Banks Push Europe Lower

Elena
08 Feb, 2007
New York City

European stocks closed in the negative on Thursday, with investors digesting earnings news from major companies in Europe and a warning on U.S. provisioning from banking giant HSBC Group. Shares of HSBC Holdings slipped 1.5% after the banking giant said loan-loss provisions would be 20% above analyst estimates. The German DAX 30 lost 0.6%, the French CAC-40 declined 0.7%, and the U.K.''s FTSE 100 fell 0.4%.

[R]1:00PM European markets closed lower, pressured by bank stocks.[/R]
European stocks closed in the negative on Thursday, with investors digesting earnings news from some of Europe''s biggest companies and a warning on U.S. provisioning from banking giant HSBC Group. On the economic news front, the Bank of England and the European Central Bank held the interest rates unchanged. Shares of HSBC Holdings slipped 1.5% after the banking giant said loan-loss provisions would be 20% above analyst estimates. The bank said that slowing house-price growth is being reflected in accelerated delinquency trends across the U.S. sub-prime mortgage market. Among other bank stocks, BNP Paribas shares slipped 0.8%. In the telecoms sector, BT Group moved higher after it posted a Q3 profit increase and issued a strong outlook. Shares in U.K. medical devices group Smith & Nephew rose 6.1% amid robust Q4 figures. On the downside, shares in Anglo-Dutch consumer products group Unilever dropped 2.4%, despite surging profit. The German DAX 30 lost 0.6% at 6,876.73, the French CAC-40 declined 0.7% at 5,665.10, and the U.K.''s FTSE 100 fell 0.4% at 6,346.40.

Crude oil prices declined on Thursday. Light, sweet crude March delivery fell 6 cents to $57.65 a barrel. London Brent lost 23 cents to $57. The U.S. dollar traded mixed against its major currency rivals. The euro was quoted at $1.3034, up from $1.3006. The dollar bought 121.15 yen, up from 120.66. The British pound was quoted at $1.9571, down from $1.9692. European gold prices advanced. In London, gold traded at $655.30 per troy ounce, up from $654.90. In Zurich, the precious metal traded at $653.80 per ounce, up from $653.70. Silver closed at $13.69, down from $13.72.


[R]11:30AM Market averages traded steeply down.[/R]
U.S. stocks traded steeply lower, pressured by weakness in financial and housing stocks, while January same-store sales failed to lift the sentiment. Bank shares were hurt by a warning from HSBC ((HBC)) which said that bad-debt charges for the year will by 20% higher than expected, due to delinquencies in its portfolio of sub-prime mortgages. HSBC stock lost 2.5%. Shares of JPMorgan Chase & Co. ((JPM)) and Citigroup Inc. ((C)) were among the top drags on the Dow, each falling over 1%. Shares in the largest lender, New Century Financial Corp. ((NEW)) tumbled 28%. Housing stocks were also trading in the red, dragged down by Toll Brothers ((TOL)), as the home builder warned of 19% drop in its Q1 home building revenues. Toll Bros shares fell 4%.
Technology stocks traded mixed. Shares of EMC Corp. ((EMC)) surged 7% on news it will spin off a software unit, while Electronic Data Systems ((EDS)) rose 2% after it said profit nearly doubled. Among other tech stocks gainers, Intel Corp. ((INTC)) gained 1%. Hewlett-Packard Co. ((HPQ)) moved higher as well. On the side of the losers, shares of Broadcom ((BRCM)) fell nearly 1% ahead of the company''s Q4 earnings report. Shares of Apple Inc. ((AAPL)) also fell slightly, as Goldman Sachs removed Apple from its Conviction Buy list. International Business Machines Corp. ((IBM)), Microsoft Corp. ((MSFT)) also fell in early trading.


[R]9:45AM Market opened lower amid a warning from HSBC Holdings.[/R]
U.S. stock markets started trading lower on Thursday, dragged by mixed January same-store sales and a warning from HSBC Holdings. Early negative sentiment was generated by HSBC Holdings ((HBC)) which slipped 2.7% after warning that bad debt provisions would be 20% higher than analysts had forecast for 2006. The bank blamed a weak U.S. sub-prime lending market that the bank had aggressively entered. Following the news, financial stocks declined, with JP Morgan Chase & Co ((JPM)), Citigroup Inc. ((C)) and American Express ((AXP)) each falling about 1%. Wal-Mart ((WMT)) also weighed on the Dow, losing 0.5%, despite stronger-than-expected January same-store sales. Lehman Brothers ((LEH)) and Bear Stearns ((BSC)) turned in two of the sector''s worst performances, with a 2% decline each

The housing sector was another notable mover to the downside. The weakness was partly due to disappointing comments from Toll Brothers ((TOL)), which said that it expects 19% drop in its Q1 home building revenues. Shares of Toll Brothers fell 4%. In the first hour of trading, the Dow industrials fell 33.49, or 0.26%, to 12,633.38. The Standard & Poor''s 500 index was down 4.74, or 0.33%, at 1,445.28, and the Nasdaq composite index was down 10.26, or 0.41%, at 2,480.24. Bonds fell following the comments from the European bank, which raised concerns of a rate hike in the United States. The yield on the benchmark 10-year Treasury note rose to 4.75% from 4.74% late Wednesday.

[R]Wholesale sales rose 1.8% in December.[/R]
Thursday morning, the Department of Commerce released its report on wholesale trade in the month of December. The report showed that wholesale inventories unexpectedly fell compared to the previous month. The report showed that wholesale inventories fell 0.5 percent in December following a revised 1.1 percent increase in November. Economists had expected inventories to increase by 0.6 percent compared to the 0.5 percent decrease originally reported for the previous month. The decrease reflected declines in wholesale inventories of both durable and non-durable goods, as inventories of durable goods fell 0.4 percent while inventories of non-durable goods fell 0.7 percent. At the same time, the Commerce Department also said that wholesale sales rose 1.8 percent in December after rising 0.9 percent in November. Sales of durable goods rose 1.1 percent, while sales of non-durable goods rose 2.5 percent. Subsequently, the report showed that the inventories/sales ratio came in at 1.17 in December, unchanged from the same month of the previous year.

[R]Initial jobless claims rose 3,000.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended February 3. The report showed that jobless claims came in roughly in line with what economists had expected. The report showed that jobless claims rose by 3,000 to 311,000 from the previous week''s revised figure of 308,000. Economists had expected jobless claims to increase to 310,000, an increase of 3,000 compared to the 307,000 originally reported for the previous week. The Labor Department also said that the less volatile 4-week moving average rose to 308,250, from the previous week''s revised average of 305,000. Additionally, the report showed that continuing claims in the week ended January 27 fell to 2.490 million from the preceding week''s revised level of 2.544 million. Last week, a report from the Labor Department showed that the U.S. economy added 111,000 jobs in the month of January following an upwardly revised increase of 206,000 in December. While the job growth came in below economist estimates of 150,000, the data added to recent optimism that the U.S. economy is experiencing a soft landing. The report also showed a smaller than expected increase in wages, easing inflation concerns.


[R]9:30AM The FTSE 100 slipped into the red Thursday, Bank of England keeps rates unchanged.[/R]
The UK market was slightly lower on Thursday. The FTSE 100 shed 0.37% to trade at 6,346 in late afternoon.

Advancers

Smith & Nephew posted a 7% rise in full year underlying earnings and announced plans for a $1.5 billion share buyback over the next two years. Fixed line telecoms company BT Group posted a strong set of Q3 numbers, with profits for the period meeting expectations and net retail broadband additions showing considerable growth. BT advanced almost 1%. Tapas restaurant operator La Tasca said today that it is was in takeover talks but added they remained at a preliminary stage. La Tasca gained 4.2%. BG, the third largest oil and gas producer in the UK, reported its net profit fall 18% in Q4 as milder than usual weather in the US and Europe hit oil prices, although this was not as bad as expected as the company surged 2.9%. Stocks in Vodafone were buoyant as dealers welcomed the announcement today that the mobile phone company and France Telecom owned Orange will merge their third generation mobile phone networks in the UK. Vodafone advanced 0.5%.

Decliners

HSBC plunged Thursday as the banking company warned that its bad debt charge for 2006 would be over $10.5 billion, 20% higher than expected. Shares were 2% down. Imperial Tobacco today agreed to buy Commonwealth Brands, the fourth largest cigarette manufacturer in the US, from Houchens Industries Inc for 974 million pounds, or $1.9 billion in cash. Shares of Imperial Tobacco plunged 3.1% as dealers thought the company had made it more difficult for William Morris to propose a takeover bid for Imperial Tobacco. Unilever was another decliner, down 2.3%, after the annual revenue was toward the bottom end of the expected ranges. Lower metal prices weighed on Anglo American, Vedanta Resources, Xstrata and Rio Tinto. Anglo-American was down 1.7%, Vedanta was also off 1.7%, Xstrata lost 2.6% and Rio Tinto shed 1.5%.


[R]9:00AM Market futures pointed lower, despite robust earnings reports.[/R]
U.S. stock futures traded lower Thursday, as retailers released mixed quarterly sales offsetting strong earnings reports. In pre-market earnings highlights, Dow component Walt Disney & Co. ((DIS)) rose 2.3% in pre-open trading after it more than doubled its Q1 earnings, helped by DVD sales. PepsiCo Inc. ((PEP)) said Q4 profit surged 61%, boosted by strong performance from its international division. Net income jumped to $1.78 billion, or $1.06 per share, from $1.1 billion, or 65 cents per share last year. Health insurer Aetna Inc. ((AET)) said its Q4 profit increased 4% to $434.1 million, or 80 cents per share, up from $416.3 million, or 70 cents per share a year ago. The company also raised its full-year profit guidance.

In other corporate news, Warner Music''s ((WMG)) reported 74% profit decline, well off analyst expectations. The stock added 1% in pre-open trading. Home builder Toll Brothers ((TOL)) said quarterly home-building revenue dropped 19%, despite the fewer number of cancellations. In merger-and-acquisitions news, Imperial Tobacco ((ITY)) agreed to pay$1.9 billion for Kentucky''s Commonwealth Brands, the fourth-largest U.S. cigarette producer. S&P 500 futures slipped 3.70 points to 1,452.00 and Nasdaq 100 futures dropped 6.75 points to 1,816.25. Dow industrial futures shed 28 points to 12,682.


[R]8:30AM Retailers reported mixed January same-store sales.[/R]
The U.S. retailers reported Thursday morning mixed results in January, blaming belated cold winter weather which prevented merchants from clearing out winter inventory. However, the strong sales of holiday gift cards provided a lift. The retailers reporting upbeat results included Limited Brands and Wet Seal Inc. Wal-Mart Stores beat analyst estimates, despite the modest advance. Costco Wholesale and Bebe Stores stood out in the group posting disappointing sales results.

Wal-Mart ((WMT)), the world''s largest retailer, posted a modest 2.2% increase rise in same-store sales, beating the 1.8% estimate. Limited Brands ((LTD)) reported an 11% gain in same-store sales, beating the 7.8% forecast. American Eagle Outfitters ((AEOS)) reported a 17% increase in same-store sales, above the 10.9% forecast. Federated Department Stores Inc. ((FD)) said January same-store sales rose 8.6%, beating forecast of 4.6%. Total sales rose 19% to $1.78 billion. The retailer projected Q4 net income of $1.55 a share to $1.60 share, higher than its earlier forecast of $1.40 to $1.50 a share. BJs Wholesale Club Inc. ((BJ)) said January same-store sales rose 3.5%, beating forecast of 1.5% increase. Total sales increased by 8.5% to $724.2 million. Wet Seal ((WTSLA)) reported a 3.6% gain in same-store sales, above the 2.2% estimate.

The Gap Inc. ((GPS), apparel retailer, announced flat January same-store, exceeding estimates of a decline of 7.7% for the month. Net sales rose to $1.19 billion from $955 million in the same period a year earlier. Looking ahead, the company said it expects earnings of 89 to 91 cents a share for 2006. Hot Topic Inc. ((HOTT)), teen retailer, said that its same-store sales dropped 6.6%, slightly above the 6.1% projection.

Among companies releasing lower-than-anticipated results, Costco Wholesale Corp., ((COST)), warehouse retailer, said that January same-store sales rose 2%, missing estimates of 3% increase. Monthly total sales climbed 7%. Bebe ((BEBE)) posted a modest 0.8% gain in same-store sales, below the 1.9% previuosly expected.

Abercrombie & Fitch ((ANF)), clothing retailer, reported January same-store sales drop of 6%, coming in below expectations of a drop of 1.9%. Net sales rose 37% to $252.3 million. The retailer said sales in its fiscal 2006 rose 19% to $3.32 billion from $2.79 billion.


[R]8:00AM Asian stocks finish flat Thursday with Japan unchanged on profit-taking.[/R]
Asian markets ended flat on Thursday. In Japan, Nikkei 225 ended almost unchanged, down 0.1%, at 17,292.48. Tokyo Electric Power Co fell 5.6%, while Kansai Electric Power declined 3.4%. Japanese technology shares advanced on the strong earnings from Cisco Systems, which gained 3% overnight in US. NTT DoCoMo, the largest mobile-phone operator in Japan, rose 4.4%, while shares of KDDI advanced 1.8%. KDDI gained after Merrill Lynch updated its target price on strong subscriber growth. Canon also added 0.8%.

Australia S&P/ASX 200 closed flat at 5899.50. BHP Billiton and Woodside Petroleum both declined weighing on the resources sector after crude oil and other industrial commodities declined in New York. In Australian trading, BHP shed 2%, while Woodside Petroleum was down 1.1%. Hong Kong Hang Seng Index bucked the downtrend and edged 0.3% higher to 20,735.05. Shanghai Composite in China closed also up 0.8% at 2,737.73. However, other major indexes declined including Singapore Straits Times Index down 0.9% to 3,217.76, Taiwan Weighted Price Index off 0.1% to 7,842.22 and Kospi in South Korea 0.2% lower to 1,423.58. The yen lost against the dollar on fading expectations that the Group of Seven finance ministers will take steps to stop the decline of the currency at the summit that starts this Friday.


[R]7:00AM NY-6:00PM Mumbai Sensex inches higher in volatile trade.[/R]
The Sensex on BSE finished 8.96 points, or 0.06% higher, at 14,652.09. The market-breadth was negative as there were three decliners for every two advancers. For 1,613 shares that declined on BSE, 1,043 advanced and 59 shares were unchanged. Of the 30 stocks in the Sensex, 17 advanced, while the rest declined. The turnover on BSE was Rs 4,466, lower than Rs 4,641 crore on Wednesday. On NSE, the turnover was Rs 9,581.76 crore, also lower than Rs 10,333.92 crore on Wednesday.

Economic news

The Reserve Bank of India said that it requires more time to study the new growth estimate for fiscal 2006 by the government. The bank still hopes that inflation will be in its target range, deputy governor Rakesh Mohan said on Thursday. Mohan also stated that the RBI was maintaining its inflation target rate of between 5.0% and 5.5% at the end of the financial year.

The government has approved the purchase of a large number of fighters and other aircraft over the next few years, including 40 Sukhoi-30 fighters from Russia. The government has also approved a project aimed at satisfying the uranium fuel requirements of the Indian nuclear-power program. The cabinet has decided to give over Rs 13 crores for land acquisition.

The government of India is targeting to privatize three power plants and raise Rs 1,500 crore in the next fiscal year.

Trading highlights

Recently listed Global Broadcasting was the most-active stocks with a turnover of Rs 641.50 crore followed by Shree Ashtavinayak and Auto Industries.

Advancers

Reliance Energy led the gainers, rising 1.7% to Rs 568.05. The company secured an engineering, procurement and construction contract worth Rs 3,800 crore for a 1,200 Megawatt coal-fired power plant at Yamuna Nagar, Haryana. Another strong performer was ICICI Bank advancing 1.4% to Rs 996, after the bank on Tuesday announced it had lifted the reference rate by 1% for corporate loans and home loans.

Car maker Maruti Udyog finished 1.5% higher at Rs 965 and Reliance Communications advanced 1% to Rs 490.50. The deadline for bidders for Hutchisson Essar to submit their offers is tomorrow. Index heavy Reliance Industries edged 0.1% higher to Rs 1,395.90, after dipping to a low of Rs 1,384.

Decliners

Hindalco Industries led the decliners, plunging 3.7% to Rs 175.20. The stock had declined from a high of Rs 184. Bajaj Auto shed 2.6% to Rs 3,000, on profit-taking, after soaring almost 10% on Wednesday. IT large-cap Satyam Computer Services declined 1.1% to Rs 485. It had confirmed plans to open up its largest Global Delivery Campus outside India in Nanjing, in eastern China. Bharti Airtel was also down 1.1% to Rs 765.25, Hindustan Lever shed 1.4% to Rs 204.55 and Wipro lost 1% to Rs 635.


[R]6:30AM European stocks were flat on Thursday morning on profit-taking.[/R]
European markets were flat on Thursday morning. By mid morning, Frankfurt Xetra Dax was unchanged at 6,914.53, the CAC 40 in Paris inched up to 5,704.11 and London FTSE 100 was 0.2 per cent lower at 6,358.9.

Advancers

ABN Amro gained 1.6% after posting a 7.6% gain in annual net profit that topped market forecasts. The bank intends to raise shareholder returns in 2007 after concentrating on acquisitions and restructuring over the past two years. Julius Baer, Swiss bank, gained 6.1 per cent after reporting a forecast-topping 35 per cent rise in full-year net profit on growth in newly-developed Asian markets. MAN of Germany rose 3.4 per cent after Goldman Sachs updated the stock to buy and JPMorgan raised its price target. Fixed line telecoms groups advanced after After BT Group of Britain announced robust Q3 core earnings and a bright guidance as it continued to add new broadband customers. BT shares gained 3.8 per cent, while Deutsche Telekom gained 1.1 per cent, Hellenic Telecom rose 1.8 per cent and Telekom Austria climbed 1.4 per cent. Renault, the French carmaker, reported its 2006 operating margin declined on last year but that it achieved its 2.5 per cent target through cost cuts and improved quality. Renault shares gained 1.1 per cent.

Decliners

Altadis, the Spanish tobacco company, shed 2.8% after Imperial Tobacco of Britain said it its acquired US group Commonwealth Brands. Altadis had been supposed to be top of Imperial acquisition list - earlier on Thursday UBS had downgraded Imperial on the expectation it would launch a hostile bid. Syngenta, Swiss agrochemicals maker, posted a 12 per cent rise in full-year net profit which missed expectations, as sales declined 1 per cent. Shares fell 2.3 per cent. Dutch office supplies wholesaler Buhrmann plunged 10.1 per cent after falling short of expectations with Q4 underlying profit

Oil and gold

Oil prices recovered toward $58 on Thursday after cold weather cut fuel stocks in United States. U.S. Crude oil futures gained seven cents to $57.78 a barrel in early trade in London. Brent crude gained 20 cents to $57.43. Gold fell for a second straight day on signs supply to refineries is growing faster than demand from investors seeking an alternative to the dollar. Gold for immediate delivery dropped $1.90, or 0.3%, to $649.55 an ounce in early trade in London.

Currencies

The euro declined against the U.S. dollar on Thursday as markets awaited a decision by the European Central Bank on interest rates. The 13-nation euro bought $1.2986 in morning European trading, down from $1.3006 in New York late Wednesday. The British pound fell slightly to $1.9676 from $1.9692. The dollar gained traded at 121.09 Japanese yen, up from 120.66 yen on Wednesday.