Weak Bank Earnings and Oil Weigh on Markets

123jump.com Staff
16 Jan, 2008
New York City

Economic assessment from twelve regions reported in the so called Beige Report suggested that economy continued to grow at a slower pace. Holiday sales in general were disappointing and demand for automobiles was weak. Nonfinancial sectors reported robust demand. Market averages rallied after the report but at close three popular averages fell. Ambac, the bond insurer, plunged 34% after it cut its dividend and revealed a plan to raise $1 billion.

[R]10:00PM Frankfurt, 4:00PM New York, 8:00AM next day Sydney[/R]

European Markets

In London FTSE 100 Index closed lower 82.70 or 1.37% to 5,942.90, in Paris CAC 40 Index decreased 25.43 or 0.48% to close at 5,225.39 and in Frankfurt DAX index declined 94.81 or 1.25% to close at 7,471.57. In Zurich trading SMI fell 126.40 or 1.59% to close at 7,847.52.

North American Markets indexes

Dow Jones Industrial Average lost 34.95 or 0.28% to a close of 12,501.11, S&P 500 closed down 7.75 or 0.56% to 1,373.20, and Nasdaq Composite Index traded down 23.00 or 0.95% to a close of 2,394.59.

In Toronto TSX Composite closed down 220.14 or 1.65% to close at 13,096.64.

Of the 30 stocks in Dow Jones Industrial Average, 17 closed higher, 13 closed lower, and none was unchanged.

Intel led the decliners in the index with a fall of 12% followed by losses in Microsoft of 3%, in Exxon Mobil of 1.9%, and in Citigroup of 1.4%.

JP Morgan Chase led the gainers in the index with a rise of 8.4% followed by increases in Home Depot of 5.5%, in American Express of 3.6%, in General Motors of 3.6%, and in Boeing of 3.54%.

Of the stocks in S&P 500, 333 closed higher, 163 fell, and 4 were unchanged.

One hundred thirty five stocks fell more than 3% and thirty stocks rose more than 3%.

Ambac Financial led the decliners in the index with a plunge of 34% followed by losses in MBIA of 13.3%, in Nvidia of 11%, in Intercontinental Exchange of 7.4%, and in Allegheny Tech of 7.2%.

CIT Group led the gainers in the index with a rise of 9.05% followed by gains in AMD of 9%, in Mattel of 8.9%, and in Pulte Homes of 8.8%.


South American Markets Indexes

In Latin Markets Peru led the decliners in the region with a loss of 5.36% followed by decreases in Colombia of 2.22%, in Mexico of 2.06%, in Venezuela of 2.01%, in Brazil of 1.9%, and in Chile of 2.62%.

Asian Markets


In Tokyo Nikkei 225 Index closed lower 468.12 or 3.35% to 13,504.51, in Hong Kong Hang Seng index decreased 1386.93 or 5.37% closed to 24,450.85, in Australia ASX 200 index lower 150.30 or 2.52% to close 5,809.70.

In South Korea Kospi Index decreased 41.98 or 2.40% to close at 1,704.97, in Thailand SET index closed lower 5.99 or 0.77% to 773.80, and Indonesia JSE Index edged decreased 137.72 or 5.04% to 2,592.31. Sensex index in India decreased 382.98 or 1.89% to 19,868.11.

Bond Yields decreased on 10-year U.S. bonds to 3.69% and 30-year bonds increased to 4.28%.

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

Crude oil fell $1.09 to close at $90.81 per barrel for a front month contract, natural gas decreased 6 cents to $8.14 per mBtu, and gasoline futures decreased 3.09 cents to close at 227.83 cents per gallon.

Gold decreased $22.60 in New York trading to close at $880.00 per ounce, silver closed down 41 cents to $15.895 per ounce, and copper for front month delivery decreased 6.30 cents to 317.85 per pound and in London copper futures increased $237.50 to $7,151.50.

Dollar edged higher against euro to $1.46560 and higher to 107.5150 yen.



[R]3:00PM New York, 8:00PM London - U.K unemployment rate rises to 74.7% in the quarter to November 2007.[/R]

Stocks in London declined after U.K. real estate professionals said the housing market in December was the worst in fifteen years.

In London trading FTSE 100 fell 1.37% or 82.7 to 5,942.90. Of the 102 FTSE 100 stocks 39 rose and 63 declined.

British Land Company Plc led advancing stocks with a rise of 4.37%. Other homebuilders gained as well. Hammerson Plc jumped 2.97% and Persimmon edged up 1.96%.

The Royal Institute of Chartered Surveyors said today the number of real estate agents and surveyors saying prices fell surpassed those reporting gains by 49.1% in December from 40.6% in November.

Furthermore, a measure of expected prices dropped to the lowest since 1998 at minus 62 from minus 47 in November. The RICS survey also showed that prices declined in all the 42 regions surveyed.

The Office of National Statistics reported today on its Web site that the employment rate for people of working age rose 0.3% from the previous quarter to 74.7% in the three months to November 2007. The rate also climbed 0.1% from a year earlier.

Furthermore, the number of people in employment for the three months to November 2007 was up 175,000 over the quarter and up 263,000 over the year at 29.36 million, the highest since records began in 1971.

According to ONS, total hours worked per week were 939.5 million, up 1.2 million over the quarter and up 11.8 million over the year.

However, unemployment rate was down 0.1% both over the previous quarter and over the year at 5.3%. The number of unemployed people decreased by 13,000 over the quarter and by 29,000 over the year to 1.65 million.

The claimant count also declined by 6,400 over the previous month and 131,400 over the year.

In a separate report, the ONS said average earnings including bonuses, rose by 4.0% in the year to November 2007, unchanged from October.

Average earnings excluding bonuses or regular pay, rose by 3.6 per cent in the year to November, unchanged from October.

November pay growth including bonuses in the private sector was 4.2%, compared with 3.3 % for the public sector. In addition, in the year to November 2007 consumer prices increased below the rate of earnings growth by 2.1%.

Of the FTSE 100 index stocks British Land Company led gainers with a rise of 4.37% followed by increases of 4.32% in British Airways, of 3.63% in Home Retail Group, of 3.53% in Reckitt Benckiser, and in Taylor Wimpey of 3.52%.

Retailers also rose on strong employment and earnings figures. Next Plc increased 0.15% and Kingfisher Plc soared 2.86%.

Antofagasta Plc led decliners in FTSE 100 index with a drop of 6.80% followed by losses in 6.63% in Rio Tinto, of 5.84% in Kazakhmys Plc, of 5.67% in London Stock Exchange, and of 5.59% in Xstrata.

Commodity stocks fell as crude oil and metal prices declined. Vedanta Resources slipped 5.28%, BHP Billiton slumped 5.26% and Anglo America shed 5.14%.

Bloomberg news reported today that the European Commission raided pharmaceutical companies including AstraZeneca and GlaxoSmithKline to investigate if patents and lawsuit settlements were improperly used to keep generic drugs off the market.

BP said today it will begin a study to build a colossal 500-megawatt hydrogen power plan in the Abu Dhabi, United Arab Emirates. Analyst estimate the plant will be worth $2 billion.


[R]1:00PM New York – Ambac fell 33% after it cuts its dividend and plans to raise $1 billion.[/R]

Ambac Financial Group ((ABK)) reported its first quarterly loss, replaced its chief executive, and plans to raise $1 billion to stem the loss of capital.

Ambac said that its fourth quarter loss will be $143 million after-tax or $32.82 per share and operating profit will be $5.80 per share. Ambac estimated that the book value per share at the end of 2007 will be at $21.00.

The Company also announced the results of its fourth quarter fair value review of its outstanding credit derivative contracts. Ambac’s estimate of the fair value or “mark-to-market” adjustment for its credit derivative portfolio for the quarter ended December 31, 2007 amounted to an estimated loss of $5.4 billion, pre-tax, $3.5 billion, after tax.

Of the estimated $5.4 billion pre-tax mark-to-market loss, approximately $1.1 billion represents estimated credit impairment related to certain collateralized debt obligations of asset-backed securities transactions. These transactions are backed primarily by mezzanine level subprime residential mortgage-backed securities that have been internally downgraded to below investment grade.

The company also announced a plan to raise $1 billion to strengthen its capital base after rating agencies threatened to lower its rating on the company.

Ambac is expected to meet or exceed Fitch Ratings’ current triple-A capital requirements for the Company. The Company noted that its existing capital position currently meets or exceeds the triple-A capital requirements of both S&P and Moody’s. As part of its capital initiative, Ambac also said that it will reduce the quarterly dividend on its common stock from $0.21 per share to $0.07 per share.

Ambac insured bonds with approximate value of $560 billion may be in jeopardy if rating on Ambac is lowered.

Ambac also replaced its chief executive Robert J. Genader with Michael A. Callen effective immediately till a permanent replacement is found. Only three weeks ago Gemader has said that the company dividend is not going to be cut.



[R]10:00AM New York – U.S. stocks declined as JP Morgan and Wells Fargo reported sub-prime loan losses and Intel revenue growth disappointed investors.[/R]

U.S. stocks opened lower after three popular averages fell.

Dow Jones Industrial Average fell 11.50 to 12,490.22, Nasdaq declined 17.17 to 2,400.42, and S&P 500 lost 0.68 to 1,379.86.

Intel ((INTC)) and JP Morgan earnings report weighed on the market sentiment at the opening. Consumer Price Index in December rose.

The Labor Department reported that the December CPI rose 0.3% and the index excluding food and energy prices gained 0.2% in the month. For 2007 the CPI jumped 4.1% and index excluding food and energy prices rose 2.4%, higher than the target set by the Fed.

Many economists and bond investors have come to believe that the measures of inflation reported by the government understate the inflation in the economy and lag in the rise in prices.

Oracle ((ORCL)) and BEA Systems agreed to merge after Oracle lifted its offer to $8.5 billion. BEA ((BEA)) jumped $3.00 to $18.58 at the opening and Oracle fell 20 cents to $21.15.

Intel revenue in the fourth quarter rose 10.5% to $10.71 billion from $9.69 billion from a year ago. Earnings rose to $2.27 billion from $1.5 billion and earnings per share increased to 38 cents from 26 cents a year ago.

Gross margin in the quarter rose to 58%, higher than the earlier projection of 57% in October. Intel forecasted gross margin in the current quarter or 56% and for the fiscal year of 57% with a margin of error of few percentage points.

Intel stock fell $2.67 or 11.4% to $20.02 in the early hours of trading.

Wells Fargo fourth quarter profit fell 38% to $1.36 billion from $2.18 billion and earnings per share dropped to 41 cents from 64 cents a year ago on the revenue rise of 8% to $10.21 billion.

Wells Fargo increased its provision to cover losses from credit defaults jumped three-fold to $2.61 billion.

Wells Fargo ((WFC)) added $1.42 to $27.91.

JP Morgan Chase ((JPM)) net income in the fourth fell 34% in the fourth quarter to $2.97 billion from $4.53 billion and earnings per share declined to 86 cents from $1.31 a year ago. Revenue in the quarter rose 7% to $17.38 billion from $16.19 billion.

JP Morgan reported losses from subprime loans and credit losses to $1.3 billion.

JP Morgan ((JPM)) stock increased $2.60 to $41.71.


[R]6:00AM New York, 6:00PM Hong Kong - Beijing calls off Citigroup bailout by China Development Bank.[/R]

Hong Kong stock indexes traded in negative territory as the contagion of Citigroup’s losses and weaker U.S. retail sales affected market sentiment.

In Hong Kong trading Hang Seng index fell 5.4% or 1,386.93 to 24,450.85, while the Hang Seng China Enterprises index fell 6.6% to 14, 016.12, the biggest since May 2004. A sharp one-day decline not seen since in the last six years hurt property and financial stocks the most.

Financial stocks, shipping lines and property stocks declined as fears of a recession in the U.S. increased.

The Wall Street Journal reported yesterday that the government in China called off the planned investment in troubled Citigroup by China Development Bank due disagreements in Beijing.

China Development Bank was considering to investing $2 billion in Citigroup.

Reuters news reported yesterday that Bank of Communications is in talks to buy Life-CMG Insurance pending regulatory approval. Life-CMG Insurance is a 50-50 joint venture between Commonwealth Bank of Australia and China Life Insurance.

The Standard online news reported today that China Insurance Regulatory Commission said yesterday premium income last year soared above 14.4% market consensus by 27% from the previous year to Rmb700 billion.

Lehman Brothers said in a research note today that Hong Kong residential property prices will reach a peak last seen in 1997 by the end of next year on falling interest rates and a negative deposit rates. Hong Kong inflation rate is running at a higher rate than the bank deposit rates.

“With rates expected to fall another 125 basis points in 2008, we forecast that overall home prices will rise 35% this year and another 15% in 2009, returning overall prices to 1997 peak levels,"" said Lehman Brothers.

The bank also added home prices rose 24% in 2007, while the stock prices of developers soared 69%.

However, property stocks such as Sino Land fell today on profit taking.

Financial stocks fell after Citigroup announced yesterday that it has realized a record fourth quarter net loss of $9.83 billion compared with a $5.1 billion profit from a year earlier.

Citigroup also doubled its forecast on write-downs linked to subprime losses to $18.1 billion. HSBC Holdings slumped 4.8% to HK$115, the biggest fall in six years.

Goldman Sachs Group also said today in an e-mailed statement HSBC will need to add $13 billion to provisions for subprime losses. The company also cut its price estimate of the stock.

Shipping lines also fell on mounting concerns that global economic growth will slow after the U.S. Commerce Department said retail sales fell 0.4% in December from November but rose 4.1% from a year ago.


[R]5:00AM New York, 7:00PM Tokyo - Japan’s private sector machinery orders fell 2.8% in November. Producer prices climbed 2.6% in December.[/R]

In Tokyo trading Nikkei 225 plunged 3.35% or 468.12 to 13,504.51, while the broader Topix Index slid 47.83 to 1,302.37.

In the first section of the Tokyo Stock Exchange 13.6 billion shares worth 1.5 trillion yen were traded and in the second section 484 million shares worth 6.4 billion yen changed hands.

Of the Nikkei 225 stocks 22 gained, 199 declined, and 4 were unchanged.

Japan’s Cabinet Office reported today that the total value of machinery orders received by 280 manufacturers operating in the country slipped 5.9% in November from the previous month on a seasonally adjusted basis to 2.6 trillion yen.

Private sector orders, excluding volatile orders, plunged 2.8% in November from the month earlier on a seasonally adjusted basis to 1.04 trillion yen.

Also manufacturing orders declined 1.7%, while non-manufacturing orders rose 3.1% worth 512 billion yen and 571.5 billion yen correspondingly.

However government orders gained 11.7% to 269 billion yen and overseas orders dropped 18.4% to 1.05 trillion yen.

The Bank of Japan reported today that the domestic corporate goods price index rose 2.6% in December from 2.3% in November as energy and raw material costs increased.

Petroleum and coal products spiked 0.24% in December.

In addition, the export price index fell 1.8% in December from 2.1% in November, while the import price index soared 12.6% from 8.7% recorded in November.

Japan’s Ministry of Finance reported today in the preliminary balance of payments statistics for November that exports climbed to 68 trillion yen from 71.1 trillion in October.

November imports stood at 59.50 trillion yen from 59.528 trillion in October and generated trade surplus of 9.32 trillion yen.

Of the Nikkei 225 stocks Nippon Meat Pack led advancers with a rise of 6.74% followed by gains of 5.86% in Kansai Electric Power, of 3.34% in Chubu Electric Power, of 2.97% in Secom Company Limited, and in Osaka Gas Company Limited of 2.8%.

Nippon Meat Pack rose after Mizuho Securities lifted the rating to ‘buy’ from ‘hold’ and

Kansai Electrical Power also rose after Nikko Citigroup raised its rating on the stock to “buy” from “hold”.

Other utilities rose as well. Tokyo Electrical Power jumped 1.08%.

Fanuc Limited led declining Nikkei 225 stocks with a drop of 10.27% followed by losses of 9.07% in Nippon Sheet Glass Limited, of 8.92% in Sanyo Electric, of 8.86% in Shin-Etsu Chemicals of 8.86%, and in Nitto Boseki Company of 8.85%.

Domestic economy related stocks fell after producer prices rose 2.5% in December from a year earlier sparking worries that corporate profits will decline.

Financial stocks declined after Citigroup announced a record fourth quarter net loss $9.83 billion and $18.1 billion write-down on subprime securities.

Local television broadcaster NHK also reported that Mizuho’s subprime losses might expand while Mitsubishi UFJ Financial Group may post a 50 billion yen loss. Mitsubishi UFJ Financial Group shed 4.70% and Mizuho Financial Group tumbled 8.75%.

Oil prices for February delivery slipped 2.4% to $91.90 a barrel. Inpex Holdings shed 7.08% on the news.

Exporters fell as well on a strengthening yen that rose as high as 106.61 against the dollar and after the U.S. Commerce Department announced yesterday that retail sales fell 0.4% in December.

Canon dropped 2.58%, Toyota Motor Corporation climbed down 3.98% and Sony Corporation edged lower 6.77%.

Komatsu Limited said today in a statement filed with the Tokyo Stock Exchange it will pay 43 billion yen or 1,250 yen a share, a premium of 50%, for machine tool maker Nippei Toyama Corporation. Komatsu closed down 7.44%.

In Tokyo Nikkei 225 Index closed lower 468.12 or 3.35% to 13,504.51, in Hong Kong Hang Seng index decreased 1386.93 or 5.37% closed to 24,450.85, in Australia ASX 200 index lower 150.30 or 2.52% to close 5,809.70.

In South Korea Kospi Index decreased 41.98 or 2.40% to close at 1,704.97, in Thailand SET index closed lower 5.99 or 0.77% to 773.80, and Indonesia JSE Index edged decreased 137.72 or 5.04% to 2,592.31. Sensex index in India decreased 382.98 or 1.89% to 19,868.11.