electronic trading to $60.30 a barrel, as members of the OPEC came closer to the agreement to reduce production. As a result, energy shares advanced, with Exxon Mobil Corp. ((XOM)), up 0.6% in European trading.

In deal news, the Dolan family that controls Cablevision Systems Corp. ((CVC)) offered to buy out the cable operator's public shareholders in a deal worth about $7.9 billion. Cablevision shares rose 11% before the bell. Shares of PNC Financial Services Group Inc. ((PNC)) slightly advanced in European trading, as the company agreed to buy Mercantile Bankshares Corp. ((MRBK)) for $6 billion in cash and stock. Trading on Wall Street is expected to be light as the bond market is closed for the Columbus Day holiday. Standard & Poor's 500 futures were down 3.3 points, just below fair value Dow Jones industrial average futures were down 25 points, and Nasdaq 100 futures were down 6.5 points.


[R]8:30AM The Dolan family offered to take Cablevision private for $7.9 billion.[/R]
Cablevision Corp.''s founding family offered to take the cable-television operator private in a deal valued at $7.9 billion, or $27 for each Cablevision ((CVC)) share they do not already own. The offer represents about a 13% premium to the stock''s closing price Friday of $23.93 on the New York Stock Exchange. The Dolans would also assume $11.3 billion in debt as part of the leveraged buyout. The New York Times reported that the deal is valued at $19.2 billion, which includes the assumption of debt. The offer comes about 16 months after the Dolans made a bid to buy the company''s cable unit and spin off its other assets. Company’s shares climbed 12% in premarket trading.


[R]8:00AM The PNC Financial Services agreed to buy Mercantile Bankshares for $6 B.[/R]
The PNC Financial Services ((PNC)) agreed to buy Mercantile Bankshares ((MRBK)) in a deal worth $6 billion, or $47.24 a share, in cash and shares. Mercantile shareholders will receive 0.4184 shares of PNC common stock and $16.45 in cash for each share they own. Citigroup and Goldman Sachs are financial advisors of PNC, while Sandler O''Neill & Partners advised Mercantile. PNC hopes that the takeover will contribute to earnings growth in 2008, and that it has an estimated internal rate of return of approximately 15%. The banks predict the reduction of over $100 million of operating expenses through the elimination of operational and administrative redundancies.


[R]7:30AM South Korean stocks fell in the wake of N. Korean nuclear test.[/R]
Asian markets finished lower on Monday. The benchmark Korea Composite Stock Price Index, or Kospi, fell as low as 1,303.62, or 3.6%. Markets in South Korea have long been considered vulnerable to potential geopolitical risks coming from the North.

In Hong Kong, the Hang Seng Index ended 1.27% lower at 17,675.24. Straits Times Index in Singapore fell 1.2% to 2,618.05 in afternoon trading. Share prices in Sydney, Jakarta and Manila were lower; Australia S&P/ASX 200 index dropped 0.2% to 5,209.00.

China bucked the downward trend. Banks led the stock market to a five-year high on expectations Industrial & Commercial Bank of China will make a strong debut late this month. The benchmark Shanghai Composite Index ended up 1.9% at 1,785.39, its highest closing level since it settled at 1,793.88 on Sept. 25, 2001.


[R]6:30AM European stocks declined Monday morning on geopolitical concerns.[/R]
European markets were broadly lower by mid-morning on Monday. Frankfurt Xetra Dax shed 0.5% to 6,058.62 and the CAC 40 in Paris lost 0.3% to 5,265.38. London FTSE 100, however, added 0.3% to 6,017.8, buoyed by its greater weighting in oil and mining stocks, as crude and metals prices rallied.

Advancers

Shire, the drugs company, gained 9.1% after getting the go-ahead in the US for a new attention deficit drug. Oil companies advanced. Austria OMV gained 2.4%, Italy Eni added 1% and Norway’s Statoil climbed 2%.

TeliaSonera, the Nordic region largest telecoms operator, gained 2.9% after Cevian, the activist fund bought 72 million shares to become the fourth-largest shareholder.

Decliners

Volkswagen fell 1.1% after the Financial Times reported MAN would drop its bid for Scania, its rival truckmaker, so the three companies can enter negotiations to enter a three-way alliance.

Investor, the Swedish fund manager and second-largest shareholder in Scania, fell 2.5%. Renault shares slipped 0.4% as expectations of a tie up with General Motors faded. Peugeot, shed 2% after Morgan Stanley downgraded the stock from overweight to equal weight.

Banking stocks gave back some of their recent, M&A-driven gains. Austria Erste Bank fell 1.9%. It is awaiting judgement today from Romanian lawmakers on its intended acquisition of the country top bank BCR. Raiffeisen, Erste domestic rival, and competitor in high-growth eastern European markets, fell 1.5%.

Oil and gold

Crude oil for November delivery rose 51 cents to $60.27 a barrel in electronic trading on the NYME. In London, November Brent gained 38 cents to trade at $60.21 a barrel on the ICE Futures exchange.

Gold rose after North Korea carried out its first nuclear-weapons test and as higher base metals prices boosted purchases of commodities as a basket. Gold for immediate delivery rose $5.63, or 1%, to $579.72 an ounce.

Currencies

The euro was barely changed Monday against the U.S. dollar, while the Japanese yen was slightly lower after North Korea claimed to have tested a nuclear weapon. The euro bought $1.2601 in morning European trading, compared with $1.2595 late Friday in New York. The British pound slipped to $1.8678 from $1.8705. The dollar rose to 119.12 yen from 118.98 yen.