Europe Falls With Spreading Credit Worries

123jump.com Staff
01 Aug, 2007
New York City

European markets trade sharply lower ahead of New York opening and in the wake of sharp correction in Asian markets. Markets in the region, except Swiss market, are trading lower by 2% at mid-day trading. Deutsche Bank reported higher earnings bucking the trend of lower bank earnings in Japan. Rising sales at BMW failed to increase earnings. Cadbury Schweppes reported shaprly lower earnings melting the stock 7%. Mortgage bank HBOS earnings profit rose but offered weak outlook.

[R]8:00AM New York, 1:00PM London – European companies report higher earnings but credit worries in the U.S. affect the trading sentiment.[/R]

European markets fell sharply at the mi-day trading across the region. The high yield fund losses at a subsidiary controlled by Macquarie Bank in Australia and profit declines at banks in Japan contributed to worries in the region. Bear Stearns in the U.S. is limiting high yield funds withdrawal on losses. The indexes in the region traded lower at the opening and quickly fell after four hours of trading.

European markets declines were led by 2.2% loss in France and Norway, 1.7% decline in Italy and the Netherlands, Germany, 1.6% decrease in UK, and 1.2% slide in Spain. Switzerland, the lone gainer in the region, jumped 2.1%.

In London trading, Man Group dropped 3.4% on the worries that earnings in the current quarter may decline sharply in the futures and derivative related funds that it manages. Cadbury Schweppes melted 7% after the first half net income fell nearly 80% to 182 million pounds.

British Air agreed that it colluded with Virgin Air in setting higher fuel surcharges for airline tickets. The UK government agency levied $250 million fine and similar fines are expected from the U.S. agency.

The largest mortgage bank in the UK, HBOS said that its profit for the first half rose to 2.11 billion pounds from 1.76 billion pounds a year ago. Despite the five rate hikes the company has delivered higher profit on higher loans. The bank guided that profit rise in the second half will decline if rates keep rising.

Mining stocks in trading fell nearly 4%. BHP Billiton, Xstrata, and Rio Tinto fell more than 4% on the worries that the credit problems in the U.S. will affect demand for metals.

In Frankfurt trading Deutsche Bank fell 2% after reporting second quarter earnings gain of 31%. The bank net income increased to 1.78 billion euros from 1.35 billion euros from a year ago. The earnings per share increased to 3.60 euros from 2.44 euros. BMW reported second quarter earnings decline of 4.3% to 753 million euros on 11% rise in sales to 14.7 billion euros. The stock lost 5% after the news.

BASF second quarter profit jumped 11% to 1.02 billion euros from 920 million euros on 19% increase in revenue to 14.7 billion euros. The earnings per share increased to 2.08 euros from 1.82 euros. The stock fell after the news more than 2% in the general weakness in the market.

Largest retailer Metro AG reported 60% decline in earnings on 9.7% rise in sales to 15.4 billion euros. The earnings fall, without one time gain in the earlier year, would have been lower. Sales in Germany jumped 5.6% and in the rest of Europe advanced 13%. The revenue in Eastern Europe jumped 24% and 29% in Asia and Africa group.


[R]7:00AM New York, 8:00PM Tokyo – Widening net of subprime contagion drag Asian markets sharply lower.[/R]

What first appeared in the U.S. is now quickly spreading to Asia and Europe. The subprime contagion.

Nikkei 225 Index fell 2.2% or 377.91 to 16,870.98 on weakness in financial stocks across the region. Of the 1,686 traded in the first-section, for every rising stock seven stocks fell. All markets in Asia fell and the most of them declined between 3% and 4%.

The yen in trading against international currencies gained on the possible fall out to the carry trade investment mechanisms. The yen dipped below 118 from near 119 to a dollar.

Taiwan, Korea, and India fell nearly 4% and led the region. Hong Kong, Australia, Singapore, Thailand declined 3%, and Philippines lost more than 2%.

Mizuho Group plunged 9% after reporting 49.5% decline in first quarter profit. The net income fell to 116 billion yen on 22% rise to 1.05 trillion in ordinary income. The banking group, one of the largest in the country, led other bank stocks to decline between 4% and 5%. Lower income and dividend from investment in equities and other investments dragged the higher ordinary income from loans and deposits income. The news contributed to the general worries related to subprime lending in the U.S., Europe, and Australia.

Mitsubishi UFJ Group reported first quarter earnings decline of 31% to 151 billion yen on 18% increase in ordinary income to 1.5 trillion yen. Higher net fees and trading commissions were dragged by lower net interest income for the group. After the news the stock fell 4.6% with a general decline in the bank stocks. The bank is able to pass on higher interest rates to its core customer base of small businesses and first time home buyers, which other banks are not able to do this easily. Market analysts hoped that recent hikes in interest rates will still benefit the bank earnings in the rest of the year more than other banks.

Idemistu Kosan, second largest oil refining company in Japan after Nippon Oil, fell 2.8% after reporting 74% decline in first quarter profit. The refiner reported 0.7% drop in the revenue largely on eroding demand for refined products. The company is increasing its exploration in the North Sea area and is spending more to widen its exploration activities. For the current fiscal year the company guided lower operating income by 31 billion yen to 109.0 billion yen according to its revised presentation on the company website.

Asian currencies declined after Macquarie Bank reported losses in funds investing in high yield securities. Macquarie loss in Australia and similar losses in Japan and recent fallout in subprime trading at Bear Stearns added to global jitters that left all averages in the region sharply lower.