Housing Worries Resurface, Drag Averages

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

U.S.stocks fell sharply in the late afternoon as worries related to housing market resurfaced. Wells Fargo issued a dire outlook for the housing market in the year 2008 and hinted that the prices may fall further. Barclays also revised its write-down of loans related to housing market. Housing, banking, and brokerage stocks fell sharply. European markets closed lower on the worries that the U.S. economy may slowing faster than anticipated.

[R]5:00PM New York, 11:00PM Frankfurt, 9:00AM Sydney[/R]

[R]Global Markets Indexes[/R]

Dow Jones Industrial Average fell 120.96 or 0.91% to a close of 13,110.05, S&P 500 dropped 1.32% or 19.43 to 1,451.15, and Nasdaq Composite Index declined 25.81 or 0.98% to a close of 2,618.51. In Toronto TSX Composite lost 250.11 or 1.82% to close at 13,524.43.

Of the 30 stocks in Dow Jones Industrial Average, 8 closed higher, 22 closed lower, and none were unchanged.

AIG led the decliners in the index with a loss of 4.2% followed by declines in Citigroup of 4%, in JP Morgan of 3.6%, in General Motors of 3.4%. Disney led the gainers with a rise of 1.7% followed by increases in 1.1% in Merck, and in Coca-Cola of 0.9%.

Of the stocks in S&P 500, 106 closed higher, 392 fell, and 2 were unchanged.

Fannie Mae led the decliners in the index stocks with a loss of 10% followed by 8.9% decline in Countrywide, in Ambac of 7.2%, in Cummins of 5.8%, in MGIC of 5.7%. Advanced Micro Devices led the gainers with a rise of 3.4% followed by increases in Assurant of 3.3%, in Genzyme of 2.9%, and in Avery Dennison of 2.2%.

In London FTSE 100 Index closed down 72.50 or 1.13% to 6,359.60, in Paris CAC 40 Index decreased 52.47 or 0.93% to close at 5,561.13, and in Frankfurt DAX index lost 116.08 or 1.49% to close at 7,667.03. In Zurich trading SMI declined 37.39 or 0.43% to close at 8,593.65.

In Tokyo Nikkei 225 Index surged 103.26 or 0.67% to close at 15,396.30, in Hong Kong Hang Seng index closed down 414.80 or 1.42% to 28,751.21, in Australia ASX 200 closed down 70.00 or 1.06% to close 6,528.60. India lost 0.72% or 144.17 to 19,784.89.

In South Korea Kospi Index decreased 24.84 or 1.26% to close at 1,947.74, Thailand closed down 5.99 or 0.70% to 855.52, and Indonesia edged higher 13.95 or 0.52% to 2,705.82.

Philippines decreased 9.40 or 0.26% to 3,672.62. Singapore declined 47.32 or 1.34% to 3,477.59 and Malaysia increased 5.42 or 0.39% to 1,390.00.

In Latin Markets Peru led the decliners with a loss of 2% followed by declines of 1.8% in Argentina, 1.7% in Mexico, 0.9% in Chile. Brazil led the gainers with a rise of 2.7%.

Bond Yields edged lower on 10-year U.S. bonds to 4.14% and 30-year bonds declined to 4.52%.

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

Crude oil fell $0.66 to close at $93.43 per barrel for a front month contract, up 42.00% for the year, natural gas decreased 14 cents to $7.70 per mBtu, and gasoline futures decreased 3.42 cents to close at 233.62 cents per gallon.

Gold edged lower $27.40 in New York trading to close at $787.30 per ounce, silver closed down 58 cents to $14.82 per ounce, and copper for front month delivery lost 21.30 cents to 312.35 cents per pound and in London trading closed up $211.50 to $7,102.50.

Dollar edged lower against euro to $1.4614 and lower to 110.2750 yen.


[R]12:30PM New York - Barclays plc writes down £800 million from investments in volatile risky bets in high-risk U.S. mortgage loans.[/R]

Barclays plc reported a pre-tax profit of 1.9 billion pounds during the first ten months of this year despite writing off £800 million in loans related to the U.S. sub-prime mortgage market problems in the month of October.

Sub-prime write-downs at its Barclays Capital investment bank arm now total £1.3 billion inclusive of a £500 million write-down in the third quarter.

Barclays said the write-offs were less than feared adding that Barclays'' Capital profits were ahead of prior year. Barclays released its earnings two-weeks earlier to calm markets and squelch rumors that the bank had lost $10 billion. The bank did not release earnings but issued a ‘trading statement.’

Barclays Capital still had more than £5.3 billion worth of exposure to investments in packages of debt, which includes exposure to U.S. sub-prime mortgages, from £6 billion at the end of June in 2006.

Barclays'' dropped 1.5% or 8p to 525p at close in London, as the FTSE 100 index fell. The stock has taken a battering in recent weeks amid rumors the bank may have to write down as much as $10 billion of losses due to the exposure to the risky U.S. home loans.

Aggregate write-downs on Structured Investment Vehicles and SIV-lites in October were £70 million. The bank said it had no further un-drawn backup liquidity facilities for SIVs or SIV-lites.

Barclays Capital had £7.3 billion in exposure from unsold underwriting positions down from a peak exposure of £9 billion in September.

At the end of October, Barclays Capital''s high-grade exposure net of hedges and subordination was £3.8 billion (versus £5.8 billion in June) after charges and write-downs net of hedges in the third quarter of £0.3 billion and a further £0.4 billion in October 2007.

Barclays Capital''s mezzanine exposure net of hedges and subordination was £1.2 billion in June after charges and write-downs net of hedges in the third quarter of £0.1 billion and a further £0.3 billion in October 2007.

Excluding loans originated through EquiFirst, a U.S. mortgage originator acquired earlier in the year, Barclays Capital warehouse and whole loan positions totaled £4.3 billion in January falling to £0.8 billion in June and £0.4 billion at the end of October.

Strict risk management at Barclays Capital plus diverse revenue streams, as well as strong growth across commodity, equity, currency and interest rate products helped stabilize operations at the unit. The bank said profits from Europe and Asia were also strong.

A combination of higher interest rates and a slow-down in house price growth has had a serious impact on the sub-prime market, which focuses on people with poor or non-existent credit histories.

In recent months, the higher borrowing costs have made it harder for many borrowers on low incomes to meet their mortgage repayments, and homeowners have filed for foreclosures.

UBS, HSBC, Merrill Lynch, Bear Stearns, and Citigroup and others have disclosed losses that total more than $45 billion related to sub-prime lending.

[R]10:00AM New York – U.S. stocks decline at the opening.[/R]

U.S. market averages opened lower on the worries related to rising inflation and more losses in sub-prime lending. Dow Jones Industrial Average declined 45 to 13,186, Nasdaq lost 4 to 2,640, and S&P 500 edged 6 lower to 1,464.

The Labor Department reported that October consumer price index increased 0.3% and index excluding food and energy costs increased 0.2%. The department also said that initial claims of unemployment at the end of the last week increased 20,000 to 339,000.

J.C. Penney ((JCP)) reported third quarter earnings from continuing operations of $261 million or $1.17 per share including one-time tax credit of $32 million or $0.14 per share. Earnings in the quarter in the previous year were $286 million or $1.26 million. The company also issues cautious outlook and lowered its guidance for the fourth quarter and for the full-year.

For the fourth quarter the company lowered the earnings in the range between $1.65 and $1.80 per share from the previous estimate of $2.41 per share. For the fiscal year 2007 company now expects to earn in the range between $4.63 and $4.78 from the earlier estimate of $5.50 per share.

European markets traded lower at mid-day. Germany led the decliners in the region with a loss of 1.4% followed by losses in Norway of 1.3%, in the Netherlands of 1.25%, in France of 1.2%, in U.K. of 1.1%, and in Spain and Switzerland of 0.5%.

Barclays in London trading jumped 3% after it released its earnings but lost its gains turned negative with the market weakness ahead of the U.S. market opening. Barclays wrote down leveraged assets and trading charges totaling 1.3 billion pounds at its unit Barclays Capital.

Barclays Capital’s net income and profit before tax for the ten months ended 31st October 2007 exceeded the record net income and profits of the equivalent prior year period.

Profit before tax of £1.9bn for the period was after booking credit, mortgage and leveraged finance related charges and write downs of £0.5bn net of hedging in the third quarter; and an additional £0.8bn net charges and write-downs in October. The charges and write-downs are net of a gain of £0.2bn in each of the third quarter and October arising. The October charges and write downs reflected the impact of rating agency downgrades on a broad range of CDOs and the subsequent market downturn.

The bank further added in the press release, “Our trading book inventory at 31st October 2007 included £0.2 billion of assets from the drawdown of SIV-lite liquidity facilities (30th June 2007: £0.7billion). Our exposure to SIVs was £0.7billion comprising derivative exposures, un-drawn Commercial Paper backstop facilities and bonds held in our trading book (£0.9 billion at the end of June 30 2007). We have no further un-drawn backup liquidity facilities for SIVs or SIV-lites. Cumulative write downs on SIVs and SIV-lites to 31st October 2007 were £70 million.”

Asian markets fell across the region following declines in the U.S., falling dollar in the region, and expectations of interest rate hike in China.

Hong Kong led the decliners in the region with a loss of 1.4% on the expectations of rising interest rate in China. Chinese government officials have been sending signals that banks may be required to raise rates to curb rising food and consumer products prices. Hong Kong Stock Exchange rose after several brokers raised its rating on the exchange on higher trading volume.

Japan fell 0.7% on the worries that more losses may be declared by Japanese banks arising from sub-prime lending in the U.S.

Singapore fell 1.34% followed by losses in South Korea of 1.3%, in Shanghai of 1.2%, in Australia of 0.8%, and in Thailand of 0.7%.


[R]6:30AM New York – 8:00PM Mumbai – Indian stock market turned cautious after surging to a record one-day rise in the previous session.[/R]

Sensex in Mumbai India dropped 144.17 or 0.7% to 19,784.89. CNX Nifty declined 25.80 or 0.43% to 5,912.10.

Of the stocks traded on the Bombay Stock Exchange, 1,808 advanced, 988 declined, and 46 were unchanged.

Trading volume on the exchange reached 9,233 crore rupees compared to 8,796 crore rupees a day ago. Daily turnover on the National Stock Exchange increased to 21,056 crore rupees from 20,726 crore rupees.

Bharti Airtel increased 4.7% to 900 rupees after the company asserted that the recent mobile number portability will not hurt the operating margins but may increased churn in the subscriber base. The telecom authority has allowed mobile subscriber to keep their telephone number even if they change their carrier.

Tata Steel edged 0.3% higher to 860 rupees after it said that it plans to raise 9,140 crore rupees right issue. Each right will allow the holder to convert to 5 shares in the company at 300 rupees. The subscription for the issue will be open between November 22nd and December 21st. Godrej Consumer Products added 6% to 128 rupees after it said that board meeting next week will discuss issue of bonus shares.

Essar Oil surged 31%, for the second day in a row, to 157 rupees after its plans to issue preferred share issue. The stock rose in anticipation of bonus expectations.

Separately refineries gained for the second day in a row after the government said that it is likely to issue bonds to cover the losses at the companies. Mangalore Refinery & Petrochemicals soared 22% to 127 rupees and Bongaigaon Refinery soared 30% to 104.95 rupees. Fertilizer stocks gained for the second day in a row on the hopes that government will issue bonds to cover the subsidy losses. Rashtriya Chemical jumped 9% to 78 rupees and Mangalore Chemicals & Fertilisers soared 20% to 49 rupees and National Fertilizers increased 10% to 83 rupees.

State Bank of India fell 1.6% to 2,308 rupees but traded as high as 2,400 rupees in the morning trading on the hopes that the largest lender will complete its rights issue of 10,000 crore rupees by the end of the year.

TCS, software and services exporter declined 0.4% to 978 rupees. The company said that it has received an order for $200 million service contract for four years from the Social Security Institute of Mexico. Other software services companies declined. Wipro fell 3% to 456 rupees, Infosys Technologies lost 3.1% to 1,653, and Satyam Computers edged 0.4% lower to 428 rupees.



[R]6:00AM New York, 7:00PM Tokyo - Japan’s demand for services declined 1.6% from August.[/R]

In Tokyo trading Nikkei 225 retreated from a 0.3% gain in the morning session to shed 0.67% or 103.26 to 15,396.30, while the broader Topix Index rose 1.15% to 1,498.86.

In the first section of the Tokyo Stock Exchange 8.9 billion shares worth 1.1 trillion yen were traded and in the second section 256 million shares valued at 4.8 billion yen changed hands.

Of the Nikkei 225 shares, 97 gained, 130 declined, and 2 were unchanged. Nikko Cordial Corp led gainers, rising 7.24% after Citigroup revised the terms of the buyout deal by offering additional equity to Nikko shareholders if the stocks of the U.S. bank falls below $37 per share.

The Ministry of Economy Trade and Industry announced today that the Indices of Tertiary Industrial Activity in September fell 1.6% to a seasonally adjusted 109.4 from August, when it rose by a revised 1.2%.

According to METI sectors that contribute to the decline were wholesale and retail trade, fell 2.7%; finance and insurance declined 5.9%; information and communications lost 4.6%, services decreased 0.8%, transport climbed down 0.4%, eating, drinking places and accommodation declined 0.2%.

Medical, healthcare and welfare services index rose 2.2%, learning support increased 8.1%, electricity increased 1.5%, gas, heat supply and water utilities index added 1.5%, and in Real Estate increased 0.3%.

Kyodo news reported yesterday that the average price of regular gasoline rose to 150.1 yen per litre, record level since 1987. Nippon Oil Corp and Japan Energy Corp raised the wholesale price on petroleum products for November delivery by 6 yen per litre.

The yen against dollar traded at 111.16 from 111.18 at the close of trade and the euro changed hands at 163.34 from 163.36.

Of the Nikkei 225 index shares, Nikko Cordial Corp led the gainers with a rise of 7.24%, followed by gains in Mitsub Materials of 5.81%, in T & D Holdings of 5.28%, in Sanyo Electric of 5.23%, and in Clarion Company Limited of 5.07%.

Nikko Cordial Corp rose after Citigroup said that Nikko shareholders will receive additional equity in the event that Citigroup’s share falls below the offer price based on Citigroup stock price of $37 per share.

Commodity stocks also gained after the prices of metals. Copper futures jumped to a 16-month high with a rise of 3% and Zinc gained 1%. Sumitomo Metal Mining soared 3.03% and Nippon Mining House firmed 1.94%.

Crude oil prices firmed 3.2% to $94.09 per barrel lifting Mitsui & Company by 2.16% and Mitsubishi Corp by 0.93%.

T & D spiked after Goldman Sachs raised the rating of the stock to “buy”, with a 12-month price target of 9,230 yen.

Shimizu Corp led the decliners in the index with a loss of 6.49%, followed by losses of 4.56% in Advantest Corp, 4.24% in Minebea Company Limited, 4.05% in Pioneer Corp, and 3.88% in J Front Retailing.

Financial stocks retreated from yesterday’s gains after Mizuho first half net income dropped to 32.3 billion yen from 327.1 billion yen a year earlier. Mizuho further added that it posted a loss of about 70 billion-yen on subprime related investments. Full year fiscal 2008 forecast was cut from 750 billion yen to 650 billion yen. Mizuho Financial Group dropped 0.73%, while Mizuho Trust & Banking, which raised its full year net income forecast by 32% to 86 billion yen closed up 2.8%.

Bloomberg news reported today Mitsubishi UFJ had offered to pay 180,000 yen per share for a controlling stake in online brokerage Kabu.com Securities. Mitsubishi UFJ closed down 0.52%.

Sumitomo Trust & Banking net income fell to 37.7 billion yen in the six months to September from 64 billion yen a year earlier. Profits fell 41% on higher provisions for bad debts. Full year profit forecasts that were revised downwards from 120 billion yen to 90 billion yen were however unchanged.

TDK Corp fell 6.11% after an analyst at UBS AG cut the rating on the companies shares to “sell” from “neutral”.