Global Rout

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

Markets around the world tumbled but for different reasons. New York fell sharply on the worries that mortgage market problems will drag several highly leverage deals and will lower the preminums ofered by the leverage buyout companies. Europe fell on lower earnings from insurance companies. South American markets were dragged lower by a sharp decline in New York. Shipping and resources stocks fell in Japan and Australia. Cement stocks fell in India and steel stocks plunged Korea.

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

Declines in Japan and Asia on lower metals and oil prices were repeated and magnified in Europe. New York fell further on bond market troubles and investors demanding better terms for junk bonds for leverage buyouts. Brazil, Turkey, Mexico, U.S., and UK led the global rout in stocks.

Metals and shipping stocks fell the most in Japan, Resources stocks declined in Australia, Cement stocks fell in India, steel and financial brokerage plunged in Korea, insurers dropped in Europe and homebuilders, banks and brokers nosedived in the U.S.

Yields edged lower on 10-year U.S. bonds and closed at 4.78% and 30-year bond rose to close at 4.95%.

Crude oil dropped $0.93 to close at $74.95 per barrel, natural gas closed 2 cents higher to $5.94 per mBtu, and gasoline futures decreased 1.2 cents to close at 207.59 cents per gallon.

Gold traded lower $11.40 to close at $675.10 per ounce, silver increased 11 cents to close at $13.44 per ounce, and copper futures lost or $180 to close at $7,864 per metric ton.

Dow Jones plunged 311.50 to 13,473.57, Nasdaq plummeted 48.83 to 2,599.34, and S&P 500 sunk 35.40 to 1,482.69. FTSE 100 Index in the U.K. closed down 203.10 to 6,251.20, in Tokyo Nikkei 225 closed at 17,702.09, down 156.33, and Brazil iBovespa lost 2,027.37 to close at 53,973.93.

Sell-off started in Japan, accelerated in Europe, and culminated on Wall Street, but for different reasons.

The global rout in stocks followed declines in metals and energy prices in Asia, strength in euro, and flight to treasury bonds in the U.S. Investors around the world demanded higher interest rates for emerging market bonds, riskier bonds in the U.S. and Europe that powered so much of so called private equity boom in the recent years.

Home builders in New York trading fell on losses from D R Horton and Beazer Homes. Horton slipped 4% and Beazer plunged 12%. June new home sales dropped 6.6% from May and 22% lower from a year ago to a seasonally adjusted annual rate of 834,000. Countrywide Financial ((CFC)), largest mortgage lender in the U.S., fell 4.4% after losing 15% in the previous two sessions. The company earnings, widely perceived as a key indicator of housing market health, started the sell-off three days ago in stocks after reporting 33% lower earnings.

Bear Stearns ((BSC)) and Lehman Brothers ((LEH)) fell 7% and Goldman Sachs declined 6% on the worries that brokers will be stuck with a large amount of unsold high-risk debts. Citigroup, J P Morgan, Deutsche Bank, ABN Amro fell more than 3.5% and Barclays fell 5%.

ExxonMobil earnings fell 1% on higher production cost but earnings at Royal Dutch Shell jumped 18% despite production problems in Nigeria. Ford reported its first profit in two years and improved its cash flow loss forecast for the year on higher cost cutting.

Apple ((AAPL)) jumped 4.1% but traded as high as 7% during the session on higher than expected earnings and optimism about iPhone sales. The sell-off curtailed the gain in the stock.

Latin American Markets closed sharply lower across the region led by a fall of 3.98% in Argentina followed by 3.6% decline in Brazil, and 3.4% decrease in Mexico. Brazil and Mexico recovered from an earlier loss of 5% and Argentina recovered from a loss of 6%.

In Sao Paolo trading iBovespa Index plunged 3.6% to 53,973.93 on declines in the U.S. and Europe. Petrobras, CVRD, Lojas Renner fell nearly 5% at the worst of the market before the thirty minutes of close. The index recovered some of the losses in the last twenty minutes. TAM Air and Gol Air fell 3% on the worries that lower traffic at Sao Paolo airport may hurt the earnings.

In Mexico City trading IPC Index fell 1,106.93 to 29,996.60 on the credit market worries in New York. American Movil sharply fell 5%, mining company Grupo Mexico fell 7%, and the baking and confectionary company Grupo Bimbo, lost 6%.

[R]1:00PM NY, 5:00 PM Frankfurt European markets tumbled to a 4-month low, led by insurers.[/R]

European stock markets posted Thursday the second biggest one-day drop of the year, dragged down by continued worries about the credit market and subsequent heavy losses in the shares of insurers. Resource companies also showed considerable weakness. Subprime market concerns are threatening to grow on concern mergers and acquisitions will decrease due to difficulties in financing the takeovers. The U.K. posted the steepest decline, down 3.2%, followed by France, down 2.8%, and Germany losing 2.4%.

In Frankfurt Siemens, Deutsche Postbank and MAN led decliners. Siemens retreated 5.6 percent, Deutsche Postbank declined 4.7%, and truck maker MAN lost 5%. Deutsche Bank, Germany's largest bank, dropped 2.8%, following a 3.4% drop in the shares of Credit Suisse.

In Paris stocks fell to a 5-month low, led by Pernod Ricard SA and STMicroelectronics. Pernod Ricard dropped 5.2%, while chip maker STMicroelectronics lost 2.7%. Insurers were also under pressure, with Axa falling down 4.9%. Elsewhere, Atos, computer services provider, tumbled 5.3%.

In London insurers were among the worst performers, with Legal & General falling 8.2% on a lower-than-expected operating profit and plans to buy back 1 billion pounds of shares. Aviva was another notable decliner, falling 5.4%. Admiral Group, car insurer and broker, fell 5%, while Amlin Plc, a Lloyd's of London insurer of spacecraft and yachts, slipped 4%. Investment firms also declined, with Man Group falling over 4%. Britain's largest phone company BT Group fell 5.3% after it said Q1 profit unexpectedly rose 31%.


[R]11:30AM Weak housing data sent averages further down. Dow dropped 200 points.[/R]

U.S. market averages posted steep declines, as some strong earnings failed to offset continued worries about credit markets and the housing sector. The Commerce Department said that sales of new homes dropped 6.6% in June to a seasonally adjusted annual rate of 834,000 units, the largest percentage drop since January. Oil prices hovering round $77 a barrel also weighed.

The Dow dropped nearly 200 points, led by aluminum producer Alcoa Inc. ((A)) which fell 5.1%, followed by Citigroup ((C)), down 3%. A surprising profit drop from Dow component Exxon Mobil Corp. ((XOM)) weighed on energy stocks. Exxon Mobil's stock fell 3.3%, as it missed its profit forecast. Homebuilder D.R. Horton Inc. ((DHI)) was a heavy drag on the market, falling 4.5% as it swung to Q2 loss.

Among other companies posting quarterly results, diversified technology company 3M Co. ((MMM)) added 1% after it said its Q2 net earnings rose 3.9% on the back of solid segmental performance. Qualcomm ((QCOM)) posted Q3 earnings jump to 47 cents per share from 37 cents last year on 19% revenue increase. The company lifted its 2007 earnings and revenue outlook.

By sector, transportation, airline and financial stocks stood out among losers. In late morning trading, the Dow fell 217.36, or 1.58% to 13,567.71. The Standard & Poor's 500 index was down 28.97, or 1.91%, at 1,489.12 and the Nasdaq composite index tumbled 47.39, or 1.79%, to 2,600.78.


[R]10:00AM New York – Shanghai gains bucking the regional trend. Baidu.com surges in New York trading.[/R]

Shanghai Composite Index gained 0.5% to 4,346.45 and Hang Seng Index fell 0.64% or 150.49 to close at 23,211.69.

Government of China today allowed the state controlled insurance companies to invest in overseas companies and properties. Moody’s raised rating for China to A1 and to A2 from A3 for Hong Kong. China’s foreign reserve of $1.3 trillion and foreign debt of $323 billion played a key role in the debt rating revision. Another factor that played a key role is that Chinese government has managed to increase its share of GDP to 20% from 10% in less than a decade. While Hong Kong government has no debt, has third largest reserve of foreign exchange in Asia.

Profit expectations kept market averages at the elevated level in Shanghai. Airlines, banks, brokerage, and Internet companies led the rally.

Baidu.com shares surged 17% in New York trading this morning after the company reported second quarter earnings of 142 million yuan from 58.5 million yuan on sales growth of more than 100% to 401.3 million yuan. The company forecasted third quarter sales of between 492 million yuan and 506 million yuan. The revenue of the search engine companies are likely to triple in the next five years as more people use Internet to search information in China. There are more than 150 million users in China, second largest user base in the world but the search engine advertising revenue is less than $220 million this year. The search engine market ads are expected to grow fourfold in the next five years.

Local analysts estimate that Baidu.com has more than 50% market share in Chinese searc market and is expected to remain leader for the foreseeable future followed by Google with less than half the market share of Baidu.com.

Haitong Securities Co. reported first half profit of 2 billion yuan from 214 million yuan a year ago on rising stock market indexes and feverish online day trading. Revenue in the first jumped three fold to 4.8 billion yuan. The company with a branch network of 124 locations and 2 million accounts earned 650 million yuan in the year 2006. the company has filed to sell 1 billion stock at 13.15 yuan in a private placement and expects approval from the government to list its share on the exchange by merging with a shell company Shanghai Urban Agro-business Co.


[R]09:45AM Wall Street opened lower, weighed down by credit markets concerns and rising oil.[/R]

Wall Street opened steeply in the red, dragged down by continuous worries in credit markets and the housing sector, as well as surging oil prices. The Commerce Department said that sales of new homes dropped 6.6% in June to a seasonally adjusted annual rate of 834,000 units, the largest percentage drop since January.

In addition, weak results posted by homebuilders added built on concerns. D.R.Horton ((DHI)) swung to a Q3 loss of $2.62 a share, from net income of 93 cents a share a year ago. The stock dropped 4.5%. Among other companies releasing quarterly results, Dow Chemical ((DOW)) reported that its net income increase to $1.07 a share, from $1.05 a share last year, with sales rising 6% to $13.27 billion. The results beat analyst expectations, but the stock dropped 4.3%.

Further on the earnings news front, oil giant Exxon Mobil Corp. ((XOM)) posted Thursday an unexpected drop in Q2 profit, hurt by lower natural gas prices. However, the company released net income of $10.26 billion, the fourth-largest quarterly profit ever recorded by a publicly traded U.S. company. On a per-share basis, Exxon Mobil earned $1.83 a share, up from $1.72 from a year ago, missing forecast of $1.96 a share. Company’s revenue fell to $98.35 billion from $99.03 billion a year ago but topped estimates of 97.6 billion. Exxon Mobil shares slipped 2.5%.

In morning trading, the Dow Jones industrial average fell 67.71, or 0.49%, to 13,717.36. The Standard & Poor's 500 index was down 12.49, or 0.82%, at 1,505.60 and the Nasdaq composite index tumbled 15.73, or 0.59%, to 2,632.44.


[R]9:00AM U.S. stock futures pointed steeply down, dragged by surging oil.[/R]

U.S. stock futures pointed steeply lower Thursday, reflecting continued concerns about the corporate and mortgage lending markets and rising oil prices. Beazer Homes USA ((BZH)) and D.R. Horton ((DHI)) will be in the spotlight. Light sweet crude jumped as high as $76.99 a barrel in electronic trading on strong demand from refiners. Stronger-than-expected results from Apple and Ford failed to offset the decline.

Apple ((APPL)) shares climbed 7.1% in pre-open trade after the company reported a 73% profit rise on sales of Macintosh computers. Ford ((F)) rose 1.3% after posting the first profitable quarter in two years. Market also awaited key economic data on June home sales figures.

Further on the earnings news front, office products retailer Office Depot ((ODP)) posted 8% profit drop in Q2, due to weak sales in North America. Net income fell to 40 cents per share, from 41 cents per share a year ago, while sales rose to $3.63 billion from $3.49 billion a year earlier. Excluding charges, the company earned 43 cents per share, meeting the average analyst estimate.

Among other pre-market highlights, ExxonMobil ((XOM)) reported an unexpected decline in Q2 profit. Dow Chemical ((DOW)) posted 2% profit rise, slightly better-than-expected. Both insurers Aetna ((AET)) and Travelers ((TRV)) raised their earnings guidance.
In economic news, the Commerce Department said that durable goods increased less-than-expected 1.4%. According to another report, initial jobless claims unexpectedly inched lower in the latest week. The number of initial claims in the week ending July 21 fell 2,000 to 301,000. S&P 500 futures dropped 15.9 points at 1,508.60 and Nasdaq 100 futures dropped 16.25 points at 2,010.25. Dow industrial futures declined 106 points.


[R]8:00AM Ford Motor posted its first profitable quarter in two years.[/R]

Ford Motor ((F)) exceeded analyst expectations by posting its first profitable quarter in two years. The auto maker reported Q2 earnings of $750 million, or 31 cents per share, compared with a net loss of $317 million, or 17 cents per share last year, beating estimates of a loss of 35 cents. Ford said revenue rose 5.5% to $44.2 billion for the quarter. Ford attributed the positive results to significant improvements in its automotive operations, as well as cost reductions and special items. The company also confirmed it is exploring the sale of its Jaguar and Land Rover subsidiaries. Ford gained 3% in premarket trading.


[R]7:30AM New York, 5:00PM Mumbai – Sensex in India climbs on earnings from Maruti and drug settlement for Ranbaxy.[/R]

Sensex gained 56.63 to close at 15,755.95 on sharp rise in earnings from Bharti Airlte, fall in cement stocks, and firmness in IT stocks.

The daily turnover on BSE rebounded to 5,719 crore rupees from 4,276 crore rupees on 18 of the 30 Sensex stock gaining and 12 stocks declining.

Gainers

Pharmaceutical stocks jumped on the news that Ranbaxy Laboratories and Glaxo Smithkline have reached an agreement to end their litigation related to herpes drug Valtrex. Ranbaxy jumped 10% to close at 375 rupees. Cipla jumped 4% and Dr Reddy’s gained 0.3% on the news.

Ranbaxy has filed 20 patent challenging suits on drugs that have a combined market size of $26 billion. The agreement to sell its version of herpes treatment drug will provide the company a head start in $1.5 billion market starting from the year 2009.

Auto stocks jumped on the 35% rise in earnings from Maruti, lifting Mahindra & Mahindra 2.6% and Bajaj Auto 1%.

Software services exporters jumped after Infosys reported $250 million order from Philips. Wipro jumped 4.22%, Satyam gained 1.5%

Earnings

Maruti Udyog jumped 3.4% after reporting first quarter earnings growth of 35% to 499.6 crore rupees on 26% rise in sales to 3,930 crore rupees. New models and financing arrangement with two largest banks boosted unit sales in the quarter to 169,600 in the quarter. The automobile market is driven by the low cost financing available through banks. The quarterly profit rose for the sixteenth quarters in a row. Japan based Suzuki controls 54% of the local company and its board and changed the company name to Maruti Suzuki India Ltd from Maruti Udyog Ltd. The company plans to invest more than 2 billion to expand its capacity in India. The automobile market is expected to expand to 3 million units in 2012 from 1 million units in 2007.

Bharti Airtel, largest mobile telecom operator reported first quarter profit double to 1,511 crore rupees on 53% revenue gain to 5,904.6 crore rupees. The stock fell on the news by 2.3% to 925 rupees.

Decliners

Cement stocks fell again for the second day after the government agency said that it plans to investigate companies for their monopoly trading practices and possible price collusion. Senior bureaucrat in the industrial policy said to the reporters in New Delhi that India may open cement import to stem the rising prices.

ACC fell 4.6% and Ambuja Cements and Shree Cement dropped 3% on the news.

Sterlite Industries ((SLT)) fell 1.9% to 658 after reporting first quarter profit decline of 10% to 200 crore rupees on sales rise of 32% to 3,165 crore rupees. Largest copper and zinc producer said that higher refining cost hurt the margin.

Earnings and weak trading sentiment contributed to the lower close for Asian Markets across the region. Technology, bank, and commodities stocks faced a fractional decline in the region. South Korea led the region with a 2.03% loss followed by 1.8% decline in Taiwan, 1.5% decrease in Singapore, and 1.2% fall in Indonesia and Australia. India and China led the region with a gain of 0.5% but Hong Kong lost 0.64%.


[R]6:30AM New York, 7:30PM Tokyo – Japan closed lower on earnings and reversal in resource companies.[/R]

The Nikkei 225 fell 0.88% or 156.33 to close at 17,702.09 on lower metal prices and ahead of election results for the Upper House elections in Japan.

Nomura Holdings and Nintendo were few companies that managed to gain on a day when most shipping, technology and resource and metals companies led the decline in the index.

Gainers

Nintendo soared 8.8% to 61,800 yen on five-fold earnings and annual earnings revision.

Nomura jumped 6.5% to 2,260 yen after reporting a sharp jump in earnings on higher asset management fees and brokerage commission.

Juki Corp, maker of expensive sewing machines, jumped 12% to 966 yen after reporting earnings surge of 56% to 3.17 billion yen.

Decliners

Ahead of the earnings Canon fell 2.3% to 6,890 yen on the concerns that earnings may miss the target. The decline in Canon led several other technology stocks lower. After the close the company reported earnings gain of 17% to 123.9 billion and lowered its annual earnings forecast by 1% to 500 billion on higher depreciation charges stemming from revised method.

Trading houses, steel and copper manufacturers fell sharply on profit taking. The metal and oil trading companies declined on profit taking in the sector.

Nippon Steel fell 2.9% to 904 yen, Sumitomo Metals plunged 4.5% to 2,960 yen, Mitsubishi Corp lost 2.6% to 3,440 yen. Marubeni declined 4.4% to close at 1,123 yen.

Shipping companies declined on profit taking and worries that recent stock gains may not be justified to reflect the earnings expectations. Kawasaki Kisen Kaisha fell 1.8% to 1,635 and Nippon Yusen dropped nearly 5% but managed close a fraction higher.

After the Close Earnings

Sony Corp reported first quarter earnings of 66.5 billion yen compared to 33.2 billion yen a year ago on revenue gain of 13% to 1.98 trillion yen. Operating profit in the quarter jumped to 99.3 billion yen from 27 billion yen a year ago. Operating income without the currency gain would have been 25.7 billion lower.

PlayStation division reported a wider loss of 29.2 billion yen compared to 26.8 billion yen from a year ago. The company also projected sale of 11 million units for the year, lower than 16.5 million reported by Nintendo during its earnings release.

In the filmed entertainment division sales rose 13% to billion yen with a profit of 3.3 billion yen and Sony Life drove sales in financial division 49% higher and operating profit gain of eight-fold.