Beige Book Report, Red Stocks at Close

123jump.com Staff
05 Sep, 2007
New York City

The Fed Beige Book indicated that the current credit market difficulties are limited to housing sector. Auto and furniture sales turning lower but the other sectors in the economy are not affected. Investors hoping for rate cut were disappointed dragging the averages lower. Home Builders, banks, and brokerage stocks fell. Commercial real estate stock fell sharply. European and Latin American markets closed lower.

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

[R]Market averages in New York trading were fell sharply in the afternoon trading. Investors lowered the expectations after the Fed report indicated that the current credit turmoil is limited to housing sector only. European and Latin American markets closed lower. Commercial real estate stocks fell in Japan and New York trading.[/R]

FTSE 100 Index in London increased 106.10 or 1.66% to 6,270.70, in Tokyo Nikkei 225 closed at 16,569.09, up 2.57% or 415.27, and in Brazil, iBovespa Index traded down 1.6% to 54,376.96.

Yields edged higher on 10-year U.S. bonds and closed at 4.47% and 30-year bond rose to close at 4.78%.

Crude oil increased 71 cents to close at $75.79 per barrel, natural gas closed up 20 cents to $5.82 per mBtu, and gasoline futures increased 0.68 cents to close at 199.78 cents per gallon.

Gold lost $0.80 in New York trading to close at $690.70 per ounce, silver closed 9 cents lower to close at $12.355 per ounce, and copper for August month deliver in London fell $86 to $7,363.00 per pound in New York trading.

In New York market averages fell in the afternoon trading after the release of Beige Book report from the Fed. The report focused on the current credit market turmoil and indicated that the problem remains limited to the housing sector. The report noted the following in the summary:

“Most Banks reported that the recent developments in financial markets had led to tighter lending standards for residential mortgages, which was having a noticeable effect on housing activity, and several noted that the reduction in credit availability added to uncertainty about when the housing market might turn around. While several Banks noted that commercial real estate markets had also experienced somewhat tighter credit conditions, a number commented that credit availability and credit quality remained good for most consumer and business borrowers. Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.”

The pending home sales in July fell 16% from a year ago and 12% from June according to an index from National Association of Realtors. Home builders, financials, and banks fell in the sell-off. Worries for the commercial real estate market grew after the Beige Book report hurting Jones Lang LaSalle and C B Richard Ellis.

The Bank of Canada did not change interest rates and left its target rate at 4.5% and the operating band for the overnight lending was left unchanged. The Bank of England increased the reserves that lenders need to keep wit the bank. Libor or London interbank rate jumped to 6.8%, nine-year higher.

Canadian Pacific dropped fell but recovered the losses by the end of the session. Earlier the railroad agreed to pay for $1.5 billion for Dakota, Minnesota and Eastern Railroad. The railroad has managed to increase its sales from $22 million in 1987 to $290 million in 2007.

Of the 30 stocks in Dow Jones Industrial Average listed, 30 closed lower and none closed higher. Banks and financial stocks led the decliners. American Express led the decliners with a fall of 2.7% followed by declines of 2.66% in General Motors, 2.54% in Citigroup, and 2.4% in J P Morgan Chase.

Of the stocks in S&P 500, 450 stocks closed lower and 48 gained, 2 stocks closed unchanged. Of the index stocks 25 companies lost 4%. Tyson Foods led the decliners with a sharp loss of 13% followed by C B Richard Ellis with a loss of 11%. Circuit City fell 6% followed by 5% decline in K B Home and Big Lots. Family Dollar, Lexmark, Viacom, Teradyne and DR Horton, and Countrywide lost more than 4%.

In Latin Markets trading Brazil led the decliners with a loss of 1.3% followed by fall of 1.23% in Chile, 0.94% in Argentina. Mexico lost 0.67%.


[R]1:00PM NY, 5:00 PM Frankfurt European markets closed sharply down, pressured by banks and auto stocks.[/R]

European stock markets closed steeply in the negative territory, pressured by weakness in the banking and automotive sectors. Merrill Lynch European said that they remain negative on financial services, travel and automotive firms in Europe. Across the region, France and Germany tumbled 2.21%, followed by the U.K. which dropped 1.7%.

In Frankfurt Deutsche Bank declined 2.1% after Lehman cut its earnings expectations for investment banks and downgraded the firm to underweight from overweight

In Paris Societe Generale also declined on negative broker comment. The stock dropped 2.9% after Lehman Bros downgraded it to underweight from equal weight, saying that growth won''t be supported by recent acquisitions. Among auto makers, Peugeot slid 3.9% on poorly received strategy presentation. In the energy sector, shares of Total slipped 1.2% after the oil producer said that it expects production growth of 4% a year on average.

In London shares of Northern Rock posted considerable weakness after Lehman Brothers lowered its rating on the U.K. mortgage lender. The stock dropped 5.3%. On the positive side, shares of mining group Vedanta Resources gained 3.1% after Merrill Lynch added the copper extractor to its Europe 1 focus list.


[R]11:30AM Market averages extended losses on weak home sales data.[/R]

U.S. stock averages moved further to the downside after economic data showed existing home sales hit a record low of 12% and a separate gauge of employment prompted downward revisions of nonfarm payrolls report for August. On the one hand, the report was in favor of an interest rate cut, on the other, it intensified worries about economic growth.

The Dow dropped 165 points, or 1.2%. Housing stocks turned in some of the worst performances on the day, amid the realtors report.Financials were notable losers, with American Express ((AX)) falling 2.3% and J.P. Morgan Chase ((JPM)) losing 1.9%. Other sectors posting weakness were real estate, steel, telecommunications, and transportation stocks.

Retail stocks also moved steeply lower. Finisar ((FNSR)) fell 18% after the fiber-optic firm reported slower-than-forecast quarterly revenue and warned Q2 revenue will miss expectations. The world''s biggest toy maker Mattel ((MAT)) fell 2.6% after it announced a third major recall of Chinese-made toys because of excessive amounts of lead paint. Warehouse retailer Costco Wholesale ((COST)) dropped 5.1% after reporting weaker-than-expected same-store sales in August, largely due to strong international sales. Guess ((GES)) slid 7% on weaker profit outlook.

In midday trading, the Dow fell 156.97, or 1.17%, to 13,291.89. The Standard & Poor''s 500 index fell 16.94, or 1.14%, to 1,472.48, and the Nasdaq composite index fell 18.05, or 0.69%, to 2,612.19. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.48% from 4.55% late Tuesday.


[R]10:00AM New York – 7:30PM Mumbai – Sensex edged lower as trading volume recovers.[/R]

Sensex in Mumbai trading declined 0.12% or 19.25 to close at 15,535.35. CNX Nifty declined 3.40 or 0.08% to 4,475.85.

Of the stocks traded on the Bombay Stocks Exchange 1,403 closed higher, 1,331 declined and 65 were unchanged. Daily turnover on BSE increased to 5,167 crore rupee from 4,207 crore rupees. Daily trading volume on NSE increased to 1,900 crore rupees from 10,566 crore rupees a day ago. Of the 30 stocks on the index, 18 declined and 12 gained.

Ambuja Cement August sales jumped 3% to 1.15 million tons from a year ago lifting the stock 2% higher to 139 rupees.

NTPC, the largest power generator, rose 1.7% to 184 rupees after the reports that the company is looking to purchase Tungabhadra Steel, the maker of hydraulic gates for power plants.

Maruti Udyog lost nearly 3% to 869 rupees after the company guided that it will offer discount for its products to bolster sales during the holiday period. Managing Director, Jagdish Khattar, hinted that higher interest rates are restricting sales growth and the company may have to offer bigger discounts to attract new buyers.

Larsen Toubro fell 1.8% to 2,575 rupees after the news that its division in partnership with Italian company has won bidding for Bhusan Steel project for 1,200 crore rupees. ECC, the division, is likely to perform 64% of the value of the order.

Akruti Nirman jumped 4.3% to 568 rupees after the report that it plans to partner with Dubai World to bid for the redevelopment of Dharavi slums in Mumbai. In other news the company is reported to have purchased 8 acre land for 350 crore rupees from Hindoostan Spinning & Weaving Mills.

Gujarat industries Power soared 8% to 69 rupees after the board approved expansion of power unit by 250 MW at a cost of 1,300 crore rupees.

Ashok Leyland jumped 0.9% to 38 rupees on the news that the company is looking for alliances for heavy truck manufacturing.

Saregama India increased 10% to 275 rupees on the news that investment company Sonata Investments has acquired 1.058 million shares (or 10.58 lakh) at 260 rupees per share.

Kirloskar Brothers declined 1.2% to 464 rupees after its joint venture received 118 crore rupees order from Andhra irrigation department.

Bombay Burmah Trading soared 5% to 488 rupees after the news that it may acquire 25.5% stake in Britannia Industries from Danone.

Puravankar Projects increased 1% to 371 rupees on the news report that the company is planning to operate in partnership with Accor for its Bangalore hotel project.


[R]09:45AM Wall Street opened lower on cautiousness ahead of economic data.[/R]

Wall Street opened in the negative Wednesday after solid gains the previous session, as well as one gauge of employment which prompted downward revision of employment report Friday. Investors were cautious ahead of Beige Book release which will give detailed description of the economic conditions across the country and will give further clues about whether the Fed Reserve will reduce its key federal funds rate at its meeting on September 18. Economic report on how the housing market is faring was also eagerly anticipated.

On Wednesday two companies said they were prevented from merging because of the current difficult market conditions. Private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced that they terminated merger talks and abandoned plans to combine the two companies. Radian Group dropped more than 9%. In other deal-related news, Applix ((APLX)) surged 22% after Cognos ((COGN)) agreed to buy the company in a cash deal valued at about $306 million, or $17.87 a share.

Among stocks driven by analyst comments, Dow member Altria ((MO)) fell 1.4% after Goldman Sachs downgraded the tobacco group to neutral from buy. Kraft Foods ((KFT)) rose 1.2% after it lifted its full-year per-share earnings guidance to a range of $1.60 to $1.62 from $150 to $1.55.

Retail stocks posted notable losses in early trading, led by Guess ((GES)) which dropped 10.7% after it predicted full-year earnings at the low-end of forecasts. Walgreen ((WAG)) lost 0.7% after posting a 6.5% rise in same-store sales in August. The world''s biggest maker of toys Mattel ((MAT)) slipped 3% after a third recall of toys made in China.

In the first minutes of trading, the Dow Jones industrial average fell 75.76, or 0.56%, to 13,373.10. The Standard & Poor''s 500 index fell 7.84, or 0.53%, to 1,481.58 and the Nasdaq composite index fell 13.50, or 0.51%, to 2,612.74.


[R]09:00AM U.S. stock futures indicated a lower opening ahead of economic data.[/R]

U.S. stock futures reversed from the strong run yesterday, indicating a steep decline at opening on Wednesday amid disappointing employment data. Wall Street closed higher Tuesday, boosted by strong gains in the tech sector after favorable comments on Yahoo ((YHOO)), Advanced Micro Devices ((AMD)) and Intel ((INTC)). Yahoo is expected to attract attention after agreeing late Tuesday to buy online ad company BlueLithium for $300 million.

According to the ADP employment report posted early Wednesday, employment in the U.S. private sector grew by 38,000 in August, the weakest in four years, suggesting that nonfarm payrolls may have grown much slower than the 123,000 expected by economists. The economic agenda also included the release of the Beige Book later in the session.

Among companies in focus, Altria ((MO)) fell 1.3% in pre-market trading after the tobacco group was downgraded to neutral from buy at Goldman Sachs. Alcoa ((AA)) shares gained 1.5% in the pre-open after Merrill Lynch upgraded its stock. The broker also lifted its metal price forecast, while Morgan Stanley raised its oil-price view.

In deal-related news, Canadian Pacific Railway ((CP)) agreed to pay $1.48 billion to buy Dakota, Minnesota and Eastern Railroad. In other corporate news, private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced that they terminated merger talks and abandoned plans to combine the two companies.

S&P 500 futures declined 11.2 points at 1,478.40 and Nasdaq 100 futures declined 9.25 points at 2,015.50. Dow industrial futures fell 71 points.

[R]8.30AM MGIC Investment and rival Radian Group decided to terminate merger talks.[/R]

Private-mortgage insurer MGIC Investment ((MTG)) and rival Radian Group ((RDN)) announced Wednesday that they terminated merger talks and abandoned plans to combine the two companies. Òhe reason they brought to the fore was troubles in the mortgage industry.

The companies announced an acquisition deal on Feb. 6. According to the agreed terms, MGIC was expected to pay about $5 billion for Radian. However, its value notably decreased along with MGIC''s stock price.

MGIC said in August it no longer believed it had to complete the buyout of Radian because their joint interest in subprime mortgage investor C-Bass LLC could be worthless. The two firms announced their agreement to terminate the pending merger, as keeping their independence would be in their favor. Neither company paid each other to get out of the agreement.

[R]7:00AM New York, 8:00PM Tokyo - Japanese stocks declined Wednesday weighed by continued investor worries over U.S. linked subprime mortgage market problems. Yen continues firm against dollar.[/R]

Shares in Japan extended losses started Monday on persistent U.S housing market concerns. Tokyo slumped 1.6% today adding to losses of 0.3% and 0.63% reported Monday and Tuesday. Of the 225 Nikkei shares 202 dropped, 18 gained while 5 remained unchanged. Of the index shares 10 stocks lost over 4%.

In Tokyo trading Nikkei 225 sank 1.6% or 262.02 at 16,158.45 in thin volume. Investors sold property and other domestic-oriented shares, as exporters dragged on a firming yen. The yen gained to 115.92 against the dollar from 116.33 yesterday, rising also to 157.56 per euro from 158.26 Tuesday.

The Government Pension Investment Fund reported Tuesday second quarter investment profit rose to 2.38 trillion yen on a revised yield of 2.8%. The stronger profit growth before subtracting commissions and other expenses was helped by higher local and overseas stock markets, said the Fund.

Of the Nikkei 225 shares, real estate stocks dropped most. Tokyo Dome led decliners falling 5.03% followed by land developer, Sumitomo Realty ending down 4.9% while Heiwa Real Estate lost 4.4%. ALPS Electric Co Ltd and Sojitz Corp fell 4.2% each. Mitsui Fudason Co Ltd fell 4.14% with Kumagai Gumi Co Ltd falling 4.12%. Paper manufacturing share fell. Hokuetsu Paper eased 4.10%, Nippon Paper Gro down 3.9%, while Mitsubishi Paper and OJI Paper Co Ltd closed lower 3.8% and 3.63% respectively.

Of the index shares technology and auto parts producers gained. Showa Denko KK paced advancers rising 2.9% followed by Sony Corp up 2.32%. Fuji Heavy Industries rose 2.1%, JTEKT Corp up 1.8% while Yahoo Japan Corp added 1.51%. NEC Corp and Konami Corp surged 1.45% and 1.43%.

French financial group, BNP Paribas announced Tuesday it had sold its 12% stake in Nova Corp for 240 million yen to unnamed buyers. The group has also notified Japanese authorities of the deal, local media reported said Wednesday. BNP Paribas sold 8 million shares through after-market transactions last Thursday for 30 yen per share, compared with the purchase price of 71 yen. Osaka based Nova ended last Wednesday at 30 yen on the Jasdaq market for emerging companies.

McDonald''s Co (Japan) Ltd reported Wednesday August sales hit a high 46.4 billion yen, topping a monthly record of 43.1 billion yen reported in March. The growth was driven by resumption of sales of Mega Mac giant hamburger on a limited basis and promotion of the McFlurry ice cream menu, said the fast food retailer.