Stock Markets Welcome Fed Action

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

Market averages in New York rebounded on the hopes that the Fed fund rates will be lowered after the cut in discount rate today. The Fed action to lower the rate by 50 basis points is expected to improve liquidity in the commercial paper and asset backed mortgage markets. The yields in the commercial markets are still above the Fed target rates. Stocks in New York and Europe rallied after the Fed action. Gold and oil jumped higher. Hong Kong reported faster than expected economic growth in q2.

[R]4:30PM New York, 10:30PM Frankfurt, 2:00 AM Mumbai[/R]

Market averages in New York opened up and closed higher. The Fed action to lower discount rate helped averages in New York, Europe, and South America. Hong Kong economy in the second quarter grew at 6.9%.[/R]

Dow Jones Industrial Average jumped 1.82% or 233.30 to 13,079.08, Nasdaq gained 2.20% or 53.96 to 2,505.03, and S & P 500 soared 2.46% or 34.67 to 1,445.94.

FTSE 100 Index in the U.K. closed up 205.30 or 3.5% to 6,064.20, in Tokyo Nikkei 225 closed at 15,273.68, down 5.42% or 874.81, and in Brazil, iBovespa Index near the market close traded up 1.2% or 543.41 to 48,558.76.

Yields edged lower on 10-year U.S. bonds and closed at 4.67% and 30-year bond rose to close at 4.98%.

Crude oil increased $0.98 to close at $71.98 per barrel, natural gas closed up 14 cent to $7.01 per mBtu, and gasoline futures increased 6.05 cents to close at 203.88 cents per gallon.

Gold increased $8.80 in New York trading to $666.80 per ounce, silver gained $0.31 to close at $11.80 per ounce, and copper futures declined $579.00 to close at $6,800.00 per metric ton.

In New York trading stocks rallied at the opening and maintained the positive bias through the session. The Fed’s decision to cut the discount rate, the rate it charges to commercial borrowing, by 50 basis points to 5.75% prompted the rally. The statement accompanying the rate cut indicated that the Fed is worried that the financial markets turmoil may affect economic growth rate. This extraordinary rate cut between the scheduled meetings is the first such action by the Fed since 2001. The Fed fund rates were left unchanged at 5.25%. The Fed also widened its discount lending window from overnight lending to thirty day term lending, increasing the availability of funds. The Fed acted in the belief that restrictive lending in certain credit market segments may increase unemployment and slow economy in the longer run, neither outcome this Fed prefers.

The Fed action, though judged prudent, is likely to have little effect in the longer term. The root causes of the problem are not likely to be eliminated with this rate cut. The need for subprime lending and lack of confidence in housing market, both elements of the current problem are not likely to go away with the lowering of rate. The discount rate, though lowered, is higher than the Fed fund rate, has not been used by the Fed as a policy tool for more than ten years. Market is awash with liquidity in the overnight lending but not so in the term lending. The commercial paper market, so called asset backed market, is struggling with liquidity and the prior Fed actions in the last ten days have not increased liquidity. The Fed action today was more directed at this market segment with the goal to lower rate and make funds available where they are needed the most. Will it increase the liquidity, only the coming days will tell, but the stock markets around the world have jumped to the conclusion that somehow commercial paper and thereby subprime lending will recover.

The Fed action sent a signal to buyers of these debts that the U.S. government is willing to work with lender and buyer and facilitate the credit market with longer investment horizon. The yield on commercial paper is still above 5.75% in the market, almost to 6% for high quality paper. Investors view today’s Fed action more as a vote of confidence than as a chance to borrow more funds. The Fed action was designed to tell the world that the government is willing to accept mortgage bonds and pool of securities supported by prime and subprime loans and is willing to lend money not just for overnight term but for 30 days.

Countrywide took the advantage of this opportunity and borrowed the entire credit line of $11.5 billion to fund its operations.

Of the 30 stocks in Dow Jones Industrial Average 25 closed higher and 5 declined. Of the 30 stocks 21 increased more than 1% and 8 stocks gained more than 3%. ExxonMobil led the index stocks with a gain of 4.3% followed by 3% or more rise in Alcoa, United Tech, and Boeing. DuPont led the decliners with a loss of 1.4% followed by McDonalds, General Motors, Caterpillar, and Wal-Mart.

Of the stocks in S&P 500, 335 stocks closed lower and 465 gained, none were unchanged.

Countrywide led the stocks in the index, as it has led the entire week, with a gain of 13% followed by 10% or more in Ambac, MBIA, Precision Capstone, and Goodyear. Nucor, Kohls, and Washington Mutual increased 8%. CB Richard Ellis led the decliners in the index with a loss of 2.75% followed by losses of more than 1.7% in Darden Restaurant, Viacom, New York Times, Boston Scientific, and Lennar Corp.

Asian markets continued to decline on deep-seated investor concerns on the U.S. mortgage market turmoil. Stocks in Australia firmed in morning trade before closing weak. Japan plunged 5.4% followed by Singapore down 3.4%. Hong Kong retreated 3.3%, Kuala Lumpur fell 2.5% and Mumbai lost 1.51%. Australia and China fell 0.7%.

In Latin Markets trading Argentina led the region with a sharp gain of 5.2% followed by Mexico with a rise of 2.6%, Chile with an increase of 2.4%, and Brazil edging higher 1.2%.

[R]2:00PM New York, 7:00PM London – U.K. shares recoup earlier losses after U.S. Federal Reserve slashed rates. Eurozone headline inflation dips to 1.8%. WPP Group reported higher net income. Tullow Oil loses on Congo oil contract.[/R]

European markets jumped after the Federal Reserve Bank in Washington cut the discount rate by 50 basis points to 5.75%. Bank shares led the rally, lifting the stocks after losing ground this week. U.K. led the region with a gain of 3.5% followed by 1.9% rise in France. Germany rose 1.49% adding to yesterday’s 0.28%. Sweden was the only loser with a loss of 3.2%. Of the 102 shares in the FTSE 100 index, 100 shares rose while 2 fell and 15 shares jumped above 5%, 78 stocks were up between 1% and 4.9%, and 7 rose below 1%.

In London trading FTSE 100 climbed 3.5% or 205.3 to 6,064.20 spurred by a rise in financials. Stocks traded sideways in the morning. The pound also ended a string of losses firming to 1.99 against one dollar in early afternoon trade on the U.S. rates cut news. At close the pound stood at 1.98 per dollar after dipping to as low as 2.06 to a dollar, seven days ago.

Eurostat reported that the Euro area July annual inflation stood at 1.8%, down from 1.9% in June. A year earlier the rate was 2.4%. Education, alcohol, tobacco, hotels and restaurants reported the highest annual increases in July. France at 1.2% reported one of the lowest annual increases. The European Union yearly inflation fell to 2.0% in July from 2.1% in June compared to the rate of 2.4% a year ago.


Of the stocks in the FTSE 100 index Standard Chartered led all stocks with a gain of 8.03% followed by Northern Rock rising 7.7%. Standard Life pushed higher 7.01%, Lonmin plc rose 6.52% and ICAP plc up 6.48%. Royal Bank of Scotland added 6% while Barclays plc rose 5.7%. Minings stocks traded higher too despite falling copper and aluminum prices. Only two stocks declined. Imperial Chemical lost 0.16% and Tesco plc down 0.12%. Yesterday all the stock in the index fell.

Advertising group, WPP Group plc reported Q2 earnings surged 3% 182 million pounds or earnings per share of 14.7 pence. Interim dividend was increased 20% to 4.32 pence per share. Revenue rose 2% to 2.92 billion pounds pushed by higher sales growth in India and China. Headline operating profit up over 6% to 383 million pounds. The stock finished higher 2.8%.

Tullow Oil Plc may have to renegotiate its contract with the government of Democratic Republic of Congo for oil drilling in the country’s coast. Tullow said that the agreement is legally binding but offered to raise signing bonus. The stock fell 0.8% in London trading.

Comland Commercial reported net profit for the year ending in June 30th of 9.42 million pounds compared to 1.95 million a year ago. Earnings per share climbed to 144.8 pence from 30 pence. Turnover rose to 20.08 million pounds.

[R]1:00PM NY, 5:00 PM Frankfurt European markets closed sharply higher after Fed Reserve cut its discount rates.[/R]

European stock markets rebounded from steep declines in the previous session to close notably higher Friday. Markets rallied after the Federal Reserve cut the U.S. discount rate by half a point to 5.75%, trying to ease concerns over liquidity. European financials surged after the announcement. London soared3.5%, followed by France which gained 1.9% and Germany, rising 1.5%.

In Frankfurt Commerzbank and Hypo Real Estate Holding paced the advance after the resent heavy losses. Commerzbank surged 4.1%, while Hypo Real Estate advanced 3.9%. Again in the sector, shares of Deutsche Bank climbed 3.5%. Deutsche Boerse jumped 3%, offsetting a loss of 7% posted Thursday.

In Paris stocks rallied, led by lenders BNP Paribas SA, Societe Generale SA and Credit Agricole. BNP Paribas rose 4.7%, while Societe Generale, the country's third-biggest lender, added 3.8%. Elsewhere, Total, Europe's biggest oil refiner, jumped 2.9% on surging oil prices, while Gaz de France gained 1.1%.

In London stocks hit 4 ½-year peak, led by bank shares including HSBC Holdings NV and Royal Bank of Scotland Group. HSBC Holdings NV climbed 4.7%, while Royal Bank of Scotland climbed 6%. In addition, shares of hedge-fund manager Man Group added 2.7% and shares of venture-capital investor 3i Group gained 4.4%. London Stock Exchange rose 1.7% on broker upgrade to hold from reduce. Mining companies also advanced as copper prices rose. Anglo American rose 2.7% and BHP Billiton, moved up 3.5%. Drug maker GlaxoSmithKline also increased 3.3%.


[R]11:30AM Market averages traded higher Financials led Dow up.[/R]

U.S. market averages kept trading higher but erased some of the earlier gains, with investors mulling over the impact of the Fed's move to cut its discount interest rate, trying to ease concerns over liquidity. This is the rate charged to commercial banks and other institutions on loans they receive from the regional Federal Reserve.

Bank stocks were among the most notable gainers, with JP Morgan Chase Co. ((JPM)) rising 3% and Citigroup ((C)), moving up 1.6%. Other financial stocks soaring on the news included Merrill Lynch ((MER)), up 4.7%, Lehman Brothers ((LEH)), jumping 5.6%, and Goldman Sachs ((GS)) rising 1.4%.

Tech stocks were also given a boost by blue-chip Hewlett Packard ((HPQ)) which posted 29% profit increase in Q3 on strong PC sales. The company's results were seen as a good sign for the sector. The stock rose 2%. Another PC company, Dell ((DELL)) finished a year-ling investigation into its internal accounting practices that revealed problems with the fiscal year statements from 2003 to Q1 of 2007. The investigation forced the company to reduce its net income between $50 and $150 million.

In other corporate news, shares of Wild Oats ((OATS)) soared 17% and Whole Foods ((WFMI)) rose 5% after a federal judge decided that a $550 million combination of the companies' would not be blocked.

In late morning trading, the Dow Jones industrial average surged 110.06, or 0.86%, to 12,955.84. Trading remained volatile. The Dow shot up more than 300 points within the first 10 minutes of trading, but then lost more than half those gains. The Standard & Poor's 500 index rose 16.05, or 1.14%, to 1,427.32, and the Nasdaq composite index rose 27.41, or 1.12%, to 2,478.48. Bonds slipped as stocks rose, with the yield on the benchmark 10-year Treasury note lifting to 4.67% from 4.66% late Thursday.


[R]11:00AM New York, 11:00PM Hong Kong - Stocks in Australia and China gyrated on volatile U.S. markets. Other Asian markets declined further. Reserve Bank of Australia pumps A$3.9 billion into financial markets to control rising rates.[/R]

Asian shares continued to decline on deep-seated investor concerns on the U.S. mortgage market turmoil. Stocks in Australia firmed in morning trade before closing weak. Japan plunged 5.4% followed by Singapore down 3.4%. Hong Kong retreated 3.3%, Kuala Lumpur fell 2.5% and Mumbai lost 1.51%. Australia and China fell 0.7%.

In Hong Kong trading Hang Seng index fell 1.4% or 285.25 points to close at 20,387.13. At its low the index plunged more than 6% and recovered with the European markets trading. For the week the index is down 6.5% reflecting similar losses in other markets in the region. Of the 39 stocks in the index, 35 declined, 3 gained, and 1 stock was unchanged.

Hong Kong second quarter economic growth increased to 6.9% from revised rate of 5.7% in the first quarter. The government kept its inflation forecast for the year at 1.5% and raised its annual growth rate between 5% and 6% from 4.5% and 5.5%. Unemployment in the quarter fell to a four year low of 4.2% and private consumption rose 6.6%. Home sales jumped 73% from a year ago to HK$109.3 billion in the quarter.

Chinese energy companies trading in Hong Kong fell on 3% lower crude oil price in the international markets. Cnooc fell 2.6% and PetroChina declined 1.3%. China Shipping Development fell 10% and China Construction Bank lost 3.5%. Hang Lung fell 6% after reporting a sharp rise in earnings a day ago. China Life dropped 3.5%.

In Sydney trading ASX S&P 200 lost 0.71% to 5 671.00 dragged by losses in mineral shares. Of the 201 Sydney stocks, 131 shares fell, 60 up and 10 were unchanged. 18 shares lost by between 5% and 11%. Of the stocks in the index, 78 stocks declined in the range between 1% and 4.9% and top 5 gained more than 4%.

Sydney gained in early morning trading with financials recovering after heavy losses yesterday. The Reserve Bank of Australia injected a further A$3.7 billion into the financial system to hold rates rise. Rates had started to rise beyond the key bank rate of 6.5% amid growing investor concerns U.S. credit market problems will spread losses. The bank also intervened to check Aussie dollar volatility. The A$ opened at 79.08 U.S. cents, below the 80 cents mark for the first time in five months. Overnight, it fell from a high of 80.45 cents to a low of 78.20 cents.

Mining shares dropped sharply on fears the volatility in the dollar will stagnate growth and affect earnings. Of the stocks in ASX 200 index, Apa Group led the index with a plunge of 10.60% followed by Compass Resources down 9.2%. Mincor Resources fell 8.90%, Minara Resources dropped 8% and Perilya Ltd lost 7.9%. Financials recovered from previous losses because investors found them relatively cheap. Macquarie Infras led gainers in the index with 5.30% followed by Babock and Brown up 4.76% and Resmed INC rising 4.6%. Macquarie Communications gained 4.51% while Alinta Ltd rose 4.5%. Adelaide Bank pushed higher 2.66% with Macquarie Bank adding 1.66%.

The Australian Stock Exchange reported that full-year net earnings at the end of June 30th rose 116% to A$293 million. ASE will pay a final dividend of 91.5 cents. Listing revenue rose 38% to A$117.6%. The stock edged 0.60% lower.

Evans & Tate did not trade after electing voluntary suspension pending issuance of a cautionary statement. The firm is subject of takeover bids from a number of companies. Health insurer, MBF Australia announced plans to demutualise before listing on the ASE. MBF council had ratified the plans, said the company. Last year, MBF profit rose to A$181 million from A$150 million a year earlier. Analysts have valued the group at A$1 billion.


[R]10:00AM New York, 7:30PM Mumbai – Sensex in Mumbai trading fell as much as 4% after recovering to close 1.5% lower. U.S. market volatility inflicted damage to the trading in India and across the world.[/R]

Sensex in Mumbai trading fell 1.5% or 216.69 points to 14,141.52 after recovering from a loss of 578 at the opening. The index has lost nearly 6% during the week on global markets volatility emanating from credit market jitters in the U.S. Nifty Index lost 1.7% or 70.55 points to close at 4,108.05.

Daily turnover on the BSE listed stocks increased to 6,482 crore rupees from 5,646 crore rupees and on the National Stock Exchange increased to 15,286.93 crore rupees from 11,719.28 crore rupees.

Of the stocks trading on the Bombay Stock Exchange, 1,833 declined, 888 stocks gained, and 40 remained unchanged. International institutional investors sold stocks worth 2,548.50 crore rupees (or $600 million).

Of the 30 stocks in the index, 26 declined and 4 gained.

Nagarjun Fertilisers soared 17% to 32.20 rupees on the market rumors that Reliance Industries is likely to acquire the company at 45 rupees per share. Reliance and Nagarjun denied the rumors. Siemens India jumped 1.3% to 1,200 rupees after receiving an order to build hot strip rolling mill for Jindal Steel Works.

Software exporters fell led by Satyam Computer Services 6% decline to 439 rupees followed by 3% loss in Infosys to 1,851. Infosys in the morning trading had dropped as low as 8.6% to 1,745. TCS, the largest company in the sector lost 3% to 1,055 in the sell-off. News reports suggest that the company is exploring its option to acquire back-office operation of U.K. based insurance company Prudential with locations in UK and India. In other news Educomp Solutions closed 6% lower to 2,350 rupees on the news that it has acquired 51% of online tutoring company AuthorGEN. The online presentation company is based in Raleigh, North Carolina and Chandigarh.

Metals and mining stocks fell for the second day on the fall in international price of copper and aluminum. Sterlite led the sector with a loss of 7.6% to 516 rupees followed by losses in Tata Steel of 5.5% to 544 rupees, 4.5% to 136 rupees in SAIL, 3.7% to 139 rupees in Hindalco, and 2.7% to 670 rupees in Hindustan Zinc.

Real estate stocks recovered after falling sharply in the last two sessions. Sobha Developers jumped 4.3% to 775 rupees and Unitech increased 3.6% to 483 rupees. But, DLF fell 0.5% to 581 rupees. DLF agreed to pay 1,675 crore rupees for a textile mill complex controlled by DCM Shriram, the record land transaction in the real estate industry.


[R]09:45AM Wall Street surged at opening after Fed cut its discount rate. Countrywide Financial jumped 14%.[/R]

Wall Street surged at opening Friday, recovering from the multi-year slump seen over the past week amid continuous turmoil in the credit markets. Market returned back to normal trading after the Fed Reserve reduced its discount rate on loans to banks by half a point to 5.75%, thus easing liquidity worries.

The Dow Jones jumped over 300 points. European stocks also took relief on the news to achieve a substantial recovery of 3% in the positive. The stock market is likely to see more volatility in the session due to the pending expiration of August options contracts.

Financials stocks traded steeply higher following the surprise move by the Fed in response to the credit markets severe crisis. Shares of much troubled mortgage lender Countrywide Financial ((CFC)) jumped 14% after Banc of America Securities upgraded the stock to neutral from sell. The Dow Jones advanced 303.37 at 13,149.15 in the opening minutes.

In earnings-related news, Dow member Hewlett-Packard ((HPQ)) said Q3 jumped 29% on strong demand for personal computers and printer ink, exceeding expectations. The stock climbed 2.7%. Department store chain Nordstrom ((JWN)) reported a slim Q2 profit amid higher expenses related to way its accounts for its Visa credit card business. Company's shares edged down 0.3%.

The Nasdaq Composite is up 68.13 to 2,519.20 and the Standard & Poor's 500 index has gained 32.83 to 1,444.10. Meanwhile, bond prices fell as the yield on the 10-year Treasury note rose to 4.70% from 4.66% late Thursday.

[R]09:00AM U.S. stock futures plunged, dragged by weak housing data and Countrywide Financial.[/R]

U.S. stock futures rallied on Friday, recovering from steep losses in the previous session amid growing credit markets worries. The rebound followed an unexpected move by the Federal Reserve of reducing the discount rate by half a percentage point to 5.75%, trying to relieve investors'' fears about market liquidity. The Fed cut the rate that it charges member banks for loans.

Among pre-market highlights, much troubled lender Countrywide Financial ((CFC)) rebounded 10% after Banc of America Securities upgraded its stock. In other corporate news, Wild Oats ((OATS)) surged 19% after a federal judge blocked a government regulator's request to block a proposed acquisition by Whole Foods. S&P 500 futures were up 26.3 points, well above fair value. Dow Jones industrial average futures rose 189 points, and Nasdaq 100 futures gained 41.50 points.


[R]08:00AM Hewlett-Packard posted 29% earnings jump in Q3 on strong demand for PCs.[/R]

Hewlett-Packard Co. ((HPQ)) posted better-than-expected Q3 profit and sales, boosted by strong demand for personal computers and lucrative printer ink. The company said its earnings jumped 29% to $1.78 billion, or 66 cents per share, higher from the $1.38 billion, or 48 cents per share a year ago. Excluding one-time charges, HP earned 71 cents per share, beating the average analyst estimate of 66 cents a share.

The tech giant reported 16% sales increase, totaling $25.38 billion. Revenues were more than $1 billion higher than the $24.09 billion in sales expected by analysts. The biggest sales jump came within the company's Personal Systems Group, which includes desktop and laptop computers. The stock edged down 0.11% in pre-market trading.


[R]7:00AM New York, 8:00PM Tokyo-Massive sell-off sends Japan into doldrums, lowest levels in 6 years. Yen continue firming. The Bank of Japan injects 1.2 trillion yen to improve liquidity and stem interest rates increase.]/R]

Japanese shares hit fresh 6-year lows, as exporters, steel and ship building stocks fell relentlessly on firming yen. Early morning gains in financials were wiped off in afternoon trade, as the U.S. mortgage market problems continue causing mayhem in global shares. Japan plummeted 5.42%. Of 225 shares 200 crashed, 23 gained and 2 were unchanged. Of the stocks in the index, 33 shares fell by more 10% while 86 stocks dropped by between 5% and 9.9%. The Topix fell 5.5%.

In Tokyo trading Nikkei 225 plunged 5.42% to 15,273.68, the biggest decline in 6 years. Landslide declines in exporters mostly, underpinned the fall. The yen firmed to 111 against the dollar from 116 earlier in the week. In the morning, the yen had strengthened to 112. Yesterday it fluctuated between 114 and 113 yen per dollar. For the week the yen has gained 4.2%. The Bank of Japan injected 1.2 trillion into the market to ease liquidity and cool heating rates. Yesterday the Bank of Japan added 400 billion into financial system. But rates remained high, failing to fall below the BOJ target rate of 0.5%.

Japan and South Korea financials architects are due to meet early next week in the wake of financial markets volatility that has caused huge losses amongst investors in the region. Over 250 Japanese delegates will also visit several Asia states to discuss bilateral and investment issues. Japan will extend 400 billion-yen concessionary-rate loan to India as development aid.

Of the stocks Nikkei 225, exporters fell heaviest against a rising yen on expectations foreign earnings will crumble. Sumitomo Met min led losses crashing 16.4% followed by Mitsui ENG Shipb down 15.68%. Hitachi Zosen sank 14.68% while Japan Steelwork lost 13.9% and NGK Insulators falling 13.6%. Carmakers Toyota and Honda fell sharply too. Financials faltered to deceive having regained some lost ground in early morning trade. Most ended in the negative at close. Mitsubishi UFJ F shed 4.5%. At least 13 shares gained by between 1% and 4% while 10 increased below 1%. KDDI led up 3.7% followed by Nippon Paper GRO up 2.82% while Credit Saison inched higher 2.7%. East Japan Rail added 2.7%.

Mitsukoshi Ltd and Isetan Co. are in merger talks to be settled in the ratio 0.3 to 1, according to Nikkei Net Interactive. Isetan Co rose 0.34% in Tokyo.