Market Awaits Fed Decision

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

Stocks in New York trading edged sideways ahead of busy week. The Fed action on Tuesday, and earnings from brokers in the week, and options tradig at the end of the week is likely to dominate trading. Fifth rate hike in China for the year may not cool economy. Industrial activities in India lifted stocks. UK dragged the European indexes lower afte the BoE bailed out the third largest home lender, Northern Rock. Economy in the second quarter in Argentina grew at 8.7% on food exports.

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

[R]Market averages in New York traded sideways ahead of busy week. Fed action on Tuesday, earnings from Lehman Brothers, Morgan Stanley, Goldman Sachs, and Bear Stearns, and options expiry at the end of week are likely to turn indexes volatile.[/R]

Dow Jones Industrial Average gained 0.10% or 12.84 to 13,437.72, Nasdaq fell 2.38 or 0.09% to 2,598.68, and S&P 500 declined 0.48 or 0.03% to 1,483.47. For the week Dow gained 2.5% followed by 2.1% rise in S&P 500 and 1.4% increase in Nasdaq.

FTSE 100 Index in London gained 57.70 or 0.91% to 6,363.90, in Tokyo Nikkei 225 closed at 15,821.19, up 0.15% or 23.59, and in Brazil, iBovespa Index traded higher 1.97% or 1,062.09 to 54,944.80.

Bond Yields on 10-year U.S. bonds were unchanged at 4.46% and 30-year bond yields fell to close at 4.72%.

Crude oil declined $0.99 to close at $79.10 per barrel record close for a front month contract, natural gas closed up 25 cents to $6.28 per mBtu, and gasoline futures fell 1.0 cents to close at 203.64 cents per gallon.

Gold lost 10 cents in New York trading to close at $717.80 per ounce, silver closed 2.5 cents higher to close at $12.71 per ounce, and copper for front month delivery in London gained $121 to $7,604.00 per pound.

Of the 30 stocks in Dow Jones Industrial Average, 14 closed lower, 16 closed higher, and none were unchanged. Alcoa led the gainers with a rise of 3.3% to $35.57 followed by 2.6% gain in General Motors, 2% in McDonalds, and 1.6% in United Technology. American Express led the decliners with a fall of 2.9% followed by losses in Intel of 1.8%, Hewlett Packard of 1.03%, and IBM of 0.97%.

Of the stocks in S&P 500, 301 stocks closed higher and 196 fell, 3 closed unchanged. Thirteen stocks in index gained more than 3%. RadioShack led the gainers with a rise of 7.7% followed by gains of 5% in King Pharmaceuticals, 4.4% in Centex and D R Horton. Yahoo jumped 4.3% and Wendy’s added 4%. Cardinal Health led the decliner with a fall of 5%, followed by 3.3% loss in Tenet Healthcare, and 3% in McKesson. New York Times fell 3% to $19.80 and CSX Corp declined 2% to $38.29.

In New York trading stocks edged sideways ahead of a busy week. The Fed decision on Tuesday is likely to dominate trading sentiment. Investors are hoping that the rate cut on Tuesday will support sagging credit markets with some hoping that the Fed may lower rates by 50 basis points. Brokers are also scheduled to release earnings during the week with Lehman Brothers scheduled on Tuesday. Investors are looking for estimate of losses from credit derivatives and exposure to mortgage market. The securitization business has dramatically slowed down but its full impact may not be revealed in the earnings report. Merrill Lynch indicated that the adjustment in values of subprime mortgage assets is likely to crimp earnings.

In economic news retail sales in August increased 0.3% followed by revised 0.5% increase in July according to the Commerce Department. Auto and parts sales in the month jumped 2.8% lifting total retail sales, excluding the auto sales increase the retail sales would have edged lower by 0.4%, sharpest decline in a year.

In another report the Labor Department said that the prices for import in August fell 0.3% on lower oil and natural gas import prices.

In European Markets trading indexes closed lower. Indexes in Switzerland, Spain, and UK led the region. Spain led the decliners with a fall of 1.5% followed by losses of 1.3% in Sweden, 1.2% in UK and Switzerland, 0.8% in Italy, and 0.5% in Germany.

In Latin Markets trading Mexico led the decliners with a fall of 0.7% followed by a loss of 0.43% in Brazil. Argentina led the gainers with a rise of 0.4%. Of the 63 stocks in iBovespa index 32 gained, 29 lost, and 2 closed unchanged. Natura led the decliners with a loss of 2.5% followed by declines of 1.7% in Vale do Rio Doce and Petrobras.

China raised rates on bank deposit by 0.27% to 3.87% and on one-year loan rate by the same amount to 7.29%. The fifth rate hike in the year and higher reserve required for the banks by the central bank has not slowed the economy so far. The trade surplus has pumped nearly $160 billion in the country’s banking system and most of it has found its way into real estate and stock markets. Stocks in China are trading at nearly 50 times earnings and real estate prices are rising more than 10% a year for homes and commercial properties. While European and American banks are battling credit squeeze, China is working hard to stem inflation and excess liquidity in the market. Inflation for the year so far has been above 6%, above the target rate of 3% set by the central bank.


[R]3:00PM New York, 8:00PM London - UK stocks plunged deeper Friday into negative territory. UK economic growth is likely to be 1% lower from the initial projection of 3% due credit market malaise. Bank of England bails out Northern Rock with emergency funding.[/R]

London stocks reversed earlier gains dropping 1.2% Friday amid renewed investor-concerns over the U.S subprime mortgage market problems. London had gained marginally Wednesday and Thursday on firmer oil and metal stocks. Of the 102, FTSE 100 index shares 94 slumped and 8 gained.

In London trading FTSE 100 dropped 1.2% or 74.6 at 6,289.30 led by heavy losses in financial shares. There were renewed investor worries the U.S. housing market turmoil was far from over after giant London bank, Northern Rock sought emergency funding from the Bank of England.

Bank of England announced Thursday that it had injected 4.4 billion pounds as liquidity to support banks, among them Northern Rock plc, the UK fourth largest home lender. This was just a day after BoE governor Mervyn King had played down the gravity of the subprime mortgage market woes. Wednesday, King said BoE must function only as a lender of last resort. He said the current market turmoil was a passing phase, which did not call for drastic measures. The bank lent at a 1% higher rate of 6.75%.

Economic growth in the UK may be 1% lower in 2008 and 2009 as a result of the ongoing credit crunch. Rising interest rates have led to record levels of loan defaults and home repossessions. This has sparked fears about which lenders might be exposed to the bad debts. There has been also a slowdown in take-over activity, with banks less willing to lend money needed to complete deals. Concerns have been raised the credit crunch would spread to the real economy from financial services sector, with the retail and housing markets at the worst exposure.

In early afternoon trade only one share had rose while others were in the red. The largest decline was accounted by banks and mid-cap financial stocks.

Of the FTSE 100 shares, financial shares declined heaviest. Northern Rock plc paced decliners plunging 31.5% Friday on weak sentiment, the record low since March 2003. Northern Rock says it expects a below market expectation profit before tax of between 500 million pounds and 540 million pounds, a decline from 588 million pounds achieved last year. Shire plc slid 7.38%, Persimmon, Britain's second-biggest homebuilder shed 6.62% while Barrett Development Bank retreated 4.71%.

Of the index shares, HBOS, the U.K.'s largest mortgage lender, lost 3.6%. Barclays fell 3.59% and Royal Bank of Scotland closed lower at 0.65%.

Other stocks, Reckitt Benckise gained 1.49%, Reed Elsivier rose 1.08%, Smith GRP climbed 0.60%, 31 Group plc was up 0.30% while Kingfisher closed higher at 0.20%.

[R]1:00PM NY, 5:00 PM Frankfurt European markets dropped on global credit crunch, concerns, sparked by Northern Rock.[/R]

European stock markets finished steeply lower Friday amid renewed concerns of a global credit crunch, sparked by Northern Rock. The UK mortgage lender dropped 31% after the Bank of England agreed to provide emergency funds to avoid liquidity trouble. Stocks were additionally pressured by China’s central bank’s decision to increase its benchmark interest rate, as well as weaker-than-expected U.S. retail sales. Across the region, the U.K. slipped 1.2%, while both Germany and France lost 0.5%.

In Frankfurt stocks finished down, led by weakness in the financial sector. Deutsche Bank retreated 1.3% after Societe Generale downgraded the stock to sell from hold. Commerzbank dropped 4.1%, as Societe Generale cut its price estimate to 35 euros from 41 euros. Deutsche Postbank shares fell 1.9%. Mortgage broker Interhyp tumbled 33% after it lowered its full-year earnings and revenue outlook.

In Paris stocks declined, paced by banks. Societe Generale led financial stocks down with a drop of 2.2%, followed by BNP Paribas, down 1.5% and Dexia, losing 1.3%.

In London stocks dropped sharply, led by Northern Rock which dropped 31% after the BoE agreed to provide the mortgage lender with a short-term credit line to keep it operating. Other lenders also fell. Shares of Alliance & Leicester dropped 6.9%, HBOS lost 3.6% and Barclays dropped 3.1%. Among other notable movers to the downside, Next slipped 4%, Argos owner Home Retail lost 3.7% and electronics retailer DSG International dropped 3%.

[R]12:30PM New York, 1:30AM Sydney - Australian stocks rose for the second day, as prices for metals and oil increased and the U.S. dollar declined.[/R]

In Sydney trading ASX 200 Index gained 1.22% or 72.2 to 6,306.80. The Aussie dollar closed stronger today, recovering from early morning lows on the back of solid demand for the currency from Japan and further weakness in the U.S. dollar. The Aussie dollar traded at $0.8419/25 against the dollar, up from yesterday's close of $0.8396/02.

During the day, it traded between a low of $0.8344 and a high of $0.8425. News on UK mortgage lender Northern Rock's to borrow capital from the Bank of England, lender of the last resort, due to the exposure to the troubled U.S. sub-prime mortgage sector had put pressure on the Aussie dollar. Additional news that Northern Rock would be given a short-term credit line to allow it to maintain operations had initially sent ripples through the market, putting pressure on high-yield currencies such as the Australian dollar.

However the Aussie dollar's fortunes soon changed on the back of demand out of Japan. The demand from Tokyo helped lift the Aussie against the U.S. dollar by boosting confidence in the market and sentiment towards risk. News of a weakening U.S. dollar against expectations that the Federal Reserve may cut interest rates from 5.25 % next week also helped turn the tide in the favor of the Aussie dollar.

Lower interest rates can weaken a currency by giving investors lower returns on investments denominated in that currency.

Of the Sydney shares, Commander Comm led the gainers with a rise of 7.22% followed by Centennial Coal at 6.83% higher, APN/UKA European rose 6.36% with Mount Gibson and Macquarie 6.27% and 6.18% respectively. Mining giant BHP Billiton and Santos Ltd led from the front riding on increases in the prices for metals and oil as the U.S. dollar declined. BHP, the world's biggest mining company and Australia's largest oil producer, rose 1.94% and Rio Tinto Group, the third-largest Australian oil producer, added 1.43% and Santos, gained 2.30%.

Crude closed above $80 a barrel in New York for the first time, after Hurricane Humberto shut three refineries in Texas.

Macquarie, Australia's largest securities firm jumped 6.2% on the predictions that its first half earnings will be stronger on growth in investment banking fees and the specialist funds it manages. It is expecting an around 40 percent jump in net income within the six months ending September 30 from A$730 million ($610 million) a year ago.

Of the ASX 200 index stocks, Incitec Pivot Lt fell 1.48% followed by Bolnisi Gold down 2.19%, Tishman Speyer sank 2.20 % followed by Duet Group down 2.33% and Sino Gold Mining lost 3.59%.

[R]11:30AM U.S. stocks eased some of the early losses on strong consumer confidence.[/R]

U.S. stock averages traded lower amid renewed fears of a global credit crunch. Financial stocks suffered weakness after UK mortgage lender Northern Rock turned to the Bank of England for an emergency loan to avoid liquidity trouble. The company also issued a profit warning. Following the news, Merrill Lynch ((MER)) shares fell 1.6%, while Lehman Brothers ((LEH)) slipped 2%. Merrill Lynch said its Q3 profit could be hurt by a move of adjusting the value of securities linked to risky subprime mortgages.

However, the market erased some of the earlier losses, benefiting from a stronger-than-expected consumer confidence reading. The preliminary consumer confidence index rose to 83.8 in September up from 83.4 in August, exceeding the average analyst estimates. In another report, the Commerce Department showed retail sales, excluding vehicles, fell more than expected in August.

Among stocks driven by analyst comments, chipmaker Intel ((INTC)) fell 1.2% and American Express ((AXP)) dropped 2.4%, both weighing the blue-chip average down. On the positive side, United Technologies (UTX)) rose 1% after a broker upgraded the industrial conglomerate, citing long-term margin improvement at its Carrier air conditioner and Sikorsky helicopter units.

The Dow Jones was down 12.03 points, or 0.09%, at 13,412.85. The Standard & Poor's 500) was down 2.62 points, or 0.18%, at 1,481.33. The Nasdaq Composite fell 5.23 points, or 0.20%, at 2,595.83. The benchmark 10-year Treasury note fell 4/32 at 102 3/32, its yield at 4.49%.

[R]Business inventories rose 0.5% in July.[/R]

The Department of Commerce released its report on business inventories and sales in the month of July, showing that inventories increased by more than economists had expected and sales rebounded. The report showed that business inventories rose 0.5 percent in July following an unrevised 0.4 percent increase in June. The increase exceeded the expectations of economists, who had expected an increase of about 0.3 percent.

The bigger than expected increase in inventories was largely due to a notable increase in retailers' inventories, which rose 1.0 percent in July after a 0.6 percent increase in the previous month. Inventories of both manufacturers and merchant wholesalers increased by 0.2 percent. The Commerce Department also said that sales jumped 1.1 percent in July after falling 0.3 percent in June. A 2.6 percent increase in sales by manufacturers contributed to the rebound. Sales by retailers and wholesalers rose 0.5 percent and 0.1 percent, respectively. Subsequently, the report also showed that total business inventories/sales ratio came in at 1.26 in July, down from 1.27 in both the previous month and July 2006.


[R]10:00AM New York - 7:30PM Mumbai – Ess Dee Aluminium is in race to acquire packaging business of Canada based Alcan for $1 billion or more.[/R]

Sensex in Mumbai trading declined 10.64 or 0.70% to close at 15,603.80. CNX Nifty lost 0.24% or 10.95 to close at 4,518.95. Sensex had jumped at mid-day more than 200 points but was dragged lower at the close on worries in the European markets. Rupee recovered to 40.60 against dollar from 40.65 in Friday trading. Market indexes opened higher at the opening but closed lower in a familiar pattern in the last three months of trading. Political worries dogged traders.

Of the stocks trading on BSE, 1,753 declined, 999 gained, and 61 closed unchanged. Daily turnover on the exchange increased to 6,120 crore rupees ($1.5 billion) compared to 5,286 crore rupees a day ago. In trading on National Stock Exchange volume increased to 12,509 crore rupees ($3 billion) from 11,075 crore rupees a day ago.

Of the 30 stocks in the Sensex 11 rose and 19 fell. ICICI Bank led the gainers in the index with a rise of 2.6% to 907 rupees. NTPC led the decliners with a loss of 3.1% to 185 rupees. The most active stock on the BSE, Infrastructure Development Finance declined 4.2% to 129 rupees with trading volume of 2.7 crore shares and 325 crore rupees.

Ess Dee Aluminium soared 4% to 495 rupees after the company showed interest in acquiring packaging business of Alcan, Canadian aluminum maker. Alcan has agreed to be acquired for $38 billion by UK based Rio Tinto.

Larsen & Toubro jumped 1.1% to 2,596 rupees on the news that the company in collaboration with Germany based Outotec GmbH for Steel Authority of India. The company is awarded 630 crore rupees contract and its German partner will handle 22 million euro project to build a sintering plant. Era Constructions declined 2.5% to 564 rupees after its subsidiary received an order of 285 crore rupees from Aravali Power Company. Unity Infraprojects lost 2.1% to 598 rupees after receiving an order of 134 crore rupees to build a shopping center in Pune.

Reliance Industries increased 8 rupees or 0.4% to 2,033 rupees on the news that the company is planning to invest in partnership with two companies and enter ship building and port dredging business. Earlier, Reliance Industries and a group of ministers appointed by the Government of India agreed on natural gas purchase price of $4.20 Mbtu for five years. The natural gas from Krishna Godavari basin will be distributed by government agencies. Reliance had asked for $4.33 Mbtu and negotiations between the government and the company had dragged for more than a year.

Alok Industries soared 6% to 73 rupees after receiving approval to build special economic zone for textile industry in Silvasa, Gujarat.

Ispat Industries jumped 5.2% to 20 rupees after the news that the company is planning to invest 10,000 core rupees ($2.5 billion) to expand steel production capacity. Aftek soared 12% to 82 rupees on the news that the company, minority investment of 25%, Seekport AG was listed in Germany with a market cap of 475 million euros.

House of Pearl Fashions added 5% to 278 rupees after Reliance Mutual Fund purchased 400,000 stocks for 278 rupees from Morgan Stanley. In another deal, Reliance purchased from Citigroup 428,000 stocks of CCL products at 250 rupees.


[R]09:45AM Wall Street opened lower on weak retail sales and economic concerns. Intel pressured the Dow.[/R]

Wall Street showed considerable weakness at opening Friday, reflecting weaker-than-forecast August retail sales, as well as economic and financial concerns, sparked by U.K. lender Northern Rock which approached the Bank of England for emergency funding. The Commerce Department said that retail sales rose 0.3%, but all the gains were for cars and trucks. According to another government report, industrial production rose 0.2% as U.S. factories, mines and utilities increased output.

Dow member Intel ((INTC)) pressured the blue-chip average and tech sector after Merrill Lynch downgraded the chipmaker, sending its stock down 1.6%. American Express ((AXP)) was also driven lower by analyst comments. The stock fell 2.6%, pushing the Dow further lower after Merrill Lynch cut its rating on the stock on worries about weak U.S. employment.

Among other early movers, Genentech ((DNA)) declined 1% after an FDA advisory panel said it would review an application for its Avastin breast cancer drug. Liz Clairborne ((LIZ)) lost 0.6% on plans to sell four brands to Li & Fung USA.

In global economic news, China’s central bank lifted its key interest rates to cool the nation's economic growth and inflationary pressures. In the first minutes of trading, the Dow Jones industrial average fell 90.80, or 0.68%, to 13,334.08. The Standard & Poor's 500 index 8.43, or 0.57%, to 1,475.52, and the Nasdaq composite index fell 19.36, or 0.74%, to 2,581.70. Bonds rose, with the yield on the benchmark 10-year Treasury note fell to 4.41% from 4.48% late Thursday.

[R]Industrial production rose less than expected in August.[/R]

Industrial production rose less than expected in the month of August, according to a report released by the Federal Reserve on Friday. At the same time, the report showed that capacity utilization came in above economist estimates. The report showed that industrial production rose 0.2 percent in August following an upwardly revised 0.5 percent increase in July. Economists had expected production to increase by 0.3 percent, which would have matched the increase originally reported for the previous month. The modest increase in production was largely due to a sharp rise in production in the utilities sector, which rose 5.3 percent after falling 1.7 percent in the previous month.

Unusually hot weather contributed to the rebound in production by utilities. The rebound in production by utilities was partly offset by decreases in manufacturing and mining production, which fell 0.3 percent and 0.6 percent, respectively. As mentioned above, the report also showed that the capacity utilization rate came in at 82.2 percent, unchanged from an upwardly revised reading for the previous month. Economists expected the rate to edge up to 82.0 percent from the 81.9 percent originally reported for July. Capacity utilization in the utilities sector jumped to 87.9 percent in August from 83.6 percent in July, while the manufacturing and mining sectors both showed decreases in capacity utilization.


[R]09:00AM U.S. stock futures declined on renewed financial markets concerns, as well as lower-than-expected retail sales and Intel downgrade.[/R]

U.S. stock futures reversed from gains, pointing to a weaker opening Friday, dragged down by renewed concerns about the U.S. financial markets amid news of a foreign lender's difficulties. U.K. lender Northern Rock was forced to approach the Bank of England for emergency funding, sending the British pound lower.

Retail sales figures and a broker downgrade of Intel exerted additional pressure. The Commerce Department said that August retail sales rose 0.3%, but all the gains were for cars and trucks. Excluding motor vehicles, sales fell 0.4%, which was lower than expected.

Among stocks in focus, Intel ((INTC)) dropped 2.1% in pre-open trade after Merrill Lynch downgraded the chipmaker to neutral from buy, citing valuation. The same broker also downgraded American Express ((AXP)), cutting its rating on the stock to neutral on worries about weak U.S. employment.

S&P 500 futures slipped 9.5 points at 1,488.50 and Nasdaq 100 futures fell 13 points at 2,011.50. Dow industrial futures eased 60 points.


[R]7:00AM New York, 8:00 PM Tokyo - Japanese stocks spike for the second day, with exporters buoyed by weakened yen. Thawing concerns of continued worsening of the global credit markets also lifts financial stocks. Oil and metal prices continue to rise. Toyota plans to invest 100 billion yen to build new car factory in 2009 in Japan to meet rising global demand. [/R]

Japanese stocks rose for the second day led by exporters buoyed by the weakening yen against a basket of major currencies. Financial markets were also on the rebound owing to fading concern of further turmoil in the global financial markets. Japan close up at 1.9%. Of the 225 Nikkei index stocks, 177 rose, 42 declined and the remaining 6 traded unchanged.

In Tokyo trading, the Nikkei 225 advanced by 1.9%, or 306.23 to 16,127.42. The broader Topix index gained 1.4% to 1,544.71. Export oriented stocks rallied after yen slipped to 115.10 to the dollar. A rally stocks prompted the slump in bonds. Japan’s 10-year bonds declined the most in two months. The yield on the benchmark 10-year bond rose 4.5 basis points to 1.575%. However, gains that were recorded by stocks largely offset the Wednesday’s tepid trading that was weighed down by news that Japan’s economy shrank by an annualized 1.2% in the second quarter. Core consumer prices, which are a measure of inflation, also fell by 0.1%.

Commodities and oil prices also continued to scale record highs lifting stocks in the sectors. Zinc soared 4%, copper rose 1.6% and oil touched a second day high of $80.09 a barrel.

Of the Nikkei 225 index stocks, beer producing company Sapporo Holdings paced gainers, rising 7.85% on news that U.S. hedge fund Steel Partners is still pursuing bid for the company. Toyo Seikan soared 6.85%, while Sumitomo Metals Mining gained 6.84%, boosted by an increase in nickel prices by 3% and increased income forecast by 46% to 89 billion for the six months ending September 30. Tokai Carbon Company and Sanyo Electric completed the top five gainers, adding 6.05% and 5.71% respectively.

Of the Nikkei 225 index stocks, Inpex Holdings led decliners, shedding 3.42%, while pulp and paper companies Mitsubishi Paper and Nippon declined by 1.82% and 1.66% respectively. Sumitomo Chemicals retreated by 1.32% followed by OJI Paper Company, which lost 1.26%.

News that US biggest mortgage lender Countrywide Financial Corp had secured $12 billion of financing and that the Bank of England had extended an additional 4.4 billion pounds to calm the credit markets by promoting interbank lending also helped spur financial stocks. Japan’s biggest bank Mitsibishi UFJ Finanacial Group led the lenders edging 4.45%. Mizuho, the second biggest bank, and Sumitomo Mitsui closed at 4.45% and 3.92% in that order.

News report in Japan suggested that Toyota plans to fund a domestic plant in Japan, for the first time in 17 years, with an investment of 100 billion yen to meet surging global demand for its models. Toyota closed up 2.35%.