Rate Worries in US, Europe; Asia Another Record

123jump.com Staff
05 Jul, 2007
New York City

U.S. averages closed mixed but tech stocks were in favor. Google, Cisco, Apple and Research in Motion advanced. Rising yields in the U.S. bond market lowered banks and brokerages. Bank of England raised rates but European Central Bank left rates unchaged. Shanghai fell 5% on the worries that $40 billion of IPOs in the second half may sap liquidity. DLF IPO in India, largest-ever, raised $2.2 billion. Crude oil climbed. Chile fell 1%, largest decline in a month, but still up 30% for the year.

[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 5.24%.

Crude oil advanced 40 cents to close at $71.81 per barrel, natural gas was closed down 14 cent to $6.61 per mBtu, and gasoline futures gained 1.99 cents to close at 228.43 cents per gallon.

Gold declined $4.80 to close at $650.60 per ounce, silver lost 10 cents to close at $12.58 per ounce, and copper futures gained $114 to close at $7,919 per metric ton.

In New York trading, S&P 500 closed up a fraction but Nasdaq gained 11.70 to close at 2,6556.65. Dow Jones lost 11.46 to 13,565. The tech stocks traded firmly higher led by advances in Cisco, Research in Motion, Apple, Oracle, and Google. Expectations for second quarter earnings have lifted positive sentiments for tech stocks. Bond yields rose after weekly job data showed that more people gained work than expected. Marriott International and Starwood Hotels & Resorts jumped 7% on takeover speculation. Oil recovered to close higher after weekly inventory data showed increase in supplies.

Latin Markets closed mixed on the worries that rate hikes in Europe and rising yields in New York will lower fund flows. Brazil led the region with a gain of 0.4% followed 0.07% loss in Mexico, 0.23% decline in Argentina, and 1% decrease in Chile. Copper prices in world markets gained on miners strike in Mexico and possible walkout in Peru and Chile next week. Copper prices have gained 6% in the last ten trading days. Chilean Index fell 1.4% before revering at the close, but fell the most in a month. The Ipsa index has gained nearly 30% for the year.

In Sao Paulo trading, iBovespa gained 235.87 or 0.4% to close at 55,932.34. rising energy and metal prices lifted by 1% stocks of Petrobras and CVRD. Banks closed lower. Banco Bradesco and Itau dropped a fraction. Utilities Copel and Cemig gained more than 1.5%. An agreement between the union and management with seniority based pay hike will avoid five-day strike at Petrobras. Brasil Telecom gained 2.5% on the news that pension funds and Citigroup division have teamed to bid for the telecom company. Sadia gained on a UBS recommendation.

In Mexico City trading, IPC index lost 64.78 or 0.2% to 32,136.85. Rising yields in emerging markets left investors nervous. Pemex reported two natural gas pipeline explosions in the state of Guanajato damaging gasoline pipelines in the neighborhood and requiring an evacuation of 4,100 people. Telmex jumped 3% and American Movil gained 2% in the session. Homex jumped 1.6% after declining for a week. Wal-Mart de Mexico fell 1.1%, first decline in seven days.

Asian Markets closed higher for the fifth day in a row, leading several markets to record close. Shanghai bucked the trend and fell 5.3%.

Hong Kong, South Korea, Indonesia, and Philippines closed at record level. Taiwan reached a new 10-year record and India closed near record level. Philippines led the region with a rise of 1.9% followed by 1.1% gain in Indonesia, and 0.9% rise in Australia and Taiwan. Shanghai fell 5.5% on the worries that $40 billion of IPOs in the coming months will drain liquidity from the market.

In Shanghai trading, CSI 300 Index fell 5.5% to 3,537.44 on the worries related to IPO volume in the second half. Several banks and energy companies trading in Hong Kong have announced plans to raise $20 billion on mainland in the last month and nearly $40 billion is expected to be raised in the second half of this year. Aluminum Company of China, Chalco fell daily limit of 10%, China Petroleum also known as Sinopec fell 7%, and Baoshan Iron & Steel dropped 6%. The CSI Index is trading at 40 times previous earnings.

In Mumbai trading, Sensex Index closed 0.1% lower to 14,861.69. Banks and autos rallied but cement and realty stocks sold-off. DLF, largest-ever IPO in India raised $2.2 billion. The stocks priced at 525 rupees closed up 8.5% to 572 rupees. Other properties stocks sold off, investors allocated funds to the largest realty company. Cement stocks declined after rallying for two days. Tata Motors and TVS Motors gained despite falling June sales. ICICI Bank gained 1.8% on the news that the company will be able to sell 24% in its financial services subsidiary. Toyota Motors plans to increase its production capacity ten fold by the year 2015 in India to 600,000 units.

In Tokyo trading, Nikkei 225 Index gained 52.76 or 0.3% to 18,221 after climbing as high as 0.7%. The weak yen helped exporters for the fifth trading session in a row. One dollar fetched 122.70 yen lifting Sony 2.4%, Komatsu 1.6%, and Honda Motor 0.7%. In the second quarter yen has lost nearly 5% against dollar, pound, and euro. Ratings revision lifted Toho Co, film studio, by 7% and Seven & I, largest retailer, 2.6%. After the close the company reported sales gain of 9.4% and profit of 1.2%. Shopping centers operator, Aeon Mall gained 2.5% on first quarter profit rise of 6.7%.

European Markets closed lower as rate hike worries gripped traders. Bank of England raised 25 basis points to 5.75% and European Central Bank left the rates unchanged at 4% but indicated that rates may increase in the future. A decline if 1.1% in Germany led the region followed by 0.8% loss in Switzerland and Italy, 0.6% decrease in France, UK and Spain.

[R]1:00PM NY, 5:00 PM Frankfurt European markets lost ground amid weakness in utility and telecom sectors.[/R]

European stock markets finished in the red on Thursday, pressured by rate concerns and weakness in the shares of utilities and phone companies. Among regional benchmarks, the German DAX slipped 1.1% at 7,987.13, the French CAC-40 lost 0.6% at 6,059.53, and the U.K.'s FTSE 100 declined 0.6% at 6,635.20.

The Bank of England raised its key rate by a quarter of a percentage point, to 5.75%, in line with expectations. European Central Bank left rates unchanged, but its president gave clues that the bank may raise rates later this year. Rate-sensitive insurance and financial-services companies led decliners, along with telecoms.

In Frankfurt insurance giant Allianz fell 1.8%, while Dutch property firm Rodamco Europe dropped 2.4%. E.ON AG, the world's largest utility by sales dropped 2.4%, followed by Spanish Iberdrola, down 2.3%.

In Paris supermarket group Carrefour rose 2.8% on Merril Lynch’s upgrade. Meanwhile, shares of Schneider Electric declined 2.3% after J.P. Morgan downgraded its stock, citing a new model that cuts earnings-per-share estimates for the electricity control maker. Among other movers, French automaker Renault dropped 2.4%, as company’s sales in the first six months of 2007 slipped 3.8%. Shares of Airbus parent European Aeronautic Defence & Space Co edged 0.2% higher.

In London mobile-phone giant Vodafone fell 2.4% amid press reports that it isn't in line to supply the iPhone in Europe. BT Group Plc, the U.K.'s largest phone company, dropped 2.4%. Royal Dutch Shell Plc and BP Plc dropped as crude oil declined. Oil giant Shell fell 1%, followed by BP which lost 0.9%. On the side of the gainers, miner BHP Billiton Ltd gained 1.7% and Xstrata, copper producer, added 2%. Among brokers, British banking giant Lloyds TSB added 1.2% after Citigroup Inc. raised its recommendation for the stock


[R]11:30AM Market averages traded mixed on rate worries. GM lost 3.4% on weak sales.[/R]

U.S. market averages traded mixed, as renewed concerns over rising bond yields offset the positive sentiment generated by new takeover activity and strength in the U.S. service sector. Hilton Hotels ((HLT)) surged 26% and Huntsman ((HUN)) jumped 12%. The ISM''''s index of service sector activity in June rose to 60.7%, indicating that non-manufacturing industries expanded faster than expected.

In world news, Bank Austria announced on Thursday that it signed an agreement to buy 95% of Ukrainian bank Ukrsotsbank from an investor group represented by Interpipe Group for about $2.2 billion. UniCredit Group’s subsidiaries HVB Ukraine and UniCredit Bank represent the bank in Ukraine, where Bank Austria will strengthen its presence even more through the acquisition deal. The transaction is expected to close by the end of 2007 and will be financed from Bank Austria''s cash resources.

By sector, oil service, broker/dealers and banks declined, while real estate investment trusts, telecoms and computer technology advanced. In late morning trading, the Dow fell 23.33, or 0.17%, to 13,553.97. Dow member General Motors ((GM)) fell 3.4% after it was downgraded by a Bear Stearns after the automaker posted a 21.3% drop in June sales.

The Standard & Poor's 500 index was down 1.46, or 0.10%, at 1,523.41, and the Nasdaq composite index rose 1.55, or 0.06%, to 2,646.50. The tech-heavy Nasdaq was boosted in part by Apple ((AAPL)), up 2.7%.


[R]The ISM’s non-manufacturing index gained 60.7%.[/R]

The Institute for Supply Management released its report on business activity in the service sector in the month of June on Thursday, showing that the pace of growth in the sector unexpectedly accelerated compared to the previous month. The report showed that the index of activity in the sector rose to 60.7 in June from 59.7 in May, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to slip to a reading of 58.0. The unexpected acceleration in the pace of growth came in spite of a modest slowdown in the pace of new orders growth, as the new orders index edged down to 56.9 in June from 57.4 in the previous month.

At the same time, the report showed a slightly faster rate of employment expansion, with the employment index rising to 55.0 in June from 54.9 in May. The report also showed a slowdown in the pace of price growth, as the prices index fell to 65.5 in June from 66.4 in May. Earlier this week, the ISM said that its index of activity in the manufacturing sector rose to 56.0 in June from 55.0 in May. The increase came as a surprise to economists, who had been expecting the index to come in unchanged at 55.0. With the increase, the index indicated the fastest pace of manufacturing sector growth since April of 2006, when the index came in at 56.9.


[R]9:45AM Market opened lower, as oil topped $72 a barrel and bond yields rose.[/R]

U.S. stock markets reopened lower on Thursday after the Independence Day holiday, hurt by surging crude oil prices and rising bond yields. Oil prices hovered near $72 a barrel ahead of weekly petroleum report. Investors also digested the interest rate hike by The Bank of England to 5.75%, which exerted pressure on the dollar. Stocks failed to sustain the positive pre-market mood, despite 27% rise in the shares of Hilton Hotels ((HLT)) after Blackstone Group''s ((BX)) $26 billion acquisition offer.

After market close on Tuesday, Blackstone said it will buy the hotel chain for $47.50 a share, which represents a 40% premium over Monday's closing price. The news suggested there will be more merger deals in the sector. Marriott International Inc. ((MAR)) gained 6% and Starwood Hotels & Resorts Worldwide Inc. ((HOT)) rose 8% amid speculations that they are possible takeover candidates.

In other deal news, chemicals group Huntsman ((HUN)) advanced 12% after it received a $6 billion offer from a private-equity firm that trumps last week's bid from Dutch group Basell. Coca-Cola Co. ((KO)) is reportedly looking into buying Cadbury Schweppes PLC's Snapple iced tea brand or building its own tea brand.

On the economic news front, two reports suggested a healthy labor market. The ADP employment report, a measure of jobs creation in the private sector, said 150,000 new non-government jobs were created in June, while the Labor Department said that initial claims rose by 2,000 in the latest week to 318,000.

In early trading, the Dow fell 45.20, or 0.33%, to 13,532.10. General Motors ((GM)) pushed the blue average down, as its shares slipped 4.5%. The stock was downgraded by a Bear Stearns after the automaker posted a 21.3% drop in June sales compared to last year. The Standard & Poor's 500 index was off 1.28, or 0.08%, at 1,523.59, and the Nasdaq composite index fell 0.85, or 0.03%, to 2,644.10.


[R]8:00AM Huntsman Corp. received a $6.1 billion offer from Apollo Management.[/R]

Huntsman Corp. ((HUN)), U.S. chemicals group, announced that it received an acquisition bid worth $6.1 billion from private-equity firm Apollo Management. The offer exceeds a previously agreed deal with Dutch group Basell. Apollo division Hexion Specialty Chemicals offered $27.25 a share in cash for Huntsman, representing an 8% premium to an offer of $25.25 a share, or $5.6 billion, from Basell.

In June, Huntsman agreed to the deal with privately owned Dutch group Basell. Including assumed debt, the Basell offer was worth around $9.6 billion. The deal can be terminated provided a better offer is received. If the deal with Basell is terminated, the Dutch group will be entitled to a $200 million break-up fee.

Under the terms of the agreement, Huntsman would receive a $325 million fee if Hexion failed to get regulatory approval or secure financing for the deal. Similarly, Huntsman would have to pay a $225 million fee to Hexion if it terminated the deal.


[R]6:30PM Mumbai, 8:00AM New York – DLF priced largest IPO in India and closed up 8.5% on its first day of trading.[/R]

The BSE 30-stock Sensex Index declined 18.35 or 0.1% to 14,861.69. The index had opened higher and quickly gained 70 points but faced selling in the afternoon trading in the face of 5.5% decline in Shanghai. Nifty index declined 5.35 to close 4,353.95. Of the 30 stocks in the Sensex 12 gained and 18 declined. Broader market declined with 1,656 stocks declining, 997 advancing, and 71 remaining unchanged.

DLF Ltd, IFCI, and Reliance Natural Resources topped the most active list.

IPO News

DLF Ltd priced 17.5 crore (175 million) share issue at Rs 525 per share. The issue was oversubscribed by 3.5 times and Kushal Pal Singh and his family will control 88.3% of the listed company. Institutions will hold 6% and the rest will be held by retail investors. The issue opened at Rs 582 and traded as high as 714 before settling at close to 570.05, up 8.6% from the listing price. The largest IPO offering raised $2.2 billion or Rs 9,200 crore valuing its current year earnings at 29 times, at high end of the range in the industry.

Other property stocks fell as most investors adjusted their holding to make room for DLF, led by a decline of 5.2% in Unitech, 4.7% in Ansal Properties, 4.4% in Parsvnath, and 4.2% in Sobha Properties. Other smaller companies in the sector declined as well.

Gaines of the Day

Top gainer in the Sensex, ICICI Bank closed up 1.8% to Rs 1,003 on the news that the bank has received government approval to sell 24% stake in its financial services subsidiary. Other banks in the sector also participated in the rally. UTI Bank gained 2% to Rs 630, Union Bank edged up 0.4% to Rs 130, and Indian Bank surged 6.9% to Rs 140.

Britannia Industries surged 5% to Rs 1,703. Danone, The French partner of Wadia Group, agreed to sell its biscuit and cereal global business to Kraft Foods excluding its business in India and Latin America.

Larsen & Toubro rose 1.4% to Rs 2,325 after the company said that it plans to form five new companies in power projects, shipbuilding, boiler and boiler and turbines, and water purification.

BHEL gained for the second day in a row. The heavy engineering company has a order backlog of three years. The stock gained 1.3% to Rs 1,565.

Auto stocks rallied for the third day in a row. Tata Motors reported 2% decline in unit sales to 44,317 in June. The stocks increased 1.5% to Rs 708. Hero Honda edged up 0.4% to Rs688. TVS Motors jumped 3.4% to Rs 60 on June sales decline of 15% to 1,07,117.

Decliners of the Day

Among Sensex stocks Reliance Energy led the decliners with a loss of 3.25% to Rs 591. Ranbaxy lost 2.3% to Rs 359, HDFC Bank fell 2% to Rs 1,941, and Hindalco fell 1.3% to Rs 154. Reliance industries lost 0.3% to Rs 1,680.

Cement stocks fell after rallying for two days. UltraTech fell 5% to Rs 899, Ambuja Cements lost 1% to Rs 128, and ACC closed a fraction lower.

Arvind Mills fell 4.7% after National Stock Exchange banned additional derivative contract in the stock.

Firm but elevated trading in rupee against dollar left software exporters lower. Infosys, Tata Consultancy, Wipro and Satyam declined nearly 1%.