GDP Revised down 0.6%

Elena
31 May, 2007
New York City

Wall Street opened in the positive on Thursday, as a multibillion-dollar takeover deal in the brokerage sector helped offset lower-than-expected economic growth. First-quarter growth was revised down to 0.6% from an initial estimate of 1.3%. The market welcomed news that Wachovia agreed to buy brokerage A.G. Edwards for $6.8 billion. In other news, Morgan Stanley bought Australia''s Investa Property Group for $3.9 billion.

[R]9:45AM U.S. stocks opened higher, helped by merger-and-acquisition news.[/R]

Wall Street opened in the positive on Thursday, as a multibillion-dollar takeover deal in the brokerage sector helped offset lower-than-expected economic growth. First-quarter growth was revised down to 0.6% from an initial estimate of 1.3%. The market welcomed news that Wachovia ((WB)) agreed to buy brokerage A.G. Edwards ((AGE)) for $6.8 billion. Shares of A.G. Edwards surged 14% in early trading. In other merger deals, Morgan Stanley ((MS)) rose 0.8% on news that it bought Australia's Investa Property Group for $3.9 billion.

Among other companies in focus, Motorola ((MOT)) lost 1.2% after the mobile phone maker announced a decision to cut 4,000 jobs, due to slower mobile phone sales. Online portal Yahoo ((YHOO)) gained 1%, following an upgrade to overweight from neutral at J.P. Morgan. The biggest advancers on the Dow included United Technologies ((UTX)), up 1.4% and DuPont ((DD)), rising nearly 1%.

In earnings-related news, Costco ((COST)) added 0.6% after the retailer reported a 5% drop in net profit that was in line with analyst expectations. In the first hour of trading, the Dow Jones industrial average rose 13.98, or 0.10%, to 13,647.06. The Standard & Poor's 500 index was up 2.32, or 0.15%, at 1,532.55, and the Nasdaq composite index was up 8.08, or 0.31%, at 2,600.67.

[R]First-quarter GDP grew an annual rate of 0.6%.[/R]
Thursday morning, the Department of Commerce released its preliminary report on first quarter gross domestic product, showing that the pace of GDP growth in the quarter was downwardly revised more than economists had been expecting. The report showed that GDP grew an annual rate of 0.6 percent in the first quarter compared to the advance reading showing 1.3 percent growth. Economists had expected a somewhat more modest downward revision to 0.8 percent. The Commerce Department said that the downward revision to the pace of GDP growth primarily reflected a downward revision to private inventory investment and an upward revision to imports.

However, the downward revision was partly offset by an upward revision to consumer spending growth, which was revised up to 4.4 percent from 3.8 percent. The downwardly revised first quarter GDP growth compares to the 2.5 percent growth reported for the fourth quarter. The deceleration compared to the fourth quarter reflects an upturn in imports, downturns in exports and in federal government spending, and a deceleration in consumer spending on nondurable goods. The Commerce Department also said that its closely watched index of consumer prices, excluding food and energy prices, showed an unrevised 2.2 percent increase.


[R]9:30AM FTSE 100 in London advances Thursday on robust miners and Johnson Matthey.[/R]

By mid-day, the FTSE 100 index in London advanced 36 points at 6,337.8.

Advancers

Johnson Matthey leads the advancers, 4.5% higher, after broker Citigroup lifted its rating on the stock from hold to buy. DSG International advanced 2.9% on change of chief executive, John Clare, who would retire in September and facilitate in this way a likely takeover of the company.

Scottish & Southern Energy gained 2% as the company posted an increase of 23.5% in full-year profit before tax and put forward a new programme to reward its customers for energy efficiency.

Mining stocks advanced, supported by a recovery in Chinese and higher metals price. Anglo America gained 3.7%, while BHP Billiton rose 1.3%.

Decliners

Vodafone ended its long rally, as the large-cap lost 0.3%. Shares of the company increased 18% in the last month. Kingfisher was another one of the few decliners on the market, shedding 3.2%, although the company posted a 6.7% rise in first-quarter same-store sales.

Credit Suisse lowered its rating on pizza group Northern Foods from neutral to underperform on Northern Foods’ full year results announced yesterday. Shares in Northern Foods lost 4.6%.


[R]9:00AM U.S. stock futures pointed modestly higher, reflecting mixed economic data.[/R]

U.S. stock futures were indicating a slightly higher opening on Thursday, reflecting merger activity and mixed economic data. The Commerce Department said that Q1 GDP advanced 0.6%, lower than the 1.3% projected in April and lower than analyst estimates of 0.8%. However, the Labor Department reported positive news, saying that the number of U.S. initial jobless claims dropped last week for the sixth time in seven weeks. On Wednesday, global markets suffered notable weakness, due to a sharp drop if Chinese stocks. However, the Shanghai Composite Index rebounded Thursday, rising 1.4%.

On the deal news front, banking company Wachovia ((WB)) agreed to acquire A.G. Edwards ((AGE)) for $6.8 billion in cash and stock. In another deal, payroll processor Ceridian ((CEN)) said late Wednesday it will be bought out by investment firm Thomas H. Lee Partners LP and insurance provider Fidelity National Financial for about $5.3 billion.

Among pre-market highlights, discount retailer Costco Wholesale ((COST)) posted Q3 profit drop of 4.9%, while jewelry seller Tiffany & Co. ((TIF)) reported a 15% rise in Q1 profit, indicating that consumer demand for big-ticket items remains strong. Retailer Sears Holdings ((SHLD)) reported 20% quarterly earnings increase, but said its U.S store sales decreased. Dow futures expiring in June rose 19, or 0.14%, to 13,675, after a strong 111-point gain Wednesday. Standard & Poor''s 500 index futures rose 2.80, or 0.18%, to 1,536.70. Nasdaq 100 index futures rose 5.50, or 0.29%, to 1,928.00.


[R]8:30AM Asian markets advance on Thursday with Shanghai, Tokyo and HK rebounding form earlier lows.[/R]

Asian markets finished higher on Thursday. The Shanghai Composite Index gained 1.4% to settle at 4,109.65. The market opened with a negative bias Thursday, but recovered in the afternoon. China Petroleum & Chemical and Shanghai Pudong Development Bank advanced to the daily 10% limit and Industrial & Commercial Bank of China rose 3%, while Aluminum Corp. of China surged 7.4%.

Japanese Nikkei 225 index advanced 1.6% to 17,875.75. Matsushita Electric Industrial Co ended 0.4% higher, bouncing back after declning in early trading. The company had announced Wednesday its plans to take back about 3 million microwave ovens, refrigerators and dryers because of a fire hazard. Nintendo also advanced 2.8%.

Hong Kong''s benchmark index rose 1.68% to end at 20,634.47. China Petroleum & Chemical Corp. rallied 9.7% in Hong Kong, while Australian benchmark S&P/ASX 200 finished 1.1% higher at 6,341.80. Investa Property Group gained 15.2% on reports that Morgan Stanley has struck a deal to buy the company for $3.9 billion in cash and debt. BHP Billiton aslo advanced 1.5%. South Korean benchmark index Kospi closed 2.3% higher at 1,700.91.


[R]8:15AM Wachovia agreed to acquire A.G.Edwards for $6.8 billion.[/R]
Wachovia Corp. ((WB)) announced early Thursday it agreed to acquire A.G. Edwards Inc. ((AGE)) in a cash-and-stock deal worth $6.8 billion to form one of the largest U.S. retail stock brokerages. The takeover bid values A.G. Edwards at $89.50 per share based on Wednesday''s closing prices, a 16% premium. A.G. Edwards shareholders will get 0.9844 Wachovia shares and $35.80 in cash for each A.G. Edwards share held.

The combined company will have more than 3,300 brokerage locations across the United States, more than $1.1 trillion in client assets and nearly 15,000 financial advisers. The deal is expected to close in the fourth quarter of 2007, whereas full integration of A.G. Edwards with Wachovia Securities is expected to be completed by early 2009.

Daniel J. Ludeman, president and chief executive of Wachovia Securities unit, will keep these positions at the combined brokerage unit, while A.G. Edwards Chairman and CEO Robert Bagby will be chairman of the brokerage.


[R]8:00AM NY -7:00PM Mumbai Sensex advances Thursday on a rally in tech and banking stocks.[/R]

The Sensex on BSE rallied today, finishing 133.08 points, or 0.92%, higher at 14,544.46, which is its highest close since February 9 2007.

The market-breadth was strong as 1,333 stocks advanced, while 1,154 declined and 78 stocks remained unchanged. Of the 30 stocks in the Sensex, 22 advanced, while the rest declined. The turnover on BSE was Rs 4,430 crore, lower than Rs 5,303 crore on Wednesday. On NSE, the turnover was Rs 11,963 crore, higher than Rs 11,123 crore on Wednesday.

Economic news

Indian GDP growth is the fastest in 18 years and stood at 9.4% in the fiscal 2007, ended March, topping government estimates of 9.2%. In the January-March period the GDP growth was 9.1% with services, exports and manufacturing developing most rapidly.

India refused to buy 1 million tons of wheat from the world market and will wait for a better price to come from future harvests in U.S., EU and Australia. India is expected to buy around 5 million tons of wheat, which will amount to a huge difference even considering a small change of price of a few dollars.

The government today put off issuing an approval for Mukesh Ambany’s Special Economic Zone. The decision was postponed over a controversial issue connected with the enclosure of five villages.

Trading highlights

MIC Electronics was the most-active stock with a turnover of Rs 252.30 crore followed by India Infoline and Unitech.

Advancers

Hero Honda rallied 5% to Rs 733. Hero Honda promoted eight new models last fiscal year and will continue with this policy this fiscal year. HDFC Bank soared 3.2% to Rs 1,140. Other banks also joined the rally. ICICI Bank was up 0.99% to Rs 920 and the State Bank of India advanced 2.1% to Rs 1,352.

Maruti surged 2.6% to Rs 824. Tata Motors and Bharti Airtel surged around 2% each to Rs 758 and Rs 848, respectively. IT stocks advanced today on a new buying interest after they declined in the previous sessions. Wipro moved up 1.6% to Rs 545. Cipla added 1.4% to Rs 218.

Decliners

Engineering large-cap BHEL went ex-bonus today, opening at Rs 1,400, but then declining to a low of Rs 1,351. The stock surged to a high of Rs 1,435, before ending at Rs 1,380. the bonus ratio stood at 1:1. BHEL was the worst performing stock on BSE today.

Other decliners included Gujarat Ambuja shed 1.7% to Rs 113, and NTPC slipped 1.2% to Rs 158. Dr Reddy’s declined 0.8% to Rs 649 and ACC lost 0.7% to Rs 856.


[R]6:30AM European markets advance in early trade Thursday on E.On, Iberdrola.[/R]

European markets advanced on Thursday. In early trading, the German DAX Xetra 30 index added 1% to 7,844.36, the U.K. FTSE 100 index gained 0.7% at 6,645.10, while the French CAC-40 index advanced 0.7% at 6,084.08. National benchmarks advanced in all 17 western European markets open except for Ireland.

Advancers

German utility giant E.On traded 5.5% higher the highest in ten years time after announcing late Wednesday that it intends to buy back at least 10% of its own shares by the end of 2008. It also intends to raise dividends by 10%-20% a year on average by 2010.

Iberdrola advanced 3.2% after Albert Frere announced he had purchased 5 % sake of second- largest power company in Spain. Frere investment companies stated late yesterday they paid 2.2 billion euros for the stake.

Scottish & Southern also advanced 1.7% as the supplier of electricity and natural gas announced full-year profit increased 29%, topping estimates. Credit Suisse Group also upped its rating on the stock to outperform from neutral.

ASML gained 5.2% after the maker of semiconductor equipment stated it intends to pay 960 million euros in cash to its shareholders.

Decliners

There were no major decliners in early trade on Thursday.

Oil and gold

A report which the market awaits to show that U.S. gasoline supplies have advanced for a fourth week makes investors shun buying crude oil futures. Crude oil for July delivery was at $63.22 a barrel, down 27 cents on the New York Mercantile Exchange. Brent crude, the benchmark for Europe, was trading at $67.69 a barrel, down 15 cents, on the London-based ICE Futures exchange.

Gold gained in London on talks that inflation will lure investors into buying the precious metal in search of a hedge against increasing raw material prices. Gold gained $4.02, or 0.6%, to $657.47 an ounce, while silver rose 9 cents, or 0.7%, to $13.27 an ounce.

Currencies

The U.S. dollar was virtually unchanged against the euro on Thursday. The euro fetched $1.3437 in early European trading, up from the $1.3436 it bought in New York late Wednesday. The British pound dipped to $1.9744 from $1.9761. The dollar advanced to 121.62 Japanese yen from 121.58 yen on Wednesday.