Deals and Earnings Drive Stocks

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

Averages in the New York trading did not dispaly the underlying volatility in the market. Earnings from key companies like Merrill Lynch and Wells Fargo helped stocks but Coca Cola and Johnson & Johnson struggled. Most companies are reporting flat or better than expected earnings. A measure of wholesale inflation in the U.S. fell in June. European and Asian markets closed lower. oil traded above $74 per barrel. Copper and gold lost a fraction.

[R]4:30PM NY, 10:30 PM Frankfurt, 2:00AM Mumbai – Global Markets[/R]

Merger talks and earnings dominated the trading sentiment in New York trading. Dow reached intra-day record of 14,000. European stocks closed lower. In Asian trading markets scaled back from recent highs.

Yields edged higher on 10-year U.S. bonds and closed at 5.083% and 30-year bond rose to close at 5.161%.

Crude oil dropped 13 cents to close at $74.02 per barrel, natural gas closed down 7 cent to $6.31 per mBtu, and gasoline futures down 2.55 cents to close at 210.07 cents per gallon.

Gold down 40 cents to close at $665.90 per ounce, silver lost 4.7 cents to close at $13.01 per ounce, and copper futures lost $82 to close at $7,866 per metric ton.

Dow Jones added 20.57 to 13,971.55, Nasdaq added 14.96 to 2,712.29, and S&P 500 declined 0.15 to 1,549.37.

Merger and takeover news dominated trading in New York. Lyondell Chemical ((LYO)) agreed to be acquired by Basell N.V. of the Netherlands for $12.7 billion or $48 per share. The rich offer values the company at nearly 7 times earnings before interest and depreciation but several analysts indicated that higher offer is likely for the company. News Corp has reached preliminary agreement with Dow Jones to a $5 billion bid. The offer is likely to be put to shareholders and controlling shareholder Bancroft family. The family controls 64% of voting stock and 19% of economic interest in Dow Jones.

On the U.S. economy, an index of wholesale prices in June fell 0.2% after rising 0.9% in May. The core index, excluding the so called volatile food and energy components, gained 0.3% after gaining 0.2% in May. Industrial production in June gained 0.5%. U.S. Treasury Department said that foreigners purchased $112.6 billion of more stocks, bonds and other assets in May, higher than $72.7 billion purchase in April.

On the earnings front Wells Fargo and Merrill Lynch reported better than expected earnings but earnings from Johnson & Johnson, Coca Cola, and U.S. Bancorp disappointed traders.


[R]2:30PM New York – Lyondell Chemical receives a bid for $48 per share.[/R]

Lyondell Chemical Company ((LYO)) has agreed to be acquired for $48 per share or $12.66 billion. The stock traded at high as $46.96 on the news. The Russian immigrant billionaire controlled company, Basell, a joint venture between BASF and Royal Dutch Shell PLC, was acquired by Len Blavatnik, in the year 2005 for 4.4 billion euros. Earlier in the year Mr. Blavatnik reported his stake of 8.3% in the company and disclosed plans to buy the company, lifting the stock 40%.

The commodity chemical companies have soared in values in the last three years tracking the rise in oil prices. Refineries, chemical makers and processors have seen their values skyrocket. General Electric sold its plastic division to Saudi Basic Industries and Huntsman was acquired by private equity group Apollo Management. Mr. Blavatnik controlled companies were leading contenders to acquire both the companies.

India, Korea and Middle Eastern countries are building capacities to process commodity chemicals and are poised to take market share away from the larger companies in the developed economies.

[R]11:30AM New York – Johnson & Johnson stock drops after the earnings release.[/R]

Johnson & Johnson ((JNJ)) reported net income for the second quarter of $3.1 billion, a 9.3% increase from a profit of $2.8 billion from a year ago. The revenue rose 13% to $15.1 billion on recent acquisition of Pfizer consumer health business. The earnings per share jumped to $1.05 from 95 cents a year ago. Consumer products revenue jumped 49% on the recent acquisition. The pharmaceuticals unit, the largest unit, reported sales growth of 5.8% to $6.1 billion. The antipsychotic drug Risperdal and Invega sales increased 10% to $1.14 billion. Revenue at medical devices and diagnostics unit, the third largest unit, rose 5.2% to $5.42 billion. Drug coated stents, Cordis unit sales dropped 20% to $852 million.


[R]10:15AM New York – Early trading in New York retains upward bias on rising earnings from Merrill Lynch, Wells Fargo, and Coca Cola.[/R]

Market averages in New York gained after the first thirty minutes of trading. Producer Price Index, a measure of wholesale inflation, declined 0.2% in June after gaining 0.9% in May. Core rate of inflation, gained 0.3%, excluding food and energy, largely on higher automobile less. Prices for food dropped 0.8% and for fuel lost 1.1% but prices for automobile gained 1.4%.

Merrill Lynch ((ML)) earnings for the second quarter jumped to $2.14 billion from $1.63 billion or earnings per share increased to $2.24 from $1.63. Total revenue gained 19% to $9.73 billion.

Coca Cola ((KO)) second quarter earnings increased to $1.85 billion from $1.84 billion a year ago. The sales in the quarter rose to 19% $7.73 billion through acquisition in Philippines and a launch of new products in Europe. North American cola volume fell 3%, a decline for the fourth quarter in a row. Non-carbonated drinks volume gained 10% on steady sales of Powerade and Zero. World-wide volume sales jumped 4.2% powered by 9% rise in Latin America.

Wells Fargo & Co ((WFC)) second quarter earnings jumped to $2.28 billion from $2.09 billion a year ago on 13% rise in revenue. The higher fees from credit card and commercial lending helped the bank to declare increasing profits. Banks have managed to increase fees by charging a variety of fees to individual accounts from using ATM cards to managing check books. Commercial loans increased 11% in the quarter and a charge for uncollectible loans fell to 0.87% from 0.9% a year ago.


[R]9:30AM London is lower in morning trade Tuesday on broker downgrades.[/R]

The benchmark FTSE 100 Index lost 40.30, or 0.6%, to 6657.40 in London in morning session.

Economic news

Government figures revealed that the annual rate of consumer price inflation fell to 2.4% in June from 2.5% in May, a smaller decline than had been expected. The core CPI annual rate, which excludes energy, food, alcohol and tobacco prices, advanced from 1.9% to 2%, its highest level for 10 years and raised fears of further interest rate hikes.

Advancers of the Day

Some utility stocks gained on positive comment. Northumbrian Water Group rose 1.4 % and Severn Trent added 0.2%. UBS raised its recommendation for both Northumbrian Water and Severn Trent to buy from neutral.

Tate & Lyle rallied 3.9% after Goldman Sachs boosted its recommendation for maker of the sweetener Splenda to buy from neutral.

Decliners of the Day

BHP dipped 0.7% and weighed on the other mining stocks after Deutsche Bank lowered its recommendation for the mining company to hold from buy, on strength in the share price this year and a stronger Australian dollar.

Anglo American, the world second-biggest mining company, shed 0.7% and Antofagasta, owner of copper mines in Chile, fell 0.8%.

Rolls-Royce dropped 2.4% after Credit Suisse Group cut its recommendation for the second-largest aircraft-engine maker in the world to neutral from outperform on sustained dollar weakness and valuations.

Kelda Group, water-supplier to about 4.7 million people in northeastern England, retreated 2.1% after UBS AG downgraded the shares to reduce from neutral, announcing that the shares are expensive relative to the water utility sector.

[R]8:30AM HK, Taiwan gain, China surges and Japan falls in Asia.[/R]

Asian markets ended mixed on Tuesday.

In Tokyo, Japanese stocks declined with insurance companies such as Millea Holdings Inc. and power producers after a magnitude 6.8 earthquake shook northwest Japan yesterday, damaging a nuclear reactor. Millea Holdings lost 1.7%, Sompo Japan Insurance finished 2.3% lower, and Mitsui Sumitomo Insurance shed 2.1%. Sumitomo, the third-largest trading house, in the country, climbed 2.7% and Cosmo Oil, the fourth-biggest refiner in Japan, surged 2.5%. The Nikkei 225 Average closed 0.1% lower at 18,217.27.

In Hong Kong, the market rose for the third time in four days. The benchmark Hang Seng Index rose 0.5% to close at 23,057.30. Cnooc Ltd. climbed after Deutsche Bank AG raised share-price estimates for oil producers and crude oil hovered near an 11-month high. Cnooc, surged 3% and PetroChina, the largest oil producer in China, added 0.7%. Industrial & Commercial Bank, the biggest lender in China, added 2.1%.

In Taiwan, the Taiex index gained 1%. Taiwan Cement, the biggest maker of the building material on the island, advanced 4.4% and Cathay Financial, the largest life insurer, rose 4.2%. The national benchmark target was raised by UBS on better corporate earnings and a shift by investors from bonds and property toward stocks as interest rates increase.

In China, the benchmark Shanghai Composite Index soared 1.9% to close at 3,896.19. Property developers surged following the appreciation of the yuan and banks gained on a stable earnings outlook for the sector. Beijing Tianhong Baoye Real Estate surged up to its limit, ended 10% higher. Shenzhen Development Bank followed other local lenders in its guidance of strong first-half earnings. Shenzhen Development Bank jumped 9.8%, Industrial Bank closed 9.6% higher and China Merchants Bank rose 6%.

In Sydney, the index S&P/ASX 200 rose 0.01% to 6,381.60. Mining company Rio Tinto gained 0.4%, bouncing back from losses recently triggered by worries it may be overpaying for Alcan.

The market in Seoul was closed for national holiday.

[R]7:30AM NY – 6:30 PM Mumbai Sensex closes 21 points lower, Reliance surges.[/R]

The Sensex on BSE finished 21.40 points lower Tuesday, or 0.14%, at 15,289.82.

The benchmark index opened 47 points higher and hit an intra-day high of 15,440.20 in morning deals. The intra-day low was 15,272.46, struck in the early afternoon.

The market-breadth turned negative in the latter part of trading. Out of 2,733 stocks traded on BSE, 977 advanced, 1,696 declined and 60 were unchanged. Of the 30 stocks in the Sensex, 11 advanced, while all the rest declined.

The turnover on BSE was Rs 6,023 crore, higher than Rs 5,392 crore on Monday. On NSE, the turnover was Rs 12,729 crore, higher than Rs 11,519 crore on Monday.

Economic news

Ford Motor Co., the second-largest U.S. automaker, is likely sell a small car model in India. Small cars and compact hatchbacks account for three-fourths of the Indian market. Ford is targeting broadening its product range in India from sedans and sport-utility vehicles.

Trading highlights

Indiabulls Real Estate was the most active stock with a turnover of Rs 403.60 crore followed by Indiabulls and DLF.

Advancers of the Day

The process of infrastructure boom lifted cement stocks. Cement major Ambuja Cement advanced 3.1% to Rs 137 and was the best performer on BSE. Other cement stocks also gained. JK Cement was up 1% to Rs 156, Birla Corporation added 0.9% to Rs 294 and Madras Cement advanced 1.2% to Rs 3,540.

Index heavy Reliance Industries surged to a record high of Rs 1,834 on reports it had made a gas discovery in the Cauvery basin. It settled 2.9% higher to Rs 1,827.

IT stocks bounced back, led by strong results from TCS. TCS jumped 2.4% to Rs 1,155. After market hours on Monday, TCS reported a 36% growth in net profit to Rs 1,202.93 crore in the first quarter ended June 2007 compared to Rs 882.66 crore in the first quarter of June 2006. Satyam spurted 1.3% to Rs 488 and Wipro gained 1% to Rs 506.

Dr.Reddy''s rallied 1.8% to Rs 674, while ITC was up around 1% at Rs 156.

Decliners of the Day

Mahindra & Mahindra shed 2.6% to Rs 800. Other auto stocks which declined were Tata Motors, down 1.4% to Rs 749 and Bajaj Auto off 1.6% to Rs 2,219.

Reliance Communications dropped 2.3% to Rs 561. Reliance Communications, the second-largest wireless company in India, intends to raise investment by more than half this year to 160 billion rupees, or $4 billion, in order to close the gap with Bharti Airtel Ltd.

Metal stocks ended lower on selling pressure. Tata Steel lost 2% to Rs 681, Sterlite Industries slumped 4.5% to Rs 635, JSW Steel dipped 3.4% to Rs 697, and SAIL was off 3% to Rs 153.

BHEL and State Bank of India plunged 2% each to Rs 1,623, Rs 1,580, respectively. Bharti Airtel lost over 1.5% to Rs 863 and HDFC declined also 1.5% to Rs 1,965.

[R]6:30AM European markets fall led lower by oil stocks, banks.[/R]

European markets were lower on Tuesday morning. National benchmarks declined in all of the 17 western European markets that were open except for Portugal. The U.K. FTSE 100 index was off 0.4% at 6,671.70, the German DAX index dipped 0.6% at 8,054.32 and the French CAC-40 index shed 0.3% at 6,106.19.

Commodity downgrades

Repsol and Statoil led a retreat in energy stocks after ING recommended selling the shares. Repsol, the biggest oil company in Spain, fell 1.1 %. Statoil, the biggest oil company in Norway, lost 1.3 % and Total the largest refiner in Europe, decreased 0.8 %. ING downgraded Total to hold from buy.

Anglo American and Antofagasta followed copper prices lower and BHP Billiton slipped after Deutsche Bank downgraded shares of the world biggest mining company on gains this year. Anglo American fell 0.7 % and Antofagasta dropped 0.6 %. BHP Billiton declined 1.2 % after Deutsche Bank cut its recommendation on the shares to hold from buy.

In London, U.K. stocks fell for a second day, paced by BHP Billiton and the other metal stocks. Other companies also lost on downgrades. Rolls-Royce dropped 2.4 % after Credit Suisse Group cut its recommendation for aircraft-engine maker to neutral from outperform. Kelda Group, which supplies water to about 4.7 million people in northeastern England, retreated 2.1 % after UBS AG downgraded the shares to reduce from neutral.

In Frankfurt, Germany''s main stock index fell for the first time in four days, led by TUI AG, the largest travel company in Europe. Deutsche Postbank and Siemens also declined. TUI dropped 2.1 %. Deutsche Postbank, Germany biggest consumer bank by clients, decreased 1.5 %. Siemens, the largest engineering company in Europe, lost 1.8 %.

In Paris, French stocks fell for the first time in four days, led by Total SA. Renault and Suez also retreated. Renault, the second-largest carmaker in France, declined 1.2 % and Suez, Europe fifth-largest electricity producer, lost 1.6 %.

Currencies

The dollar kept declining Tuesday, slipping against the euro ahead of a key German investor confidence report. The euro bought $1.3793 in early European trading, up from $1.3784 in New York the previous day. The British pound continued to trade around 26-year highs against the dollar Tuesday, buying $2.0375, slightly above the $2.0371 it bought late Monday in New York. The dollar slipped only marginally to 121.80 Japanese yen from 121.82 yen.

[R]5:30AM Gold dips slightly, oil futures climb sharply, agricultural prices tumble.[/R]

August gold dipped $1 to end at $666.30 an ounce on the Nymex.

September silver tracked gold lower, edging down 4.5 cents to $13.065 an ounce.

Nymex copper declined 3.1 cents to end at $3.562 a pound.

Crude oil for August delivery advanced 22 cents to close at $74.15, which is the highest settlement since Aug. 11 last year.

Gasoline futures shed 9.86 cents to $2.1262 a gallon.

Wheat for September delivery lost 19 cents to settle at $6.0175 a bushel.

December corn declined 20 cents to end at $3.485 a bushel;

December oats closed down 18.5 cents at $2.5525 a bushel while November soybeans slipped 50 cents to settle at $8.9875 a bushel.