U.S. Averages Fall, Drag World Markets

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

World markets declined a day after Dow failed to hold on to its record close at 14,000. New York averages fell after Google, Caterpillar and several bank earnings left investors cautious. Dollar fell against euro prompting worries that earnings of European companies are likely to suffer. Brazil and Mexico fell led by decline in telecom and industrial stocks. Hong Kong, India, and Korea closed at a record high. Shanghai surged with a gain of 4% and led the region.

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

Markets in New York did not like the earnings growth at Google, Microsoft, Caterpillar, and Citigroup. Traders sold stocks and left averages lower 1%. Media talks of Dow above 14,000 lasted no more than one day. European markets fell on worries related to construction stocks in Spain, banking stocks in Germany, and tech stocks in the UK. In Asia, Hong Kong, Korea, and India close at a record high.

Yields edged lower on 10-year U.S. bonds and closed at 4.958% and 30-year bond rose to close at 5.067%.

Crude oil dropped 35 cents to close at $75.57 per barrel, natural gas closed 26 cent lower to $6.45 per mBtu, and gasoline futures decreased 2.7 cents to close at 216.46 cents per gallon.

Gold traded up $6.60 to close at $684.70 per ounce, silver 2.8 cents to close at $13.43 per ounce, and copper futures gained 1.6% or $142 to close at $8,043 per metric ton.

Dow Jones increased 82.19 to 14000.41, Nasdaq advanced 20.55 to 2,720.44, and S&P 500 rose 6.19 to 1,553.08. DAX index in Germany closed up 97.60 to 7,991.21, in Tokyo Nikkei 225 closed at 18,116.57, up 100.99, and Brazil Bovespa gained 568.72 to close at 58,124.57.

Market averages in New York gyrated with earnings from three hundred companies this week in the U.S. More than 400 companies are likely to report earnings next week. Merck, Schering Plough, UPS, Apple, Colgate Palmolive, Corning, ConocoPhilips, 3M, Dassault, Comcast Corp, and Baker Hughes are expected to report earnings next week.

Latin American Markets dropped across the region led by a decline of 1.3% in Brazil. Mexico lost 0.9% followed by 0.8% in Chile and 0.46% decrease in Argentina.

In Sao Paolo trading stocks fell 1.23% to 57,408.98 on falling airlines and telecom stocks. Vivo plunged 6% after reporting earnings but TIM Participacoes gained 1% ahead of earnings. Natura Cosmeticos fell 3% ahead of weak earnings expectations.

Brazilian mobile telecom operator Vivo ((VIV)) reported sharply higher losses than anticipated. The company reported loss of 112.8 million reais compared to a loss of 493.1 million reais a year ago on higher marketing and promotional charges and persistent charges related to unpaid bills. The telephone company added 1.2 million subscribers in the second quarter. The company added security features to improve billing frauds but still had to provision 101 million reais, 70% decline from a year ago. The largest mobile operator in Brazil maintained its market share near 37%, as in the first quarter, but lower than 40% a year ago.

In Mexico City trading IPC Index fell 0.88% to 31,868.88 on weakness in European and American trading. Cemex, third largest cement maker, fell 2.4% today and 6% for the week, reported earnings increase of 6% to $611 million. The company is in the final stage of completing its acquisition of Australia based building materials company Rinker. Construction company Cicsa jumped 5% after Mexican President Calderon said that it plans to improve roads, ports and energy facilities by increasing spending.

In Santiago trading energy producers, Endesa, Enersis and Colburn fell more than 1% ahead of earnings next week. Supermercados Unimarc soared 30% after rival Cenosud affirmed its interst in the company. The stock of Unimarc has nearly doubled after the rival expressed its initial interest.

European Markets closed lower across the region led by 1.8% drop in Spain and France followed by 1.5% decline in Germany and Italy, near 1.0% fall in the Netherlands and Switzerland, and 0.8% decrease in the UK. Tech companies’ earnings, rising euro in international markets, and worries related mortgage bonds in the U.S. failed to overcome strength in mining sectors.

Asian Markets across the region advanced on rising oil and metals prices, higher earnings, and positive sentiment in New York and European trading a day ago. Shanghai led the region with a sharp rise of 4.3% followed by 2.36% rise in South Korea, 1.4% gain in Indonesia, 1.3% rise in Singapore, 1.2% in increase in Taiwan, and 1.2% ahead in Hong Kong, and 0.6% edging up in Australia. Japan increased a fraction 0.23%.


[R]3:00PM New York – Market averages are trading with losses of 1% with less than one of hour of trading.[/R]

Stocks in New York trading fell sharply on earnings miss from Google and Caterpillar and continued worries related to bank exposure to mortgage markets. Nasdaq, Dow, and S&P 500 fell at least 1% dragged by financials and tech stocks. Market recovered from its mid-day losses but still struggled on summer Friday. The relatively higher trading volume reflected options and derivatives expiration.

Google, Caterpillar, Citigroup earnings failed to impress the market. Indexes and stocks fell at the opening. Citigroup and Wachovia Bank reported higher earnings but left investors wondering how many bridge loans at these banks are likely to go sour.

Advanced Micro Devices ((AMD)) fell 1% after reporting a loss of $1.09 per share or $600 million in the second quarter. Unit shipments of chips rose 38% on heavy discounting to win market share battle with industry leader Intel.

SanDisk ((SNDK)) jumped 3.6% after reporting earnings of 12 cents per share lower than the expectations of 15 cents. The company guided higher gross margins and better pricing environment for the rest of the year. The revenue in the quarter jumped 15% but earnings declined to $28 million from $96 million a year ago.

Sherwin Williams ((SHW)) dropped 1.7% after reporting second quarter earnings of $202 million of $1.52 per share compared to a year ago of $184.5 million or $1.33 per share. Net sales in the quarter gained 3.2%.

Wilmington Trust ((WL)) reported second quarter earnings of $48.9 million or 70 cents per share, 4% and 5% increase respectively from a year ago. The stock, one the few that managed to rise, increased 2% in trading.


[R]2:00PM New York, 7:00PM London – European shares decline led by sell-off in Spain and Germany.[/R]

European Markets closed lower across the region led by 1.8% drop in Spain and France followed by 1.5% decline in Germany and Italy, near 1.0% fall in the Netherlands and Switzerland, and 0.8% decrease in the UK. Tech companies’ earnings, rising euro in international markets, and worries related mortgage bonds in the U.S. failed to overcome strength in mining sectors.

In Madrid trading Ibex 35 index fell 1.82% to 14,930.10 on steep fall in construction companies, telecom, and banks. ACS, homebuilder fell 2.4% after an insurance group sold part of its stake in the company and plans to sell the rest. The news dragged Fomento Construction by 1.8% and Sacyr Vallehermoso by 1.5%.

In Frankfurt trading Dax Index dropped 1.46% to 7,874.85 on fall in bank, DaimlerChrysler, and Siemens. Deutsche Bank declined 2.2% and Commerzbank lost 2.8% on worries in the financial sector related to exposure to the U.S. mortgage market. However, domestic market focused bank IKB increased 1.9% after reporting 15% rise in profit in the fiscal first quarter and guiding higher operating profit for the year to 280 million euros. DaimlerChrysler fell 2.5% ahead of talks with the union for its Chrysler division. Siemens lost 2.5% on worries that rising euro will curb earnings in the international markets. Update software jumped 6% on the earnings jump of 90% on sales rise of 8%.

In London trading FTSE 100 fell 0.83% to 6,585.20 on takeover news and fall in Cable & Wireless, but mining stocks advanced. Cable & Wireless fell 3.6% after Caribbean operator and Ireland based wireless telephone services Digicel. The company claims in the filing that C&W uses its market domination to limits its entry into several Caribbean nations. Friends Provident, increased 4.3% on rumors that Paris based AXA is likely to make bid for the money management arm of the insurance company. Kingfisher and BAE Systems jumped a fraction on broker recommendation. Debenhams lost 4% after the controlling shareholder in the House of Fraser declined interest in the company. Mining stocks gained on takeover speculation in the industry lifting Antofagasta by 1.1% and Kazakhmys by 1%.

Recently listed shares of MF Global ((MF)), brokerage unit of Man Group continued to decline in New York on the second day. The stock dropped 5% at mid-day trading in New York on top of 10% plunge on its first day of trading. The company was priced at $30 after revising its offer price downwards from $36 to $38 per share.


[R]1:00PM New York – China raises interest rates for the third time this year, but may not manage to cool the fast rising economy.[/R]

The People’s Bank of China reported one year borrowing rate and deposit rates by 0.27% to 6.84% and 3.33% respectively. The central bank has targeted inflation rate at 3% but the rate in June jumped to 4.4% on higher food and energy prices. China is worried that fast rising food prices may prompt wage hikes yielding the temporary rise in food prices to a permanent inflation. Reflecting the recent rises in interest rates, the currency yuan has increased 1.6% in the second quarter in addition to 1% rise in the first quarter. The bank also lowered tax to 5% from 20% on interest earned from fixed deposit to make them more attractive to stocks. The net yield for the deposits, as of Aug 15, will rise to 3.16% from 2.66%.

With yields so low in the bank deposits, investors have pulled money from banks and invested in the stock market lifting the Shanghai CSI index more than 60% this year on top of 89% rise in the year 2006.

Retail sales in China are growing at 34% on rising wages and rising purchases of furniture, household goods, and automobiles.

[R]12:30PM New York, 11:00PM India – Sensex Closes higher on telecom stocks and earnings from Larsen & Toubro.[/R]

In Mumbai trading Sensitive 30 Index increased 0.1% to 15,565.55, record close. The index edged higher on strength in telecom stocks and steady fund flows from international investors.

Economy News

Wholesales Price Index, a measure of annual inflation, for the week ending July 7th, was reported at 4.27%, unchanged from the previous week ending. The food prices fell in the week but failed to impact the overall inflation.

Deal News

Reliance Communication jumped 1.3% after adding more than 2% in the previous session on a deal to sell 5% stake in its telecom tower unit for 27,000 rupees or $338 million to a group of private equity investors. The deal values the infrastructure unit at $6.5 billion. Bharti Airtel jumped 3% on the news hoping for a similar deal for its tower unit. Reliance reached 592 rupees and Bharti at 943 rupees, traded at record intra-day high. Reliance Communication chairman Anil Ambani had earlier said the group of companies controlled by second richest man in India has a capacity to borrow more than $5 billion in the international markets.

Metals and Commodities

Firmness in metals prices lifted stocks of Tata Steel and SAIL. Tata Steel jumped 5% to 715.90 rupees, JSW Steel advanced 2.7% to 722 rupees, Hindustan Zinc added 2.5% to 788 .60 rupees, SAIL increased 0.6% to 156 rupees.

Cements stocks fell after rallying for more than two weeks. ACC fell 3.7%, Ambuja Cement lost 2.3%, and India Cements dropped 1.3%.

Earnings News

Satyam reported earnings of 3.78 billion rupees on 27% rise in sales to 18.3 billion rupees. The stock fell 2% on the news.

Larsen & Toubro jumped 4.2% on net income of 3.77 billion rupees. Company secured projects worth $180 million in the quarter.

Gujarat Ambuja profit surged 168% on 16% increase in revenue to $180 million.


[R]11:30AM New York, 10:00PM India – Korea, India and Hong Kong close at record in Asian trading.[/R]

Asian Markets across the region advanced on rising oil and metals prices, higher earnings, and positive sentiment in New York and European trading a day ago. Shanghai led the region with a sharp rise of 4.3% followed by 2.36% rise in South Korea, 1.4% gain in Indonesia, 1.3% rise in Singapore, 1.2% in increase in Taiwan, and 1.2% ahead in Hong Kong, and 0.6% edging up in Australia. Japan increased a fraction 0.23%.

In Korea trading LG Electronics jumped 6% on earnings of 384.6 billion won in the second quarter compared to a loss of 9.7 billion a year ago. The strong earnings prompted rating revision from local brokers. The second largest mobile phone operator earnings lifted Samsung Electronics by 4%. Posco jumped nearly 4% on the statement that it plans to expand its production. Korea Zinc jumped 6% on firm metal prices in overnight trading in Europe. Kospi Index jumped 2.4% or 45.64 at close to record level of 1,983.54.

In Hong Kong trading Han Seng Index gained 1.2% at 23,291.90 to a record close lifted by financials, insurance, and telecom stocks. China Mobile jumped 2.5% after the company reported that it added 5.53 million new subscribers in June, driven by promotions and discounts. Insurance companies China Life increased 2.6% and Ping An gained 2.5%.

In Tokyo trading Nikkei 225 Index added 0.23% to close at 18,157.93. Industrials, technology and steelmakers lifted the sentiment. Ahead of earnings, Nippon Steel and JFE Holdings added 3.9% on hopes of better earnings. JFE has guided earnings for the first half to increase 12% to 150 billion yen on 13% sales increase to 1.68 trillion yen. Matushita Electric jumped 1.5% ahead of earnings next week. KDDI, mobile phone operator, fell after its reduced its subscription price for new subscribers by 50%.


[R]9:00AM New York – Earnings news dominate the New York opening[/R]

Earnings reports from several companies in the technology, banking, and industrial sectors dominated the trading sentiment. Market averages are likely open lower in New York on a decline in Google, Microsoft, and Caterpillar.

Citigroup reported second quarter earnings of $6.23 billion from $5.26 billion a year ago on revenue 20% gain in revenue of $26.6 billion. Earnings per share jumped to $1.24 from $1.05. International revenue jumped 34%, on recent acquisitions, to $12.6 billion and earnings surged 35% to $3.04 billion. Earnings in the investment banking jumped to $2.83 billion from $1.72 billion. The Global Wealth Management division which includes the Smith Barney brokerage services, earned $514 million, 48%, on a global rise in earnings.

Caterpillar Inc ((CAT)) earnings dropped to $823 million from $1.05 billion on 7.1% revenue increase to $11.4 billion. Earnings per share declined to $1.24 from $1.52. The company restated the annual earnings guidance between $5.30 and $5.80 per share and revenue of $44 billion in the year 2007. The company also lowered its forecast of new home construction to 1.4 million from 1.5 million. Engine sales in the North America declined 7.5% from a year ago due to higher demand of engines last year ahead of tigher emissions standard.

Google dropped 7% in the morning hours after disappointing some aggressive growth investors and Microsoft is down 3% on charges related to Xbox repairs. Caterpillar lost 5% on 7% decline in earnings. Whirlpool is ahead 2% on 77% jump in earnings. sanDisk jumped 7% on its quarterly profit on strong sales in Europe. Advanced Micro Devices jumped 2% and reported sales gain of 13% to $1.38 billion in the second quarter.

Apple Inc traded at record high to $142 on a favorable report from Piper Jaffrey and a revised price target of $205.