Europe Rebounds on U.S. Market Rally

Elena
23 Oct, 2006
New York City

European stock markets finished in the positive territory, boosted by deal news and strength in the transport sector. A strong rally on Wall Street and a new all-time high for Dow Jones also contributed to the upside move. The German DAX 30 rose 0.6%, supported by deal speculation. The French CAC 40 gained 0.7%, helped by airline Air France-KLM. London FTSE 100 closed up 0.2%, helped by gains in Standard Chartered.

[R]13:00PM European shares closed higher.[/R]
European stock markets erased early losses to finish in the positive territory, boosted by deal news and strength in the transport sector. A strong rally on Wall Street and a new all-time high for Dow Jones also contributed to the upside move. The gains followed news that Wal-Mart will cut capital spending to drive overall returns. In the currency markets, the U.S. dollar gained versus both the euro and the British pound on speculation the Fed Reserve may that interest rates need further tightening. Across the region, the German DAX 30 rose 0.6%, supported by deal speculation. Techem rose more than 16% after the company reportedly received an acquisition offer from Australian investment bank Macquarie Bank, which it later rejected. In other M&A news, German steelmaker ThyssenKrupp said it is not considering a bid for Anglo-Dutch steelmaker Corus Group. The French CAC 40 gained 0.7%, helped by airline Air France-KLM which rose 2% on falling oil prices. London FTSE 100 closed up 0.2%, helped by gains in Standard Chartered on speculation that Dubai''s state-owned investment company was considering raising its stake in the Asian-focused bank. Losses at oil companies like BP and royal Dutch Shell helped limit gains.

Crude oil steeply dropped amid doubts over OPEC oil production cuts. Crude oil tumbled $1.12 to $58.21 a barrel. London Brent dropped $1.08 to $58.60. The U.S. dollar traded higher against its rival currencies. The euro was quoted at $1.2540, down from $1.2620. The dollar bought 119.29 yen, up from 118.65. The British pound stood at $1.8699, down from $1.8843. European gold prices further dropped. In London, gold traded at $584.20 per troy ounce, down from $594.30. In Zurich the precious metal was traded at $584.23, down from $594.15. Silver traded at $11.66, down from $11.89.


[R]11:30AM The Dow hit a new all-time high, helped by Wal-Mart.[/R]
U.S. stocks rallied in late Monday trading, recovering from earlier weakness. The three major market averages moved higher, with the Dow Jones hitting a new trading high on the back of news that Wal-Mart Stores will cut capital spending in order to drive overall returns. Wal-Mart ((WMT)) said it plans to bring costs in line with a slowdown in its sales and earnings growth. Through this move the return on investment is expected to improve. The world''s largest retailer said it will be more selective about the location of new stores, but still plans to open 600 new stores next year. The Dow component rose 5%.

Gains posted by Altria ((MO)), International Business Machines ((IBM)), and 3M ((MMM)) also contributed to the positive mood. By sector, retailers advanced, boosted by rallying Wal-Mart. Drugs stocks came under pressure as shares of Forest Laboratories Inc. ((FRX)) dropped 4% on news that its partner Replidyne Inc. ((RDYN)) had received a non-approvable letter from the FDA for their new antibiotic drug candidate faropenem medoxomil. Energy stocks posted losses together with the crude oil price. At the same time, airline stocks moved higher, benefiting from the retreating oil price. Alaska Air Group ((ALK)) was a notable gainer, rising 2.4%. On the corporate news front, Ripplewood Holdings LLC is reportedly preparing a $10 billion bid for bankrupt auto parts maker Delphi Corp. ((DPHIQ)), sending its stock up 6.2%.

In the mid morning trading, the Dow Jones industrial average rose 74.20, or 0.62%, to 12,076.57. Blue chips passed 12,000 for the first time last week. The Standard & Poor''s 500 index rose 6.57, or 0.48%, to 1,375.17, and the Nasdaq composite index rose 18.71, or 0.80 1.05%, to 2,361.01. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.83% form 4.79% on Friday.


[R]10:30AM The Sensex sheds 114 points on Monday due to profit-taking.[/R]
The Sensexon BSE finished 113.54 points, or 0.89% lower at 12,623.28. The market-breadth was negative. For 1,433 shares that declined, 978 advanced on BSE and 58 shares were unchanged. From the Sensex stocks, 23 declined while the rest advanced. The turnover on BSE was Rs 2,409 crore, much lower than Rs 3,330 crore on Friday. The turnover on NSE was Rs 5,104.73 crore.

Economic news

The government indends soon to lift a ban on sugar exports imposed in July after an increase in domestic prices, a senior government official announced on Monday.

Decliners

ICICI Bank led the decliners, down 2.21% to Rs 721.55. ICICI Bank announces second-quarter results tomorrow. Hindalco Industries shed 2.03% to Rs 183.55, Cipla lost 2% to Rs 257.45 and ITC sank 2.17% to Rs 184.50.

Tata Steel lost 1.44% to Rs 508.65. The company was approved on Friday by Anglo-Dutch firm Corus Group for its 4.3 billion pound ($ 8.04 billion) takeover bid. Other metal stocks also declined. SAIL lost 2.2% to Rs 88.60, Hindustan Zinc shed 2.51% to Rs 776.30, Sesa Goa lost 1.95% to Rs 1,077 and Jindal Saw finished 1.39% lower to Rs 363.

IT shares declined due to profit taking after a recent advance. Infosys shed 1.36% to Rs 2046, Satyam Computer edged down 1.08% to Rs 425.55, TCS declined 1.24% to Rs 1,078.50 and Wipro slipped 1.57% to Rs 545.55.

Ranbaxy lost 1.13% to Rs 410.45. It signed licensing agreement with Swiss Company Debiopharm, for NCE Drug in the Gastroenterology Segment. India Cements lost 0.36% to Rs 220, after reaching a high of Rs 224.90. The company posted a 1,905% surge in net profit for second-quarter September 2006 to Rs 117.32 crore as compared to Rs 5.85 crore in second-quarter September 2005. Reliance Industries dipped 0.52% to Rs 1,195.55 on 5.65 lakh shares.

Advancers

Bajaj Auto led the advancers, up 1.93% to Rs 2,815 on 1.76 lakh shares. The stock plunged 12% last week, after its net profit for the quarter ended September 2006 missed expectations due to margins under pressure.

HDFC Bank edged up 1.06% to Rs 971.40, Maruti Udyog rose 0.31% to Rs 943.50 and ACC gained 0.35% to Rs 978.

Sugar stocks were in focus, on market talks that the ban on export of sugar would be lifted soon. Monnet Sugar surged 12.70% to Rs 78.10, KM Sugar gained 5.69% to Rs 56.15, Triveni Engineering edged up 1.64% to Rs 71.45, Balrampur Chini Mills jumped 4.50% to Rs 113.75, Dwarikesh Sugar added 3.12% to Rs 162, Bajaj Hindustan moved up 3.60% to Rs 345.10.

Other news

Severstal, the biggest steelmaker in Russia, has abandoned the idea of making a bid for Corus, pushing up the probability that the takeover offer from the Anglo-Dutch company by Tata Steel of India will succeed.

Retail brokerage Geojit Financial Services surged 10% to Rs 27.40 after the company on Sunday approved preferential issue to French banking group BNP Paribas whereby the latter would acquire 33.3% stake in the company for Rs 2.01 billion. Trading volume in Indian stock market is running at 40% or better in the current year and 90% or better in the derivatives market.

Daewoo Electronics, Korean firm, subject of financial restructuring, creditors have signed a deal with a consortium led by Videocon Industries and Japanese based private equity fund contolled by American investors, Ripplewood Electronics for $730 million.


[R]9:45AM stocks opened lower as Ford quarterly loss weighed.[/R]
U.S. stocks declined at opening after Ford ((F)) posted a wider quarterly loss and said it would restate profit for the past five years. Shares of energy companies, including Exxon Mobil Corp. ((XOM)) also moved lower together with crude oil price. Shares of AT&T ((T)) helped to limit losses on the Dow as the telecom operator reported stronger-than-expected quarterly profits, but eventually moved to the downside, dragged by the general weakness. Resource stocks moved lower along with commodities prices. Energy stocks posted significant weakness in early trading, as a decline by the crude oil price generated some selling pressure. Similarly, the gold sector showed moved to the downside due to a substantial decline by the price of gold. Investors are expected to trade cautiously ahead of the Fed''s meeting on Wednesday. In early trading, the Dow Jones industrial average rose 20.41, or 0.17%, to 12,022.78. The Standard & Poor''s 500 index fell 1.08, or 0.08%, to 1,367.52, and the Nasdaq composite index 1.05, or 0.04%, to 2,341.25. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.83% form 4.79% on Friday.


[R]9:30AM The FTSE 100 slips on Monday due to lack of major corporate news.[/R]
The FTSE 100 in London was lower by mid-day on Monday. The FTSE 100 declined 10.6 points, or 0.1%, at 6,1446.

Advancers

Standard Chartered led the large-cap advancers, rising 2.6% supported by news that the Dubai state investment company could be looking to raise its stake in the bank to as much as 20%- at a cost of $7 billion.

Prudential gained 0.9% after UBS raised its price target on the life assurer. The broker suggested Prudential could merge with closed life fund consolidator Resolution, up 0.2%.

Decliners

Royal Dutch Shell declined 0.6% after it offered to buy the minority shares in Shell Canada. The oil producer, which already owns 78% of Shell Canada, said the proposal would value the fully diluted minority share capital.

Corus, fell 0.3%, was still the centre of bid speculation following a 5.1 billion pounds offer from Tata Steel of India on Friday. British Energy lost 1.1% ad Credit Suisse cut its price target on the stock.

In the pubs sector, Enterprise Inns fell 1.5% as UBS cut its rating on the chain from buy to neutral. Punch Taverns was also out of favour, down 1.6%, after the same bank cut its rating from neutral to reduce and decreased its price target.

Other news

The US Chemical Safety Board, the federal body charged with investigating the safety record of BP, is understood to have found at least eight previous dangerous incidents at Texas City.

Balfour Beatty and Carillion, the UK construction groups, have won the 363 million pound contract to extend the new East London rail line between Dalston Junction and West Croydon.


[R]9:00AM Stock futures pointed to a mixed opening amid Ford and Xerox results.[/R]
U.S stock futures pointed to a mixed start on Monday as Ford reported disappointing results, while Xerox posted third-quarter net income increase. With little economic news due out today, investors will look ahead to a FOMC meeting Tuesday and the GDP data at the end of the week.

Ford Motor ((F)) said it expects to report Q3 net loss of $5.8 billion, or $3.08 a share, compared to a loss of $284 million a year ago, due to its restructuring costs. Revenue rose to $3.84 billion from $3.76 billion. Analysts had expected it to earn 22 cents a share on revenue of $3.82 billion. Ford also plans to restate financial results from 2001 through the second quarter of 2006 because of errors in the accounting for derivative deals. Xerox ((XRX)) posted Q3 profit rise of 54 cents a share, from 5 cents a share last year. Dow component AT&T ((T)) reported Q3 earnings rise of $2.17 billion, or 56 cents a share, up from $1.25 billion, or 38 cents a share a year ago. Excluding non-recurring items, earnings would have been 63 cents a share, above the average analyst estimate of 58 cents a share. The stock tacked on 1.5% to $34.94 in pre-opening hours.

Among other companies, reporting earnings today, Hasbro Inc. ((HAS)), toymaker, said Q3 net income rose 8.2% to 58 cents a share on higher revenue of $1.04 billion from $988.1 million. The quarterly results beat estimates of 50 cents on $963 million of revenue. In corporate news, MetaSolv Software ((MSLV)) surged 20% in pre-open trading after Oracle Corp. ((ORCL)) said that it was buying MetaSolv in a deal worth $219.2 million, or $4.10 a share in cash. S&P 500 futures slipped 0.70 of a point to 1,374.20 while Nasdaq 100 futures were unchanged at 1,718.75. Dow industrials futures added 8 points at 12,056.


[R]8:00AM Ford reported wider Q3 loss. The automaker will restate earnings.[/R]
Ford Motor ((F)) reported Q3 wider profit loss of $5.8 billion, citing costs of a massive restructuring plan aimed at reducing its expenses. Ford''s net loss of $3.08 per share was larger than last year''s Q3 loss of $284 million, or 15 cents per share, and the largest since the fourth quarter of 1992 of $8.1 billion, which was due mainly to accounting changes. Ford''s plan aims to slash $5 billion in costs by the end of 2008 by cutting 10,000 white-collar workers and offering buyouts to all of its 75,000 unionized employees. The automaker said special charges for the third quarter of 2006 totaled $5.26 billion before taxes. Excluding restructuring costs, the company said it lost $1.2 billion, or 62 cents per share, from continuing operations. The quarterly results came in below analysts’ expectations of a loss of 61 cents per share. The company also said it gained $99 million due to the release of a reserve from excise taxes in South America.

Ford Motor also said it will restate its earnings for 2001 due to accounting errors related to derivative deals. The restatement is expected to effect financial results from 2001 until the third quarter of 2006. It is also expected to improve results for 2002. The company is expecting to complete the restatement by the time it files its 10Q for the September quarter.


[R]7:30AM Asian markets finished mixed, with Japan up and HK and Seoul down.[/R]
Asian markets closed mixed on Monday. The Nikkei 225 Index advanced 0.82% to end at 16788.82, its highest closing since May 11. The benchmark index was boosted by auto makers and electronics companies. Shares of Sony gained 0.84%, while Canon added 1.7%. Shares of Internet and telecommunications conglomerate Softbank rose 3.5%. Lower crude prices weighed on shares of energy producers, sending Inpex Holdings 0.5% lower.

In Hong Kong, the Hang Seng Index closed flat at 18089.85. Shares of China Mobile, the top cellular company in the world by subscribers, shed 0.2%, after reaching a fresh six-year high earlier in the session.

The Korea Composite Stock Price Index ended up 0.1% at 1364.95. Construction stocks advanced after the government unveiled its plan to develop two new residential towns near Seoul, as part of a series of measures to curb surging property prices. Hyundai Engineering & Construction rose 3.1% and GS Engineering & Construction gained 2.3%.

Chinese stocks declined as investors cut holdings on concerns demand will be swamped by a sudden increase in shares, followed by IPO debut of ICBC on Friday. The Shanghai Composite Index lost 1.7% to 1759.39.

Australia S&P ASX/200 finished little changed at 5333.50, Singapore Straits Times Index ended up 0.2% at 2691.61 and Taiwan Weighted Price Index clsoed little changed. Markets in Indonesia, Malaysia, Thailand and New Zealand were closed for holidays.


[R]6:30 AM Falling oil stocks push European markets lower despite tech gains.[/R]
European markets were lower by mid morning on Monday. The FTSE 100 in London shed 0.1% to 6,150.8, while Frankfurt Xetra Dax remained marginally higher at 6,207.22 and the CAC 40 in Paris fell 0.1% to 5,372.91.

Decliners

Oil stocks were lower on Monday. Finnish refiner Neste Oil lost 3.5%, Norsk Hydro was off 2.7% and Repsol of Spain was down 1.3%.

Advancers

Airlines advanced on falling oil prices. German carrier Lufthansa gained 2%, British Airways added 2%. Akzo Nobel, the chemicals and drugs group, gained 1.1% despite a downgrade by ING.

Technology shares also gained. SAP in Germany was one of the early advancers, up 1%. Banks were led higher by Standard Chartered, after reports it was in the running to take over DBS Group of Singapore. Its shares gained 2.6%. French insurer CNP Assurances added 1.8% after its rating was raised by JPMorgan from neutral to overweight.

The steel sector remained in demand after ThyssenKrupp denied weekend press reports that it was considering a counterbid for Corus, the Anglo-Dutch group which has agreed to be purchased by Tata Steel. Shares in Corus gained 0.1% in Amsterdam, while Thyssen climbed 0.2%.

Oil and gold

Oil trade was range-bound on Monday amid market doubts about a decision by OPEC to cut production. December contracts for light sweet crude oil were up 2 cents at $59.35 a barrel on the NYME. Brent crude futures on London ICE exchange shed 1 cent to $59.67.

Gold traded in London at $588.50 per troy ounce, down from $594.30 late Friday.

Currencies

The U.S. dollar was higher against other major currencies in European trading Monday morning. The euro was quoted at $1.2561, down from $1.2620 late Friday in New York. The British pound traded at $1.8744, down from $1.8843. The dollar bought 119.19 Japanese yen, up from 118.65.