Weak Financials Drag Nikkei

123jump.com Staff
21 May, 2008
New York City

Weak financial stocks led market indexes in Japan lower. Oppenheimer & Company forecasted $170 billion of additional write-off at financial institutions by the end of 2009. The additional losses at banks in the U.S. will likely lead to another round of losses at banks in Japan. Mitsui & Company led consortium has agreed to extend loan of as much as $3.4 billion to Venezuela to expand refineries.

[R]5:00AM New York, 7:00PM Tokyo - Credit market worries haunt Tokyo trading. Oil prices advance towards $130 per barrel.[/R]

Stocks in Japan fell after the financial stocks declined. Oppenheimer & Co. yesterday cut its earnings forecasts for U.S. banks and added that financial companies will write-off $170 billion of additional assets by the end of 2009.

Market sentiment

In Tokyo trading Nikkei 225 declined 1.65% or 233.79 at 13,926.30, and the broader Topix Index fell 2.1% or 29.75 at 1,370.09. In the first section of the Tokyo Stock Exchange 11 billion shares worth 1.2 trillion yen were traded and in the second section 239 billion shares valued at 5.9 billion yen changed hands.

Of the Nikkei 225 stocks 36 gained, 185 fell and 4 were unchanged. Kubota Corp. led advancers in the index shares with a gain of 4.71% followed by GS Yuasa rising 3.89%.

Crude oil reaches $130 per barrel

Crude oil prices rose by $2.38 to $129.31 a barrel on continued disturbances in Nigeria and a strike by French workers at oil port Fos-Lavera. ICE July Brent also increased $2.40 to $127.49 a barrel.

Crude oil futures reached $130 a barrel as several brokerage firms recommendations of higher oil prices, comments from prominent investors and expectations of weak dollar put additional pressure on the oil prices. The futures of oil for the delivery in 2016 surged $9 or 4% to $139.90 and futures of 2012 added over $2. Goldman Sachs, Societe Generale and Credit Suisse are just few of the brokerage firms who have raised their price targets.

Geopolitical concerns are weighing on crude oil delivery and prices as well. Global demand from the current level of near 83 million barrels a day is expected to rise to 85 million barrels a day and most energy traders do not see new supply of crude oil on the horizon.

The U.S. led occupation of Iraq has added between 30% and 40% premium to the crude oil prices and at least for now economic growth in China and India has sustained the demand for oil. However the leading world energy and crude oil user is the U.S., and demand there remains robust and still rising. The largest economy in the world has seen its manufacturing base shrink to nearly 16% of its GDP from 25% in the last twenty years but the crude oil consumption and import has steadily risen during the time.

Japanese companies extend loans for oil in Venezuela

Reuters news reported today that Venezuela Energy Minister Rafael Ramirez reported Tuesday that the country has negotiated loans with Mitsui & Co. and Marubeni Corp that will be used in the expansion of two refineries in return for future oil production.

The country’ state oil company PDVSA has been able to access a $3.4 billion loan from Mitsui & Co. and Marubeni Corp that will be used to expand the El Palito and Puerto La Cruz refineries and enhance their capacity to process heavy crude.

Sumitomo Corp., Itochu Corp. and the Japan Bank for International Cooperation will also participate in the the deal.

Gainers & Losers

Kubota Corp. led advancers in the Nikkei 225 index shares with a rise of 4.71% followed by rises in GS Yuasa Corp. of 3.89%, in Tosoh Corp of 2%, in Showa Shell of 1.82%, and Kumagai Gumi Co. of 1.8%.

T&D Holdings Inc led decliners in the Nikkei 225 index shares with a drop of 5.47% followed by losses of Mitsui Fudosan of 5.26%, in Shimizu Corp. of 5.24%, in Mizuho Financial Group of 4.99%, and Resona Holdings of 4.84%.

T&D Holdings fell after HBSC downgraded the insurer to “underweight”, on concerns that the valuation of the company, which is 43 times its reported earnings, is “unjustified”.

Mizuho Financial Group and other financial stocks fell after Oppenheimer & Co slashed its earnings forecasts for U.S. banks and added that there will be a write off of $170 billion of additional reserves at the end of 2009.

Mitsubishi UFJ Financial Group reported yesterday that consolidated net income in the year ended March 31 fell by 244.3 billion yen from 2006 to 636.6 billion yen as the effect of sub-prime related and SIV investments on the profit and loss was a loss of 81billion yen.

The lender forecasted that profit in this year will be relatively unchanged at 640 billion yen. Mitsubishi UFJ Financial Group fell 4.45% on the news.

Honda plans to sell 50,000 gasoline-electric vehicles

Honda President Takeo Fukui said at a press conference in Tokyo today that Honda plans to sell 500,000 gasoline-electric vehicles from 55,400 last year. Plans are also underway to sell new five-seat hybrid hatchback in the beginning of 2009 in North America, Japan and Europe. A new hybrid version of the Fit compact car will also be added by 2015.