U.S. Stocks Struggle; Oil, Bond Yields Trend Up

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

U.S. regional indicators suggested healthy manufacturing expansion and a slight increase in weekly unemployment claims pushed yields in the bond market to 5.16%. Market averages staged a mid-afternoon recovery and closed up. Oil fell but energy stocks rose nearly 2%. Chipmakers surged on a sharp rise in memory prices in Asia. European markets sold-off on the worries of rising yields. Latin American stocks gained on higher oil and metals prices. Asian markets closed higher.

[R]5:00PM NY, 11:00 PM Frankfurt, 2:30AM Mumbai – Global Markets[/R]

Yields edged higher on 10-year U.S. bonds and closed at 5.16% and 30-year bond rose to close at 5.28%.

Crude oil dropped 21 cent to close at $68.65 per barrel, natural gas down 4 cent to close at $7.35 per mBtu, and gasoline futures gained 1.86 cents to close at 224.67 cents per gallon.

Gold dropped $5.80 to close at $654.20 per ounce, silver lost 16 cents to close at $13.09 per ounce, and copper futures rose $96 to close at $7,568 per metric ton.

In New York trading, three popular averages closed up, with gains of 0.5% in Dow Jones Industrial Average, Nasdaq, and S&P 500.

Market averages staged a mid-afternoon recovery and closed up. The sentiment improved on the reports that Merrill Lynch liquidated less than 15% of troubled Bear Stearns hedge funds assets involving sub prime mortgages. The illiquid assets are hard to prices and harder to trade. U.S. regional indicator suggested a healthy manufacturing expansion. Weekly unemployment claims gained 10,000 to 324,000 at the end of last week. Yield in the bond market rose to 5.16% on 10-years bond from 5.12% and 30-year bonds closed at 5.28%. Oil fell at close but traded close to $70 during the day and lifted energy stocks by 2%. Chipmakers surged on a sharp rise in memory prices in Asia. AMD and Nvidia gained 8%, SanDisk gained 5% and Intel added 2%. Valero, Tesoro, Exxon Mobil, and ConocoPhillips jumped 2%.

In Toronto trading, TSX Composite closed up 0.84% on firmness in energy and telecom stocks. Mobile telephone operator Telus is in talks to acquire rival BCE lifting stocks in the sector. BCE jumped 4% and Telus declined 3%. Energy stocks gained on firm oil price. EnCana gained 2.8% and Suncor traded up 2.4%.

Latin Markets rallied on firm oil and commodities prices. Chile led the region with a gain of 1.22% rise followed by an increase of 1.16% in Brazil, 0.9% in Mexico and 0.4% in Argentina. Rising bond yields and problems in mortgage bond trading did not affect the sentiment in trading in the region. Argentina’s inflation linked bonds fell on the worries that the inflation index may not reflect the state of inflation after a political appointee to the national statistics office last month.

In Sao Paulo trading, energy and commodities exports stocks led the rally. Unemployment rate for the May month was reported for six largest metropolitan areas at 10.1%, unchanged from April. Household income jumped 3.9% after inflation to R1,120 or $580. Firm energy prices lifted Petrobras ((PBR)) by 2% and CVRD by 2.3%. Banco Bradesco ((BBD)) gained 1% and Banco Itau ((ITU)) advanced 2%. Steel maker Gerdau ((GGB)) jumped nearly 4%.

In Mexico City trading, ahead of rate decision from central bank, IPC Index gained 0.9% on firm telecom and retail stocks. Bond yields fell on better than expected outlook in regional manufacturing survey in the U.S. Cemex ((CX)) rose 2%, American Movil ((AMX)) jumped 1.5% but Homex and Telmex fell.


European Markets faced sell-off across the region on rising oil price, worries on interest rate hikes, and trouble in the banking sector related to American mortgage market trading. Germany led the region in decline with a loss of 1.6% followed by a decrease of 1.3% in Switzerland, 1% in France and Spain, and 0.8% in Italy and the U.K. German markets have experienced increased volatility in the last two weeks of trading as it traded near record level.

In Frankfurt trading, DAX Index fell 1.6% on the worries that bond yields are likely to rise further in coming weeks. The auto stocks led the decline in the market. MAN AG dropped 3% followed by 2.2% decline in BMW, and 1.5% loss in DaimlerChrysler AG. Continental AG declined 1.2% after the company said that it is pursuing two to three large acquisitions. The company purchased automotive electronic unit from Motorola last year and currently negotiating to purchase a division of Siemens.

In U.K. trading, FTSE index fell 0.8% on the worries that rising interest rates will crimp consumer spending. Retail stocks fell again for the third trading session in a row. Tesco dropped for the third day more than 1% and closed 1.4% lower dragging with it William Morrison 2%. DSG International, largest electronic retailer, dropped 4% after reporting nearly break even earnings and letting the option to expire to purchase Russian retail chain. Copper prices fell after an inventory report suggested that inventory of the commodity has risen to an eight-month high. Antofagasta fell 1.4%, Kazakhmys dropped 1.1%, but the owner of Sterlite Industries, Vedanta declined 0.74%.

Bank and real estate stocks fell on the rising yields. Northen Rock dropped 3.3% and Barclays lost 2% and HSBC Bank lost 0.4%. The stock of London Stock Exchange declined 1% after it was reported that it is talks to acquire Borsa Italiana for a price of 1 billion euros.

Asian Markets closed higher on rising prices for memory chips, oil and metals. The markets ignored the worries related to bond yields and managed to close higher across several markets in the region. Taiwan and Hong Kong led the region with a gain of 1.2% followed by a rise of 0.6% in Shanghai, Korea and India. Indonesia, Thailand and Australia closed fractionally lower. Taiwan Central Bank raised interest rated by 0.25% to 3.125%, eleventh rate hike in last 12 quarters followed by ten hikes of 0.125% rate hikes. Taiwan has raised interest rated steadily in the last three years.

In Tokyo trading, Nikkei 225 Index rose 0.2%. Trade surplus in May rose 9.3% on 15.1% increase in exports and 15.5% growth in imports. Exporters gained on the news led by 5% rise in Mitsubishi, 2% gain in 2% and Toyota climbed a fraction. Nomura Holdings is reported to be in talks to acquire Indian brokerage firm Enam Financials for more than $1 billion.

In Shanghai trading, expectations of rising rates fueled another rally in life insurance stocks. China Life soared 8% followed by a gain of 4.5% in Ping An Insurance.

In Seoul trading, KOSPI Index climbed a fraction but failed to close above 1,800 level. Hyundai Heavy and Daewoo Shipbuilding & Marine advanced 4%.


[R]1:00PM NY, 5:00 PM Frankfurt European markets lost ground, dragged by rate-sensitive stocks.[/R]

European stock markets lost ground on Thursday, pressured by renewed concerns about higher bond yields and interest rates. Rate-sensitive real-estate companies were among the most notable decliners, with Land Securities falling 3.5%. Among other companies in focus, mobile-phone maker Nokia dropped 3% after Goldman Sachs downgraded its stock to neutral from buy.

Deals also attracted attention. London Stock Exchange lost 1% after it announced it is in takeover talks with mutually held Borsa Italiana. Shares in NYSE Euronext, which had previously expressed interest in buying Borsa Italiana, dropped 2.3%. The NYSE Shares of the Deutsche Boerse, the operator of the German stock exchange and majority holder of the Eurex futures market, slipped 1.8%.

Further in M&A news, Luxottica Group surged 7.7% after it said it will take over U.S. eyewear maker Oakley in a deal worth $2.1 billion. Electricite de France rose 3.4% on speculation the French government may cut its 87% stake, which would make the firm a more liquid stock. The German DAX tumbled 1.6% at 7,964.71, the French CAC-40 dropped 1% at 6,029.79 and the U.K. FTSE 100 lost 0.8% at 6,596.00.


[R]11:30AM Market averages turned lackluster amid cautiousness about bond yields and rising oil.[/R]

U.S. stock averages kept near the flat line in a volatile trading session on Thursday, as concerns about higher bond yields and rising crude oil prices weighed on market sentiment. Crude oil gained 51 cents to $69.34 a barrel, due to a general strike in Nigeria.

Investors also digested data released by the Conference Board. The index of leading economic indicators in May signaled a modest economic growth in the coming months. In another report, the Labor department said that the initial jobless claims rose by 10,000 last week to a two-month high.

By sector, utilities, airlines and broker/dealers were leading decliners, while oil, natural gas and semiconductors advanced. Exxon Mobil ((XOM)) was the most notable advancer among blue chips, posting an advance of 1.6%. In merger-and-acquisition news, Luxottica ((LUX)) climbed 8.9% after agreeing to acquire rival Oakley Inc. ((OO)) for $2.1 billion, an 18% premium to Wednesday's close. Oakley shares climbed 13%.

Among the companies reporting quarterly earnings, H&R Block ((HRB)) fell 3.4% after it said it swung to a Q4 loss amid continuing troubles in its mortgage lending arm. Pier 1 Imports ((PIR)) fell 3.4% after it reported wider Q1 loss on lower sales and profit margins. Coffee chain Starbucks ((SBUX)) fell 3.1% on full-year profit warning.

In late morning trading, the Dow Jones industrial average was essentially flat, falling 6.50, or 0.05%, to 13,482.92. The Standard & Poor's 500 index rose 3.29, or 0.22%, to 1,516.13 and the Nasdaq composite index advanced 4.74, or 0.18%, to 2,604.70. Bonds rose moderately, with the yield on the benchmark 10-year Treasury note falling to 5.14% from 5.15% late Wednesday.


[R]9:30AM London is down on weak miners, property stocks and retailers.[/R]

The benchmark FTSE 100 Index declined 67.30, or 1%, to 6582 in London at mid-day.

Advancers

There were but a few advancers including professional education provider BPP Holdings, 2% higher after announcing that trading performance for the first half of the year and the year-end will match expectations.

Weir Group, maker of pumps for the mining industry, is the leading advancer on the market, as it surged 10%, on its agreement to buy out U.S. company SPM Flow Control for $653 million.

Decliners

Bradford & Bingley led banks lower, down 1.6%, while Vedanta Resources and Antofagasta Plc led miners lower with the fall of the price of copper. Bradford & Bingley, provider of one in five loans to U.K. landlords, dipped 1.8%. The bank stated that lending margins will edge lower in the first half and will keep falling in the second half on an increase in loan costs.

Vedanta Resources, the copper and zinc large-cap lost 1.6 percent and Antofagasta, owner of copper mines in Chile, shed 1.8%. Copper declined on London Metal Exchange on a slowing demand.

Electrical retailer DSG declined 3.8% tracking yesterday’s disappointing full year results, while property companies Segro, down 3.3%, British Land off 2.5%, and Land Securities, 3.2% lower were hit by U.S.yield bond concerns.

Tesco, the biggest retailer in the UK, is 1.3% down, as Scottish entrepreneur Sir Tom Hunter upped his stake in Dobbies Garden Centres to 25%, triggering rumours of a counter-bid after Tesco and Dobbies Garden Centres agreed to 1,500p per share offer.


[R]8:30AM Asian stocks advance on strong gains in technology stocks.[/R]

Asian markets ended mostly higher Thursday with Tokyo’s Nikkei adding 0.16% higher at 18,240. Robust balance data, showing that export doubled in May lifted Japanese steel makers. JFE Holdings advanced 1.1%, and Mitsubishi gained 4.6%. Jumping memory-chip prices brightened sentiment for chi makers and Toshiba surged 2%. The prices for the 512-megabit dynamic RAM chip, or DRAM, surged 17% to $2.21 yesterday.

By the same token, South Korean Samsung Electronics, which gained 2.1%. The South Korean Kospi Index advanced 0.6% to 1,794, supported also by a rally in shipbuilding stocks. Hyundai Heavy Industries gained 4.6% and Daewoo Shipbuilding & Marine Engineering added 4.2%.

In Hong Kong, China Mobile led the benchmark index Hang Seng higher, as the government approved a decision for mainland brokerage companies to buy stock overseas. The benchmark Hang Seng Index gained 1.3% to settle at 21,955. Hong Kong Exchanges & Clearing surged 7.2% and China Construction Bank jumped 3.7%. China Mobile surged 2.4%.

Rate hike jitters boosted insurers in China. The benchmark Shanghai Composite Index added 1.2% to end at 4,231. China Life Insurance Co., the largest insurer in China, surged 6.3% in Hong Kong and 8.3% in Shanghai, after the company said a partnership has been agreed upon to invest in the Chinese property market.

Australian S&P/ASX 200 declined 0.2% to close at 6,387, while Taiwan ended 1.1% higher at 8,852. In Australia, the yield on the 10-year governmental bond advanced 6 basis points which impacted the market negatively. BHP Billiton offset some losses, adding 1.6%.


[R]7:30AM NY-6:30PM Mumbai Sensex advances modestly in highly volatile trading.[/R]

The Sensex Index closed with a gain of 87.29 points, or 0.61%, at 14,449.24.

The market-breadth, an indicator for the overall health of the market, finished positive as 1,437 stocks advanced, while 1,134 declined and 82 stocks were unchanged. Of the 30 stocks in the Sensex, 20 advanced, while the rest declined. The turnover on BSE was Rs 5,277 crore, slightly higher than Rs 5,085 crore on Wednesday. On NSE, the turnover was Rs 10,388 crore, higher than Rs 9,977 crore on Wednesday.

Economic news

The rupee declined to 40.76 per dollar in morning trade in Mumbai, from 40.755 yesterday. The 7.9% rise of the rupee against the dollar this year means that refiners will have to pay in local currency to meet the rising oil prices which are in dollars. On the other hand, IT stocks have been hurt, on rupee strength.

Lakshmi Mittal is close to buying 49% stake in state-owned Bhatinda refinery, as the deal has been approved by the government. It is the first deal of its kind, as the current cap the government has imposed for foreign direct investment is 26% and may result in raising the limit.

Trading highlights

Time Technoplast was the most active stock with a turnover of Rs 329 crore followed by Divi''s Lab and L&T.

Advancers

Reliance Energy was the top advancer today, as reports circulated that the company is about to bid for the 4,000 MW Sasan ultra mega power project. The shares of the company surged 4.1% to Rs 560. The capital goods sector was in focus. Larsen &Toubro, which had advanced close to 6% in intra-day deals, ended nearly 4% higher at Rs 2,107. L&T announced during trading hours today, that it has struck $95-million shipbuilding contract with Netherland''s BigLift. BHEL gained 3.6% to Rs 1,482. BHEL had also secured a lucrative Rs 139-crore contract from NTPC for supplying and commissioning of 27 transformers.

Volatility seized the stock of State Bank of India, as it surged 1.4% to Rs 1,446 after hitting a low of Rs 1,400 earlier in the day. SBI will sell perpetual bonds to raise $225 million in the overseas market this year. Aluminium and copper company Hindalco Industries gained 2.7% to Rs 167.

With its profit nearly double, Reliance Communications will pay less interest on $1 billion loan. Reliance increased its subscriber base by 1.4 million last month and will pay interest of 54 basis points more than the LIBOR rate. Total interest rate bill is half of what Reliance paid on $500 million loan last year.

Oil companies advanced after the Lakshmi Mittal’s agreement to purchase a stake in refinery controlled by the state. HPCL advanced close to 4% at Rs 273 and BPCL added over 4% at Rs 348.

Decliners

Auto stocks led the decliners. Hero Honda and Maruti declined 1% each to Rs 661 and Rs 761, respectively. With regard to IT stocks there was subdued trading. Satyam Computers lost 1% to Rs 467 and TCS slipped 0.1% to Rs 1,447.


[R]6:30AM European stocks retreat in early trade on poor banks, insurers, retailers.[/R]

European markets lost ground in early trading Thursday. The German DAX index shed 0.6% at 8,039.46, the French CAC-40 index lost 0.7% at 6,053.22 and the U.K. FTSE 100 index retreated 0.4% at 6,624.00.

Advancers

Sunglasses maker Luxottica surged 6.9% as it announced that it was about to buy Oakley at a price of $2.03 billion to gain access to special brands of sunglasses, promoted by cyclist Lance Armstrong and golfer Annika Sorenstam.

Electricite de France SA rose 4.7% as UBS AG updated the stock and upped its share-price estimate for the biggest power producer in Europe.

Weir Group, maker of pumps for the mining industry, rallied 10% as the company struck a deal to buy U.S. rival SPM Flow Control Inc. for $653 million.

Decliners

As higher bond yields weigh on the value of debt owned by banks and insurers, Societe Generale lost this morning 1.3% and another insurer, Brit Insurance, declined 2.5%.

Retailers were also affected by the bond issue. Tesco lost 1.2% and Marks & Spencer Group the largest clothing retailer in the UK, dipped 0.8%.

Recommendation on Nokia was lowered to neutral from buy by Goldman, Sachs & Co and the Finish company dropped 2.2%.

Gold and oil

Oil surged on Thursday as the labor strike in Nigeria continues to worry the market. Oil advanced beyond $69 dollars a barrel. The strike may stop 2 million barrels a day of oil produce. Crude oil for August delivery gained 60 cents to $69.46 a barrel in mid-day trading in Europe. Gold traded at $654.50 per troy ounce in London, lower than 656.10 at close yesterday.

Currencies

The dollar advanced against the major currencies on Thursday morning. Against the U.S. dollar, the euro stood at $1.3380, lower than $1.3400 yesterday in late trading in the U.S. The British pound fetched $1.9896, down from $1.9929, while the dollar bought 123.62 Japanese yen, higher than 123.61.