Up, Down, Up Again

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

volatility was the only constant in New York trading. Market averages declined, gained, lost, jumped back up in the plus in the last fifteen minutes of trading. Rumors on home builders, oil price speculation, and debate on the next subprime victim, left investors guessing all day. European markets closed with a loss of 1.5%. Asian markets lost between 3% and 4% in overnight trading. After the earnings reports, Areclor Mittal jumped 7%, but MasterCard fell 7%.

[R]4:00PM New York, 10:00PM Frankfurt, 1:30 AM Mumbai – New York rallied in the late afternoon. European markets closed mixed on takeover news.[/R]

Dow Jones closed up 150.38 to 13,362.37, Nasdaq advanced 7.60 to 2,553.87, and S&P 500 increased 10.61 to 1,465.88.

FTSE 100 Index in the U.K. closed down 109.50 to 6,250.60, in Tokyo Nikkei 225 closed at 16,870.98, down 377.91, and Brazil iBovespa lost 41.91 to close at 54,140.59.

Yields edged higher on 10-year U.S. bonds and closed at 4.75% and 30-year bond rose to close at 4.90%.

Crude oil declined $1.68 to close at $76.53 per barrel, natural gas closed 16 cents higher to $6.35 per mBtu, and gasoline futures decreased 7.6 cents to close at 202.96 cents per gallon.

Gold traded lower $3.40 to close at $675.90 per ounce, silver down 6 cents to close at $12.95 per ounce, and copper futures gained $194 to close at $8,137 per metric ton.

On a day when all news is viewed in a negative light, market averages braved in New York trading to climb higher in the final minutes. The trading sentiment remains fractured with a propensity to sell first and ask questions later. Beazer Homes which ones traded as high as $70 in the last twelve months, lost 17% of its value on rumors that company is facing financial crisis. The company denied rumors but the stock still closed at a new low. Oil refiners fell for the third day in a row on weak prices in crude oil. Valero, Tessoro, and other oil complex stocks dropped as much as 5%.

Economic data in the U.S. on housing and manufacturing did not help the sentiment either. Housing market index of pending new homes sales declined and ISM manufacturing index for July declined more than expected. Tech stocks rallied in the final fifteen minutes lifting broader averages. Cisco jumped 3%, Apple increased 2.5%, Microsoft added 1% on a mad dash at the end. European stocks did not do this well. Indexes in Europe closed with losses of 1.5% when U.S. averages were still falling. Asian markets suffered their worst declines in the last five months led by a sharp fall in bank stocks in the region.

Nikkei 225 Index fell 2.2% or 377.91 to 16,870.98 on weakness in financial stocks across the region. All markets in Asia fell with the losses between 3% and 4%. Taiwan, Korea, and India fell nearly 4% and led the region’s decline. Hong Kong, Australia, Singapore, Thailand declined 3%, and Philippines lost more than 2%. The yen in trading against international currencies gained on the possible fall out to the carry trade investment mechanisms.

Latin American Markets traded in a volatile pattern but managed to recover most of the day’s losses. Mexico led the region with a loss of 2.0% followed by a loss of 0.65% in Chile, 0.14% in Argentina and 0.09% in Brazil.

In Sao Paolo trading among ibovespa index Telemig celular led the decliners with a loss of 6.7% followed by more than 5% loss in Souza Cruz, CESP, and Cyrela. Of the 59 stocks, 51 closed lower and 8 closed higher. Braskem SA, the petrochemical and electricity producer led the gainers with a rise of 2.4%.


[R]1:00PM NY, 5:00 PM Frankfurt European markets lost ground, dragged by credit markets worries.[/R]

European stock markets lost ground to close steeply down Wednesday, pressured by weaker financial stocks amid global worries about credit markets. Subprime mortgage concerns re-emerged on fears of a potential liquidation of a U.S. mortgage lender and fears of losses at some of Macquarie Bank''s hedge funds and a third Bear Stearns fund. The U.K. and France tumbled 1.7% each, followed by Germany which declined 1.5%.

In Frankfurt Deutsche Bank declined 2.1% in news it took a considerable charge related to the revaluation of its leveraged finance portfolio. Car maker BMW dropped 5% after its Q2 net profit slipped 4%. Among other movers, washing powder maker Henkel slid 3.5% after the firm posted disappointing sales.

In Paris French bank BNP Paribas dropped 1.3% although it reported 20% earnings rise in Q2. Elsewhere, drugmaker Sanofi-Aventis lost 3.4% after the firm reported Q2 profit drop of 6% with sales down 2%.

In London of Barclays dropped 2.3% after American Home Mortgage Investment said it might liquidate its assets after failing to meet margin calls. Among other financials, hedge fund operator Man Group and 3i Group fell more than 3.5% each.

HSBC slipped 2.8% amid potential losses from the U.S. subprime mortgage market. The mining sector also posted weakness, with shares of Rio Tinto and BHP Billiton falling more than 4.4%. British Airways fell 2.9% after it was imposed a fine of about 250 million pounds to settle price-fixing probes with U.K. and U.S. regulators


[R]11:30AM Housing and financial stocks led decliners.[/R]

U.S. market averages continued to trade lower, pressured by worries about U.S. home loans and the credit market. Record-high oil prices and data on housing and manufacturing also weighed. Oil prices hit a record high Wednesday after the weekly petroleum report. Light, sweet crude for September delivery rose 24 cents to $78.45 a barrel.

The housing and financial sectors posted the most notable losses. Bear Stearns ((BSC)) fell 3% on reports it will face big losses in a third fund with about $900 million in mortgage investments. At the same time, the natural gas sector advanced, benefiting from a higher natural gas price. Utility and defense stocks posted modest gains.

On Wednesday, auto makers reported July sales. DaimlerChrysler ((DCX)) posted a 9.1% decline in July U.S. sales to 156,314 vehicles despite a strong showing in Chrysler cars. Chrysler posted an 8%, even as car sales surged 32% on the back of the Sebring sedan. Mercedes reported a 14% drop to 18,586 cars and trucks.

In earnings news, Arcelor Mittal ((MT)) posted a $2.72 billion profit in Q2, compares with earnings of $1.82 billion last year. Time Warner ((TWX)) reported a 5% profit rise in Q2 on 6% revenue increase. The conglomerate earned 28 cents per share, up from 24 cents per share a year ago. Despite the positive results, Time Warner shares fell 4%. Whole Foods Market ((WFMI)) rose 9% after reporting a smaller but better-than-expected Q3 results.

In late morning trading, the Dow rose 7.96, or 0.06%, to 13,219.95 after being up as much as 75 points earlier. The Standard & Poor''s 500 index fell 1.24, or 0.09%, to 1,454.03, and the Nasdaq composite index fell 13.10, or 0.51%, to 2,533.17. Bonds showed little movement. The yield on the benchmark 10-year Treasury note remained flat at 4.75% from late Tuesday.

[R]ISM index declined to 53.8% in July.[/R]

Wednesday morning, the Institute for Supply Management released its report on business activity in the manufacturing sector in the month of July, showing that the pace of growth in the sector slowed much more than economists had expected. The ISM said that its purchasing manager''s index fell to 53.8 in July from 56.0 in June, although a reading above 50 still indicates growth in the sector. Economists had been expecting a more modest decline to a reading of 55.5.

The bigger than expected slowdown in the pace of growth was largely due to a significant slowdown in the pace of production growth, as the production index fell to 55.6 in July from 62.9 in the previous month. The report also showed slowdowns in the pace of new orders and employment growth. The new orders index fell to 57.5 in July from 60.3 in June, while the employment index fell to 50.2 from 51.1. The pace of price growth also slowed compared to the previous month, although it remained at an elevated level, with the prices index at 65.0 in July compared to 68.0 in June.


[R]10:00AM New York, 7:30PM Mumbai – Sensex plunged to its third worst one day loss on near 4% sell-off in Asia.[/R]

Sensex in Mumbai trading plunged 615.22 or 3.96% to 14,935.77 level. Other indexes in the region fell between 4% and 3% during the session. Taiwan, Korea, and India led the decliners in the region. Stock trading in the session jumped to 6,267 crore rupees from 5,298 crore rupees a day ago.

In the broader market 2,147 stocks declined, 533 advanced, 41 were unchanged.

Among Sensex stocks ACC cratered 9.6% to 958 rupees on heavy volume. Reliance Energy lost 7% and Manhindra & Mahindra declined 4.8%.

Tata Motors dropped 4.65% to 666.80 rupees. Bajaj Motors lost 2.8% to 2,295 on the news that July sales dropped 7% from a year ago to 185,890 units. Maruti Suzuki India reported 18% rise in July sales to 52,839

Hindalco Industries lost 6.4% to 159 rupees after the company reported first quarter proft of 602 crore rupees, flat from a year ago and on revenue gain of 9%. The company sold 4,677.9 crore rupees of metal and metal products in the quarter.

Real estate stocks, subject of market speculation saw some air off the market valuations. Indiabulls Real Estate and Orbit Corporation plunged 9%, Unitech declined 7.3%, DLF lost 4%, and Mahindra Gesco fell 5%.

Consumer sector stocks that are supposed to withstand this kind of market declines fell as well. Hindustan Lever dropped 2.5%, Cipla fell 3%, ITC lost 2.2%.

Bank stocks fell a day after the Reserve Bank of India hiked the reserve ratio for bank deposits to 7%. Union Bank fell 9%, Bank of India lost 8%, and Allahabad Bank fell 6.5%.

Everonn Systems prices 4 million (40 lakhs) stocks at 245 rupees. The initial public offering jumped to 560 rupees before closing at 478.50 rupees with a premium of 242%. The offering was oversubscribed by 131 times propelling the stocks in the stratospheric level.

Jai Corp board of directors approved the foreign investor limit to 49% and agreed to split stock.


[R]09:45AM Wall Street opened flat, reflecting credit markets concerns and strong earnings.[/R]

Wall Street opened flat, as investors weighed up a new hit to the credit markets and some strong earnings reports. On Tuesday worries about home loan defaults renewed when American Home Mortgage Investment ((AHM)) reported troubles with its credit lines.

Bear Stearns ((BSC)) built on these concerns Wednesday as it is likely to face losses in July in its Asset-Backed Securities Fund after closing other two hedge funds recently. The stock dropped 1.8%.

On the earnings news front, Mastercard ((MA)) slipped 11.5%, despite posting better-than-expected results. The world''s No. 2 credit card franchise said it swung to a profit in Q2 from a loss last year, due to higher card usage and weaker dollar. Mastercard posted profit if $1.43 a share vs. a loss of $2.30 per share a year ago, exceeding expectations of $1.3. Kraft Foods ((KFT)) lost 0.8% although its Q2 profit rose 4%.

In the first hour of trading, the Dow fell 31.95, or 0.24% to 13,180.04 after being up more than 50 points earlier. The Standard & Poor''s 500 index fell 3.91, or 0.27%, to 1,451.36, and the Nasdaq composite index fell 13.29, or 0.52%, to 2,532.98.


[R]9:00AM U.S. stock futures pointed to a lower opening, hurt by credit markets and funds.[/R]

U.S. stock futures reversed from steeper lows early Wednesday but continued indicating weak opening. The troubled credit market was in the spotlight again, alongside with funds exposed to that market and lending banks. Worries about U.S. home loan defaults affected not only Wall Street, but spread throughout global markets too.

Australia''s Macquarie Bank said that one of its funds had a monthly loss of 25% and didn''t have direct exposure to the U.S. subprime market. Bear Stearns is expected to face losses in July in its Asset-Backed Securities Fund fund with about $900 million in mortgage investments. Recently, Bear Stearns shut two hedge funds.

Among companies posting earnings before the opening bell, Time Warner ((TWX)) edged down after it reported a 5% profit rise, while Mastercard ((MA)) gained 4% on better-than-expected results. Owens Corning ((OC)), building products maker, reported 88% earnings jump in Q2, due to weak housing market. Kraft Foods ((KFT)) said Q2 profit rose 4%.

Rupert Murdoch''s media conglomerate News Corp. ((NWS)) and WSJ publisher Dow Jones ((DJ)) attracted attention after signing a formal merger agreement of $5 billion, or $60 a share. In other corporate news Apple ((AAPL)) added 1% in pre-open trading as Citigroup upgraded the stock to buy from hold. It kept its price target at $160.

S&P 500 futures fell 5.4 points at 1,456.50 and Nasdaq 100 futures declined 5.5 points at 1,940.25. Dow industrial futures fell 55 points.


[R]8:15AM News Corp. and Dow Jones agreed to merge for $5 billion.[/R]

Rupert Murdoch’s News Corp. ((NWS)) and WSJ publisher Dow Jones & Co. ((DJ)) announced early Wednesday they signed a definitive merger agreement. Murdoch added one of the great trophies of U.S. journalism to his global media empire in a deal valued at $5 billion. The Bancroft family, which have owned the newspaper for over a century, initially rejected Murdoch''s offer in early May, but then agreed to reconsider.

Bancroft family members and trustees, representing 37% of the company''''s shareholder vote, agreed to support the deal. Another 29% of the vote is held by public shareholders, who are very likely to support Murdoch. The combined percentage will be enough to guarantee passing of the deal.

The deal is expected to expand Murdoch''''s global media and entertainment empire News Corp., which owns the Fox broadcast network, Fox News Channel, the Twentieth Century Fox movie and TV studio, MySpace, newspapers in Australia and the U.K.


[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.