BoE Relents, FTSE up 2.8%

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

Stocks in London rallied, reflecting global rise in markets. The surprise rate reduction, of 0.5% in the U.S.,lifted European and Asian markets. FTSE 100 index jumped 2.8% to 6,460 at close. Troubled lender Northern Rock fell 16% after speculations that the bank is likely to be acquired at a price lower than its book value. Oil traded higher in London. The Bank of England reversed its earlier stance and said that it is prepared to add 10 billion pounds in liquidity.

[R]1:00PM New York, 6:00PM London - UK stocks continue advancing spurred by a cut in U.S. interest rates Tuesday. BoE is prepared to add liquidity, reversing its earlier stance. Northern Rock Plc tumbles on the London trading as speculation spreads that the bank may be acquired.[/R]

London stocks gained 2.81% or 176.7 to 6,460.00 buoyed by the cut of interest rates by the U.S. There was renewed confidence in the UK market when government said it would take full responsibility of deposits in banks. Of the 102, FTSE 95 stocks gained, 5 retreated and 4 remain unchanged.

BoE announced in the morning that it was prepared to advance 10 billion pounds in loans for the next three months to banks using their commercial assets as collateral. Earlier, the BoE indicated that it had provided $8.8 billion in emergency lending at 5.75%. BoE governor Mervyn King reversed his earlier position when he said the move would be tantamount to bailing out banks that had made risky lending decisions.

Economists say the latest move by the London bank was a signal that while the global stock markets have picked up on US Federal Reserve's decision to cut interest rate by 0.5% King acknowledged that the crisis was still wreaking havoc in the money and credit markets.

In London trading FTSE 100 surged 2.81% or 176.7 to 6.460.00 with the resource stock topping the gainers. Northern Rock Plc reversed Tuesday gains on speculation that the UK fourth mortgage lender could be sold for less than its value.

The stock retreated 16.01%. It had traded 8.22% firmer Tuesday, recovering from the 30% decline it had suffered during the two previous trading days. The stock has already suffered over 50% decline since it received the bailout from the BoE.

The U.S. Federal Reserve slashed interest rates by 0.5% in a bid to avert the potential slowdown in the US economy. Economist predicted that the credit crunch could slow down the UK economy by 1% from earlier projections of 3%. The move by the Federal Reserve helped to lift the London stock, which traded weaker Friday and Monday. The stocks recovered Tuesday when government announced it will take full responsibility of deposits at Northern Rock.

Of the FTSE 100 index, Northern Rock anchored the losers. Telecommunication stock BT group lost 0.48%, Rolls and Royce declined 0.48%, BTA shed 0.30% while Imperial Tobacco slid 0.14%.Sage Group and ITV remain unchanged.

Resource counters led the gainers with mining giant, Anglo America climbing 8.27%, Vedanta Resources closed 7.74% firmer, Kazakmys added 7.07%, Xstrata soared 6.76% while Antofagasta surged 6.71%

[R]11:30AM New York, 9:00PM Mumbai - Sensex soared 653 points to close at a record high. Government to announce monetary incentive for sugar producers in the next ten days.[/R]

Sensex in Mumbai advanced 653.63 or 4.17% at 16,322.75. In the morning session, it opened 2.7% higher and closed at a new high crossing the July 24 2007 mark of 15, 868.85.

CNX Nifty was up 186.15 or 4.09%to close at 4.546.20. Of the 2,907 stocks traded on BSE each advanced.

Daily turnover on Bombay Stock Exchange reached 7,405 crore rupees from 5,618 crore rupees.

Of the 30-shares from Sensex, cellular service provider Bharti Airtel led the winners. It gained 6.93% to 890.20 rupees on 2.91 lakh shares. Bharti subsidiary in Sri Lanka unit announced it has entered into a $150 million contract deal with a Chinese technology company Huawei to set up and manage mobile infrastructure in India during the next three years.

Sugar stock rallied for the second day following the government announcement it will provide additional monetary incentives to sugar milling companies to cushion them from effects of a sharp decline in prices as a result of a record harvest. Stocks in the sector jumped at least 12%.

Dwarikesh Sugar shares went up 20% to 66 rupees, Sakthi Sugar gained 20% to 93 rupees, Triveni Engineering added 23% to 135 rupees, and Balrampur Chini Mills advanced 24% 83.60 rupees.

Reliance Communications gained 5.11% to 564.75 rupees. Its subsidiary Flag Telecom has signed a five-year agreement with UK-based Vanco plc. The virtual network provider will provide services to Reliance to extend its operations from current 19 countries to 100 nations. Vanco virtual network extends to 230 countries.

Maruti Suzuki, auto manufacturer closed 5.11% higher to 920.50 rupees. The company said that it will set up an auto component park with Futuba Industrial Company of Japan in a joint venture. Maruti will control 49% in the venture. Bajaj Auto rose 4.55% to 2,510 rupees.

Housing Development Corporation, HDFC, mortgage lender climbed 6.8% to 2,330 rupees. ICICI Bank jumped 4.4% to 966 rupees. According to local news reports the bank has paid 450 crore rupees in advance tax for the current quarter.

Reliance Industries gained 6% to 2,181 rupees on 10.6 lakh shares on the news that its subsidiary, Reliance Logistics, is planning to set up logistics parks within special economic zones.

Oil and Natural Gas Corporation climbed 6% to 901 rupees after the company may issue bonus shares in the near future.

Infosys Technologies, the rose 3.14% to 1,856.55 rupees. The company denied rumors that it is planning to bid for UK based Sage Group and is discussing to acquire Cap Gemini based in France.


[R]10:30AM New York, 10:30PM Sydney - Australian stocks and Aussie dollar gained as U.S slashed interest rates.[/R]

In Sydney trading ASX 200 Index rose 2.64% or 163.6 to 6,356.10. Australian stocks gained the most in a month after the U.S. Federal Reserve slashed interest rates above expectations, easing concerns of a possible housing market slump and credit market losses that will slow the world's largest economy. Credit markets were now expected to move in tandem with the US Federal Reserve's move to cut the benchmark rate by half a percentage point to 4.75% in a preemptive bid to avoid recession. The Australian currency rebounded and recovered lost ground when it advanced the most in a month as the U.S. cut its key interest rate by a half point, boosting the appeal of higher-yielding assets.

The Australian dollar added 2.5% to A$0.8543 for one American dollar, the highest in five weeks. The Australian currency as investors reached for higher yielding assets. The Federal Reserve's reduction was considered reassuring and showed that it was forward looking. Investors resumed so-called carry trades, buying higher- yielding currencies funded by loans from Japan, where the central bank today kept its benchmark rate unchanged at 0.5%. The U.S. rate on short term securities are near 4.75% benchmark rate compared with that in Australia to 6.5%.

The rate cut in the U.S.is almost certain to stoke higher inflation in months to follow and depress dollar to new low against the international currencies.

The Australian dollar is expected to fall below 80 cents by the end of the year while the yield on the Australian government two-year note gained 1 basis point to 6.28%.

Of the Sydney shares, Sino Gold Mining led the gainers with a rise of 9.12% followed by increases in Kagara Zinc Ltd of 8.82%, in Mount Gibson of 8.59%, in Fortescue and Lihir Gold Ltd rising 8.3%.

BHP Billiton Ltd., the world's biggest mining company, climbed 4.63 % to a record on expectations global economic growth will be sustained. National Australia Bank, the country's largest lender, gained 2.55%, its largest gain in almost five weeks. Commonwealth Bank of Australia, the second-biggest, rose 1.58% and St George Bank Ltd., the fifth-largest bank, jumped 3.8%, the steepest climb in a month.

Of the ASX 200 index stocks, Just Group Ltd fell 0.41% followed by Corp Express Aus down 0.56%, AWB Ltd sank 0.77% followed by ABC Learning down 0.78% and Centennial Coal lost 1.32%.


[R]9:30AM New York – Stock indexes are expected to open higher after a surprise rate interest rate cut on Tuesday.[/R]

Market index futures are up 0.3% in Dow, Nasdaq, and S&P 500 ahead of the regular trading hours in New York.

The Commerce Department reported August housing starts declined 2.6% to a seasonally adjusted annual rate of 1.33 million. The starts declined nearly 7% to a rate of 1.367 million.

The Labor Department reported August consumer price index dropped 0.1% and the so called core index, excluding food and energy cost jumped 0.2%.

Morgan Stanley ((MS)) earnings in the fiscal third quarter dropped 17% on 13% rise in net revenue. Earnings in the quarter dropped to $1.526 billion from $1.851 billion a year ago. Return on equity in the quarter fell to 17.1% from 23.3% a year ago. Diluted earnings per share fell 41% to $1.44 from $2.45.

Weakness in the recently spun-off Discover Financial Services and a write down of $940 of loans dragged the results lower. The investment banking fees surged 45% but fixed income trading and sales net revenue fell 3%.


[R]6:00AM NewYork,7:00PM Tokyo - Tokyo surged 3.67% higher, the most in five years, while the broader Topix Index rose 3.8%. Bank of Japan kept interest rates on hold at 0.5% to forestall further economic slump. Cosmo Oil to sell 28.85% stake to UAE controlled company.[/R]

Tokyo stocks soared 3.7%, most in five years, bucking yesterday’s downtrend, led by energy-related stocks and exporters on easing concerns of global shortage of credit and economic slowdown in the U.S. Oil prices continue to scale record high. Of the 225 Nikkei stocks, 216 advanced, 7 declined, while 2 traded unchanged.21stocks firmed by more than 5% and only 2 stocks shed more than 1%.

In Tokyo trading, the Nikkei 225 jumped 3.7%, or 579.74 to 16,381.54, reversing yesterday’s losses when the market retreated by 2.2%. Commodity and energy-related stocks led the rally as the oil prices scaled $82 per barrel yesterday. The Bank of Japan kept its interest rate on hold at 0.5% by 8 to 1 vote, remaining as the lowest benchmark rate among developed economies. The decision by the Bank of Japan is against the backdrop of shrinkage in the GDP by an annualized 1.2% in the second quarter and efforts to stave off a decade-old deflation. Governor Toshihiko Fukui said he will gradually increase interest rates to avoid inefficient investment and sustain long-term economic growth. Fukui also noted that Japanese investor held 1,555 trillion yen worth of financial assets, up 2.9% a year earlier. Market watchers also lowered economic growth forecast for the fiscal year to 1.8% from an estimate of 2.2%.

The 10-year bonds fell as Bank of Japan’s Mizuno voted against holding the rate, supporting an interest rate hike to curb excessive borrowing. The slide, the biggest in 6 months, saw the yield on the 10-year note rising by 6 basis points to 1.59%. The price of the 1.7% note due September 2017 slipped 0.527 to 100.947 yen.

Of the index shares, commodity stocks and exporters gained the most, while Japan’s biggest lender by assets Mitsubishi UFJ Financial Group, gained the most in two years, soaring 6.11%. Oil company Inpex Holdings paced the advancers, surging 100,000 yen or 8.93% on news that oil traded at a record $82.37 per barrel in yesterday’s trade. Engineering firm JGC added 8.42% followed by Sumitomo Metal Mining, which gained 8.26% spurred by the continued rally of metal prices. Tokyu Land Corporation spiked 7.89%, and Sojitz Corporation completed the top five gainers, climbing 7.86%.

Food and confectionary company’s Meiji Seika and Nisshin Oillio led decliners shedding 5.6% and 1.11% respectively. OJI Paper Company slipped 0.91%, while Topy Industrial slid 0.63%.

Exporters, especially automobile manufacturers spurred the rally on stocks as expectations that the U.S., Japan’s biggest export market, might slip into an economic recession eased followed a better-than-expected interest rate cut of half percentage points by the Federal Reserve. Toyota Motor Corporation advanced 4.52%. The company generated 35% of its sales from North America last year. Honda, the second biggest automaker in Japan, also rallied 3.47% on its exposure to the U.S. market.

Financial stocks further posted significant gains, with Mitsubishi UFJ advancing 6.11% despite news that its subsidiary Union Bank of California was fined $31.6 million by U.S. regulators for failing to establish and maintain adequate anti-money laundering program. Mizuho Financial also firmed 4.94%.

Cosmo Oil, Japan’s fourth largest oil refiner, announced that it will sell a controlling 20.85% stake for 82.9 billion yen to the International Petroleum Investment Company, a company based in Abu Dhabi.