Global Sell-off Continues

123jump.com Staff
19 Aug, 2008
New York City

U.S. stocks fell as investors worry about the rising loss estimates at Lehman Brothers. The fourth largest broker in the U.S. is scheduled to report earnings next week. The sharply higher estimates of losses at Lehman drove another nail in the faltering financial stocks. Retailers fell after weak earnings from Saks, Home Depot and Target. Saks reported largest quarterly loss in two years. American Airlines fell more than 12%. Mexico and Brazil trade higher but global markets sell-off.

[R]3:00PM New York – Financial stocks came under heavy pressure as estimates of the coming quarter losses at Lehman were put at $4 billion. Lehman dropped 13%. Retailers fell after weak earnings from Saks, Home Depot and Target.[/R]

U.S. stocks fell as investors worry about the rising loss estimates at Lehman Brothers. The fourth largest broker in the U.S. is scheduled to report earnings next week. The sharply higher estimates of losses at Lehman drove another nail in the faltering financial stocks.

Lehman Brothers ((LEH)) dropped $1.98 or 13% to $13.03, Morgan Stanley ((MS)) lost $1.63 to $37.95, Merrill Lynch declined 94 cents to $23.83. Two government lending agencies Fannie Mae ((FNM)) and Freddie Mac ((FRE)) fell 3% and 5% respectively. UBS AG ((UBS)) dropped 5% or 81 cents to $19.25.

Retailers reported mixed earnings. Saks Inc ((SKS)) dropped as much as 11% to $9.60 after it reported a quarterly loss of $32 million or 23 cents a share. Home Depot ((HD)) dropped 91 cents to $26.05 after it reported sales and earnings decline. Target lost 22 cents to $49.83 after it reported quarterly sales increased 5.7% to $15 billion and net income declined 7.6% to $634 million or 82 cents a share.

A further indication of global economic slowdown lowered market averages in Europe and in Asia. The Bank of Japan left its key rate at 0.5% and cited further weakening in the global economy. July producer price index in Germany rose at 2% from June and surged 8.9% from the month a year ago. The index surged at the highest rate since it increased at 9.1% in 1981.

July Producer Price Index rose at 1.2% after rising at 1.8% in June, according to the Labor Department in Washington. Core index, that excludes the food and energy related items increased at 0.7% in July after rising at 0.2% rate in June.

U.S. housing starts fell dropped to the lowest level in 17 years to 965,000 annual rate in July after logging a rate of 1.084 million in June.

Financial stocks in the U.S. are likely to fall more today after negative comments on Lehman Brothers and AIG. JP Morgan analysts estimated $4 billion write down for at the brokerage firm and Goldman Sachs analyst estimated that the insurance company may need to raise large amount of capital as it may face significantly higher credit losses.

The Home Depot, the largest home improvement retailer second quarter revenue declined 5.4% from a year ago to $21 billion on comparable same store sales declined 7.9%. Earnings in the quarter declined 25% to $1.2 billion from $1.6 billion a year ago and earnings per share fell to 71 cents from 81 cents a year ago.

Staples, Inc. in the preliminary earnings for the second quarter indicated North American retail sales declined 1% and comparable sales in the U.S. and in Europe fell 7%. The results do not include the performance of the recently acquired Corporate Express business.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 300.40 or 2.28% to 12,865.05, Hang Seng index in Hong Kong decreased 446.30 or 2.13% closed to 20,484.37. ASX 200 index in Australia decreased 118.60 or 2.38% to close 4,866.40. The KL Composite index in Malaysia decreased 14.94 or 1.38% closed to 1,069.42.

The Kospi Index in South Korea decreased 26.30 or 1.68% to close at 1,541.41, SET index in Thailand closed lower 5.90 or 0.85% to 691.33 and JSE Index in Indonesia decreased 42.65 or 2.05% to 2,042.50. The Sensex index in India decreased 101.93 or 0.70% closed to 14,543.73.

Europe Markets Review

In London FTSE 100 Index closed lower 129.80 or 2.38% to 5,320.40, in Paris CAC 40 Index decreased 116.05 or 2.61% to close at 4,332.79 and in Frankfurt DAX index lower 150.45 or 2.34% to close at 6,282.43. In Zurich trading SMI decreased 116.22 or 1.61% to close at 7,115.18.