Weak Commodities Weigh on Europe

Elena
21 Feb, 2007
New York City

European stocks were led to a negative close Wednesday by weakness in the commodity sector, inflation worries on Wall Street and concerns that DaimlerChrysler may not find a partner for Chrysler hit markets. Resources shares declined as mining company Anglo American dropped 2.5%. Shares of German steelmaker ThyssenKrupp fell 1.1%. Meanwhile, Arcelor-Mittal closed 1.1% higher. The German DAX 30 lost 0.6%, the French CAC 40 lost 0.3%, and London''''s FTSE 100 lost 0.3%.

[R]1:00PM European markets closed lower on weaker commodity stocks.[/R]
European stocks were led to a negative close Wednesday by weakness in the commodity sector, inflation worries on Wall Street and concerns that DaimlerChrysler may find it hard to find a partner for Chrysler hit markets. Resources shares declined as mining company Anglo American dropped 2.5% on earnings report. Shares of German steelmaker ThyssenKrupp slipped 1.1%. Meanwhile, Arcelor-Mittal closed 1.1% higher, despite a 3.5% slip in 2006 net income. DaimlerChrysler declined 2.8% after a report that Renault and Nissan weren''t interested in an alliance with Chrysler. Still in merger-and-acquisition news, shares of the U.K.''s Imperial Tobacco rose 1.9% on speculations that the company could be in line for a joint bid from a pair of rivals. In the financial sector, Alliance & Leicester generated positive sentiment with the British mortgage group rising 7.8% on higher net income in 2006.Dutch banking giant ABN Amro surged 6.1% on news that The Children''s Investment Fund is considering restructuring of its business. The German DAX 30 lost 0.6% at 6,941.66, the French CAC 40 lost 0.3% at 5,694.56, and London''s FTSE 100 index declined 0.9% to close at 6,357.10.

Crude oil prices recovered on technical buying. Light, sweet crude rose 65 cents to $59.50 a barrel. London Brent advanced 80 cents to $58.78. The U.S. dollar gained against its major currency rivals. The euro was quoted at $1.3124, down from $1.3143. The dollar bought 121.03 yen, up from 120.22. The British pound was quoted at $1.9518, down from $1.9540. European gold prices rose. In London gold traded at $664.80 per troy ounce, up from $657.70. In Zurich, the precious metal traded at $659.80, up from $657.70. Silver rose to $13.92 from $13.73.


[R]11:30AM U.S. stock averages posted losses due to inflation jitters.[/R]
U.S. market averages posted losses, reflecting disappointing earnings outlook from Hewlett-Packard and inflation concerns amid news of higher-than-expected gains in consumer prices last month. Dow component HP ((HPQ)) weighed heavily on blue-chips, falling 4.2%. Other decliners included General Motors ((GM)), down 1.4% and Intel Corp. ((INTC)), falling 1.9%. Motorola ((MOT)) fell 1.3% on stock downgrade at Lehman Brothers. The downside for the tech sector was limited by Apple ((APPL)) which gained 3% after Prudential raised its estimates of the company''s earnings for the current quarter. Among other companies driven by analyst comments, Qualcomm ((QCOM)), maker of wireless telecommunications products, fell 1.3% on brokerage downgrade to hold from buy.

Rate-sensitive sectors such as banks and broker-dealers were notable movers to the downside. Oil and technology were leading the decliners, while transportation airlines and miners advanced. Real-estate investment trusts were also under pressure, with Novastar Financial ((NFI)) plunging nearly 40% on Q4 net loss. JetBlue Airways ((JBLU)) lifted the airline sector with an advance of 4.9%. In late morning trading, the Dow Jones industrial average fell 62.89, or 0.49%, to 12,723.75. The Standard & Poor''s 500 index was down 4.78, or 0.33%, at 1,454.90, and the Nasdaq composite index fell 4.09, or 0.16%, to 2,508.95. Bonds fell following the inflation data; the yield on the benchmark 10-year Treasury note rose to 4.70% from 4.68% late Tuesday.


[R]9:45AM U.S. stocks opened lower on higher-than-expected consumer prices.[/R]
Wall Street opened Wednesday session in the negative after a higher-than-expected increase in consumer prices in January raised worries that inflation pressures will prevent the Federal Reserve from cutting interest rates later this year. The inflation news followed a profit report from Hewlett-Packard Co. ((HPQ)) which sent its stock down 2.6% after the computer maker saw inventories increase during its Q3. Sales and profits topped analyst forecasts for the quarter.

Among other early highlights, Novastar Fimnancial ((NFI)) tumbled 34% as the mortgage lender reported a Q4 net loss. It is considering changing its Real Estate Investment Trust status. Motorola ((MOT)) lost 1.2% after Lehman Brothers downgraded the stocks. On a positive note, JetBlue Airways ((JBLU)) rose 3.3%. The carrier warned operating margins might decrease due to to recent winter storms. Among drug stocks, Pharmacyclics ((PCYC)) was a notable decliner, falling 46% after the pharmaceutical company said the FDA refused to review clinical studies of Xcytrin, an injection for treating lung cancer that has spread to the brain. In the first minutes of trading, the Dow Jones industrial average fell 52.15, or 0.41%, to 12,734.49. The Standard & Poor''s 500 index was down 5.04, or 0.35%, at 1,454.64, and the Nasdaq composite index fell 8.51, or 0.34 percent, to 2,504.34.

[R]Leading indicators index slightly less than expected.[/R]
Wednesday morning, the Conference Board released its report on leading economic indicators in the month of January, showing that its leading indicators index rose slightly less than economists had been expecting. The Conference Board said that its leading indicators index rose 0.1 percent in January following an upwardly revised 0.6 percent increase in December. Economists had expected the index rise 0.2 percent compared to the 0.3 percent increase originally reported for the previous month. The modest increase by the index reflects positive contributions from real money supply, the index of consumer expectations, average weekly initial claims for unemployment insurance, and stock prices. The report also showed that the coincident index increased 0.1 percent in January after rising 0.2 percent in December, while the lagging index fell 0.1 percent following a 0.8 percent increase in the previous month.

[R]Consumer prices rose more than expected.[/R]
Wednesday morning, the Department of Labor released its closely watched report on consumer prices in the month of January, showing that prices rose a little more than expected despite a notable decline in energy prices. The Labor Department said that its consumer price index rose 0.2 percent in January following an unrevised 0.4 percent increase in December. The increase came in slightly above economist estimates of a 0.1 percent increase. The modest increase by the price was partly due to a notable increase in food and beverage prices, which rose 0.7 percent after falling 0.1 percent in each of the two previous months. Higher prices for medical care also contributed to the increase, rising 0.8 percent.

However, the price increases were partly offset by a significant decline in energy prices. The report showed that energy prices pulled back by 1.5 percent in January following a 4.2 percent increase in December. The report also showed that the core consumer price index, which excludes food and energy prices, rose 0.3 percent after rising 0.1 percent in each of the three previous months. Economists had expected core prices to increase by 0.2 percent. The bigger than expected increase in prices may raise some concerns about the pace of inflation, offsetting recent optimism that the Federal Reserve may lower interest rates in the near future.


[R]9:00 AM Market futures declined amid higher CPI figures.[/R]
U.S. stock futures moved lower on Wednesday, hurt by inflation concerns after the Labor Department said that its consumer price index gained 0.3% in January, led by large increases in food, medical care and tobacco prices. Core inflation increased 0.3%, reaching its highest level since June. Investors worry that inflation wouldn''t ease gradually as the Federal Reserve Chairman Ben Bernanke predicted last week.

Among companies in focus, Hewlett-Packard Co. ((HPQ)) shares slipped 1.1% in the pre-open after it reported a 26% rise in Q1 profit to $1.55 billion, or 55 cents a share. The company said it expects to earn 63 cents to 64 cents a share in Q2 excluding one-time items. The stock fell on signs that operating margin momentum of the last few quarters is slowing. Motorola ((MOT)) lost 1% in pre-market trading after Lehman Bros. cut its rating on the mobile phone maker to equal-weight from overweight on concerns over a slow recovery. NovaStar Financial Inc. ((NFI)) dropped 33% in pre-open trade after reporting Q4 net loss of $14.4 million, or 39 cents a share. The company also said it is considering whether to change its Real Estate Investment Trust status. Medtronic Inc. ((MDT)) fell 5.6% after its Q3 net income and revenue missed analyst estimates. S&P 500 futures dropped 3.6 points at 1,458.30 and Nasdaq 100 futures dropped 6 points at 1,832.75. Dow industrial futures dropped 26 points.


[R]8:00 AM Arcelor-Mittal posted a 3.5% profit drop in 2006.[/R]
The world''s largest steelmaker Arcelor-Mittal reported a 3.5% profit decline in 2006, citing a higher tax rate. However, the company said it will distribute $2.4 billion to shareholders by means of dividend and share buybacks. The steelmaker also said it expects its Q1 performance to be in line with Q4 levels. However, management restated its belief that 2007 is likely to show better results than 2006.

Full-year pro-forma profit earned by the company dropped to $7.97 billion from $8.26 billion. Arcelor-Mittal contributed the net income decrease to a higher tax levy of $1.7 billion paid in 2006 compared to $1.4 billion in 2005. The group''s EBITDA earnings rose 2.1% to $15.27 billion in 2006, falling below the company''s own target range of $15.2 billion to $15.4 billion and missing analyst expectations for EBITDA of $15.32 billion.

In the fourth quarter, Arcelor-Mittal earned $2.37 billion, or $1.71 a share, up from $2.18 billion, or $1.57 a share in Q3, boosted by sales rise of 5% to $23.3 billion. The steelmaker generated $4.3 billion in cash in the quarter and cut debt by $2.3 billion. Arcelor-Mittal''s shares rose 0.6% in early afternoon trading in Paris.