Financial Stocks Lose, Dow Plunges 1.7%

Elena
07 Sep, 2007
New York City

U.S. stocks tumbled while bonds surged higher following a deeply disappointing government report which showed payrolls in August fell unexpectedly for the first time in four years. The Dow Jones slipped more than 200 points. The data raised optimism that the Fed will cut interest rates by 0.25% at the central bank meeting on Sept 18. By the end of 2007, the fed funds rate is expected to drop to 4.25%. In another report, the Commerce Department said U.S. wholesale inventories rose 0.2% in July.

[R]11:30AM Market averages plunged, with the Nasdaq down 2%, Dow losing 1.7%.[/R]

U.S. stocks tumbled while bonds surged higher Friday following a deeply disappointing government report which showed payrolls in August fell unexpectedly for the first time in four years. The Dow Jones slipped more than 200 points.

The data raised optimism that the Fed will cut interest rates by at least 25 basis points at the central bank meeting on September 18. By the end of the year, the fed funds rate is expected to drop to 4.25%. In another report, the Commerce Department said U.S. wholesale inventories rose 0.2% in July, a slower pace than in June. as automotive, petroleum and other stockpiles fell.

The markets experienced broad based weakness, with the vast majority of sectors posting significant losses. Financial stocks moved sharply lower. American Express ((AXP)) fell 3%, Lehman Bros ((LEH)) lost 2.4%, Morgan Stanley ((MS)) fell 1.2%, Merrill Lynch ((MER)) lost 1.4%.

The tech sector also lost ground following the employment report. Apple ((APPL)) fell 3% a day after its CEO replied to customer complaints about a quick price reduction on the iPhone and said the company would give $100 store credits to certain iPhone buyers.

In late morning trading, the Dow fell 221.60, or 1.66%, to 13,141.75. The Standard & Poor's 500 index fell 24.36, or 1.65%, to 1,454.19, and the Nasdaq composite index fell 53.79, or 2.06%to 2,560.53. Bonds, meanwhile, soared following the jobs report. The yield on the benchmark 10-year Treasury note skidded to 4.39% from 4.51% late Thursday.

[R]Wholesale inventories rose 0.2%.[/R]

The Department of Commerce released its report on wholesale inventories and sales in the month of July on Friday, showing that inventories increased by less than economists had expected and sales rose modestly. The report showed that wholesale inventories rose 0.2 percent in July following a downwardly revised 0.3 percent increase in June. Economists had expected the growth in inventories to match the 0.5 percent increase originally reported for the previous month.

The modest increase in inventories came as a 1.5 percent increase in inventories of non-durable good more than offset a 0.5 percent decrease in inventories of durable goods. The Commerce Department also said that wholesale sales edged up 0.1 percent in July after rising 0.4 percent in June. While sales of non-durable goods rose 0.1 percent, sales of durable goods were unchanged. Subsequently, the report also showed that the wholesale inventories/sale ratio came in unchanged from the previous month at 1.11, although it is down from the July 2006 ratio of 1.13.


[R]10:30AM New York, 8:00PM Mumbai – Wholesale inflation declined at the end of last week. Sensex gained 1.8% in the week.[/R]

Sensex in Mumbai trading lost 25.89 or 0.2% to close at 15,590.42 and CNX Nifty declined 9.10 or 0.2% to close at 4,509.50.

Of the stocks traded on Bombay Stock Exchange, 1,383 gained, 1,381 declined, and 71 were unchanged. Daily turnover in BSE trading increased to 4,863 crore rupees from 4,670 crore in Thursday trading. Of the 30 stocks listed in Sensex 20 declined and 10 gained. ITC with a gain of 1.6% led the gainers in the index and Cipla led the decliners in the index with a loss of 2.5%.

ICICI Bank is launching an infrastructure fund for $2 billion in the next three months. India has seen a surge of infrastructure funds in the last six months with at least three others funds are in the process of raising more than $1 billion. The country’s rickety infrastructure costs delays in transportation of goods at ports and distribution to the factory locations. Less than 2% of nation’s road network is four lane highways and most ports are antiquated by international standards.

Reliance Industries fell 1.3% to 1,957 rupees after the Communist and Samajwadi Parties expressed their reservation to a proposed price for natural gas sale from Krishna Godavari energy basin. The fertilizer minister Ram Vilas said that the proposed price of $4.33 mBTU is higher than the government is willing to pay. He did not elaborate or offered any alternative price for the purchase.

DLF, the largest property developer, is planning to spin off its subsidiary DT Cinemas in two years. The company plans to increase the number of cinema locations to 100 from seven and number of screens to 500 in the next two years.

Kirloskar Brothers surged 6% to 488 rupees after reporting that its joint venture has received 761 crore rupees project from Andhra Pradesh government. Kirloskar Brothers is likely to provide equipment of 114 crore rupees.

Saregama India soared 7% to 323 rupees after surging 21% in the last two trading days. The recent purchase of 10 lakhs shares by Sonata investments has cheered investors.

Hindoostan Spinning & Weaving Mills surged 10% to 64.75 rupees after adding 16% in the last three trading days. The recent deal to sell mill located in Mumbai for 350 crore rupees has driven the stock to a new high.

Eveready Industries India gained 27% to 54 rupees after it issued equity warrants at 8.8% premium to Thursday closing price of 53 rupees. The warrant holders will be entitled to one share at 53 rupees price.

Tata Power is reported to purchase 15% in the planned power exchange by NTPC and National Commodity and Derivative Exchange. Tata Power fell 1.8% to 716 rupees.

Federal Mogul Goetze lost 3% to 165 rupees after the company announced rights issue date of Sept 24th.

Sintex Industries declined 1.3% to 340 rupees after the company said that it has acquired automotive business of Bright Brothers for 149 crore rupees.


[R]09:45AM Wall Street plunged at opening, pressured by employment decline.[/R]

Wall Street opened sharply down Friday, reflecting a heavy sell-off after the government reported employment in August fell for the first time in four years rather than rising as economists had been expecting. The Labor Department said U.S. nonfarm payrolls fell an estimated 4,000 in August, while the unemployment rate held steady at 4.6%. Following the jobs report the dollar fell sharply, while bonds surged. The three major averages dropped more than 1%.

Major financial stocks moved sharply lower. Shares of investment banks Morgan Stanley ((MS)) fell 1.9%, Merrill Lynch ((MER)) lost 1.7%, while Lehman Brothers ((LEH)) dropped 3%.

Among companies in focus, Harley-Davidson ((HOG)) fell 9% after the motorcycle maker cut its forecast for Q3 shipments and full-year earnings. In earnings-related news, Hovnanian ((HOV)) fell 2.9% after the home builder posted Q3 losses of $77.9 million. Another home builder Beazer Homes ((BZH)) dropped 9% as it had received purported default notices from U.S. Bank National Association, the trustee under the indentures governing several outstanding senior notes.

Of other notable movers Bear Stearns ((BSC)) fell 3% after Banc of America Securities downgraded its stock to neutral from buy, citing weaker fixed-income trends. Wyeth ((WYE)) fell 3.5% following a federal court decision denying its attempt to prevent Teva Pharmaceutical Industries ((TEVA)) from launching a generic version of the drug Protonix.

In the first minutes of trading, the Dow fell 151.77, or 1.14%, to 13,211.58. The Standard & Poor''s 500 index fell 18.72, or 1.27%, to 1,459.83, and the Nasdaq composite index fell 39.17, or 1.50%, to 2,575.15. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell to 4.42% from 4.51% late Thursday.


[R]09:00AM U.S. stock futures dropped after the Labor Department said employment contracted in August.[/R]

U.S. stock futures moved steeply lower Friday, pressured by weak employment report and comments from ex Fed Reserve Chairman Alan Greenspan who said the current market situation is similar to the stock-market crash of 1987 and 1998. Some investors believe that the report will exert pressure on Federal Reserve officials to reduce interest rates at its policy meeting on Sept. 18.

The Labor Department said that employment in August declined for the first time since August 2003. Nonfarm payrolls contracted by 4,000 in August. The decline was much weaker than the 115,000 increase expected by economists. The unemployment rate held steady at 4.6%. Average hourly earnings rose 5 cents, or 0.3% to $17.50.

Profit warning from Harley-Davidson ((HOG)) further weighed sentiment down. Company''s shares fell 6.5% in pre-open trade after it released a profit warning and cut its motorcycle shipment outlook. Harley-Davidson predicted a net income decline of 4% to 6% in 2007. As further proof of struggling housing market, luxury home builder Hovnanian ((HOV)) reported a $77.9 million loss on a 27% revenue drop.

In other corporate news, Pozen ((POZN)) surged 10% after it in partnership with AstraZeneca ((AZN)) took a drug into Phase III development. S&P 500 futures dropped 10.6 points at 1,469.00 and Nasdaq 100 futures fell 13.75 points at 1,990.00. Futures on the Dow Jones Industrial Average dropped 75 points.

[R]Nonfarm payrolls dropped 4,000 in August.[/R]

In a major surprise to economists, U.S. employment showed a modest decrease in the month of August, according to a report from the Department of Labor on Friday. The report is likely to solidify expectations that the Federal Reserve will cut interest rates later this month. The report showed that non-farm payrolls fell by 4,000 jobs in August following a downwardly revised increase of 68,000 in July. Economists had expected an increase of about 110,000 jobs compared to the increase of 92,000 originally reported for the previous month. Although many economists had tempered their outlook for the August employment report following recent weak data, the drop in employment still came as a big surprise.

The unexpected decrease came as a drop in jobs in the goods-producing sector more than offset an increase in jobs in the service-providing sector. The report showed that employment in the goods-producing sector fell by 64,000 jobs, reflecting a decrease of 22,000 construction jobs and a decrease of 42,000 manufacturing jobs. At the same time, the service-providing sector added 60,000 jobs due in large part to an increase of 63,000 education and health services jobs. A decrease of 28,000 government jobs partly offset the increase in service sector jobs. Despite the drop in employment the unemployment rate remained at 4.6 percent in August, unchanged from the previous month and in line with economist estimates. The Labor Department also noted that average hourly earnings edged up $0.05 or 0.3 percent in August to $17.50. With the increase, average hourly earnings are up 3.9 percent compared to the same month last year.


[R]8:15AM Hovnanian reported another loss in Q3, due to continuous credit markets troubles and high inventory.[/R]

Hovnanian Enterprises Inc. ((HOV)) reported another loss in Q3, citing continuous credit markets troubles and high inventory. The homebuilder posted wider-than-expected loss of $77.9 million, or $1.27 a share compared with a profit of $77 million, or $1.15 a share a year earlier. Company’s revenue for the quarter dropped 27% to $1.13 billion from $1.55 billion last year. Analysts had expected a per-share loss of 99 cents and revenue of $1.13 billion.

The quarterly results include $108.6 million in land-impairment and write-off charges. Hovnanian''s cancellation rate rose to 35% during Q3, up from 32% in Q2. Excluding unconsolidated joint ventures, the company delivered 3,179 homes in the quarter, compared with 4,623 in the year-ago period. The disappointing financial results released by the luxury homebuilder sounded perfectly adequate against the background of a struggling housing market.


[R]8:00AM New York – 8:00PM Hong Kong – Asian markets closed mixed for the day but fell during the week’s trading.[/R]

Asian markets closed lower in anticipation of employment report from the U.S. and higher bank reserves in China.

Indonesia led the region with a gain of 0.9% followed by increases of 0.6% in Singapore and 0.5% in Australia. Philippines and Taiwan edged up a fraction. Shanghai led the declining markets in the region with a loss of 2.2% followed by losses of 1% in Thailand, 0.3% in Hong Kong and 0.2% in India and South Korea.

China drained liquidity from the financial system by offering bill sales at 3.71%. The People’s Bank of China sold Rmb 151 billion for a three year maturity. Central bank is struggling to control rise of money supply on rising exports. The current liquidity mopping is in line with the bank’s target to keep lending growth below 15%. Japan also drained liquidity from the financial system by selling bond sale of $1.7 billion.

China Communications Construction reported first half sales increase of 24% to Rmb 58.7 billion and net income increased 170% to Rmb 2.74 billion from a year ago. The first earnings report as a public company was bolstered by international expansion and diversifying project work for railroad, airports and subway systems. Domestic investment in highway and port building is robust but expected to slow down in the coming years. The largest port building and construction company is controlled by an arm of the government and the stock has more than doubles since its listing on the Shanghai exchange.

China Oilfield Services jumped 12% in Hong Kong trading after the news that the company is likely to receive listing approval in Shanghai. The company plans to raise funds in the mainland exchange to take advantage of investors’ enthusiasm and higher earnings multiple. The Shanghai listed stocks are trading four times the earnings multiple in Hong Kong where stocks trade at 16 price to earnings multiple.

Australian government will permit BHP Billiton and other local companies to sell nuclear fuel to Russia. The deal is expected to generate A$1 billion a year. Russia has agreed as a condition not to sell the reprocessed fuel to Iran or for military purpose. Russian companies have invested nearly $5 billion in Australian mining companies. Australia exports more than A$520 million of uranium in the year 2006 and is likely to raise its production by 50% in the next three to five years. Earlier China signed a deal with Australia to purchase liquefied natural gas for A$35 billion.


[R]7:00AM New York, 8:00PM Tokyo - Shares in Japan extended losses to end the week in the red on renewed U.S housing market woes. Japan forex reserves hit $932.2 billion. Imported vehicle sales rise 9.1% in August. Honda recalls 63,000 cars.[/R]

Tokyo shares capped a week of losses dropping 0.83% Friday after U.S housing data showed the number of mortgage borrowers to default, or make late payments climbed to 14.82% in the second quarter from 13.77% in the first quarter. For the week, Japan lost Nikkei 225 lost 2.7% and Topix fell 3.2%. Of the 225 stocks, 170 dropped, 51 gained while 4 traded unchanged. Of the index shares 44 stocks fell above 2% while 12 shares rose over 2%.

In Tokyo Nikkei 225 lost 0.83% or 134.84 to 16,122.16 in volatile trading, as the yen gained strength. Financials fell on concerns the sub-prime market problems were far from over. The yen rose to 115.14 per dollar from 115.38 yesterday, and over 116 earlier in the week. Against the euro, yen finished up at 157.45 from 157.95 Thursday. Because of the gains, some exporters dragged.

The Finance Ministry reported today that Japan’s foreign currency reserves surged for third month running to a record $932.2 billion in August, up $8.44 billion from July of this year. The rise was helped by valuation gains in holding of U.S. treasuries and lower interest rates.

Japan''s imported vehicle sales including those built by Japanese carmakers abroad rose 9.1% in August to 18,100 units from a year ago, according to data released by the Japan Automobile Association Thursday. The increase is the fourth consecutive in as many months. Imports of foreign brands alone, however, fell 5.5% to 14,406 cars, falling for the 14th month in a row due to weaker sales of new models.

Of the Nikkei 225 index stocks Fast Retailing led the decliners with a fall of 4.3% followed by Resona Holdings down 4.04%. NSK Ltd ended down 3.73%, Nikon Corp shed 3.7% while Nippon Oil Corp lost 3.61% after BBC reported Thursday the firm would start paying in yen for Iranian oil. The first payments for crude oil contracts will be made in October. Iran has been increasingly selling oil in currencies other than dollar because of political differences with the U.S. over its nuclear program.

Of the index shares, financials fell. Mizuho Financial closed down 3.42% while Softbank Corp, Sumitomo Trust and Banking Co Ltd, Shinsei Bank Ltd and Sumitomo Mitsui Ltd lost 3.2%, 3.1%, and 3% respectively.

In other Tokyo stocks, Mitsubishi UFJ Nicos led gainers rallying 4.5% followed by Shionogi & Co up 3.33% and Astellas Pharmacy rose 3.13%. Mitsumi Electrical Co rose 2.9% while Daikin Industries closed up 2.32%.

Rising metal and crude oil prices lifted refiners and miners. Inpex increased 1.9% and Japan Petroleum Exploration soared 6.5%. Sumitomo Metal & Mining advanced 2.23%.

Honda Motor Co closed down 0.8% after announcing Thursday that it will recall more than 63,000 vehicles due to faulty brake-light system and speedometers. The automaker said it will recall the Civic and Civic Hybrid sedans as well as Stream minivans manufactured between August 2005 and January 2007. Honda said it received a total of 155 reports from customers about the two types of defects. It said in some cases excess lubricating oil on the telescoping steering wheel system meant drivers were not able to move the gear shift lever from the park position, affecting the brake-light system.