Market Resumes Steep Decline

123jump.com Staff
01 Mar, 2007
New York City

U.S. stocks steeply dropped at opening, as losses in global markets and resumed inflation jitters led to another heavy sell-off. The Dow Jones industrials slipped 200 points in the opening minutes of trading, with 30 of its components in the negative. Economically sensitive stocks were leading losers in the blue-chip average. Alcoa fell 3%, General Motors fell 2.8%, and Caterpillar lost 2.3%. However, a stronger-than-expected ISM''''s manufacturing index helped trim losses.

[R]11:30AM Wall Street resumed the steep downward move on inflation jitters.[/R]
U.S. stocks steeply dropped at opening, as losses in overseas markets and resumed inflation jitters amid the latest economic data led to another heavy sell-off. The Dow Jones industrials slipped 200 points in the opening minutes of trading, with 30 of its components in the negative. Economically sensitive stocks were leading losers in the blue-chip average. Alcoa ((AA)) fell 3%, General Motors ((GM)) slipped 2.8%, and Caterpillar ((CAT)) lost 2.3%. In addition, rumors that a big lender was in distress contributed to the general downward move. Amid concerns over the health of the mortgage lending market, SunTrust Banks ((STI)) cut its Q4 earnings outlook to $1.39 a share, from the previously reported $1.46 a share. Company’s shares lost 1.1%.

However, a stronger-than-expected ISM's manufacturing index for February helped trim losses. The Institute for Supply Management's manufacturing index rose to 52.3, up from 49.3 in January and above the forecast reading of 50. Meanwhile, individual stocks advanced, helping to limit the decline. Motorola ((MOT)) rose 2.7% after news that investor Carl Icahn raised his stake in the company. Oracle Corp. ((ORCL)) gaind 3% after it agreed to buy Hyperion Solutions ((HYSL)) in a deal worth $3.3 billion. Shares in Hyperion surged 20%.

The networking sector stood iut as a notable decliner, with Adaptec ((ADPT)) falling 3% and Emulex ((ELX)) losing 2.7%. Biotechnology stocks also showed considerable weakness, with shares of Amgen ((AMGN)) losing 3.4% on news that it received an informal SEC inquiry into a Danish study of the company's Aranesp anemia drug. In the first hour of trading, the Dow Jones industrial average was down 156.94, or 1.28%, at 12,111.69. The Standard & Poor's 500 index was down 20.38, or 1.45%, at 1,386.44, and the Nasdaq composite index was down 44.79, or 1.85%, at 2,371.36.

[R]Initial jobless claims unexpectedly increased.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended February 24. The report showed that jobless claims unexpectedly increased compared to the previous week. The report showed that jobless claims rose to 338,000 from the previous week's revised figure of 331,000. Economists had been expecting jobless claims to fall to 325,000 compared to the 332,000 originally reported for the previous week. The Labor Department also said that the less volatile four-week moving average rose to 335,250 from the previous week's revised average of 327,750. Additionally, the reports showed that continuing claims in the week ended February 17 rose to 2.640 million from the preceding week's revised level of 2.506 million. The unexpected increase in weekly jobless claims may raise some concerns about the strength of the February employment data due to be released next Friday. Economists currently expect the report to show that the economy added 110,000 jobs in February.


[R]9:30AM London dips in mid-afternoon trade Thursday on weak US opening.[/R]
The UK market was lower on Thursday. By mid-afternoon, the FTSE 100 fell 1.39% to 6,102.

Advancers

Reuters, the news and financial information firm, led the gainers, up 0.6% after reporting a 32% increase in annual pre-tax profit to 313 million pounds, topping market forecasts.

British American Tobacco was also higher 1.4% also as it reported a 10% rise in underlying earnings that prompted the second biggest cigarette maker in the world to increase the size of its share buyback programme and raise its dividend by 19%.

News of a 14% rise in operating profit to more than 9 billion pounds at Royal Bank of Scotland lifted shares 2.8%. J Sainsbury was 2% higher after Marks and Spencer confirmed it had been considering making a bid for the supermarket chain.

Decliners

Concerns that cooling Chinese demand for metals would damage earnings prospects soon returned to erase intraday gains in the metal sector. Antofagasta fell 2.4%, Xstrata lost 4.2% and Rio Tinto was 2.3% weaker. Other decliners included Amvescap, the fund manager highly exposed to US equities, which moved 3% lower.

Aviva, the life assurance group behind the Norwich Union brand, declined after its full-year results missed forecasts. After a strong run in advance of the figures, shares in the company fell 5.1%. PartyGaming is in the wars again as profits crashed by 57% in 2006 following the forced pull-out from the US market last year. The stock lost 7.5%.


[R]9:00AM U.S. stock futures turned sharply lower on extended global sell-offs and economic data.[/R]
U.S. stock markets looked poised for weaker opening Thursday, dragged down by extended sell-offs in European and Asian markets and a bigger-than-expected increase in core inflation. The U.S. Commerce Department said core CPI rose 0.3% in January, pushing inflation up 2.3%, above the 1% to 2% range favored by the Federal Reserve. Investors were also awaiting key economic data on manufacturing. The Institute for Supply Management''s index of manufacturing activity for February, which is due out after market opening, is expected to come in at 50.0, up from 49.3 last month.

Automakers are also expected to report monthly sales results. Toyota Motor’s sales ((TM)) are seen higher, while Ford Motor Co. ((F)) is expected to release another decline. In corporate news, software maker Oracle Corp. ((ORCL)) agreed to acquire Hyperion Solutions Corp. ((HYSL)) for $52 per share in cash, or $3.3 billion. Again in the merger-and-acquisition news, Motorola ((MOT)) shares rose 1.8% in pre-open trading after the company said Icahn filed to lift his stake in the company.

On the earnings news front, Viacom and Staples topped analyst estimates, while Ciena’s profit came in below expectations. Media conglomerate Viacom Inc. ((VIA.B)) said its Q4 profit more than tripled as revenue jumped 32%, helped by the acquisition of the DreamWorks studio. Sears Holding Corp. reported a better-than-expected Q4 profit as margins improved. Dell ((DELL)), The Gap ((GPS)) and Novell ((NOVL)) are due to report after the close.

In broker moves, Apple Inc. ((AAPL)) was upgraded by Lehman Bros. to overweight from equal weight, due to valuation. The stock slipped in the pre-open. UBS raised its rating on Bristol-Myers Squibb ((BMY)) to buy from neutral, citing valuation and a possible takeover approach. Dow Jones industrials futures were down 89 at 12,185.00; Nasdaq 100 futures fell 21.0 to 1,744.50 and Standard & Poor''s 500 futures were down 13.30 at 1,395.60.

[R]Personal income and spending rose more than expected.[/R]
The Department of Commerce released its report on personal income and spending in the month of January on Thursday, showing that personal income rose at a much faster than personal spending. Both increases exceeded economist estimates. The report showed that personal income surged up 1.0 percent in January following an unrevised 0.5 percent increase in December. The increase came in well above economist estimates of an increase of about 0.3 percent. Personal spending also showed a notable increase, rising 0.5 percent in January compared to an unrevised 0.7 percent increase in the previous month. Economists had been expecting personal spending to increase by 0.4 percent.


[R]8:30AM Asian markets mostly declined Thursday with Japan and China lower.[/R]
Asian markets finished lower on Thursday. Japanese Nikkei 225 Stock Average closed 0.86% lower at 17,453.51. The decline tracks a 515.80-point dive on Wednesday, which the biggest point decline since June 13. China shares dropped after Wednesday near 4% rebound in the Shanghai Composite with some investors selling into Wednesday recovery in the run-up to the China National People Congress. The Shanghai Composite Index ended 2.9% lower at 2,797.19.

Ping An Insurance surged 38% in its market debut on strong demand for new shares, but other financial stocks fell as funds shifted to the insurer. ICBC, China biggest lender by assets, dropped 2.75% and China Life Insurance shed 5%. In Hong Kong, the Hang Seng Index also declined 1.55% to finish at 19,346.60. Taiwan finished down 2.8% at 7,678.67 in heavy volume to close at its lowest level since Jan. 11, following Wednesday global losses when the local market was closed.

Malaysia KLSE Composite shed 1.3% to 1,180.91. Australia S&P/ASX 200 swung from early gains and closed 0.38% lower at 5,810.20, with investors taking to the sidelines on concerns of further drops in China. Markets in South Korea were closed on Thursday for a public holiday.


[R]8:15 AM Oracle agreed to acquire rival Hyperion Solutions for $3.3 billion.[/R]
Software provider Oracle Corp. ((ORCL)) reportedly agreed to acquire the producer of business-intelligence software Hyperion Solutions Corp. ((HYSL)) in a deal worth $3.3 billion, or $52 a share. The offer price represents 21% premium over Hyperion''s closing price Wednesday of $42.84. The acquisition would be the latest in a two-year spree that Oracle has executed, with CEO Larry Ellison spending some $20 billion to ensure a steady stream of new revenue. Oracle expects that the deal will add one cent a share to fiscal 2008 earnings on an adjusted basis, and four cents a share to fiscal 2009 earnings. The deal is expected to close in April 2007. In pre-market trading, Hyperion shares traded at $51.50.


[R]8:00AM NY-7:00PM Mumbai Sensex recovers Thursday after two-day slide.[/R]
The Sensex finished 221.46 points, or 1.71%, lower at 13,159.55. The market-breadth was initially weak but strengthened throughout the session. As 1,146 stocks advanced, 1,403 declined and only 71 were unchanged. Of the 30 stocks in the Sensex, 20 advanced, while the rest declined. The turnover on BSE was Rs 4,397.01 crore, lower than Rs 5,825.82 crore on Wednesday, while on NSE, the turnover was Rs 10,061.04 crore, lower than Rs 12,686.73 crore on Wednesday.

Economic news

The government yesterday announced software companies will also be taxed The move to tax them will not impact earnings, though, as the tax can be offset against future profits. Companies claiming tax exemption under some provisions of the Income Tax Act will have to pay an effective minimum alternate tax of 11.2%, but Indian software exporters were exempt from paying income tax for 10 years from the time they received their license, or until 2009. The proposal to levy the tax will not impact earnings as companies can take a deferred tax credit.

India exports registered a 5.5% growth to $9.65 billion in January while imports advanced by 23.24%, leaving a deficit of over $50.58 billion between April 2006 and January 2007. The trade deficit during the year-ago period was $35.13 billion, according to the Commerce Ministry.

Cement prices in some parts of India have been hiked by between 10 and 12 rupees per 50 kilogram bag from March 1, on a revision in excise duty announced in the Union Budget.

Trading highlights

New issue Indian Bank was the most-active stock with a turnover of Rs 287.50 crore followed by Reliance Industries and IFCI.

Advancers

Infosys, the second-biggest software exporter in India, gained Rs 75.1, or 3.6%, to Rs 2,153.5. Satyam Computer Services Ltd, the fourth-biggest software company, advanced 5.5%, to Rs 435.1. Tata Consultancy Services Ltd, the largest computer-services provider in India, rose Rs 67.15, or 5.7%, to Rs 1,255.6. Moreover, Satyam Computer Services BPO subsidiary, Nipuna Services, set up its fourth facility at Hyderabad. The Hyderabad facility will offer integrated service delivery across industries and processes, and will accommodate three shifts.

Reliance Communications surged 5.1% to Rs 428.20, on expectations of a reduction in annual license fees for wireless services in the coming months. Bharti Airtel added 1.1% to Rs 726.90, on similar hopes.

L&T surged 3.5% to Rs 1,541. The company stock had plunged on Wednesday on a broad drop in construction shares after the removal of tax benefit under section 80 IA to companies engaged in civil construction work. However, L&T pays corporate tax at the regular rate for its construction business, the company is not likely to suffer from this withdrawal of tax exemption for civil construction firms.

Other gainers included HDFC Bank, up 5.2% to Rs 981.1. ICICI Bank gained nearly 3% to Rs 855. Tata Steel advanced 2% to Rs 452. Ranbaxy and NTPC ended up over 1.5% each to Rs 343 and Rs 142, respectively.

Index heavy Reliance Industries saw great volatility today but managed to end in positive territory. It settled 0.87% higher, at Rs 1,366.35, on a volume of 15.09 lakh shares.

Decliners

Cement companies led the decliners today. ACC Ltd plunged after Merrill Lynch reduced its rating on the stock on the government proposal to raise taxes on the building material. The government hiked the excise tax by 50% to Rs 600 a ton on cement sold at more than Rs 190 a 50- kilogram bag. ACC, the largest cement producer in India, fell 2.6%, to Rs 876.55, while Gujarat Ambuja Cements, lost 3.6%, to Rs 111.75.

Auto stocks also underperformed today. Bajaj Auto fell 3.9%, to Rs 2,514.1. The second-biggest motorcycle maker in India reported a 1.7% decrease in sales of motorcycles in February. Maruti Udyog plunged sharply from its high of Rs 870 for the day, and ended 0.32% lower at Rs 837.


[R]6:30AM Europe rebounds Thursday as financial stocks gain ground.[/R]
European markets were modestly higher on Thursday. Frankfurt Xetra Dax was up 0.5% to 6,747.46, the CAC 40 in Paris was 0.5% higher at 5,542.31 and London FTSE climbed 0.8% to 6,222.7.

Advancers

Swiss Re advanced 4.5% after the reinsurer reported full-year net profit increased twice on lower claims and the acquisition of the reinsurance division of General Electric. Munich Re, whose in-line results were overlooked in the sell-off the previous session, gained 0.8% after a price target upgrade by Lehman Brothers.

A number of emerging markets mounted rallies, helping lift the financial stocks with the most exposure to them. Raiffeisen International and Erste Bank, the Austrian rivals, both of which have operations across central and eastern Europe, gained 3.6% and 3.4% respectively.

Recent pledges on renewable energy sources helped lift producers of solar energy equipment. Renewable Energy Corp, the Norwegian maker of solar panels, gained 4.4%, while German rival Q-Cells gained 2.8%. Acciona, the Spanish builder and investor in wind energy, gained 2.2%. Eon, the German group whose 41 billion euros bid for Endesa now looks to be in some doubt, edged 0.4% higher.

Decliners

Deutsche Telekom declined 2.3% after posting a 43% drop in full-year net profit and reducing forecasts for core earnings this year. The company announced it would help drive future growth through foreign acquisitions, possibly part funded by the sale of non-core European assets.

Oil and gold

Oil prices declined slightly Thursday as traders responded to gains a day earlier caused by a report showing dropping U.S. crude inventories. Crude oil for April delivery fell 11 cents to $61.68 a barrel in electronic trading on the New York Mercantile Exchange. Gold opened Thursday at a bid price of $668.80 a troy ounce, down from $680.60 late Wednesday.

Currencies

The euro was stronger against the U.S. dollar on Thursday as some markets in parts of the world appeared to shake off a slump earlier this week. The euro bought $1.3233, compared with the $1.3216 it bought in New York late Wednesday. The British pound edged up Thursday to $1.9605 from $1.9594. The dollar rose to 118.39 Japanese yen from 118.12 yen.