Hopes of a Rate Cut Dominate Debates

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

Stocks around the world fel and awaited the rate decision from the Fed tomorrow afternoon. Averages in the America, Europe and in Asia declined. UK stocks remained volatile as depositors withdrew money from the troubled lender Northern Rock for the second day, despite an assuarance from the UK government that it will protect all deposits. Microsoft was found guilty of abusing its dominating market position and a fine of $690 million. Record oil price and gold traded above $725.

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

[R]Market averages in New York traded fell ahead of Fed decision and earnings from brokerage industry. 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 fell 0.29% or 39.10 to 13,403.42, Nasdaq fell 20.52 or 0.79% to 2,581.66, and S&P 500 declined 7.60 or 0.51% to 1,476.65.

FTSE 100 Index in London fell 106.50 or 1.69% to 6,182.80, in Tokyo markets were closed for holiday but closed at 15,821.19, up 0.15% or 23.59 on Friday, and in Brazil, iBovespa Index traded lower 0.6% or 330.46 to 54,340.54.

Bond Yields on 10-year U.S. bonds were unchanged at 4.46% and 30-year bond yields fell to close at 4.69%.

Crude oil increased $1.47 to close at $80.57 per barrel, second record close in a row for a front month contract, natural gas closed up 37 cents to $6.65 per mBtu, and gasoline futures increased 0.78 cents to close at 204.42 cents per gallon.

Gold gained $6.00 in New York trading to close at $723.80 per ounce but rose as high as $728.30, silver closed 20 cents higher to close at $12.90 per ounce, and copper for front month delivery in London gained $6.50 to $7,588.50 per pound.

Of the 30 stocks in Dow Jones Industrial Average, 22 closed lower, 7 closed higher, and one was unchanged. Coca Cola led the decliners with a loss of 1.99% followed by losses of 1.5% in McDonalds, 1.3% in Citigroup, and 1.2% in American Express. General Motors led the gainers with a rise of 2.95% followed by gains of 1.6% in Hewlett Packard, and 0.7% in Exxon Mobil and Procter & Gamble.

Of the stocks in S&P 500, 117 stocks closed higher and 376 fell, 7 closed unchanged. Thirteen stocks in index lost more than 3%. RadioShack led the decliners with a fall of 6.6% followed by losses of 6% in Marsh & McLennan, 4% in Stryker and Fidelity National, and 3.7% in Noble Corp. Vulcan Materials, Moody’s and Office Depot lost 3.4%. Newell Rubbermaid soared 8.8% and led the gainers in the index followed by 3% increase in Ford Motors and General Motors, 2.6% in Monsanto and H&R Block.

In New York trading stocks edged lower ahead of rate decision tomorrow. In one camp investors and traders on Wall Street are looking for a rate cut between 0.25% and 0.5% and in the other camp investors feel that any rate cut will only reward bad risk. Tomorrow afternoon the Fed inaction is expected to swing stocks drastically.

Brokers are also scheduled to release earnings during the week with Lehman Brothers scheduled on Tomorrow. 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. Investors are bracing for worst and are discounting that companies may use this earnings report to lower expectations for the rest of the year. Lehman Bros, Merrill Lynch, and Goldman Sachs dropped more than 1.5% in trading.

Microsoft lost 1.1% and dragged tech sector lower after the European court dismissed all the appeals filed by Microsoft to a 2004 antitrust conviction. Microsoft was found to be guilty to abuse its dominant market position. The court upheld the $690 million in fines. General Motors and Ford jumped 3% on the reports that the negotiations with labor unions are progressing well.

In European Markets trading indexes closed sharply lower. France led the region with a loss of 1.8% followed by declines of 1.7% in UK, 1.2% in Spain and Belgium, 1% in Italy, Switzerland, and the Netherlands. Troubled mortgage lender Northern Rock in the UK fell another 35% before the stock was halted for trading. UK government also said that it will insure all the deposits with the banks. Other mortgage lenders in UK fell as well. HBOS lost 5.5%, Bradford and Bingley lost 15%, and Alliance & Leicester plunged 31%.

In Latin Markets trading Mexico led the decliners with a fall of 1.00% followed by a loss of 0.86% in Argentina and 0.60% in Brazil. Chile gained 1%. Of the 63 stocks in iBovespa index 21 gained, 42 lost, and none closed unchanged. Copel led the decliners with a loss of 5.8% followed by declines of 4.3% in Cosan, 3.6% in Telemig cellular. Banco Do Brasil and Electrobras fell 3.1%.

[R]2:30PM New York, 1:30AM Tokyo - Australian stocks fell on lower oil.[/R]

The share market was down today, with investors treading cautiously as the market awaits the US Federal Reserve''s announcement on interest rates tomorrow night. Australian stocks also fell after crude oil dropped to $78.65 a barrel, down 45 cents in after-hours electronic trading.

The drop in oil prices took some of the gloss off some of the producing companies, which had been plagued by profit-takers taking advantage of the high price. Oil Search Ltd. surged on a report China National Petroleum Corp. and PetroChina Co. Ltd. may bid for the company. Crude oil fell from a record last week as hurricane concerns eased and investors reduced bets on rising prices.

In Sydney trading ASX 200 Index fell 0.56% or 35.4 to 6,271.40. The Aussie dollar rose sharply on speculation that a Chinese joint venture was planning a large bid for a local oil company. Australian dollar was trading at US$0.8436/40, up from Friday''s close of $0.8419/25. During the morning session, it traded as low as $0.8305 before spiking to a high of 0.8443 after reports CNPC Exploration, a joint venture company between China National Petroleum Corp and its subsidiary PetroChina was considering a bid of as much as $5 billion (A$5.95 billion) for Oil Search. Oil Search however denied having received such a bid.

The Australian dollar rose to the highest in a month as prices of raw materials the country exports approached records.

The local dollar has gained 3.3 percent in September as a Westpac Banking Corp. index of Australian commodity prices advanced 2.3 percent. Shipments of raw materials from overseas added about 14 percent to Australia''s economic growth. The currency has also been supported, as the U.S. dollar declined on speculation the Federal Reserve will cut its key interest rate this week, increasing Australia''s yield advantage.

For the second day, the Aussie dollar rose to $0.8450 from $0.8420 cents. It reached $0.8459 cents, nearly one month high. Of the ASX 200 index shares, Oil Search Ltd soared 11.69% followed by Sally Malay Mini at 9.87% higher, Paladin Resource rose 6.86% with Minara Minerals and Nufarm Ltd rising 5.39% and 4.25% respectively.

Mining Giant, BHP Billiton dropped 1.47% on the back of declining oil prices and Rio Tinto lost 1.25%. Other energy stocks were mixed, with Woodside Petroleum losing 0.81% cents, Santos down 1.30% but Oil Search leapt 11.69% because of rumors of the takeover bid by China National Petroleum Corporation (CNPC).

Of the ASX 200 index stocks, Henderson-CDI fell 3.76% followed by Bendigo Bank down 3.82%, Australia Infra Fund sank 4.50% followed by Adelaide Bank Ltd down 6.11% and Telecom New Zealand lost 12.78%.

[R]1:00PM New York, 6:00PM London - UK stocks slid further as heavy withdrawals hit Northern Rock. Alliance and Leicester stocks plunged deeper into negative territory. Prime Minister Brown will meet U.S. Treasury Secretary to discuss the growing turmoil in world financial markets. European banks tumbled as investor worries spread beyond the UK market.[/R]

The London stocks dropped further 1.7% or 106.5 to 6,182.80 led by the trouble bank, Northern Rock as depositors continue to withdraw their saving from the embattled bank. The UK stocks lost 1.2% or 74.6 in Friday trading led by heavy losses in financial stocks. Of the 102, FTSE 100 index shares 92 declined, 7 moved upwards while 3 were unchanged.

In UK, the FTSE 100 index traded southwards, dropping 1.7%. Banks dominated the losers. Banking stocks have been on a freefall across Europe as the financial woe grips the continent. French and Italian banks were also hit. Although no other bank match the falls in Northern Rock and Alliance and Leicester shares, Spanish banks stocks drastically fell.

UK''s Prime Minister Gordon Brown and chancellor Alistair Darling are expected to meet U.S. Treasury Secretary Hank Paulson to discuss the growing turmoil in the global financial markets. The meeting comes as thousands of Northern Rock customers have lined up Monday to withdraw their savings from the troubles bank. Northern Rock CEO Adam Applegarth had advised the depositors to restrain from panic withdrawals as their investments were protected.

Northern Rock has lost more than 50% of its value since Thursday.

Alistair Darling said people were free to withdraw their money if they wish so but was optimistic that the UK economy would remain vibrant. Economists have lowered that the UK economic growth will decline by 1% in 2008 and 2009 as a result of the ongoing credit crunch.

Of the FTSE 100 stocks, financial stock led the losers. Northern Rock anchored the droppers, plunging 35.5% followed by Alliance Leicester declining 31%. Enterprise Inns lost 7.37%, homebuilder Barrat Development declined 7.29% while Persimmon eased 6.89%. Fifteen stocks in the index fell more than 5%.

Of the FTSE 100 shares, Sage group led the gainers to close firmer at 2.77%. Smith and Nephew climbed 0.7%, Diageo put up 0.38%, Incap was up 0.37% with BT group closing firmer at 0.16%.

[R]10:00AM New York - 7:30PM Mumbai – Foreign direct investment continues to flow via stock market into privately owned companies.[/R]

Sensex in Mumbai trading declined 99.37 or 0.65% to close at 15,504.43. CNX Nifty lost 0.52% or 23.35 to close at 4,494.65. Sensex opened higher and added more than 100 points at mid-day but fell sharply in the last hour of trading ahead of the interest rate decision in the U.S.

Of the stocks trading on BSE, 1,362 declined, 1,355 gained, and 66 closed unchanged. Daily turnover on the exchange declined to 4,661 crore rupees ($1.0 billion) compared to 6,506 crore rupees in Friday’s trading. In trading on National Stock Exchange volume declined to 9,395 crore rupees ($2.2 billion) from 12,509 crore rupees a day ago.

Of the 30 stocks in the Sensex 14 rose and 16 fell. Housing Development Finance Corporation led the decliners with a loss of 3.3% to 2,143 rupees.

Rajesh Exports soared 7% to 779 rupees on the news that De Beers and private equity group in the U.S. is bidding for 51% stake in the company.

Reliance Energy jumped 2.7% to 906 rupees on 13.4 lakh stocks. Last week the Supreme Court of India permitted company to bid for the Mumbai Sea Link project. Reliance Industries fell 0.6% to 2,058 rupees on 3.6 lakhs shares trading.

Tata Investment Corporation soared 20% to 540 rupees. Largest stockholder Tata Sons offered to buy 29% of stocks held by public at 33% premium or 600 rupees. Tata Sons and other Tata group companies control 61% of the stocks in the company. Infrastructure Finance known as IFCI has received bid for its 26% stake from General Electric Capital Corp and a private eqity group led by private equity fund operator Wilbur Ross in the U.S. Ross is known for its short term investment in company trading at deep discount.

Indowind Energy surged 16% to 132 rupees after the news that last week, Citigroup Global Markets Mauritius has bought 5,00,000 shares at 90 rupees. CCL Products surged 7% to 296 rupees after the news that Reliance Mutual Fund purchased 9,00,000 shares at 250 rupees. United Phosphorous gained 1.5% to 358 rupees after the company plans to issue 3.11 crore warrants (or 30 million) to founders of the company. United Spirits surged 8% to 1,840 rupees after the company acquired for $3 million U.S. based liquor distributor Liquidity Inc.

Automobile stocks jumped on holiday sales expectations. Tata Motors gained 1.6% to 705 rupees, Maruti Udyog increased 1.1% to 875 rupees, and Bajaj Auto added 0.65% to 2,392 rupees. Hindustan Motors soared 20% to 36.30 rupees.

Ispat industries surged 9.7% to 21.95 rupees. On Friday the stock added 5.2% after the company said that it plans to invest 10,000 crore rupees or $2.5 billion in the next five years. Adani Enterprises gained 4.8% to 411 rupees on the news that the company is planning to invest $2.5 billion to build 2,640 MW coal fired power plant in Amdavad, Gujarat. McNally Bharat Engineering rose 2.9% to 196 rupees on the news that it has won 258 crore rupees order from Steel authority of India for a steel plant in Burnpur.

[R]8:00AM New York, 12:00PM London – Stocks in New York are likely to open sharply lower. European stocks are falling at mid-day trading. Asian markets closed lower.[/R]

Market indexes in New York are expected to open lower ahead of the Fed meeting tomorrow. Index futures are pointing at least 0.5% decline in Dow, S&P 500, and Nasdaq indexes. Former Chairman of the Federal Reserve said on televised interview that the economic outlook for the U.S. economy is ‘gloomy’.

In the overnight trading in Asia markets fell. Singapore led the region with a loss of 1.7% followed by losses in Taiwan of 1.5%, 1.2% declines in Hong Kong and Thailand. India fell 0.6%, Australia edged 0.5% lower. Shanghai led the few rising markets in the region with a gain of 1.9%. Japan was closed for a holiday.

In Hong Kong property stocks fell. Sun Hung Kai fell 4.5%, Hang Lung Properties declined 5.4%, and Cheung Kong plunged 6% after investors sold stocks in the sector ahead of rate decision from the U.S. Fed.

Samsung Electronics dropped 2% after it received investigation notices from the U.S. Department of Justice for the alleged price fixing in the flash memory market. Toshiba in Japan and SanDisk in the U.S. were other companies implicated in the price-fixing schemes.

Australian market fell after BHP Billiton declined more than 1.5%. Macquarie Bank declined 2.5% and National Australian Bank declined 1.5%. Local press reports suggested that NAB may be interested in acquiring troubled UK lender Northern Rock.

European markets at mid-day trading are trading sharply lower dragged by banking stocks. Spain led the decliners with a loss of 1.7% followed by declines of 1.5% in France, 1.4% in UK, and 1.2% in Italy. Top nine markets in the region fell.

Northern Rock fell more than 35% at mid-day as depositors continue to pull money from the bank. The depositors have pulled $2 billion from the bank according to BBC report Merrill Lynch lowered its earnings estimate by half for the lender and stated the company likely to be acquired in the near future. The independent lender, the fifth-largest in the UK, is sough emergency lending last week from the Bank of England. The BoE lent 4.4 billion pounds and urged to the general public that the bank’s operational difficulties are temporary. However, depositors ignored the BoE and lined up to withdraw the money.

The largest rescue of a bank in the UK has depressed stocks of mortgage lenders. The UK bank deposits of 31,700 pounds are secured by the Bank of England. Investors with larger depositors were worried and quickly decided to withdraw money.

Northern Rock had relied for 63% of its funding needs from the volatile capital markets. The other banks fund their mortgage lending operation from its deposit base and other long term debt obligations. The short term nature of funding from the capital markets and market volatility has put several lenders in the U.S. and UK on the edge. Bank stocks have dropped 14% for the year but mortgage lenders have fallen sharply in the wake of the U.S. subprime mortgage crisis. Bradford & Bingley and Alliance Leicester the other two large UK lenders have declined more than 12% in London trading at mid-day.

UK households now carry 1.3 trillion pounds in debt and UK with a rate of 5.75% has the highest interest rate among group of seven wealthiest nations.