Countrywide Loss, VMware Plunges

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

U.S. stocks traded in a narrow range ahead of the rate decision from the Fed. IMF lowered its outlook for global grwoth forecast on the expected economic slowdown in Japan, U.S., and select European nations. U.S. durable goods orders rose 5.2% in December. Countrywide reported a loss of 79 cents per share, sharply lower than its estimate of a profit between 25 cents and 75 cents. American Express earnings declined 9.9% on higher loan loss reserves.

[R]12:30PM New York – U.S. stocks traded in a narrow range ahead of rate decision from the Fed.[/R]

Economic Reports and Data

December durable goods orders rose 5.2% to a seasonally adjusted $226.60 billion from November rate of 0.5% growth. November rate of growth was revised from a decline of 1% to a rise of 0.5%.

Orders excluding transportations rose 2.6% and transportation orders rose 11% in the month after gaining 2.6% in November. Defense related orders rose 81% and orders excluding it rose 2.9%.

The Conference Board reported a decline in consumer confidence in January to 87.9 from the revised reading of 90.6 in December.

The International Monetary Fund lowered its global economic growth outlook to 4.1% from 4.9% in 2007 on the weakness in the U.S. economic outlook. The forecast was lowered by 0.3% from its previous outlook issued in October.

Home prices in ten largest cities and metropolitan areas fell rapidly in November. The home prices in November fell 8.4% from a year ago after dropping 6.7% in October. The November read was the eleventh consecutive month of annual decline and prices are likely to continue further.

The narrow index that measures only the home price movement in the cities may exaggerate home prices declines than in the rest of the country. The home prices rose steeply in the cities during the last run between 2002 and 2006 and smaller towns and rural areas home prices did not increase that rapidly. Home prices have declined in the smaller towns as well but at a smaller pace.

Earnings News

Countrywide Financial ((CFC)) reported a loss of $421.9 million in the fourth quarter or 79 cents a share. The company had guided investors a profit between 25 cents and 75 cents a share. The forecast from the company was widely ridiculed by analysts and consensus estimate surveyed by 123jump.com was a loss of 40 cents to 40 cents per share.

Countrywide lost $1.2 billion or $2.85 per share in the third quarter. The company, despite the loss, kept its dividend of 15 cents per share or $87 million.

American Express reported a profit decline of 9.9% to 71 cents per share from 75 cents per share a year ago on higher reserves for bad debt losses. The latest quarterly earnings includes $438 million in pre-tax credit related charges and $685 million related to a liabilities estimating method change. The return on equity rose to 37.3% from 34.7% from a year ago and total loan loss provisions increased 70% to $1.52 billion.

VMware ((VM)) fell 33% after reported 80% rise in sales from a year ago to $412 million and earnings of $76 million, an increase of 72% from a year ago. The stock fell sharply on the lower than estimated revenue and weaker than expected earnings guidance of investor.

[R]11:30AM New York – IMF lowered world economic growth outlook for 2008.[/R]

The International Monetary Fund lowered its global economic growth outlook to 4.1% from 4.9% in 2007 on the weakness in the U.S. economic outlook. The forecast was lowered by 0.3% from its previous outlook issued in October.

The IMF lowered its outlook for the U.S. economic growth from 2.2% growth to 1.5%.

IMF forecast may prove to be optimistic as only six months ago the IMF officials had dismissed the global implication of the sub-prime crisis in the U.S.

The Fund said that emerging economies are more “resilient” and likely to benefit from the rising domestic consumption, huge foreign exchange reserves, and growing consumer base.

China is expected to grow at 10% in 2008 from 11.4% in 2007 and Latin America is estimated to slow to 4.3% in 2008 from 5.4% in 2007.

The reports summarized, “A possibly deeper economic downturn in the United States or elsewhere could also serve to widen the crisis beyond the subprime sector, as credit deteriorates more broadly.

Already, delinquency rates in 2007 vintages of U.S. prime mortgages (those to the most credit worthy borrowers) are rising faster than in previous years, albeit from low levels, and other forms of consumer credit show signs of deterioration.

In Western Europe, signs of a future slowdown in credit growth are just now emerging and there is some potential for worsening credit quality as lending has been very robust in some countries and several countries face housing markets considered overvalued.”

The IMF also worried that the ability of the corporations in the U.S. and developed Europe to borrow more funds may be limited.

The report noted, “In both the United States and Europe, lending in some segments of the corporate sector also expanded rapidly in the first half of 2007 with the rise in leveraged buyouts.

Weaker quality corporations have already seen a substantial rise in the cost of credit and anticipated corporate default rates have risen by about five-fold. Additionally, slowing economies will be likely to exacerbate the tighter credit environment further as unemployment picks up and job growth slows.”



[R]10:00AM New York, 7:30PM Mumbai – Stocks in Mumbai trading fell after the RBI left rates and reserve ratios unchanged. RBI issued an upbeat assessment of the economy.[/R]

Market Sentiment

Stocks in Mumbai trading fell after the Reserve Bank of India left the key rate unchanged. Property, banks, and auto stocks fell.

The RBI announced its quarterly monetary policy review statement on Tuesday and kept the repo rate, reverse repo rate, bank rate and cash reserve ratio unchanged.

Market analysts had projected a 25 basis points repo rate cut by the central bank after a sharp cut in the US interest rates last week.

The late recovery on the market was not enough to lift the market from the afternoon loses. The key benchmark, Sensex fell below 18,000 during the afternoon trade.

The 30-share BSE Sensex declined 0.34% or 60.84 at 18,091.94. The S&P CNX Nifty slid 16.5% or 1,076.30.

Shares from banking, auto and real estate sector declined but software stocks advanced.

Of the BSE shares, 1,394 shares fell 1,348 that advanced and 53 shares remained unchanged. Among the Sensex shares, 17 stocks advanced while the rest slumped.

Turnover on BSE was 4,781 crore rupees while turnover on the National Stock Exchange was at 12,082 crore rupees.

Reliance group stocks were the most active shares on the BSE. Reliance Natural Resources had the highest turnover of 293 rupees followed by Essar Oil, Reliance Energy, Reliance Petroleum and Reliance Industries.

RBI Statement

The Reserve Bank of India left the bank rate and reverse repo rates unchanged at 6.0% and repo rate unchanged at 7.75%. The cash reserve ratio was left unchanged at 7.5%.

The RBI said that the recent uncertainty in the global credit markets were not ‘entirely unanticipated’.

The statement further stated that turmoil “intensity appears to be severe and the duration uncertain. It appears that a process of reordering of global economic balances is underway and hence, the process is likely to continue to be complex with significant implications for trade flows, financial flows, asset prices and balance sheets. In terms of the impact of such a process on India, our external trade is, relative to many other EMEs, well diversified.
Similarly, on a systemic basis, most parts of the balance sheets of both the public sector and the private sector are relatively less exposed to foreign currencies. However, more recently, several large corporations have expanded their foreign currency exposures which have to be managed carefully. The major source of impact is through the financial flows, in particular, in the equity markets and, consequently, on the foreign exchange market in India. The second order effects on account of financial contagion or real sector developments are somewhat indeterminate at this stage.”

The Bank added that the money supply has been growing rapidly and is above the target of 17% and 17.5% but below the estimate in the mid-term review of 24% to 25%.

The Bank also cited that headline inflation has picked up since the beginning of December 2007 and it is the banks’ policy to target the inflation close to 5% and in the medium term at 3%.

The bank assessed that the economic growth and health of the economy for the fourth quarter to be in line of its expectations.

The Bank added, “On balance, the prospects for the domestic economy over the remaining part of 2007-08 are consistent with policy expectations. First, there has been a modest deceleration in output growth in the second and third quarters. Second, aggregate supply conditions have continued to expand in all constituent sectors and the ongoing investment boom should entrench the improvement in supply elasticities, going forward.

Third, corporate profitability and business confidence continue to be sustained by the underlying macroeconomic fundamentals, positive sentiment in financial markets and resilient export demand, especially in view of the global economic and financial environment.

Fourth, inflation has so far been within tolerance thresholds at the wholesale level. Fifth, prudential and profitability indicators suggest that banks'' balance sheets have become stronger and sounder than before.

Sixth, domestic financial markets have been orderly and insulated so far from the turmoil in global markets on account of the subprime crisis though there has been unusual volatility in equity markets that is to some extent influenced by global developments. Seventh, in the external sector, the current account deficit remains well within sustainable limits, with net invisible surpluses offsetting the merchandise trade deficit to a considerable degree.”

Gainers and Losers in the Market

Of the BSE share, ICICI Bank lost 3.9% to 1,224 rupees and led the declines in the Sensex index. Hindustan Unilever surged 4.3% to 207.95 rupees and led the advancers in the Sensex index.

State Bank of India fell 3.5% to 2,226 rupees.

DLF slid 0.8% to 885.8 rupees. Larsen & Toubro shed 2% to 3,769.45.

Reliance Industries rose 0.1% to 2,565.8 rupees.

Earnings

Maruti Suzuki India 0.2% lost at 860.8 rupees. The company today posted 24.1% rise in net profit to 467.04 crore rupees on 27.2% rise in total income rose 27.2% to 4,844.8 crore rupees in third quarter of December 2007 over the third quarter of December 2006.

Software Services Stocks

Infosys Technologies gained 3.34% to 1,495 rupees, Wipro rose 1.6% to 412.5 rupees, TCS surged 0.8% to 861 rupees.

India''s revenue from back-office outsourcing is expected to increase nearly five-fold to $50 billion by 2012 despite a potential economy recession in the United States market, an industry report released said yesterday.

The report however noted that skill shortages, creaky infrastructure in smaller towns and cities and rapidly rising wages are major challenges.

According to a study conducted by IT industry group Nasscom and consulting firm Everest, the sector has increased at 35% annual growth over the last five years to hit annual revenue of about $11 billion.

The study said while the United States would continue to be the largest BPO opportunity for India up to 2012, there were significant untapped opportunities in Britain, Europe and Asia Pacific.

Boeing Joint Venture

Boeing Co has entered into an agreement with the Indian Institute of Science and software firms Wipro Technologies and HCL Technologies to develop wireless technologies and other network technologies.

The venture, Aerospace Network Research Consortium, is for a period of four years and can be extended based on """"mutual interests"""", according to a joint statement released by the firms on Tuesday.

Boeing last year signed a 10-year manufacturing deal with India''s state-run Hindustan Aeronautics Ltd worth more than $1 billion. Boeing has said it sees business worth $80 billion in India''s commercial sector and $15 billion in the defense segment in the next 10 to 15 years.

[R]7:00AM New York, 7:00PM Hong Kong – Hong stocks edged higher on the expectations of a rate cut in the U.S. China Oilfield and China Life earnings surge in 2007.[/R]

Asian stocks rallied on the back of higher closing in New York led by a rally in Tokyo and Hong Kong.

In Tokyo Nikkei 225 Index closed higher 390.95 or 2.99% to 13,478.86, in Hong Kong Hang Seng index increased 238.19 or 0.99% closed to 24,291.80, in Australia ASX 200 index lower 143.80 or 2.45% to close 5,716.50.

In South Korea Kospi Index increased 10.72 or 0.66% to close at 1,637.91, in Thailand SET index closed higher 10.51 or 1.41% to 754.87, and Indonesia JSE Index edged increased 25.79 or 1.00% to 2,607.84. Sensex index in India decreased 60.80 or 0.33% to 18,091.94.

Hong Kong stocks closed higher ahead of the U.S. rate cut expectations. Hang Seng Index increased 238.20 or 1% to 24,291.80 and China Enterprises Index added 0.5% to 13,379.18.

Properties, banks, and China related stocks advanced in Hong Kong.

Sun Hung Kai, added 4% or HK$6 to HK$159.70 and Cheung Kong Ltd increased 2.1% or HK$2.60 to HK$127.65.
According to National Development and Reform Commission in Beijing coal prices increased in December and may rise further in January on heavy snowstorms in the northern regions. Thermal coal prices in December rose 6% to as high as Rmb530 per ton according to NDRC website.

Shang Hua Holdings Ltd surged 154% or HK$1.17 after Beijing Enterprises agreed to acquire 74.78% of the company at HK$98.8 million. The stock purchase is at a 47% discount to the closing price of HK$0.76 on January 28. The computer and related parts trading will shift its business to water treatment.

Beijing Enterprises rose 2% to 55 cents or HK$32.84 after the news.

The China Oilfield Services preliminary revenue for the year ended 31 December 2007 is estimated to increase by around 40% over the previous year, while the net profit is estimated to increase by around 95% as compared with the previous year.

China Oilfield net profit in 2006 was Rmb 128 billion and earnings per share Rmb0.2823.

China Life Insurance projected 2007 earnings increase of 50% from 2006 earnings of Rmb 14.384 billion and earnings per share growth was not estimated. Earnings per share in 2006 were Rmb 0.51.



Japan Stocks

Seasonally adjusted unemployment rate in Japan fell to 3.8% after the number of unemployed fell to 2.31 million, a decline of 130,000 from a year ago.

Statistics Office in Japan reported average monthly consumption and income for the December month.

The average amount of monthly consumption expenditures per household in December 2007 was 351,667 yen, up 3.1% in nominal terms and up 2.2% in real terms from the previous year. The average amount of monthly income per household stood at 950,654 yen, down 1.8% in nominal terms and down 2.7% in real terms from the previous year. The amount of consumption expenditures was 379,388 yen, up 2.7% in nominal terms and up 1.8% in real terms from the previous year.

Mitsubishi UFJ, largest bank in Japan added 45 or 4.6% to 1,030 yen followed by similar rises in other banks. Real Estate companies advanced as well. Sumitomo Realty surged 6.1% or 145 yen to close at 2,525 yen.

As the fears of recession in the U.S. fades, shipping lines, exporters, and auto companies advanced. Toyota Motor added 3%, Nippon Yusen increased 8.1% to 825 yen, and Isuzo surged 10% or 38 yen to 433 yen.

Mitsui & Company added 7.2% or 141 yen to close at 2,950 yen as prices of commodities and metals advanced.