Banks Lead FTSE Lower

Ivaylo
11 Jul, 2007
New York City

London fell sharply Wednesday, tracking heavy losses on Wall Street overnight as concern over U.S. mortgage market weighs heavily. Higher oil prices further eroded sentiment in oil companies. HSBC and HBOS led the decliners, while BskyB brought in some respite surging on strong customer growth. The benchmark index FSTE 100 lost 25 points or 0.4% to 6,603.2 by mid-day.

[R]9:30AM London equities fall sharply with banks, properties and oil stocks leading the decline.[/R]

In London, concern about U.S. housing market and subprime mortgage rates hurt sentiment. Two of the biggest banks, HSBC, the biggest bank in terms of market capitalization and HBOS, the biggest lender in the U.K. fell sharply as investors fear that the slowing U.S. housing demand may erode economic growth. Oil companies Royal Dutch Shell and BP also dipped on downgrades by Goldman, Sachs & Co and on weaker oil prices.

Economic news

Prime Minister Gordon Brown announced today that the government is considering introducing covered bonds to boost mortgage lenders to offer more 25-year fixed-rate loans, which is part of the premier’s legislative program for the next year.

Advancers of the Day

BSkyB advanced 5.4% after the broadcaster announced it had added 90,000 net new customers in the three months to June 30, 17 per cent higher than the same period a year earlier.

UK leisure group Whitbread gained 5.5% on speculation that US property investor Starwood Capital Group is ready to launch an offer for the company.

AstraZeneca gained 2.5% as Morgan Stanley upped the company on Tuesday from equal-weight to overweight.

Decliners of the Day

HSBC, the largest bank by market value in Europe, dipped 1%, while HBOS, the biggest mortgage bank in the U.K., declined also 1%.

Oil stocks also declined after Goldman Sachs reduced its rating on several of the large-caps in the sector. Royal Dutch Shell shed 1.5% after a downgrade from neutral to sell while BP, which was cut from buy to neutral, lost 0.8%.

Property stocks were also hit as Hammerson lost 1.7% and Liberty International was lower by 1.5%. Land Securities Group declined 1.7%.

[R]8:30AM Asia declines with Japanese stocks lower on concern over U.S. housing market, while China rises on properties.[/R]

In Tokyo, the market fell as investors preferred the safety of government bonds, worried by a possible slowing in the U.S. economy growth in the light of the problems U.S. housing market is experiencing. Japan''s 10-year bonds advanced the most since September. The benchmark Nikkei 225 Average Index ended 1.1% lower at 18,050. The strengthening of the yen against the dollars affected the exporters as well. Auto maker led the decliners, with Toyota shedding 1.7% and Honda sinking 1.3%.

In Hong Kong, the market broke its six-day winning streak and declined. The Hang Seng Index lost 1.2% to end at 22,607. Large-caps China Mobile and HSBC led the declines. HSBC shed 1.5% on worries about the exposure of the bank to worsening problems in the U.S. subprime mortgage market. China Mobile slipped 0.7%.

Seoul also finished lower. The Kospi Index lost 0.2% to 1,890 as strong utility stocks could not erased losses in banks and brokerage stocks. The latter finished sharply lower as news that the government intends to lower sales commission fees of equity mutual funds in the near future. Samsung Securities declined 2.1% and Korea Exchange Bank fell 1.4%. Utility stocks outperformed the other shares on the market and gained as investors thought they were underestimated earlier. Korea Electric Power gained 2.1% and Korea Gas rose 2.4%.

In China, the Shanghai Composite Index rallied 0.3% to end at 3,866, bucking as usual the overall trend with the other major indexes. Expectations rode high with investors that the strong yan would boost property stocks. China Vanke''s Class A shares ended 3.3% higher, Financial Street Holding gained 1.8% and China Enterprise surged 3.9%.

Sydney lost as declining base metals prices hurt mining stocks. The benchmark S&P/ASX 200 shed 0.6% to 6,325 with miners BHP Billiton dropping 1.7%, while Rio Tinto dipped 0.7% and nickel and zinc mining stocks also declined on weakness in those two metals.

[R]7:30AM NY – 6:30 PM Mumbai Sensex sheds 99 points after Infosys tumbles.[/R]

The Sensex on BSE finished 99.26 points lower, or 0.66%, at 14,910.62.

The Sensex opened with a negative bias of 62 points at 14,948. The index plunged to a low of 14,830, down 180 points from the previous close in early deals. Then on strong performance of metal stocks the index bounced back into positive zone, touching an intra-day high of 15,015 in morning deals. Then it got lackluster on weak IT stocks.

Apart from the IT sector, auto and banking stocks also suffered profit taking and declined. However, cement, metal and offshore oil services firms advanced.

The market-breadth was strong, though. Out of 2,694 stocks traded on the market, 1,444 stocks advanced, 1,183 declined, and 67 were unchanged. Of the 30 stocks in the Sensex, 12 advanced, 17 declined and one remained unchanged. The turnover on BSE was Rs 5,473 crore, higher than Rs 5,111 crore on Tuesday. On NSE, the turnover was Rs 11,183 crore, compared to Rs 10,720 crore on Tuesday.

Economic news

The rise of the rupee may be stopped as there are speculations that the Reserve Bank of India may intervene and sell the currency to protect exports. The rupee is the second-best performing Asian currency this year as foreign funds accelerate their purchases of local shares in view of the fast growing economy. The rupee has increased 9.5% in 2007.

Infosys

Infosys Technologies Ltd., the second-largest computer-services provider in India, reduced its profit and sales guidance after a stronger rupee affected the value of earnings from the U.S., its largest market. The company revised upwards its earnings forecasts in dollar terms to a growth of 28.4% to 29.7% lower than the earlier guidance of 25.7% to 27.7% growth. In rupee terms, the company revised its guidance downwards in the range of 15.6% to 16.8% lower than the earlier guidance in the range of 20% to 22% growth. It has also cut the revenue guidance in rupee terms in the range of 16.9% to 18.3%, from the earlier guidance of a growth of 22.6% to 24.6%.

Trading highlights

Infosys was also the most active stock with a turnover of Rs 299 crore followed by DLF and Roman Tarmat.

Advancers of the Day

Grasim surged 3.4% to Rs 2,819 and Tata Steel also rallied 3.4% to Rs 655. Reportedly, steel consumption will grow 16% per year until 2012, or twice as fast as in the past five years, powered by strong demand for construction projects worth $1 trillion.

Hopes for strong earnings results drove cement stocks higher. ACC soared over 3% to Rs 1,069, UltraTech Cement Company was up 1.60% to Rs 897 and Birla Corporation gained 4.3% to Rs 286.

Reliance Energy rose 2% to Rs 626 and Hindustan Unilever rallied 2% to Rs 202.

Decliners of the Day

Infosys led the decliners, plunging 4.5% to Rs 1,930. All It stocks declined with four of the top five decliners were from the IT sector. Satyam and TCS lost 3.3% each to Rs 481 and Rs 1,147, respectively. Wipro dipped 2% to Rs 510.

Ambuja Cements bucked the trend with the cement stocks and lost nearly 2% to Rs 128. Tata Motors sank 1.7% to Rs 732, and Ranbaxy slipped 1.5% to Rs 357.

ICICI Bank was down 1% to Rs 954 and Mahindra & Mahindra also lost 1% to Rs 781.

[R]6:30AM European markets decline on financial services stocks and exporters.[/R]

European markets were sharply lower Wednesday. The German DAX 30 index slipped 1.4% at 7.858.22, the French CAC-40 index lost 1.1% at 5,955.39 and the U.K. FTSE 100 index declined 0.6% at 6,590.30. National benchmarks declined in all 17 western European markets that were open except Denmark.

Banks fell sharply across the region as investors around the region are worried about the losses in the U.S. mortgage market. Exporters suffer as well as the dollar slid to its lowest level against the euro and the other major currencies.

In London, HSBC Holdings and HBOS led the decliners on concern losses in subprime mortgages in the U.S. will hamper economic and earnings growth. Royal Dutch Shell and BP dropped after Goldman, Sachs & Co. downgraded the shares and crude oil retreated. Among the gainers were BskyB, AstraZeneca and BG Group.

In Frankfurt, industrial group Siemens weighed on the market as the slump in the dollar affected the company which derives 20% of its sales from exports in the U.S. BMW also dipped.

In Paris, Michelin & Cie., Alcatel-Lucent and Alstom SA declined.

Advancers of the Day

BskyB rose 2.2% after the satellite television firm announced that it has added a record number of new customers in the three months to June 30 of 349,000, up 20% from last year.

AstraZeneca gained 1.8% after an upgrade from Morgan Stanley to overweight from a previous rating of equal-weight.

Goldman Sachs upgraded gas explorer BG Group to buy from sell. BG shares rose 1.2%.

Decliners of the Day

Swiss bank UBS lost 1.6%, while Credit Suisse Group, Switzerland second-largest bank, declined 1.3%

Siemens, the largest engineering company in Europe, fell 1.4%. The company derives about 20% of its revenue in the U.S. BMW, the largest maker of luxury cars in the world, lost 1.3%.

Supermarket chain Carrefour outperformed the French market, trading down just 0.4% after it posted second-quarter sales growth of 5.9% to 22.64 billion euros after strong growth in Spain, Greece, Poland and Romania.

Royal Dutch Shell shares lost 1%.

Currencies

The U.S. dollar sank further against the euro Wednesday, as the euro reached $1.3784 overnight before settling back to $1.3740 in morning European trading. The British pound, bought $2.0279 Wednesday, slightly above the $2.0267 it bought late Tuesday. The dollar fell to 121.45 yen from 122.03 yen.

[R]5:30AM Gold advances modestly Wednesday, while copper falls, oil surges.[/R]

The most-active gold for August delivery on the COMEX division of the New York Mercantile Exchange ended up $1.90 at $664.40 an ounce, touching a one-month peak of $667.00, which marked the highest level since June 7. Silver also rallied with a 15.5-cent advance to settle at $12.975 an ounce.

Copper dropped despite diminishing inventories, while steel-coating metals nickel and zinc plummeted on the London Metal Exchange. In New York, copper futures shed 1.95 cents to close at $3.61 a pound on the Nymex.

Crude oil for August delivery added 62 cents a barrel to settle at $72.81 on reports of refinery problems and, as a result, raising prices for refined products. Gasoline futures also rose 2.48 cents to end at $2.3694 a gallon, while natural gas and heating oil prices climbed too.

November soybeans rallied 18.4 cents to end at $9.204 a bushel, while wheat advanced 2.2 cents to close at $6.016 a bushel. December corn gained 6.6 cents to close at $3.57 a bushel.