Subprime Worries; Bear, Goldman, Lehman Fall

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

On the first day of trading market averages around the world faced second day in-a-row of selling. Rising U.S. yields and worries related to sub-prime lending led market averages in New York to near 1% loss at mid-day trading. Goldman Sachs, Bear Stearns, and Lehman fell more than 2%. General Motors gained 2% on an upgrade from Goldman Sachs. Stocks in Europe, Asia and Latin America fell. Shanghai fell more than 3% for the second day-in-a-row. Brazilian sugar producer Cosan to raise $2b in NY.

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

Yields edged lower on 10-year U.S. bonds and closed at 5.09% and 30-year bond rose to close at 5.21%.

Crude oil down 8 cent to close at $69.06 per barrel, natural gas down 14 cent to close at $7.00 per mBtu, and gasoline futures gained 2.60 cents to close at 231.25 cents per gallon.

Gold gained $2.30 to close at $654.70 per ounce, silver lost 14 cents to close at $12.87 per ounce, and copper futures lost $3 to close at $7,483 per metric ton.

In New York trading, three widely followed averages fell on the worries that sub-prime mortgage problems may hurt earnings of brokerage companies. Rumors and negative mood in the brokerage circles in the sub-prime bond market hurt market sentiment and dragged major indexes near 1% loss at mid-day trading. Bear Stearns, Goldman Sachs, Lehman Brothers fell between 2% and 3%. Nymex and CBOT shares fell 3%.

Blackstone ((BX)) on the second day of its trading fell 7.5%. 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 on Friday.

Latin Markets fell across the region led by 1.2% loss in Mexico and Argentina followed by 0.4% decline in Brazil but Chile rose 0.02%.

In Mexico City trading, IPC Index fell 1.2% for the second day after the Central Bank decided to leave the interest rates unchanged to 7.25%. The Mexican market suffered along with other emerging markets on the worries that rising bond yields will slow fund flows from the developed markets. American Movil and Cemex fell more than 2% and Homex, Telmex, and Coca Cola Femsa lost 1%.

In Sao Paulo trading, Bovespa dropped 0.4% on worries that rising yields in the U.S. will hurt investment flows to the country. Petrobras, Tam Air, Bradesco and Itau fell close to 1% in trading. Weak mining and metal stocks in European trading, dragged steel stocks lower. Cosan, largest sugar producer, plans to sell stocks of $2 billion in New York and list stock as ADR.

European markets closed lower across the region on profit taking in mining, banks and insurance stocks and worries related to rising rates. A decline of 0.5% in Norway led the region followed by 0.3% fall in Germany, France and Switzerland. Spain gained 0.4% and U.K. edged 0.3%.

In Frankfurt trading, DAX Index fell 0.3% on the worries that interest rate hike may slow down the economic growth. Deutsche Bank and Hypo Real Estate fell 1.3% followed by 1% decline in Daimler Chrysler. KarstadtQuelle AG gained 1.4% on the company statement that more than fifteen buyers are interested in acquiring real estate properties controlled by a joint venture with Goldman Sachs. Allianz after climbing on speculation of Dresdner Bank spin-off fell today. Norddeutsche Affinerie fell 5% on the company agreement to buy Cumerio NV. The company will pay 30 euros per share of 777 million euros in cash for the Cumerio.

In London trading, FTSE index gained 0.3% on takeover rumors and strength in telecom stocks. British pound traded above $2.000 barrier but settled below $2.000 mark in the late evening trading. The takeover rumor on J. Sainsbury lifted its stock 1.8% on the hope of a bid as high as $21.5 billion. Vodafone jumped 1% ahead of court decision involving tax refund for third generation wireless licenses paid in 2000. London Stock Exchange fell 1% after company winning a bid to buy Borsa Italia for $2.2 billion. Antofagasta and Anglo American fell 1.4%. Pendragon, used car dealer, fell 16% on lower than expected operating profit forecast.

In Paris trading, CAC-40 fell 0.3% on the worries that bond yields may rise. France Telecom fell 2% on the news that the government plans to sell 5% of the company to raise 2.7 billion euros.

Asian Markets fell for the second day after two weeks of rally lifting indexes in several countries near record levels. Today’s regional decline was led by 4% fall in Shanghai followed by 1.3% decline in Philippines, 1% in Thailand, Singapore, and Malaysia. Hong Kong and Australia lost 0.8% and Japan fell 0.6%. Taiwan in the region gained 1.4% followed by 0.2% rise in India. Banks and financial companies stocks declined across the region as worries of rising bond yields and interest rates resurfaced. Talks of inflation fighting from China’s central bank governor affected market sentiment n Shanghai trading.

In Tokyo trading, banks, exporters, property and insurance companies fell the most. Mitsui Fudosan fell 3% and Nomura Holding dropped 2%. Sony fell 1.4% but pharmaceutical company Takeda gained 1.2% on a promising trial related to Actos drug for treatment of hear disease.

In Shanghai trading, CSI Index fell 4% on the worries that government is likely to increase interest rates to cool rising markets. China Petroleum & Chemical Corp lost 3% in Hong Kong and 6% in Shanghai on the news that company CEO has resigned amidst corruption allegations. Jiangsu Sopo Chemical, Yunnan Jingu Forestry, and Henan Lianhua Gourmet fell daily limit of 10%.

In Hong Kong trading, Hang Sang Index lost 0.8%. The index had gained 7% steadily in the last week of trading. Sinopec lost 3%, China Construction Bank fell 2.5%, and Bank of China and ICBC fell 0.8%.

In Mumbai trading, Sensex Index gained 0.14%. Larsen & Toubro advanced 3% after the plan to issue extraordinary dividend. Reliance Telecom gained 2% and ONGC jumped 1% on the 7% rise in profit for the fiscal 2007.


[R]1:00PM NY, 5:00 PM Frankfurt European markets finished mostly lower, pressured by rate-sensitive and mining stocks.[/R]

European stock markets finished mostly lower on Monday, pressured by weakness among real-estate companies and mining shares. Continuous rate worries dragged companies like Hypo Real Estate and Unibail, each falling 1.3%.Rate concerns also hurt shares of Pendragon. The British used-car dealer slipped 16% after it said declining consumer spending will hurt operating profit by 20 million pounds this year and by 10 million pounds in 2008.

In the resource sector, Antofagasta and Anglo American each dropped 1.5% as Cazenove downgraded its stance on the two companies and as metals prices declined. Among other notable decliners, shares of French Telecom fell 1.9% after the French government said it intends to sell 5% shares in order to raise 2.7 billion euros.

Merger deals also attracted attention. London Stock Exchange lost 1% after it said that it will buy Italian markets operator Borsa Italiana SpA for more than $2 billion. Meanwhile, shares of Belgian copper producer Cumerio surged 19.5% after Norddeutsche Affinerie agreed to acquire the company for 777 million euros.

The German DAX lost 0.2% at 7,930.61, the French CAC-40 slipped 0.3% at 6,002.85, while the U.K.'s FTSE 100 ended up 0.3% at 6,588.40, with defensive stocks like sugar producer Tate & Lyle and pubs operator Enterprise Inns supporting the index.


[R]11:30AM Market averages turned sharply higher amid lower bond yields and weaker oil prices.[/R]

U.S. market averages moved firmly into the positive territory after the initial lackluster trading fashion. Rate-sensitive utilities stocks stood out among the market's best performances amid a decrease in treasury yields. Significant strength also emerged among transportation stocks, benefiting from a steep decline by the price of oil. Crude for August delivery dropped $1.15 to $67.99 a barrel. Tobacco, pharmaceutical, and banking stocks also posted gains. At the same time, resource stocks showed weakness, due to lower commodities prices.

The Dow Jones industrial average rose more than 100 points, with General Motors ((GM)) contributing to the strong upward move. The auto giant rose 2.3% after Goldman Sachs upgraded its rating on the company's stock. Other notable gainers on the Dow included McDonald's ((MCD)), rising 2.4%, Altria Gfroup ((MO)), up 1.6%, as well as Honeywell ((HON)) and 3M Co. ((MMM)), both rising 1%.

In earnings-related news, Walgreen ((WAG)) slipped 0.7% although the drugstore operator reported Q3 profit increase by 20%, helped by sales growth at established stores and an increase in prescription sales. In late morning trading, the Dow rose 107.79, or 0.81%, to 13,468.05. The Standard & Poor's 500 index rose 9.96, or 0.66%, to 1,512.52, and the Nasdaq composite index rose 14.03, or 0.54%, to 2,602.99. The 10-year Treasury note's yield fell to 5.10% from 5.14% late Friday.

[R]Existing home sales fell 0.3% in May.[/R]
Monday morning, the National Association of Realtors released its report on existing home sales in the month of May, showing that existing home sales for the month came roughly in line with economist estimates. The report showed that existing home sales edged down 0.3 percent to an annual rate of 5.99 million units in May from an upwardly revised pace of 6.01 million in April. Economists had expected sales to come in at about 6.0 million. NAR also said that the national median existing-home price was $223,700 in May, 2.1 percent below May of 2006 when the median price was $228,500. The report also showed that total housing inventories rose 5.0 percent to 4.43 million existing homes available for sale by the end of May. This represents an 8.9-month supply at the current sales pace compared to an 8.4-month supply in April.


[R]9:45AM Wall Street opened above the flat line as bond yields declined amid 4-year low existing home sales.[/R]

U.S. stock markets opened above the flat line, as bond yields declined amid data showing that sales of existing homes hit a 4-year low in May, while the median home price fell for a record 10th month in a row.

The National Association of Realtors said that sales of existing single-family homes and condominiums dropped by 0.3 % to 5.99 million units in May, the slowest sales pace since June of 2003. The median home price fell 2.1% to $223,700 from a year ago. The data added to investor optimism that the Fed Reserve will leave interest rates unchanged.

A broker upgrade of General Motors also generated positive sentiment. Goldman Sachs raised its rating on the stock to buy from neutral, saying there was little downside for the company's stock. GM ((GM)) shares jumped 3%.

On the earnings news front, Walgreen ((WAG)) rose 1% after reporting a better-than-expected 20% profit rise in Q3, lifted by a growing market share in its top products and an increase in prescription sales. The U.S. biggest drugstore chain earned $561.2 million, or 56 cents per share, up from $469.2 million, or 46 cents per share a year ago. Revenue rose 13% to $13.7 billion from $12.2 billion last year, but fell short of expectations. Analysts had been expecting a profit of 54 cents on revenue of about $13.8 billion.

In mid-morning trading, the Dow Jones industrial average rose 62.18, or 0.47%, to 13,422.44. The Standard & Poor's 500 index rose 3.84, or 0.26%, to 1,506.40, and the Nasdaq composite index rose 4.62, or 0.18%, to 2,593.58. The 10-year Treasury note's yield fell to 5.08% from 5.14% late Friday.


[R]9:30AM The FTSE loses ground Monday on weakness in mining stocks.[/R]

The UK market was lower by mid-day on Monday. The FTSE 100 dipped 0.4% and was at 6,540.4.

Advancers

ICI was one of the few companies on the plus side, 1.4 per cent higher supported by talk that Akzo Nobel was mulling an increase in its bid for the ICI to the 700p mark thought by some investors as the level where the deal can be done.

Housebuilders were buoyant after Persimmon came out with strong figures. The company announced it expected interim revenue to reach 1.5 billion pounds with 8,000 units sold, matching forecasts despite rising interest rates.

Decliners

The mining sector took a serious hit after Cazenove guided weaker metal prices and lowered its recommendations on Anglo American and Antofagasta. The brokerage house reduced its stance on Antofagasta to underperform from in-line, stating that the stock looked overestimated. Antofagasta declined 1.5%. Anglo American was reduced to in-line from outperform and the stock slid 2.1%.

Pendragon plummeted almost 11% after it announced sustained weakness in consumer spending would erode its annual operating profit by 20 million pounds this year and by a further 10 million pounds in 2008.

Cadbury Schweppes dipped further as lack of news on bidders for its soft drinks arm disappointed i investors. The company which is the biggest confectioner in the world shed 1.8%.


[R]9:00AM Market to open slightly higher, supported by falling oil and General Motors.[/R]

U.S. stock futures pointed to a moderately higher opening on Monday, supported by a broker upgrade for General Motors ((GM)) and a decline in crude oil futures. Shares of the auto maker advanced 3% in pre-open trading after it was upgraded to buy from neutral at Goldman Sachs. Chevron ((CVX)) also gained on positive analyst comment. Banc of America Securities raised its rating on the stock to buy from neutral, citing the group's deepwater activities.

In other corporate news, Dow Jones & Co. ((DJ)) and News Corp ((NWS)) held 'intense' talks related to the protections over the editorial independence of The WSJ. In an expected move, Jones Apparel Group ((JNY)) announced late Friday a decision to sell Barneys New York for $825 million. S&P 500 futures slipped 0.6 of a point at 1,519.90, the Nasdaq 100 futures rose 3 points at 1,951.00 and the Dow industrial futures rose 9 points.


[R]8:30AM Asian markets decline Monday, with Japan down on export-oriented stocks.[/R]

Asian markets finished lower on Monday. The Nikkei 225 Average settled 0.6% lower at 18,087. Real estate and brokerages led the decliners. Sony, the biggest maker of game consoles in the world, declined 1.4% and Takeda, the biggest drugmaker by market value in Japan, jumped 1.2%. Mitsui Fudosan lost 2.8% and Nomura Holdings slid 2%.

The Shanghai Composite Index in China plunged 3.7% to settle at 3,941. The market dipped on sustained worries over monetary tightening. Yunnan Jingu Forestry, Henan Lianhua Gourmet Powder and Jiangsu Sopo Chemical fell by the daily limit of 10%. In Hong Kong, the Hang Seng Index shed 0.8% to close at 21,822. Sinopec, fell 2.9% in Hong Kong and 5.7% in Shanghai, after the company announced Chairman Chen Tonghai resigned on rumors of corruption. Banks also fell. China Construction Bank fell 2.3%, Bank of China declined 0.8% and ICBC fell 0.7%.

South Korean Kospi Index shed 0.8% to 1,757 and Australian S&P/ASX 200 lost 0.8% to 6,329. In Seoul, banks led the market lower, while autos advanced. Korea Exchange Bank declined 3.9%, still hurt by the news Friday that its largest shareholder, Lone Star Funds, sold a part of its stake. Kookmin Bank dipped 1.4% and Woori Finance Holdings dropped 2.1%. Hyundai Motors rose 3.2% and its affiliate, Kia Motors, gained 1.9%, as the Hyundai labor union softened its threats of a general strike. BHP Billiton led Australia lower, falling 1.2%.


[R]7:30AM NY-6:30PM Mumbai Sensex ends slightly higher in a subdued trading session.[/R]

The Sensex on BSE finished 20.36 points higher, or 0.14%, at 14,487.72.

The market-breadth was fairly positive as there were three gainers for every two decliners. For 1,500 stocks which advanced, 1,073 declined and 73 remained unchanged. Of the 30 stocks in the Sensex, 16 advanced, while the rest declined. The turnover on BSE was Rs 4,283 crore, lower than Rs 5,344 crore on Friday. On NSE, the turnover was Rs 8,308 crore, also lower than Rs 9,251 crore on Friday.

Economic news

Nissan Motor Corporation is planning to buy more components from China and India after the company’s profit declined for the first time after the record loss in 2000. Nissan will boost its global component purchases from low-cost countries to 24% of the total, from the current 14%.

Trading highlights

Indiabulls Real Estate was the most active stock with a turnover of Rs 138 crore followed by Hindalco and Reliance Industries.

Advancers

Larsen & Toubro surged nearly 2.8% to Rs 2,166 and was the best performing stock on the market. The company gained after it announced today that its board would meet on July 3 2007 to offer a special dividend. Other capital goods sector companies also rallied. The engineering company BHEL advanced 0.7% to Rs 1,450, after it announced it secured an order worth Rs 106 crore from RINL to be fulfilled within 28 months.

Telecom companies also surged. Reliance Communications gained nearly 2% to Rs 523, and Bharti Airtel ended up over 1.2% to Rs 833. Bharti Airtel is about to fulfill its ambitious plan to be in the digital media space and launch DTH services by December this year.

ONGC advanced 0.9% to Rs 917. ONGC said its net profit for fiscal 2007 surged 8% to Rs15,643 crore, in spite of a subsidy payout of Rs17,024 crore. The company had reported a net profit of Rs14,431 crore in fiscal 2006.

Decliners

Cipla led the decliners, down 1.8% to Rs 206. Auto shares declined on profit taking with Bajaj Auto down 1.7% to Rs 2,138, while Tata Motors lost almost 1.1% to Rs 677, and Maruti Udyog slipped 1.1% to Rs 753.

IT stocks were under heavy selling pressure. Satyam Computers lost 1.5% to Rs 455, TCS declined 1.3% to Rs 1,126, Infosys Technologies slid 0.8% to Rs 1,936, and Wipro dipped 0.4% to Rs 515.

ICICI Bank declined 0.2% to Rs 952. The bank failed to receive the permission of the government to transfer $477 million of insurance and asset-management holdings to a new company with Goldman Sachs Group Inc. likely to buy a stake. ICICI sold last week $5 billion of shares to raise funds to increase loans and investment. Index heavy Reliance Industries finished 0.1% higher at Rs 1,706.