New Peak in Oil, U.S. Stocks Decline

123jump.com Staff
15 Oct, 2007
New York City

U.S. stocks declined on the worries that credit market problems are likely to linger longer tha anticipated. Citigroup reported 57% decline in earnings on more than $3 billion in losses in the fixed income area. Eaton Corp reported higher earnings but lowered annual earnings outlook. In Japan, Nomura Holdings reported preliminary qurterly losses on the account of $1.2 billion in subprime mortgage losses and deicded to leave the business. Philips Electronic reported sharply lower earnings.

[R]4:30PM New York, 10:30PM Frankfurt, 2:00AM Mumbai – U.S. stocks declined on record oil price and weak earnings from Citigroup. European markets fell. Several Asian markets surged to new records.[/R]

[R]Global Markets Indexes[/R]

Dow Jones Industrial Average closed down 113.32 or 0.80% to a close of 13,979.76, S&P 500 edged lower 0.84% or 13.17 to 1,548.63, and Nasdaq Composite Index traded down 25.63 or 0.91% to a close of 2,780.05. In Toronto TSX Composite fell 64.58 or 0.45% to close at 14,231.28.

Of the 30 stocks in Dow Jones Industrial Average 6 closed higher, 24 closed lower, and none were unchanged.

General Motors led the decliners with a fall of 4% followed by losses of 3.5% in Citigroup, 2.6% in American Express, and 2.1% in Caterpillar, and 2.08% in Boeing. Exxon Mobil led the gainers with a rise of 1.5% followed by increases in Intel of 0.82%, in du Pont of 0.49%, and in Altria of 0.4%.

Of the stocks in S&P 500 77 closed higher, 418 fell, and 5 closed unchanged.

Seven stocks rose 3% or more and 39 fell 3% or more. Tektronix led the gainers with a rise of 34% followed by increases in Biogen IDEC of 19%, Tellabs of 5.6%, and Genzyme of 4.3%. Danaher offered $2.8 billion to purchase Tektronix and Biogen is preparing to sell the company at a price, what investors hope to get, more than $85 per share.

Medtronic fell 11.3% and led the decliners in the index followed by losses in Centex of 5.6%, Big Lots of 5.4%, in Coach of 5.3%, and SLM Corp of 5.1%. Pulte Home, KB Home, and DR Horton dropped more than 3.5%.

European markets closed lower across the region led by weak insurance and financial stocks but energy related stocks rallied. Philips Electronics earnings weighed on tech stocks. In London FTSE 100 Index closed down 86.20 or 1.28% to 6,644.50, in Paris CAC 40 index fell 36.51 or 0.62% to close at 5,807.44, and in Frankfurt DAX index decreased 0.89% or 71.79 to close at 7,969.47. In Zurich trading SMI dropped 0.20% or 17.99 to close at 9,179.49.

In Asia several markets closed at new records led by banks, ship builders, and energy companies. In Tokyo Nikkei 225 index dropped 0.16% or 26.98 to close at 17,358.15, in Hong Kong Hang Seng index closed up 2.44% or 702.41 to 29,540.78, in Australia ASX 200 closed down 23.00 or 0.15% to close 6,739.00. Record closes in Indonesia, India, and Korea were recorded.

Sensex in India surged to a record high by 3.47% or 639.63 to 19,058.67. In South Korea Kospi Index added 8.95 or 0.44% to a record close of 2,035.39 and Indonesia closed up 46.73 to 1.80% to 2,638.21.

In Latin Markets Brazil led the gainers with a rise of 0.82% followed by increases of 0.68% in Argentina, 0.61% in Chile, and 0.14% in Peru. Venezuela led the decliners with a loss of 1.2% followed by a loss of 0.51% in Mexico. Markets in Colombia were closed.

Bond Yields edged a fraction on 10-year U.S. bonds to 4.67% and 30-year bond edged higher to close at 4.91%.

[R]Commodities, Metals, and Currencies[/R]

Crude oil rose $2.44 to close at $86.13 per barrel for a front month contract, up 39.0% for the year, natural gas increased 0.46 cents to $7.44 per mBtu, and gasoline futures increased 7.24 cents to close at 215.75 cents per gallon.

Gold gained $8.40 in New York trading to close at $762.20 per ounce, silver closed down 4.8 cent to $13.85 per ounce, and copper for front month delivery in London fell $16.00 to $8,095.00 per pound.

Dollar edged lower against euro to $1.4200 from $1.417 and higher to 117.18 yen from 117.50 yen.

[R]Earnings News[/R]

Citigroup ((C)) reported third quarter earnings decline of 57%. The revenue in the quarter rose 5.8% to $22.7 billion, earnings fell 57% to $2.38 billion from $5.51 billion, and earnings per share dropped to 47 cents from $1.10 a year ago.

Eaton ((ETN)) reported third quarter net income of $1.71 per share, 6% increase compared to $1.62 per share on revenue increase of 7% to $3.3 billion. Earnings increased 4% to $258 million from $248 million.

Royal Philips Electronics N.V. of the Netherlands reported third quarter earnings of 331 million euros compared to 4.2 billion euros a year ago. The company reported sales of 6.52 billion euros, 3% higher than a year ago. In the earlier year the earnings included one-time gain of 4.2 billion euros due to the sale of semiconductor division.

Nomura Holdings Inc said today it will exit the U.S. residential mortgage-based securities and cut its workforce in the U.S. by 31% from 1,300 to 900. Restructuring charges and losses from its residential-based securities will result in a group pre-tax loss of between 40 and 60 billion yen for the July and September period.

Nomura, according to the statement filed with the Tokyo Stock Exchange will take a charge of 73 billion due the U.S. mortgage securities and an additional charge of 15 billion to eliminate 31% of the staff. Nomura fell 10 yen at the close of trading to 2,080 yen.

[R]Initial Public Offerings[/R]

Alibaba.com Corp, China based business search engine company plans to offer 859 million shares in Hong Kong between HK$10 and HK$12 per share. Yahoo holds 39% stake in the company and plans to subscribe to 8% of the offering. Almost 85% of the offering is reserved for the institutional investors and 15% is open to individual investors.

Melbourne, Australia based Zinifex and Luxembourg based Umicore agreed to sell 70 per cent of their holding in smelting business Nyrstar through an initial public offer valued at up to 1.6 billion euros. The company plans to offer 69.5 million shares in Nyrstar, the largest zinc smelter, at a price between 18 and 23 euros and at mid-point of the offer price the offering size is valued at 1.43 billion euros.

The bankers were looking for higher value of the company. Zinifex fell 1.9% to A$18.22 and Umicore declined a fraction in the European trading.


[R]11:00AM New York, 11:00 Hong Kong - AGL Resources fell 17% in Australia. Zinifex decides to list Nyrstar and raise 1.6 billion euros.[/R]

Asian markets rose sharply on the first day of trading this week. India led the region with a rise of 3.5% followed by increases of 2.5% in Hong Kong, 2.2% in Shanghai, of 1.8% in Indonesia, and of 1.2% in Thailand. Australia fell 0.13%

ASX 200 index in Sydney took another breather after it was weighed down by a slash in profits by AGL and Publishing and Broadcasting Ltd postponed a vote on splitting its gaming and media assets. The index closed down 9.9 or 0.13% to 6,739.

AGL fell 16.6% to A$2.60 after lowering its earnings outlook for the fiscal year 2008 ending in June between A$330 and A$360 million. The company blamed lower earnings on rising Australian dollar, reduced sales margins, and increase in wholesale costs. The company had previously estimated earnings between A$380 million and A$400 million. The company left the annual dividend guidance between 52 cents and 55 cents per share.

The company indicated in the press release that its previous guidance was based on an assumed average exchange rate of 80 cents. The Company now anticipates that the average rate for FY2008 will be 88 cents. In addition, current worldwide demand for West Texas crude oil has reduced the TAPIS premium from more than US$4 per barrel to less than US$1 per barrel. AGL expects this situation to continue throughout the remainder of FY2008.

Publishing & Broadcasting dropped 3% to A$19.85 after postponing a vote by shareholders on plans to split its gaming and media assets a second time as it continues its talks with the tax authorities.

During the mid-year fiscal outlook the government revised the projected economic growth rate to 3.75% from 4.25%. The government also offered to lower taxes ahead of election to win support.

The Government announced today that a five-year plan for tax cuts worth $34 billion as its first election campaign promise. The move will deliver a cut of around A$26 per week to a person currently on average weekly earnings - around $50,000 - from July 1, 2008, rising to around A$35 per week from July 1, 2010.

By July 2010, the effective tax-free threshold would increase to $16,000, the 15 per cent threshold would be taken to $37,000, and the top two tax rates would be cut from 40 to 37 per cent and 45 to 42 percent, respectively.

The dollar hit another 23-year high and was trading at $0.9048/53, up from Friday's close of 0.8971/75 to one American dollar.

Of the ASX 200 index shares, Mount Gibson Iron led the gainers with a rise of 9.4% followed by increases in Paladin resource by 8.7%, in Beach Petroleum by 5.7%, in Kagara Zinc Ltd by 4.4%, and in Tower Australia by 4.3%.

Of the ASX 200 index stocks Babcock & Brown led the decliners with a fall of 2.7% followed by losses in Publishing & Broadcasting of 3.12%, Origin Energy of 3.13%, Iress Market Tech on 3.5% and AGL Energy Ltd of 16.6%.

In the energy sector Oil Search was up 3%, Woodside rose 1% and Santos declined 1.2%. BHP edged a fraction higher and RTP added 1.4%. Gold miners Lihir increased 1.5% and Newcrest was down 0.9%.

Banks were mixed with the National Australia Bank added 0.1%, Westpac increased 0.13% while Commonwealth Bank was down 0.7%, and Australia & New Zealand Bank lost 0.4%.

Retailers were up with David Jones rising by 0.8%, Harvey Norman by
1.1%, and Woolworths edged higher 1.7%.

Zinifex and Umicore agreed to sell 70 per cent of their holding in smelting business Nyrstar through an initial public offer valued at up to 1.6 billion euros in London offering.

The company plans to offer 69.5 million shares in Nyrstar, the largest zinc smelter, at a price between 18 and 23 euros and at mid-point of the offer price the offering size is valued at 1.43 billion euros.

The bankers were looking for higher value of the company. Zinifex fell 1.9% to A$18.22 and Umicore declined a fraction in the European trading.

The company plans to finalize the offer price on October 29th for the listing on Euronext.


[R]10:00AM New York – Stocks at the opening decline on lower than expected earnings from Eaton and Citigroup.[/R]

Stocks in the early trading in New York were mixed after earnings report from Citigroup and Eaton Corp.

Dow Jones Industrial Average was down 11 to 14,080, Nasdaq edged lower by 1 to 2,804, and S&P 500 inched lower by 1 to 1,560.

Citigroup ((C)) reported third quarter earnings decline of 57%. The revenue in the quarter rose 5.8% to $22.7 billion, earnings fell 57% to $2.38 billion from $5.51 billion, and earnings per share dropped to 47 cents from $1.10 a year ago.

Results include a $729 million pre-tax gain on the sale of Redecard shares. Return on equity was 7.4%. On October 1, 2007, Citi announced that it expected third quarter 2007 net income to decline in the range of 60%, subject to finalizing third quarter results.

Analysts in the survey conducted by 123jump.com were looking for earnings between 44 cents and 49 cents per share.

Revenues were up 6%, led by 30% growth in international revenues. Global consumer revenues increased 14%, driven by international consumer up 35%, which included a $729 million pre-tax gain on the sale of Redecard shares. Excluding the gain, international consumer revenues increased 21%, reflecting deposit and loan growth of 18% and 29%, respectively, and higher investment sales, up 26%. U.S. consumer revenues were flat with the prior-year period as deposit and managed loan growth of 16% and 8%, respectively, was offset by lower securitization results in cards and the absence of gains on sale of securities in the prior-year period in consumer lending.

Markets & banking revenues declined 24%, reflecting record transaction services revenues, up 38%, offset by a 44% decline in securities and banking. Securities and banking revenues declined due to write-downs of $1.35 billion and losses of $2.2 billion related to dislocations in the mortgage-backed securities and credit markets.

JP Morgan and Bank of America are scheduled for earnings report on Wednesday and Thursday of this week respectively.

Eaton ((ETN)) reported third quarter net income of $1.71 per share, 6% increase compared to $1.62 per share on revenue increase of 7% to $3.3 billion. Earnings increased 4% to $258 million from $248 million.
Net income in both periods included charges related to the integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the third quarter of 2007 were $1.79 versus $1.65 in 2006, an increase of 8 percent. Included in the third quarter results was a gain from discontinued operations of $0.12 per share, which compares to a gain of $0.24 per share in the third quarter of 2006. Without those gains, operating earnings per share in the third quarter 2007 were $1.67 versus $1.41 in 2006, an increase of 18 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, “ Sales growth of 7 percent in the quarter consisted of 1 percent from organic growth, 3 percent from acquisitions, and 3 percent from exchange rates.”

He further added that “due to the economic uncertainties triggered by the late summer turmoil in global credit markets, we believe that our overall markets in the fourth quarter will not improve as we had earlier anticipated. While the non-residential electrical, power quality, aerospace, and Brazilian vehicle and agricultural equipment markets remain strong, the NAFTA heavy-duty truck market is not rebounding as we had expected and the greater weakness in U.S. housing starts is negatively impacting our residential electrical, hydraulics construction equipment, and NAFTA automotive businesses. In light of the conditions in our end markets, we anticipate that our sales in the fourth quarter will be about the same as in the third quarter.”

The company now estimates that net income per share for the fourth quarter of 2007 will be between $1.60 and $1.70, and for full year 2007 we are narrowing our guidance for net income per share to between $6.50 and $6.60. Operating earnings per share, which exclude charges to integrate our recent acquisitions, are anticipated for the fourth quarter of 2007 to be between $1.65 and $1.75, with operating earnings per share for full year 2007 to be between $6.75 and $6.85.

[R]6:00AM New York, 7:00PM Tokyo – Shipbuilders, trading houses, and mining and mineral companies led the gainers in Tokyo trading. Nomura reported a first quarterly loss in four years.[/R]

Stocks in Japan closed higher after dropping at the opening.

In Tokyo trading Nikkei 225 gained 0.16% or 26.98 to 17,358.15, while the broader Topix Index slipped 0.12% to 1,657.44. Of the Nikkei 225 stocks 107 gained, 97 fell and 21 were unchanged. Advantest Corporation led the gainers with a rise of 6.35%.

In the first section of the Tokyo Stock Exchange 7.6 billion shares valued at 1.05 trillion yen were traded and 539 million shares valued at 6.8 billion shares traded in the second section.

The Bank of Japan governor Toshihiko Fukui said today that Japan’s economy would continue expanding moderately buoyed by export shipments and corporate investment. Fukui added that the bank will closely monitor developments in the global financial and credit markets.

Economists are still looking for a moderate economic expansion in the second half the year as companies in Japan increase industrial production by 3.4% and household spending, though weak, increased at 1.6%.

Bank of Japan Regional Economic Report released today after the quarterly meeting of the nine regional branch managers of the Bank of Japan noted that the export sector is expanding and business fixed investment was rising in all regions.

According to the report, private consumption was steady with rising employment and household income on the upside. However, housing investment has plummeted as enforcement of the Building Standard Law had prompted a delay in housing starts.

Kanto-Koshinetsu, Tokai and Kinki and Hokuriku regions said economic activity was expanding gradually.

The Nikkei newspaper reported today that Mitsui Mining & Smelting Co and Nippon Mining & Metal Co. will spend 200 billion yen to develop the largest non-ferrous metal mining project in copper mines in Chile and Peru through 2011. The largest investment by a Japanese company in the region will help Japanese companies to secure a stable supply of copper and other non ferrous metals.

Separately, Gold Japan crossed the 3,000-yen per gram mark for the first time in 23 years, soaring to 3,003 yen per gram.

Of the Nikkei 225 index shares Advantest Corp led the gainers with a rise of 6.35%, followed by gains of 4.71% in Sanyo Electric, 4.69% in Sapporo Holdings, 4.71% in Mitsui Mining & Smelting Company and 3.76% in Fuji Electric.

Tokyo Electron gained as well after a brokerage raised its price estimate and Advantest jumped on the expectations of improved climate for tech spending.

Shinsei Bank Limited led the decliners in the index shares with a fall of 5.54%, followed by losses of 3.68% in Mitsubishi UFJ Financial Group, 2.62% in TDK, 2.20% in Clarion Company Limited and 2.09% in Hitachi Zosen.

Shipbuilders rose as well on firming freight charges and reports that the freight derivatives market is set to hit a record $150 billion in value, a 200% increase from last year. Freight charges are being driven largely by shipments of raw materials to China. Mitsui Engineering & Shipbuilding Company gained 2.43% while Mitsui O.S.K. jumped 2.12%.

Financial stocks declined on the worries that subprime lending losses to the U.S. borrowers are likely to hurt profitability. Mizuho Financial Group shed 1.77% and Sumitomo Mitsui Financial Group slipped 0.65%.

Nomura Holdings Inc said today it will exit the U.S. residential mortgage-based securities and cut its workforce in the U.S. by 31% from 1,300 to 900. Restructuring charges and losses from its residential-based securities will result in a group pre-tax loss of between 40 and 60 billion yen for the July and September period.

Nomura, according to the statement filed with the Tokyo Stock Exchange will take a charge of 73 billion due the U.S. mortgage securities and an additional charge of 15 billion to eliminate 31% of the staff.

Nomura fell 10 yen at the close of trading to 2,080 yen.

The yen traded at 117.64 from 117.65 to the dollar and was quoted at 167.38 from 167.39 against the euro.



The regional economic review from the Bank of Japan as published on the web site. The link to the page on the bank’s site is:

http://www.boj.or.jp/en/type/ronbun/chiiki_rep/chiiki0710.htm

October 15, 2007
Bank of Japan

According to reports from each of the nine regions in Japan, the economy as a whole expanded moderately as most regions remained on an expansion or recovery trend, although there were regional differences.

Specifically, the corporate sector remained buoyant as exports continued to increase, business fixed investment continued to be on an increasing trend in all regions, and business sentiment remained generally favorable although it had become somewhat cautious. In the household sector, private consumption was steady, with employment and household income on an increasing trend. Housing investment, however, had dropped recently in all regions, mainly due to the delay in construction starts affected by the enforcement of the revised Building Standard Law. Against the background of the increase in domestic and external demand, production was on an increasing trend.

Assessments showed that regional differences remained: Kanto-Koshinetsu, Tokai, and Kinki described their economic activity as expanding, while the other regions described it as being on a recovery trend or flat.

Compared with the assessment in July 2007, at the time of the last branch managers' meeting, six out of nine regions maintained their previous assessment. Hokkaido, Kinki, and Kyushu-Okinawa revised their assessments slightly downward: Hokkaido indicated a standstill in the recovery of production; Kinki reported a decrease in housing investment and a slight deceleration of growth in private consumption; and Kyushu-Okinawa pointed out a decrease in housing investment and the emergence of some cautiousness in business sentiment, mainly in manufacturing.