U.S. Recession Fears Drive Global Markets Lower

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

Large losses at banks and talks of downgrade of bond insurance companies and inadequate response from the Whitehouse to the ongoing credit market turmoil left most investors nervous. The coming recession in the economy is already felt in the earnings of banks and other companies. Merrill Lynch reported revenue decline of 66% to $11 billion in 2007 and reported a loss of $12.8 billion compared to profit of $9.8 billion in 2006.

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

North American Markets indexes

Dow Jones Industrial Average lost 306.95 or 2.48% to a close of 12,159.11, S&P 500 closed down 39.95 or 2.91% to 1,333.25, and Nasdaq Composite Index traded down 47.69 or 2.14% to a close of 2,346.90.

In Toronto TSX Composite closed down 279.22 or 2.14% to close at 12,795.64.

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

AIG led the decliners in the index with a loss of 6.3% followed by losses in Alcoa of 6%, in Merck of 5.9%, in Citigroup of 4.9%, in United Technology of 4.2%, and in General Electric of 3.9%.

Of the stocks in S&P 500, 46 closed higher, 451 fell, and 3 were unchanged.

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

Ambac Financial led the decliners for the second day in a row in the index with a plunge of 52% followed by losses in MBIA of 31.2%, in MGIC Investment of 14%, in XL Capital of 13.2%, in First Horizon of 12.85%, and in Intercontinental Exchange of 11.8%.

Cognizant Technology led the gainers in the index with a rise of 3.4% followed by increases in Marsh & McLennan of 3.2%, in Pulte Homes of 2.9%, in Johnson Controls of 2.7%, in Sun Microsystems of 2.6%, and in Boston Scientific of 2.5%.

South American Markets Indexes

In Latin Markets Colombia led the decliners in the region with a loss of 3.74% followed by decreases in Chile of 3.62%, in Brazil of 2.96%, in Argentina of 2.64%, and in Argentina of 2.64%.

European Markets

In London FTSE 100 Index closed lower 40.50 or 0.68% to 5,902.40, in Paris CAC 40 Index decreased 68.30 or 1.31% to close at 5,157.09 and in Frankfurt DAX index lower 58.04 or 0.78% to close at 7,413.53. In Zurich trading SMI declined 59.46 or 0.76% to close at 7,788.06.


Asian Markets

In Tokyo Nikkei 225 Index closed higher 278.94 or 2.07% to 13,783.45, in Hong Kong Hang Seng index increased 664.13 or 2.72% closed to 25,114.98, in Australia ASX 200 index lower 13.60 or 0.23% to close 5,796.10.

In South Korea Kospi Index increased 18.58 or 1.09% to close at 1,723.55, in Thailand SET index closed higher 17.45 or 2.26% to 791.25, and Indonesia JSE Index edged increased 56.97 or 2.20% to 2,649.28. Sensex index in India decreased 167.29 or 0.84% to 19,700.82.

Bond Yields decreased on 10-year U.S. bonds to 3.61% and 30-year bonds increased to 4.24%.

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

Crude oil fell $0.84 to close at $90.00 per barrel for a front month contract, natural gas decreased 7 cents to $8.06 per mBtu, and gasoline futures decreased 1.03 cents to close at 226.800 cents per gallon.

Gold decreased $4.20 in New York trading to close at $877.80 per ounce, silver closed down 4 cents to $15.93 per ounce, and copper for front month delivery decreased 1.50 cents to 315.75 per pound and in London copper futures increased $157.00 to $6,994.50.

Dollar edged lower against euro to $1.46580 and higher to 106.780 yen.

[R]12:00PM New York – Bond insurers fell sharply as worries mount on the capital adequacies.[/R]

Bond and mortgage insurance companies took another plunge after MBIA, Ambac Financial, and PMI Group fell sharply.

Ambac Financial ((ABK)) fell 51% or $6.56 to $6.32 after it ousted its chief executive. The company’s plan to raise capital of $1.0 billion may not be sufficient. Sub-prime mortgage market continues to deteriorate and obligations of these bond insurers keep rising.

Ambac has insured $555 billion of bonds. To preserve its AAA rating AMbac may have to seek more capital according to the rating agency Moody’s.

MBIA (((MBI)) dropped 33% or $4.41 to $8.99 and the PMI Group fell 14% or $1.11 to $6.66.

MBIA raised $1 billion in the January offering by offering surplus notes with a claim on its future earnings. The notes have fallen sharply in the last three days of trading and now trade below 85 cents to a dollar.


[R]10:00AM New York – Merrill Lynch recorded $15 billion write down related to subprime loans.[/R]

U.S. market averages edged higher at the opening despite sharp sub-prime related losses at Bank of New York Mellon and Merrill Lynch.

December housing starts fell to a seasonally adjusted annual rate of 1,006,000, 14.2% below the revised November estimate of 1,173,000 and is 38.2% below the revised December 2006 rate of 1,629,000. The December rate for units in buildings with five units or more was 196,000.

Privately-owned housing completions in December were at a seasonally adjusted annual rate of 1,302,000, 7.7% below the revised November estimate of 1,411,000 and is 31% below the revised December 2006 rate of 1,887,000. Single-family housing completions in December were at a rate of 1,009,000, 12.0% below the November 1,146,000 completion.

The December rate for units in buildings with five units or more was 278,000. An estimated 1,500,200 housing units were completed in 2007. This is 24.2% below the 2006 completion of 1,979,400.

Home builders edged higher in the morning after the report. Toll Brothers, D R Horton, Lennar, and Beazer Homes edged between 1% and 3% higher.

Merrill Lynch ((MER)) today reported a net loss from continuing operations for the full year 2007 of $8.6 billion, or $10.73 per diluted share, a sharp reversal from net earnings from continuing operations of $7.1 billion, or $7.17 per diluted share for 2006.

Merrill Lynch’s net loss for the full year 2007 was $7.8 billion, or $9.69 per diluted share, significantly below net earnings of $7.5 billion, or $7.59 per diluted share for 2006.

Net revenues for 2007 were $11.3 billion, down 67% from $33.8 billion in 2006, while the 2007 pre-tax loss from continuing operations was $12.8 billion compared to pre-tax earnings from continuing operations of $9.8 billion for 2006.

For the fourth quarter of 2007, net revenues were negative $8.2 billion, down from $8.4 billion in the prior-year period, and Merrill Lynch’s fourth quarter 2007 pre-tax loss from continuing operations was $14.9 billion.

The net loss from continuing operations for the fourth quarter was $10.3 billion, or $12.57 per diluted share, down substantially from net earnings from continuing operations of $2.2 billion in the prior-year quarter.

Merrill Lynch’s net loss for the fourth quarter of 2007 was $9.8 billion, or $12.01 per diluted share, significantly below net earnings of $2.3 billion, or $2.41 per diluted share for the 2006 fourth quarter.
Merrill recorded losses from collateralized loans of $11.5 billion in the fourth quarter after recording losses of $7.9 billion in the third quarter.

At the end of the fourth quarter, book value per share was $29.37, down from $41.35 at the end of 2006. Including the impact of the equity and equity-related transactions which closed subsequent to year end, Merrill Lynch’s pro forma book value per share would be $30.30 at the end of 2007.


[R]8:00AM New York, 6:30PM Mumbai - Sensex declined and Reliance Industries Limited, Reliance Energy, and TCS profits surges. /R

Stock market in India on Thursday declined for the fourth time in a row, pulled by declines in large cap companies.

Reliance Industries fell after reporting December 2007 third quarter results and ICICI Bank also declined.

The 30-share BSE Sensex fell 0.8% or 167.29 to 19,700.82. The broader CNX S&P Nifty lost 0.4% or 22.55 to 5913.20.

On the BSE, 2,003 shares advanced 833 shares fell, and 41 shares remained unchanged. Of the index stocks, 13 gained while the rest declined.

Turnover on the BSE was at 8,423 crore rupees and revenue on the National Stock Exchange stood at 20,510 crore rupees.

Reliance Industries was the most active stock on the BSE with a turnover of 472.55 crore rupees. Reliance Natural Resources, Reliance Energy, Reliance Capital and Himachal Futuristic Communications were also active.

Fuel prices are likely to go up today. Petroleum Secretary M S Srinivasan said a change on fuel prices was likely after the Group of Ministers meet later during the day.

He said the ministry has sought duty rationalization to contain the impact of surging crude oil prices.

According to news reports, government may hike petrol prices by 4 rupees per litre and diesel by 2 rupees per litre.

Reliance Industries lost 3.3% to 2,996.25 rupees after the company reported 162.22% increase in net profit to 8,079 crore rupees on 23.01% increase in total income to 34,831 crore rupees during the third quarter of December 2007.

Ambuja Cements slipped 3.9% to 130.8 rupees, DLF fell 3.7% to 1,085.75 rupees, Ranbaxy Laboratories shed 2.9% to 367.90 rupees and Satyam Computers lost 2% to 372.45 rupees.

ITC soared 4% to 217.1 rupees, Grasim Industries climbed 3.05% to 3,360 rupees, Maruti Suzuki surged 2.8% to 867.3 rupees, Larsen and Toubro climbed 2.2% to 4,077.7 rupees and Cipla rose 1.8% to 209 rupees.

ICICI Bank lost 3.5% to 1321.8 rupees. HDFC Bank declined 1.7% to 1647.1 rupees.

Indian Oil Corporation slipped 1.7% to 656.75 rupees and Reliance Petroleum fell 0.8% to 219.3 rupees.

Reliance Energy fell 2.38% to 2212.70 after the company reported 50.02% rise in net profit to 301.6 crore rupees on 1.81% increase in total income to 1,853.41 crore rupees during the third quarter of December 2007.

Reliance Power initial public offering is over-subscribed by 20.84 times a day before the end of subscription period. Reliance Energy controlled by billionaire Anil Ambani will have 45% equity in Reliance Power after the offering.

TCS fell 2.3% to 922.65 rupees. The company posted recorded 6.7% rise in net profit to 1,331 crore rupees during the third quarter of December 2007 over the third quarter of September 2007.


[R]6:00AM New York, 6:00PM Hong Kong - Hong Kong stocks closed up 2.7% as investors returned.[/R]

In Hong Kong trading Hang Seng Index jumped 2.7% or 664.13 to 25,114.98, largest gain in thirty trading days, while the China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, gained 3.3% or 465.29 to 14,481.41.

Daily turnover on the main-board was at HK$138.3 billion compared to HK$145.1 billion yesterday.

Morgan Stanley today raised its recommendation on the Hong Kong listed stocks from “cautious” to “inline” after saying the near term downside is limited.

The People’s Bank of China announced on its Web site yesterday that commercial banks will be required to keep 15% of their deposit from the previous 14.5% effective January 25th as part of tightening measures to curb inflation and economic overheating.

The Standard news online reported today Hutchison Telecommunications Limited said yesterday it will book a HK$3.85 billion non-cash impairment charge in 2007 against the mobile business in Thailand, causing it to report an operating loss for 2007.

Hutchison also added that a deferred tax credit of HK$421million relating to the Thailand impairment charge will also be realized in the 2007 results.

Merrill Lynch said in a report Beijing has also added instant noodles, edible oil and milk products for close monitoring of price increases as part of efforts to put a lid on inflation.

Milk processor China Mengniu Dairy Co Limited fell 8.5% to HK$22.70 in heavy trade.

HSBC Holdings gained 3.5% to HK$119 after declines of six days in a row. The Hong Kong Clearing Exchange climbed 4.4% to HK$179.50.

Mobile phone operator China Mobile jumped 3.4% to HK$122.5, while China Life edged up 6.1% to HK$35.5.

Export oriented Esprit Holdings surged 9.7% to HK$95.1.


[R]5:00AM New York, 7:00PM Tokyo - Tokyo rebounds 2.07% after four days of decline.[/R]

Stocks in Japan gained on bargain hunting after the Nikkei 225 index fell below 14,000.

In Tokyo trading Nikkei 225 reversed a four day 7.5% slump to close up 2.07% or 278.94 to 13,783, while the broader Topix Index soared 27.21 to 1,329.58.

In the first section of the Tokyo Stock Exchange 11.7 billion shares valued at 1.3 trillion yen changed hands and in the second section 365.8 million shares worth 4.2 billion yen were traded.

Of the Nikkei 225 stocks 184 gained, 35 declined, and 6 were unchanged.

Kyodo news online reported today that the Bank of Japan said yesterday in its quarterly survey an increasing number of consumers are losing confidence in the economy as wage increases fail to rise with the inflation.

The U.S. Federal Reserve Board said yesterday in a statement it had sanctioned Japanese online bank eBank Corporation’s application to set up a office in San Francisco.

The company will explore development of technology for Internet banking and invest in the U.S.

Bloomberg news reported today that according to Morgan Stanley prices the risk of Japanese companies defaulting on their debt rose to a record today. The Markit iTraxx Japan Series 8 Index rose by 2 basis points to 56.5 basis points.

Kyodo news also reported today that Nippon Paper Group President Masatomo Nakamura said he will resign after paper and pulp makers said they used less than the required volume of recycled paper in its products since 1992.

Of the Nikkei 225 index shares Shimizu Corporation led advancers with a rise of 8.8% followed by rises in Sumco Corporation of 8.48%, in Fanuc Limited of 8.43%, in Sekusui House of 8.30%, and in Taisei Corporation of 7.96%.

Realty stocks gained on Nikkei news reports that January construction data will show indications for a rebound in housing market. Mitsubishi Estate Company rose 6.99% and Mitsui Fudosan jumped 6.23%.

Exporters advanced after yen weakened to 107.12 from 105.92 yesterday against the dollar. Sony Corporation rose 2.72%, Toyota Motor Corporation soared 3.01% and Honda Motor Corporation climbed 3.87%.

Sharp gained after Goldman Sachs increased its recommendation on the stock to “buy” from “hold” on expectations that the demand for flat display panels will increase.

The company has also agreed to sell 700,000 display panels this year to high–definition TV maker Syntax-Brillian.

J Front Retailing led declining Nikkei 225 stocks with a drop of 5.15% followed by losses in Kao Corporation of 4.97%, in Daiichi Sankyo of 3.94%, in Toyota Tsuho of 3.63%, and in Daiwa Securities Group of 2.93%.

Retail stocks declined after the Bank of Japan said the consumer confidence in the economy had plummeted.

Paper and pulp companies fell after Nippon Paper Group President Masatomo Nakamura said he will resign. Nippon Paper Group shed 2.93%, Hokuetsu slumped 1.93%, and Oji Paper Group declined 1.80%.

The Japan Times reported today All Nippon Airways Company will hike regional airfares by 9% or 2,100 yen on average starting on April 1 to cover rising fuel costs.

Government is considering raising the price of wheat sold to domestic floor millers by 30% from April. Yamazaki Baking fell sharply after the talks of price hike.