Dow Plummets 130

Elena
27 Feb, 2007
New York City

Wall Street opened deeply in the red on Tuesday, joining a global stock decline amid concerns of slowing economies in China and the U.S. A 10% drop in Chinese stocks, a warning that the U.S. economy may be headed for a recession, and weak data on durable goods orders exacerbated concerns about the economy. The Dow Jones Industrial Average fell 130 points.

[R]9:45AM U.S. stocks opened deeply in the red. The Dow tumbled 130 points[/R]
Wall Street opened deeply in the red on Tuesday, joining a global stock decline amid concerns of slowing economies in China and the U.S. A 10% drop in Chinese stocks, a warning that the U.S. economy may be headed for a recession, and weak data on durable goods orders exacerbated concerns about the economy. The Dow Industrial average dropped about 130 points in early trading. Blue-chip company Wal-Mart ((WMT)) contributed to the decline, falling 0.9% after it agreed to buy 35% of Trust-Mart, a Taiwanese-owned operator of hypermarkets in China. The tech sector posted weakness, with Apple ((APPL)) down 2.4% after announcing a delay in the launch of Apple TV. Xerox Corp. ((XRX)) lost 2.2% after the company lowered its earnings outlook.

Brokerage stocks showed significant weakness, with Lehman Brothers ((LEH)) turning in one of the sector's worst performances, down 4.3%. Jefferies ((JEF)), E*Trade ((ETFC)), and Bear Stearns ((BSC)) all slipped more that 3%. Considerable weakness was also visible in the wireless and disk drive sectors. Housing stocks also declined, despite better-than-expected existing home sales data.

Among stocks driven by analyst comments, shares of Marvel Entertainment ((MVL)) slipped 4% on brokerage downgrade, due to concerns about the stock's valuation. Shares of NYSE Group ((NYX)) fell 3% after J.P. Morgan downgraded its rating on the operator of the New York Stock Exchange to underweight from neutral. Bed Bath & Beyond ((BBBY)) slipped 2.4% after UBS downgraded its rating on the home furnishings retailer, citing valuation. In the first hour of trading, the Dow Jones industrial average dropped 122.57, or 0.97%, to 12,509.69. The Standard & Poor's 500 index was down 16.87, or 1.16%, to 1,431.41, and the Nasdaq composite index was down 46.07, or 1.84%, to 2,458.45. Bond prices rose as investors bought into the safe-haven Treasury market, with the yield on the benchmark 10-year Treasury note dropping to 4.60% from 4.63% late Monday.

[R]Consumer confidence increased in February.[/R]
The Conference Board released its report on consumer confidence in the month of February on Tuesday, showing that its consumer confidence index increased unexpectedly and rose to its highest level in five years. The report showed that the consumer confidence index rose to 112.5 in February from a revised 110.2 in January. Economists had expected the index to fall to 109.0 compared to the 110.3 originally reported for the previous month. With the increase, the consumer confidence index rose to its best level since April of 2001, when it was at 114.0. The Conference Board said that the present situation index rose to 139.0 in February from 133.9 in January, as those claiming conditions are “good” increased to 29.4 percent while those saying conditions are “bad” fell to 14.3 percent. At the same time, the expectations index edged up to 94.8 in February from 94.4 in January, as those expecting business conditions to improve rose to 16.7 percent. The outlook for the labor market was also relatively more upbeat.


[R]9:30AM London is lower Tuesday, following weak global markets.[/R]
The UK market was lower on Tuesday. By mid afternoon the FSTE 100 was 142 points, or 2.2%, lower at 6,292.2.

Advancers

With the crude price gaining further to top $62 a barrel, Royal Dutch Shell was one of only a handful of FTSE 100 advancers. The oil company was up 0.3%, while Reuters was the biggest advancer, up 1.4%, ahead of the information group figures on Thursday.

Engineer GKN was up 8.4% after an upbeat trading statement alongside its final results. Broker Cazenove provided a further boost, upgrading the shares to outperform from in line. Chrome and chemical company Elementis was also higher 4.3% after it posted a 159% rise in full year profit and said 2007 has started on a positive note, with further progress expected this year.

Decliners

As Chinese market tumbled today, mining stocks bore the brunt of the sell-off as gains in the sector have largely been powered by Chinese demand. Xstrata lost 5.3%, Vedanta Resources eased 4%, BHP Billiton dropped 4% and Lonmin fell 3.8%. Kazakhmys dropped 5.8%. Confidence in the sector was further eroded by concerns over a potential windfall tax in South

Asia-focused bank Standard Chartered shed 2.7% despite beating forecasts with a 19% increase in full-year profits. Car rental group Avis Europe slumped 17.5% after it announced annual pre-tax profit almost halved and expects market conditions to remain tough.


[R]9:00 AM Market futures steeply dropped on 10% drop in the Chinese equity market and weak durable goods orders.[/R]
U.S stock market futures sharply dropped Tuesday, depressed by a 10% plunge in the Chinese equity market, followed by steep European and Asian losses. Shanghai''s Composite Index hit a ten-year low amid profit-taking sparked by concerns that the government may impose new measures to cool speculative trading. Weaker-than-expected durable goods data in the U.S built on the negative sentiment. Orders of new durable goods dropped 7.8% in January, while economists were expecting a decline of 5.5%, on average. Data on home sales, due out today, is expected to provide some indications on the economy.

Among pre-market highlights, Xerox Corp. ((XRX)) lowered its Q1 earnings outlook due to restructuring charges. The company said it expects to earn 18 cents to 20 cents in the quarter, down from an earlier forecast of 21 cents to 23 cents. Shares fell 0.8% in pre-open trading. CBS Corp. ((CBS)) said it swung to Q4 profit of 43 cents a share, from a year-ago loss of $12 a share. Adjusted earnings from continuing operations rose to 60 cents a share, from 42 cents a share, above estimates of 47 cents. Company''s stock rose 2.3% in the pre-open. Sirius Satellite Radio ((SIRI)) said its Q4 loss narrowed to 17 cents a share from 23 cents a share on 82% subscription growth. The quarterly results beat estimates but the stock lost 1.3% in pre-market trading.

A number of companies were affected by analyst comments, including NYSE Group ((NYX)) which dropped 3.9% after it was cut to underweight from neutral at J.P. Morgan. Dow Chemical ((DOW)) was cut by Lehman Bros to underweight from equal weight, citing valuation. S&P 500 futures shed 11.00 points to 1,441.60 and Nasdaq 100 futures dropped 26.25 points to 1,811.50. Dow industrials futures declined 84 points to 12,570.

[R]Durable goods orders plunged 7.8% in January.[/R]
Tuesday morning, the Department of Commerce released its advance report on durable goods orders in the month of January, showing that durable goods orders fell much more than economists had been expecting. The report showed that durable goods orders fell 7.8 percent in January following a downwardly revised 2.8 percent increase in December. Economists had expected orders to fall 3.0 percent compared to the 2.9 percent increase originally reported for the previous month. The unexpected decline in durable goods orders reflected a steep drop in orders for transportation equipment, which fell 18.0 percent in January after rising 3.1 percent in December. The decrease reflected substantial declines in orders for both defense and commercial aircraft and parts. The Commerce Department said that durable goods orders fell by a more modest 3.1 percent excluding transportation, compared to a 2.6 percent increase in the previous month. Notable declines in orders for machinery, computers and electronics, and capital goods also contributed to the drop in durable goods orders. The report also showed that shipments of durable goods rose 0.2 percent in January following a 0.5 percent increase in December. Additionally, inventories of durable goods rose 0.3 percent after rising 0.7 percent in the previous month.


[R]8:30 AM Wal-Mart agreed to pay $1billion for 35% in Trust-Mart.[/R]
The world’s largest retailer Wal-Mart ((WMT)) agreed to buy a 35% stake in Trust-Mart, a major Chinese discount chain, in an effort to expand its presence in China. Financial details of the deal were not revealed, but according to reports Wal-Mart agreed to pay $1 billion for the stake. The company said that it is planning to acquire ownership control in the future. Wal-Mart is one of the numerous foreign retailers investing in China’s fast-growing retail markets one of its biggest and most prominent foreign employers, with a work force of 37,000 and 68 stores. It has been seeking international expansion to compensate for slowing growth in the United States. Its total international division accounted for 20% of its overall net sales of $312.4 billion in 2005.


[R]8:00AM Asia finishes lower on Tuesday, China plummets.[/R]
Asian markets ended lower on Tuesday. The Shanghai Composite Index plunged 8.8% to close at 2,771.79, its biggest single-day drop since February. 18, 1997. Shares in airlines, steelmakers and financial issues led declines. Profit-taking was triggered by woories new macro-tightening policies could be introduced after the annual session of the China National People Congress that reconvenes on March 5. Baoshan Iron & Steel hit the 10% downside limit, Citic Securities plummeted 9.7% and China Life Insurance declined 9%.

Japanese Nikkei 225 ended 0.52% lower to 18,119.92, as property shares declined. Mitsui Fudosan retreated 2.5%. The firm had advanced about 38% in the last three months. Decliners also included Mitsubishi Estate, whose shares fell 2.8%. Toyota Motor rose 0.2% after reports that biggest vehicle maker in Japan plans to spend up to 100 billion yen to build a sport-utility vehicle assembly plan in Mississippi.

Other indices around the region also declined. Hong Kong Hang Seng Index settled 1.76% lower at 20,147.87. Australian S&P/ASX 200 finished 0.83% lower at 5,993.80 and Singapore Straits Times Index shed 2.29% to 3,232.02. Taiwan Weighted Price Index retreated 0.02% to 7,901.96, while South Korean Kospi ended 1.05% lower at 1,454.60.


[R]6:30AM Europe is lower on Tuesday on weakness in banking sector.[/R]
European markets were lower on Tuesday. By mid morning, Frankfurt Xetra Dax shed 1.5% to 6,927.34, the CAC 40 in Paris lost 1.6% to 5,669.2 and London FTSE 100 fell 1.5% to 6,339.6.

Advancers

GKN, U.K. maker of car and airplane parts, rallied 8.7%, as the company said full-year profit more than tripled to 177 million pounds or $347 million after it sold more plane components and reduced spending on reorganization.

Reuters Group advanced 1.4% as Credit Suisse Group raised its recommendation on the world largest publicly traded provider of financial data to outperform from neutral.

Decliners

Austrian Raiffeisen International, which has substantial operations in Russia and Ukraine, fell 6.3%. Erste Bank, which also has businesses across central and eastern Europe, shed 3.4%. National Bank of Greece, which owns Finansbank of Turkey, fell 3.3%. Bank of Piraeus lost 3.1%.

BHP, the world largest mining company, lost 3.9% and Rio Tinto, the third biggest, declined 3.5%. Xstrata, the world fourth-biggest nickel producer, dropped 4.8%.

ABB, the Swiss engineering group, fell 4.6% after Deutsche Bank downgraded the stock from hold to buy. Shipping and port operator Möller Maersk was also hit by its exposure to emerging markets. The company, which owns shares in shipyards in Russia and China, also said that proposed tax changes in Denmark would have severe negative consequenses. The shares fell 4.2%.

Oil and gold

Crude oil traded little changed, near a nine-week high in New York, on speculation rising fuel demand and refinery shutdowns cut U.S. gasoline supplies. Crude oil for April delivery was at $61.48 a barrel, up 9 cents, on the New York Mercantile Exchange in early trade in London. Brent crude traded at $61.47 a barrel, up 14 cents, on the London-based ICE Futures exchange.

Gold fell in London after two days of gains to a nine-month high prompted some sales by investment funds. Gold for immediate delivery declined $1.40, or 0.2%, to $685.15 an ounce in early trade in London.

Currencies

The euro advanced against the U.S. dollar Tuesday, hitting two-month highs, after Alan Greenspan warned that the United States could be in a recession later this year. His remarks Monday night supported the euro to $1.3211 in morning European trading, hitting two-month highs, and above the $1.3185 it bought in New York late Monday. The British pound was barely changed, moving to $1.9652 from $1.9644. The dollar dropped to 119.58 Japanese yen from 121.04 yen.