Alcoa Withdraws Alcan Bid

Elena
13 Jul, 2007
New York City

Wall Street started trading below the flat line Friday, reflecting profit taking after the record rally Thursday and a bigger-than-expected drop in monthly retail sales. General Electric failed to offset the negative sentiment. Dow component rose 2.8% after it announced it will exit its U.S. subprime mortgage business and lifted its buyback program to $14 billion. Among blue-chips Alcoa rose 2.6% after the aluminum giant withdrew its bid for Alcan, following a higher bid from Rio Tinto.

[R]9:45AM Wall Street opened lower, hurt by profit taking and weak economic data.[/R]

Wall Street started trading below the flat line Friday, reflecting profit taking after the record rally Thursday and a bigger-than-expected drop in monthly retail sales. General Electric ((GE)) failed to offset the negative sentiment. Dow component rose 2.8% after it announced it will exit its U.S. subprime mortgage business and lifted its buyback program to $14 billion. Among blue-chips, Alcoa ((AA)) rose 2.6% after the aluminum giant withdrew its bid for Alcan ((AL)), following a higher bid from Rio Tinto ((RTP)).

The dollar hit a new low vs. the euro of $1.3811, following the release of weak retail sales numbers. In early trading, the Dow Jones industrial average slipped 4.23, or 0.03%, to 13,857.50 but managed to reach a new trading high of 13,871.48 in the opening minutes of the session. The Standard & Poor's 500 index fell 1.01, or 0.07%, to 1,546.69, and the Nasdaq composite index fell 4.23, or 0.16%, to 2,697.50.

[R]Retail sales dropped 0.9% in June.[/R]
Friday morning, the Department of Commerce released its closely watched report on retail sales in the month of June, showing that sales saw a notable decline during the month after surging higher in the previous month. The report showed that retail sales fell 0.9 percent in June following an upwardly revised 1.5 percent increase in May. Economists had been expecting sales to come in unchanged compared to the 1.4 percent increase originally reported for the previous month. The drop in retail sales, which marked the biggest decline since August of 2005, was partly due to a notable decrease in sales by motor vehicle and parts dealers, which fell 2.9 percent in June after rising 1.1 percent in May.

Excluding the decrease in auto sales, retail sales fell by a more modest 0.4 percent compared to a 1.6 percent increase in the previous month. The decrease still came as a surprise to economists, who had expected ex-auto sales to edge up 0.2 percent. Notable decreases in sales by furniture and home furnishings stores and building material and garden supplies dealers also contributed to the drop in retail sales. Additionally, the report showed that sales by gas stations fell 1.1 percent in June after surging up 4.1 percent in May. Gas station sales have been trending higher recently amid higher gas prices. With the decrease in sales in June, the annual rate of retail sales growth slowed to 3.8 percent from 5.0 percent in the previous month.


[R]9:30AM London is higher by mid-day Friday as financial stocks surge.[/R]

By mid-day in London, the FTSE 100 was up 17 points, or 0.3%, to 6,714.9.

Financials made gains as the US credit market showed signs of stabilising. Hedge fund group Man is soaring after the upbeat trading statement yesterday with little impact from the sub-prime problems in the US. Quintain Estates & Development also surged after bid interest from HBOS, while miners retreated after recent gains.

Advancers of the Day

Man Group is up 2 per cent after strong first-quarter trading update released on Thursday and healthy full-year outlook. Other financials were also higher as Standard Chartered was up 2 per cent and Alliance & Leicester added 2.1 per cent, while Prudential rose 1.9 per cent.

Barclays advanced 0.7 per cent after a Dutch court cleared the sale of LaSalle Bank of ABN Amro, its US banking operation, to Bank of America.

Quintain Estates & Development put on 4.4 per cent after HBOS agreed to acquire a 12 per cent stake in the property developer.

Decliners of the Day

Rio Tinto retreated from gains and declined 0.3 per cent after Alcoa last night withdrew its offer for Alcan, paving the way for Rio to agree a $44bn deal.

Other mining stocks also declined following their recent rally. BHP Billiton dipped 0.5 per cent, Lonmin was down 0.6 per cent, while Antofagasta shed 1.1 per cent.

Away from the benchmark index, FTSE 100, Magners cider group C&C plummeted after it cut its full year profit targets, citing weaker than expected growth in cider sales in the UK. The company tumbled 16.3%.


[R]9:00AM Higher import prices, weak retail sales weighed on pre-market moods.[/R]

U.S. stock futures pointed modestly higher Friday, as data which showed a sharper-than-expected drop in retail sales and higher import prices offset gains in the shares of General Electric ((GE)). The Dow member posted earnings in line with expectations and said it plans to exit the U.S. subprime mortgage business. It also raised its 2007 share-buyback program to $14 billion.

On the economic news front, June retail sales fell 0.9%, the largest decline since August 2005. Import prices rose 1% in June on a 4.7% gain in the price of imported petroleum.

Other companies in focus included Bank of America ((BAC)) after a Dutch court ruled that ABN Amro ((ABN)) can proceed with the sale of its LaSalle division to the U.S. banking giant. Aluminum giant Alcoa ((AA)) withdrew its bid for Alcan ((AL)) after Rio Tinto offered a higher bid yesterday.

In other corporate news, Amgen ((AMGN)) said its board of directors authorized an additional share buyback of up to $5 billion. S&P 500 futures rose 0.50 points at 1,556.20, while Nasdaq 100 futures rose 1.50 points at 2,036.25. Dow industrials futures added 10 point.


[R]8:30AM Asia rallies with HK, South Korea leading the gainers, Japan advances on exporters.[/R]

Asian markets advanced on Friday.

In Tokyo, the Nikkei 225 average gained 1.4% to 18,238. The market advanced after better-than-anticipated sales by U.S. retailers alleviated fears that a housing decline will hurt consumer spending in the U.S., the main export market for Japan. Canon, the world largest digital camera maker, advanced 1.7% and Honda, second-biggest automaker in Japan, jumped 2.5%. Nintendo Co., the biggest maker of hand-held game players in the world, advanced 1.1% in Osaka. Sharp, the biggest maker of liquid-crystal display televisions in Japan, advanced 1.3%.

In Seoul, the Kospi benchmark rallied 2.8% to 1,962. Samsung, the largest maker of chips and mobile phones in Asia, surged 6.4%, the biggest increase since January 2004. Samsung released its quarterly figures today. Net income for the current quarter fell 5% to $1.6 billion. Posco, the fourth-biggest steelmaker, rallied 9.8%, the most since February 2002.

In Australia, the S&P/ASX 200 index gained 0.4%, to 6,389. BHP, the world biggest mining company, gained 1.1%, a record high. Alumina, a partner with Alcoa Inc. in a venture with a quarter of the world alumina production capacity, gained 1.8%. Alumina was upped to neutral from reduce by UBS in Sydney. Rio Tinto fell 2.5%.

In Hong Kong, China Mobile, led the rally, climbing 3.3% in Hong Kong. Ping An Insurance, China second-biggest insurer, gained 3.8%.

In India, the Sensex on BSE, climbed nearly 181 points, or 1.2% to 15,272.72. Metals staged a strong rally with Hindalco soaring 6% and Tata Steel surging 3.4%. Other gainers included Reliance Industries, which gained 3% and Tata Motors which rose 3.8%.


[R]8:00AM General Electric Q2 profit rose. It said it will quit the U.S. mortgage business.[/R]

General Electric ((GE)) said its Q2 net income rose $5.4 billion, or 53 cents a share, up from $4.9 billion, or 48 cents, a year earlier. Company’s revenue rose 12% to $42.3 billion vs. $37.7 billion a year earlier.

Excluding discontinued operations, earnings climbed 13% to 52 cents, up from last year''s 46 cents a share, meeting expectations of earnings of 52 cents a share on revenue of $41.7 billion. Quarterly profit was boosted led higher by its oil and gas, aviation, energy and commercial finance businesses.

General Electric announced Friday it will quit the U.S. mortgage business and sell off its existing loans. CEO Immelt said that they had sold $3.7 billion of WMC loans in the quarter. GE Money had strong growth in revenues and assets and increased its profit by 8%, despite losses in its WMC mortgage business.
GE said it will increase its 2007 share buyback program to $14 billion. The remaining $12 billion will be allocated during the second half of the year.


[R]7:30AM NY – 6:30 PM Mumbai Sensex spurts 181 points led by rally in metal stocks.[/R]

The Sensex on BSE finished 180.68 points higher Friday, or 1.20%, at 15,272.72.

The benchmark index opened 125 points higher on strong back of surge in New York trading and reached an intra-day record high of 15,331. The market-breadth turned negative in the afternoon session with small and mid-cap stocks came under strong selling pressure. As 1,154 stocks advanced, 1,529 declined and 54 were unchanged. Of the 30 stocks in the Sensex, 22 advanced, while the rest declined. The turnover on BSE was Rs 6,714 crore compared with Rs 6,113 crore on Thursday. On NSE, the turnover was Rs 14,883 crore, higher than Rs 12,882 crore on Thursday.

Economic news

The weekly wholesale price index in India rose in the last week of June to 4.27% from a year ago, higher than 4.13% in the previous week and above analysts’ expectations of 4.10%, as prices of cereals, pulses and other food products increased. However, it was lower in comparison with the same time last year, which was 5.21%.

The Governor of the Reserve Bank of India Yaga Venugopal Reddy will announce the new interest rates in his next monetary policy statement on July 31. The bank has hiked the key repurchase rate, or the overnight lending rate, six times in the past 18 months.

Trading highlights

GMR Infrastructure was the most active stock with a turnover of Rs 396.60 crore followed by India Infoline and Reliance Industries.

Advancers of the Day

Metal stocks led today’s rally. Hindalco soared 6% to Rs 174 on hopes of consolidation in the global aluminum industry after Rio Tinto launched today, 13 July 2007, a $38.1-billion offer to buy Canada''s Alcan Inc. SAIL, steel maker, surged 10.5% to Rs 160, Hindustan Zinc soaring 8% to Rs 798 and Sterlite Industries up 3.5% to Rs 665. Tata Steel also surged 3.4% to Rs 695.

Index heavy Reliance Industries advanced nearly 3% to Rs 1,769. Reportedly, the government has appointed a group of ministers to analyze all aspects from production to pricing of gas to be produced from newer areas, particularly in the deep sea.

Cement stocks gained on renewed buying after cement sales rose of 4.6% in June 2007 compared with June 2006. ACC was up 2.2% to Rs 1,096, UltraTech Cement gained 2.9% to Rs 925, Ambuja Cements advanced 2.1% to Rs 129 and Grasim Industries added 1.8% to Rs 2,871.

Auto stocks were in demand as fears of interest rate hike in near future faded. Tata Motors gained 3.8% to Rs 767, Mahindra & Mahindra rose 2.7% to Rs 825 and Maruti Udyog advanced 0.7% to Rs 833.

Decliners of the Day

TCS led the decliners with a loss of 2.1% to Rs 1,137. Dr.Reddy''s lost 2% to Rs 668 and Hindustan Unilever shed 1.5% to Rs 203 while Ranbaxy also dipped 1.5% to Rs 353. Reliance Communications down 1.2% to Rs 555, and Cipla and Bajaj Auto 1% lower each to Rs 211 and Rs 2,175, respectively.


[R]6:30AM European markets are higher Friday with Frankfurt leading the region higher.[/R]

By mid-day trade, national benchmarks rose in all 17 western European markets that were open, except Austria. The DAX 30 index in Germany was trading up 0.9% at 8,124.56, the French CAC-40 index was up 0.6% at 6,137.14 and the U.K.''s FTSE 100 index gained 0.4% at 6,724.50.

Saab AB rose the most in a month, up 1.9%, after the builder of the Gripen fighter plane reported a 48% growth in earnings. Nokia, the world largest mobile handset maker, gained 1.6%.

In Frankfurt, BASF led the advance after UBS upped its price estimate for shares of the largest chemical maker in the world. BASF rose 1.6%. BMW and Volkswagen AG gained after an industry group announced the first rise in European car sales in five months. BMW added 0.6% and Volkswagen rallied 0.8%. GPC Biotech surged 5.6% as Goldman Sachs Group added the unprofitable biotechnology company to its pan-European conviction buy list, on the stock''s attractive valuation.

In Paris, French stocks rose, led by Schneider Electric SA and Alstom SA. Schneider gained 2%, after Citigroup hiked its recommendation on the stock to buy from hold. Alstom, the third-biggest maker of power plants in the world, climbed 0.8 % as Citigroup. also raised its share-price estimate by 27 % on the stock. JPMorgan also lifted its recommendation on the stock to neutral from underweight. On the downside, L''Oreal fell 2.2% after the group posted a 9.4% increase in first-half sales to 8.51 billion euros, broadly in line with expectations, but with a mixed performance in the French and German markets.

In London, U.K. stocks were led higher by Vodafone, up 1.1%, after UBS AG raised its price estimate on the stock. Royal Bank of Scotland, the. second-biggest bank in the U.K, climbed 1.2%. Barclays, the third-largest bank, advanced 0.4%. Ladbrokes added 2.1%, as Deutsche Bank AG raised its recommendation on the world largest publicly-traded gaming company to buy from hold.

Currencies

The euro neared a record high against the dollar on Friday as concerns persisted about the strength of the U.S. economy. The euro traded at $1.3792 overnight, and bought $1.3781 in morning European trading. The British pound edged lower against the dollar, trading at $2.0296 from its level late Thursday of $2.0304. The dollar slipped to 122.33 Japanese yen from 122.41 yen.