Rise in Oil Drags European Markets Lower

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

European markets closed lower on higher oil price. Decline of 1% in Swiss index led the region. Germany, France and the Netherlands closed 0.6% lower. UK closed lower on fall in mining and banking stocks. ABN Amro fell on the statement that it will explore all options if talks with Barclays fell. Barclays rose. ArcelorMittal chairman said that the company likely to expand from steel to other metals.

[R]1:30PM NY – 6:30PM Frankfurt – Rising oil prices drag European markets lower at close.[/R]

European markets closed lower across the region led by a decline of 1% in Switzerland and 0.6% decline in Germany, France and the Netherlands. U.K. markets closed lower by a fraction.

Volatile oil price shot up more than $5 on rumors of Iranian missile launch targeting American ships. Rumors were denied by the U.S. Navy but oil managed to close up more than $1 per barrel.

BP ((BP)) and Royal Dutch Shell closed higher at close however, mining companies Rio Tinto ((RTP)) and BHP Billiton ((BHP)) closed lower.

Auto stocks in France closed lower on rising oil prices. Renault declined close to 1%. Airline stocks also fell led by a drop in Air France-KLM and British Air. British Air dropped after Times of London newspaper reported that it is considering to bid for a stake in local carrier BMI.

Bank stocks came under pressure after ABN Amro ((ABN)) said that it will explore all options if talks with Barclays are not successful. The bank also urged shareholders to disregard an activist motion to breakup bank in several parts. Austrian bank Raiffeisen fell 3% on fourth quarter earnings rise of 51% but weak guidance for the year 2007.

ArcelorMittal ((MT)) chairman Laxmi Mittal said in a New York meeting to investors that the company is seeking opportunities to expand beyond its roots in steelmaking. The company is likely to diversify into other metals making and deepen its iron ore mining operations. The company currently mines 45% of its iron ore needs and is likely to meet its 75% needs internally by the year 2010. The company also views opportunity in increasing its metals distribution business in Europe and the U.S. and thinks that tubes and pipes business can add value to its operations.

French tube maker Vallourec rose 4% on the rumors that ArcelorMittal may bid for the company. Arcelor denied that it is interested in the company.



[R]11:45 AM NY – The Fed chairman said in his testimony that inflation is ‘uncomfortably high’.[/R]

In a prepared testimony to the Joint Economic Committee of Congress the Fed Chairman Bernanke issues cautious guidance for the economic growth and inflation. He said that his business scenario counts on businesses to increase their capital spending at a moderate pace in the months to come and consumer spending is likely to remain solid. The outlook for housing market remains uncertain and sub-prime lending related issues appear to be contained and are not spreading in the economy.

He expects the economy to continue to grow at moderate pace in the coming quarters despite slow capital spending from businesses. Mr. Chairman also struck optimistic view on consumer spending and added, “the continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending, which increased at a brisk pace during the second half of last year and has continued to be well maintained so far this year. Growth in consumer spending should continue to support the economic expansion in coming quarters.”

Real economic growth has slowed in the last five quarters and in the second half of the year 2006 the rate of growth had declined to 2% and is likely to be repeated at the similar pace in the current quarter. Housing market is likely to a drag on the economy in the coming quarters as lending standards are tightened.

The Chairman noted that the overall inflation as measured by Consumer Price Index has declined to 2.4% last year ending in February from 3.6% a year ago. Core inflation during the same period was 2.7% compared to 2.4% a year ago. He said that core inflation slowed modestly in the second half of last year, but recent readings have been somewhat elevated and the level of core inflation remains uncomfortably high. Increase in rent paid for real estate account substantial part of increase in core inflation.


[R]10:30AM NY – U.S. stocks trade lower led by another decline in housing sector.[/R]

U.S. market averages after thirty minutes of trading are in the negative territory. Oil is trading $1.20 per barrel higher to $64.20 and trades indicate oil may trade higher in the coming days. Last week U.S. reported less than expected decline in oil and gasoline inventory. Tensions in the middle-east remain high and U.K. releases what they claim to be evidence that British sailors were seized by Iran in international zone.

Tech stocks fell at the opening along with broader market averages but managed to rebound after fifteen minutes of trading. Google, Yahoo, Accenture and Motorola gained.
Accenture rose on better than expected earnings.

ADRs of China related stocks fell in the morning trading but Chinese tech stocks rose along with the U.S. stocks. Asian markets slumped sharply in the overnight trading. China, India, Singapore and Japan closed lower.

Oil complex stocks rose mildly on the higher oil prices. Norfolk Southern ((NS)) traded higher on the news that the company is planning to buyback shares. The company raised its buyback program to 75 million shares from 50 million and reduced its buyback time to Dec 31, 2010 from Dec 31, 2015.

[R]9:45AM NY – 2:45PM Frankfurt – U.S. stock futures decline on rise in oil and less than expected gain in durable goods orders.[/R]

U.S. stock-index futures fell thirty minutes before the official trading on several negative trends in the market. Oil traded up $1.10 to $64.10 per barrel, after rising as much as $5 on rumors that Iran had fired a missile at a U.S. ship. Oil backed-off after trading above $68.

Durable goods orders in February rose 2.5%, less than expected. Spending by businesses on equipment and technology fell in 9.3% in January triggering a sharp sell-off of more than 400 points. Manufacturing sector appears to be still struggling and market was expecting a larger rebound in the orders.

Home builders may come face another day of sell-off. FBI said that it is investigating Beazer Homes ((BZH)) for aggressive selling of mortgages to buyers who may not be able to afford it. U.S. Attorney’s office said that it will investigate the matter and has requested the documents from the company.

Accenture Ltd ((ACN)) gained $1.05 in early trading on second quartet earnings report of 47 cents vs. 11 cents a year ago. Caterpillar and Boeing fell.


[R]9:30AM London advances Wednesday morning on a rise in commodities.[/R]

The UK market was higher on Wednesday morning. The FTSE 100 gained 2.1 points to 6.294.8.

Advancers

In London, with crude trading more than $1 higher, BP gained 2%, BG Group advanced 1.6% and Royal Dutch Shell added 1.6%. Next led the FTSE with a gain of 4.6% as the fashion retailer continued its recent strong performance on rumours of private equity interest.

J Sainsbury reported a 5.9% rise in fourth quarter same-store sales excluding fuel and said it was confident it can continue to build on its recovery. The UK third largest supermarket, up 0.2%, made no reference to any possible bids from private equity players.

United Utilities added 1.1% after its trading update said full-year results for the year to March 31 were expected to be in-line with management expectations. Aberdeen Asset Management also performed strongly with a rise of 4.6% after a positive trading update

Ahead of a trading update on Friday, FKI gained of 3%. The engineering group performed strongly for a second session on hopes that a significant disposal may be announced.

Decliners

Woolworths Group dipped 2.3% after the retailer reported that full-year pre-tax profits slumped to 16 million pounds last year compared with 61.5 million pounds in 2005. Same-store sales fell by 6% last year. The company issued a cautious outlook statement and said the retail environment was likely to remain challenging.

Stocks trading ex-dividend fell, including Scottish & Newcastle off 3.1%, Wolseley 2.6% lower and Standard Life down 1.1%.


[R]9:00AM Asian markets finished sharply lower on U.S. growth concerns.[/R]
Asian markets ended distinctly lower on Wednesday. Tokyo Nikkei 225 Average gave back earlier gains, falling as much as 1%, ending 0.6% lower at 17,254.73. Toyota, largest automaker in Japan, fell 1.4 %. Sony Corp., the maker of consumer electronics which made 70% of its sales overseas last year, fell 2.1%.

Hon Hai Precision Industry Co., the world largest contract manufacturer, declined 2.3%. Shares of Sapporo Holdings were down 1.7% on reports that shareholders are likely to support measures Thursday that will make it difficult for an outside group to takeover the brewer.

Hong Kong Hang Seng Index was 0.9% lower at 19,525.32. Shares of Hong Kong-listed Hang Lung Properties fell 3.1%. Shares of Hong Kong fixed-line operator PCCW were up 0.9% ahead of the release of its full-year results later Wednesday.

South Korea Kospi Index closed 0.9% lower to 1,439.74, Straits Times Index in Singapore ended 1.3% down at 3,201.17 and Taiwan Weighted Price Index shed 0.7% to 7,788.14. Australian S&P ASX/200 closed down 0.7% to 5,923.20 and Shanghai Composite Index egded lower 1.1% to end at 3173.01. Both markets had posted gains earlier in the session.

Oil stocks bucked the trend and advanced. Shares of Inpex rose 2% in Tokyo trading, while Nippon Oil, Japan largest oil distributor, rose 0.7%. Also on the advance, Australian Woodside Petroleum was up 0.3% and Chinese Cnooc rose 0.3% in Hong Kong.


[R]8:00AM NY-7:00PM Mumbai Sensex plummets on heavy selling in large-caps.[/R]
The Sensex on BSE finished 239.98 points, or 1.83%, lower at 12,884.34. The session was highly volatile as the market traded within a range of 175 points. The market breadth was weak as there were three decliners for each advancer. As 1,936 stocks declined, 651 advanced and 61 remained unchanged. Of the 30 stocks in the Sensex only eight advanced, while the rest declined. The turnover on BSE was Rs 4,008 crore, higher than Rs 3,209.57 crore on Monday, while on NSE, the turnover was Rs 8,363.28 crore, much higher than Rs 6,753.15 on Monday.

Economic news

Deutsche Bank, biggest bank in Germany, will invest in emerging markets such as India, as it aims to expand consumer banking and money management to help increase pretax profit, excluding nonrecurring gains or costs, to 8.4 billion euros in 2008. The bank opened eight branches in India and began selling credit cards there.

The rupee kept surging against the US dollar and hit a multi-year high of 43.1525/43.1600 a dollar in late morning deals on sustained dollar sales by banks together with strong capital inflows.

Trading highlights

Indiabulls Real Estate was the most-active stock with a turnover of Rs 491.75 crore followed by Infosys and TCS.

Advancers

Pharma stocks were among the few gainers. Ranbaxy Laboratories led the advancers, up 3.% to Rs 338, as 3.32 lakh shares were traded on BSE. Dr Reddy Labs gained 1.8% to Rs 694. BHEL was up 1.2% at Rs 2,280. Reliance Energy advanced 1.8% to Rs 484, and ONGC added 1.5% to Rs 866. Other gainers included ITC, higher 0.6% to Rs 143 and Hindustan Lever, up 0.2% to Rs 198.

Decliners

IT stocks plummeted, as the dollar dipped versus the Rupee to its lowest level since June 1999. Also, a weak consumer confidence report caused concerns about a slowdown in the United States, where these companies generate most of their revenue. TCS slumped 4.8% to Rs 1,201, Satyam Computers shed 3.5% to Rs 456, Infosys lost 3.2% to Rs 1,992 and Wipro declined 4.8% to Rs 558. Of company news, Satyam Computer has signed a five-year contract valued at 200 million dollar with US-based Applied Materials, a global leader in Nanomanufacturing technology for providing application development, maintenance and support services.

Auto large-cap Tata Motors fell heavily, down 4.7% to Rs 719 and Index heavy Reliance Industries declined 1.48% to Rs 1,344.95. Other decliners included HDFC, off 3.5% to Rs 1,519. Larsen & Toubro shed 3% to Rs 1,566. Maruti, Hindalco and Bharti Airtel were down around 2.5% each to Rs 799, Rs 130 and Rs 758, respectively. Maruti lost 2.5% to Rs 798 and Hindalco dipped 2.4% to Rs 130.

Tata Steel lost 0.9% to Rs 438. The private sector steel large-cap has now entered into talks with the second-largest steelmaker in the world, Nippon of Japan for jointly producing an alloy for automakers and other companies.

[R]6:30AM European shares were lower Wednesday on selling pressure.[/R]
European markets declined on Wednesday morning. In early trade, Frankfurt Xetra Dax climbed 0.4 % to 6,829.21, the CAC 40 in Paris added 0.4 % to 5,566.23 and London FTSE 100 slipped 0.1 % to 6,288.5. National benchmarks fell in 16 of the 18 markets in western Europe.

Advancers

Oil groups provided the only substantial support to the market after oil prices spiked briefly above $66 a barrel. Finnish refiner Neste Oil gained 2.3%, France Total rose 1%, while Britain BP added 1% and Royal Dutch Shell, Europe biggest oil company, gained 1.7%.

Decliners

BHP Billiton, the world biggest mining company, dropped 0.8% and Rio Tinto Group slipped 2%. SAP, the world largest maker of business-management software, fell 1.2% and Ericsson AB, the biggest producer of wireless-network equipment, lost 0.8%. Siemens AG, Europe largest engineering company, lost 1.6%.

Airlines were also lower as oil accounts for 30% of airlines costs. Shares of Air France lost 1.3%. British Airways, Europe third-biggest airline, retreated 0.9%. UPM-Kymmene led the Finnish paper and forestry groups lower, down 4.1%, after reports that an early spring in Finland could cause problems accessing raw materials in remote areas.

Oil and gold

Oil gained for a seventh day in New York on concern a dispute over detention of British servicemen by Iran will escalate. Crude oil for May delivery gained as much as $1.53, or 2.4%, to $64.46 a barrel in electronic after-hours trading on the New York Mercantile Exchange. Brent crude for May settlement rose as much as $1.53, or 2.4%, to $66.13 a barrel in electronic trading on the London-based ICE Futures exchange.

Gold advanced to a three-week high as speculation the U.K. may raise diplomatic pressure on Iran over the seizure of its servicemen. Gold for immediate delivery climbed $1.29, or 0.2%, to $665.70 an ounce in early trade in London. Silver climbed 6.5 cents to $13.34 an ounce, after falling 0.8% yesterday. Platinum gained $8.50 to $1,243.50 an ounce and palladium rose $1 to $353.50.

Currencies

The U.S. dollar traded mixed against other major currencies in European trading Wednesday morning. The euro traded at $1.3340, down from $1.3344 Tuesday in New York. The British pound traded at $1.9624, down from $1.9656. The dollar fetched 117.40 Japanese yen, down from 117.95

[R]5:00AM Copper, gold declined Tuesday, while energy stocks gained.[/R]
The most-active May copper declined 8.10 cents to settle at $3.0575 per pound on the New York Mercantile Exchange. April gold shed $1.40 to finish at $662.50 a troy ounce, while May silver lost 13 cents to $13.28 an ounce. June palladium was off $3 to $356 an ounce, but April platinum rose $5.50 to $1,242 an ounce.

The May crude oil contract gained 2 cents to finish at $62.93 a barrel. April RBOB gasoline advanced 0.53 cent to $2.0730 a gallon after hitting a new seven-month, intraday high of $2.0850 a gallon. April heating oil futures ended up 1.03 cent at $1.7864 a gallon and April natural gas futures gained 24.9 cents, or 3.4%, to settle at $7.503 a million British thermal units, the highest close since Feb. 27. Natural gas futures were boosted by a weather forecast of stronger hurricanes this year in the Gulf of Mexico, which could pose a risk to production in the region.

Arabica coffee futures also dropped. May coffee closed 1.9 cent lower at 1.1245 a pound, while July finished 1.9 cent weaker at $1.1525 a pound. Futures on raw sugar in foreign ports settled higher though, with May sugar closing 0.11 cent higher at 10.11 cents a pound, and July sugar finishing 0.12 cent stronger at 10.17 cents a pound.