Rate Worries Weigh on Wall Street

Elena
28 Dec, 2006
New York City

U.S. stocks failed to continue the recent rally and kept trading in the negative, despite stronger-than-anticipated economic reports. On the one hand, the upbeat data provided support to the equities, but on the other, stoked concerns about faster-than-expected economic growth that could lead the Fed to stay on hold on rates in 2007.

[R]11:30AM Market averages traded lower on worries of faster economic growth.[/R]
U.S. stocks failed to continue the recent rally and kept trading in the negative, despite stronger-than-anticipated economic reports. On the one hand, the upbeat data provided support to the equities, but on the other, stoked concerns about faster-than-expected economic growth that could lead the Fed to stay on hold on rates in 2007. The Conference Board's index of consumer confidence climbed to 109 in December, reaching an 8-month high and countering expectations of a decline to 102. The National Association of Realtors reported existing home sales rose 0.6% in November, beating economist projections for a decline.

Financial companies were notable decliners, with Citigroup Inc. ((C)) dragging banks lower on expectations that lower rates aren’t imminent. Lower interest rates are favorable as they boost the value of bonds owned by banks and insurers, and thus increase demand for mortgages and loans. Citigroup shares lost 1.5%. Apple Computer ((AAPL)) weighed on technology shares with a 2% decline on reports that its CEO was given 7.5 million stock options in 2001 without board authorization. Elsewhere, shares of Siemens ((SI)) added 1.1% after the electronics maker together with IBM ((IBM)) won a $9 billion contract from the German military. In late morning trading, the Dow Jones industrial average fell 16.98, or 0.14%, to 12,493.59, retreating from its record close of 12,510.57. The Standard & Poor's 500 index fell 3.37, or 0.24%, to 1,423.47, and the Nasdaq composite index gave up 7.99, or 0.33%, to 2,423.23.


[R]10:30 AM India slips on Thursday, as IT and capital goods decline.[/R]
The Sensex on BSE finished 13.35 points, or 0.10%, lower at 13,846.34. The market breadth was negative as 1,234 shares advanced on BSE, 1375 shares declined and 73 shares were unchanged. Of the thirty stocks in the Sensex index, 16 declined, while the rest advanced. The turnover on BSE was Rs 3,966 crore, higher than Rs 3,664 crore on Wednesday. The turnover on NSE was Rs 9,966.62 crore, as compared to Rs 7,083.45 crore on Wednesday.

Economic news
The Indian rupee hit a nine-month high on Thursday but gave up the gains. Robust exports, foreign investment in local companies through the stock exchanges and strong remittances from NRI community.

The Reserve Bank of India announced its study of budgets fiscal 2007 and has outlined a solid improvement in the fiscal policies helping to improve national deficit. In fiscal 2006 ratio of gross fiscal deficit to gross domestic product fell to 3.2% and ratio of revenue deficit to gross domestic product to 0.5%. The Reserve Bank accounts for this improvement on revenue collection improvement.

Chinese computer company, Lenovo, today announced its plans to expand into India. The company will launch its first innovation centre in the country to promote products in multi-branded and exclusive retail outlets.

In trade today
Tech Mahindra was the most-active stock with a turnover of Rs 319.20 crore followed by the stocks of Indiabulls and Reliance Industries. The mobile telephone company, Hutchinson Essar is looking for a premium valuation. The Chinese billionaire, Li Ka-shing controls 67% stake in the mobile phone company and is reported to expect valuation at eleven times sales. The fourth largest telecom company is generating app. Rs 400 per month per subscriber but is reported to seek a premium price of between 35% and 45% to the current mobile phone leaders Reliance and Bharti. Mr. Shing is expecting for his 67% stake a steep price of $21 billion.

Advancers
HDFC Bank led the advancers, up 2% to Rs 1,078 after its ADR advanced 3% to $73.89 on Wednesday on the NYSE. Hero Honda was another big gainer, jumping 1.83% to Rs 758, TCS rose 1.73% to Rs 1,216 and ITC added 1.47% to Rs 179.

Initial Public Offering of Ess Dee Aluminium jumped 11% at the opening to Rs 260 from the IPO price of Rs 225 per share and settled back at Rs 238. The stock was one of the most-traded on BSE. HCL Technologies advanced 2.21% to Rs 633.90, as a block deal of 5 lakh shares was traded on BSE at Rs 619 per share.

Indiabulls Financial Services gained 5.18% to Rs 673.95 as buying continued, a day before the last trading date for shareholder to purchase the shares of the real estate firm.
Hindustan Construction Company advanced 2.46% to Rs 148.10 after a statement from that company that it was awarded a national highways road project worth Rs 275 crore in Andhra Pradesh.

Bank of India rallied 5% to Rs 205.35 on hopes of improving profitability following several hikes in lending rates. Banks have raised lending rates for consumer and project financing to 13.5%.

Decliners
Cipla, generic pharmaceutical company, led the decliners, plunging 2.77% to Rs 252.35 on 1.43 lakh shares. SBI was also off 1.27% to Rs 1,235), Dr Reddy’s lost 1.13% to Rs 798.40 and Tata Steel declined 1.05% to Rs 476.25. Ratan Tata, Tata group chairman, said that there was a limit to how far Tata Steel can stretch to buy Anglo-Dutch steel-maker Corus Group without compromising the interests of shareholders.

Reliance Communications declined 0.41% to Rs 473. The company is in bidding war with Vodafone for Hutchison Essar, shares of which skyrocketed for the second straight day today, taking the Hong Kong stock market to a new peak above 20,000 points for the first time in its history.

Index heavy Reliance Industries shed 0.78% to Rs 1,282.80 on 13.19 lakh shares. Reliance intends to invest Rs 5,000 crore for gasification of lignite in south Gujarat. The project will be a joint venture between with Gujarat Mineral Development Corporation.


[R]9:45AM Stocks opened little changed, awaiting key economic data.[/R]
Stocks opened little changed on cautiousness ahead of key economic data but pared losses following the release of stronger-than expected reports. December consumer confidence rose to 109.0 from an upwardly revised 105.3 in November, despite expectations of a decline to 102.0. November existing home sales rose 0.6% to a seasonally annual rate of 6.28 million units from an unrevised 6.24 million unit rate in October. Economists had expected a decrease to a 6.15 million unit rate.

On the corporate new front, Apple ((APPL)) fell 1.6% amid reports that the company''s CEO Steve Jobs was given 7.5 million stock options in 2001 without the authorization of the company''s board. U.S. industrial goods manufacturer Eaton Corp. ((ETN)) agreed on Thursday to buy AT Holdings Corp., the parent of Argo-Tech Corp., for $695 million, trying to expand its aerospace business. The deal is expected to close in Q1 of 2007.

In world news, Asian internet and phone companies may take at least two weeks to restore services, struggling to fix undersea cables damaged by earthquakes off Taiwan. Companies have been suffering from the loss of online services since Dec. 26 when a 7.1 magnitude quake struck southern Taiwan. In midmorning trading, the Dow Jones industrial average fell 18.74, or 0.15%, to 12,491.83, retreating from its record close of 12,510.57. The Standard & Poor''s 500 index fell 2.25, or 0.16%, to 1,424.59, and the Nasdaq composite index gave up 6.00, or 0.25%, to 2,425.22.


[R]Existing home sales surprisingly advanced in November.[/R]
Thursday morning, the National Association of Realtors released its report on existing home sales in the month of November, showing that existing home sales unexpectedly increased compared to the previous month. The report showed that existing home sales rose 0.6 percent to a seasonally annual rate of 6.28 million units in November from an unrevised 6.24 million unit rate in October. Economists had expected existing home sales to fall to a 6.15 million unit rate.

[R]Consumer confidence unexpectedly gained in December.[/R]
The Conference Board released its report on consumer confidence in the month of December on Thursday, showing that its consumer confidence index came in well above economist estimates after an upwardly revised reading for the previous month. The report showed that the consumer confidence index rose to 109.0 in December from an upwardly revised 105.3 in November. Economists had expected the index to fall to 102.0 from the 102.9 originally reported for the previous month.

[R]Initial jobless claims rose less than expected.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended December 23, showing that jobless claims rose less than economists had been expecting. The report showed that jobless claims rose to 317,000 from the previous week''s revised figure of 316,000. Economists had expected jobless claims to increase to 320,000 compared to the 315,000 originally reported for the previous week. The Labor Department also said that the less volatile 4-week moving average fell to 315,750 from the previous week''s revised average of 326,000. Additionally, the report also showed that continuing claims in the week ended December 16 rose to 2.530 million from the preceding week''s revised level of 2.514 million.


[R]9:30 AM The FTSE 100 slips on Thursday as decline in Vodafone weighs.[/R]
The benchmark FTSE 100 Index lost 9.7, or 0.2%, to 6,235.50 in early trade in London, as 51 stocks declined and 44 advanced.

Decliners

Vodafone, the largest mobile-phone company in the world, lost 0.7%, as Essar Teleholdings Ltd., which is in possession of 33% of Hutchison Essar, has offered $11 billion for the rest of the company, turning the battle for control of the Indian mobile phone company into a three way fight with Vodafone and Reliance Communications

BP, the second-largest oil company by market value in Europe, shed 0.9% as crude oil traded below $61 a barrel, near a one-month low, due to mild weather reducing demand for heating fuel.

BG Group oil and gas leader, dipped 1.1% after it agreed to purchase a power plant in the New England region of the U.S. for $685 million.

Advancers

Chemical and paints firm ICI is one of the major advancers, rising 1.6%, after reports suggested it could be a bid target for Dutch rival Akzo Nobel.

HSBC, the biggest bank by market value in Europe, advanced 0.2% and Barclays, the third- largest bank by assets in the U.K., advanced 0.3%.

BHP Billiton and Anglo American advanced 0.8% and 0.3%, respectively on copper, aluminum and zinc increase on the London Metal Exchange.

PartyGaming surged 4.2%. The biggest Internet poker company in the world announced it is in talks on buying assets from Empire Online Ltd.

International Hotel Group has kept its winning streak after the stellar performance yesterday as bid rumors continue to circulate.


[R]9:00AM Stock futures pointed to a lower opening on profit taking.[/R]
Following two days of solid post-Christmas gains, U.S. stock market looked poised for lower opening Thursday. Stock futures pointed to the downside, with profit taking expected as well as volatile trading session for Apple Computer on concerns over its stock-option granting practices. Apple Computer ((AAPL)) dropped 2.1% in pre-market trading on reports that CEO Steve Jobs was handed 7.5 million stock options in 2001 without the required authorization from the company''s board of directors. Apple shares had a volatile session Wednesday before ultimately closing a penny higher.

In deal mews, International Business Machines ((IBM)) and Siemens ((SI)) won a 10-year, $9.3 billion contract from the German military for modernizing its technology system. On the economic news front, the Department of Labor reported that jobless claims rose less than economists had been expecting. Initial jobless claims rose to 317,000 from the previous week''s revised figure of 316,000, compared to expectations of an increase to 320,000. Existing home sales in November, December consumer confidence data from the Conference Board, as well as a Chicago-area manufacturing gauge, are also due out today. Dow Jones futures recently fell 14 points, S&P 500 futures edged 2.3 points lower, and Nasdaq futures slipped 3.8 points.


[R]8:00AM IBM and siemens won a 10-year military contract for $9.3 billion.[/R]
International Business Machines ((IBM)) and Siemens ((SI)) were awarded on Thursday a 10-year 7.1-billion-euro ($9.3 billion) contract by the German military to modernize its technology system. A new company, called BWI Informationstechnik GmbH, is being set up for the project. IBM and Siemens together will hold 50.1% of it, while the German federal government will hold the remaining 49.9%.

The project is codenamed Herkules and starts working immediately. It is designed to bring data centers, software and applications, PCs, telephones and voice and data networks up to the latest standard. According to a statement from the military, that covers more than 140,000 computer work stations, 7,000 servers, 300,000 telephones and 15,000 mobile phones. The contract was expected to be signed after Germany''s lower house of parliament approved the deal. Siemens is expected to secure 55% to 60% of the total volume of the deal.

Shares of Siemens jumped 1.2% to 75 euros in Frankfurt after the announcement. Shares of IBM rose 1.5% to close at $97.10 on the NYSE on Wednesday.


[R]7:30 AM Asian markets advance on Thursday, Japan finish little changed.[/R]
Asian markets finished higher on Thursday. The Nikkei 225 Index rose fractionally 0.01% to close at 17,224.81. Stocks were led higher by steels and brokerage-house shares. Nippon Steel surged 5.3% and Kobe Steel gained 3% on sustained expectations of robust earnings and expectations for realignment in the industry. Inpex Holdings slipped 0.2%, though, on caution about chasing upside following one-month rally in market. Other advancers included brokerage-firm stocks, with Daiwa Securities Group rising 0.8%. Shares of digital camera maker Canon fell 0.9% and Kyocera and Advantest were down respectively 0.6% and 0.5%.

In Hong Kong, strong fund inflows and rotational buying of large-caps helped fuel the benchmark index to a record high for the third consecutive session. The Hang Seng Index gained 1.4% to 20,001.91 an all-time high. BOC Hong Kong, the Hong Kong-listed arm of Bank of China, gained 8.4%, and Bank of Communications rose 1.5%. But China Construction Bank retreated 0.2% and ICBC shed 1.2%, as investors estimate their valuations as too high.

In South Korea, the Korea Composite Stock Price Index, or Kospi, ended up 0.7% at 1,434.46. Korean Air gained 2.3%, after the company announced that it aims to achieve 640 billion Korean won ($689.2 million) in operating profit in 2007, 14% higher than its target of 560 billion won for 2006.

Indexes in Australia, New Zealand and Singapore also advanced after finishing at record highs Wednesday. Australia S&P/ASX Index advanced 0.3% to 5,660.50, New Zealand NZX-50 rose 0.4% to 4,047.29 and Singapore Straits Times Index put up 0.1% to 2,963.49. Taiwan Weighted Price Index closed flat at 7,732.93.


[R]6:30AM European stocks canceled out earlier gains on Thursday due to oil stocks.[/R]
European markets were flat on Thursday. By mid morning, the FTSE 100 in London was flat at 6,245.3, Frankfurt Xetra Dax edged slightly higher at 6,610.95 and the CAC 40 in Paris was down 0.1% at 5,532.51.

Advancers

Property stocks were in focus as investors welcomed news from the US housing market as data showed sales of new homes rose 3.4% in November, topping forecasts. British Land gained 2%, while Land Securities Group added 1.5%. The decision of Dutch property group Rodamco Europe to buy a 50% stake in a Moscow shopping centre was also seen as a positive event. . Rodamco shares advanced 0.6%.

The housing data coming out of Britain also beat forecasts, with U.K. house prices up 10.5% for the year, according to the Nationwide Building Society. Shares in home builder Persimmon advanced 1%.

SAP shares gained 0.8% after a company official told a German newspaper that a double-digit growth is foreseen in coming years, powered by order growth and new products.

Siemens, the German conglomerate, advanced 1.1% after winning a 7.1 billion euros deal to modernise and manage the non-military IT systems of the country armed forces over 10 years.

Decliners

After crude prices dipped more than 3% over the past three days, oil stocks performed badly on Thursday, leading the markets lower. BP shed 0.7%, while BG Group shed 1.2%.

Also, Vodafone Group shed 0.5% after the U.K. telecom group lodged reportedly a bid for Hutchison Essar, which values the Indian operator as a whole at $17 billion to $18 billion.

Oil and gold

Crude oil for February delivery advanced 16 cents to $60.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange in early trade in London. Brent crude for February settlement traded at $60.70 a barrel, up 18 cents, on the London-based ICE Futures exchange.

Gold opened Thursday at a bid price of $628.02 a troy ounce, up from $627.00 late Wednesday.

Currencies

The euro was slightly higher against the U.S. dollar on Thursday in thin holiday-season trading. The euro bought $1.3132 in morning European trading, compared with $1.3123 in New York late Wednesday. The British pound advanced to $1.9575 from $1.9564. The dollar bought 118.77 Japanese yen, up marginally from 118.74 yen on Wednesday.