Dollar-Sensitive Stocks Depress Europe

Elena
28 Nov, 2006
New York City

European stock markets finished down Tuesday for a fifth straight trading session, as weakness in the U.S dollar continued to weigh on world markets. Dollar-sensitive stocks like automakers and tech stocks were the most notable decliners. The German DAX 30 dropped 0.3%, the French CAC 40 lost 0.1%, while London FTSE 100 slipped 0.4%.

[R]1:00PM European markets slipped as weak dollar weighed on exporter issues.[/R]
European stock markets finished down Tuesday for a fifth straight trading session, as weakness in the U.S dollar continued to weigh on world markets. The greenback extended recent decline after downbeat durable goods data were released. The euro gained 0.1% at $1.3148 while sterling rose 0.5% at $1.9475. Dollar-sensitive stocks like automakers and tech stocks were the most notable decliners. DaimlerChtysler shed 0.7%, while chipmaker Infineon Technologies lost 0.9%. Also in the technology sector, shares in mobile phone maker Nokia slipped 1.8% after the company lowered its operating margin forecast for the next two years. Financial stocks dropped in London, including Barclay, down 1.7% and Old Mutual, down 5.8%. In deal news, shares of German low-cost carrier Air Berlin dropped 13.7% after the airline said it plans to order 60 737-800 jets from Boeing Co. Shares of EMI Group rose 10% after the music-publishing company said it had received a preliminary approach. In other M&A action, Scottish Power agreed to be bought by Spain''s Iberdrola in a deal worth 11.6 billion pounds. Scottish Power shares closed down 0.8%. The German DAX 30 dropped 0.3%, the French CAC 40 lost 0.1%, while London FTSE 100 slipped 0.4%.

Crude oil prices rose to a two-week high on forecasts of considerably colder weather. Crude oil January contract rose 55 cents to $60.87 a barrel. London Brent climbed 66 cents to $61.10. The U.S. dollar was lower against the euro and the pound. The euro was quoted at $1.3151, up from %1.3128. The dollar bought 116.18 yen, up from 116.08. The British pound was quoted at $1.9473, up from $1.9371. European gold prices declined, despite weak dollar. In London, gold traded at $636 per troy ounce, down from $639.90. In Zurich, the precious metal traded at $637.05 per ounce, down from $639.95. Silver closed at $13.46, down from $13.50.


[R]11:30AM Upbeat home sales data offset earlier decline.[/R]
Stocks turned flat as data, showing the first gain in existing home sales in eight months, managed to offset losses generated by a sharp decline in durable goods. The report showed that existing home sales rose 0.5% to a seasonally adjusted annual rate of 6.24 million units in October. Investors paid little attention to an unexpected drop in the consumer confidence. The Conference Board reported that the figure for November fell to 102.9 from a revised reading of 105.1 in October.

In corporate news, Electronic Data Systems Corp. ((EDS)), provider of information-technology management services, rose 0.6% after Lehman Brothers raised its rating on the stock, citing the company''s efforts to cut costs. Manitowoc Co. ((MTW)), maker of construction equipment, fell1.1% after reiterating its earnings 2006 forecast. Nokia ((NOK)) slipped 1.6% after the world''s largest maker of mobile phones lowered its operating margin forecast for the next two years. Computer hardware stocks posted weakness, ked by Palm ((PLM)) which fell 6.9% to $14.26 after the company cut its Q2 forecast, citing the delayed U.S. rollout of one of the newest versions of its Treo line of handheld smartphones. On the Nasdaq, shares of Apple Computer Inc. ((AAPL)) rose 2% after UBS raised its price target on the company. Higher oil prices boosted shares of oil companies, such as Exxon Mobil Corp. ((XOM)), up1.3% and Chevron Corp. ((CVX)), up 1.6%.

Among companies driven by analyst comments, shares of United Natural Foods ((UNF)), organic and health foods distributor, fell 3% after Banc of America downgraded its rating on the stock to neutral from buy, citing valuation. Micrel ((MCRL)) dropped 4.6% after Wachovia downgraded its rating on the semiconductor maker to market perform from outperform. On the other hand, shares of Quicksilver Resources ((KWK)) rose 4.3% after Goldman Sachs upgraded its rating on the oil and gas company to buy from neutral. In late morning trading, the Dow rose 9.93, or 0.08%, to 12,131.64, after falling 158 on Monday. The Standard & Poor''s 500 index was up 4.47, or 0.32%, at 1,386.37, and the Nasdaq composite index was down 0.25, or 0.01%, at 2,405.67. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.50% from 4.53% late Monday.

[R]Existing home sales advanced 0.5%.[/R]
Tuesday morning, the National Association of Realtors released its report on existing home sales in the month of October. The report showed that existing home sales unexpectedly increased compared to the previous month. The report showed that existing home sales rose 0.5 percent to a seasonally adjusted annual rate of 6.24 million units in October from an upwardly revised rate of 6.21 million units in September. Economists had expected sales to fall to a 6.15 million unit rate. The report also showed that the national median existing-home price came in at $221,000 in October, down 3.5 percent year-over-year. The decrease marked the biggest year-over-year decline on record. Total housing inventory levels rose 1.9 percent to 3.85 million at the end of October, representing a 7.4-month supply at the current sales pace.

[R]Consumer confidence index dropped unexpectedly.[/R]
The Conference Board released its report on consumer confidence in the month of November on Tuesday, showing that its consumer confidence index fell unexpectedly compared to the previous month. The decrease reflected a tighter labor market and a more guarded short-term outlook. The report showed that the consumer confidence index fell to 102.9 in November from a downwardly revised 105.1 in October. Economists had expected the index to increase to 106.0 compared to the 105.4 originally reported for October. The Conference Board said that the present situation index fell to 123.6 in November from 125.1 in October, as those claiming conditions are good fell to 26.5 percent from 27.9 percent and those claiming conditions are bad remained unchanged at 16.8 percent. The report also showed a deterioration in the short-term outlook, as the expectations index fell to 89.2 in November from 91.9 in the previous month. Those expecting business conditions to improve in the next six months fell to 15.1 percent from 18.5 percent.


[R]10:30AM The Sensex plunged on Tuesday due to weak global markets.[/R]
The Sensex on BSE finished 171.64 points, or 1.25%, lower at 13,601.95. The market-breadth was weak. As 1,072 stocks advanced, 1,465 stocks declined on BSE and 83 remained unchanged. From the Sensex stocks 25 declined while the rest advanced. The turnover on BSE was Rs 4,049 crore, lower than Rs 4,441 crore on Monday. The turnover on NSE was Rs 8,257.71 crore, higher than Rs 7,973.17 crore on Monday.

Economic news

Offshore equity funds focused on the Indian subcontinent have doubled their assets over the last 12 months, as a thriving economy and stock market attract foreign investment flow. A total of 143 funds were managing $31.32 billion by the end of October, compared with $15.72 billion at the same time last year.

According to OECD, European organization, India economy is showing signs of overheating, but growth will slow to 8% in the current fiscal 2007 and to 7.5% in fiscal 2008 as tighter monetary policy takes hold, the Organisation for Economic Cooperation and Development announced.

Petrol and diesel prices may be reduced by rupees two and one rupee a litre respectively and a decision in this regard is likely to be announced in Parliament tomorrow.

Decliners

IT stocks declined sharply on profit taking. Satyam Computers lost 2.91% to Rs 451, Wipro shed 2.27% to Rs 588 and Infosys dipped 2.79% to Rs 2,165. Satyam Computer ADR shed 3.2% to $22.99 and Wipro ADR lost 1.9% to $15.25.

NTPC also declined, down 2.79% to Rs 149.65, Reliance Energy lost 3.12% to Rs 529 and Reliance Communications sank 3.25% to Rs 471.

Index heavy Reliance Industries slipped 0.28% to Rs 1,248.25 on 10.30 lakh shares. It declined from its intra-day high of Rs 1,279.95. There are reports that Reliance Industries will sell piped gas at discount.

Metals were hit on selling pressure. Hindustan Zinc plunged 4.73% to Rs 926.50, SAIL lost 3.05% to Rs 85.75, JSW Steel was down 2.65% to Rs 323.50, Sterlite Industries edged down 1% to Rs 545, Hindalco shed 1.72% to Rs 176.65 and Tata Steel dipped 1.42% to Rs 475.40.

Advancers

Hero Honda led the advancers, up 1.62% to Rs 745 on 6.64 lakh shares. The stock gained following reports that the government is considering reduction in oil prices. An announcement regarding fuel prices will be made in parliament on tomorrow.

Cement stocks also finished in positive territory. Grasim was up 0.65% to Rs 2,711, and Gujarat Ambuja Cements advanced 0.38% to Rs 143.70. State Bank of India also added 1.37% to Rs 1,294.10 and Maruti rose 0.35% to Rs 914.

Donear Industries jumped 6.28% to Rs 165 while Amar Remedies surged 20% to Rs 63.15 on high volume of shares.

Godfrey Phillips jumped 10% to Rs 1,140.55, on reports that the company is planning to issue bonus shares to reward investors in the next few months and at a ratio of 4 shares for 1 held.

Force Motors rose 0.80% to Rs 421 after the board of the company approved the transfer of assets and liabilities of the heavy commercial vehicles division to its subsidiary Man Force Trucks.

Other news

Bharti Enterprises of India aims to have one-stop shops of all sizes in its new retail venture with Wal-Mart Stores Inc. and is talking to other global firms to farm out some transportation, its chairman said on Tuesday. The company plans to have its first store by the August next year. The company is likely to roll-out ‘hundreds of stores’ in the next two years according to press reports.

Cairn India has set a price range between Rs 160 and Rs 190 a share for its initial public offering (IPO), which is likely to be on the Indian capital market on December 11. The company expects to raise about Rs 5,261 crore by offering 32.88 crore equity shares to public.


[R]9:45AM Stocks opened lower. Oil stocks gained. Apple rose on UBS upgrade.[/R]
Stock markets opened in the red for a third consecutive session, following weaker-than-expected durable goods data in October. Investors were also awaiting reports on consumer confidence and existing home sales later in the session. A speech by Federal Reserve Chairman Ben Bernanke that could provide clues on the outlook for interest rates was also expected.

Shares of oil companies rose as crude oil prices climbed above $60 a barrel. Exxon Mobil Corp. ((XOM)) shares rose 0.7%, while shares of Chevron Corp. ((CVX)) were up almost 1%. Shares of lawn care service provider ServiceMaster Co. ((SVM)) jumped 6.7% after the company said it plans to explore strategic alternatives, including a possible sale. Among other early movers, Apple Computer Inc. ((AAPL)) rose 1.3%to $90.83 after UBS raised its price target on the company. Again on the Nasdaq, shares of Palm Inc. ((PALM)) fell 6% to $14.43 a day after the handheld device maker slashed its Q2 profit and revenue forecasts. In the first hour of trading, the Dow Jones industrial average fell 30.05, or 0.25%, to 12,091.66, after falling 158 on Monday. The Standard & Poor''s 500 index was down 3.55, or 0.26%, at 1,378.35, and the Nasdaq composite index was down 14.72, or 0.61%, at 2,391.20. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.50%from 4.53% late Monday.

[R]Durable goods orders hit a six-year low in October.[/R]
Tuesday morning, the Department of Commerce released its report on durable goods orders in the month of October, showing that orders for goods meant to last at least three years fell much more than economists had expected. The report showed that new orders for durable goods fell 8.3 percent in October, marking the biggest one-month decline since July of 2000. Economists had expected orders to fall 5.0 percent compared to the 8.7 percent increase reported for September. The drop in durable goods orders was largely due to a significant decline in orders for transportation equipment, which fell 21.7 percent in October after surging up 29.9 percent in September. A drop in orders for commercial aircraft contributed to the decline in orders for transportation equipment. The report showed that orders for non-defense aircraft and parts fell 44.5 percent in October after rising 198.2 percent in September. Excluding orders for transportation equipment, durable goods orders fell by a more modest 1.7 percent in October compared to a 0.5 percent increase in the previous month. The report also showed a notable decline in orders for computers and electronics products, which fell 10.2 percent in October following a 2.3 percent increase in September. The decrease reflected a notable drop in orders for computers and related products. The Commerce Department also noted that shipments of durable goods rose 0.6 percent in October after falling 2.7 percent in September. Inventories of durable goods rose 0.8 percent in October following a 1.1 percent increase in the previous month.


[R]9:30AM London was lower in early trading Tuesday on US markets close.[/R]
By late morning, the FTSE 100 was down 14 points, or 0.2%, to 6,036.1.

Advancers

ITV led the gainers, up 1.3%. The commercial broadcaster has pulled off a coup by luring Michael Grade, chairman of the BBC, to become its new executive chairman. Grade is very well-known and has a strong broadcasting CV at the BBC, LWT, Channel 4 etc. Given the management vacuum at ITV, this should be taken well by the market.

Still with media, EMI Group jumped 6.5% on reports that the company was in talks with private equity groups about a possible bid worth 2.5 billion pounds or more.

Telecoms firm Kingston Communications posted a three-fold increase in half year pre-tax profit and is confident about trading in the second half. Kingston Communications rose 1.12%.

Tobacco group Gallaher was a leading advancer, up 1.6%. Yell Group firmed 1.3% as Goldman Sachs upgraded the directories company from neutral to buy.

Decliners

Scottish Power was flat despite it agreeing a deal with Iberdrola of Spain, which will buy the company for 11.6 billion pounds in cash and shares.

Old Mutual lost 3.8% as the life assurer said the market and exchange rate factors that had affected third-quarter results were likely to continue into the fourth quarter. Barclays bank dropped 1.7% as bad debts at its Barclaycard credit card unit continued to rise.

British Energy fell 1.5%, Drax Group slid 1.3% and Scottish & Southern Energy was lower by 1.3%. Kelda Group was also lower, down 1%, despite announcing plans to return 750 million pounds to shareholders following the completion of its Aquarion disposal.

BAE Systems lost 1.3% after Saudi Arabia suspended negotiations over the 10 billion pounds purchase of a new fleet of Eurofighter Typhoon jets.


[R]9:00AM Stocks futures were dragged down by a decline in durable goods orders.[/R] U.S. stock market futures were sent lower by data, showing a larger-than-expected decline in demand for durable goods orders. As another sign of a slowing economy, the Commerce Department reported that orders for manufactured goods dropped in October by the largest amount in more than six years, following an 8.7% surge in September. Durable goods orders fell a larger-than-expected 8.3% to a seasonally adjusted $210 billion, reflecting a big drop in demand for commercial airplanes, a category that had soared in September. The 8.3% drop in orders for durable goods was the largest one-month decline since a 14% plunge in July 2000.

Among the companies in the spotlight, Palm Inc. ((PALM)) shares dropped 6% in pre-open trade after it slashed its earnings forecast on a delay in rolling out its Treo 750 handheld device in the US. Nokia ((NOK)) slipped 0.9% after it said it was cutting its operating margin forecast due to the merger of its network arm with that of Siemens ((SI)). Hilton Hotels ((HLT)) dropped 5% after it said it plans to create a joint venture in India with DLF Ltd. to develop and own up to 75 hotels and serviced apartments over the next 7 years.

The dollar advanced vs. the yen but fell against the U.K. pound and the euro. The pound was particularly strong after Spain''s Iberdrola agreed to buy Scottish Power ((SPI)) for $22.5 billion in a deal that would create one of Europe''s biggest utilities. Crude oil futures rose 36 cents to $60.66 a barrel, while gold futures slipped $1.70 an ounce to $638.90. Standard & Poor''s 500 futures were down 1.8 points, below fair value. Dow Jones industrial average futures were down 9 points, and Nasdaq 100 futures were down 6 points.

[R]8:00AM Air Berlin is planning to order 60 Boeing planes.[/R]
Air Berlin Plc announced on Tuesday it is planning to place an order of 60 planes with Boeing Co. The airline said it''s ordering 60 Boeing ((BA)) 737-800, with deliveries starting in November 2007. It will receive a total of 85 new Boeing planes worth $5.7 billion at list price between 2007 and 2011, including an earlier order for 25 jets. Joachim Hunold, CEO of the airline, said that the airline is ‘exploring alternatives’ for financing the order. A decision whether to bolster the Boeing order and exercise options for 40 Airbus A320s, will be taken the following year.

Europe''s third-largest budget airline also issued a detailed Q3 profit report, showing that earnings advanced 26%. Net income at the airline improved to 38.7 million euros ($50.8 million), up from 30.6 million euros a year earlier, but missed analysts'' expectations. Revenue rose 28% to 510 million euros.

Company’s shares fell 14.3% in Frankfurt midday trading on concerns over a vague outlook and the financing of the fleet expansion.


[R]7:30AM Asian markets decline sharply Tuesday following US markets fall.[/R]
Asian markets finished sharply lower on Tuesday. Tokyo''s Nikkei 225 Index pared sharp losses to end 0.19% lower at 15,855.26, as export shares such as Honda Motor and Matsushita Electric Industrial retreated on concerns that a stronger Japanese yen will have an impact on earnings derived from overseas. Honda Motor third largest automaker by sales in Japan, fell 1.7%, while Matsushita Electric Industrial Co. maker of the Panasonic brand of consumer electronics, fell 0.9%.

Australian S&P ASX/200 slipped 1.3% to 5,384.30, led lower by weakness in BHP Billiton and other natural-resources shares. Shares of BHP Billiton fell 1.6%, while fellow Australian miner Rio Tinto shed 2.2%. The Kospi in South Korea sank 1%. In Seoul, Samsung Electronics skidded 1.9% and Hynix Semiconductor fell 1.7%.

The Hang Seng Index plunged 564.48 points, or 2.9%, to 18,639.53. Hong Kong-listed Li & Fung Ltd fell 4.1%. Shares of China Shipping Container Lines Ltd plunged 8.6%. The China Enterprises Index, a gauge of China-incorporated stocks listed in Hong Kong, dipped 4.5%. Malaysia KLSE Composite was lower by 1%. Indonesia Jakarta Composite fell 2.2% and Thailand SET Index ended down 1%. Singapore Straits Times Index fell 1.9%.


[R]6:30AM European markets fell in early trading Tuesday on dollar-sensitive sectors.[/R]
European markets were lower in early trading on Tuesday. The U.K. FTSE 100 index lost 0.48% to 6,020.80, the German DAX Xetra 30 index declined 0.43% to 6,270.60, while the French CAC-40 index lost 0.64% to 5,274.64.

Decliners

The FTSE 100 traded lower weighed down by financials such as Barclays, down 1.5%, after a recent strong performance. Insurance group Old Mutual was losing 4.1% after its adjusted embedded value per share, a measure of the company asset value and the present value of future profits, eased 1.7% from the second quarter.

Scottish Power shares lost 0.9% after it agreed to a $22.5 billion cash-and-shares takeover bid from Iberdrola of Spain. Akzo Nobel shares dropped 1% in Amsterdam after its Organon unit and Pfizer ended their joint effort to develop asenapine, a new-drug candidate to treat schizophrenia and acute mania associated with bipolar I disorder.

DaimlerChrysler fell 2.8%, Peugeot shed 2.5% and Volkswagen closed 1.6% lower. Michelin, the tyremaker, fell 4% and Continental slipped 3.5%. Among other big dollar earners, Siemens fell 2.9%. Chip maker Infineon Technologies lost 0.7% in Germany.

Advancers

Music company EMI Group rose 7.4% in London after the Financial Times reported that the company is in talks with private-equity groups about a possible bid for the company. Pharmaceutical company Bayer rose 2% after it reported a forecast-beating rise in third-quarter operating profits, largely due to a strong showing from its healthcare division.

Oil and gold

Oil was steady above $60 a barrel on Tuesday after rising more than $1 the previous session, partly on forecasts of a cold spell in the U.S. Northeast. U.S. crude was down three cents at $60.29 a barrel by 0929. London Brent crude was up seven cents to $60.51.

Gold declined for the first day in eight in London after a rally earlier this month deterred jewelry buyers, the biggest consumers of the precious metal. Gold for immediate delivery in London fell $3.40, or 0.5%, to $637.20 an ounce at 9:45 a.m. local time.

Currencies

The euro held steady against the U.S. dollar on Tuesday ahead of U.S. economic data that could offer new direction to markets. The euro bought $1.3131 in morning European trading, marginally above the $1.3128 it bought in New York late Monday. The British pound rose to $1.9432 from $1.9371. The dollar rose to 116.30 Japanese yen from 116.08 yen.