Europe Tracks U.S. Rally

Elena
18 Oct, 2006
New York City

European stock markets rebounded Wednesday on the back of broad-based gains after The Dow Jones Industrial Average broke through the historical level 12,000. The tech sector advanced, with IT services company Cap Gemini, up 2% and SAP, up 0.6%. Mining companies also posted strength. The German DAX 30 climbed 1.1%, the French CAC 40 rose 1.1%, and London FTSE 100 added 0.7%.

[R]12:00PM European shares rebounded, helped by rally on Wall Street.[/R]
European stock markets rebounded Wednesday on the back of broad-based gains after The Dow Jones Industrial Average broke through the historical level 12,000. The U.S. market rallied on strong quarterly results from Intel and IBM. In the European tech sector, IT services company Cap Gemini jumped 2% and SAP advanced 0.6%. Mining companies also posted strength, with Antofagasta, BHP Billiton, and Rio Tinto rising amid higher gold and copper prices. Among other gainers, shares of Air France-KLM closed higher by 1.9% on oil price decline. The German DAX 30 climbed 1.1%, the French CAC 40 rose 1.1%, and London FTSE 100 added 0.7%.

Crude oil was volatile after weekly government’s report showed that crude inventories advanced, but gas and distillates stockpiles declined. Oil lost 18 cents to $58.75 a barrel. The U.S. dollar recovered against its rival currencies. The euro was quoted at $1.2508, down from $1.2546. The dollar bought 119.14 yen, up from 118.89. The British pound stood at $1.8667, down from $1.8704. European gold prices also gained ground. In London, gold traded at $592.80 per troy ounce, up from $587.20. In Zurich the precious metal was traded at $592.65, up from $587.05. Silver traded at $11.81, up from $11.50.


[R]11:30AM The Dow retreated from record highs. The semiconductors dropped.[/R]
U.S. stocks turned mixed after an early rally, sparked by upbeat data and solid earnings reports from Intel Corp. and IBM. The two blue chips lifted the Dow above the historical 12,000 mark for the first time. The Labor Department data also contributed to the rally after reporting lower consumer prices in September. The 30-stock index has risen over 300 points in October as oil prices fell below $60 a barrel and speculations that the economy was headed for a soft landing after two years of interest-rate hikes.

Intel ((INTC)) gained 1.3%, IBM ((IBM)) traded 4% higher, but semiconductors fell sharply as gains were offset by a disappointing orders and sales outlook from chip-equipment maker ASML ((ASML)) which sent the stock down 6.8%. Novellus Systems ((NVLS)) also weighed, falling 6% amid disappointing revenue outlook. Networkers and computer-hardware stocks also declined. Pharmaceutical companies posted a solid advance, helped by strong earnings from Abbott Laboratories ((ABT)).
Among other companies in focus, Yahoo ((YHOO)) erased early gains to trade down 1.5%. Motorola ((MOT)) dropped 4.9% after reporting a 45% profit drop and a below-forecast 17% sales rise, and warning that Q4 revenue may miss estimates. In late morning trading, the Dow was up 30.26, or 0.25%. The Standard & Poor''s 500 index was up 0.60, or 0.04%, at 1,364.65, and the Nasdaq composite index fell 8.33, or 0.36%. Bonds showed little movement, with the yield on the benchmark 10-year Treasury flat with 4.77 percent from late Tuesday.


[R]10:30 AM Plunging stocks of Bajaj Auto push the Sensex lower on Wednesday.[/R]
The Sensex on BSE finished 25.35 points, or 0.2% lower, to settle at 12,858.48. The market-breadth turned negative in the later trading after being positive till the first half of the trading session. For 1,271 shares that declined on BSE, 1,195 advanced and 73 shares were unchanged. Decliners outpaced advancers by 10:9. The turnover on BSE was Rs 4,035 crore, higher than Rs 3,806 crore on Tuesday. The turnover on NSE was Rs 7,997.28 crore.

Economic news

Prime Minister Manmohan Singh said on Wednesday the government was aiming to achieve 10% annual GDP growth by the year 2011/12.

Indian Prime Minister Manmohan Singh also stated at a seminar organised by the Federation of Indian Export Organizations that a high-level group in the Planning Commission of the country will be created to consider all issues concerning the service sector to enhance India''s competitiveness in the coming years.

In focus

Bajaj Auto plunged 7% to Rs 2,900, due to a fall in margins despite revenue growth remaining strong.

Advancers

Pharma large-caps advanced. Ranbaxy gained 3% to Rs 424, and Dr Reddy’s Lab rose 2.7% to Rs 735. Some second-tier pharma surged. Glenmark Pharma soared nearly 18% to Rs 389.35, after Germany Merck licensed a diabetes drug to the Indian firm.

Some banks also advanced. ICICI Bank gained 2.4% to Rs 742 and SBI rose 1.1% to Rs 1,045. L&T rose 1.5% to Rs 1,309 ahead of Q2 results scheduled tomorrow. Yes Bank moved higher 3.4% to Rs 106, as the private sector lender announced it will issue 10 million shares to Swiss Reinsurance Company at Rs 120 per share.

Some sugar shares jumped. Balrampur Chini Mills surged 10% to Rs 110.35 and Bajaj Hindustan gained 7% to Rs 340.

Decliners

Bajaj Auto pulled other auto stocks lower. Hero Honda shed 1.4% to Rs 747, TVS Motor lost 1.7% to Rs 121, car large-cap Maruti Udyog declined 1.2% to Rs 948 and Tata Motors lost 1% to Rs 890.55.

Wipro sank 3% to Rs 557, despite strong second-quarter results as the company announced that wage hike will impact margin by 2% in Q3 December 2006. Wipro second-quarter earnings rose 48%.

Tata Steel shed 1.2% to Rs 509.35, after Standard & Poor’s placed it on credit watch with negative implications, following the offer of $7.6 billion of the company for the entire stake of Anglo-Dutch steelmaker Corus.

Index heavy Reliance Industries lost 0.6% to Rs 1,208. Reliance Industries announces second-quarter results tomorrow.

Grasim dipped 1.7% to Rs 2,578. After trading hours, Grasim Industries posted stronger-than-expected second-quarter results. The net profit surged 80% to Rs 337.84 crore (Rs 187.65 crore), beating market forecasts.

Other news

Tata Steel, which has come out with an offer to buy out Anglo-Dutch steelmaker Corus, could be confronted with tough competition from Russian firms including Severstal, whose bid had complicated the takeover of Arcelor by Mittal Steel earlier this year.

Forecasting revenues of $500 million in the next five years, news broadcaster NDTV today announced major expansion plans involving a variety of new initiatives, including Hindi.


[R]9:45AM The Dow broke through a historical peak of 12,000.[/R]
The Dow Jones Industrial Average hit the 12,000 mark for the first time in its history, boosted by upbeat economic data and earnings-inspired gains for Intel and IBM. The index topped the milestone right after opening, rising as high as 12,049.51. The Labor Department said that CPI for September fell a seasonally adjusted 0.5%, driven by a 7.2% drop in energy prices. Economists had been expecting a decline of 0.3%. Core CPI, excluding food and energy prices, rose 0.2%, in line with economist projections. In early trading, significant strength emerged in the housing sector after a report showed an unexpected increase in September housing starts. The Commerce Department said that new homes construction unexpectedly rose 5.9%, the first increase since May. Economists had been expecting a 2% decline.

Among leading gainers, Intel ((INTC)) rose 2.6% after chipmaker''s Q3 earnings report showed signs of recovery from serious problems. Shares of IBM ((IBM)) jumped more than 5% on better-than-expected Q3 profit. In corporate news, shares of Motorola ((MOT)) dropped 4.9% after reporting a 45% profit drop, reporting disappointing 17% sales rise. The company warned Q4 revenue also may miss estimates. Transportation stocks showed strength amid a decrease by the price of oil. Meanwhile, some semiconductor stocks came under pressure, with Novellus Systems ((NVLS)) and Linear Technology ((LLTC)) moving notably down after providing disappointing guidance. In midmorning trading, the Dow was up 61.31, or 0.51%. The Standard & Poor''s 500 index was up 4.63, or 0.34%, and the Nasdaq composite index gained 2.49, or 0.11%. Bonds rose, with the yield on the benchmark 10-year Treasury falling to 4.76% from 4.77% late Tuesday.


[R]New construction spending rose 5.9%.[/R]
Wednesday morning, the Department of Commerce released its report on housing starts and building permits in the month of September. The report showed that housing starts increased unexpectedly, while building permits fell. The report showed that housing starts rose 5.9 percent to a seasonally adjusted annual rate of 1.772 million units in September from a revised August estimate of 1.674 million units. Economists had been expecting housing starts to fall to an annual rate of 1.650 million units compared to the 1.665 million unit rate originally reported for the previous month.

The increase in housing starts was largely due to a notable increase in housing starts in the South, which rose 14.0 percent in September. Housing starts in the Midwest rose 3.4 percent, while starts in the North fell 14.1 percent and starts in West fell 2.2 percent. Nonetheless, despite the increase, housing starts in September were still 17.9 percent below the September 2005 rate of 2.158 million units. The Commerce Department also said that building permits fell 6.3 percent to a seasonally adjusted annual rate of 1.619 million units in September from a revised August rate of 1.727 million units. Building permits are seen as an indicator of future housing demand.

[R]Consumer prices fell more steeply than expected.[/R]
The Department of Labor released its report on consumer prices in the month of September on Wednesday, showing that prices fell more than economists had expected. Core prices increased in line with economist estimates. The report showed that the consumer price index fell 0.5 percent in September after edging up 0.2 percent in August. Economists had been expecting prices to fall by a more modest 0.3 percent. The decrease in consumer prices was due in large part to a steep decline in energy prices, which fell 7.3 percent in September after increasing 0.3 percent in August. The index for petroleum based energy fell 12.9 percent in September. The Labor Department also said that its core consumer price index, which excludes food and energy prices, rose 0.2 percent in September, matching the increase that was seen in each of the two previous months. The increase also met economists'' expectations.

The modest increase in core prices came as a significant drop in transportation costs helped to offset increases in apparel, housing, and medical care prices. Transportation prices fell 4.1 percent in September due in part to the drop in energy prices. The report also showed that consumer prices rose at an annual rate of 2.1 percent in September compared to a 3.8 percent year-over-year increase in August. The slowdown in price growth comes as energy prices surged in September of 2005 due to the Gulf Coast hurricanes. At the same time, the Labor Department said that core consumer prices rose at an annual rate of 2.9 percent in September, up from the 2.8 percent annual rate of growth that was seen in the previous month. This marks the fastest pace of growth since February of 1996.


[R]9:30AM Financial amd mining stocks boost FTSE on Wednesday.[/R]
The FTSE 100 in London advanced 35.5 points, or 0.6%, at 6,144.3, in mid-afternoon trading on Wednesday.

Advancers

Rio Tinto was the early standout stock. Its shares gained 3%, following a strong third quarter production report. The rest of the sector tracked Rio higher. BHP Billiton gained 1.6%, while Vedanta added 1.6% higher and Antofagasta rose 1.4%.

Man Group was another stock, rising 3.3% supported by reports which claimed it had asked Merrill Lynch and Credit Suisse to work on a demerger of its brokerage arm, Man Financial. PartyGaming, was also up 4.8%, and among the best performers on reports of a bid from a Las Vegas gaming company.

British Energy continued to recover from the 25% fall on Monday. Shares in the generator, lifted by a spate of supportive comment from analysts and short sellers buying back their positions, gained a further 4.2%.

Rumoured takeover target Hanson advanced 3% as London reacted to news that the US homebuilders index had risen from 30 to 31 points in October. Along with Wolseley, 2.4% higher, Taylor Woodrow, 1% stronger, and George Wimpey, 1.5% stronger, Hanson is one of the UK stocks most exposed to US housing market trends.

Decliners

The top decliners included Reuters easing 1% after third-quarter results from the news and financial information group failed to trigger earnings upgrades from City analysts. International Power eased 1.5% as analysts denied Tuesday rumours of interest from RWE of Germany.

Corporate news

Cobra Electronics has entered an agreement to purchase Performance Products, a privately held, UK-based consumer electronics company for about 17 million pounds plus two earnout payments totaling 12.5 million pounds.


[R]9:00AM Yahoo and Intel earnings lift stock futures.[/R]
U.S. stock market futures moved higher on Wednesday, lifted by upbeat quarterly earnings, released by Intel Corp. and Yahoo Inc. Overseas strength for technology giant International Business Machines also helped generate positive mood. S&P 500 futures edged up 0.8 of a point at 1,372.50 and Nasdaq 100 futures advanced 2.25 points at 1,722.50. Dow industrial futures rose 14 points.

Intel share added 1.2% in pre-opening hours after the world''s largest chipmaker''s Q3 earnings report showed signs it had overcome the worst of its problems. Intel ((INTC)) reported a 35% profit drop, though compared to Q2 results, profit rose 47%. Internet bellwether Yahoo ((YHOO)) jumped 3.5% in pre-open after the company met expectations with a 20% sales rise. The company reported 37% profit drop to $158.5 million, or 11 cents a share, from $253.8 million, or 17 cents, a year ago, meeting expectations. International Business Machines ((IBM)) posted better-than-expected Q3 earnings, with revenue growing 5% on strong sales of software and hardware. The quarter''s net profit jumped 47% to $2.22 billion due largely to a lower tax bill. Net income rose to $1.45 per share, up from 94 cents a share a year ago, as the company absorbed a $525 million tax expense on foreign earnings that were repatriated to the U.S. IBM’s shares gained 4% in pre-market trading.


[R]7:30AM Asian markets end mostly higher, financials power Japan.[/R]
Asian markets ended mostly higher on Wednesday. Japan''s Nikkei 225 index gained 0.25% to finish at 16653.00. Toyota, which was down through most of the trading session following its recent sharp rally, ended up 0.3%. Toshiba advanced 2.8% after revising up its earnings outlook for the first half ended September. Aeon finished up 0.4% on last-minute bargain-hunting after trading in negative territory through most of the trading day.

In South Korea, gains in South Korean banking shares supported the local stock market to close up, despite concerns over North Korea. The Korea Composite Stock Price Index edged up 0.2% to 1354.26.

In Hong Kong, the Hang Seng Index gained 0.18% to end at 18048.09. In Taiwan, though, shares dropped slightly, pushed down by the food and electronics sectors. The Weighted Price Index of the Taiwan Stock Exchange shed 0.8% to 7017.6. Taiwan Semiconductor Manufacturing, the biggest contract chipmaker by revenue in the world, declined 1.4% and rival United Microelectronics dropped 1.9%.


[R]6:30AM European stocks rise in early trading Wednesday on tech stocks.[/R]
European markets were higher by mid-morning on Wednesday. The U.K. FTSE 100 index gained 0.6% at 6,144.40, Frankfurt Xetra Dax was up 0.5% at 6144.33 and CAC 40 in France was up 0.5% at 5330.73.

Advancers

Leading fine paper manufacturer, M-real rose 13% after the company tabled a cost cutting plan expected to save 100 million euros.

British Energy bounced back after a sharp fall earlier in the week and was up 3.7% as analysts said there was plenty of spare energy capacity for the coming winter despite problems at the company’s nuclear power stations.

Man Group was higher by 3.4% amid news it plans to demerge its brokerage, Man Financial. In mining stocks, BHP Billiton was up 1.1% and Rio Tinto was up 2.8% as analysts expect upbeat metals prices.

Decliners

Akzo Nobel declined 7% after the Dutch pharmaceutical group announced a delay loomed in launching its anti-schizophrenic drug, asenapine amid missing analysts quarterly earnings expectations. Dutch electronic chip maker, ASML sank 5%, despite reporting a record third quarter profit that exceeded forecasts.

Reuters plunged 1.6% as well after it reported third quarter results sightly better than forecasts. Collins Stewart cut Reuters to a hold from buy after the earnings release.

Oil and gold

Oil prices moved higher on Wednesday ahead of the release of weekly U.S. petroleum supply data expected to show a decline in distillate stocks. Light, sweet crude oil for November delivery rose 23 cents to $59.16 a barrel in on the NYME. December Brent crude oil on London ICE Futures exchange rose 33 cents to $61.27 a barrel.

Gold traded in London at $595.25 a troy ounce, up from $587.20 late Tuesday.

Currencies

The U.S. dollar was mixed against other major currencies in European trading on Wednesday morning. The euro was quoted at $1.2538, down from $1.2546 late Tuesday in New York. The British pound was quoted at $1.8699, down from $1.8704. The dollar bought 118.69 Japanese yen, down from 118.89.