Lehman Plunges 8%, Leads Financial Decliners

123jump.com Staff
02 Jun, 2008
New York City

S&P downgrade on banks and financial brokers turned market sentiment negative. The rating agency estimated that earnings at Morgan Stanley, Lehman Brothers, and Merrill Lynch are likely to be lower as more losses are expected. S&P also revised its outlook to negative on Bank of America and JP Morgan. Separately, Wachovia ousted its chief executive and Washington Mutual apponted new chairman to the board. European stocks closed sharply lower on the worries related to banks.

10:00PM Frankfurt, 4:00PM New York, 8:00AM Sydney[R]– Weak financial stocks dragged broader market averages lower. Wachovia fired its chief executive officer and WaMu asked its CEO to step down from chairman’s position. Honk Kong money supply increases and India’s trade deficit surges to a record level in April.[/R]

Global Markets Update

U.S. stocks fell on a weakness in financial stocks and continued worries regarding the health of large banks. Wachovia Bank one of the largest banks removed its chief executive officer Ken Thompson and appointed its chairman Lanty Smith as interim chief executive. The move comes after a serious of write downs at the bank and a recent ill timed purchase of the sub-prime lender Golden West. Separately, WaMu replaced its CEO from the chairman of the board position. Morgan Stanley, Lehman Brothers, Merrill Lynch and Citigroup fell after S&P issued a cautionary note on the method financing operations and the recent use of hybrid securities to raise capital.

In the UK trading, Bradford & Bingley plunges 21% after it agreed to sell 23% of the company to a private equity firm TPG. The deal to take a stake in the lender was agreed at 33% discount to the Friday closing price. Home mortgages issued in April fell to 58,000 in April from 63,000 in March according to the data released by the Bank of England.

In Tokyo a gain in financial and commodities stocks lifted market indexes. The government reported wages in April rose 0.6% from a revised rise of 1.5% in March to 281,246 yen. The number of hours worked per person in the month was unchanged at 154.5 and number of full time employees increased 1.7% to 44.8 million.

Seasonally adjusted Hong Kong dollar M1 money supply decreased by 0.1% in April but rose by 14.6% year on year. Unadjusted Hong Kong dollar M3 expanded by 0.1% during the month and grew 10.5% from a year earlier. HKMA reported rise in surplus at the end of April by HK$1.8 billion to HK$494.8 billion.

Stocks in Mumbai fell as the government debated a fuel price increase. The ruling party coalition discussed various diverging proposals with no decision. Prime Minister Singh said that the fuel price rise is inevitable. Separately, April trade deficit rose to a record high of 9% as oil price increased import bill. Exports in the month rose 31% but imports surged 36%. Auto sales in May rose as consumers bought more motor cycles and small cars.

Arrow Energy an Australian coal seam to gas company Arrow Energy surged 14% after a subsidiary of Royal Dutch Shell PLC signed an agreement to take a 30% stake for $776 million. The investment from a large oil company is an indication of a rising interests from global energy companies as more power producers in the U.S. and Europe switch to cleaner burning fuel. The demand for LNG is expected to double in the next seven years. Arrow Energy rose 14% after the deal. Sundance Resources led the gainers in the ASX 200 index with a rise of 25%. Arrow has 80,000 square kilometers of exploration in the Queensland State, rich in the coal to methane possibilities. The recent bid of $13 billion by the UK based BG Group for Origin Energy has lifted stocks in the sector between 25% and 35%.

European Markets indexes

In London FTSE 100 Index closed lower 45.90 or 0.76% to 6,007.60, in Paris CAC 40 Index decreased 79.07 or 1.58% to close at 4,935.21 and in Frankfurt DAX index closed lower 88.02 or 1.24% to close at 7,008.77. In Zurich trading SMI increased 44.41 or 0.59% to close at 7,555.70.

North American Markets indexes

Dow Jones Industrial Average fell 134.50 or 1.06% to a close of 12,503.82, S&P 500 closed down 14.70 or 1.05% to 1,385.68, and Nasdaq Composite Index decreased 31.13 or 1.23% to close at 2,491.53. In Toronto TSX Composite closed up 93.17 or 0.63% to 14,807.90.

Of the 30 stocks in Dow Jones Industrial Average, 2 closed higher, 28 closed lower, and none was unchanged.

American Express led the decliners in the Dow Jones Index with a loss of 2.4% to $45.25 followed by losses in Boeing of 2.3% to $80.85, in Microsoft of 2.3% to $27.67 and in Merck of 2.2% to $38.10. General Motors and Chevron were only two gainers in the Dow Jones Index with a rise of 2.5% and 0.15% respectively.

Of the stocks in S&P 500 index, 72 stocks increased, 424 declined, and 4 were unchanged. Of the stocks in the index, 37 stocks fell more than 3% and 6 gained more than 3%.

Lehman Brothers led the decliners in the S&P 500 index with a loss of 8% to $33.84 followed by losses in Discover Financial of 5% to $16.3, in Unisys Corp of 4.7% to $4.82, in Novell Inc of 4.7% to $6.75 and in Wyndham Worldwide of 4.6% to $20.86.

Tesoro led the gainers in the S&P 500 index with a rise of 11% to $27.57 followed by gains in Jabil Circuit of 8% to 13.75, in Sunoco Energy of 5.9% to $47.12 and in Consol Energy of 5.4% to $102.8.

South American Markets Indexes

Colombia led the gainers in the Latin American markets with a rise of 0.91% followed by increases in Peru of 0.75%, in Venezuela of 0.33% and in Chile of 0.04%. Mexico led the decliners in the region with a loss of 1.06% followed by losses in Brazil of 0.96% and in Argentina of 0.36%.

Asian markets

In Tokyo Nikkei 225 Index closed higher 101.60 or 0.71% to 14,440.14, in Hong Kong Hang Seng index increased 298.24 or 1.22% closed to 24,831.36. In Australia ASX 200 index higher 7.60 or 0.13% to close 5,662.30. In Malaysia KL Composite index decreased 13.61 or 1.07% closed to 1,262.49.

In South Korea Kospi Index decreased 4.49 or 0.24% to close at 1,847.53, in Thailand SET index closed lower 23.43 or 2.81% to 810.22 and Indonesia JSE Index edged decreased 16.58 or 0.68% to 2,427.77. Sensex index in India decreased 352.39 or 2.15% to 16,063.18.

Commodities, Metals, and Currencies

Crude oil increased $0.26 to close at $127.61 a barrel for a front month contract, natural gas increased 31 cents to $12.01 per mBtu, and gasoline futures increased 4.18 cents to close at 339.00 cents per gallon.

Gold increased $5.50 in New York trading to close at $897.00 per ounce, silver closed up 4.5 cents to $16.91 per ounce, and copper for front month delivery decreased 0.95 cents to $3.59 per pound.

Wheat futures increased 21 cent in Chicago trading and closed at $7.82 per bushel. Sugar increased 29 cent to $10.31 per pound. Soybean future closed up 2.00 cents to $13.65 a bushel.

Dollar edged higher and traded near record low against euro to $1.5534 and rose against yen to 104.56.

Yields on U.S. bonds decreased to 3.96% with 10 years of maturities and decreased to 4.68% with 30-year of maturities.