Nervous Investors, Volatile Markets

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

Markets around the world were gripped by the widening subprime contagion. Averages in New York opened lower but managed to regain most of the losses by the end of the session. European markets closed at 4-year lows. Asian markets fell, led by 4.2% loss in korea and near 3% decline in Hong Kong, Australia, and Philippines. Japan, Brazil, and Mexico fell 2.2%. July trade surplus of China jumped 67%.

[R]4:00PM New York, 10:00PM Frankfurt, 1:30 AM Mumbai[/R]

Fears of subprime fallout pervaded markets around the world. New York opened lower but managed to regain most of the losses by the end of the day. European markets closed lower and Asia fell sharply at the end of the week.[/R]

Dow Jones closed down 30.98 to 13,329.70, Nasdaq declined 11.59 to 2,544.89, and S&P 500 increased 0.56 to 1,453.65.

FTSE 100 Index in the U.K. closed down 232.90 to 6,038.30, in Tokyo Nikkei 225 closed at 16,764.09, down 2.37% or 406.51, and in Brazil, iBovespa closed down 2.90% to close at 53,637.06

Yields edged higher on 10-year U.S. bonds and closed at 4.77% and 30-year bond rose to close at 5.00%.

Crude oil decreased 13 cents to close at $71.46 per barrel, natural gas closed 25 cent higher to $6.84 per mBtu, and gasoline futures increased 2.1 cents to close at 195.48 cents per gallon.

Gold traded $8.80 higher to close at $681.60 per ounce, silver gained 17 cents to close at $12.87 per ounce, and copper futures declined $101.50 to close at $7,603.00 per metric ton.

In New York trading stocks fell at the opening as central banks around the world injected liquidity in the financial systems. Home builders, mortgage lenders, and brokerage and securities companies declined.

The Federal Reserve Bank, this morning issued a statement with an intention to calm the markets. In the statement the bank said that it is “providing liquidity to facilitate the orderly functioning of financial markets” and also added that it “will provide reserves as necessary” to meet “the needs because of dislocations in money and credit markets.”

The European Central Bank was forced to inject liquidity on Thursday and Friday. In the two days it has added nearly 130 billion euros in the market to curb the interest rate rising above its target rate of 4%. The rates had risen to 4.7% and after the injection interest rates fell to 4.1% but the credit markets remain jittery.

The Central Bank in Japan added 1 trillion yen in liquidity to keep the rates below 0.45% the rates had jumped to 0.55%. The Reserve Bank of Australia added A$4.5 billion in liquidity. Singapore Monetary Authority added S1.5 billion and said that it is prepared to fund more liquidity if needed. The central banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.

Home builders stocks fell sharply only to see the previous day’s gains wiped off. Beazer Homes plunged 9%, D R Horton fell 4%, Pulte Homes dropped 5%, and Toll Brothers declined 2%. Countrywide Financial fell nearly 8% before recovering to close at 3% after reporting that current financial market volatility may hurt the company performance. Washington Mutual fell 3% after saying that closing non-prime loans and securities have become difficult.

Of the 30 stocks in Dow Jones Industrial Average 24 closed lower and 6 advanced. General Electric and Coca Cola led the decliners with a loss of 3%, followed by 2.5% loss in General Motors, Microsoft, and Alcoa. Honeywell, Verizon, and Merck dropped 2%. Hewlett and IBM led the gainers with a rise of 1%. Intel added 0.5%.

Of the stocks in S&P 500, 298 stocks closed lower and 201 gained, 1 stock closed unchanged. Financial stocks dominated the losers list. MGIC Investment Corp dropped 13% followed by AMBAC with a loss of 8.3%, Discover Financial with a decline of 7%. Housing related stocks fell sharply as well. Pulte Homes, D R Horton, and Countrywide Financial dropped 6%. Convergys Corp led the index stocks with a gain of 112% followed by 8% rise in Ashland, 7.7% gain Forest Labs and Cincinnati Financial.

Asian markets closed declined with heavy losses in Korea, Hong Kong, and Australia tracking lower markets in New York and Europe. Korea led the decliners in the region with a loss of 4.2% followed by 3.6% fall in Australia, 3% decrease in Philippines and Hong Kong, 2.7% fall in Taiwan, and 1.5% decline in India, Indonesia, and Singapore.

In Latin Markets trading Argentina led the region with a loss of 2.23% followed by 2.1% decline in Brazil, and 1.75% decrease in Mexico.

In Sao Paolo trading iBovespa index lost 1,088.13 to close at 52,342.71 with 50 stocks in the index falling, 9 stocks gaining, and 1 stock remained unchanged. TIM led the decliners with a loss of 6.25% followed by MET Gerdau with a loss of 4.2%, CCR with 4% and Cyrela with 3.9%. Sabesp led the gainers with a rise of 2.6% followed by 1.3% in Pao Acucar, and 1.1% in Gol and Net Servicos.


[R]1:00PM NY, 5:00 PM Frankfurt European markets tumbled on subprime worries.[/R]

European stock markets posted Friday the sharpest decline four years amid constantly growing concerns that a widening credit crunch may hurt economic growth and corporate earnings. Banks in Europe, Asia and the U.S. injected billions more dollars into the banking systems Friday in order to boost liquidity in global markets. Investors sold off financials stocks. Deutsche Bank, insurer AXA and hedge-fund manager Man Group were notable losers. The U.K. tumbled 3.7%, France dropped 3.1%, while Germany fell 1.5%. Ireland was one of the worst European performers, falling down 4.2%.

In Frankfurt Deutsche Bank posted a steep decline of 3.5%. Shares of Dutch bank ABN Amro fell 3.5% to 33.85 euros. Travel-related companies were hard hit, with Lufthansa falling down 3.6%.

In Paris stocks declined paced by financials. Societe Generale, the country’s second-biggest lender, fell 5%, while insurer AXA declined 3.4%. Elsewhere, power plants maker Alstom declined 7.3%. Cap Gemini, computer services company, slid 6.6%.

In London the world''s largest publicly traded hedge fund company Man Group slipped 9.1%. Insurance company Old Mutual Plc fell 5.9%. Mining companies moved significantly lower, as copper, nickel and zinc headed for a third straight week of declines. BHP Billiton Ltd. declined 6.7%, while Rio Tinto Group dropped 6.2%.


[R]11:30AM Market averages tumbled, hurt by credit markets worries.[/R]

U.S. market averages continued to trade sharply lower but managed to pare some losses after the Fed Reserve made a second move Friday to ease the quell fears around the world by injecting another $16 billion into the market. Earlier, the Fed injected $19 billion and the ECB added another $83.6 billion, after Thursday''s $130 billion injection. The Bank of Japan on Friday added $8.5 billion.

Financial stocks posted significant losses, with brokerage and banks posting the biggest drop. Bear Stearns ((BSC)) was down 4.6%, Merrill Lynch ((MER)) lost 1.4% and Lehman Bros ((LEH)) fell 2.6%. Countrywide Financial ((CFC)) slid 8% after it said its allowance for credit losses climbed 97% from the end of last year. Crude oil dropped Friday, as credit-market worries escalated.

Crude for September delivery fell $1.21 to $70.40 a barrel. In late morning trading, the Dow Jones industrials dropped 122.34, or 0.92%, to 13,148.34, adding to a 387-point plunge on Thursday. The Standard & Poor''s 500 index fell 9.54, or 0.66%, to 1,443.55, and the Nasdaq composite index fell 26.19, or 1.02%, to 2,530.30. The yield on the benchmark 10-year Treasury note fell to 4.74% from 4.79% late Thursday.


[R]Import prices jumped 1.5% in July.[/R]

Friday morning, the Department of Labor released its report on import and export prices in the month of July. While the report showed a notable increase in import prices, export prices showed a much more modest increase. The report showed that import prices jumped 1.5 percent in July after rising 0.9 percent in each of the two previous months. The increase in import prices marked the biggest increase in prices since March.

A sharp rise in prices of petroleum imports contributed to the increase in import prices, with petroleum import prices surging up 7.0 percent in July following a 4.4 percent increase in June. Excluding petroleum imports, import prices increased by a much more modest 0.2 percent compared to a 0.1 percent increase in the previous month. As mentioned above, the report also showed that export prices edged up 0.2 percent in July following a 0.3 percent increase in June. The modest increase in prices was largely due to a 1.5 percent increase in prices of agricultural exports, which came on the heels of a 2.7 percent increase in the previous month. Excluding agricultural exports, export prices were unchanged in July.


[R]11:00AM New York, 9:00PM Mumbai – Sensex in Mumbai fell sharply on the last day of trading, third weekly loss.[/R]

Sensex in Mumbai trading fell 231.90 points or 1.54% to close at 15,868.25 on weak trading sentiment. In the broader market 1,574 stocks fell, 1,127 increased, and 58 were unchanged. Rupee in international trading weakened to 40.63 against one dollar from 40.53.

Daily turnover on the Bombay Stocks Exchange increased to 5,196 crore rupees from 5,496 crore rupees. Of the thirty stocks in index, 22 lost ground while eight increased in value. Orbit Corporation followed by IFCI and DLF led the list of stocks on the most active in the trading today.

Tata Steel fell 2.4% on the news that the company will have to pay higher interest rate on its $1 billion loan for its recent acquisition of Corus in the UK. Egyptian government is reported to be in a deal with Reliance Industries to fund $10 billion of investment in countries oil and plastics infrastructure.

Bharti Airtel fell 3.6% to 838 rupees on heavy volume after reporting new subscriber growth of 2.1 million or 21 lakhs in July totaling to 44.8 million or 45 lakhs. Bharti stock led the decliners in the Sensex. Reliance Communication declined 2.4% after a day completing its private placement offer of $340 million in Reliance Telecom Infrastructure. The 5% private placement values the company at $6.75 billion.

Banks declined for the second day in a row. Bank of Baroda declined 1% after losing 5% to 295 rupees, 3.6% loss in Kotak Mahindra Bank to 740 rupees, and 1.6% decrease in Allahabad Bank to 90 rupees. Punjab National Bank fell 2.6% to 498 rupees. ICICI Bank dropped 2.9% to 865 rupees and HDFC Bank declined 2% to 1,132 rupees.

Software exported rallied led by 2.33% rise in Satyam Computers to 478 leading all the stocks in the Sensex. Infosys gained 0.7% to 1,949, TCS fell 0.4% to 1,142 rupees.
Tata Motors jumped 0.9% to 668 rupees on the news that the company is looking to build a manufacturing base in Thailand for trucks.

Sterlite Industries led the metal stocks losses with a decline of 3.5% to 589 rupees, Hidustan Zinc lost 2.3% to 713 rupees, Hindalco fell 2.3% to 152 rupees, and JSW Steel lost 1.8% to 625 rupees.

10:00AM New York, 2:00PM Frankfurt – The Central Banks around the world acted in unison to stem rising local interest rates and provide liquidity in the financial systems.[/R]

The central banks around the world are getting in the act, what appears to be a coordinated effort at global level to fight the perceived shortage of credit.

The Federal Reserve Bank, this morning issued a statement with an intention to calm the markets. In the statement the bank said that it is “providing liquidity to facilitate the orderly functioning of financial markets” and also added that it “will provide reserves as necessary” to meet “the needs because of dislocations in money and credit markets.”

The European Central Bank was forced to inject liquidity on Thursday and Friday. In the two days it has added nearly 130 billion euros in the market to curb the interest rate rising above its target rate of 4%. The rates had risen to 4.7% and after the injection interest rates fell to 4.1% but the credit markets remain jittery.

The Central Bank in Japan added 1 trillion yen in liquidity to keep the rates below 0.45% the rates had jumped to 0.55%.

The Reserve Bank of Australia added A$4.5 billion in liquidity. Singapore Monetary Authority added S1.5 billion and said that it is prepared to fund more liquidity if needed.
The central banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.

The historic low interest rates in the U.S. during the last five years led to a rise of new kind of lenders, private lenders in the mortgage markets. These lenders provided liquidity in the riskier market segments that were shunned by the government agencies creating credit boom for the low and middle income families. Many economists believe that rates in the U.S. were kept too low for too long and the global financial markets are now paying the price.

More than 35% of U.S. housing loans issued in the last three years in the mortgage markets provided additional liquidity in the housing market. These new buyers willing to speculate in the marketplace bid up prices of homes across the nation to historic highs. The bubble like home prices in the states of Florida, Nevada, California, and other coastal states lifted home prices above the level that family with two income earners cannot afford. The affordability of home buying, measured in multiple of family income level, has fallen to the lowest level in the last twenty years in the U.S.


[R]09:45AM Wall Street opened steeply down, pressured by subprime worries.[/R]

Wall Street plunged for a second straight session, as credit markets concerns continued to generate negative mood. The Federal Reserve joint other central banks in their efforts to ease quell fears around the world by pouring cash into the markets for a second day. The Fed injected $19 billion into the banking system after the ECB added another $83.6 billion, and the Bank of Japan added $8.5 billion.

Shares of financial companies were sold off, with Goldman Sachs Group ((GS)) losing more than 2%. Countrywide ((CFC)) tumbled 10% after the U.S. largest mortgage lender said future profits may be hurt by the severe credit market disruptions.

Other financial stocks posting significant losses included Bear Stearns ((BSC)), down 4.9%, Merrill Lynch ((MER)), losing 0.5% and Lehman Brothers ((LEH)), falling 3%. Shares of industrial conglomerates declined, with plane maker Boeing ((BA)) down 3.1% and diversified manufacturer General Electric ((GE)) losing 1.7%.

The Dow Jones industrial average was down 108.20 points, or 0.82%, at 13,162.48. The Standard & Poor''s 500 Index fell 11.91 points, or 0.82%, at 1,441.18. The Nasdaq Composite Index lost23.97 points, or 0.94%, at 2,532.52.


[R]09:00AM U.S. stock futures indicated a steeply lower start, pressured by continuous credit worries.[/R]

U.S. stock futures predicted another day of heavy losses Friday, extending the steep decline from the previous session amid constantly growing credit market worries. On Friday, market received a fresh injection of cash by overseas central banks. The ECB injected 61 billion euros in a tender auction, and the central banks of Japan and Australia poured in roughly $12.5 billion.

According to Citigroup, investors using quantitative strategies, or computer models are experiencing a lot of difficulties. Countrywide Financial ((CFC)) fell 15% in pre-open after the U.S. mortgage lender said future profits may be hurt by the severe credit market disruptions.

In earnings-related news, California Pizza Kitchen ((CPKI)) dropped 12% as the company''s yearly earnings forecast came at the low end of analyst expectations. Graphics chip provider Nvidia ((NVDA)) fell more than 8% after it announced a 3-for-2 stock split. The company posted stronger-than-forecast quarterly earnings.

The concerns about credit and the effect of bad subprime loans sent global markets sharply lower. Japan''s Nikkei fell 2.4%, Hong Kong''s Hang Seng Index fell 2.9%. In early afternoon trading, Britain slipped 2.98%, Germany fell 1.59%, and France''s CAC-40 dropped 3%.

S&P 500 futures, in volatile moves throughout the morning, dropped 19.3 points at 1,438.60 and Nasdaq 100 futures dropped 21.5 points at 1,924.00. Dow industrial futures dropped 190 points. The yield on the benchmark 10-year Treasury note fell to 4.74% from 4.79%late Thursday.


[R]8:30AM New York, 8:30 PM Hong Kong – Asian markets corrected sharply on weakness in European and New York markets.[/R]

Asian markets closed declined with heavy losses in Korea, Hong Kong, and Australia tracking lower markets in New York and Europe. Korea led the decliners in the region with a loss of 4.2% followed by 3.6% fall in Australia, 3% decrease in Philippines and Hong Kong, 2.7% fall in Taiwan, and 1.5% decline in India, Indonesia, and Singapore.

In Hong Kong trading stocks fell sharply largely on the market nervousness than on fundamentals. Daily turnover on the main board dropped to HK$65.5 billion from HK$ 85.2 billion and volume on GEM market was reported at HK$0.5 billion, a decline of 50% from the previous session. Hang Seng Index opened sharply lower and attempted several rebounds in the morning trading but failed to gain much ground. Banks led the decliners. HSBC dropped 2% and Bank of East Asia fell 3%.

China reported July trade surplus of $24.4 billion, 67% jump from a year ago, and declined from $26.9 billion from June. The elevated surplus is fueling sharp rise in bank deposits, real estate prices, and stock market valuations. The rising demand is also fueling inflation in energy and food prices above the target set by the central bank. The People’s Bank of China said that the broadest measure of money supply, M2, rose 18% in July. Outstanding local currency loans in the month surged 16.6% and deposits in the local currency increased 16%.

Shanghai Composite Index edged fractionally lower to close at 4,749.37, still near the record high.

In Sydney trading ASX 200 fell 222.50 or 3.6% to 5,965.20. Of the total 201 stocks in the index, 9 gained, 189 declined, and 3 remained unchanged.

Perilya Ltd led the stocks in the index with a fall of 13.6% followed by 10% loss in Compass Resources, Mincor Resource, and Monadelphous Group. PMP Ltd led the gainers in the index with a rise of 2.6% followed by 2.11% gain in Futuris Corp, 1.7% increase in City Pacific, and 1% rise in Boom Logistics.

The Reserve Bank of Australia added liquidity in the market to stem the rising interest rates and worries that credit crunch may stem economic growth. The global injection of liquidity in local markets was carried out by the Federal Reserve Bank in Washington, the European Central Bank in Europe, and Central Bank in Japan.


[R]8:00AM Nvidia said its Q2 profit doubled.[/R]

Nvidia Corp. ((NVDA)), graphics chip maker, said late Thursday its Q2 profit nearly doubled, boosted by increased use of graphics-intensive applications. Quarterly net income rose to $172.7 million, or 43 cents per share, up from $86.8 million, or 22 cents per share a year ago. Company’s revenue jumped 36% to $935.3 million. Analysts had expected earnings of 43 cents per share on $859.9 million in revenue. Shares of Nvidia dropped 6.7% in pre-market trading.


[R]7:00AM New York, 8:00PM Tokyo – Market indexes in Tokyo more than 2% as fears arising from credit worries in the U.S. spread to the Asian markets.[/R]

Nikkei 225 index plunged 406.51 or 2.37% to 16,764.09 at close with financial and brokerage stocks leading the decliners. Topix index dropped 2.96% to close at 1,633.93. Market turnover has reached peak level and today was no different. Daily turnover fell from 5.3 trillion yen to 4.5 trillion yen but still hovered at triple the daily average volume.

The Bank of Japan in a coordinated effort with other central banks in Australia, Europe and the U.S. added liquidity to the market by lending 1 trillion yen. The central bank lent money at 0.49% to fight the rising interest rate which had reached above 0.55%. Reserve Bank of Australia loaned A$5 billion to provide the liquidity in the market. In the overnight trading the European Central Bank and the Federal Reserve Bank in Washington added liquidity in the market to fight the rising interest rates and perceived credit crunch. Central Banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.

According an analyst report cited by Nikkei News, nine largest Japanese financial groups have combined exposure to the U.S. subprime market of 1 trillion yen. The relatively light exposure in the Japanese banking system to the troubled mortgage market in the U.S. did not prevent investors selling stocks in droves.

Mizuho Financial Group, Nomura Holdings, and Shinsei Bank have confirmed exposure to the mortgage market in the U.S.

Of the 225 stocks in the index, 182 declined, 39 gained, and 4 were unchanged. Shinsei Bank led the stocks in the index with a loss of 10% followed by 9.2% decline in Nisshinbo Industries, and 9% fall in Mitsubishi Materials, Komatsu, and NSK Limited. Trading companies Itochu, Marubeni, and Mitsui fell 7% or more. Nippon Suisan led the stocks with a gain of 6% followed by 4% gain in Fast Retailing, and 3.5% rise in CSK Holdings.

Shipbuilding and shipping line operators were hit hard. Mitsui OSK, Sumitomo Osaka, Kawasaki Kisen Kaisha fell more than 4%.

Energy and metal stocks fell sharply in the sell-off in the market. Mitsubishi Materials plunged 9%, Nippon Soda, Nippon Mining, and Mitsui Chemicals dropped 7%, Toho Zinc lost 6%, and Nippon Steel declined 3%.

Trend Micro after surging for the each of three days in a row for 7% declined 2.5%.

Japan Tobacco fell 1.97% to 598,000 yen after rising in the previous. Japan Tobacco reported its first quarter sales of 1.2 trillion yen, a decline of 5.4% from a year ago and net income fell 15.2% to 64.4 billion yen. Domestic sales fell 13% but international sales rose 25.3% limiting the net profit decline. The company revised its sales forecast for the year to 6.41 trillion yen from 4.89 trillion yen and net income was revised to 256 billion yen from 186 billion yen.

Fast Retailing increased 4.2% after soaring 11% in the previous session on the news that the company plans to drop its bid for the U.S. based retailer Barneys New York.