Fed Cuts Rates; Records in Oil, Gold, Dollar

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

The Federal Reserve in the U.S. lowered the target rate by 0.5% to 4.5% ahead on economic slow-down. The Bank of Japan left its interest rates unchaged at 0.5% and lowered its estimates of 2007 economic grwoth to 1.8% from 2.1%. U.S. third quarter GDP grwoth rate was reported at 3.9% and lower rates helped market averages to close higher. European stocks closed higher led by banks. Asian markets closed mixed. MasterCard surged on 63% rise in net income.

[R]5:00PM New York, 11:00PM Frankfurt, 8:00AM Sydney[/R]

U.S. stocks opened higher in the morning and charged ahead in the afternoon trading. The Fed lowered the target rate by 0.25% to 4.5%. Banks, financials, and consumer retail stocks rallied after the news. Dollar fell to a record low against euro.

Oil crossed above $94 after a record low dollar and weekly oil inventory report showed lower than expected levels.

MasterCard surged 21% after reporting 63% increase in earnings.

European markets closed higher across the region ahead of the rate cut decision in the U.S. Sanofi- Aventis rose after it reported earnings gain of 9%. Fresenius Medical reported 30% rise in earnings. Vehicle maker Man AG rose after it forecasted that annual revenue are likely to reach 15 billion euros.

Asian markets closed mixed ahead of the Fed rate decision. The Bank of Japan left its rate unchanged at 0.5% and lowered its target for the economic growth to 1.8% from 2.1% for the fiscal 2007. The Bank also lowered the lower end of its range of economic growth for the year fiscal year 2008.


[R]Global Markets Indexes[/R]

Dow Jones Industrial Average closed down 77.79 or 0.56% to a close of 13,792.47, S&P 500 edged lower 0.65% or 9.96 to 1,531.02, and Nasdaq Composite Index traded down 0.73 or 0.03% to a close of 2,816.71. In Toronto TSX Composite lost 115.27 or 0.80% to close at 14,312.08.

Of the 30 stocks in Dow Jones Industrial Average, 25 closed higher, 5 closed lower, and none were unchanged.

Microsoft led the decliners in the index with a loss of 1.6% followed by losses in JP Morgan of 1.4%, Caterpillar of 1.32%, and Hewlett Packard of 1.2%. Alcoa led the gainers with a rise of 2.82% followed by increases in Exxon Mobil of 2.2%, AIG of 2%, and McDonalds of 1.7%.

Of the stocks in S&P 500, 305 closed higher, 185 fell, and 10 were unchanged.

Twelve stocks fell more than 3% and twenty five stocks rose more than 3%.

Weyerhaeuser jumped 7.8% to lead the index followed by rise in Dillards of 6.4%, Juniper Networks of 5.6%, and RadioShack of 5%. Goldman Sachs, Deer & Company, and MEMC Electric Material jumped more than $5. Office Depot led the decliners with a plunge of 16% followed by losses in Yahoo of 7%, MBIA of 5.3%, and AMBAC of 5.2%. Tesoro, Unisys, Fannie Mae, and Teradata fell more than 4%.

In London FTSE 100 Index closed up 62.60 or 0.94% to 6,721.60, in Paris CAC 40 Index lost 44.02 or 0.76% to close at 5,847.95, and in Frankfurt DAX index gained 41.28 or 0.52% to close at 8,019.22. In Zurich trading SMI declined 80.36 or 0.90% to close at 9,019.57.

In Tokyo Nikkei 225 Index gained 86.62 or 0.52% to close at 16,737.63, in Hong Kong Hang Seng index closed down 285.64 or 0.90% to 31,352.58, in Australia ASX 200 closed up 3.90 or 0.06% to close 6,754.10.

Sensex in India added 54.48 or 0.28% to 19,837.99. In South Korea Kospi Index decreased 10.55 or 0.51% to close at 2,052.37 and Indonesia closed down 19.44 or 0.73% to 2,643.49. Philippines, lost 1.45 or 0.04% to 3,783.43, Singapore added 7.25 or 0.19% to 3,805.70, and Malaysia increased 0.86 or 0.06% to 1,413.65. Thailand fell 0.62 to 907.28 to 0.07%.

In Latin Markets Brazil led the gainers with a rise of 1.36% followed by increases in Argentina of 0.46%. Mexico led the decliners with a loss of 0.93% followed by losses in Chile of 0.8%, in Venezuela of 0.4%, in Peru of 0.35%, and Colombia 0.11%.

Bond Yields increased on 10-year U.S. bonds to 4.46% and 30-year bonds rose to 4.74%.

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

Crude oil fell $4.15 to close at $94.53 per barrel for a front month contract, up 48.5% for the year, natural gas increased 31 cents to $8.33 per mBtu, and gasoline futures decreased 8.75 cents to close at 252.93 cents per gallon.

Gold edged increased $7.50 in New York trading to close at $795.30 per ounce, silver closed down 11 cents to $14.48 per ounce, and copper for front month delivery lost 85 cents to $347.30 per pound.

Dollar edged record low against euro to $1.4486 from $1.4436 and lower to 115.36 yen from 114.66 yen.


[R]2:30PM New York – Dollar falls to a record low after the Fed cuts rates.[/R]

The Federal Open Market Committee lowered its target rate for the federal funds rate 25 basis points to 4.5%. Of the ten voting members Thomas M. Hoenig was the only member who voted for the rate to be left unchanged.

The move to lower the rates was widely expected on the Wall Street. The Fed stated that economic growth has been solid in the third quarter and but the pace of growth is likely to slow-down in the coming quarters. The Fed also said that rising commodities and oil prices are fueling the inflation pressures.

The Fed said in the statement, “Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.”

The Board of Governors unanimously voted to lower the discount rate by 0.25% to 5%.

Economists are divided on the rates direction. While a vocal majority of the economists working on Wall Street had favored a rate reduction between 25 and 50 basis points but a silent group of economists working for industrial organizations prefer the Fed not to lower the rate. The Fed is viewed as pandering to the Wall Street interests after delivering a rate cut of 50 basis points in the last meeting on the September 18th.

Dollar dropped to a record low against euro and contributed to the rise in precious metals and oil prices. Dollar dropped to a record low to $1.4466 against euro after the rate decision. Oil reached $94.50 and gold surged to $795.30.


[R]11:30AM New York – MasterCard earnings soar 63% on net revenue rise of 20%.[/R]

Master Card ((MA)) third quarter net revenue increased 20.1% to $1.08 billion. Weak dollar added 2.3% to the revenue in the quarter and 1.6% to the operating expenses.

Fueling the higher revenue in the third quarter versus the same period in 2006 was growth in MasterCard''s gross dollar volume, which increased 12.8% on a local currency basis, to $577 billion; a 13.3% increase in the number of transactions processed to 4.8 billion; and, an increase in cross- border volumes of 20.6%.

Worldwide purchase volume rose 14.1%, on a local currency basis, during the quarter to $430 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of September 30, 2007, the company''s customers had issued 878 million MasterCard cards, an increase of 11.3% over the cards issued at September 30, 2006.

In local currencies, purchasing volume growth was led by 29% increase in South Asia, Middle East, and Africa, followed by increases in 23.9% in Latin America, in Asia Pacific of 22.2%, in Europe 16%, in Canada of 14%, and 9.4% in the U.S.

''We continue to benefit from positive secular trends and outstanding growth in international and emerging markets such as South Asia/Middle East/Africa and Latin America”, said Robert W. Selander, MasterCard president and chief executive officer.

MasterCard third net income increased 63% to $314 million or $2.31 per share from $193 million or $1.42 per share. After deducting one-time gain of partial stake in Redecard in Brazil, earnings increased to $1.80 per share.

Total operating expenses increased 16.3% to $730 million on higher advertising and market development expenses which increased to $264 million. General and administrative expenses increased 10.2% to $433 million. The company contributed $10 million to MasterCard Foundation.

Redecard SA 25% stake sale resulted in gain of $112 million or 51 cents to earnings in the quarter.

For the nine months MasterCard reported net income of $782 million or $5.73 per share or earned $724 million or $5.31 per share on net revenue increase of 20.4% to $3 billion. As of September 30th the company has repurchased 2 million shares at a cost of $277 million and subsequently it purchased an additional 1.4 million shares at $223 million.

MasterCard said that it will increase its share buyback plan to $1.25 billion from $500 million. The number of transaction processed increased by 13% to $577 billion.

The company also converted 7.6 million of class B shares to Class A common stocks and expects to convert 5.8 million of Class B shares by the end of the second week of December. The company plans to sell these shares to public at a later date.

MasterCard has currently 135.357 million shares outstanding.

MasterCard ((MA)) soared $20.01 to $177.15.

[R]10:00AM New York – U.S. stocks edged higher in the early trading on higher than expected economic growth data. MasterCard earnings and stock soar.[/R]

U.S. market averages advanced on higher than expected economic growth report from the Commerce Department. Dow Jones Industrial Average jumped 45 to 13,836, Nasdaq added 11 to 2,828, and S&P 500 increased 15 to 1,539.

The Commerce Department reported third quarter economic growth at 3.9%, higher than what most economists had expected. Of the fifteen economists surveyed by 123jump.com, the range of the forecast for the growth was between 2.7% and 3.3%.

The Labor Department reported that third quarter employment cost index rose 0.8%, a decline from the increase of 0.9% in the second quarter.

Separately the Bank of Japan left the interest rates unchanged at 0.5% and lowered the outlook for the economic growth to 1.8% from 2.1% on worries related to housing investment.

The Federal Reserve Bank is expected to announce its interest rate target at 2:15 PM this afternoon. Economists are divided on the rates direction. While a vocal majority of the economists working on the Wall street are clamoring for a rate reduction between 25 and 50 basis points but a silent group of economists working for industrial organizations prefer the Fed not to lower the rate. The Fed is viewed as pandering to the Wall Street interests after delivering a rate cut of 50 basis points in the last meeting on the September 18th.

Worries of yet another rate cut has taken dollar to a record low against euro and contributed to the rise in precious metals and oil prices. Dollar dropped to a record low to $1.4444 against euro ahead of the rate decision. Oil traded above $91.

In the earnings news Kraft, Visteon, and Master Card dominated the news.

Kraft reported third quarter income decline of 20% to $596 million or 38 cents per share compared to $748 million or 45 cents per share compared to a year ago. Revenue in the quarter increased 10% to $9.05 billion. Kraft stock ((KFT)) rose 77 cents to $33.37.

MasterCard third net income increased 63% to $314 million or $2.31 per share from $193 million or $1.42 per share. After deducting one-time gain of partial stake in Redecard in Brazil, earnings increased to $1.80 per share. MasterCard said that it will increase its share buyback plan to $1.25 billion from $500 million. The number of transaction processed increased by 13% to $577 billion. MasterCard ((MA)) soared $20.01 to $177.15.

[R]6:00AM New York, 7:00PM Tokyo – The BoJ left interest rates unchanged and revised lower the forecast for the economic growth in 2007 and 2008.[/R]

Japan’s stock index reversed a 0.6% drop in the morning session to close up 0.52%, spurred by Sapporo Holdings and automakers.

In Tokyo trading Nikkei 225 rose 0.52% or 86.82 to 16,737.63.

On the first section of the Tokyo Stock Exchange 9.0 billion shares worth 1.2 trillion yen changed hands and on the second section 401 million shares valued at 6.4 billion were traded.

Of the Nikkei 225 stocks 145 gained, 75 declined and 5 traded unchanged. Sapporo Holdings led gainers in the index stocks, rising 13.07% after announcing yesterday a tie-up with Morgan Stanley Japan Securities Company. Morgan will pay 50 billion yen for a 15% stake in the company’s property arm, Yebisu Garden Place Company.

Bank of Japan announced today in a statement published on its website that it had elected to hold the key interest at 0.5% by an 8-1vote. Again, Atsushi Mizuno was the lone dissenter for the fifth consecutive time.

The bank also said in its semi-annual outlook report for economic activity and prices that the Japanese economy will continue on a sustained path of economic expansion in the second half of fiscal 2007 through to fiscal 2008. GDP is expected to grow 2% on average, supported by strength in exports to overseas markets, expectations of strong corporate profits that are expected to feed into the household sector, tighter labor markets and accommodative financial conditions.

According to the key outlook report, the consumer price index is expected to rise at 0.4% for the fiscal year 2009 beginning in April 2008. The outlook for inflation was revised lower from 0.5% in April of 2007.

The Outlook for Economic Activity and Prices statement further added that “The rate of real GDP growth in fiscal 2007 and fiscal 2008 is likely to register around 2% on average, somewhat higher than the potential growth rate. The growth rate will be somewhat lower in fiscal 2007 and somewhat higher in fiscal 2008 due to a swing in housing investment.”

The BoJ lowered its outlook for the fiscal 2007 annual economic growth between 1.7% and 1.8% from a range between 2.0% and 2.1%. The BOJ lowered its forecast for the economic growth to 1.8% from 2.1%. For the fiscal 2008 the bank kept the range to 2.1%.

The Ministry of Health, Labor and Welfare said that in its provisional report of Monthly Labor Survey that total wages earnings per regular employee in September fell 0.5% to 271,144 yen. Contractual cash earnings also slumped 0.3% to 269,010 yen and scheduled cash earnings declined 0.4% to 249,607 yen.

Monthly hours worked per regular employee also fell in September by 2.3% from a year earlier to 149 hours, while non-scheduled hours worked in manufacturing were 16.5%, a 1.7% plunge. However, regular employees were increased to 44.5 million in September, an increase of 1.6% compared to a year ago. Full-time employees jumped to 32.9 million, 0.8% increase compared to a year ago and part-time employees increased to 11.5 million, an increase of 3.6%.

Of the Nikkei 225 index shares Sapporo Holdings led advancers, rising 13.07%, followed by rises of 9.22% in Mitsubishi Motors Company, 8.21% in Fuji Electric House, 7.89% in Denso Corp and 7.21% in Fuji Film Holdings.

Sapporo Holdings firmed after announcing yesterday it would ally with Morgan Stanley Japan Securities Company to venture into real estate operations. A special purpose company operated by Morgan Stanley real estate fund would buy a 1.5% stake in the holding company by the end of December and boost it by 5% by the end of June 2008.

The special purpose company will also acquire a 15% stake in Yebisu Garden Place Company for 50 billion yen and help improve the value of the major office, residential and shopping complex in Tokyo. Separately, Sapporo Holdings said it will form a business alliance with Tokyo-based investment fund management firm Crescent Asia to bolster subsidiary Sapporo Beverage Co. According to the company, the tie-ups are expected to increase consolidated operating profit of 40 billion yen in 2016 and sales to 600 billion yen from 435 billion yen.

Denso Corp, Japan’s biggest auto parts maker, rose after announcing it expects net income to soar to 228 billion yen, 10% more than analyst projections as a result of rising demand in overseas markets. Carmakers rose as well. Toyota Motor Corporation rose 2.50%, Honda Motor Corp edged up 2.38% and Nissan Motor Corp climbed 2.79%.

Mitsubishi Rayon Company Limited led the decliners in the index with a loss of 13.35%, followed by losses in Taiyo Yuden Company of 7.48%, in Matsushita Electric Works of 6.82%, in Toto Limited of 5.57% and in Sumco Corporation of 5.02%.

Commodity and energy stocks fell on retreating prices of crude oil and metals. Oil prices slumped 3.4% to $90.38 per barrel after Goldman, Sachs recommended investors to sell energy contracts, forcing Inpex Holdings to slide 3.88%, Nippon Oil to decline 2.69% and Mitsubishi Corp to plummet 4.05%.

Mitsubishi Heavy Industries said in a statement today first half net income climbed 27.99 billion yen from 21.9 billion yen a year ago. Sales in the six months period ended September also rose 6.9% to 1.45 trillion yen spurred by the increased demand for wind and gas turbines, especially in the U.S. as a result of stricter environmental rules on carbon dioxide emissions. The company closed 2% up.

Fujifilm Holdings Corp net income increased 25% to 237 billion yen on higher sales of copiers. Operating profit is forecasted to rise 5% to 210 billion yen this business year. Fujifilm finished 7.21% up at the close of trade.

Matsushita Electric Works second quarter net income rose to 65 billion yen beating the estimates of 60 to 63 billion yen. Matsushita traded up 3.79%.