Subprime Drags NY; Asia and Europe Rise

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

U.S. averages closed lower with the Commerce Department reporting inflation and construction spending data. A measure of inflation in May rose at slower pace and construction spending grew on steady spending from commercial and government projects. Infosys is interested in purchasing Capgemini in Paris. Air Liquide gained on possible buyout offer from Linde in Germany. China expects 2007 economic growth to be fastest in ten years. Canada, India and Japan jump more than 1%. Oil above $70.

[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 5.03% and 30-year bond rose to close at 5.124%.

Crude oil advanced $1.11 to close at $70.68 per barrel, natural gas gained 12 cent to close at $6.77 per mBtu, and gasoline futures gained 2.75 cents to close at 229.42 cents per gallon.

Gold gained $0.50 to close at $650.90 per ounce, silver lost 3 cents to close at $12.47 per ounce, and copper futures gained $177 to close at $7,621 per metric ton.

In New York trading, stocks traded in a tight trading range with a negative bias ahead of July 4th holiday next week. Brokerage, homo builders and tech stocks showed weakness. Government reported several key economic indicators including measure of inflation and construction spending.

The Commerce Department reported May measure of core inflation, price index of personal consumption expenditure rose 1.9%, below Fed’s target rate of 2%. May month personal consumption rose at 0.5% and personal income increased at 0.4% from April. Construction spending jumped 0.9% driven by government and commercial construction. A day ago the Fed left the interest rates unchanged to 5.25% citing modest improvement in core inflation and steady economic growth in a unanimous decision. The Fed has left rate unchanged for nearly a year. Private survey of business activity in the Mid-west reported a decline in business activities.

Bear Stearns ((BSC)) forced out its chief of asset management group after suffering heavy losses in its mortgage bond funds. The decline of 3% in the stocks led Goldman Sachs ((GS)) down 1.3% and Lehman Brothers ((LEH)) lower 2%.

Commerce Bancorp ((CBH)) jumped 8.8% on the news that the company’s CEO Vernon W. Hill II has decided to step down after an agreement with regulators involving related party transaction between the bank and his family members.

Research In Motion ((RIMM)) jumped 21% after reporting solid increase in revenue and earnings and deciding to split stock 3 to 1. The company also reported its first quarterly revenue of $1 billion.

United Auto Workers members at Delphi Corp ratified 40% pay cut for job security and bonus by 68% to 32% in favor the contract. The bankrupt company, with this agreement in place, plans to emerge from bankruptcy with only 25% production sites and cheaper wages. Workers will now receive base wage of $16.23 per hour and 21 of its 29 plants will be closed.

Latin American markets closed higher led by 0.8% gain in Chile followed by 0.45% rise in Brazil and 0.2% advance in Mexico. Argentina fell 1.2%. Rising copper prices lifted Chilean peso. Spread between Latin American bonds and U.S. treasuries widened to a three months high.

In Mexico City trading, stocks gained a fraction on firmness in early morning trading in New York. Large companies faced a wave of sell-off on the worries that a presidential plan is likely to boost taxes for Cemex and Groupo Televisa. Cemex has financed its international acquisition on lower taxes than its competitors in Mexico. Cemex paid 14% taxes and its competitor Lafarge and Holcim have paid taxes between 25% and 32% of its profit. Cemex fell 1% in New York trading. American Movil and Telmex fell 1% but Homex and Grupo Televisa jumped 1.5%.

In Sao Paulo trading, stocks gained a fraction on weak trading. Petrobras led the gainers with a rise of 1% but banks and local sugar and ethanol companies fell. CVRD advanced a 1.3%. TAM and GOL Airlines fell nearly 3% on oil crossing $70 per barrel.

[R]1:00PM NY, 5:00 PM Frankfurt European markets gained ground on U.S. inflation data and bid tall.[/R]

European stock markets recovered from earlier weakness to close higher on Friday, helped by tame U.S. inflation data and bid talk. Shares of Capgemini advanced 1.1% in Paris, on speculation that India's Infosys Technologies Ltd. May launch a bid for the information-technology consulting firm. French industrial gasses group Air Liquide rose 3% on deal speculations, followed by its German peer Linde also gained ground, up 1.4%.

Among other notable gainers helping to boost sentiment, U.K. mortgage bank Northern Rock climbed 4.7%, continuing its recovery from the sharp losses posted earlier in the week. Shares of BT Group rose 1.1%. Of the companies moved by analyst comments, Swatch gained 2.4% after Deutsche Bank lifted its rating to buy from hold.

On the side of the losers, U.K. real-estate group Segro dropped 2% as HSBC downgraded the company to neutral from overweight. Share of U.K. coal-power firm Drax declined 2%. The German DAX 30 jumped 1.1% to stand at 8,007.32, the French CAC 40 rose 0.8% at 6,054.93, and the U.K.'s FTSE 100 added 0.6% at 6,607.90.


[R]11:30AM Market averages traded higher, supported by energy stocks.[/R]

U.S. stocks rallied on the last day of Q2, helped by well-received data which showed rises in consumer and construction spending. The Commerce Department said that construction spending in May climbed 0.9%, boosted by big government and commercial projects. Another report revealed that consumer spending rose by 0.5% for the second month in a row.

The market averages were also supported by significant strength among energy stocks, which benefited from oil prices above $70 a barrel. Shares of Exxon Mobil ((XOM)) advanced 1.4%. Tech shares stood out among the most notable gainers, led by Research In Motion ((RIMM)), up 20% on surging profit and revenue and Apple ((APPL)), rising 1.5% on the release of its iPhone.

Chemical, internet, and disk drive stocks also posted solid gains. In the disk drive sector Komag ((KOMG)) rose 8% after it agreed to be acquired by Western Digital ((WDC)) for $1 billion. At the same time, some weakness was visible in the brokerage sector, Merrill Lynch ((MER)) falling 1.5% and Lehman Brothers ((LEH)) losing 1.7%.

In mid-afternoon trading, the Dow Jones industrial average rose 56.09, or 0.42%, to 13,478.37. The Standard & Poor's 500 index gained 6.85, or 0.45%, to 1,512.56, and the Nasdaq composite index climbed 12.88, or 0.49%, to 2,621.25. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 5.08% from 5.11% late Thursday.


[R]Construction spending rose 0.9% in May.[/R]

The Department of Commerce released its report on construction spending in the month of May on Friday, showing that spending increased by much more than economists had been expecting. The report showed that construction spending rose 0.9 percent in May following an upwardly revised 0.2 percent increase in April. Economists had expected spending to increase by 0.2 percent compared to the 0.1 percent increase originally reported for the previous month. Despite the increase, however, construction spending for the month remained 2.8 percent below construction spending in the same month last year.

The growth in construction spending reflected increases in spending on both private construction and public construction. The report showed that private construction spending rose 0.5 percent in May, as an increase in spending on non-residential construction more than offset a drop in spending on residential construction. At the same time, spending on public construction surged up 2.2 percent in May amid an increase in spending on both educational construction and highway construction.


[R]9:45AM Market opened higher, boosted by Apple’s iPhone and RIM’s robust earnings.[/R]

U.S. stocks rallied at opening on Friday, reflecting end-of-quarter purchases, tame inflation data, as well as strength in the tech sector as Research in Motion posted robust quarterly earnings and Apple launched the iPhone. RIM ((RIMM)) jumped 17% after the Blackberry maker announced a 76% gain in revenue and a 73% rise in profit in Q1. Apple ((APPL)) added 1.2% in early trading.

Among other stocks in focus, Commerce Bancorp ((CBH)) climbed 10% after the company said it had settled two federal regulatory probes. On the side of the losers, shares of Palm ((PALM)) declined 4.3% after the maker of the Treo smart phone reported a 43% drop in quarterly profit.

The Dow Jones industrial average was up 49.83 points, or 0.37%, at 13,477.56. The blue-chip average was led higher by Alcoa ((AA)), up 2.8%, DuPont ((DD)), rising 1.6%, Exxon Mobil ((XOM)), up 1.5%, and AT&T ((T)), higher by 1.3%. The Standard & Poor's 500 Index was up 7.20 points, or 0.48%, at 1,513.54. The Nasdaq Composite Index was up 17.20 points, or 0.66%, at 2,622.55.

[R]Personal income and spending increased in May.[/R]

Friday morning, the Department of Commerce released its report on personal income and spending in the month of May. While income and spending both increased, the growth came in below economist estimates. The report showed that personal income rose 0.4 percent in May following a downwardly revised 0.2 percent decrease in April. Economists had been expecting income to increase by 0.6 percent compared to the 0.1 percent decrease originally reported for the previous month. The rebound in personal income came as private wage and salary disbursements increased by $24.9 billion in May compared to a decrease of $36.4 billion in April.

The Commerce Department also said that personal spending rose 0.5 percent in May, matching the increase that was seen in the previous month. The increase in spending came in below economist estimates of 0.7 percent growth. With the spending growth outpacing income growth, personal saving as a percentage of disposable personal income was a negative 1.4 percent in May compared with a negative 1.2 percent in April. The report also showed that core consumer prices, which exclude food and energy prices, edged up 0.1 percent in May after rising 0.1 percent in April. On an annual basis, the pace of core consumer price growth slowed to 1.9 percent from 2.0 percent.


[R]9:30AM The UK benchmark index is slightly down in spite of a strong opening.[/R]

The UK benchmark index is lower in mid-morning trading on Friday. The FTSE 100 was down 20.5 points at 6,551.0.

Advancers

BT Group was the leading advancer in the FTSE 100 stocks. The telecommunications group gained 1.3% as its chief executive said that analysts were too pessimistic about the prospects for revenue growth of the telecom provider. Falling sharply this week after a profit warning, lender Northern Rock, rallied 1.3% while oil stocks were also stronger. Royal Dutch Shell gained 1.2% and BP added 0.8%.

Down in the market, mid-cap Berkeley Group surged 1.1 per cen as the housebilder posted a 14% increase in annual profits. Another mid-cap, Sports Direct International, gained 1.6% after the retailer announced the $135 million purchase of Everlast, most famous for making boxing equipment.

Decliners

Real estate stocks kept their losing streak on worries about increasing interest rates and the US subprime mortgage market. Segro declined 4.2%, Hammerson shed 4% and Liberty International declined 2.8%.


[R]9:00AM Wall Street to open higher on tame inflation data[/R]

U.S. stock futures indicated a positive market opening on Friday following a report which showed the lowest inflation reading since March 2004. The Commerce Department said that core consumer prices rose 0.1% in May, coming in line with expectations. Among pre-market highlights, Research In Motion ((RIMM)) surged 20% after posting 73% earnings jump on strong BlackBerry sales.

Apple Inc. ((APPL)) added 1.2% on news that it is set to begin sales of its widely anticipated iPhone device. Commerce Bancorp ((CBH)) jumped 7% in electronic trade after the company said it had settled two federal regulatory probes. S&P 500 futures were up 2.3 points, above fair value. Dow Jones industrial average futures rose 5 points, and Nasdaq 100 futures were up 6.25 points


[R]8:30AM Research in Motion topped earnings and revenue forecast.[/R]

Research in Motion ((RIMM)) posted 73% net income profit jump of $223.2 million compared with $128.8 million last year. First-quarter earnings per share came in at $1.17, much higher than 67 cents the previous year. Quarterly results beat analyst expectations of $1.06 per share for the recent period.

Revenue for Q1 rose nearly 77%, coming in at $1.082 billion compared with $613.1 million last year. This also exceeded analyst estimates for revenue of $1.05 billion. The company contributed the robust quarterly earnings to strong BlackBerry sales. Company’s shares soared 19% in pre-market trading.


[R]8:15AM Asian markets finish mixed with Japan higher and China, HK lower.[/R]

Asian markets ended mixed on Friday. In Tokyo, the Nikkei 225 Average ended 1.2% higher at 18,138. Toshiba firmed up 3.9% and Takeda Pharmaceutical advanced 1.5% on strong sales guidance. In Hong Kong, the Hang Seng Index shed 0.8% to close at 21,772. HBSC declined 0.7%, and China Mobile was down 1.1%, leading the decliners. Oil stocks finished mixed despite higher oil prices, as Cnooc finished up 0.6%, but Sinopec lost 0.8% and PetroChina was off 0.9%.

In China, the benchmark Shanghai Composite Index dipped 2.4% to settle at 3,820. Insurance group Orient Group declined by the daily 10% limit, China Life Insurance lost 4% and Shanghai International Airport shed 4.3%. South Korean Kospi Index also declined 0.5% to 1,743. Hyundai Mipo Dockyard lost 2.7% and Daewoo Shipbuilding & Marine Engineering shed 4.6%. In Australia, the S&P/ASX 200 index advanced 0.2% to 6,274. Resource stocks advanced with Alumina rising 2.8%, BHP Billiton ending up 0.4%, and Rio Tinto advancing 0.4%.


[R]7:30AM NY-6:30PM Mumbai Sensex zooms 146 points on a large-cap rally.[/R]

The Sensex on BSE finished 145.94 points higher, or 1.01%, at 14,650.51, just 73 points away from its all-time intra-day high of 14,724.

The market-breadth was very strong as there were 1,484 stocks which advanced, 1,107 which declined and 90 which were unchanged. Of the 30 stocks in the Sensex, 22 advanced, while the rest declined. The turnover on BSE was Rs 4,817 crore, slightly lower than Rs 4,848 crore on Thursday. On NSE, the turnover was Rs 10,681 crore, much lower than Rs 12,193 crore on Thursday.

Economic news

The wholesale weekly inflation rate decreased to a 13-month low as prices of food and cereals dropped. Wholesale prices advanced 4.03% in the week ended June 16 from a year earlier, down from 4.28% in the previous week, beating analysts’ expectations for 4.13%.

The Indian rupee advanced 0.2% to 40.765 against the dollar in morning trading in Mumbai. It has risen 6.7% this quarter, the best performance among ten of the most traded Asian currencies. The rupee advance is according to investors due to the booming economy and strong market attracting a lot of investment from abroad.

Trading highlights

SBI was the most active stock with a turnover of Rs 154.80 crore followed by GMR Infrastructure and Reliance Industries.

Advancers

Reliance Energy zoomed nearly 6% to Rs 614. Reliance Energy’s subsidiary Rosa Power Supply, on June 26 2007 took out long-term loans of around Rs 2,000 crore for the first stage of its 600 MW power project. HDFC Bank soared nearly 5% to Rs 1,144. Other banking stocks also rose. ICICI bank rose 1.3% to Rs 955 and the State Bank of India, advanced 3.7% to Rs 1,523. SBI surged as reports circulate that the bank intends to launch a private equity fund with a corpus of $1 billion.

Cement shares surged for the second straight day. Cement large-cap ACC gained 3.9% to Rs 934 and Grasim was up 0.6% to Rs 2,638. Pharmaceutical stocks also gained with Cipla up 2.7% to Rs 208, and Ranbaxy Laboratories rising 2% to Rs 355. Capital goods stocks were in demand too. BHEL advanced 3.3% to Rs 1,538 and L&T gained nearly 2% to Rs 2,196. Index heavy Reliance Industries gained 0.5% to Rs 1,700.

Decliners

Hindalco plunged 5.2% to Rs 160. Auto large-cap Maruti Udyog lost 0.9% to Rs 743 while telecom services provider Bharti Airtel dipped 0.8% to Rs 836. Oil exploration large-cap ONGC also lost, down 0.5% to Rs 902 and Gujarat Ambuja Cements declined 0.4% to Rs 125.


[R]7:00AM European markets gain slightly on Friday, cautiously responding to Fed’s decision.[/R]

European markets edged higher on Friday. The German DAX 30 gained 0.2% at 7,937.86, the French CAC 40 rose 0.2% at 6,017.92 and the U.K. FTSE 100 slipped 0.1% at 6,567.30.

Advancers

BT Group advanced 1.7% as according to CEO Ben Verwaayen analysts are underestimating sales growth. U.K. builder Berkeley rose 2.3% after the adjusted profit of the company advanced a faster-than-forecast 12%. Forklift maker Linde rose 3.3% and Swatch was up 2.9% after Deutsche Bank hiked its rating to buy on favorable trends in the watch industry and on margin hopes.

Decliners

Segro tumbled 4% as HSBC cut the property company rating to neutral from overweight. U.K. coal power firm Drax dropped 2.8% after announcing results in line with expectations. Security Land shares slipped 0.8% and British Land fell 1.1%.

Commodities

Oil prices were steady below $70 a barrel Friday after jumping above that mark in the previous session the first time in ten months on concerns about gasoline supplies. Crude oil for August delivery gained 15 cents to $69.63 a barrel in electronic trading on the New York Mercantile Exchange. Gold opened Friday at a bid price of $647.90 a troy ounce, down from $648.80 late Thursday.

Currencies

The U.S. dollar was trading at 123.44 yen midafternoon, up from 123.18 yen late Thursday in New York. The euroo rose to $1.3456 from $1.3432. The British pound also climbed slightly to $2.0027.