U.S. Stocks Struggle, Rate Decision Ahead

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

U.S. stocks edged lower ahead of Fed rate decision in the afternoon and more sub-prime losses. UBS reported $14 billion write-down realted to loan losses, $4 billion higher than estimated, turning profit for the year into a loss. BNP reported smaller, but not previously announced loss. UPS reported a loss on one-time contribution to a pension plan and Yahoo fell 10% on the continued weakness in the search related business.

[R]9:45AM New York – U.S. stocks opened weak ahead of rate decision, weak earnings from Yahoo and UPS, and larger than expected sub-prime loss at UBS and BNP.[/R]

U.S. stocks opened lower ahead of the rate decision from the Fed. European markets fell after the renewed worries related to subprime losses and Asian markets closed lower with a loss of 1% in Japan.

UPS reported lower earnings due to one-time contribution to pension plan and overnight Yahoo reported lower than expected earnings. Yahoo fell 10% after its chief executive said that company faced ‘headwinds’ in the near future. Yahoo also plans to lay-off 1,000 people to cut costs.

UBS in Switzerland reported fourth quarter write-down of $14 billion, $4 billion higher than the previous estimate, related to sub-prime lending in the U.S.

UBS reported fourth-quarter loss of Sfr12.5 billion and for the year a loss of Sfr4.4 billion compared to a profit for the full year in Sfr11.25 billion.

UPS ((UPS)) today reported adjusted diluted earnings per share of $1.13 for its fourth quarter, an 8.7% increase over last year. Revenue improved 6.1% driven by a double-digit increase in international export volume.

During the quarter, the company announced the ratification of a new five-year agreement with the International Brotherhood of Teamsters, eight months before expiration of the existing contract. As a result, $6.1 billion was paid to withdraw approximately 45,000 UPS employees from the Central States multi-employer pension plan and expensed to the U.S. Package segment in the quarter.

Including the impact of that charge, diluted earnings per share fell to a loss of $2.46 for the three-month period.

Average daily package volume rose by 359,000 to 17.7 million pieces.

For the full year, the company delivered a record 3.97 billion packages, an average of 15.8 million per day. Consolidated revenue climbed 4.5% to $49.7 billion. Adjusted diluted earnings per share were $4.17, an increase of 8% compared to 2006 and at the midpoint of UPS’s earnings guidance for 2007. Before adjustments, operating profit equaled $578 million and diluted earnings per share totaled $0.42.

Operating margins in the quarter, excluding one-time adjustment for the pension contribution fell to 13.8% from 14.3%.

Yahoo fell in the early morning trading after weak financial revenue and earnings projection. Yahoo continues to face challenges from Google and from decline in revenues in the international markets.

Yahoo ((YHOO)) Revenues were $1,832 million for the fourth quarter of 2007, an 8% increase compared to $1,702 million for the same period of 2006. Revenues excluding traffic acquisition costs were $1,403 million for the fourth quarter of 2007, a 14% increase compared to $1,228 million for the same period of 2006.

Net income for the fourth quarter of 2007 was $206 million or $0.15 per diluted share compared to $269 million or $0.19 per diluted share for the same period of 2006.

Gross profit for the fourth quarter of 2007 was $1,130 million, a 12% increase compared to $1,012 million for the same period of 2006. Operating income for the fourth quarter of 2007 was $191 million, a 38% decrease compared to $308 million for the same period of 2006.

Operating income before depreciation, amortization, and stock-based compensation expense for the fourth quarter of 2007 was $527 million, a 2% decrease compared to $540 million for the same period of 2006.

United States segment revenues for the fourth quarter of 2007 were $1,313 million, a 15 percent increase compared to $1,145 million for the same period of 2006. International segment revenues for the fourth quarter of 2007 were $519 million, a 7 percent decrease compared to $558 million for the same period of 2006.

For the full year revenues were $6,969 million for 2007, an 8% increase compared to $6,426 million for 2006. Marketing services revenues were $6,088 million for 2007, an 8% increase compared to $5,627 million for 2006.

Net income for 2007 was $660 million or $0.47 per diluted share compared to $751 million or $0.52 per diluted share for 2006.


[R]6:00AM New York, 6:00PM Hong Kong - China’s domestic consumption contributed the most to the economic growth in 2007. CNOOC sets aside $5.24 billion capital expenditure.[/R]

Stocks fell in Hong Kong on profit taking ahead of the U.S. Federal Reserve decision on interest rates today and as chairman of Henderson Land Development Lee Shau-kee lowered his forecast for the rise in Hang Seng by 22%. Chairman Lee’s comments are widely followed by investors.

In Hong Kong trading Hang Seng Index dropped 2.6% or 638.11 at 23,653.69, while the China Enterprises index of H shares declined 4.7% or 623.77 to 12,755.41.

Daily turnover on main-board was HK$105.1 billion compared to HK$92.6 billion yesterday.

Xinhua News Agency reported today that National Bureau of Statistics spokesman Li Xiaochao announced in Beijing that consumer spending replaced investment as the largest contributor to the economic growth in 2007. Of the 11.4% annual rise in GDP, consumer spending contributed 4.4%, investments weighed in with 4.3% and net exports contributed 2.7%.

Consumer spending rose 16.8% to Rmb8.9 trillion in 2007.

Xiaochao said, “Our policy is to push up domestic consumption by raising the income of citizens, especially that of the low income group. And the figure shows the policy is beginning to yield results.”

The Standard online news reported today that Chairman of Henderson Development, who is considered as the “Godfather of Stocks”, has lowered his forecast for the rise in Hang Seng Index between 27,000 points to 30,000 by March and slow in the second quarter.

Insurance companies fell after Bear Stearns cut earnings forecast for insurance on volatile stocks in China. China Life declined 7.4% to HK$29 after the brokerage cut its rating to “underperform”, citing that returns on investment will slow to 7.7% this year from 11% in 2007.

Bear Stearns also said Ping An Insurance Company investment income will fall 20% from the previous estimate to Rmb41.9 billion.

Hong Kong Exchanges and Clearing slipped 6.4% to HK$166.5.

Steelmakers also plunged as the snowstorms have cut deliveries of fuel and coal. Angang fell 5.9% to HK$13.98 and Maanshan Iron & Steel Company tumbled 3.7% to HK$4.20.

CNOOC Limited declined 0.7% after reporting yesterday that the company is planning to spend $5.25 billion on capital expenditure projection. About $1 billion will be used for exploration and $4.1 billion will be earmarked for ten development projects.

Chief Financial Officer Yang Hua said the company will raise it production target between 195 and 199 million barrels of oil and gas equivalent this year, and added that the falling U.S. dollar and global inflation will impose challenge for the business.

Separately, China Petroleum & China Corporation said yesterday it will spend Rmb16 billion to expand plants in central China and double daily refining capacity at Changling refinery to 200,000 barrels by 2010.

ZTE Corporation rose 4% to HK$41.60 after Lehman Brothers Holdings raised its rating on the stock from “underweight” to “overweight”.

Hong Kong Electric gained 1% to HK$44.15. CLP Holdings 1.8% to HK$61.75 and China Oilfield Services Limited increased 6.3% to HK$13.


[R]5:00AM New York, 7:00PM Tokyo – Japan forecasted manufacturing to fall 0.4% in January and 2.2% in February. Sumitomo Mitsui estimated 99 billion in subprime related losses. [/R]

Stocks in Japan reversed earlier gains in the morning session to close down after a government report showed December industrial production rose below market expectations.

In Tokyo trading Nikkei 225 fell from a 0.3% gain in the morning session to close down 0.99% or 133.83 to 13,345.03 while the broader Topix Index reversed a 0.8% gain to drop 0.7%to 1,320.11.

Of the Nikkei 225 stocks 61 gained, 151 declined, and 13 were unchanged.

In the first section of the Tokyo Stock Exchange 10.9 billion shares worth 1.2 trillion yen were traded and in the second section 1.1 billion shares worth 7.6 billion yen changed hands.

The Ministry of Economy Trade and Industry reported today in its indices of industrial production preliminary report for December that industrial production rose for the first time in two months to 1.4% in December from November and gained 0.7% from the previous year to a seasonally adjusted 111.9.

Economists had forecasted that production index rise of 2%.

Industries that contributed to a rise in production included electronic parts and devices, general machinery and plastic products. Production of large passenger cars, flat panel display equipment and lithium ion storage batteries also significantly impacted on the increase.

METI also reported that shipments increased in December for the first time in two months by 1.6% from the previous month and 3.12% from a year ago to a seasonally adjusted figure of 116.9 buoyed by transport equipment, general machinery and iron and steel in that order.

Inventories however declined 0.5% from a month earlier for the first time in five months and 0.7% from the previous year dragged down by transport equipment, information and communication electronics equipment and chemicals.

According to the survey of production forecast, manufacturing expected to fall 0.4% in January weighed down by transport equipment, fabricated metals and chemicals respectively.

In addition production is expected to drop in February by 2.2% due to falls in electronic parts and devices, electrical machinery and general machinery.

The IMF forecasted yesterday in the World Economic Outlook Update report that global growth is expected to decelerate to 4.1% this year from 4.9% in 2007, a 0.3% decline from the October forecast.

The U.S. economic growth projection was revised downwards from 2.2% in 2007 to 1.5% in 2008, while China is expected to slow from 11.4% in 2008 to 10% and Europe to 1.6%. Latin America will grow at a slow pace at 4.3% in 2008 from 5.4% in 2007.

Of the Nikkei 225 index shares Electrical Industries led advancers with a rise of 8.55% followed by gains in Chiyoda Corporation of 6.83%, in Hino Motors Limited of 6.46%, in Mitsui OSK Lines of 5.93%, and of Advantest Corporation of 5.63%.

Shipping lines rose as well. Kawasaki Kisen jumped 2.47% and Mitsui Engineering and Shipbuilding climbed 3.60%.

Consumer credit companies gained after Promise Company reported yesterday that third quarter net income rose to 13 billion yen from a 9.4 billion yen loss recorded a year ago in the same period. Credit Saison rose 2.64% and Mitsubishi UFJ Nicos soared 4.03%.

Sumco Corporation led declining Nikkei 225index shares with a drop of 7.82% followed by losses in Nisshin Seifun of 5.21%,in Hokuetsu Paper of 5.10%, in Toto Limited of 4.99%,and in Shin-Etsu Chemical of 4.79%.

Domestic related shares fell after METI reported that industrial production will decline in January and February.

Citigroup and Nikko Cordial announced in joint statement yesterday that Citigroup has completed the acquisition of Nikko through a share swap deal worth $4.8 billion at a rate of 0.602 Citigroup stock for each of the Japanese brokerage share. Also Douglas Peterson was announced as the new Chief Executive Officer and President.

The Nikkei news online reported today that Mizuho Securities Company will likely book a loss that is twice its November projections at 250 billion yen.

Sumitomo Mitsui Financial Group reported yesterday that the company’s profit fell from 319.4 billion yen in the nine months to December from 396.05 billion yen the same time a year earlier. The company recorded a 99 billion loss in subprime related investments.

However it maintained its forecast for the fiscal year profit ending March 2008 at 570 billion yen. The stock closed up 2.66%.

Daihatsu Motors, which is 51% owned by Toyota, reported in a trading update that the company’s net income rose 42% to 7.9 billion yen in the quarter ended December 31 from 5.58 billion a year ago and raised its full year profit forecast 3.7% to 1.7 trillion yen.