Weak U.S. Housing Market and Oil

123jump.com Staff
26 Jun, 2001
New York City

U.S. stock averages struggled and lost its momentum on worries that housing market problem will persist. The Commerce Deaprtment reported 16% decline in home sales in May from a year ago. Oil fell below $68. Two buyout deals worth $9 billion falied to excite the market. Huntsman Chemical agreed to be bought out for $5.6 billion and Ventana Medical Systems for $3 billion by Roche. Markets in Europe, Asia and Latin America fell. China Coso IPO was oversubscribed 100 times.

[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 5.10% and 30-year bond rose to close at 5.224%.

Crude oil down $1.41 to close at $67.77 per barrel, natural gas down 6 cent to close at $6.88 per mBtu, and gasoline futures fell 5.56 cents to close at 224.69 cents per gallon.

Gold lost $9.40 to close at $645.30 per ounce, silver lost 60 cents to close at $12.40 per ounce, and copper futures lost $46 to close at $7,529 per metric ton.

In New York trading, three widely followed averages fell on two buyout deals worth $9 billion, falling crude oil prices, continued housing market and Bear Stearns controlled hedge fund related worries. The Commerce Department reported that May month new home sales fell 1.6% from April and 15.6% from a year ago and home prices fell 2.1% from a year ago.

Lennar ((LEN)) dropped 3% after the company reported second quarter loss, first second quarter loss in more than ten years. The company reported loss of $1.55 per share. Kroger ((KR)) fell $2 or 7% after reporting lower than expected earnings and fierce competition from Wal-Mart.

Blackstone ((BX)) on the third day of its trading fell 5% below its offer price of $31. Largest private equity group Blackstone Group priced its IPO at $31 per share and raised $4.6 billion and saw its stock jump 13% at the end of first day of trading on Friday.

Latin Markets fell across the region led by 1.8% loss in Mexico, 0.7% in Chile, 0.3% in Brazil and Argentina.

In Mexico City trading, IPC Index fell 1.8% for the third 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 in the U.S. will slow fund flows from the developed markets. American Movil, Homex and Cemex fell more than 2%, Telmex, and Coca Cola Femsa lost 1%.

In Sao Paulo trading, Bovespa dropped 0.3% 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. National Monetary Council extended its inflation target to 4.5% till the year 2009 with a band of 2%.

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 1.1% in Italy led the region followed by 0.9% fall in Germany, France and the Netherlands. Spain and Switzerland fell 0.7% and U.K. dropped 0.4%.

In Frankfurt trading, DAX Index fell 0.9%, fourth decline in a row, on the worries that interest rate hike may slow down the economic growth. Hypo Real Estate fell 1.1% and Deutsche Bank dropped 1.1%, Henkel KGaA dropped 4.4% on the news that Deutshce Bank will sell 6% of its preferred stock or 11.2 million shares.

In London trading, FTSE Index fell 0.4%. British pound traded at elevated levels and crossed $2 barrier against dollar ahead of the central bank governor testimony. Barclays fell 1.3% and Royal Bank of Scotland dropped 0.2% after reports that the Dutch Supreme Court is likely to permit the sale of Chicago unit LaSalle Bank to Bank of America. BAE Systems fell 8% after the company said that it is a target of U.S. Justice Department in alleged corruption inquiry. Independent energy company Dana Petroleum slumped 6% on a company plan to offer 150 million pounds of senior convertible bonds.

Asian Markets fell for the third day after indexes retreated from record levels. Shanghai rebounded with a gain of 0.9%. Singapore declined with a loss of 1.5% followed by 0.8% decline in Taiwan and 0.7% fall in Malaysia. Japan and Hong Kong lost 0.1% and Australia fell 0.3%. Regional news and money flows issues dominated trading sentiment.

In Tokyo trading, banks, exporters and trading companies fell the most. Sub-prime lending issues in the U.S. worried traders that Japanese exports may be hit. Komatsu dropped 1.7%, Sony and Nissan lost 0.9%. Mitsui Fudosan recovered 1.5% after losing 7% in the previous week as real estate stocks staged a recovery. Mitsubishi Estate rebounded 0.9%. Asahi Glass jumped 2% on the local news that the company is looking to build a second glass substrates manufacturing plant in Korea. Trading companies Mitsubishi fell 2.4% and Mitsui decreased 2%.

In Shanghai trading, CSI Index rebounded 0.9% after falling for three days in a row. Public offering of China Coso worth $2 billion was oversubscribed 100 times. The stock soared 93% on its first day of trading in Shanghai. A total of $13.5 billion stock offering are expected to be priced in China IPO market in the next six months including offerings from PetroChina, China Construction Bank and Anhui Conch Cement.

In Hong Kong trading, Hang Sang Index lost 0.1%. The index had gained 7% steadily in the last week of trading. Lenovo fell 6% on downgrade from Deutsche Bank. Casino billionaire Stanley Ho has agreed to purchase 75% stake in a property project in Macau controlled by Gordon Wu for HK 6.8 billion.

In Mumbai trading, Sensex Index gained 0.1%. State Bank of India said that it may have to raise $12 billion in the next three years to meet rising loan demands and meet capital requirements to meet Basel Standard. ONGC gained 2% after declaring annual profit gain of 10% and Bharti Airtel rose 2% on HSBC Bank target price revision by 9%.

[R]1:00PM NY, 5:00 PM Frankfurt European markets closed down, dragged by rate worries. A sharp decline in BAE Systems shares weighed[/R]

European stock markets finished in the red on Tuesday, weighed down by continuous worries over interest rates and the subprime-mortgage market. In addition, a steep decline was posted by shares of BAE Systems, falling 7.8% after a U.S. anti-corruption probe into Britain's top arms dealer.

Among other notable losers, shares of Spanish energy giant Iberdrola dropped 3.8% after it announced an agreement to buy Maine-based Energy East Corp. in a $4.5 billion (3.4 billion euros) deal. Outside deal news, shares of Arcelor Mittal dropped 3.5% after the steelmaker was downgraded to neutral from buy at Merrill Lynch. Insurance giant Allianz declined 2.3%, while BNP Paribas slipped 1.3%. In the automotive sector, Porsche slipped 3.9% as investors focused on lack of growth in the company.

On the positive side, shares of British credit-checking firm Experian added 1.9% after it agreed to acquire 65% of Brazilian credit bureau Serasa from a consortium of Brazilian banks for $1.2 billion. The German DAX 30 dropped 0.9% at 7,860.52 and the French CAC-40 lost 0.8% at 5,953.36, the U.K.'s FTSE slipped 0.4% at 6,559.30.


[R]11:30AM Market averages turned mixed on rate worries. Housing and resource stocks declined.[/R]

U.S. stock averages lost direction over the course of morning trading, as investors refrained from making big moves ahead if the Fed Reserve's decision on interest rates later in the week. Slightly better-than-expected housing data and deal news failed to offset renewed worries about interest rates, the subprime mortgage market, and hedge fund woes.

Housing stocks came under pressure on lower home sales, followed by resource stocks which declined on weaker commodities prices. Homebuilder Lennar Corp. ((LEN)) posted a Q2 loss and warned of further weakness. Lennar fell 1.9%, followed by other homebuilders. In the tech sector, Apple ((APPL)) slipped 2.6% after the company together with AT&T ((T)) unveiled prices for service plans to use Apple's iPhone.

Meanwhile, some drug stocks moved notably higher, with Dow component Merck ((MRK)) rising 2%. Wyeth ((WYE)) and Bristol-Myers ((BMY)) also stood out among gainers with an advance of 2% each. Ventana Medical Systems surged 49% after Roche Holding AG made a $3 billion hostile bid for the medical testing products maker. The tobacco and utilities sectors also posted gains.

In late morning trading, the Dow rose 32.51, or 0.24%, to 13,384.56. Johnson & Johnson ((JNJ)) and AT&T ((T)) supported the blue-chip average, rising 1.3% and 1.9%, respectively. The S&P 500 rose 1.06, or 0.07%, to 1,498.80, and the Nasdaq composite index slipped 0.02, or less than 0.01%, to 2,577.06. Bonds slipped after the new home sales data, with the yield on the benchmark 10-year Treasury note rising to 5.10% from 5.08% late Monday.

[R]Consumer confidence index retreated in May.[/R]
Tuesday morning, the Conference Board released its report on consumer confidence in the month of June, showing that confidence fell by much more than economists had expected compared to the previous month. The Conference Board said its consumer confidence index fell to 103.9 in June from an upwardly revised 108.5 in the previous month. Economists had expected the index to edge down to 106.0 compared to the 108.0 originally reported for May.

The report showed that the present situation index fell to 127.9 in June from 136.1 in May. Those saying conditions are ‘good’ fell to 27.4 percent from 29.0 percent, while those saying conditions are ‘bad’ rose to 16.4 percent 14.6 percent. Consumers' assessment of the job markets was also less positive, as those saying jobs are ‘hard to get’ rose to 21.1 percent from 19.7 percent, while those claiming jobs are ‘plentiful’ fell to 27.0 percent from 29.1 percent. The report also showed that the expectations index edged down to 87.9 in June from 90.1 in May. The Conference Board said that consumers remain guarded about short-term prospects, adding that the outlook for the labor market was mixed.

[R]New home sales in May declined more than expected.[/R]
The Commerce Department released its report on new home sales in the month of May on Tuesday, showing that sales fell by more than economists had been expecting compared to the previous month. The report showed that new home sales fell 1.6 percent to an annual rate of 915,000 units in May from a revised 930,000 unit rate in April. With the decrease, new home sales were down 15.8 percent compared to May of 2006. Economists had been expecting new home sales to fall to a 925,000 unit rate in May compared to the 981,000 unit rate originally reported for the previous month.

The bigger than expected drop in new home sales was partly due to an 11.0 percent drop in new home sales in the Northeast. Sales in the South fell 7.3 percent and sales in the West edged down 1.9 percent, while new home sales in the Midwest surged up 30.8 percent. The report also showed that the median sales price of new houses sold in May was $236,100, down 0.9 percent year-over-year. Additionally, the Commerce Department said that the seasonally adjusted estimate of new houses for sale at the end of May was 536,000. This represents a supply of 7.1 months at the current sales rate.


[R]9:45AM Wall Street opened above the flat line amid bargain hunting and merger deals.[/R]

Wall Street opened above the flat line, reflecting bargain hunting after recent weakness and merger-and-acquisition news ahead of a key report on the housing market.

Chemical company Huntsman ((HUN)) surged 28% after division of billionaire investor Leonard Blavatnik's Access Industries agreed to buy it for $5.6 billion. Under the terms of the agreement, Basell will acquire Huntsman's outstanding common stock for $25.25 per share in cash, with the price representing a 34% premium over the company's Monday closing stock price of $18.90. Again in M&A action, BlackRock ((BLK)) added 1.6% after it agreed to buy the fund-of-funds business of Quellos Group for up to $1.7 billion.

In earnings news, homebuilder Lennar ((LEN)) lost 1.2% after posting a quarterly loss and warning of further weakness. Kroger ((KR)) fell 4.2% after it reported better-than-expected quarterly earnings and a gain in revenue. There were few pre-market quotes for the supermarket operator's stock, but it should be active after the opening. Oracle ((ORCL)) and Nike ((NKE)) are scheduled to report after the closing bell. Target Corp. ((TGT)) fell 0.5% after the retailer said that same-store sales in June will come at the low end of its forecast 3%-to-5% range.

In morning trading, the Dow Jones industrial average rose 13.08, or 0.10%, to 13,365.13. The Standard & Poor's 500 index rose 2.49, or 0.17%, to 1,500.23, and the Nasdaq composite index gained 6.75, or 0.26%, to 2,583.83. Bonds fell slightly after the new home sales data, with the yield on the benchmark 10-year Treasury note rising to 5.09% from 5.08% late Monday.


[R]9:30AM Asian markets mostly decline with China bucking the trend and gaining.[/R]

Asian markets ended mostly lower. The Nikkei 225 Average in Tokyo settled lower on weakness in brokerage house Mitsubishi, lower 2.4%, and on a decline in export-oriented stocks, which were hurt by the subprime mortgage rate concerns in the world biggest import market. Elpida Memory shed 3.3% and Fujitsu declined 1.5%. Sony, the biggest maker of game consoles in the world, lost 0.9%.

HK also ended lower as deals ahead of futures settlement this week weighed on stocks. The Hang Seng Index lost 0.3% and settled at 21,803. PICC tumbled 8% after Citigroup reduced its recommendation on the stock to sell from hold. Lenovo declined 6% after Deutsche Bank cut its rating to sell from buy and HSBC shed 0.1% on subprime mortgage rate concern.

Problems for small-cap stocks drove South Korean market lower. Small-caps suffered as country's financial watchdog took steps to limit stock trading on credit by retail investors. Construction companies were also hit. Hyundai Engineering & Construction lost 2.3% and Daelim Industrial shed 1.4%. Seoul’s Kospi Index lost 0.5% to 1,749.

Other major markets around the region also declined. Australian S&P/ASX 200 lost 0.3% to 6,308 and Taiwan ended 0.5% lower at 8,865. In Australia, the biggest mining company in the world, BHP Billiton edged 0.4% lower, while Woodside Petroleum lost l.1% after Credit Suisse cut its rating to underperform.

China bucked the downtrend. The Shanghai Composite Index gained after declining for two sessions in a row. The index advanced 0.9% to finish at 3,973. Shipping company China Cosco Holdings rallied 93.2% in its Shanghai trading debut as traders were upbeat about its possible expansion. Huangshi Dongbei Electrical Appliance soared by the daily 10% limit.


[R]9:00AM Market to open slightly higher ahead of housing data.[/R]

U.S. stock market looked poised for a higher opening Tuesday, with investors awaiting a report on new home sales, expected to show a decline in May from the previous month. In another report, the Conference Board is due to release its June consumer confidence index.

Among pre-market highlights, homebuilder Lennar ((LEN)) said it swung to a Q2 loss of 244.2 million, or $1.55 per share, vs. a profit of $324.7 million, or $2 per share a year ago, blaming weaker housing market. Analysts had been expecting Q2 profit of 5 cents a share. Quarterly revenue dropped 37% to $2.88 billion from $4.58 billion in the prior-year period, beating analyst estimate of $2.58 billion. The company warned it would report a Q3 loss as well.

Investment management company BlackRock Inc. ((BLK)) said it agreed to buy the fund of funds division of Quellos Group LLC for up to $1.7 billion. The deal, which is expected to complete around Oct. 1, will create a fund of funds operation with more than $25.4 billion in managed assets. S&P 500 futures rose 3 points at 1,516.60 and Nasdaq 100 futures rose 4 points at 1,945.00. Dow industrial futures rose 14 points.


[R]8:00AM NY-7:00PM Mumbai Sensex ends virtually flat in a subdued trading.[/R]

The Sensex on BSE finished 13.36 points higher, or 0.09%, at 14,501.08.

The market-breadth was strong with almost three gainers for every two decliners. As 1,492 stocks advanced, 1,117 declined and 84 remained unchanged. Of the 30 stocks in the Sensex, 15 advanced, 14 declined and one was unchanged. The turnover on BSE was Rs 4,677 crore, higher than Rs 4,316 crore on Monday. On NSE, the turnover was Rs 9,557 crore and was also much higher than Rs 8,308 on Monday.

Economic news

After the State Bank of India announced that it may have to raise $12 billion in the next three years to meet growing loan demands and meet capital requirements, the risk of holding debt of the lender advanced to a three-month high. SBI will use the money to expand its operation in the domestic and international markets. Credit-default swaps based on $10 million of the company's debt advanced 4% to $50,000 from $48,000 yesterday. Any rise in the price of debt indicates the investors’ increased skepticism of the capacity of the bank to repay its debt. The bank said that plans to raise $1.2 billion by the end of this year.

The risk for holding debt in another Indian bank ICICI bank also increased to a six-month high as the bank failed to secure an important government approval to sell a stake of its unit. Credit-default swaps based on $10 million of the company's debt advanced 3% to $70,000 today after surging 4.5% yesterday to almost $68,000.

Trading highlights

Time Technoplast was the most active stock with a turnover of Rs 201 crore followed by Indiabulls Financials and Indiabulls Real Estate.

Advancers

ONGC and Bharti Airtel surged 2% each to Rs 936 and Rs 850, respectively. ONGC reported a 13% decline in net profit to Rs 2,681.64 crore in the fourth-quarter of fiscal 2007 compared to a net profit of Rs 3,085.89 crore in the same period a year ago. Total income advanced nearly 10% to Rs 15,400 crore in fiscal 2007, compared to Rs 14,200 crore in the year ago period.

Bharti Airtel advance was on sustained buying after HSBC raised the price target of Bharti Airtel by 9%, and added that the company will continue to expand market share.

State run engineering large-cap BHEL gained 1.4% to Rs 1,471 as the company secured an order worth Rs 106 crore from Rashtriya Ispat Nigam. Grasim gained 1.4% each to Rs 2,496 and Tata Motors advanced over 1% to Rs 684. Satyam Computers was the only It large-cap which advanced rose 0.4% to Rs 456.

Decliners

Ranbaxy dropped 2.4% to Rs 348 as it was allegedly involved in a cartel of fixing drug prices. Profit taking weighed on cement stocks. Gujarat Ambuja Cements lost 1% to Rs 116 and ACC dipped 1.2% to Rs 846. IT stocks advanced on a weaker rupee until the last hour of trading when they declined. TCS was down 0.3% to Rs 1,122, Infosys Technologies sank 0.7% to Rs 1922, and Wipro lost 1.3% to Rs 509.