Financials Keep Europe Lower

Elena
15 Aug, 2007
New York City

European stock markets finished in the negative Wednesday for a second day in a row, dragged down by continuing weakness in the financial sector. Banking firms Deutsche Bank and UBS were under pressure amid concerns about the impact of U.S. subprime mortgage market troubles. France fell 0.7%, followed by the U.K which declined 0.6% and Germany, losing 0.3%.

[R]12:00PM New York, 5:00PM London - European stocks finished lower tracking other shares in Asia and US. Confidence crisis in financial stocks persisted in UK and European trading.[/R]

European stocks dragged marginally lower on the declines on Wall Street and in Asia, as investors’ worldwide hedge against spreading U.S. mortgage markets risk. Financial stocks took a battering but regional indexes recovered from sharp losses earlier on. Paris led the decliners with a loss of 0.7% followed by 0.56% loss in London. Germany rose 0.28%.

In London trading FTSE 100 lost 0.56% to 6,109.30 dragged by bank stocks. Investors fears over the U.S. credit crunch dragged financials and brokerages. The pound fell to 1.99 per dollar and 67.65 pence against euro after the Bank of England minutes of meeting showed unanimous vote to maintain the key bank rate at 5.75% for this month. The members of the committee remain focused on controlling inflation and few expressed concerns about the level of capacity utilization and output prices. The bank also said that it is too early to judge the impact of the past rate increases on the consumer spending.

Banks shares skid sharply on lower earnings forecast. Of the 102 stocks in the FTSE 100 index, 68 declined, 29 increased, and 5 were unchanged. Northern Rock led the index stocks with loss of 5.3% on weaker earnings expectations, followed by losses in Experian group of 3.93%, and 3.8% in Schroders plc. Royal Bank of Scotland and Standard Chartered fell by more than 2%. Mining stocks Anglo America and BHP Billiton fell over 1%. Persimmon led the index stocks with a gain of 3.72% while Barrat DEV and Scottish Newca firmed 2.77% and 2.24% respectively. Hammerson jumped 2.2% followed by increases in ITV of 2%, 1.8% in Unilever, 1.5% in Rexam and Reuters Group.

Lower earnings predictions have hit hard on Northern Rock. The bank has lost 9.4% in value since January anchoring UK’s bank stocks year-to-date growth index. In the first interim net income at 188.2 million pounds was up 0.2% Analysts expect full-year earnings at 213 million pounds.

In Frankfurt trading DAX 20 rose 0.28%, the only notable mover across the region spurred by news Germany was free of US mortgage market concerns. Finance Minister Peer Steinbrueck indicated Germany would not feel the effects the US credit market crisis. The German economy is expected to grow by 0.4% in Q3, up from 0.3 in Q2. Industrial shares rallied with Bayer AG up 5.37%. Deutsche Luft RG added 1.56 percent while Volkswagen gained 1.30%. Deutsche Bank was not sparred from the regional bank stocks’ free-fall losing 2.51%. Deutsche Boerse lost 2.67% with Hypo Real Estate shedding 2.48%

In Paris trading CAC 40 fell 0.66% pulled down by bank shares. Confidence in financials shares remained weak amid weaker earnings forecasts caused by the US credit market problems. Societe Generale crashed 2.3% while BNP dragged 1.5% Arcelor Mittal lost 61 cents, or 1.4%. AXA SA (CS FP) eased 1.2%. Uniliver Ny rose 1.79%, France Telecom added 1.51%. Kon Kpn Nv was up 1.06%.


Nestle SA reported net income in the half year to June was up 18% to 4.92 billion francs. EPS rose similarly to 12.6 francs. Sales were jumped 8.4% to 51.1 billion. The company plans a share repurchase worth $21 billion. Nestle stocks lifted 9.5% in Zurich.


[R]11:30AM Market averages gained some ground on more cash support from the Fed.[/R]

U.S. stocks gained some ground in late morning trading on the back of a Fed Reserve's announcement related to the injection of more cash into the banking system. There were conflicting announcements concerning plans of repurchase agreement in which the Fed buys securities from dealers, who then deposit the money into commercial banks. Eventually, the Fed said it would buy $7 billion.

KKR Financial Holdings ((KFN)) said it was selling $5.1 billion of residential mortgage loans, adding it will no longer invest in such assets. Company's shares plunged nearly 20% as it also got a downgrade from Lehman to equal-weight.

Countrywide Financial Corp. ((CFC)), the biggest U.S. mortgage lender, fell 5.4% after Merrill Lynch downgraded the stock, with the warning that the company may have to file for bankruptcy. Again in the sector, Arbor Realty Trust ((ABR)) slipped 3% after it was downgraded by Lehman Brothers due to its broad exposure to mortgage backed securities.

Among other stocks driven by analyst comments, Fossil ((FOSL)) jumped 6.8% after the fashion accessory retailer was upgraded by Piper Jaffray from market perform to out perform on higher sales of its watches.

In late morning trading, the Dow Jones was up 15.61, or 0.12%, at 13,044.53, after briefly trading below 13,000 for the first time since April 25. The S&P's 500 index was up 5.10, or 0.36%, at 1,431.64, and the Nasdaq was up 6.77, or 0.27 %, at 2,505.89. Bonds were little changed, with the yield on the benchmark 10-year Treasury note at 4.73%, the same as late Tuesday.


[R]Consumer price index gained 0.1% in July.[/R]

Consumer prices saw modest growth in the month of July, according to a report released by the Department of Labor on Wednesday, with the small increase in prices coming in line with economist estimates. The Labor Department said its consumer price index edged up 0.1 percent in July following a 0.2 percent increase in June. The modest increase came in line with economist estimates of an increase of about 0.1 percent.

With the modest increase, the annual rate of consumer price growth slowed to 2.4 percent from 2.7 percent in the previous month. A notable decrease in energy prices helped to limit the upside for prices, with energy prices falling 1.0 percent in July after falling 0.5 percent in June. The decrease marked the biggest drop in energy prices since a 1.5 percent drop in January. The drop in energy prices helped to offset notable increases in apparel and medical care prices, which rose 0.4 percent and 0.6 percent, respectively.

Food prices rose 0.3 percent following a 0.5 percent increase in June. The report also showed that the core consumer price index, which excludes food and energy prices, rose 0.2 percent in July, matching the increase that was seen in the previous month and economist estimates. The year-over-year increase in core prices remained at 2.2 percent for the third straight month, lingering at the lowest level in over a year.


[R]09:45AM Wall Street opened steeply lower amid fears about global credit crunch.[/R]

Wall Street plunged at opening Wednesday, with continuous fears about a global credit crunch stifling positive sentiment, generated by data which showed the slowest consumer price inflation growth in eight months. An announcement from the Fed Reserve that it is ready to inject more cash to the banking system if needed, failed to bring relief. The Dow Jones fell below 13,000.

Shares of Countrywide Financial Corp. ((CFC)), the biggest U.S. mortgage lender, fell 2% after Merrill Lynch downgraded the stock. Among other stocks driven by analyst comments, drinks and snacks giant PepsiCo ((PEP)) was downgraded to neutral from buy at Goldman Sachs, with the broker citing valuation. The stock added 1%. At the same time, the broker upgraded Molson Coors Brewing ((TAP)) to buy, sending its stock up 1.3%.

Agricultural equipment maker Deer & Co.'s ((DE)) said its Q3 earnings rose 23% o $537.2 million, or $2.37 a share, compared with $436 million, or $1.85 a share a year earlier. H.J. Heinz Co. (HNZ: chart) projected Q1 sales growth of about 9% and earnings per share of 62 cents to 63 cents, above analyst expectations. The stock rose 3.5%.

In early trading, the Dow Jones industrial average fell 49.91, or 0.38%, to 12,979.01, trading below 13,000 for the first time since April 25. The Standard & Poor's 500 index was down 2.98, or 0.21%, at 1,423.56, and the Nasdaq composite index was down 4.43, or 0.18%, at 2,494.69. Bonds rose, with the yield on the benchmark 10-year Treasury note at 4.70% from 4.73% late Tuesday.


[R]09:00AM U.S. stock futures indicated a lower opening, despite benign inflation data.[/R]

U.S. stock futures were indicating steeply lower opening on Wednesday, as growing concerns about the strength of the credit market offset upbeat economic data. The Commerce Department said that U.S. consumer prices rose only 0.1% in July on falling gasoline prices, marking the slowest inflation rate in eight month. The core consumer price index increased 0.2% for the second straight month.

In corporate news, Bank of America ((BAC)) and Countrywide Financial ((CFC)) refused to lend money when hedge funds use mortgages, collateralized debt obligations and subprime securities as collateral. Countrywide Financial slipped 7% in the pre-open after it was downgraded to sell from buy at Merrill Lynch. The broker cited concerns about liquidity in the mortgage sector.

On the earnings news front, Applied Materials ((AMAT)) dropped 4% in pre-open trade after the low end of the chip equipment maker's quarterly earning missed estimates. European food makers advanced after Nestle ((NSRGY)) posted an 18% profit rise, raised its earnings forecast and announced a $21 billion stock buyback.

S&P 500 futures fell 8.5 points at 1,425.80 and Nasdaq 100 futures dropped 13.75 points at 1,901.00. Futures on the Dow Jones Industrial Average dropped 74 points.


[R]8:30AM New York, 8:30PM Hong Kong – Asian markets plunge on weakness in U.S. trading.[/R]

Asian markets fell precipitously as fears emanating from U.S. mortgage markets spread in the region. In the overnight trading broader averages fell nearly 2%, dragging the regional markets lower. Indonesia led the region with a loss of 6.44% after dropping 2% in the previous session, followed by losses of 4.1% in Philippines, 3.6% in Taiwan, and 3.3% in Australia. Hong Kong fell 2.8% and Japan dropped 2.2%.

In Sydney trading ASX 200 fell 176.80 points or 2.96% to close at 5,788.00. Of the 201 stocks in the index 188 declined, 8 gained and 8 stocks were unchanged. Outlook for the rest of week remains week as traders expects unwinding of the leveraged trading at the end of this week. Basis Capital reported that fund investors may lose 80% on the subprime securities meltdown in the U.S.

Arrow Energy led the stocks in the index with a plunge of 13% followed by 10% losses in Alco finance, Mount Gibson, Zinifex, Babcock & Brown, Murchison Metals, Oxiana Resources, and Compass Resources.

Resources and financial stocks led the decline in the broader market. BHP Billiton, Goodman Group, Oil Search, Macquarie Bank, Harvey Norman, Lihir Gold, Axa Asia Pacific fell more than 4%. AMP Limited, St George Bank, Westpac Banking, and QBE Insurance, and Tishman Speyer dropped more than 2%.

Of the eight stocks that managed to climb higher, James Hardie led the pack with a gain of 2.27 on 10.7 million share volume, followed by 1% rise in Duet Group, and fractional increases in Downer, Ivesta Property, Southern Cross Broadcasting, Metcash, and Lion Nathan.

In Shanghai trading Shanghai Composite Index fell 0.1% to close at 4,869.88 after the traders took profit snapping a five-day rally. China reported July industrial production rise of 18%, lower than 19.4% in June. For the year 2006 the industrial production increased at 16.6% and few days ago China reported second quarter economic growth at 11.9%.

Shenzen Development Bank reported its first half profit of Rmb1.12 billion compared to Rmb463.6 million on 18% rise in lending. Net interest income increased 42% and fee income jumped 51% and bad loan ratio declined to 7% from 7.98%, but still high by the international standard. The capital adequacy ratio jumped to 3.88% from 3% but still below the required level of 8%.

Hong Kong Exchanges reported second quarter profit of HK$1.41 billion on revenue of HK$1.757 billion. The revenue in the quarter jumped 69% and earnings increased 124%. Earnings per share jumped to $1.32 from 59 Hong Kong cents. Average daily turnover value on the exchange jumped 93% to HK$65.9 billion from HK$34.1 billion.

The exchange reported that 32 new companies were listed on the main board in the first half of this year and raised $194 billion in public offering. At the end of the quarter there were 1,002 companies were listed on the main board and 194 were on the Growth Enterprise Market with a total market capitalization of $15.8 trillion.


[R]7:00AM New York, 8:00PM Tokyo – Asian stocks plunged as fears of American subprime fallout deepened. Banks and brokerage companies fell across the region.[/R]

Asian markets closed lower on the worries that U.S. economy may decline if housing problem spreads. Investors in the last seven years have suffered losses in Worldcom, Tyco, Enron and several other American companies’ scandals. Fearful investors are worried that more losses may be hidden in the balance sheets of banks in America. International investors have never been compensated for these losses.

In Tokyo trading Nikkei 225 closed 2.2% or 369 points lower to 16,475.61 as evidence mounted that the brokerages companies in Japan and private funds in Australia report losses. Of the 225 stocks in index, 214 closed lower, 10 stocks closed higher and only 1 managed close unchanged. The Topix Index fell 43.31 or 2.6% to 1,594.15 with trading volume of 2 billion shares and 2.9 trillion yen. The banking index of top 85 banks in Japan has fallen nearly 20% in the last five weeks of trading.

Worries persist that the U.S. mortgage market problem may deepen and inflict damage to the banks in Japan. Banks in Japan have reported losses from the subprime loans in the U.S. but reported losses so far have been relatively smaller. Analysts have projected that the Japanese bank exposure to losses in U.S. subprime market is not likely to exceed $10 billon. Mitsubishi UFJ reported that it has 5 billion yen or $42 million in losses at the end of July. Sumitomo Mitsui also said that it has billions of yen losses yet to be determined in the quarter that ended in June 30th. Mizuho Financial Group earlier reported losses of 600 million yen after selling its portfolio of 50 billion yen in subprime holding.

The Bank of Japan drained liquidity from the system for the second day as overnight interest rate fell below its target rate. The Bank of Japan mopping up of liquidity is now lifting yen as traders unwind carry trade and repatriate yen. Yen edged a fraction higher against dollar and euro. One dollar fetched 116.7445 yen and one euro was priced at 157.2009 in the trading.

Trend Micro led the stocks in the index with a loss of 7.4% followed losses of 6.8% in Millea Holdings, 6% decline in Sumitomo Mitsubishi, Toho Zinc, Sumitomo Metals and Mining, Mitsui Sumitomo, and Nippon Sheet and Glass. NGK Insulators led the index with a gain of 3.2% followed by 1.5% rise in Nitto Boseki, Mitsui Chemicals and GS Yuasa Corp. Comsys Holdings closed up 1% and Denki Kagaku, KDDI, Showa Denko edged a fraction higher.

Banks, brokerages, and real estate companies fell sharply for the second day. Mitsubishi UFJ led the bank stocks with a loss of 5.3% after losing similar value in the previous day. Bank of Yokohama, Shinsei Bank Ltd, Chiba Bank, Sumitomo Trust, and Mitsui Trust fell 5% or more.

Nippon Oil, Toho Zinc, Sumitomo Metals, Nippon Mining, and Kobe Steel dropped between 2% and 5%. Seiyu Ltd, grocery retailer fell 10% after reporting losses and lowering earnings guidance for the year.

Matsushita fell 5% after telephone handset maker Nokia offered to replace 46 million batteries made by Matsushita. Several users in Japan and China have reported that batteries have a tendency to overheat and under certain conditions can catch fire.