Nervous Markets Await Next Subprime Casaulty

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

Averages in New York were volatile with banks and brokerage stocks traded lower. KKR Financial sold a stake in the company to increase liquidity. Countrywide plans to reduce staff in its mortgage unit and Capitol One said that it will close its mortgage division. Oil fell. European stocks closed higher. Asian markets rallied. Lowe''s reported 9% jump in earnings. HSBC is in a deal to buy 51% stake in Korea Exchange Bank. Nasdaq to sell its stake in LSE and plans to revise bid for OMX.

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

Market averages in New York traded in volatile fashion as investors worried of the next fallout from the credit malaise. Countrywide to begin reduce staff. Capitol One to close mortgage division. European stocks closed higher. Oil fell. Asian stocks rebound.[/R]

Dow Jones Industrial Average gained 0.12% or 42.27 to 13,121.35, Nasdaq lost 0.32% or 3.56 to 2,508.07, and S & P 500 lost 0.32% or 0.39 to 1,445.55.

FTSE 100 Index in the U.K. closed down 14.50 or 0.24% to 6,078.70, in Tokyo Nikkei 225 closed at 15,732.48, up 3.00% or 458.80, and in Brazil, iBovespa Index traded up 647.60 to 49,206.36.

Yields edged lower on 10-year U.S. bonds and closed at 4.65% and 30-year bond rose to close at 4.98%.

Crude oil decreased 86 cents to close at $71.12 per barrel, natural gas closed down 97 cent to $6.04 per mBtu, and gasoline futures decreased 10.5 cents to close at 193.65 cents per gallon.

Gold dropped 30 cents in New York trading at $666.50 per ounce, silver lost 6.5 cents to close at $11.73 per ounce, and copper futures gained $268.00 to close at $7,068.00 per metric ton.

In New York trading stocks bounced around with no clear direction in trading. Financials and bank stocks led the decliners mining and railroad companies bounced back.

Bear Stearns fell as low as $112 before rebounding and closing at $116.30, down 1%. Lehman Brothers declined 2% to close at $57.07. Merrill Lynch dropped 1.5% to close at $74.90. Citigroup declined 1% to close at $48.39. The market recovered in the last afternoon trading and stocks in the banking, mortgage lending, and housing market were very volatile. Countrywide Financial closed at $19.81, down $1.62 after the news report that it plans layoff in its mortgage origination business. The stocks also faced a headwind after banking industry advisor lowered its rating on the company and said that banking unit of the company may see some deposit losses.

Capital One Financial said that it plans to close its recently purchased mortgage division GreenPoint. The company plans to take a charge of $860 million or $2.15 per share and lowered its earnings per share for the year to $5. The company paid $13.2 billion for GreenPoint parent, North Fork Bancorp a year ago.

Lennar dropped 2% and Toll Brothers fell 3%. Beazer Homes, Pulte Homes, and D R Horton were volatile. Moody’s Corp, mortgage and other bonds rating agency fell 8% to $45.89. The McGraw Hill Companies dropped to one-year low n the worries that its bond rating unit S&P earnings may suffer in the current credit malaise.

KKR Financial agreed to sell 16 million shares to seven institutional shareholders for $230 million.

Of the 30 stocks in Dow Jones Industrial Average 11 closed lower and 19 advanced. Of the 30 stocks 4 declined more than 1% and 9 stocks gained more than 1%. IBM led the index stocks with a loss of 1.5% followed by 1.2% decline in Hewlett Packard and J P Morgan Chase. Alcoa led the gainers with a rise of 3.1% followed by increases in Honeywell with 2.5%, and 1.9% in Caterpillar.

Of the stocks in S&P 500, 241 stocks closed lower and 252 gained, 7 stock closed unchanged. Technology, mortgage lenders, industrials, steel, and energy stocks dominated the losers list. Moody’s Corp led the index stocks with a loss of 8.2% followed by declines of 7.5% in Countrywide, 4.5% in National City Bank, and 4% in Federated and Northern Trust. Lowe’s led the index stocks with a gain of 6% followed by rise of 5.5% in Union Pacific, 5.3% in Tribune, 4.8% in MEMC, and 4.2% in Terex. CSX, Hasbro, and American Standard jumped 3.8%.

Asian Markets hit new 3-year highs tracking gains in US and Europe after Federal Reserve lowered rates. Indonesia led the region rising 6.6% followed by Singapore up 6.12%. Hong Kong surged 5.93%, South Korea up 5.7% while China added over 5%. Australia rose 4.6%. Australian shares lagged some of the other big moves in the region.

In Latin Markets trading Argentina led the region with a sharp gain of 5.2% followed by Brazil with a rise of 1.33%, 0.77% in Chile, and 0.2% decrease in Mexico. Of the 60 stocks in the Brazil index 22 closed lower and 37 closed higher. CESP, SABESP and Unibanco jumped near 5%. TAM and Gol led the decliners with a loss of 5% and 4%. Petrobras fell 1% and recently listed ADR in New York of Cosan fell 0.9%.

[R]2:30PM New York, 7:30PM London - London shares rise marginally after volatile trading. Competition commission probes Tesco and Asda over alleged misuse of suppliers. Nasdaq to sell 31% London Stock Exchange stake. Public sector finance current budget surplus rises to 8.6 billion pounds.[/R]

London shares traded volatile, in contrast to higher Asian shares, but tracked lower US shares on renewed credit market worries. Mining stocks climbed higher on firming global prices, as bank shares fall deeper. London finished up 0.24%, marginally down from 3.5% gain on Friday. Of the 102 stocks in the index, 57 gained, 43 fell while 2 remained unchanged. Of the index stocks 29 shares rose between 1% and 5% and 6 stocks jumped above 3%. Fifteen stocks lost more than 1%.

In London trading FTSE 100 pushed up 0.24% top 6,078.70 helped by gains in mining stocks. Bank shares fell, tracking losses in the US, as credit crunch worries resurfaced. Stocks rallied on Friday after U.S. Federal Reserve slashed rates.

The Office of National Statistics reports that in July, the UK current budget had a surplus of 8.6 billion pounds compared with a figure of 8.1 billion in July 2006. Stronger self-assessment and corporation tax, as well as stamp duty and value-added tax payments helped lift the figure, the Office said. Between April and July this year, the public sector had a current account deficit of 4.5 billion pounds versus a deficit of 3.1 billion pounds in the comparative period last year. Public sector net debt, expressed as a percentage of GDP, was 36.4% at the end of July 2007, compared with 36.1% at end of July 2006. Net Borrowings for fiscal year 2007/08 are estimated at 34 billion pounds.

Mining shares rose reasonably, as global metal prices trend higher. Of the FTSE 100 index stocks, British Energy led the gainers with a rise of 4.6% followed by 4.2% rise in BHP Billiton plc. Kazakhymys plc rose 4%, BAE Systems up 3.48% and Rio Tinto plc added 3.22%. Bank shares skid, as investor worries that the US rate cut was not enough to stop growing subprime market losses. Segro plc plunged 10.14% followed by Brit Land Co plc easing 3.5% and Reed Elsevier lost 2.61%. Standard Chartered dropped 2.50%, Old Mutual plc fell 2.16% and Barclays shed 0.78%. HSBC Holdings Ltd lost 0.89% despite news the bank was in negotiations with Lone Star Funds to acquire a 51% stake in Korea Exchange Bank.

Nasdaq has announced plans of selling its 31% stake in the London Stock Exchange, six months after its take-over bid hit a brickwall. The stake is valued at over 797 million pounds. Nasdaq built the stake up over a period of time, seeking to swallow LSE but shareholders rejected the proposal. The stock market operator will now shift attention to buy Nordic exchange operator, OMX in competition with Bourse Dubai. LSE shares were up 2.4% in early afternoon trade.

The Competition Commission announced Sunday it was investigating supermarkets Tesco and Asda over alleged misuse of suppliers. The Commission said it wanted to find out whether the two supermarket chains were putting undue influence on suppliers, particularly in the wake of stronger sales growth and accelerated expansion. A spokesperson for Asda is quoted as saying some 11 million emails would be probed. Tesco closed down 0.7%.


[R]1:00PM NY, 5:00 PM Frankfurt European markets closed higher, boosted by mining stocks.[/R]

European stock markets finished in the positive territory Monday, lifted by retreating concerns about the financial system and global economic growth. Market sentiment was also supported by solid gains in the shares of mining and financial companies. France led regional gainers with an advance of 0.7%, followed by Germany, up 0.4% and the U.K., rising 0.2%.

In Frankfurt Hypo Real Estate Holding and Deutsche Postbank led banking shares up after Lehman Bros raised its recommendation on the industry. Hypo Real Estate Holding rose 2.2%, while Postbank gained 1.6%. Deutsche Boerse, operator of the Frankfurt Exchange, climbed 3.5%. Elsewhere, Deutsche Telekom added 2.1% after the EU regulators approved the company''s proposed acquisition of France Telecom SA''s Dutch wireless unit.

In Paris steel giant ArcelorMittal was a notable advancer, moving up 3.4%. Lower oil prices help transport-related stocks, with shares of tire maker Michelin up 2.4%. Shares of Alstom gained ground, rising 3.5% after the engineering group was upgraded to buy from hold at Dexia.

In London mining companies posted significant gains. Rio Tinto climbed 3.2%, BHP Billiton jumped 4.2% and Anglo American advanced 3%. In the financial secyor, HSBC Holdings fell 0.9% after it said that it is in talks to buy a majority stake in Korea Exchange Bank from Lone Star Funds. Shares of rival Standard Chartered declined 2.5%. The London Stock Exchange climbed 2.4% amid renewed bid speculation after Nasdaq Stock Market said it would put its entire 31% LSE stake for sale.


[R]12:00AM New York, 9:30PM Mumbai – Sensex in Mumbai trading advances on rising telecom, fertilizers, and banking stocks.[/R]

The Sensex in Mumbai trading gained 286.03 points or 2.02% to 14,427.55 on Asia-wide recovery. The index opened up 3% and steadily lost ground near the close. The CNX Nifty Index increased 101 points or 2.5% to close at 4,209.05. Rupee fell to 41.06 to a dollar from 41.33.

Daily turnover on the Bombay Stock Exchange declined to 3,819 crore rupees from 5,320 crore rupees on Friday. Of the stocks traded on the exchange 1,901 gained, 828 declined, and 51 were unchanged. Of the 30 stocks in the index 25 gained and the rest declined.

Banks led the rallying stocks after ICICI reported that it has received approval from an agency approving investment from foreign investors to sell 24% stake in its subsidiary ICICI Financial Services. The news lifted the stock 5% to 867 rupees and dragged other stocks in the sector higher. Kotak Mahindra gained 7.7% to 684, Bank of India increased 2.3% to 235 rupees, and HDFC Bank surged 5.6% to 1,130 rupees.

Software exporters fell on the rising rupee in international trading on the worries that the U.S. economic slowdown may hurt revenue of exporters. Satyam Computer led the index and sector with a loss of 1.8% followed by Infosys with a loss of 1.4% to 1,830 rupees, Wipro declined 0.7% to 472 rupees, and TCS edged 0.1% lower to 1,055 rupees. WNS lost nearly 30% in New York trading on the worries that it may have lost clients in the recent credit market turmoil in the U.S.

Metal stocks rallied on the rising mining stocks in the region. Tata Steel gained 4.7% to 570 rupees, Sterlite Industries soared 9.3% to 564 rupees, and Hindustan Zinc increased 1.6% to 681 rupees.

Fertilizer stocks rallied on the government decision to issue bonds to cover deficit from higher raw materials cost to the government controlled companies. The 7,500 crore bonds is the first ever issue of this type. Rashtriya Chemicals soared 19% to 53 rupees. National Fertilizers jumped 13% to 36 rupees, and Gujarat Narmada Valley Fertilisers increased 13%.

Reliance Communications gained 3% to 508 rupees on the news that the company is in talks to acquire controlling stake in $7 billion valued Aircel. Malaysia based Maxis Group owns the Aircel in partnership with Apollo Hospitals.


[R]11:30AM Market averages turned mixed, as Fed’s next move is expected. Thornburg Mortgage weighed.[/R]

U.S. stocks reversed from earlier gains to trade near the flat line, with investors speculating on the Federal Reserve''s next move. Hopes of further interest rates cuts were raised by another report of trouble in the subprime mortgage market. Residential-mortgage lender Thornburg Mortgage ((TMA)) dropped 11% after it said it sold a considerable part of its triple-A-rated mortgage securities portfolio.

Still in the financial sector, American Express ((AXP)) fell 1%, while fellow Dow component J.P. Morgan Chase ((JPM)) dropped 2.4% and Merrill Lynch & Co. Inc. ((MER)) declined 2.6%. The blue-chip average bounced into and out of the positive territory, with Alcoa ((AA)) leading gainers, up 1.6%, while Hewlett-Packard ((HPQ)) weighed with a decline of 2.6%.

Energy stocks moved notably lower, as Hurricane Dean set a westerly course for Mexico''s Yucatan Peninsula, likely to avoid key installations in the Gulf of Mexico. Valero Energy Corp. ((VLO)), a refiner who might have benefited from refinery outages along the Gulf Coast, dropped 1.6%. In other corporate news, Nasdaq Stock Market ((NDAQ)) rose 3.6% after it said it will put its 31% stake in the LSE for sale.

According to an economy report, the leading indicators index rose 0.4% in July, pointing to slower growth for the rest of 2007. Economists had been expecting an increase of 0.3%.

In midmorning trading, the Dow Jones industrials rose 17.07, or 0.13%, to 13,096.15. The Standard & Poor''s 500 index fell 1.35, or 0.09%, to 1,444.59; the Nasdaq composite index rose 4.09, or 0.16%, to 2,509.12. Bonds, which have rallied in recent weeks as investors fled to safe-haven securities, continued to move higher. Yields on the benchmark 10-year Treasury bond fell to 4.64% from 4.68% late Friday.

[R]Leading indicators index rose 0.4% in July.[/R]

Monday morning, the Conference Board released its report on leading economic indicators in the month of July, showing that its leading indicators index increased by a little more than economists had been expecting. The report showed that the leading indicators index rose 0.4 percent in July following a 0.3 percent decrease in the previous month. Economists had been expecting a slightly more modest increase of about 0.3 percent. The Conference board said that consumer expectations, vendor performance, and initial claims for unemployment insurance made large positive contributions to the leading index in July. The positive contributions more than offset negative contributions from housing permits, manufacturers'' new orders for non-defense capital goods, and the interest rate spread. The report also showed that the coincident index and the lagging index both increased by 0.2 percent in July.


[R]09:45AM Wall Street extended recent gain on optimism of further rate cuts.[/R]

Wall Street opened higher, extending gains from Friday rally. Market benefited from continuous relief that the Fed Reserve cut its discount rate and optimism of further interest rates reduction. Investors tried to assess the real impact of the Fed''s moves, as most of the gains Friday were due to hedge funds buying shares to cover their positions. Shortly after market opening, the Fed announced it injected it supported the banking system by injecting another $3.5 billion.

The financial sector moved generally lower, with Goldman Sachs Group ((GS)) and Citigruop ((C)) falling about 1% each. Among Dow components, American Express Co. ((AXP)) reversed from earlier gains on speculations that the company had put its private banking business on the block. Countrywide Financial ((CFC)) was in the spotlight after reports that it began laying off staff involved in originating loans. Company''s shares traded up 3.4%.

Nasdaq Stock Market ((NDAQ)) rose 3.6% after the U.S. exchange said it will put its 31% stake in the LSE for sale. Separately, the largest electronic exchange is trying to acquire Nordic exchange operator OMX.

Among the very few companies posting quarterly results, Lowe''s Cos. ((LOW)) reported Q2 profit increase which surpassed analyst projections. The company said it will open 40 new stores during the current quarter, and expects 6% higher sales for the year. The company supported retail stocks with 6% advance in its shares.

In the first hour of trading, the Dow Jones industrials fell 10.48, or 0.08%to 13,089.56. The Standard & Poor''s 500 index fell 2.13, or 0.15%, to 1443.81; the Nasdaq composite index rose 5.33, or 0.21%, to 2,510.36. Bonds continued to move higher. Yields on the benchmark 10-year Treasury bond fell to 4.66% from 4.68% late Friday.


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

U.S. stock futures predicted higher opening Monday, boosted by the favorable effect of the Fed Reserve''s move last week to cut its discount rate, hinting that it could reduce its key interest rate, too. Among companies in focus, Countrywide Financial ((CFC)) reportedly began laying off staff involved in originating loans. Company''s shares traded up 6% in pre-open trade.

Thornburg Mortgage ((TMA)) rose 9% after it said it stabilized its financing platform. It sold about $20.5 billion in mortgaged-backed securities and said it will take a $930 million capital loss on its mortgage securities for the September quarter.

In other corporate news, the Nasdaq Stock Market ((NDAQ)) put its entire 31% holding in the LSE for sale. The Nasdaq said it would use the first $1 billion from any proceeds to cut debt and the rest for stock buybacks.

On the earnings news front, home improvement retailer Lowe''s ((LOW)) gained 6% in pre-market trading after it reported a better-than-expected 9% earnings increase in Q2. The company also cut its full-year earnings outlook.

Crude oil will also be in the spotlight. Crude oil fell 69 cents to $71.13 a barrel as Hurricane Dean is likely to avoid key installations in the Gulf of Mexico. S&P 500 futures rose 3.6 points at 1,452.30 and Nasdaq 100 futures rose 4.75 points at 1,897.00. Dow industrial futures advanced 40 points. Yields on 10-year Treasury notes edged up to 4.68%.


[R]8:30AM New York, 9:30PM Tokyo - Asian stocks rallied on the rate cut in the U.S. Australia hits 10-year high. Shanghai and Hong Kong surge. HSBC eyes 51% stake in Korea Exchange Bank. QBE Insurance Group Ltd reported profit increase of 56%.[/R]

Asian stocks hit new 3-year highs tracking gains in US and Europe after Federal Reserve lowered rates. Indonesia led the region rising 6.6% followed by Singapore up 6.12%. Hong Kong surged 5.93%, South Korea up 5.7% while China added over 5%. Australia rose 4.6%. Australian shares lagged some of the other big moves in the region. Of the 201 stocks in the ASX 200 index, 189 rose and 9 fell. Of the index stocks 14 shares rose more than 10% while 149 stocks gained by between 1% and 9.9%.

In Sydney trading ASX 200 Index rose 4.6% to new decade highs at 5,932.60 helped by steep increases in metal and financial stocks. The Reserve Bank of Australia injected a further A$2.8 billion into the banking system to hold back rates growth. The Aussie dollar continued to firm against major currencies, closing at 80.01 cents against the dollar and 59 cents per euro. The Aussie had fallen as low as 76.7 cents in Friday trading.

Of the stocks in the ASX 200 index, metal and financial stocks soared and led the rally. Allco Finance GR led jumping a massive 23.72% followed by Murchsion Metals up 17.3% while Monadelphous Group gained 14.57%. Compass resource added 13.6% and Mount Gibson up 13.33%. Banks recovered sharply from last week’s losses. National Australia Bank Ltd closed up 4.8% and Australia and New Zealand Banking Group Ltd added 3.8%. Gud Holdings Ltd led down 4.40% followed by Crane Group Ltd that lost 1.55%. Telstra Corp fell 1.5% and Telecom New Zealand eased 0.88%. The other four declines lost less than 1%.

Macquarie Bank Ltd rose 9.3%, after the group announced plans to restructure. The bank''s shareholders will meet in October to vote on plans by the bank to create a non-operating holding company structure. Shareholders will exchange their shares in Macquarie Bank for shares in Macquarie Group, which will listed on Sydney Exchange.

QBE Insurance Group first half net earnings jumped 56% to A$921 million. Net earned premium rose 19% to A$4.75 billion with an interim dividend of 57 cents declared, up from 40 cents last year. The company, aiming further acquisitions, said also it had enough funds to cover any insurance claims arising from damage caused by Hurricane Dean in North America. The stock closed up 11%.

BlueScope Steel gained 5.08% after full year to June 30 net profit doubled 102% to A$686 million. Earnings per share increased to 94.6 cents from 47.4 cents per share in 2006. A final dividend of 26 cents a share, up 2 cents from will be paid.

Industrial firm Brambles was up 28 cents at A$13.18 after informing the market that Asciano Group''s stake in the company had increased to 2.84%.

Trading in Hong Kong and South Korea was dominated by news that HSBC was talking to U.S. private equity firm Lone Star about buying its controlling stake in Korea Stock Exchange.

Hang Seng index rose 6% to close at 21,602.34 while Kospi increased 5.7% to 1731.27. HSCB is negotiations with Lone Star Funds to acquire 51% of Korea Exchange Bank. Already, the banking group generates at least 47% of its profit in the region. Korea Exchange Bank closed higher 7.3%.


[R]08:00AM Lowe’s Cos posted 9% profit increase in Q2 on higher revenue.[/R]

Lowe''s Cos. ((LOW)), the U.S. second largest home improvement chain, announced 9% profit increase in Q2 on higher overall revenue. The retailer earned $1.02 billion, or 67 cents a share, higher than $935 million, or 60 cents a share a year earlier. Quarterly revenue rose to $14.17 billion from $13.39 billion last-year same period. Lowe’s Q2 financial results beat estimates for net income of 61 cents a share on revenue of $14.13 billion. However, the company’s same-store sales declined 2.6%, as the home improvement market has been slowing amid a slump in the housing sector.

Looking ahead, Lowe’s projected Q3 per-share earnings of 43 cents to 45 cents, with sales up 7% to 8% from a year earlier. For the fiscal year, the company expects per-share earnings of $1.97 to $2.01, down from its prior view of $1.99 to $2.03 a share, and expects sales to rise 6% from the prior fiscal year. The stock jumped 6.5% in pre-market trading.


[R]7:00AM New York, 8:00PM Tokyo - Japanese stocks rebound, join world rally spurred by the rate cut in Washington. Yen retreats after record gains last week. Japan and Indonesia sign trade pact.[/R]

Japanese shares rebounded ending a week of losses from global markets volatility. Several Asian shares followed suit, buoyed by the Federal Reserve Bank rate cut by half a point to 5.75% in Washington. Tokyo jumped 3% after falling 5.4% on Friday. Of the stocks in the Nikkei 225 index, 199 stocks were up, 25 fell and 1 remained unchanged. In addition, 50 stocks gained by more than 5%.

In Tokyo trading Nikkei 225 surged 3% to 15,732.48, touching fresh 12-month highs. Exporters led the rebound on falling yen. The yen dropped to 115.3 against the dollar, from a high of 112 on Friday. The Bank of Japan intervened in the financial system again, pumping an additional 1 trillion yen to calm rates and keep the key bank rate at 0.5% amid rising cash demand.

Japan and Indonesia singed energy and trade pact meant to eliminate tariffs by over 90%. The multi-billion dollar deal allows Japan access to Indonesia’s energy in exchange for development aid. Japanese and Indonesia companies are expected to conclude deals worth $4.3 billion under the economic agreement. Prime Minister Shinzo Abe is leading a business delegation of over 200 business people visiting several Asian states including, India and Malaysia to strengthen economic ties and build new investments. Japan industrial production index for July will be released on August 31. The market expects the index to fall below the 1.3% growth in June.

Exporters rose steeply aided by a weakening yen. Of the index stocks in Nikkei 225, Sojitz Corp led up 10.3% followed by Meidensha Corp rising 10.03%. Mistumi Electric Co added 9.24%, Mitsui Engineering and Shipbuilding higher 9.11% while Daikin INDS lifted 8.90%. Financial stocks recovered from severe losses last week. At least 8 shares gained for every 1 on the decline. Bottom 13 shares fell by more than 1%. Tokyo losses were restricted to below margins of 4%. Mitsubishi Logistics led down 3.28%, Toppam Printing fell 2.6% while Meiji Dairies Co dropped 2.62%. KDDI Group lost 2.53% with EISAI Corp down 2.42% anchoring the top five losses.

Kubota Corp reported it will invest 5.9 billion yen in tractor manufacturing joint venture with Thailand firm, Siam Cement Public Co Group, the group announced Monday. Operations will begin in March 2009. The partnership will be capitalized to the tune of 3.7 billion yen. The stock closed up 2.30%.