Rising U.S. Yields Drag World Markets

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

U.S. averages struggled as rising bond yields affected trading sentiment. April home sales rose 16% and durable goods orders in the month rose 0.6%, lower than expected but still healthy. Prospect of any rate cut in the near term faded with both reports, dragging market averages lower around the world. Lowered profit estimate at Network Appliance caused the stock to lose 16% and dragged tech stocks with it. Brazil fell 2.5%. In Europe, Italy dropped 1.4% and in Asia, markets struggled.

[R]4:40PM NY, 10:20PM Frankfurt, 2:50AM Mumbai – GLOBAL MARKETS[/R]

Yields on 10-year U.S. bond fell to 4.853% and 30-year bond closed at 5.004%.

Crude oil futures fell $1.59 to $64.18 per barrel, natural gas price fell 7.6 cents to close at $7.68 per mBTU, and gasoline price rose 4.65 cents to close at 235.69 cents per gallon.

Gold futures for immediate delivery fell $9.30 to close at $653.30 per troy ounce, silver futures fell 18.5 cents to close at $12.92 per ounce and copper price fell $64 to close at $7,245 metric ton.

Asian Markets closed lower across the region led by a 1.44% loss in Thailand and near 1% loss in Australia, India, and Indonesia. Shanghai stocks fell 0.5%. In the last three weeks several commentators have expressed substantial doubts on Chinese stocks valuations and its sustainability. Former Fed Chairman Greenspan commented that Chinese stocks may face ‘dramatic contraction.’ In Tokyo, Nikkei fell 0.1% on April export data. April export rose 8.3%, lower than 10.3% registered in March and exports to Europe and Asia gained but to the U.S. for the first time in two years. Trading companies stocks such as Itochu gained 3.6% and Marubeni advanced 2.5%. Insurance companies Mitsui Sumitomo fell 3% and Sompo declined 2%. Singapore Airlines and Temasek, investment fund, is likely to join hands to buy controlling stake China Eastern Airlines.

European Markets closed lower across the region on lower than expected sentiment index reading in France and Germany. Italy, France, Spain and the Netherlands fell more than 1%. German index, though slightly lower still the second best read on business confidence suggested a robust economic activity in the country. Spending related to inventories and capital spending for businesses caused OECD to raise economic growth forecast for Germany to 2.8% for the year from 1.8%. German economy grew at 2.6% in 2006. Telecom stocks in the region were in focus again. Vodafone rose above 150 pence for the first time in five months and Cable & Wireless gained nearly 3% on the news that it plans to eliminate 3,000 jobs and profit of 234 million pounds and sale of 3.3 billion pounds. Nordic insurer Codan rose 16% on the news that U.K. based Royal & Sun Alliance has offered cash to purchase all the shares of the company it does not own. Royal Sun fell 5.7%.

Latin American Markets fell sharply on 2.47% fall in Brazil, 1.7% decline in Mexico, 1.01% in Argentina. Chile closed 0.3% lower. Real, Brazilian currency fell 1.1% dragging the stock market with it. Steel stocks led the decliners followed by weakness in energy and telecom stocks. Government agency in Rio said that the mid-month inflation in May was at 0.26% nearly same at 0.25% in April. Brazil is expected to keep annual inflation below 3%. Mexican bonds fell ahead of inflation report. The 10-year bond yield rose to 7.75%. The consumer inflation is running at near 4.35%.



[R]1:00PM NY, 5:00 PM Frankfurt European stocks closed down amid weak mining and automotive stocks.[/R]

European stock markets closed in the negative territory on Thursday, dragged down by weakness in the mining sector and declines from automakers. Gains posted by Air France-KLM and telecommunications players such as Cable & Wireless failed to lift sentiment. Miners were notable losers, with shares of Lonmin and Vedanta Resources each falling 3%. Investors were worried that recent strong demand for base metals from China could dry up in a market correction. Automotive stocks weighed on the sentiment, with Volkswagen and Porsche both moving down.

Telecoms stood out among gainers. Cable & Wireless rose 2.8% after it said that performance at some of its operations is recovering ahead of schedule. Again in the sector, Vodafone Group advanced for the second day, rising 1.2%.Shares in Nordic stock exchange operator OMX rose 3.2% before they were suspended. The U.K.''s FTSE 100 lost 0.8% at 6,565.40, the French CAC-40 slipped 1.2% at 6,048.31 and the German DAX Xetra 30 fell 0.5% at 7,697.38.

[R]11:30AM Market retreated from strong rally on soaring new-home sales.[/R]

U.S. stocks retreated after the initial enthusiasm over a report which showed that new homes sales in April soared to a 14-year high, dampening hopes that the Fed Reserve will cut interest rates to stimulate the economy. The Commerce Department said sales of single-family homes jumped 16.2% last month. Homebuilders Hovnanian Enterprises Inc. ((HOV)) and KB Home ((KBH)) advanced about 1%.

Buying interest was boosted by news that Advanced Medical Optics ((EYE)) considers offering Bausch & Lomb ((BOL)) a higher price than the $3.67 billion offered by a private equity group. Bausch & Lomb gained 4%. By sector, airlines, financials and consumer issues advanced, while software shares declined.

In midday trading, the Dow Jones industrial average fell 3.09, or 0.02%, to 13,522.56. The Standard & Poor''s 500 index was down 5.09, or 0.33%, at 1,517.19, and the Nasdaq composite index fell 21.18, or 0.82%, to 2,555.87. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.88% from 4.86% on Wednesday.

[R]New home sales soar 16.2% in April.[/R]
Thursday morning, the Department of Commerce released its report on new home sales in the month of April, showing that sales rose much more than economists had expected. The increase reflected strong sales growth in the South. The report showed that new home sales surged up 16.2 percent to an annual rate of 981,000 units in April from the revised March rate of 844,000 units. Economists had expected sales to edge up to an 860,000 unit rate from the 858,000 unit rate originally reported for the previous month.

The stronger than expected sales growth was partly due to a 27.8 percent increase in new home sales in the South. New home sales in the Northeast and West rose 3.8 percent and 8.5 percent respectively, while new home sales in the Midwest fell 4.0 percent. The Commerce Department also said that the median sales price of new houses sold in April was $229,100. This marks a steep decline from the median sales price of $257,600 in March. The report also showed that the seasonally adjusted estimate of new houses for sale at the end of April was 538,000, representing a supply of 6.5 months at the current sales rate.


[R]9:45AM U.S market averages opened mixed. Strong durable goods orders gave a boost.[/R]

Wall Street opened mixed Thursday, reflecting better-than-expected economic data and cautiousness ahead of new home sales report. Toll Brothers'' unwillingness to provide an earnings outlook also weighed.

However, market sentiment improved, following data release which showed that new home sales increased more than economists had expected, boosting optimism about economic growth and corporate profits. The Commerce Department said that sales of new U.S. homes unexpectedly surged 16% in April, to a seasonally adjusted annual rate of 981,000, exceeding the 865,000 pace expected. The upbeat news helped Toll Bros ((TOL)) recover from early weakness, sending its stock up 3%. It earlier fell after reporting 79% drop in Q2 earnings.

Signs of strength in business investment offset higher-than-expected jobless claims data, with durable goods orders rising 0.6% in April, boosted by strong demand for metals and capital equipment. Among companies in focus, Dow member Boeing ((BA)) rose 2% after it affirmed its earnings outlook for 2007 and 2008. At the same time, General Motors ((GM)) dropped 1.3% after saying it sees a $7 billion exposure from helping Delphi get out of bankruptcy.

Among earnings-related movers, apparel retailers Gymboree ((GYMB)) and Abercrombie & Fitch ((ANF)) rose 11% and 3%, respectively after their quarterly results. The Dow Jones jumped 80 points to 13,606, after hitting a new record high of 13,624. The S&P 500 gained 4.5 points to 1,526, while the Nasdaq rose 4.3 points to 2,581.


[R]Initial jobless claims advanced 15,000.[/R]
The Department of Labor released its report on initial jobless claims in the week ended May 19 on Thursday, showing that jobless claims increased by more than economists had been anticipating after trending lower in recent weeks. The report showed that jobless claims rose to 311,000 from the previous week''s upwardly revised figure of 296,000. Economists had expected jobless claims to rise to 305,000 from the 293,000 originally reported for the previous week. The Labor Department also said that the less volatile four-week moving average fell to 302,750 from the previous week''s revised average of 306,250. Additionally, the report showed that continuing claims in the week ended May 12 rose to 2.529 million from the preceding week''s revised level of 2.471 million.

[R]Durable goods orders rose 0.6%.[/R]
Thursday morning, the Department of Commerce released its advance report on durable goods orders in the month of April, showing that orders for goods meant to last at least three years rose a little less than economists had been expecting. The report showed that durable goods orders rose 0.6 percent in April following an upwardly revised 5.0 percent increase in the previous month. Economists had been expecting orders to increase by about 0.9 percent compared to the 4.3 percent increase previously reported for March. The increase in durable goods orders was partly offset by a decrease in orders for transportation equipment, which fell 1.3 percent in April after surging up 13.6 percent in March. A drop in orders for commercial aircraft more than offset a rebound in orders for defense aircraft.

Excluding orders for transportation equipment, durable goods orders rose by 1.5 percent in April, matching the increase that was seen in the previous month. Orders for primary metals, fabricated metal products, and electrical equipment, appliances, and components showed notable increases. The report also showed that shipments of durable goods rose 1.9 percent in April following a 1.3 percent increase in March. The continued increase in shipments was partly due to a rebound in shipments of computers and electronic products. The Commerce Department added that inventories of durable goods rose 0.5 percent in April after rising 0.1 percent in March. Inventories of transportation equipment had the largest increase.


[R]9:00AM Stock futures pointed to a lower opening, pressured by worries about the housing market.[/R]

U.S. stock futures lost ground on Thursday, pressured by concerns over the housing market. The housing market was in the spotlight, with investors awaiting data on new-home sales and digesting unwillingness from home builder Toll Brothers to provide an earnings outlook. Durable-goods orders report is also due out today.

Luxury home builder Toll Brothers ((TOL)) reported 79% decline in Q2 net income, hurt by slowing U.S. housing market. The company said it earned $36.7 million, or 22 cents a share, down from $174.9 million, or $1.06 a share a year earlier. However, the profit beat analysts'''' average expectation of 14 cents a share. Quarterly revenue fell 19% to $1.17 billion.

In other earnings releases, apparel retailer Abercrombie & Fitch Co. ((ANF)) reported 7% earnings growth in Q1 to $60.1 million, or 65 cents per share, compared with profits of $56.2 million, or 62 cents a share a year ago. Sales rose 13% to $742.4 million from $657.3 million a year ago. Same-store sales fell 4%. Abercrombie reaffirmed its outlook for the first half of the year, saying it expects to make $1.47 to $1.52 a share.

Network Appliance (NTAP)) slipped 17% in pre-open trade after the storage-technology company released a profit warning for the current quarter. Software company CA ((CA)) dropped 5.5% on earnings outlook below estimates. Among other pre-market highlights, General Motors ((GM)) dropped 1.8% after it said it sees a $7 billion exposure from helping Delphi get out of bankruptcy. S&P 500 futures fell 1.8 points at 1,523.70 and Nasdaq 100 futures declined 3.25 points at 1,907.00. Dow industrial futures slipped 14 points.


[R]8:15AM Limited Brands posted 46% earnings drop.[/R]

Limited Brands ((LTD)) posted 46% earnings drop in Q1, due to lower-than-expected sales and margins across all its brands, particularly Victoria''''s Secret. The retailer said it earned $52.9 million, or 13 cents per share, compared with profits of $99.4 million, or 25 cents a share a year ago. Sales totaled $2.3 billion compared with $2.1 billion a year ago.

The company projected Q2 profit decline and cut its full-year earnings guidance. Limited Brands said it now expects to make 20 cents to 24 cents a share in Q2, compared with 28 cents a year ago, and that earnings for the full year would be between $1.55 and $1.65 per share, compared with its initial guidance of $1.75 per share.

The company had posted a 4% increase in April same-store sales, but it expects May''''s same-store sales to come below earlier estimates. Limited Brands announced last week that it would sell 67% of its interest in its underperforming Express apparel brand to affiliates of private equity firm Golden Gate Capital for $548 million by July.