UBS Sends Europe Sharply Lower

Elena
14 Aug, 2007
New York City

European stock markets closed notably lower on Tuesday, pressured by weakness in the financial sector after a warning from Swiss banking giant UBS. Steep declines on Wall Street amid concerns about consumer spending also weighed on sentiment. UBS dropped 3.7% after it warned that if the current market conditions persist, third-quarter performance would be weak. France led decliners with a drop of 1.65, followed by the U.K, down 1.1%, and Germany losing 0.7%.

[R]1:00PM NY, 5:00 PM Frankfurt European markets closed steeply lower amid weakness in the financial sector.[/R]

European stock markets closed notably lower on Tuesday, pressured by weakness in the financial sector after a warning from Swiss banking giant UBS. Steep declines on Wall Street amid concerns about consumer spending also weighed on sentiment. France led decliners with a drop of 1.65, followed by the U.K, down 1.1%, and Germany losing 0.7%.

UBS dropped 3.7% after it warned that if the current market conditions persist, third-quarter performance would be weak. The company posted quarterly earnings well above analyst expectations of 4.7 billion francs. The firm also took a 230 million Swiss franc loss from in-house hedge fund Dillon Read in Q2. Societe Generale dropped 4.6%, while shares of ABN Amro edged down 0.2%.

In Frankfurt automakers posted a strong performance,, with shares in Porsche moving up 0.7% and Fiat adding 1.6% in Italy.

In Paris financials were also notable decliners, with BNP Paribas losing 3.5%. French conglomerate Bouygues shares eased 1.1% in Paris. Among other telecom shares France Telecom added 0.4%, as Lehman Brothers upgraded its stock to overweight.

In London stocks declined, led by the world''s largest mining company BHP Billiton and Rio Tinto Group. BHP dropped 3.7% and Rio fell 1.4% as copper prices slipped. In the financial sector, Barclays dropped 3.3%, while the biggest mortgage lender in U.K HBOS lost 1.2% after Credit Suisse downgraded its stock. The broker lifted its rating on BT Group, sending its shares up 0.8%.


[R]11:30AM Market averages traded lower, led by retailers and financials.[/R]

U.S. market averages traded steeply lower, pressured by concerns about consumer spending amid weak results from Wal-Mart Stores and pessimistic forecast about slowing housing market from home-improvement retailer Home Depot. The retail sector was led down by Wal-Mart ((WMT)) which dropped 5% and Home Depot ((HD)) falling 3%. Mattel ((MAT)) was another decliner in the sector, falling 2%.

Financial stocks continued to post heavy losses, with Goldman Sachs ((GS)) falling 4.5, Morgan Stanley ((MS)) losing 3% and Lehman Bros ((LEH)) moving down 4%. UBS ((UBS)) also added to concerns about financial markets. Europe''s largest bank fell 3% after it reported a 79% rise in Q2 profit, but warned earnings in the second-half would be lower than last year.

Biotechnology sector was among the very few posting gains. The strength was largely due to OSI Pharmaceuticals ((OSIP)) which rose 5.4% following an upgrade by J.P. Morgan. Technology shares were earlier supported by the public offering of EMC Corp. ((EMC)). VMware ((VMW)) beat out Fortress to rank as the biggest first-day gainer in the IPO market. It opened at $52, 76% over its $29 offering price in recent trades.

In midday trading, the Dow Jones industrial average fell 128.35, or 0.97%, to 13,108.18. The Standard & Poor''s 500 index shed 15.07, or 1.04%, at 1,437.85, and the Nasdaq composite index fell 18.30, or 0.72%, at 2,523.94.

[R]Producer price index rose 0.6% in July.[/R]

Tuesday morning, the Department of Labor released its report on producer prices in the month of July, showing that prices rose much more than economists had been expecting due to a rebound in energy prices. The Labor Department said its producer price index rose 0.6 percent in July following a 0.2 percent decrease in June. Economists had been expecting a much more modest increase in prices of about 0.1 percent. With the increase, the annual rate of producer price growth accelerated to 4.0 percent from 3.3 percent in the previous month.

The bigger than expected increase in producer prices was largely due to a rebound in energy prices, which jumped 2.5 percent in July after falling 1.1 percent in the previous month. Prices for gasoline surged up 3.2 percent following a 3.9 percent decline in June. At the same time, food prices moved lower for the third consecutive month, slipping 0.1 percent in July after falling 0.8 percent and 0.2 percent in June and May, respectively. The decrease was partly due to a continued drop in prices for fresh fruits and melons.

However, the report also showed that the core producer price index, which excludes food and energy prices, edged up 0.1 percent in July after rising 0.3 percent in the previous month. The increase came in slightly below economist estimates of a 0.2 percent increase. The bigger than expected rise in producer prices may raise some concerns about the outlook for inflation, although the Federal Reserve has indicated that it is focused on core inflation.


[R]U.S. trade deficit unexpectedly narrowed in June.[/R]

The Department of Commerce released its report on U.S. international trade in goods and services in the month of June on Tuesday, showing that the trade deficit unexpectedly narrowed compared to the previous month. The report showed that the trade deficit narrowed to $58.1 billion in June from a revised $59.2 billion in May. Economists had expected the deficit to widen to $61.0 billion from the $60.0 billion originally reported for the previous month.

The narrower deficit came as an increase in the value of exports outpaced an increase in the value of imports. The value of exports rose 1.4 percent to $134.5 billion, while the value of imports edged up 0.5 percent to $192.7 billion. The Commerce Department also that the goods deficit narrowed to $67.5 billion in June, while the services surplus was virtually unchanged at $9.4 billion. The report also showed that the politically sensitive trade deficit with China widened to $21.2 billion in June from $20.0 billion in May.


[R]09:45AM Wall Street opened slightly higher. Wal-Mart and Home Depot weighed.[/R]

Wall Street opened slightly higher Tuesday. Shortly afterwards, the market averages turned mixed, reflecting a drop in the trade deficit and benign wholesale inflation along with weak results from two leading retail companies. The Labor Department said wholesale prices rose for the fifth time in six months. In another report, the Commerce Department said the U.S. trade deficit hit a 4-month low in June.

Blue-chip stocks posted losses as Dow component Wal-Mart ((WMT)) fell 4.7% after it cut its full-year earnings outlook, saying underlying performance in Q2 was disappointing. The retailer said its Q2 profit rose 49% but results excluding one-time items missed expectations.

Home Depot ((HD)) dropped 1.5% after it posted a 15% profit decline and forecast housing market would continue to slow down. The world''s largest home improvement store chain said sales dropped, particularly same-store sales. Quarterly results beat expectations and the company confirmed that it expects its earnings per share from continuing operations will continue to decline in 2007.

In the first hour of trading, the Dow Jones industrial average fell 18.20, or 0.14%, to 13,218.33. The Standard & Poor''s 500 index was up 1.65, or 0.11%, at 1,451.27, and the Nasdaq composite index added 5.44, or 0.21%, at 2,547.68. Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.79% from 4.78% late Monday.


[R]09:00AM U.S. stock futures indicated a higher opening on narrower trade deficit.[/R]

U.S. stock futures predicted a flat market opening after economic data showed an unexpected decline in the trade gap and a larger-than-expected increase in producer prices in July.

The Commerce Department said that the U.S. trade deficit narrowed by 1.7% in June to $58.1 billion, coming in below the economist forecast of a deficit of $61.3 billion. Higher energy prices lifted wholesale prices 0.6% to come in above estimates of 0.3%. Core producer price index increased 0.1%, in line with expectations.

Among pre-market highlights, Wal-Mart ((WMT)) dropped 4.9% after it cut its full-year earnings outlook, saying underlying performance in Q2 was disappointing and that many of its customers are under economic pressure. Home Depot ((HD)) added nearly 1% although it posted a 15% profit decline in Q2. It said it expects housing market weakness to extend into 2008.

Further on the economic news front, UBS ((UBS)) reported a 79% jump in Q2 profit, but warned second-half earnings would be lower than last year amid the market crisis. Fossil ((FOSL)) rose 7% in pre-open trade after reporting a 31% profit rise, beating expectations.

The U.S. dollar rose against other major currencies after data showed worse-than-forecast euro-zone economic growth and slower-than-expected U.K. inflation. S&P 500 futures rose 2.2 points at 1,457.30 while Nasdaq 100 futures fell a point at 1,941.50. Dow industrial futures rose 7 points.


[R]8:00AM Wal-Mart profit jumped 49%. The retailer cut 2008 profit.[/R]

The world’s biggest retailer Wal-Mart Stores Inc. ((WMT)) said Tuesday its Q2 net income jumped 49% to $3.11 billion, or 76 cents a share, compared with $2.08 billion, or 50 cents a year ago. Net sales climbed to $91.99 billion from $84.52 billion, while net revenue rose 9% to $93.01 billion from $85.43 billion. Quarterly results generally met estimate of 76 cents of profit on $92.68 billion of revenue.

Considerable reductions on back-to-school merchandise in the last weeks pressured quarterly profit. It took a loss of $863 million in last-year same quarter in connection with the sale of its German operations to Metro. Wal-Mart cut its earnings outlook. For fiscal 2008, Wal-Mart expects earnings of $3.05 to $3.13 a share from continuing operations, down from its previous estimate of $3.15 to $3.23, due to the impact of troubled economy.


[R]7:00AM New York, 8:00PM Tokyo – Asian stocks traded mixed. Financials fall across the region. Chinese retail sales grow 16.4% and Japan economy in slender 0.1% growth.[/R]

Asian markets closed lower on the worries that U.S. economy may decline if housing problem spreads. The contagion effect was on the minds of investors in Asia. Indonesia led the region with a loss of 1.94% followed by losses of 1.7% in Korea, 1.4% in Thailand, and 0.75% in Australia. Shanghai led the region with a gain of 1.6% followed by 0.5% rise in Hong Kong, and 0.3% increase in Nikkei.

In Tokyo trading Nikkei closed 0.3% lower on the worries that the U.S. mortgage market problem is likely to linger longer on the minds of investors. The Japanese economy reported a slower growth at the end of previous quarter. Investors are also concerned about the sub-prime mortgage contagion effect on Japanese financial companies. The Bank of Japan drained liquidity in the system as overnight interest rate fell below its target rate. The overnight rate fell to 0.06%, well below its target rate of 0.5%. The bank mopped up 600 billion yen or $5 billion from the system after adding liquidity in the last three days.

Financials shares fell sharply in Japan. Mitsubishi UFJ led the bank stocks with a loss of 5.6%. Credit Saison Co finished 4.4% lower and Nippon paper closed down 4.21%. Industrial shares Fuji Electric and Nippon Oil Corp increased 7.64% and 6.96% respectively. Itochu Corp was up 6.87%. Trading companies and shipping companies led the gainers.

Seiyu Ltd of Japan turnover fell 1.4% to 461.56 billion in the previous interim. Seiyu reported a net loss of 6.92 billion in the first half, a decline from 54.03 billion a year ago on asset valuation losses. It now predicts a full-year 2007 net loss of 5.9 billion yen, down from 55.8 billion in 2006 and from the earlier profit forecast of 800 million.

In Sydney trading ASX fell 0.75% or 45 points to close at 5,982.50. The banking and home builder stocks led the decliners. Rams plummeted 19% after reporting that profit will be affected ‘materially’ on higher borrowing cost. JB Hi-Fi jumped 12% on the first half earnings more than doubled million on the recent acquisition in New Zealand. APN News & Media fell 2.5% after reporting growth less profit of A$72.5 million on 1.1% revenue decline to A$645 million.

In Shanghai trading stocks closed higher on Citic Securities profit expectations. The CSI 300 Index jumped 1.6% and Shanghai Composite Index gained 1.1%. Citic Securities jumped 8.5% lifting other brokerage stocks as well. Haitong Securities and Hong Yuan Securities jumped more than 7%. Consumer stocks rose steeply in China. Clothing retailer Youngor Corp up 8.1% to 30.45 yuan after first half profit increase of 220%. Gree Electric Appliances Inc rose 5.7% while Tsingtao Brewery Co up 1.9%. Retail sales in China grew 16.4% in the year to July to 699.8 billion.

In Mumbai trading Sensex fell 0.11% or 16.30 to close at 15,000.91. On trading in Bombay
Stock Exchange, 1580 stocks jumped, 1,113 declined and 88 were unchanged. Trading turnover on the exchange declined to 4,030 crore rupees from 4,157 crore rupees. Of the 30 stocks in the Sensex 16 declined and 14 gained. NTPC surged 3%, a day after the stock was added to Nifty index. ACC led the decliners in the Sensex list of stocks and ONGC led the gainers. Sugar companies stocks advanced, led by 3% increase in Shree Renuka Sugars, 2% rise in Balrampur Chini, and 1% increase in Bajaj Hindustan. Hindustan Copper jumped 5% on the news that the company is looking for international expansion and prospecting for gold mining in India. Trent, Tata Group controlled retailer, jumped 3% to 681 rupees after the reports that the company is negotiating distribution arrangement with Italian fashion house Benetton.