U.S. Stocks Recover From Losses

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

U.S. stocks fell at the opening on the larger than estimated loss from Merrill Lynch in the asset based lending and fixed income trading business. The size of the loss, $8.5 billion took market by surprise. Existing home sales in September fell 8% to 5.04 million annual rate, lowest level since 1999 on fewer loans and high inventories. After the earnings reports, Broadcom, Amazon.com, Legg Mason, Moodys, Merrill Lynch, and National Oilwell declined. European markets closed lower.

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

U.S. market played hostage to earnings for the second day in a row. Merrill Lynch reported larger than earlier estimated loss in subprime lending and trading business. Several U.S. tech companies’ earnings disappointed investors.

In Europe STMicroelectronics and TomTom reported better than expected earnings. Glaxo reported net earnings decline of 5.8% after taking $3 billion restructuring charge. Friends Provident said that it will return one billion pounds to shareholders if a merger with the UK insurer Resolution is completed.

[R]Global Markets Indexes[/R]

Dow Jones Industrial Average closed down 0.98 or 0.01% to a close of 13,675.25, S&P 500 edged lower 0.24% or 3.27 to 1,515.89, and Nasdaq Composite Index traded down 24.50 or 0.88% to a close of 2,774.76. In Toronto TSX Composite rose 5.06 or 0.04% to close at 14,082.43.

Of the 30 stocks in Dow Jones Industrial Average 15 closed higher, 15 closed lower, and none were unchanged.

Intel led the decliners in the index with a loss of 3% followed by losses in IBM of 1.5%, Citigroup of 1.46%, and AT&T of 1.1%. Caterpillar led the gainers with a rise of 1.84% followed by increases in Du Pont of 1.56%, Microsoft of 1.13%, and General Motors of 0.89%.

Of the stocks in S&P 500, 224 closed higher, 271 fell, and 5 were unchanged.

Thirty one stocks fell more than 3% and nineteen stocks rose more than 3%.

Paccar led the gainers with a rise of 11.6% followed by increases in QLogic of 11.05%, Snap-On of 6.7%, and in Western Union of 5.4%. Allegheny Technology added 5.2% on the earnings news. Broadcom led the decliners with a fall of 17% followed by losses in Altera of 16%, Amazon.com of 12%, Ambac of 8.8%, and Juniper Networks of 8.4%. Countrywide Financial and Wrigley fell more than 8%.

In London FTSE 100 Index closed down 32.00 or 0.49% to 6,482.00, in Paris CAC 40 index fell 30.38 or 0.53% to close at 5,674.67, and in Frankfurt DAX index decreased 0.18% or 13.83 to close at 7,828.96. In Zurich trading SMI lost 0.59% or 52.21 to close at 8,851.02. Sweden and Spain led the region with a loss of more than 1.3%.

In Tokyo Nikkei 225 index lost 0.56% or 92.19 to close at 16,358.39, in Hong Kong Hang Seng index closed down 0.15% or 43.23 to 29,333.53, in Australia ASX 200 closed down 26.50 or 0.40% to close 6,634.40.

Sensex in India edged higher 0.11% or 20.07 to 18,512.91. In South Korea Kospi Index decreased 14.62 or 0.75% to close at 1,933.36 and Indonesia closed down 28.82 or 1.13% to 2,524.98. Philippines added 1.80% to 3,763.47, Singapore lost 1.25% to 3,649.12, and Malaysia increased 0.18% to 1,359.83.

In Latin Markets Peru led the decliners with a fall of 1.03% followed by decreases of 0.60% in Mexico, and 0.56% in Colombia. Argentina edged 0.21% higher and Brazil closed nearly unchanged.

Bond Yields edged lower on 10-year U.S. bonds to 4.34% and 30-year bonds dropped to close at 4.64%.

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

Crude oil rose $1.83 to close at $87.10 per barrel for a front month contract, up 41.0% for the year, natural gas increased 21 cents to $6.97 per mBtu, and gasoline futures declined 3.86 cents to close at 214.75 cents per gallon.

Gold edged higher $2.50 in New York trading to close at $765.60 per ounce, silver closed down 6 cents to $13.59 per ounce, and copper for front month delivery in London added $36.00 to $7,821.00 per pound.

Dollar edged low against euro to $1.4260 from $1.4259 and lower to 114.170 yen from 114.523 yen.

[R]12:30PM New York – U.S. financial and tech stocks disappoint investors and helped market averages to trend lower.[/R]

Dow Jones Industrial Average fell 136.24 to 13,540.34, Nasdaq index dropped 52.97 to 2,746.29, and S&P 500 index declined 19 to 1,500.54.

Merrill Lynch ((MER)) reported third quarter net loss of $2.82 per share compared to net income of $3.17 per share. Merrill stock fell 5.7% or $3.85 to close at $63.25. The larger than expected loss dragged other brokers lower as well. Lehman fell as low as $3.40 to $54.07, Bear Stearns dropped as low as $110.52, and Goldman Sachs declined to $215.80 before recovering to $219.94.

Ambac Financial Group ((ABK)) fell 7% or $3.96 to $51.94 after reporting a loss of $3.51 per share compared to profit of $2.95 a year ago.

Legg Mason ((LM)) dropped $3.55 to $79.90 after it reported that second quarter revenue increased 14% to $1.17 billion and net income increased 24% to $177.50 million or $1.23 per share up 24% from a year ago. Total assets under management increased to $1.012 trillion, an increase of 13% from $891.4 million a year ago.

Moody’s ((MCO)) declined $1.27 to $46.09 after it recovered from trading as low as $44.71 on earnings warning. The company reported third quarter revenue increase of 6% to $525 million and earnings per share of 51 cents, 7% decline from 55 cents a year ago. Ratings revenue totaled $404.7 million in the quarter, rising 2% from a year ago. Growth in revenue from global corporate finance, financial institutions and public finance ratings was somewhat offset by a 6% decline in global structured finance ratings.

The company guided lower earnings in the press release and said, “we now project the full-year operating margin, excluding any 2007 restructuring charge and the 2006 one-time gain on the sale of Moody’s 99 Church Street building, to decline by approximately 220 basis points in 2007 compared with 2006.

Reported earnings per share in 2007 are now projected to be about flat compared to 2006 results. Excluding any 2007 restructuring charge, the one-time gain on the building sale from 2006 results and the impacts of legacy tax matters in both years, we now expect earnings per share in 2007 to grow in the mid- to high-single-digit percent range.

Reported earnings per share in 2007 are now projected to be about flat compared to 2006 results. Excluding any 2007 restructuring charge, the one-time gain on the building sale from 2006 results and the impacts of legacy tax matters in both years, we now expect earnings per share in 2007 to grow in the mid- to high-single-digit percent range.”

Amazon.com, Inc ((AMZN)) dropped 15.6% or $15.80 to $85.01 after reporting a sharp increase in sales and earnings after the close yesterday.

Corning ((GLW)) fell 7.5% or $1.83 to $22.91 after reporting third quarter earnings of 38 cents or $617 million on revenue of $1.553 billion. The sales increased 21%, earnings and earnings per share increased 41% from a year ago. The company guided fourth quarter sales between $1.5 and $1.55 billion and earnings per share between $0.36 and $0.38.

Broadcom ((BRCM)) plunged $7.80 to $34.26 after reporting profit decline o 75% on higher than expected research and development charges in the mobile telephony market.

Nabors Industries Ltd. ((NBR)) third quarter net earnings declined 4.5% to $218 million compared with $228.3 million in the year-ago quarter, dragged by falling margins across all business lines. Earnings include one-time gain of $22.3 million earned from disposal of Sea Mar in August.

Earnings per share dropped 25.5% to 76 cents per share from $1.02 per share from a year earlier.

Ryder System ((R)) reported third quarter net income edged 0.3% higher to $65.5 million from $65.3 million a year ago, including restructuring and pension costs.

Net earnings declined 2% to $67.2 million from $68.8 million a year ago.

Ryder said per share earnings rose 4.7% to $1.11 from $1.06 in the previous year. Excluding restructuring and pension charges, earnings were up 2% at $1.14 from $1.12 in the year earlier period.

The company said it charged $1.7 million net after tax for restructuring and non-cash after tax charge of $3.5 million for pensions.

National Oilwell Varco Inc ((NOV)) said net earnings jumped 107% to $366 million from $176.6 million from a year earlier and were up 15% on second quarter net earnings of $318.5 million.

Earnings doubled to $1.02 per share from 50 cents per share last year. Over the second quarter, earnings per share rose 15% from 89 cents a year ago.

Demand for drilling equipment, particularly international offshore rigs rose to $8 billion in the Rig Technology unit, up from $7.2 billion at the end of June, said National Oilwell.

XL Capital Ltd ((XL)) posted 20.9% decline in third quarter net income to $328 million from $415 million in the year-ago quarter on investment losses.

In the quarter, XL reported a net loss of $160.2 million from money market investments. Earnings dropped 21.5% to $1.82 per share from $2.32 per share posted in the corresponding period last year.

Media group, Meredith Corp ((MDP)) said first quarter net income from continuing operations increased to $33 million, up 9.4% from $30.4 million a year earlier. The results were driven by 16% operating profit increase to $55 million in the publishing unit.

Per share earnings were up 10% at 68 cents from 62 cents from a year ago.


[R]9:35AM New York – U.S. stocks open lower on larger than expected loss at Merrill Lynch.[/R]

U.S. market averages are trading lower at the opening. Merrill Lynch reported bigger than expected loss in the subprime lending business hurting the averages at the open.

Merrill Lynch reported a net loss of $2.24 billion compared to net income of $3.02 billion from a year ago. Earnings per share were recorded at a loss of $2.82 compared to profit of $3.17.

Merrill reported third quarter loss in the fixed income trading which included losses subprime and leveraged loans of $7.9 billion. The investment banker and broker also reported losses of net $463 million for leveraged loan and corporate financing activities.

Earlier Merrill had suggested that it could lose up to 50 cents per share on write down of $4.5 billion in the mortgage and asset backed loans.

Ambac Financial Group ((ABK)) reported third quarter loss of $360 million or $3.51 per share compared to net income of $213 million or $1.98 per share. The company had earlier reported a loss from credit derivative of $743.4 million or $5.29 per share.

CME Group ((CME)) third quarter revenue increased 106% to $565 million and net income increased 94% to $202 million, and earnings per share increase 31% to $3.87 from $2.95 a year ago. The results include the merged operations of Chicago Board of Trade after July 12, 2007.

European stocks at mid-day trading were mixed ahead of the U.S. market opening. Norway led the gainers with a rise of 0.4% followed by fractional gains in UK, France, and Switzerland. Spain led the decliners with a loss of 0.9% followed by fractional declines in Germany, Belgium, and the Netherlands.

Earnings results drove stocks higher. STMicroelectronics surged 6% after reporting higher sales and earnings. UK retailer Home Retail added 4% after its earnings nearly tripled for the first half of the year. Volvo jumped 7% after reporting third quarter earnings and indicating that truck sales increased 90% in Europe.

Asian markets fell after a week of steady rise. Banks fell in Japan, Shanghai, and Hong Kong.

Singapore led the decliners in the region with a loss of 1.3% followed by losses in Indonesia of 1.1%, South Korea of 0.8%, Taiwan of 0.6%, and in Australia of 0.4%. Pakistan fell 1.83%. Philippines led the gainers in the region with a rise of 1.8% followed increases of 0.7% in Thailand. India, Shanghai, and Malaysia edged up by a fraction.


[R]6:00 AM New York, 7:00PM Tokyo - Merrill Lynch loss weighs on financial stocks in Tokyo. Japan’s September trade surplus surged 62.7% to 1.64 trillion yen.[/R]

Japan stock index reversed morning gains to slump 0.56% on the news that U.S broker and investment banker Merrill Lynch was likely to report wider than estimated loss of $5 billion.

In Tokyo trading Nikkei 225 shed 0.56% or 92.19 to 16,358.39, while the broader Topix Index lost 0.4% to 1,563.86.

In the first section of the Tokyo Stock Exchange 7.9 billion shares worth one trillion yen were traded and 230 million shares valued at 5.3 billion changed hands in the second section.

Of the Nikkei 225 stocks, 71 gained, 150 declined, and 4 were unchanged. Sixty six stocks in the index lost 1% or more. Exporters retreated on firming yen, spurred by positive trade data. Sony Corp plunged 0.96%, Toshiba fell 2.56%, and Toyota Motor Corporation slipped 2.27%.

Ministry of Finance in Japan reported today that the overall shipments firmed in September to a record 41.8 trillion yen boosted by demand in Asia and Europe. Imports however declined 3.2% last month, the first time since February 2003, spurring trade surplus to climb 62.7% to a record 1.64 trillion yen from a year earlier.

Exports jumped 6.5% from a year ago in September compared to increase of 14.5% in August and less than 8.1% projected by analysts. Exports to the U.S. fell 9.2% as demand for construction equipment and automobiles declined.

Exports to China, Europe and Asia expanded at the slowest pace, with shipments to China increasing at 16.5% compared to 23.7% in August. Asian exports also rose 8.3% after firming 16.4% in the month earlier and shipments to Europe surged 13.2% against 15.5% in August.

Slowing export growth stocked expectations that Japan’s economic expansion may slow down as domestic consumer spending is still weak and declining. Japan’s GDP shrank by an annualized 1.2% in the second quarter. The IMF last week revised downwards its estimate of annual economic growth to 1.7% from 2%.

The yen continued to firm against the dollar, buoyed by the widening trade surplus and reports by Market News International that a National Development and Reform Commission report recommended that China should reduce the value of the yen by 20%. It was quoted at 114.27 to the dollar at the close of trade and 162.23 from 162.26 against the euro.

The Australian, news service in Australia, reported today that Kansai Electric Power Company is seeking to double its procurement of uranium in Australia. Kansai Electric Power Co executive vice president Mitsuyasu Iwata was attending this week’s 45th Japan-Australia Joint Business Conference in Tokyo. The company was tasked by the government with lifting nuclear share of Japanese power generation to 40%.

Of the Nikkei 225 index shares, Fast Retailing led gainers with a rise of 6.83% followed by gains in Chugai Pharmaceutical Company of 5.27%, in Sumitomo Chemical Company of 5.27%, in Mitsui Electric Company of 3.38%, and Clarion Company Limited of 3.11%.

Pharmaceutical companies gained after Chugai Pharmaceutical Company’s third quarter profit jumped 8.5% on increase sales of Tamiflu and Nuetrogen. Nikkei reports Takeda Pharmaceutical may post a 16% increase in operating profit in the year ending March 31 on increased sell of a diabetes drug in the U.S. Takeda closed up 1.13%.

Commodity related stocks rose on increasing metal prices. Copper edged up 0.5% and Zinc surged 1.1%. Nippon Mining House climbed 0.85% and Japan Steel Works gained 1.36%.

Shinsei Bank Limited led the decliners in the index with a loss of 6.76%, followed by losses of 5.15% in Daiichi Sankyo, of 5% in Kyowa Hakko Kgoya, 3.96% in Yokogawa Electric, and 3.87% in Toho Company Limited.

Financial stocks plunged after the New York Times reported that the U.S. broker Merrill Lynch & Company will probably add $2.5 billion of write-downs to $5 billion it disclosed earlier this month. Banks and financial services companies fell on the news. Mitsubishi UFJ Financial Group fell 0.76%, Mizuho Financial Group declined 1.45% and Sumitomo Mitsui Financial Group retreated 1.29%.

Bloomberg news reported today that mobile phone company KDDI Corp will miss its target of fixed line service customers by 140,000 users this year as customers are reluctant to pay a 34% premium for the network upgrade. The company had targeted 900, 000 users by March 2008 from the current 668,000.

[R]5:00PM Sydney, 3:00AM New York – Australian stocks fell on the subprime lending worries in the U.S. and rising domestic inflation.[/R]

In Sydney trading ASX 200 Index declined by 0.4% or 26.50 to 6,634.40. Rio Tinto declined 1.8% and BHP lost 0.4%. Preliminary stock turnover was 2.08 billion shares worth A$7.5 billion, with 617 stocks up, 626 down and 387 unchanged. Newsat was the most active stock with 96.6 million shares changing hands, BHP Billiton was the most active stock on A$1.1 billion value, and had the largest number of trades totaling 11,265 trades.

Rio Tinto today announced that 298.759 million common shares of Alcan Inc. (which represent approximately 79.41% of the outstanding shares on a fully diluted basis) have been deposited for the offer by Rio Tinto Canada Holding Inc (RTCH).

The company said in a statement that its Canadian-based subsidiary has also received notices of guaranteed delivery covering an additional 21,336,000 Alcan common shares (which represent approximately 5.67% of the outstanding shares on a fully diluted basis).
It added that all of the conditions of the take-over offer have been satisfied and the initial offering period, which was extended until October 23, 2007, is now closed for acceptance.

Since RTCH has taken up all the Alcan shares deposited under the Offer, these shares may no longer be withdrawn. Payment for the deposited shares will be made to the depository on October 25, 2007.

RTCH has in the meantime extended the Offer until 6:00 P.M. (Canadian Eastern Time) on November 8, 2007 by commencing a subsequent offering period (the """"Subsequent Offering Period"""") to allow those Alcan shareholders who have not already deposited their shares under the Offer the chance to do so. They will receive U.S.$101 per share as was offered during the initial offering period.

Rio Tinto''s chairman, Paul Skinner said: """"We have been working towards our offer for Alcan becoming unconditional and have now passed the final milestone, with more than two thirds of Alcan shareholders having tendered their shares.""""

If RTCH acquires more than 90% of the Alcan shares, upon expiry of the Offer, it intends to acquire all shares it does not then own by way of statutory compulsory acquisition pursuant to the Canada Business Corporations Act.

Australian Bureau of Statistics reported CPI index, a measure of inflation, during the quarter ending in September 2007 rose 0.7% compared to 1.2% increase in the second quarter ending in June 2007. For the year to September 2007 the CPI increased 1.9%. The inflation number declined in the quarter because government deducted the child care payment from the inflation calculation.

As a result it was considered to be part of the tax system and therefore not included in the CPI but from the current financial year the CCTR is payable regardless of the family''s tax liability, taking it out of the income tax system, meaning it is now included in the cost of child care.

Child care makes up only a third of 1% of the CPI, but such large moves in even a small component can have an effect on the bottom line.

While the CPI rose by 0.7% overall, excluding child care costs the quarterly rise would have been 0.9%.

Housing, healthcare, and education costs increases were the largest contributors to the inflation index in the last twelve months. In the last quarter food, services, and housing added to the inflation pressures.

The Australian dollar broke through the $0.9000 mark following the release of stronger-than-expected inflation numbers, which boost the chances of a rise in interest rates.

The Australian dollar fetched U.S.$0.9027/29, up from yesterday''s close of U.S.$0.8912/15.

Of the ASX 200 index shares, Paladin Resource led the gainers with a rise of 4.2% followed by increases in Sonic Health Care by 3.4%, in Jubilee Mines NL by 3.2%, in Transfield Services by 3.1%, and in Straits Res Limited by 2.9%.

Of the ASX 200 index stocks, Perilya led the decliners with a fall of 3.9% followed by losses in AWB Limited of 4.4%, Bluescope Steel of 4.5%, Ones Steel Limited on 7.9% and AED Oil Ltd of 9.5%.

In general marker trading banks declined led by a fall of 2.3% in Macquarie Bank Ltd on the New York Times report that Merrill Lynch & Co. will probably add about $2.5 billion more in write-downs to the previous estimate of $5 billion losses. After the close, in regular trading Merrill Lynch fell 7% after reporting a subprime loan trading loss of $8.5 billion.

The Commonwealth Bank of Australia was 0.6% lower after the worries that higher inflation may lead higher rates.

The National Australia Bank Ltd was down 0.2% and the Australia & New Zealand Banking Group Ltd was 0.3% lower.

Woodside Petroleum climbed 0.6%, Santos added 1.1% and Oil Search advanced 1.8%.

Virgin Blue, which today announced a positive outlook for the current financial year, added 4.1%. In other aviation stocks, Qantas Airways lifted 1.4% while Macquarie Airports fell 2.2% on speculation that the company may purchase international assets.