Weak Retailers, Bid for Casinos

123jump.com Staff
22 May, 2007
New York City

U.S. market averages attempted a spirited move towards higher opening but quickly faced the headwind. The offer for MGM owned casions from Tracind controlled by Kirkorian lifted trading sentiment in casino and hotel stocks. Mortgage lenders gained on the deal to sell subprime mortgage portfolio by Fremont General to IStar Financial. Retailers fell on lower sales outlook from Staples and weaker than expected earnings and sales forecast from American Eagle. Chile fell 4% on pension funds worries.

[R]4:30PM New York, 10:30PM Frankfurt, 2:00AM Mumbai – GLOBAL MARKETS[/R]

Yields on 10-year U.S. bond rose to 4.835% and 30-year U.S. bond closed at 4.985%.

Crude oil futures in New York trading closed $1.42 or 2.12% lower to $64.85 per barrel, natural gas price 11 cents to close at $7.801 per mmBtu, and gasoline price fell 9 cents to close at 231.12 cents per gallon.

Gold futures price fell $5.10 per troy ounce to $658.7, silver price dropped 14 cents to close at $12.99 per once and copper price declined 9.8 cents to close at 330.25 per ounce.

Asian Markets closed higher led by 1.4% rise in Malaysia, 1.2% gain in Philippines and 1.1% advance in Shanghai. Rising Yuan and disposable income fueled the speculation that property prices will keep advancing. South Korea, Singapore and Taiwan rose nearly 1%. Hong Kong with a loss of 0.4% led the decliners in the region followed by 0.35% loss in Australia.

European Markets closed mixed with a negative bias. Switzerland and the U.K. markets led the decliners in the region with a loss of 0.47% decline followed by 0.4% loss in Italy and France closed unchanged. Germany led the region with a gain of 0.5% followed by 0.4% rise in the Netherlands and Norway.

Latin America Markets fell across the region led by 4.1% sharp drop in Chile. Chilean President said that pension funds limit for international investment will be raised to 45% from 30% in July. Chilean stocks fell on the concern that pension funds will move the money out of Chile and into international markets sooner than expected depressing the valuations in the domestic market. Largest local retailer CencoSud fell nearly 5%. Market in Brazil fell 0.5% after rising sharply in the last five sessions. Steel and banking stocks led the decline. Markets in Mexico closed lower on economic growth worries and rising inflation. American Movil fell nearly 1% after gaining 6.2% in the previous week and ahead of analyst meeting in Mexico City.

[R]1:00PM NY, 5:00 PM Frankfurt European stocks closed down, dragged by pharmaceutical companies.[/R]

European stock markets closed mixed on Tuesday, reflecting gains from telecom and chemical companies and weakness in the pharmaceutical sector. In the telecom sector, Deutsche Telekom and France Telecom both added 1.5%. Among chemical firms DSM advanced 4.2% and Alzo Nobel was up 1.4%. In the drug sector, GlaxoSmithKline shares fell for a second day amid safety concerns on the company's Avandia treatment. The stock declined 1.4% after several broker downgrades.

Again in London, shares in Marks & Spencer fell 4.7% after it said that it expects the retail environment to become more challenging as interest-rate rises are expected to hurt consumer spending. IT services group LogicaCMG dropped 9%. In earnings-related news, stock exchange operator NYSE Euronext rose 2.6% after it said that Q1 operating profit at its Euronext arm rose 31.7%. The German DAX Xetra 30 rose 0.5% at 7,659.39. The French CAC-40 finished virtually unchanged at 6,089.72 while the U.K. FTSE 100 lost 0.5% to 6,606.60.


[R]11:30AM Market averages traded in a tight range. Resource stocks declined.[/R]

U.S. stocks traded in a lackluster fashion as there was no major catalyst to give the market a direction. Deal new failed to generate broad market sentiment and the three major averages hovered near the flat line. Individual stocks such as MGM Mirage ((MGM)) and Fremont General ((FMT)) saw their shares steeply up, 28% and 38%, respectively. At the same time, the housing sector advanced ahead of the release of key housing data later this week. Stocks of mortgage lenders like Accredited Home Lenders ((LEND)) gained on news that iStar Financial Inc. ((SFI)) agreed to buy Fremont General's ((FMT)) unit for about $1.9 billion. Accredited Home Lenders stock rose 4.6%, while Fremont General surged 40%.

On the opposite side, resource stocks posted weakness amid decreasing commodity prices. Oil service stocks showed considerable weakness. Retailers also declined. Office supplies store Staples ((SPLS)) weighed down the Nasdaq with a decline of 3% after posting weak furniture and business machines sales. Zale Corp. ((ZLC)) lost 0.4%, while teen retailer American Eagle Outfitters ((AEO)) slipped 3.4% on lower-than-expected outlook. The Dow Jones was up 9.42 points, or 0.07%, at 13,552.30. The Standard & Poor's 500 was down just 0.40 of a point, or 0.03%, at 1,524.70. The Nasdaq was up 2.06 points, or 0.08%, at 2,580.85.


[R]9:45AM U.S market averages opened up, helped by casino stocks.[/R]

U.S. stock market opened in the positive Tuesday, supported by merger activity in the casino industry and talks aimed at easing economic tensions between the U.S. and China. MGM Mirage ((MGM)) climbed 26.5% after billionaire Kirk Kerkorian offered to buy two Las Vegas properties owned by MGM Mirage-the Bellagio and CityCenter. In other deal news, subprime mortgage lender Fremont General ((FMT)) agreed to sell its commercial real estate lending business and outstanding loan portfolio to iStar Financial ((SFI)) for $1.9 billion. iStar Financial gained 4.5%. Dynegy ((DYN)) lost 4.7% after Chevron said it would sell 96.9 million Class A shares in an underwritten offering.

Among earnings-related movers, Staples ((SPLS)) slipped 5% after it reported a 12% profit rise on 8% sales growth in Q1, helped by sales of laptop computers. Tech Data ((TECD)) slipped 6% after posting a 23% drop in profit, despite a 9% sales growth. Autozone ((AZO)) fell 2% despite reporting 5% profit increase and 4% sales growth. In the first hour of trading, the Dow Jones industrials rose 8.12, or 0.06%, to 13,551.00. The blue-chip average was supported by gains in the shares of Alcoa ((AA)), up 1.4%, Merck ((MRK)), up 1% and Intel Corp. ((INTC)), higher by 0.5%. The Standard & Poor's 500 fell 0.03, or less than 0.01%, to 1,525.07. The Nasdaq composite index, rose 1.41, or 0.05%, to 2,580.20. Bonds were flat, with the yield on the benchmark 10-year Treasury note at 4.79%.


[R]9:30AM The FTSE 100 is lower in mid-day trading Tuesday on GlaxoSmithKline and Marks & Spencer.[/R]

The FTSE 100 gave up 11 points, or 0.2%, to 6,625.7.

Advancers

UK bank Alliance & Leicester advanced 3.8% after UBS initiated coverage of the stock with a buy’ rating and raised its price target.

Search software company Autonomy Corp gained 3.1% after it completed the demerger of its consumer business and the pricing of the placing of new ordinary shares in Blinkx.

SSL International advanced 1.9% after reporting pretax profit of 46.9 million pounds.

Decliners

GlaxoSmithKline extended losses made at the end of the previous session. Shares in the drug group fell 3.4% as Cazenove and Deutsche Bank both cut their recommendations on the stock and Morgan Stanley cut its price target.

Marks & Spencer announced a 28.5% increase in full year profits and added it would create 10,000 new jobs over the next three years, but the shares fell 2.5 % in early trading.

Shares in software group LogicaCMG declined nearly 9% after the software company warned revenues would be lower this year than last year.

British Airways dipped 1.7% following its statement that it had joined a consortium to investigate a possible offer for Spanish airline Iberia. BA said it had previously ruled out further capital investment as part of any consortium offer and will not make an independent bid for the airline.


[R]9:00AM Stock futures pointed to a higher opening, supported by gaming stocks.[/R]

U.S. stock futures moved to the upside on Tuesday, lifted by strength among gaming and leisure stocks on the back of billionaire Kirk Kerkorian's offer to buy two Las Vegas properties owned by MGM Mirage. Among casino stocks, MGM Mirage ((MGM)) jumped 23% in pre-market trading, Wynn Resorts ((WYNN)) rose 4.2%, and Las Vegas Sands ((LVS)) added 4.4%. Investors were also watching for developments in economic talks between China and the U.S.

Several retail companies posted quarterly earnings before the opening bell. Zale Corp. ((ZLC)) said quarterly loss narrowed and forecast a loss for the current quarter. Staples ((SPLS)), the world's largest office supplies retailer, posted 12.4% quarterly profit rise, driven by higher sales and continued growth in its copy and print service businesses. The Pacific Sunware ((PSUN)) climbed 5% in pre-market trading after it said Q1 sales surpassed expectations. Tech Data ((TECD)) reported a 23% drop in profit, but 9% sales growth. Autozone ((AZO)) said profit rose 5%, while sales rose 4%. S&P 500 rose 2.3 points to 1,525, the Nasdaq Composite rose 20 points while the Dow industrials ended 13 points lower.


[R]8:30AM Asian markets mostly advance on Tuesday with China leading advancers.[/R]

Asian markets mostly advanced on Tuesday. The Shanghai Composite Index, which tracks both Class A and B shares, ended up 0.9% at 4,110.38. Property stocks advanced on hopes of an increase in the pace of yuan rise after Beijing announced Friday that it was widening the daily trading range of the yuan against the U.S. dollar. A firmer yuan means an increase in the value of yuan-denominated assets, such as property.

The most actively traded property companies were China Vanke, which rose 4.8%, Shanghai New Huangpu Real Estate, which soared 10%, the daily limit, and Beijing North Star, which added 1.8%.

The Nikkei 225 Stock Average in Tokyo ended up 0.7% at 17,680.05. Upbeat earnings guidance released Monday by Sumitomo Mitsui Financial Group lifted banking shares. Shares in the company jumped 5.7% after it said that it hopes its group net profit to rise this fiscal year after posting a 36% decline last fiscal year. Mizuho Financial Group gained 4.4% ahead of its earnings release after the market close Tuesday.

Mitsubishi UFJ Financial Group rose 3%. NEC soared 7.3% after the Japanese electronics company announced Monday that it aims to lift its group net profit to 30 billion yen this fiscal year. Sony continued rising on its solid earnings outlook released last week, finishing up 3% following an 8.8% advance over the past four sessions.

The benchmark Hang Seng Index in HK fell 83.83 points, or 0.4%, to 20,843.92, having struck 21020.42 in the morning. The Hang Seng Index two biggest constituents by market capitalization both fell. HSBC dropped 0.3% and China Mobile slipped 0.7%.

Other indices around the region also gained. South Korean Kospi index added 0.9% at 1,642.88, Singapore Straits Times index climbed 0.7% to 3,539.82. Sydney S&P/ASX 200 bucked the uptrend and finished 0.5% lower at 6,338.8.


[R]8:15AM Istar Financial agreed to pay $1.9 billion for Fremont General.[/R]

IStar Financial Inc. ((SFI)) announced on Tuesday an agreement to pay $1.9 billion in cash to buy the commercial real estate lending business and an interest in the commercial real estate loan assets of Fremont General Corporation ((FMT)). Under the terms of the agreement, iStar will acquire Fremont General's California-based commercial real estate lending business and will retain a 30% B-participation interest, with a $2.1 billion principal balance, in Fremont's $6.5 billion portfolio of commercial loan assets. On completion of the transaction, Fremont General will own a 70% A-participation interest in the portfolio. The deal is expected to close at the beginning of summer 2007..


[R]7:30AM NY -6:30PM Mumbai Sensex edges higher amid volatile trading.[/R]

The Sensex on BSE finished Tuesday 35.12 points, or 0.24%, higher at 14,453.72.

The market-breadth was negative with small-cap index closing lower. For 1,116 stocks which advanced, 1,444 declined and only 91 stocks remained unchanged. Of the 30 stocks in the Sensex, 16 advanced, while the rest declined. The turnover on BSE was Rs 5,180 crore, compared to Rs 5,576 crore on Monday. On NSE, the turnover was Rs 11,375.26 crore, much higher than Rs 9,810 crore on Monday.

Economic news

The rupee traded at 40.5850 a dollar in late morning deals on dollar selling. The rupee advanced in the absence of any dollar demand from oil importing companies.

Indian companies are expected to invest Rs 8,974 crore on information technology in fiscal year 2008, which is an increase of 26% when compared with the expenditure of Rs 7,123 crore in fiscal year 2007.

Despite rising interest rates, the majority of the banks reported a considerable improvement in their asset quality on strong economic growth in the country. As a result of better monitoring of the credit portfolios and healthy macro-economic performance, most of the banks have succeeded in reducing their loans repayment defaults.

Trading highlights

Reliance Capital was the most active stock with a turnover of Rs 447 crore followed by Reliance Industries and Reliance Communications.

Advancers

HDFC rallied 4.5% to Rs 1,794. HDFC Bank gained 1.54% to Rs 1,120, ACC was up 1.55% to Rs 885 and Hero Honda rose 0.85% to Rs 686.25. Reliance Communications soared 3.4% to Rs 523.

BHEL rose 1.5% to Rs 2,676, on 1.35 lakh shares. The stock surged ahead of its record date of June 1 2007 for the proposed bonus issue of one share for every share held. Maruti and Bharti Airtel advanced over 1% each to Rs 830 and Rs 859, respectively.

Index heavy Reliance Industries finished 0.8% higher at Rs 1,775. Reliance has been striking record highs in the past three sessions and has gained over 34% since its close of Rs 1,313.50 on April 2 2007.

Decliners

Bajaj Auto led the decliners, down 2.4% to Rs 2,195. Bajaj Auto plunged 16% in the past two trading sessions after the surprise news that Allianz, partner in its two insurance ventures has a call option to buy up to 74% at a nominal price. Investors have been disappointed with this provision.

Gujarat Ambuja shed 2.3% to Rs 116 and SBI slipped 1.6% to Rs 1,325. IT large-caps, finished lower again as the rupee hit a fresh nine-year high. Infosys lost 0.7% to Rs 1,947, HCL Technologies was off 1.4% to Rs 342.25, and Tata Consultancy Services declined 0.6% to Rs 1,229.


[R]6:30AM European markets trade mixed Tuesday with resource stocks advancing.[/R]

European markets were mixed in mid-day trade on Tuesday. The U.K. FTSE 100 index slipped less than 0.1% to 6,634.00, the German DAX Xetra 30 index added 0.1% at 7,629.28 and the French CAC-40 index traded fractionally lower at 6,089.34.

Advancers

Oil producer Cairn Energy rose 2.8%, while miner Lonmin gained 0.9%. Merrill Lynch said that it remains optimistic about the oil and gas sector in Europe as the sector is cheap and defensive.

Bid talk supported Spanish airline Iberia to add 1% after 10% stake holder British Airways announced it is going to team up with TPG Capital, Vista Capital, Inversiones Ibersuizas and Quercus Equity to investigate making a formal bid for Iberia.

Alliance & Leicester advanced 3.4% after UBS initiated coverage on the mortgage bank with a buy recommendation.

Decliners

GlaxoSmithKline kept falling tracking late weakness on Monday, following reports that increased safety concerns on the Avandia treatment of the company. Shares in the pharmaceutical company lost 3.3% on Tuesday morning after several brokers cut their ratings on the stock.

Marks & Spencer shed 2.6% after the firm announced that it anticipates the retail environment to become more challenging as competition remains intense and interest-rate increases are expected to hurt consumer spending.

Commodities

Oil prices were virtually unchanged Tuesday after surging above $66 a barrel in the previous session on concerns about gasoline supply. Crude oil for June delivery was flat at $66.27 a barrel in electronic trading on the New York Mercantile Exchange.

Gold for immediate delivery fell as much as $1.20, or 0.2%, to $662.05 an ounce. Silver for immediate delivery fell 3 cents, or 0.3%, to $13.03 an ounce.

Currencies

The euro slipped slightly against the dollar on Tuesday but investors expect the common currency to rise if a key report on German investment sentiment reports more gains. The euro bought $1.3464 in morning trading, down nominally from the $1.3467 it bought in New York trading late Monday. The British pound bought $1.9724 in morning trading, up from $1.9702 the night before in New York. The dollar bought 121.44 Japanese yen on Tuesday, down slightly from the 121.46 yen it bought the day before.