Talks of Inflation Fight, Markets Dive

123jump.com Staff
09 Feb, 2007
New York City

Stocks turned lower as earnings season nears close, with oil prices above $60 a barrel and comments from Fed officials weighing on shares. Averages lost their morning gains on Fed inflation talk. As usual Fed talked tough but has been lax on fighting inflation. GM jumped 7% after Deutsche Bank upgraded the stock to buy from hold. Ford and Chrylser rose as well. Fortress Investment IPO gained nearly 90%. New Century Financial lost nearly 40% in two days.

[R]4:30PM NY; 10:30PM Frankfurt; 3:00AM Mumbai - GLOBAL MARKETS[/R]
Popular averages dropped sharply after the Fed Presidents comments raised prospects of higher interest rates. European markets closed higher but are likely to open lower in the morning trading on Monday. In the last thirty minutes of trading in New York, stock indexes managed to recover some of the losses.

Yield on 10-year bond closed at 4.780% and the 30-year bond closed at 4.864%.

Gold gained $8.700 to close at $671.500 a troy ounce, silver advanced 12 cents to end at $13.890 a troy ounce and copper declined $19.000 to close at $5383.000 per metric ton.

Oil gained 19 cents to close at $59.900 a barrel and heating oil increased 1 cent to finish at 172.510 cents a gallon. Natural gas advanced 5.6 cents to close at $7.815 per MMBtu. Gasoline went up 2.170 cents to end at 161.500 cents a gallon.

Asian markets closed mostly higher, with Australia ending at a record high as natural-resource shares gained on rising oil prices, and Japan advanced on upbeat economic data. The advancers were led by Philippines with a gain of 1.56%, Japan with an increase of 1.23% and Thailand with an advance of 0.58%. The decliners were India with a loss of 0.77%, Indonesia with a decrease of 0.63% and Hong Kong with a decline of 0.28%. Australia gained 0.45%.

European markets closed higher as shares of DaimlerChrysler led the automotive sector higher after the company agreed to sell a stake in aerospace group EADS. The advancers were led by Switzerland with a gain of 0.68%, Italy with an increase of 0.60% and U.K. with an advance of 0.57%. There were no decliners.

Latin America markets ended lower with Brazilian and Mexican markets losing ground. The decliners were led by Brazil with a decrease of 1.49%, Mexico with a decline of 0.97% and Argentina with a loss of 0.27%. There were no advancers. Canada lost 0.71%.

[R]2:30PM NY, U.S. Market Movers[/R]

AptarGroup Inc. ((ATR)) shares gained 7.4% after the maker of pump dispensers for fragrances and personal care products said that its fourth-quarter net profit increased to $27.2 million, or 77 cents per share, compared with $23.7 million, or 66 cents per share, in the year-ago period. Revenue climbed to $422.4 million versus $338.8 million in the same period a year earlier.

Applix Inc. ((APLX)), business management software provider, said that its fourth-quarter net earnings increased to $6 million, or 34 cents per share, compared with $2.48 million, or 15 cents per share, last year. Revenue climbed to $16 million versus $11.1 million in the same period a year earlier. Shares climbed 14.8%.

Blue Coat Systems ((BCSI)), Internet monitoring equipment maker, shares rose 12.8% after the company rose its expectation for third-quarter revenue of $45.5 million to $47.5 million. Blue coat had previously forecast revenue of $40 million to $45 million.

Hooker Furniture ((HOFT)) shares jumped 15.1% after the furniture maker posted fourth-quarter earnings of $3.5 million, or 29 cents per share, including restructuring and asset impairment charges totaling $2.3 million, or 19 cents per share. Revenue climbed 0.9% to $91 million in the quarter.

Jaco Electronics Inc. ((JACO)) shares jumped 11.9% after the company said that it swung to a second-quarter profit of $149,000, or 2 cents per share, from a year-ago loss of $7.4 million a year ago. The company said the turnaround was due to its strategy of marketing product lines from core vendors as well as tight cost controls. The distributor of electronic components, said revenue climbed 37% to $66 million. The company added it recently entered into a new credit facility that provides additional working capital and offers a lower interest rate than its previous agreement.

Mettler-Toledo International ((MTD)), makes instruments used to inspect products and develop drugs, said that its fourth-quarter net earnings increased to $52 million, or $1.31 per share, compared with $44.2 million, or $1.04 per share, in the year-ago period. Revenue climbed to $462.3 million versus $411.2 million in the same period a year earlier. Shares were up 6.2%.

Primedia ((PRM)), magazine publisher said its board authorized the company to explore the sale of its Enthusiast Media segment to help cut its debt load of more than a $1 billion. Shares of the company rose more than 22% to $2.02.
Zones Inc. ((ZONS)) shares jumped 17.9% after the reseller of technology products said that its fourth-quarter net earnings increased to $2.98 million, or 20 cents per share, compared with $1.97 million, or 14 cents per share, in the year-ago period. Revenue climbed slightly to $159.9 million versus $159.8 million in the same period a year earlier.

Alcatel-Lucent ((ALU)) said Friday it planed to cut another 3,500 jobs after it swung to a loss in the fourth quarter, the first for which the newly merged telecom equipment maker reported combined earnings. Shares fell 3.1%.

Gateway Inc. ((GTW)), computer maker, swung to a profit of $8.8 million, or 2 cents per share, after posting a loss in the same period a year ago, but revenue fell 9% to $1.02 billion from $1.12 billion a year ago. Gross margins also retreated to 5.2% from 6.2% in the prior year. Shares fell 10.2%.

[R]1:00PM European markets closed higher, driven by DaimlerChrysler.[/R]
European stocks gained ground on Friday, with DaimlerChrysler leading the automotive sector higher. DaimlerChrysler rose 3.2% after the automaker announced a deal to lower its stake in Airbus owner EADS from 22.5% to 15% as part of an effort to keep a balance between German and French ownership of the European aerospace group. DaimlerChrysler was also upgraded at Citigroup to buy from hold. Oil and resources shares also provided support as the price of crude oil reached nearly $60 a barrel. Oil company BP added 0.6%, while mineral extractor BHP Billiton climbed 1.6%. Outside the sector, Altran Technologies shares rose 5.9% as the technology-consulting company reported higher Q4 revenue. In deal news, British bus company First Group rose 6.2% after it agreed to buy Laidlaw International the for $3.6 billion. Currency moves were in focus ahead of a Group of Seven meeting of finance ministers in Germany. The German DAX 30 gained 0.5% at 6,911.11 and the U.K.''s FTSE 100 rose 0.6% at 6,382.80, with both indexes hitting six-year highs in the session. The French CAC-40 added 0.5% at 5,692.45.

The U.S. dollar traded mixed against its major currency rivals. The euro was quoted at $1.2990, down from $1.3038. The dollar bought 121.71 yen, up from 121.06. The British pound was quoted at $1.9479, down from $1.9583. European gold prices advanced. In London, gold traded at $663.30 per troy ounce, up from $655.30. In Zurich, the precious metal traded at $661.95 per ounce, up from $653.80. Silver closed at $13.82, up from $13.68.


[R]11:30AM Market averages traded in a lackluster fashion.[/R]
U.S. stocks traded in a lackluster fashion on bargain hunting. Investors weighed brokerage upgrades of giant automakers and the semiconductor sector along with earnings reports from companies like MasterCard and Gateway. General Motors Corp. ((GM)) supported the Dow with an advance of 7% following positive analyst comments about the automotive sector. MasterCard Inc. ((MA)) fell 8.6% after hitting a new 52-week high of $118.07. Computer maker Gateway ((GTW)) slipped 8.4% amid plans to cut $20 million to $25 million in expenses and cut more jobs. Crude oil prices hovering round $60 a barrel also attracted attention.

Market also reacted to the first day of trading of Fortress Investment Group. ((FIG)). Shares of the company started trading 89% higher at $35, as the company became the first U.S. hedge fund and private equity group to go public. Fortress priced its IPO at $18.50 a share, at the top end of a previously disclosed range of $16.50 to $18.50. The offering raised $634 million for Fortress. The new stock was recently up 74%.

In merger-and-acquisition news, auto parts supplier Lear Corp. ((LEA)) agreed to be acquired by a group affiliated with billionaire investor activist Carl Icahn for about $2.8 billion. Under terms of the agreement, Icahn-controlled American Real Estate Partners LP will pay $36 a share. The offer represented a premium of 4% over the stock''s closing price last Friday of $34.67. Lear''s shares fell 3.9% in morning trading. In late morning trading, the Dow Jones industrial average was up 16.18, or 0.13%, at 12,653.81. The Standard & Poor''s 500 index rose 0.99, or 0.07 percent, to 1,449.30, and the Nasdaq composite index was down 4.74, or 0.19%, at 2,483.93. Bonds fell sharply following Poole''s comments; the yield on the benchmark 10-year Treasury note rose to 4.77% from 4.73% late Thursday.


[R]9:45AM Upgrades drove market opening up.[/R]
Upgrades for the Big Three automakers and a sector upgrade for the semiconductor industry boosted U.S. market opening. Ford Motor ((F)) rose 3.6% and General Motors ((GM)) increased 5.1% after Deutsche Bank upgraded their stock on hopes for favorable healthcare negotiations. Citigroup upgraded Daimler Chrysler ((DCX)) sending its stock 2.3% higher. Among chip stocks, Dow component Intel added 0.5%.

Companies releasing earnings reports included Gateway Inc., MasterCard International Inc. and Weyerhaeuser Co. Gateway Inc. ((GTW)) stock fell 7% as the computer maker''s quarterly revenue fell 9% from year-earlier levels. MasterCard Inc. ((MA)) said its Q4 net income exceeded expectations as strong consumer spending boosted transactions. The company posted quarterly profit of $41 million, or 30 cents per share, compared with a loss of $53 million, or 39 cents per share, a year earlier. Revenue rose 17.2% to $839 million from $716 million a year ago. MasterCard raised its quarterly cash dividend by 66.7% to 15 cents per share from 9 cents per share. The results drove shares of MasterCard to an all-time high before tumbling 5% in early trading.

Weyerhaeuser Co ((WY)), forest products maker, said it swung to a Q4 profit from a year-ago loss. The company posted earnings of $1.88 per share, compared with a loss of 86 cents per share, beating estimates of 75 cents a share. Revenue fell 1% to $5.66 billion. In the first hour of trading, the Dow Jones industrial average was up 33.17, or 0.26%, at 12,670.80. The Standard & Poor''s 500 index was up 4.00, or 0.28%, at 1,452.31, and the Nasdaq composite index was up 7.77, or 0.31%, at 2,496.44.


[R]9:00AM Market futures traded flat. The Big Three received a broker upgrade[/R]
U.S. stock futures traded near the flat line Friday, with investors digesting broker upgrades of the Big Three automakers and a jump by crude oil prices. Hedge fund operator Fortress Investment Group was also in focus, as the market awaited its first trading day after it priced its initial public offering late Thursday. General Motors ((GM)) rose 2.6% and Ford Motor ((F)) climbed 4% after the car makers were upgraded by Deutsche Bank to buy from hold, on hopes for favorable healthcare negotiations. DaimlerChrysler ((DCX)) was upgraded to buy at Citigroup ahead of its restructuring plan for Chrysler. Fortress Investment Group ((FIG)) priced its initial public offering at $18.50 per Class A share, the top end of its indicated range. The hedge fund operator is due to kick off trading Friday.

In other broker moves, J.P. Morgan raised its rating of the U.S. semiconductor sector to bullish from cautious on expectations that several leading indicators will begin to improve in the second quarter. Leading chip maker and Dow member Intel ((INTC)) was up 0.3% in the pre-open. On the corporate news front, Alcatel-Lucent ((ALU)) said it would cut 12,500 jobs, over 3,000 more than it originally planned. It reported Q4 operating profit decline in line with expectations. The stock was down 0.7% ahead of the open. Among other pre-market highlights, Hasbro ((HAS)) reported better-than-expected Q4 earnings and revenue and lifted its quarterly cash dividend by 33%. Gateway Inc. ((GTW)) reported a 9% revenue decline. Quiksilver ((ZQK)), the sports apparel maker, cut its forecast. S&P 500 futures inched 0.20 of a point higher to 1,454.10 and Nasdaq 100 futures were unchanged at 1,821.75. Dow industrial futures were also unchanged.


[R]8:30AM Laidlaw International agreed to be bought by the U.K.’s First Group for $3.6 B.[/R]
Laidlaw International Inc. ((LI)) agreed to be acquired by the U.K.''s First Group Plc in a deal worth $3.6 billion, including the assumption of around $700 million of debt. First Group said it will pay $35.25 a share for Laidlaw, the biggest school and intercity bus operator in the U.S. The deal represents an 11% premium to Thursday''s closing price.

The U.K. group, which operates bus and rail services across Britain, said the deal will create a more robust business and should result in annual cost savings of around $70 million. But First Group said that Laidlaw''s Greyhound intercity bus service could be sold off after the deal as it may not fit with its own operations. Greyhound has around 11,000 staff and contributed to roughly 40% of the U.S. group''s $3.1 billion revenue in fiscal 2006.

Laidlaw agreed to pay First Group a fee of up to $78 million in certain circumstances if the deal does fails, while First Group would pay a break fee of $43.35 million. Shares in First Group gained 4.5% in London. Laidlaw shares jumped 8.8% in pre-market trading.


[R]7:30AM NY-6:30PM Mumbai Sensex declines Friday on inflationary data.[/R]
Sensex in India reached a new intra-day high of 14,724 but quickly lost the momentum and fell to close at 14,724. Weekly measure of wholesale price index fueled the fears of interest rate hike. Stocks in banks, cement and IT sectors fell. Rupee rose. Bajaj Auto soared 17% on news reports of various Bajaj related financial firms to be consolidated. Foreign investors continue to add new funds in the Mumbai market.

Trading Highlights

The 30 share index BSE Sensex lost 114 points to close at 14,538.90. In the early morning trading the index rose to a new intra-day high to 14,724 but quickly lost its upward momentum. The index traded with 466 points volatility and lost ground in the afternoon trading. Of the thirty stocks in the index only seven stocks rose and the rest declined. Market breadth was weak and in trading on BSE 622 stocks gained, 2,043 lost and only 45 stocks were unchanged.

On BSE trading market turnover declined to Rs 4,332 crore from Rs 5,136 crore in Thursday trading. According to preliminary international trading data, foreign institutions invested net of Rs 2,211 crore between February 2nd and 7th of this year.

Reliance Industries, Zee Telefim, Reliance Communication, Larsen & Toubro and State Bank of India were the most active stocks based on market turnover statistics reported by BSE daily report.

Economic News

The rising inflation index spoiled market mood. Annualized wholesale price index at the end of last week was reported at 6.58%. Inflation index in the prior week was reported at 6.11%. Rising food prices, land and housing cost and energy prices have been fueling inflation. At the end of Jan, Reserve Bank of India raised its key lending rate by 25 basis points and left the impression that future rate hikes may be necessary to curb inflation.

Stocks on the Rise

Weak trading across various market caps kept the list of stocks on the rise short.

Zee Telefim surged 5.33% to Rs 361. Oriental Bank gained 2.7% to close at Rs 232.40. CMC Limited, Punjab Llyod and Wyeth Ltd added close to 2%.

Bajaj Auto managed to close higher 1.3% to Rs 3,047 in BSE trading. Market expects that by the end of the fiscal year various subsidiaries will be consolidated under Bajaj Auto Finance. The stock of BAF rose 17% to close at Rs 432. JK Synthetic and NELCO limited surged 11% and 10% respectively.

Of the Sensex stocks, NTPC managed to gain 1.3% to close at Rs 144. Tata Motors continued its rise for the second day and rose 1.2% to close at Rs 906, Wipro advanced 0.8% to Rs 640 and HDFC added 0.7% to Rs 1,820.


Stocks on the Decline

Strengthening rupee kept information technology stocks under check. Satyam Computer lost 4%, TCS lost 1% and Infosys dropped 0.7%.

Cement stocks lost ground after gaining steadily during the week. ACC cement lost 3.5% to Rs1,032, Gujarat Ambuja dropped 1.9% to Rs 138.75 and Grasim declined 1.5% 2,815.

Inflation worries stoked fears of rising interest rates and pressured bank stocks. State Bank of India lost 0.8% to Rs 1,195, Bank of India dropped 3.3% to Rs 186 and Bank of Baroda declined 1.4% to Rs 238.

Larsen & Toubro signed an agreement to explore collaboration with European Space and Agency. The stock fell 2.3% to Rs 1,711 after rising for three days in a row.


[R]6:30AM European equities rebound Friday on banking stocks.[/R]
European markets were higher on Friday. By mid morning, Frankfurt Xetra Dax added 0.7% to 6,923.16, the CAC 40 in Paris gained 0.7% to 5,703.12 and London FTSE 100 climbed 0.8% to 6,394.7.

Advancers

Banks were in favor this morning. ABN Amro target price was upgraded on Friday by Fox-Pitt Kelton and the Dutch bank shares gained 1.7%. SEB, the Swedish bank, gained 1.7% after posting better-than-expected Q4 operating profit on strong capital market trading gains. In the telecom sector, Alcatel-Lucent gained 2.9% in spite of reporting a Q4 loss, as it targeted pre-tax savings of 1.7 billion euros over the next three years, and cutting up to 12,500 jobs. DaimlerChrysler lifted the auto sector after Citigroup upgraded the German carmaker from hold to buy and Peugeot rebounded 1.3%, having fallen in the previous two sessions after posting a narrower operating margin in 2006.

Decliners

Sanofi-Aventis shares led the decline in Paris, trading down 2.7% after it said that it lost a patent infringement suit filed in a U.S. district court in California against Amphastar and Teva Pharmaceutical over the Lovenox drug.

Oil and gold

Crude oil declined as traders reassessed the impact of an oilfield shutdown in California that triggered prices rally above $60 a barrel for the first time in five weeks. Oil for March delivery dropped 22 cents to $59.49 a barrel on the New York Mercantile Exchange in early trade in London. Brent crude oil declined 35 cents to $58.68 a barrel on the ICE Futures exchange. Gold fell in London as a five-week rally to prices above $660 an ounce failed to attract new buyers. Gold for immediately delivery dropped $1.50, or 0.2%, to $658.95 an ounce.

Currencies

The dollar inched back slightly against the euro on Friday, after indications by the European Central Bank that it would increase its key interest rates next month. The 13-nation euro bought $1.3003 in early Friday trading, down slightly from $1.3038 in late New York trading. The British pound bought $1.9458, down from the $1.9580 it reached Thursday following a decision by the Bank of England to keep its rates unchanged at 5.25%. The dollar advanced slightly against the Japanese yen, to 121.45, up from 121.05 yen Thursday.