Oil Nears $70; World Markets Fight Bond Yields

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

U.S. averages closed sharply lower on rising oil prices and bond yields. Oil price inched closer to $70 on the report that growth in world demand will be higher than anticipated. U.S. bond yields rose as troubled mortgage markets showed no signs of stabilizing. Largest private equity group, Blackstone priced its IPO at $31 per share and raised $4.6 billion. The stock jumped 14%. Delphi said that it is in agreement with its union and help company get investment to exit bankruptcy.

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

Yields edged higher on 10-year U.S. bonds and closed at 5.15% and 30-year bond rose to close at 5.27%.

Crude oil gained 49 cent to close at $69.14 per barrel, natural gas down 22 cent to close at $7.13 per mBtu, and gasoline futures fell 3.99 cents to close at 228.66 cents per gallon.

Gold gained $2.80 to close at $657.00 per ounce, silver lost 7 cents to close at $13.02 per ounce, and copper futures lost $82 to close at $7,486 per metric ton.

In New York trading, three widely followed averages lost more than 1% lower on rising oil prices and bond yields. Oil price inched closer to $70 on expectations that world demand for oil will be higher than previously anticipated. U.S. bond yields rose as troubled mortgage markets showed no signs of stabilizing. Bear Stearns dropped 1.4%, Lehman Brothers lost 3%, and Merrill Lynch fell more than 2.9%. J.P. Morgan lost 1.5% and Goldman Sachs dropped 2%.

Largest private equity group Blackstone Group priced its IPO at $31 per share and raised $4.6 billion and saw its stock jump 14% at the end of first day of trading.

Delphi said that it is in agreement with the union and General Motors for a bankruptcy exit plan. Delphi in the past had sought hourly wage from union workers of $12.50 per hour from its current payment of at least $18.50. According to General Motors statement the accord, without revealing any detail, will cover 17,000 workers at Delphi. General Motors provides subsidy to the company as part of its spin-off plan.


Latin Markets fell across the region led by 1% loss in Brazil followed by 0.6% decline in Mexico, 0.3% decrease in Argentina and Chile edged 0.1% lower.

In Mexico City trading, IPC index fell after the Central Bank decided to leave the interest rates unchanged to 7.25%. The bank statement said that it is watching spread of inflation from food prices to wages and the risk remains high. The annual inflation at the end of last month fell to 3.95, above the target rate of 3%. American Movil, Cemex, and Homex fell in trading but Telmex and Coca Cola Femsa gained.

In Sao Paulo trading, Bovespa dropped 1% on worries that rising yields in the U.S. will hurt investment flows to the country. Petrobras, Tam Air, Bradesco and Itau fell in trading. Weak mining and metal stocks in European trading, dragged steel stocks lower in Brazil. CVRD, Gerdau, and Usinimas closed sharply lower.

European markets closed lower across the region on profit taking in mining and bank stocks. Lower than expected read on index of business confidence index in Germany did not help. With a loss of nearly 0.7%, Switzerland, Spain and Italy led the region in losses. Germany fell 0.2% and the U.K. declined 0.4%. There were no gainers in the European trading. For the week, most indexes in the region traded at record highs.

In Frankfurt trading, DAX Index fell 0.2% on the worries that interest rate hike may slow down the economic growth. Allianz ((AZ)) largest insurance company, rose to a record level on the expectations that the banking unit, Dresdner Bank, may be sold. Analysts and investors are clamoring for the spin-off in the hope that the company will return to its insurance roots.

Dresdner Bank, though generating 15% return on equity, still lags 20% return in the banking industry. The bank stock is still trading 40% below its purchase price paid by Allianz in 2001. Infineon fell 2% on Merrill Lynch cutting its stock rating citing recent gains in valuation. But the broker raised its target for Allianz and said that sale of Dresdner is likely. Deutsche Bank and Deutsche Postbank lost 1%.

In London trading, FTSE index fell 0.4% as banks and brokerage stocks dropped. Royal Bank of Scotland lost 1% and the bank led consortium is to make its formal offer this weekend. Barclays fell 1.2% on the confirmation that the bank has ‘immaterial’ but some exposure to Bear Stearns troubled hedge funds. AstraZeneca lost 0.5% on the news that pharmaceutical company was ordered to pay for damages for overcharging U.S. Medicare drug plan and members of other plans. The company along with Schering-Plough and Bristol Meyers is found guilty of overcharging drug plan.

BP rose 0.7% and the company also handed over its stake in Siberian gas field to Russia controlled Gazprom. BP had invested nearly $600 million in the field and generated little production and distribution infrastructure. Pearson, the publisher of text books and newspaper Financial Times, gained 1.4% on the statement that the company has ended its talks to acquire Dow Jones & Company with General Electric unit NBC Universal. CNBC, Financial Television network and FT will explore ways to collaborate in the future.

National Grid fell 1.8% on ‘sell’ recommendation by Goldman Sachs on weak performance and lack of takeover offers.

In Paris trading Arcelor Mittal ((MT)) fell 1.8% after the company said that steel demand in the third quarter is likely to decline but the company will not lower prices of flat steel.

Asian Markets fell after two weeks of rally lifting indexes in several countries near record levels. Today’s regional decline was led by 3.3% fall in Shanghai followed by 1.3% decline in South Korea, 0.9% in Pakistan and Sri Lanka, 0.6% in Singapore and Thailand. Japan, Philippines, India and Australia dropped a fraction. Hong Kong, the only market, in the region gained 0.2%. Banks and financial companies stocks declined across the region as worries of rising bond yields and interest rates resurfaced. D-RAM memory chip prices stabilized after rising 21% in previous two days of trading.

In Tokyo trading, property and insurance companies fell the most. Mitsubishi Estate dropped 4% followed by a 3.7% decline in Milea Holdings, and 3% loss in Mitsui Fudosan and Mizuho Bank. Automakers fell on the news that the U.S. government bill will require auto companies to sell cars and trucks that generate average 35 miles per gallon by the year 2010. Nissan dropped 0.8% and Toyota fell 0.3%. Broker downgrade led a 1.4% decline in Mitsubishi UFJ Financial. Advantest, semiconductor testing equipment makers, rose 3.5%.

In Shanghai trading, CSI Index fell 3.3% on the worries that government is likely to increase interest rates to cool rising markets. Shanghai with a total listing of 1,500 companies saw 15% of them close 10% lower, daily limit for stock price movement. China Vanke, largest real estate company, fell 3% and ICBC Bank dropped 2.1%.

In Hong Kong trading, Hang Sang Index closed higher 0.2% bucking the trend. Lower oil price in the region dragged PetroChina 1.2%, and Cnooc and Sinopec 1.4% lower. China Mobile gained ahead of earnings release next week.

In Sydney trading, ASX 200 fell 0.1% on falling oil prices and profit taking by investors. BHP Billiton with the highest market cap, gained 1%. Caltex Australia fell 10.5% on lower than expected earnings. The company reported that operating profit may rise 46% to A$255 million (lower than estimates of A$260 and A$265 million) for six month period ending June 30th.

In Mumbai trading, Sensex fell 0.6% after trading all week near record level. The recent spate of large public offering totaling $8 billion in domestic and international markets kept rupee at elevated level. Inflation at the end of last week was reported at 4.28%, slower than 4.8% at the end of previous week but still above the comfort level of the market. ICICI Bank led the most active stock followed by NTPC and Reliance Energy. Court ruling assured both electric power plant companies a steady supply of natural gas from Reliance Energy below market rate as agreed in contract several years ago. TV 18 Jumped 10% and Enam Financials rumored to be in talks to be acquired by Nomura Holdings of Japan.


[R]1:00PM NY, 5:00 PM Frankfurt European markets closed lower, pressured by weak mining and financial stocks.[/R]

European stock markets finished lower Friday for a second straight session, dragged down by weak mining and banking stocks. Growth-sensitive mineral extractors Lonmin and BHP Billiton declined more than 1% each. The UK banking group Barclays fell 1.2% after it confirmed that it has some exposure to troubled Bear Stearns hedge funds that invested in the subprime mortgage market.

In broker news, chipmaker Infineon Technologies dropped 2.3% after Merrill Lynch downgraded it to neutral from buy. Among other companies driven by analyst comments, U.K. electricity grid operator National Grid fell 1.8% after Goldman Sachs downgraded the firm to sell from neutral,

However, media group Pearson helped limit losses. Pearson shares climbed 1.4% after the publisher together with General Electric Co. decided not to pursue a bid for Dow Jones & Co. On Friday, the DAX lost 0.2% at 7,949.63, the U.K. FTSE 100 index slipped 0.4% at 6,567.40 and the French CAC-40 index inched down 0.1% at 6,023.25


[R]11:30AM Market averages traded lower. Financial stocks weighed.[/R]
U.S. market averages traded down in a volatile session, with credit markets and crude oil drawing attention. Continuous worries about rising interest rates, along with hedge-fund woes related to subprime mortgages, and rising crude oil prices, generated negative sentiment.

The heavily weighted financial sector declined on concerns that two hedge funds' losses on risky mortgage securities might not be contained. Among financial stocks, Merrill Lynch ((MER)) declined 2.4%, Barclays ((BCS)) lost 1.3%, and Citigroup ((C)) dropped 1.1%. Bear Stearns ((BSC)) lost 0.6%.

The main focus Friday was the IPO of private-equity firm the Blackstone Group. ((BX)), whose shares jumped 15%. The offering raised $4.13 billion early, ranking as the sixth richest IPO in U.S. In other corporate news, shares of contract electronics manufacturer Jabil Circuit ((JBL)), rose 11.8% after the company posted strong earnings late Thursday. Credit Suisse upgraded Jabil Circuit to outperform from neutral.

The Dow Jones industrial average was down 79.09 points, or 0.58%, at 13,466.75. The Standard & Poor's 500 was down 8.90 points, or 0.58 %, at 1,513.29. The Nasdaq Composite Index was down 14.32 points, or 0.55%, at 2,602.64.


[R]9:45AM Wall Street opened lower amid rising oil prices and interest rate worries.[/R]

Wall Street opened in the negative on Friday, pressured by rising crude oil prices and renewed concerns about rising global interest rates. Light, sweet crude rose 48 cents to $69.13 per barrel on the Nymex. Rate-sensitive housing stocks posted weakness, with Champion Enterprises ((CHB)) and Meritage Homes ((MTH)) falling about 2%.

Blackstone Group ((BX)) was in the spotlight after its IPO raised $4.13 billion, pricing at the top of its estimated range as the sixth richest IPO in U.S. history. Company’s stock tumbled 18%.

Among tech stocks, eBay ((EBAY)) gained 3.7% amid reports that it is planning to return to the Chinese auction market this summer. In corporate news, Jabil Circuit ((JBL)) climbed 10.3% after its Q3 profit exceeded analyst estimate. Cognos ((COGN)), a software maker and technology consultant, forecast a Q2 profit that fell short of expectations. The stock fell 4.7%.

In the retail sector, Abercrombie & Fitch ((ANF)) declined 2.7% after Lehman Brothers downgraded its rating on the stock to equal weight from overweight. In the first hour of trading, the Dow Jones industrial average fell 56.09, or 0.41%, to 13,489.75. The Standard & Poor's 500 index fell 7.14, or 0.47%, to 1,515.05, and the Nasdaq composite index fell 7.48, or 0.29%, to 2,609.48. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 5.21% from 5.20% late Thursday.


[R]9:30AM The FTSE 100 is lower Friday on weaker banking stocks.[/R]

By mid-day, the FTSE 100 was trading 20 points lower at 6,576.0, a decline of 0.3%.

Advancers

The retail sector was upbeat after a week of selling tracking poor trading updates from Tesco and J Sainsbury. Tesco led the gainers by midday, recovering 2.9%. William Morrison gained 2.3%. Home Retail Group, the owner of Argos, gained 1.4% and Kingfisher, the company responsible for the B&Q home improvement chain, gained 1.2%.

Pearson, the media company, gained 2.3%, as investors cheered the company’s decision not to join GE to counter New Corp’s bid for Dow Jones.

BAE Systems, defence contractor, advanced 2.4% after a review of its planned acquisition of Armor Holdings of the US was approved by the US Treasury Department.

Decliners

Banks with exposure to the U.S. market dampened the overall market sentiment. Barclays declined 1% after it admitted it had some exposure to the two Bear Stearns funds though it added losses were immaterial. Fund manager Schrader’s was the worst hit, down 1.7%, on its large US exposure.

Royal Bank of Scotland dipped 1.25% as it announced it, and partners Santander and Fortis, expected to come up with offer documents in relation to their bid for ABN AMRO by mid-July.


[R]9:00AM Market to open lower on higher bond yields.[/R]

U.S. stock futures moved to the downside Friday, dragged lower by higher bond yields, renewed concerns about the impact of the subprime mortgage market and weaker overseas stocks. Private-equity giant Blackstone Group ((BX)) went public for $31 a share. Bear Stearns ((BSC)) is reportedly planning to take out $3.2 billion in loans to stop creditors from seizing assets of its money-losing hedge funds.

EBay ((EBAY)) advanced 1.9% in pre-open trading on speculations that the company will return to the Chinese auction market this summer. Dow futures expiring in September fell 32, or 0.23%, to 13,628, while S&P 500 futures fell 4.80, or 0.31%, to 1,531.00. Nasdaq 100 index futures fell 6.50, or 0.33%, to 1,959.25. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 5.19% from 5.20% late Thursday.


[R]8:30AM Asia ends lower on bond yield fears, HK bucks trend and gains on China Mobile.[/R]

Asian markets finished lower on Friday. In China, the Shanghai Composite Index plunged 3.3% to end at 4,091. Stocks plummeted in the afternoon session with worries emerging that the central bank will hike borrowing costs over the weekend as inflation rose to 3.4% last month, a two-year high, according to the statistic bureau. Industrial & Commercial Bank of China Ltd., the biggest lender in the country, shed 2.1% and China Vanke Co., the biggest property developer, lost 2.8%.

The Nikkei 225 Average in Tokyo lost 0.3% to settle at 18,188. Property developers and insurers lost the most as higher rates raise operating costs for developers. Mitsubishi Estate declined 3.9%, and Mizuho Bank lost 1.9%. Chip-makers gained, on a jump in the prices of memory chips. Advantest gained 3.6%.

Korea Exchange Bank sank heavily, down 3.4%, as its largest shareholder sold a stake in the bank in South Korea. In Seoul, the Kospi Index shed 1.3% to 1,770. Other financials also dipped in sympathy with Kookmin Bank off 4% and Hana Financial Group shedding 1.7%. In Australia, the market ended almost flat. Australia's benchmark index S&P/ASX 200 edged 0.1% lower to 6,382. Although financial stocks finished higher, Caltex pulled the market lower, dipping 10.4%.

HK bucked the trend and advanced. The Hang Seng Index gained 0.2% to close at 21,999. China Mobile lifted the index, soaring 2.8%, while profit booking weighed on oil stocks. Cnooc dipped 1.8% and Sinopec lost 1.4%.


[R]8:00AM The Blackstone Group went public with shares priced at $3.[/R]

The Blackstone Group ((BX)) went public with shares priced at $31, at the top end of the private equity firm's guidance of between $29 and $31 a share. With 133.3 million shares issued, the IPO is valued at $4.13 billion, standing out as one of the biggest in the financial-services industry and the sixth biggest in U.S. history. Blackstone's offering represents a 12% stake in the firm. Blackstone shares are expected to start trading Friday on the New York Stock Exchange. AT&T Wireless ((T)) holds the No. 1 slot with $10.6 billion raised in 2000, followed by $8.7 billion for Kraft Foods ((KFT)) IPO in 2001 and $5.5 billion for UPS ((UPS)) in 1999.


[R]7:30AM NY – 6:30PM Mumbai Sensex ends lower in a highly volatile session.[/R]

The Sensex on BSE finished 31.88 points, or 0.22%, lower at 14,467.36.

The market-breadth was almost even as 1,274 stocks advanced, 1,280 declined and 86 were unchanged. Of the 30 stocks in the Sensex, 11 advanced, while all the rest declined. The turnover on BSE was Rs 5,302 crore, almost the same as Rs 5,307 crore on Thursday. On NSE, the turnover was Rs 9,521 crore, lower than Rs 10, 388 crore on Thursday.

Economic news

India’s wholesale inflation rate slowed to a thirteen-month low in the second week of June as the prices of food, fruit, lentils and cereals decreased. Wholesale prices advanced to 4.28% in the week ended June 9 from a year ago but down from 4.8% the previous week lower than estimates for inflation rate of 4.45% for the period.

The widespread interest in the second offering from ICICI Bank kept the rupee on the rise for a second straight week. The rupee also advanced as Indian companies take out loans abroad as the interest rates in dollars are lower than those in rupees. The rupee gained 0.4% to 40.695 against the dollar this week.

The government today approved 36 proposals for special economic zones. Among those which were approved were 3 Navi Mumbai SEZs jointly offered by Reliance India chief Mukesh Ambani and Anand Jain.

The failure of WTO talks among four trading groups representing rich and poor nations failed to resolve differences. The trade talk disputes have hinged on the farm subsidies paid in the rich countries to support small farm communities. There are more than 700 million farmers in Brazil and India living on less than one dollar a day and in the U.S. less than 0.5% of population works as a farmer. India’s two third of population relies on farming and generate less than 30% of its GDP. In the U.S. less than 1% of population rely on farming generating less than 4% of its GDP.

Trading highlights

TCS was the most-active stock with a turnover of Rs 562 crore followed by Time Technoplast and Reliance Industries.

Advancers

Reliance Energy surged 5.3% to Rs 590. The company submitted a bid for the for the 4,000-mega watt Sasan ultra mega power project. The stock was also given a boost by the Bombay High Court decision on gas deliveries by Reliance Industries.

NTPC surged 1.7% to Rs 153 on the Bombay High Court’s decision, that Reliance Industries must sell gas produced from one of its major blocks in the Krishna-Godavari basin to Reliance Natural Resources and NTPC. The contract requires gas to be sold to both companies at terms agreed several years ago, below current market rate. Hindalco gained nearly 1.9% to Rs 170 on market talk that promoters are raising their stake in the company.

Capital goods large-cap Hindustan Unilever advanced 1.2% to Rs 192 and housing finance company HDFC gained a 1.7% to Rs 1,880.

ICICI Bank was among the most active stocks, but the stock was volatile. It rose 0.4% to Rs 954 after its second offering attracted bids nine times the offer size. The issue closed today.

Decliners

BHEL plunged 2.8% to Rs 1,440, while cement stocks declined on heavy selling pressure. Gujarat Ambuja Cement dipped 2.6% to Rs 116, ACC was off 0.6% to Rs 85 and Grasim lost 0.5% to Rs 2,495.

Index heavy Reliance Industries lost 1.7% to Rs 1,704, on a petition by RNRL to the high court which had ordered yesterday after trading hours that the 81.6 million cubic meters of gas per day could be sold only to RNRL or NTPC.

The rise in the rupee impacted IT stocks negatively. Satyam Computers lost 1.1% to Rs 462, TCS was down 0.4% to Rs 1,140, Infosys declined 0.3% to Rs 1,951, and Wipro dipped 1.3% to Rs 517.


[R]7:30AM NY – 6:30PM Mumbai Sensex ends lower in a highly volatile session.[/R]

The Sensex on BSE finished 31.88 points, or 0.22%, lower at 14,467.36.

The market-breadth was almost even as 1,274 stocks advanced, 1,280 declined and 86 were unchanged. Of the 30 stocks in the Sensex, 11 advanced, while all the rest declined. The turnover on BSE was Rs 5,302 crore, almost the same as Rs 5,307 crore on Thursday. On NSE, the turnover was Rs 9,521 crore, lower than Rs 10, 388 crore on Thursday.

Economic news

India’s wholesale inflation rate slowed to a thirteen-month low in the second week of June as the prices of food and especially fruit lentils and cereals decreased. Wholesale prices advanced 4.28% in the week ended June 9 from a year ago, down from 4.8% the previous week and also lower than estimates for inflation rate of 4.45% for the period.

The great interest in the second offering of shares by ICICI Bank kept the rupee on the rise for a second straight week. The rupee also advanced as Indian companies take out loans abroad as the interest rates in dollars are lower than those in rupees. The rupee gained 0.4% to 40.695 against the dollar this week.

The government today approved 36 proposals for special economic zones. Among those which were approved were 3 Navi Mumbai SEZs jointly offered by Reliance India chief Mukesh Ambani and Anand Jain.

Trading highlights

TCS was the most-active stock with a turnover of Rs 562 crore followed by Time Technoplast and Reliance Industries.

Advancers

Reliance Energy surged 5.3% to Rs 590. The company submitted a bid for the for the 4,000-mega watt Sasan ultra mega power project. The stock was also given a boost by the Bombay High Court decision on gas deliveries by Reliance Industries.

NTPC surged 1.7% to Rs 153 on the Bombay High Court’s decision, that Reliance Industries was not to sell the gas to be produced from one of its major blocks in the Krishna-Godavari basin to any other than Reliance Natural Resources and NTPC. Hindalco gained nearly 1.9% to Rs 170 on market talk that investors are raising their stock in the company.

Capital goods large-cap Hindustan Unilever advanced 1.2% to Rs 192 and housing finance company HDFC gained a 1.7% to Rs 1,880.

ICICI Bank was in great demand today but also saw high volatility. It rose 0.4% to Rs 954 after its second offering of shares attracted bids for more than nine times the offer size. The issue closed today.

Decliners

BHEL plunged 2.8% to Rs 1,440, while cement stocks declined on heavy selling pressure. Gujarat Ambuja Cement dipped 2.6% to Rs 116, ACC was off 0.6% to Rs 85 and Grasim lost 0.5% to Rs 2,495.

Index heavy Reliance Industries lost 1.7% to Rs 1,704, on a petition by RNRL to the high court which had ordered yesterday after trading hours that the 81.6 million cubic meters of gas per day could be sold only to RNRL or NTPC.

The rise in the rupee impacted IT stocks negatively. Satyam Computers lost 1.1% to Rs 462, TCS was down 0.4% to Rs 1,140, Infosys declined 0.3% to Rs 1,951, and Wipro dipped 1.3% to Rs 517.