Cyclical Stocks Drag Europe Down

Elena
08 May, 2007
New York City

European stock markets lost ground on Tuesday, dragged down by cyclical stocks ahead of central bank decisions around the globe. Losses on Wall Street before Fed Reserve

[R]1:00PM NY, 5:00 PM Frankfurt European stocks lost ground ahead of rate decisions.[/R]
European stock markets lost ground on Tuesday, dragged down by cyclical stocks ahead of central bank decisions around the globe. Losses on Wall Street after several winning sessions and before Fed Reserve’s meeting also contributed to the negative sentiment. Among the leading decliners, truck maker Volvo lost 6.4%, while easyJet dropped 7.1% after reporting that load factor fell to 83.1% in April from 86.4%. Dutch telecom KPN fell 3.3% after its Q1 net income dropped 18%.

On the side of the gainers, German sportswear maker Adidas surged 7.3% after the group said that the order backlog for both of its main brands rose in Q1. In merger-and-acquisition news, Reuters Group rose 2.3% after stating that Thomson Corp. will offer $17.4 billion to take over the news service. Shares in steelmaking giant Arcelor Mittal dropped 2.6% amid reports that it is considering a $4.5 billion bid for steel-tube maker AK Steel.

The German DAX Xetra 30 slipped 1.1% at 7,442.20, dragged by 12.5% decline in the shares of Altana. The U.K. FTSE 100 lost 0.8% to trade at 6,550.40 and the French CAC-40 fell 0.6% at 6,034.25.


[R]11:30AM U.S. stock averages traded down on rate worries and economic data.[/R]
U.S. stocks continued to post losses as investors turned to consolidation of recent gains, awaiting the Fed Reserve''s decision on interest rates. Economic data released today added further pressure to stocks, as the Commerce Department said wholesalers'' inventories grew at a slower rate in March, coming in below expectations.

Dow member Hewlett-Packard ((HPQ)) bucked the downward trend. Company’s shares rose 2% after raising its Q2 financial outlook, citing strong operational results from its personal systems group and servers businesses. The Dow component said it now sees earnings of 64 to 65 cents a share on revenue of $25.5 billion to $25.55 billion. However, most of the blue-chip stocks declined. General Motors ((GM)) fell 1.4%, Coca Cola ((KO)) slipped 1.2%, and AT&T ((T)) lost 1.2%.

Among the most notable gainers, Blue Nile ((NILE)) surged 16% after the online jewelry retailer reported Q1 net earnings of 19 cents a share, up from 13 cents a share a year ago, helped by 34% revenue increase to $67.9 million. Quarterly results beat estimates of per-share profit of 15 cents on revenue of $61.7 million. In other earnings news, Revlon ((REV)) rose 1.5% after it said its Q1 loss narrowed amid cost-cutting. The company reported a loss of $35.2 million, or 7 cents per share, compared to a loss of $58.2 million, or 15 cents last year.

Resource stocks showed significant weakness amid a decrease in commodities prices. Gold, oil service, and natural gas stocks posted notable losses, while computer hardware, computer technology and telecoms advanced. In late morning trading, the Dow Jones industrial average fell 57.94, or 0.44%, to 13,255.03. The Standard & Poor''s 500 index was down 6.70, or 0.44%, at 1,502.78, and the Nasdaq composite index shed 11.28, or 0.44%, to 2,559.67.

[R]Wholesale trade rose 1.8% in March.[/R]
Tuesday morning, the Department of Commerce released its report on wholesale trade in the month of March. While the report showed a notable increase in wholesale sales, wholesale inventories rose slightly less than expected. The report showed that wholesale sales rose 1.8 percent in March following a 1.0 percent increase in February. With the increase, wholesale sales rose at an annual rate of 8.4 percent. The sales growth was partly due to a rebound in wholesale sales of durable goods, which rose 2.1 percent in March after falling 0.8 percent in the previous month. Wholesale sales of non-durable goods rose 1.5 percent after rising 2.8 percent in February.

The Commerce Department also said that wholesale inventories rose 0.3 percent in March following a revised 0.4 percent increase in February. Economists had expected inventories to rise 0.4 percent compared to the 0.5 percent increase originally reported for the previous month. Subsequently, the inventories/sales ratio edged down to 1.14 in March from 1.15 in February, although the ratio was unchanged from March of 2006.


[R]9:45AM U.S. markets opened lower amid profit-taking.[/R]
Wall Street opened in the negative on profit-taking ahead of the Fed Reserve''s meeting on interest rates. However, Dow member Hewlett-Packard ((HPQ)) helped limit losses, rising 2% after the computer maker raised its Q2 earnings and revenue outlook. At the same time, telecom stocks were dragged to the downside by Motorola ((MOT)) shares which fell 1.8% after the company said its shareholders didn''t elect billionaire shareholder Icahn to its board.

On the earnings news front, Warner Music Group Corp. ((WMG)) posted a wider Q2 loss, hurt by restructuring costs and a decline in revenue. Warner Music lost $27 million, or 19 cents per share, compared with a loss of $7 million, or 5 cents per share a year ago, missing expectations of 9 cents loss. Duke Energy Corp. ((DUK)) said its Q1 profit fell to 28 cents per share, down from 37 cents per share last year, coming short of estimates of 31 cents a share. The quarterly decline came after the power company spun off its natural gas business at the beginning of the year.

Pharmacy services provider CVS/Caremark Corp. ((CVS)) announced Q1 earnings increase of 24% on strong revenue growth. Net income grew to 43 cents per share, from 39 cents per share a year ago, missing expectations of 45 cents a share. Industrial manufacturing conglomerate Tyco International ((TYC)) posted Q2 earnings drop of 7% as higher costs offset revenue growth. Net income declined to 41 cents per share, from 43 cents per share a year ago, below analyst estimates of 47 cents a share.

In deal news, AK Steel ((AKS)) climbed 15% amid reports that Arcelor Mittal is in talks to buy the U.S. steel producer in a $4.5 billion, or $40 a share, deal. In midmorning trading, the Dow Jones industrial average fell 71.03, or 0.53%, to 13,241.94. The Standard & Poor''s 500 index was down 8.01, or 0.53%, at 1,501.47, and the Nasdaq composite index shed 15.69, or 0.61%, to 2,555.26.


[R]9:30AM London equities trade lower Tuesday on weak mining sector.[/R]

The U.K. market was lower in early deals on Tuesday. The FTSE 100 shed 36.3 points to 6,567.4 in late morning trade.

Advancers

Reuters gained as it outlined details of its merger with Canadian peer Thomson to create the biggest global news and financial information provider. The 8.8 billion cash-and-stock offer would value each Reuters share at 697 pence. Having jumped 25% on Friday, Reuters rose a further 4.3%.

The news boosted other publishers on expectations of further consolidation. Reed Elsevier rose 2.7% and Pearson gained 0.65. Music group EMI gained 3.9% on sustained hopes of a takeover after the company said on Friday it had receive a number of preliminary bid approaches.

Arken POP, part of Media Square, has secured a contract with CBS Outdoor to design and manufacture advertising display units for use across the London Underground network. The multi-million pound contract is the largest ever secured by Arken and lifted Media Square, up 8.9%.

Decliners

BHP Billiton, down 1.9%, Anglo American, off 1.6% and Xstrata, also 1.6% lower, headed south as metal prices sank from recent highs. Oil large-caps Royal Dutch Shell and BP also dipped 1.3% and 1.7%, respectively, as oil prices continued to trade below $62 a barrel ahead of US crude inventories report, released tomorrow.

BAE Systems fell 2% after the defence group announced plans to raised 750 million pounds to finance the 2.3 billion pounds acquisition of Armor Holdings of the US.

Insurer Standard Life reported a better than expected 40% rise in first quarter sales Tuesday, with growth being driven by strong UK sales of life and pensions business in the UK. The shares of the company 0.2%.


[R]9:00AM U.S. stock futures traded lower on interest rate concerns.[/R]
U.S. stock futures indicated a lower opening Tuesday, hurt by cautiousness ahead of the Fed Reserve''s interest rate policy decision on Wednesday. On the economic news front today, March wholesale inventories figures are due out after the open. Another drag on the pre-market sentiment was Motorola ((MOT)) which lost 2.1% after it said its shareholders re-elected the company''s board but didn''t elect Icahn who failed to receive support from major investment funds.

Among other pre-market highlights, AK Steel ((AKS)) soared 19% in the pre-open amid reports that Arcelor Mittal is in talks to buy the U.S. steel producer in a $4.5 billion. Again in M&A action, Reuters ((RTRSY)) and Thomson ((TOC)) confirmed deal talks, releasing details of the possible merger worth $17.4 billion in cash and stock. S&P 500 futures lost 4.80 points to 1,509.50 and Nasdaq 100 futures dropped 8.50 points to 1,898.25. Dow industrial futures shed 36 points to 13,304.


[R]8:30AM Asian markets decline Tuesday with only China bucking the trend and advancing.[/R]

Asian markets mostly declined Tuesday. The 225-issue Nikkei Average in Japan closed 0.1% lower at 17,656.84. Investors took to profit taking on Honda and other large-cap stocks tracking strong gains in the session on Monday after an extended holiday break. Mitsubishi Heavy Industries advanced 1.6%, while Japanese banking shares gained on a rating upgrade by Moody''s. Mitsubishi UFJ Financial Group added 2.3%, while Mizuho Financial Group and Sumitomo Mitsui Financial Group both advacned 1.9%. Export-related shares were mostly lower, as Sony traded unchanged, and Canon retreated 0.4%. Auto shares dipped with Honda Motor shedding 0.5% and Toyota Motor falling 0.4%.

The Shanghai Composite in China reached 3,950.01 following an extended week-long holiday break. Property developers and retailers were in focus on a rise in revenue during the week-long Labor Day holiday which pushed China shares to a record high. Retailers and property developers gained as sales picked up during long holidays. Property developer China Vanke hit the 10% upside limit and Poly Real Estate also surged 10%.

Australian S&P/ASX 200 set an intraday record of 6,341.1 early in the session, but retreated 0.5% to end at 6,301.00. Shares of Australian carrier Qantas Airwayspulled the market lower, falling 3% after the consortium bidding 11 billion Australian dollars, or $9.08 billion, for Qantas conceded that its bid for the airline had failed. BHP Billiton fell 1.3%, while Rio Tinto declined 1.7%.

Hong Kong Hang Seng Index finished 0.9% lower to 20,706.35, a day after finishing at a record high. South Korean Kospi was little changed, declining 0.1% to end at 1,582.65 and Taiwan Weighted Price Index lost 0.2% to end at 8,095.84.


[R]8:15AM Reuters and Thomson confirmed merger talks.[/R]
Reuters Group ((RTRSY)) and Thomson Corp. confirmed on Tuesday that they are in takeover talks, releasing details of the proposed deal which values Reuters at $17.7 billion. On Friday, Reuters said that it had received a bid offer, which sent the media company''s stock 25% higher. Thomson announced Monday that it had launched the bid.

According to the agreement, Thomson would offer 0.16 of its own shares and 352.5 pence in cash for each share in Reuters, which at Monday''s prices would value the company at 697 pence a share, or 8.76 billion pounds ($17.4 billion).

The Thomson family holding company, Woodbridge, would hold 53% of Thomson-Reuters, other Thomson shareholders would control 23% of the combined company and other Reuters shareholders would combine 24% of the firm. The companies would be joined into a single firm called Thomson-Reuters. The Thomson Financial unit would be combined with Reuters financial and media businesses into a single unit under the Reuters name. The combined firms expect $500 million in annual synergies in three years.


[R]8:00AM NY-7:00PM Mumbai Sensex finishes lower on weakness in IT, banking stocks.[/R]

The Sensex on BSE finished 113.79 points, or 0.82%, lower at 13,765.46.

The market-breadth was very weak as there were two decliners for each advancer. As 873 stocks advanced, 1,692 stocks declined and 70 stocks remained unchanged. Of the 30 stocks in the Sensex, only four stocks advanced, 25 stocks declined and one remained unchanged. The turnover on BSE was Rs 4,261 crore, compared to Rs 4,497 crore on Monday. On NSE, the turnover was Rs 9,549.68 crore, higher than Rs 8,657.72 crore on Monday.

Economic news

Finance Minister P Chidambaram said on Tuesday that the government is still discussing restrictions on foreign direct investment in few retail store formats. He clarified that the foreign investment is permitted in cash and carry, wholesale and single brand retail store formats only.

The Reserve Bank of India has given three months to all banks to comply with the directive to limit borrowing charges and fees for housing and other consumer loans.

Trading highlights

ICRA was the most-active stock with a turnover of Rs 260.70 crore followed by Indiabulls and Tech Mahindra.

Advancers

ACC led the advancers, surging 2.7% to Rs 886 on reports that Holcim bought 60 lakh shares, or 3.5% equity of the company, at approximately Rs 900 per share. Grasim also advanced 0.7% to Rs 2,489 and Tata Steel edged 0.2% higher to Rs 553. L&T gained nearly 0.2% to Rs 1,697.

Decliners

Hero Honda tumbled over 3.5% to Rs 680, while SBI lost 3.4% to Rs 1,082. Other banks also lost. Bank of Baroda dipped 2% to Rs 189, Vijaya Bank lost 2% to Rs 48, Bank of India retreated 2% to Rs 189, and Bank of Baroda was off 1.5% to Rs 237.

Dr.Reddy dropped 1.8% to Rs 691. An overnight decline in the American Depository Receipts of the company stocks listed in New York and a surging rupee affected IT large-cap Infosys. The stock was off 1.8% at Rs 2002. On Monday, Infosys ADR shed 3.6% to $51.92. Other IT stocks also plunged. Wipro shed 1.5% to Rs 546, TCS was down 0.7% to Rs 1,268, and Satyam Computer shed 0.8% to Rs 456. Reliance Energy slipped 1.4% to Rs 506.

Auto stocks also lost. Bajaj Auto shed 1.3% to Rs 2,533, Maruti Udyog shed 1% to Rs 797 in volatile trade. Telecom stocks declined on profit-taking. Bharti Airtel shed over 1% to Rs 810 and Reliance Communications lost also over 1% to Rs 460. Index heavy Reliance Industries shed 0.8% to Rs 1,592.

Tech Mahindra slumped 4.6% to Rs 1,550. Tech Mahindra reported consolidated net profit growth of, excluding exceptional items, 120% in fourth quarter of 2007 at Rs 196.1 crore compared with Rs 89.1 crore a year earlier. Revenue advanced 108% to Rs 874.5 crore compared with Rs 421.2 crore in the fourth quarter of the previous year.


[R]6:30AM European markets fall on Tuesday on profit-taking, weak earnings.[/R]
European markets declined on Tuesday. By mid morning, Frankfurt Xetra Dax shed 0.5% to 7,490.63, the CAC 40 in Paris lost 0.4% to 6,047.72 and London FTSE 100 fell 0.4% to 6,578.7. National benchmarks fell in all 17 markets in western Europe that were open except for Denmark.

Decliners

Shares of KPN dropped 2.6%. The company reported that net income fell 18 % to 313 million euros on sales of 2.92 billion euros, down from 3 billion euros a year earlier. KPN had been estimated to report net income of 351 million euros. Sales had been projected at 2.98 billion euros.

Clariant, specialty chemical maker, fell 2%. First-quarter profit slid 10% to 86 million francs or $71 million on increased energy and raw material costs.

Swiss Re lost 1.6%. Premium income increased 23%. That fell short of the 8.56 billion-franc median estimate. Net income rose 54% to 1.33 billion Swiss francs, compared with a 1.3 billion-franc prediction.

Advancers

Reuters Group climbed 4.4%. Thomson is in talks to buy Reuters for 8.77 billion pounds, or $17.5 billion, to gain a global news service.

Shares of William Morrison jumped 3.4% after reports that the fourth-biggest U.K. supermarket company may soon get a 9 billion-pound bid from private equity firms or property specialists.

Commodities

Crude oil rose the most in more than a week after a militant group attacked pipelines in Nigeria, Africa biggest crude producer. Crude oil for June delivery was up 13 cents at $61.60 a barrel on the New York Mercantile Exchange in early trading in London. The contract had advanced as much as 43 cents or 0.7% to $61.90, the biggest gain since April. 27. Brent crude oil for June settlement rose as much as 86 cents, or 1.3 %, to $65.30 a barrel on London ICE Futures exchange.

Platinum for immediate delivery dropped $9.50 to $1,331.50 an ounce, after gaining $55, or 4.3%, since April 30. Palladium rose 50 cents to $377.50 an ounce, the fifth straight gain. Gold fell as a rebound in the dollar against the euro may erode investor demand for precious metals as an alternative investment. Gold dropped $2.45, or 0.4%, to $686.30 an ounce, while silver fell 3 cents to $13.475 an ounce.

Currencies

The dollar was mixed against other major currencies in European trading Tuesday morning. The euro traded at $1.3575, down from $1.3603 late Monday in New York. The British pound traded at $1.9935, up from $1.9931. The dollar fetched 119.90 Japanese yen, down from 120.11.