Falling Bonds Drag Stocks

123jump.com Staff
12 Jun, 2007
New York City

Bear market in bond market in the U.S. and worries of rising rates in Europe dragged averages lower on both sides of Atlantic. Weak treasury auction sparked sell-off. Asian markets gained on rising metals and energy prices. In New York oil and gold fell. Latin markets tracked lower averages in New York. Lehman Brothers reported 27% rise in income and lifted other brokerage stocks. Inflation in China and industrial production in India were reported above expectations.

[R]4:30PM NY, 10:30 PM Frankfurt, 1:00AM Mumbai – Global Markets[/R]

Yields edged higher on 10-year U.S. bonds and closed at 5.248% and 30-year bond rose to close at 5.358%.

Crude oil fell 65 cents to close at $65.02 per barrel, natural gas gained 4 cent to close at $7.65 per mBtu, and gasoline futures down 2.87 cents to close at 212.26 cents per gallon.

Gold fell $5.90 to close at $653.10 per ounce, silver lost 18.5 cents to close at $13.09 per ounce, and copper futures advanced $228 to close at $7,448 per metric ton.

Asian Markets closed higher across the region except Thailand and Japan. Investors are showing willingness to accept higher energy and commodity prices and factoring higher profit for companies in the sector. Higher metals and oil prices drove mining and energy companies in Australia, India and Japan higher. Of all the indexes in the region, Shanghai led Asia with a gain of 2.7% followed by a rise of 1.2% in Philippines and Indonesia, 0.8% advance in South Korea, and 0.4% increase in Singapore, India and Taiwan. Hong Kong and Australia edged up 0.1%. Japan fell 0.4%.

Non-life insurance companies in Japan traded lower with sharp losses as investors booked profit on robust gain in the sector in the last three months of trading. Mitsui Sumitomo Insurance fell 4.5%, Kawasaki Kishen Kaisa dropped 4.6%, and Nippon Yusen declined 2%.

Central Statistical Organization, the government arm for economic data in India reported April industrial production surged 13.6% and revised March production increase to 14.5%. Manufacturing output rose 15.1% and electricity production jumped 8.7% in the month. Strong rise of 17.7% in demand for consumer goods was reflected in manufacturing report. Rising salaries and stable income in various sectors is fueling demand for housing which drives consumer goods demand. Cement stocks rallied on the report that cement production jumped 10% in the month.

May consumer price inflation in China was reported at 3.4% up from 3% in April on 26% rise in meat prices, according to National Bureau of Statistics. The Central bank has inflation target of 3%. Household deposits fell by $36 billion in the month of May, a monthly decline for the first time since February 2003.

In Shanghai trading investors shrugged of rising inflation and drove the index higher 2.7%. China Agri-industries fell 10% on the news that the company may not be allowed to use grain for bio-fuel production. Industrial companies in Shanghai trading registered a sharp gain. Crane maker Shanghai Shenhua and Chonqing Changan, and Datang International Power were among the 20 stocks in the CSI index of 300 stocks that closed up reaching daily limit of 10%. China Unicom fell 2% after surging 6% in previous trading in Hong Kong.

Brokerage and shipbuilding stocks rally led the main index in Korea higher but chip makers closed lower. Hyundai Heavy Industries and Samsung Heavy Industries gained 3% on higher shipping freight rates and expectations of rising earnings.

European Markets closed lower on the worries that interest rates across the region may continue to increase. Spain and Norway fell 1% followed by 0.7% decline in UK, the Netherlands and France. Bank of England Governor indicated that if certain economic indicators fail to decline than the Bank may have to react.

In trading, UK based mortgage lender HBOS fell 3.6% on the news that its market share is likely to have declined to 8% in the first six months of this year from 21% in 2006 and dragged other mortgage companies lower including Royal Bank of Scotland decline of 2.7%.

Chip tech stocks fell on the news that Texas Instruments will report lower than expected earnings. Texas Instruments reported second quarter earnings forecast between 40 cents and 44 cents from the previous guidance between 39 cents and 45 cents. Nokia dropped 1.8%, Infineon dropped 0.3%, STMicro and ARM Holdings lost 1.5%.

Swedish telecom company TeliaSonera rose 3% on the news that the company has replaced its CEO with its current CFO. Voestalpine jumped 3% on Credit Suisse upgrade, Clariant AG, specialty-chemical company, dropped 3% on the news that Morgan Stanley has sold stocks worth $56 million.

Latin American Markets closed lower tracking New York trading. Brazil Bovespa declined 1.8% and led the region, followed by 0.9% fall in Argentina and 0.7% decrease in Mexico. Chile edged up 0.13%.

Telecom companies in Brazil and Mexico fell after rising in previous session. Banco Bradesco fell 1.3% and Banco Itau dropped 1%. Embraer, Brazilian plane maker is considering building military transportation plane with an investment of $600 million. The company defense division chief said that the unit sales are less than 6% of total sales and company may issue more shares to fund the project.

Colombia is expected to finish $1 billion bond sale in international market with 20-year maturity in 2027. The proceeds will be used to pay for bonds maturing between 2008 and 2016. The bonds with ratings of BB+ are priced to yield with a minimum yield of 9.85%.

[R]1:00PM NY, 5:00 PM Frankfurt European markets closed down as banking shares weighed.[/R]

European stock markets retreated from yesterday’s gains to close down on Tuesday. Uncertainty about the direction of global interest rates continued to weigh on the sentiment, driving investors to sell banking shares.

The banking sector was one of the worst performers, as HBOS shares dropped 3.6% after it said its position in the U.K. mortgage market fell sharply in the first half of the year. Among other U.K. mortgage banks, shares of Bradford & Bingley fell 2.3% and Northern Rock dipped 2.8%.

Semiconductors and health-care stocks also declined. STMicroelectronics and Infineon Technologies posted losses after Texas Instruments reduced its earnings outlook. STMicro shares slipped 1.4%, while Infineon edged down 0.3%. In the pharma sector, Sanofi-Aventis was a notable decliner, with shares falling 0.8%.

On the side of the gainers, Sweden's top mobile operator TeliaSonera rose 3.1% after the company said its CEO will resigning on July 31. The U.K.'s FTSE 100 dropped 0.7% at 6,520.40, the German DAX Xetra 30 lost 0.4% at 7,678.26 and the French CAC-40 fell 0.7% at 5,898.16.


[R]11:30AM U.S. market averages traded in the red.[/R]

U.S. stock market averages remained in the negative territory, as record-high bond yields and weakness in the tech sector weighed on sentiment. The downward trend was bucked by Lehman Bros shares, which advanced 2.2% on 27% profit increase in Q2. Boeing ((BA)) was the biggest decliner on the Dow, losing 1.2%. Alcoa ((AA)), Merck ((MRK)) and Hewlett-Packard ((HPQ)) also dragged the blue-chip average, each falling about 1%. Microsoft ((MSFT)) led decliners on the Nasdaq, moving lower by 0.7%.

Rate-sensitive housing stocks showed significant weakness. Hovnanian Enterprises ((HOV)) was one of the housing sector's worst performances, falling 1.4%. Shares of homebuilder Standard Pacific ((SPF)) dropped 2.5% after Citigroup cut its price target on the stock to $32 from $37.

Utilities stocks also came under pressure, with AES Corp. ((AES)) falling 2.3% and Williams Cos. ((WMB)) losing 1.8%. Significant weakness also emerged in the gold sector, as gold prices pulled back. Airlines, oil service, and semiconductor stocks were also notable losses.

Among individual stocks, Take-Two Interactive ((TTWO)) rose 4.5% after the video game maker announced a restructuring plan. The Dow Jones industrial average was down 66.88 points, or 0.50%, at 13,358.08. The Standard & Poor's 500 Index was down 7.96 points, or 0.53%, at 1,501.16. The Nasdaq Composite Index was down 16.11 points, or 0.63%, at 2,556.04.


[R]9:45AM U.S. stocks opened lower amid rising bond yields and weak tech stocks.[/R]

Wall Street opened Tuesday trading session in the negative, as bond yields extended their surge, adding to recent concerns that the Fed Reserve will not cut interest rates in the near term. The absence of economic data also prevented the market from moving upward. Retail sales, producer Price Index, and the Consumer Price Index are all due out later this week.

The tech sector came under pressure after Texas Instruments ((TXN)) cut the top end of its Q2 earnings outlook by a penny, citing lower-than-expected sales of calculators and mobile infrastructure. The stock dropped 2%. In other tech news, Apple ((AAPL)) is reportedly planning to launch a new version of its Safari browser which will run on Microsoft Corp.'s ((MSFT)) Windows operating system.

Dow Jones Co. Inc. ((DJ)) drew some attention after the Bancroft family said it is planning to send its suitor News Corp. ((NWS)) a proposal for a board to safeguard The Wall Street Journal's editorial independence. Dow Jones dropped 1.6%, while shares of News Corp. fell 1.5%. In early trading, the Dow Jones industrial average fell 36.65, or 0.27%, to 13,388.31. The Standard & Poor's 500 index fell 5.25, or 0.35%, to 1,503.87, and the Nasdaq composite index dropped 10.05, or 0.39%, to 2,562.10.


[R]9:30AM FTSE 100 is down Tuesday on news about HBOS.[/R]

The FTSE 100 was trading down 22.5 points at 6,545, a decline of 0.3%, at mid-day.

Economic news

The Office for National Statistics reported its index of consumer prices advanced by 0.3% between April and May, leaving the annual inflation rate at 2.5%, down from 2.8% in the year to April. The improvement is on falling household energy bills.

Advancers

Rolls-Royce was the leading large-cap, adding 2.5%, in view of its participation in the International Paris Air Show and on talks that it could become a sole supplier of engines for the Airbus A350. Man Group upgraded the stock, raising its stance to buy from neutral Tamer inflation data boosted retailers like Persimmon, which added 2.4%.

Imperial Chemical Industries shares rose 1.8% on market speculation of a possible takeover bid from BASF of Germany. Johnson Matthey rose 2.2% after Merrill Lynch resumed coverage of the European chemicals sector with a buy rating for the company.

Decliners

HBOS hogged the limelight, announcing its share of the home loans market would decrease below 10% in the first half. The biggest mortgage lender in the UK added a customer retention programme introduced in 2006 had not produced expected effect. Shares in the company were trading down 4.9%.

Other banking stocks also fell in sympathy and also after the comment by the governor of Bank of England that lifting interest rates is still an option to be considered. Northern Rock lost 3.7%. Alliance & Leicester was down 2.2%. Bradford & Bingley lost 2.2%.

Centrica retreated from positive zone during the previous session on rumours of an imminent bid from Gazprom. The UK gas distributor lost 0.7% as investors booked profits.


[R]9:00AM U.S. stock futures indicated a lower market opening, as rising bond yields weighed.[/R]

U.S. stock futures were indicating a lower market opening on Tuesday, pressured by a continuously rising bond yields. The yield on the benchmark 10-year Treasury note jumped to 5.21% from 5.16% late Monday.

Reduced earnings expectations by Texas Instruments ((TXN)) also weighed on sentiment. The chip maker cut the top end of its Q2 earnings-per-share outlook by a penny, citing lower-than-expected sales of calculators and mobile infrastructure. The stock dropped 2.2% in pre-open trade.

Stronger-than-expected Q2 profits reported by Lehman Brothers ((LEH)) failed to generate positive sentiment. The investment bank posted 27% profit jump, sending its stock up 2.6% in pre-market trading. Investment firms Bear Stearns ((BSC)) and Goldman Sachs Group ((GS)) are scheduled to release quarterly results later in the week.

Among other companies posting quarterly earnings, video game publisher Take-Two Interactive Software ((TTWO)) reported Q2 results after the closing bell Monday and announced plans to cut costs. In pre-market trading, the stock stood at $20.17. S&P 500 futures dropped 2.3 points at 1,522.90 and Nasdaq 100 futures fell 7.75 points at 1,922.75.


[R]8:30AM Asian markets advance Tuesday with only Japan bucking the trend.[/R]

Asian markets ended mostly higher. Japan bucked the uptrend and lost. The Nikkei 225 Average finished the day 0.4% lower at 17,761. Stocks were hurt by profit-taking in insurers like Mitsui Sumitomo Insurance and shipping stocks such as Nippon Yusen, with higher bond yields also weighing on the overall market. Mitsui Sumitomo Insurance ended 4.7% lower, while Mizuho Financial Group fell 0.4% on a rating downgrade by Credit Suisse. Among shipping companies, Nippon Yusen dipped 2% and Kawasaki Kisen Kaisha lost 4.6%.

Hong Kong Hang Seng Index edged up 0.1% to close at 20,636. An increase in large-cap China Mobile, up 2%, countered declines in property companies to lead the benchmark index slightly higher. The Shanghai Composite Index in China surged 1.9% to settle at 4,072. Electricity producers rallied Tuesday on expectations of growing power demand this summer. China Yangtze Power advanced 6%, Datang International Power Generation soared 10%, the daily limit, and Shenzhen Energy Investment closed 6.7% higher.

South Korean Kospi Index also rose 0.8% to 1,730. NH Investment rallied by the 15% daily limit. Kyobo Securities soared 10% after its largest shareholder Kyobo Life Insurance announced it intends to put the brokerage firm up for sale in the future. Shipbuilders advanced on higher freight charges and are likely to extend gains at least until the third quarter on robust order flow. Hyundai Heavy Industries added 3% and Samsung Heavy Industries rose 2.6%.

Australian S&P/ASX 200 gained 0.1% to 6,240. The market ended slightly higher, helped by BHP Billiton, but interest-rate worries weighed on financial stocks. BHP rose after global resource stocks surged over the weekend. Banks were mostly weaker, with Westpac down 0.8% and Commonwealth Bank of Australia 0.7% lower.


[R]8:15AM Lehman Bros posted higher-than-expected Q2 results..[/R]

Lehman Brothers ((LEH)) said its Q2 net income advanced to $1.27 billion, or $2.21 a share, up from $1 billion, or $1.69 a share a year ago. Company’s net revenue increased to $5.51 billion from $4.41 billion a year earlier. Quarterly results exceeded analyst expectations of profit of $1.88 a share on revenue of $4.97 billion. The stock rose 2.6% in pre-market trading.


[R]7:30AM NY-6:30PM Mumbai Sensex edges higher on a late rally in cement stocks.[/R]

The Sensex finished on Tuesday 47.54 points higher or 0.34%, at 14,130.95.

The market-breadth was very weak as there were two decliners for every advancer. In trading, 823 stocks advanced, 1,678 declined, and 80 were unchanged. Of the 30 stocks in the Sensex, 13 advanced, while all the rest declined. The turnover on BSE was Rs 3,817 crore, slightly higher than Rs 3,524 crore on Monday. On NSE, the turnover was Rs 8,177 crore, also higher than Rs 7670 crore on Monday.

Economic news

Industrial production in India grew 13.6% annually in April 2007 compared with 9.9% growth in April 2006. Manufacturing output advanced 15.1% in April 2007 against 11% in April 2006. Industrial output growth of March 2007 has been revised upwards at 14.5%.

The Indian rupee advanced for a second day to 40.7600 per dollar, up from 40.79 on June 11 2007. The increase was mainly related to foreign fund inflow to invest in DLF IPO.

Trade highlights

Reliance was the most active stock with a turnover of Rs 176.65 crore followed by Nitin Fire and Reliance Communications.

Advancers

Cement stocks were leading the advancers today as Cement Manufacturers' Association said sales rose 10.6% to 14.21 million tons in May 2007. ACC soared 5.6% to Rs 807. Grasim surged 2% to Rs 2,395, and Gujarat Ambuja was up nearly 1% at Rs 110. Mid-cap cement shares were also higher with Birla Corporation rising 3.5% to Rs 218, India Cements 4.6% higher to Rs 174 and Madras Cement up 1.2% to Rs 2,561.

Tata Steel rallied 4% to Rs 603. ICICI Bank advanced 2% to Rs 919 and HDFC and Hero Honda gained 1% each at Rs 1,781 and Rs 706. Larsen & Toubro rose 0.9% to Rs 1,906 as the company secured a contract from Oil & Natural Gas Corporation and Steel Authority of India. ONGC awarded a Rs 877-crore project for the NQ Re-construction Project in Mumbai high north fields.

Index heavy Reliance Industries advanced 1.9% to Rs 1,700. The company rallied on the report that it is looking to buy a stake in refineries in the U.S. and the Middle East. Bucking the trend with IT stocks, Infosys rose 0.3% to Rs 1,985 after its ADR soared 3.90% to $51.66 overnight on Nasdaq.

Decliners

IT stocks were severy hurt after the recent surge in the rupee. Satyam plunged nearly 4% to Rs 478. Wipro was down 0.6% to Rs 539 and TCS lost 0.5% to Rs 1,215. other decliners included Dr.Reddy's and Maruti which dipped around 2% each to Rs 611 and Rs 719, respectively.

Auto stocks declined on fears that the government may hike gasoline and diesel prices in mid-July, 2007. Tata Motors lost 1.6% to Rs 641, Maruti Udyog dipped 2% to Rs 719, Bajaj Auto lost 0.6% to Rs 2106, and Mahindra & Mahindra lost 3.1% to Rs 696. Reliance Communications and Cipla declined around 1.5% each to Rs 498 and Rs 208, respectively and NTPC lost 1.3% to Rs 153.


[R]6:30AM European markets recover after early losses Tuesday on broker comment.[/R]

European markets were higher in late morning trading on Tuesday. In Germany, Frankfurt Xetra Dax added 0.3% to 7,729.35, the CAC 40 in Paris was flat at 5,937.96 and London FTSE 100 climbed 0.2% to 6,580.6.

Advancers

TeliaSonera, the biggest telecoms operator in the Nordic region, gained 4.6% after announcing Anders Igel, president and chief executive, would sted down at the end of July. The company also said that it was searching for a replacement to lead it through a new phase centered on growth, restructuring and value enhancement.

Austrian steel producer VoestAlpine climbed 4.3% as the sector continued to benefit from merger talk. Major shareholders in the company were reported to have been buying shares in Boehler-Uddeholm to help VoestAlpine boost its 54.6% stake, although this was denied. Credit Suisse upgraded its price target.

Lagardere, the French media group, gained 3.7% after Exane BNP hiked its recommendation on the stock from neutral to outperform.

Decliners

Banks weighed on the market after HBOS issued a warning that its share of the UK mortgage market were declining. The company fell 4.5%, while rival Northern Rock lost 3 % and Commerzbank of Germany dipped 1.6%.

Commodities

Crude oil for July delivery was at $66.06 barrel, up 9 cents, in after-hours trading on the New York Mercantile Exchange. Brent crude oil for July settlement shed 2 cents to $69.54 on the London-based ICE Futures exchange.

Gold traded in London at $652.80, up from $650.30 on Monday. Silver opened in London at $13.17, up from $13.11.

Currencies

The U.S. dollar was mostly higher against other major currencies in European trading Tuesday morning. The euro traded at $1.3347, down from $1.3359 late Monday in New York. The British pound traded at $1.9721, up from $1.9693. The dollar bought 121.78 Japanese yen, up from 121.77.


[R]5:30AM NY-4:30PM Mumbai Sensex is down in mid-afternoon Tuesday on interest rate fears.[/R]

The Sensex in BSE is 68 points lower at 14,015.

The market-breadth is very weak, as there are almost three decliners for every advancer. For 1,826 which have declined, 615 have advanced and 73 are unchanged.

Advancers

Cement shares were strong as ACC is the leading advancer, up 2% to Rs 780, while Gujarat Ambuja Cements gained 0.7% to Rs 109 and Madras Cement was up 1% to Rs 2,555. Cement shares advanced after the Cement Manufacturers Association reported sales gained 10.6% in the period up to May, 2007.

Index heavy Reliance Industries edged 0.35% higher to Rs 1,674. Larsen & Toubro gained 0.5% to Rs 1,900 on securing orders from Oil & Natural Gas Corporation and Steel Authority of India.

Decliners

IT stocks plunged as the rupee advanced against the dollar. Satyam has plunged over 4% to Rs 476. Wipro was down 1.5% to Rs 535 and TCS shed 0.9% to Rs 1,210. Reliance Communications has dipped nearly 3% to Rs 491, and Hindalco has shed 2.6% to Rs 157.

HDFC Bank, SBI and Maruti have lost around 2% each to Rs 1,078, Rs 1,314 and Rs 720, respectively.