NEW YORK – Wall Street ended a tumultuous two-week run relatively quietly Friday, finishing another back-and-forth session mixed as investors were cheered by signs of easing in the credit markets and managed to absorb lackluster economic news with equanimity. But while there was less volatility than during recent sessions, analysts warned that the market still faces rough times.
The expiration of options contracts helped tug stocks in different directions. Still, the Dow Jones industrial average traded within a narrower range than it had in much of the past two weeks and ended down 127. The market's big rallies on Monday and Thursday gave all the major indexes gains of well over 3 percent for the week — but that was just a partial recovery from the devastating double-digit drops of the previous week.
"The stock market has finally realized one thing — that the governments around the world have thrown in a lot of money and they're using all the tools that they possibly can" to restore order to the credit markets, said Peter Cardillo, chief market economist at Avalon Partners Inc., a New York brokerage house. "I'm sure we'll still have a strong bear grip to the market but I do believe the market was way oversold. I do believe we've made a bottom."
In recoveries from past market plunges, trading has remained volatile even after the major indexes reached their lows, so it is widely expected that Wall Street will ratchet higher and lower for some time. And, it is not yet clear that the market has actually touched bottom.
"I think were going to be groping along for the bottom for the next few weeks," said Phil Orlando, chief equity market strategist at Federated Investors.
Cardillo said economic data are likely to remain bleak but that market has already taken into account much of the economy's problems. Some of this week's heavy selling came in response to disappointing economic reports.
"Everything is ugly. It's going to stay this way for a while," Cardillo said.
The market spent the first half of Friday's session moving between gains and losses after the government said new home construction dropped by more than expected last month to the lowest pace since early 1991. Investors' mood seemed to pick up later in the session as lending rates for bank-to-bank loans edged lower, indicating that some bank fears about not being repaid by borrowers are easing. Demand for safe-haven investments like Treasury bills also decreased. The final hour of trading again proved pivotal as in much of October; stocks fluctuated as investors squared away positions for the week.
Given the magnitude of most of the market's moves in October, the indexes' moderate declines Friday seemed barely noteworthy. And advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 6.48 billion shares, down from 7.86 billion Thursday.
The revival of dormant credit markets — which follows a series of moves by governments around the world — appeared to draw most of investors' attention. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.41 percent from 4.50 percent on Thursday, the fifth consecutive day of declines.
Demand remains high for Treasury bills, regarded as the safest assets around, an indication that there is uncertainty lingering in the markets. The three-month Treasury bill Friday yielded 0.82 percent, up from 0.47 percent on Thursday. That indicates a let-up in demand, though the yield has not surpassed 1 percent in more than a week.
The yield on the benchmark 10-year Treasury note fell to 3.93 percent from 3.97 percent late Thursday.
The credit markets began to seize up in mid-September, after the bankruptcy filing of Lehman Brothers Holdings Inc. raised fears among banks that other financial institutions would also be unable to repay their debts. That in turn brought the lending industry to a near-standstill, threatening the economy that depends on a free flow of cash and liquidity.
"I think we're beginning to get a slightly better feeling in the credit market," said Cardillo, pointing to the move in Libor.
It was an erratic week on Wall Street, with the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, and then rallying 401 Thursday. The volatility is not providing investors with much relief, but it is a welcome change from last week's relentless plunge, during which the Dow logged its worst week ever and Wall Street lost about $2.4 trillion in shareholder wealth.
The Dow fell 127.04, or 1.41 percent, Friday to 8,852.22, after falling 261 points in the early going and rising 302 points — a 563-point range.
Broader stock indicators showed more modest declines. The Standard & Poor's 500 index fell 5.88, or 0.62 percent, to 940.55, while the Nasdaq composite index fell 6.42, or 0.37 percent, to 1,711.29.
For the week, the Dow rose 4.75 percent, the S&P 500 added 4.6 percent, while the Nasdaq rose 3.75 percent. But the gains follow the previous week's huge losses, when the Dow dropped 18.2 percent, the S&P 500 fell 15.3 percent and the Nasdaq lost 15.3 percent.
The dollar was mixed against other major currencies, while gold prices fell.
David Dietze, president at Point View Financial Services Inc. in Summit, N.J., contends that much of the market's whipsaw moves in the past month have come as hedge funds and mutual funds were forced to sell positions because some shareholders were cashing out.
"These hedge funds are getting hit by redemptions, their credit lines are being pulled and they are having to sell furiously," he said. "Selling begets selling, which begets selling, which begets more selling."
While Dietze sees risks for the economy, he questions whether the rapidity of the stock market's retreat signals the pullback was overdone.
"We have a credit crunch which is morphing into a general recession and certainly a lot of the economic data points down but still, to come in this week and see the markets down 20 percent — basically a bear market within a bear market just this month — you wonder if there isn't just this massive overreaction," he said.
A rise in oil prices helped energy companies, some of which had weighed on the market earlier in the week as oil showed steep declines. Light, sweet crude rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange. On Thursday, it sank to a 14-month low on worries about a deep global recession obliterating fuel demand.
Chesapeake Energy Corp. rose $2.12, or 11.6 percent, to $20.47, while XTO Energy Inc. rose $2.08, or 7 percent, to $31.68.
Late Thursday, Google Inc. posted a 26 percent increase in third-quarter profit. Google rose $19.52, or 5.5 percent, to $372.54; early Thursday, the Internet company's stock had fallen to a three-year low.
Economic readings that appeared to trouble the market early in the session seemed to lose their importance as investors looked to improvement in the credit markets.
The Commerce Department reported that housing starts fell more than 6 percent in September to an annual rate of 817,000 units. The figure is lower than the 880,000 units forecast by Wall Street economists surveyed by Thomson/IFR. Building permits also sank.
The report was yet another piece of evidence that the nation is struggling with a weak economy that, if the financial crisis is not solved, could weaken. President Bush on Friday said in a speech that the credit market — where many companies find funding for their operations — will take a while to thaw, but that Americans should be confident that it will.
The Russell 2000 index of smaller companies fell 10.14, or 1.89 percent, to 526.43.
Markets overseas were mostly higher Friday. In Asia, Hong Kong's Hang Seng index dropped 4.44 percent to its lowest level in almost three years, but Japan's Nikkei average rose 2.78 percent after a 11.4 percent loss Thursday. In Europe, Britain's FTSE index rose 5.22 percent, Germany's DAX index rose 3.43 percent, and France's CAC-40 rose 4.68 percent.
The Dow Jones industrial average ended the week up 401.03, or 4.75 percent, at 8,852.22. The Standard & Poor's 500 index finished up 41.33, or 4.60 percent, at 940.55. The Nasdaq composite index ended the week up 61.78, or 3.75 percent, at 1,711.29.
The Russell 2000 index finished the week up 3.95, or 0.76 percent, at 526.43.
The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended at 9,514.37, up 393.59 points, or 4.32 percent, for the week. A year ago, the index was at 15,577.43.
Saturday, October 18, 2008
Stocks end back-and-forth session mixed
Fed: Economy sinks deeper into rut
The Fed's new snapshot of business conditions around the nation showed economic activity weakened across all of the Fed's 12 regional districts. Consumer spending — which accounts for more than two-thirds of economic activity — slumped in most Fed regions. Manufacturing also slowed in most areas.
Some businesses had become more pessimistic about the economic outlook, the Fed said.
The survey was released shortly after Fed Chairman Ben Bernanke, in a speech in New York, warned that it would take time for the country's economic health to mend even if badly needed confidence in the U.S. financial system returns and roiled markets stabilize.
In an unprecedented action last week, the Fed and other major central banks sliced interest rates to prevent the financial crisis from plunging the U.S. — and the global economy — into a long and painful recession.
Many economists believe the Fed might lower its key rate — now at 1.50 percent — again later this month at its regularly scheduled meeting.
Consumers are pulling back, raising the odds the economy will contract later this year and early next year. Some think the economy may have jolted into reverse in the recently ended third quarter. One classic definition of a recession is two straight quarters of contracting economic activity.
Shoppers are becoming more price conscious and credit is even harder to come by, factors sapping sales at the nation's retailers, the report said. Given this, retailers foresee a "weaker economic outlook, including a slow holiday season," the Fed said.
Vanishing jobs, shrinking paychecks, dwindling nest eggs and falling home values all are making consumers more cautious and less inclined to spend, slowing the overall economy. Retail sales, auto sales and tourism all turned weaker, the Fed said.
The Fed report is based on information supplied by the Fed's 12 regional banks. The information was collected before Oct. 6, which began one of the worst weeks in Wall Street's history. Read more!
Industrial production falls by most since late `74
WASHINGTON – Big industry production plunged in September by the most since late 1974, largely reflecting fallout from hurricanes Gustav and Ike.
The Federal Reserve reported Thursday that production at the nation's factories, mines and utilities plunged 2.8 percent last month, on top of a 1 percent drop in August.
The Fed estimated that disruptions related to the hurricanes accounted for about 2.25 percentage points of the total drop in industrial production in September. In addition, a strike affecting the commercial aircraft industry also was a factor in the poor showing, accounting for around a half percentage point of the overall decline, the Fed said.
The drop in industrial production in September was the biggest since December 1974, when output fell 3.5 percent.
The latest showing on industrial activity was worse than economists expected. They were forecasting a decline of 0.8 percent.
Crude oil and natural gas production in the Gulf of Mexico were suspended because of the hurriances, contributing to the hit to overall industrial output, the Fed said. Hurricane related shutdown of petroleum refineries and petrochemical producers also factored into the drop. Other manufacturing industries reported outages from the storms, which also held back production last month.
Still, even before the hurriances hit, manufacturing has been feeling the pain of the housing collapse, credit problems and weaker demand from the slowing U.S. economy. Demand for housing related goods and construction materials has been particularly hard hit as the housing slump has dragged on.
Slowdowns in other overseas economies, meanwhile, are expected to sap demand for U.S. exports, which has been a key factor keeping the U.S. economy afloat.
Thursday, September 18, 2008
What should investors do now? - Suggestions
As the investment ground breaks into a financial earthquake around us, the one question retail investors are asking is: what should I do now? Should I sell and run or is this an opportunity to buy? The short answer: long term investors need not panic, short term investors need not buy. With a bankruptcy (Lehman Brothers), a takeover (Merrill Lynch) and an unfolding (AIG) at the global level sending stocks across the world crashing, could it be different for India? "There is no uncertainty regarding Lehman and Merrill Lynch now," said Sudip Bandyopadhyay, chief executive officer, Reliance Money.
"But if uncertainty around AIG is not resolved then there might be more problems in the short term." Rajiv Anand, chief investment officer, IDFC Mutual Fund echoes this short term sentiment.
"Markets are going to be difficult for sometime as we see large entities in America unfolding, which in-turn will induce investors to get more risk averse." With this sort of 800-plus point intra-day volatility becoming a once-a-month phenomenon, the short term risk around equities has multiplied.
And so have opportunities for those willing and able to hold on to investments for two years or more. "There are a number of blue chip companies that are currently available at their book values or break up value and thus it calls for a good entry for the long term," said Bandyopadhyay.
At a market valuation level, the Sensex is currently trading at a price to earnings multiple of 16.8 and a whole lot of stocks are available at low valuations. This is close to its June 2006 level.
The strategy for investors should be to enter with caution and focus on blue chip stocks with large market capitalisations. "Investors should look to enter quality stocks in a disciplined manner with an investment horizon of at least two to three years," said Anand.
"With that horizon, one can expect good returns." Investors might get tempted to enter smaller stocks.
"But at a time when big blue chip companies are available at attractive valuation there is no point picking up mid caps," said Hitesh Agarwal, head of research, Angel Broking.
Monday, September 15, 2008
Rupee Hits 2-year Lows as Stocks Fall Weighs
MUMBAI: The rupee fell past 46 per dollar for the first time in two years on Monday, knocked down by losses in stocks on worries about global financial sector problems and heavy dollar demand from importers. Dealers said the central bank was seen intervening in the market, selling dollars through state-run banks to halt the rupee's sharp fall, but it did not provide much respite as the quantum of intervention was not too large.
The partially convertible rupee ended at 46.05/06 per dollar, off a low of 46.08, its weakest since Sept. 20, 2006. It was 0.65 percent weaker than Friday's close of 45.75/76. "The rupee fell tracking the share market. But there is a general bearishness among market participants as there are no dollar inflows at the moment and they cannot see, when and how that will improve," a senior dealer with a private bank said. One-month offshore non-deliverable forward contracts were quoting at 46.32/42, 0.6 percent weaker than the onshore spot rate, indicating a bearish near-term outlook.
Indian shares fell 3.35 percent on Monday to their lowest close in two months as jittery investors braced for more foreign withdrawals after Lehman Brothers filed for bankruptcy protection.
Foreign funds have sold a net $8.2 billion of shares this year, removing a crucial support for the rupee, which has fallen 14.4 percent against the dollar this year. Last year record net foreign inflows of $17.4 billion into stocks had helped the rupee rise more than 12 percent.
Analysts expect the rupee to remain under pressure as capital inflows have reduced substantially, and higher dollar demand from oil companies and importers is also weighing. Oil, India's biggest import fell to seven-month lows below $95 per barrel on Monday, more than $50 below July's record high. Lower oil prices are attracting refiners, who are seeking dollars to pay for their shipments, dealers said.
Gold Seen Higher as Financial Turmoil Rages
MUMBAI: Gold prices are likely to rise this week as nervousness in the US financial markets after Lehman Brothers' filing for bankruptcy is likely to spark more safe-haven buying in the yellow metal, analysts said.
Analysts said the commodity, which last week touched a 11-month low, may remain firm despite softer crude oil as the magnitude of the economic worries outweighed oil.
"Bargain hunting, financial market turmoil and the dollar's weakness will support gold," said T Gnanasekar, director of Commtrendz Research. "There are clear indications that the crisis is here to stay for long."
Gold generally moves in tandem with crude oil as the latter signals inflation, while the metal negates it. But the metal has an inverse relation with the dollar as the two compete for funds.
The dollar was down 2.6 per cent against the yen - the biggest one day percentage fall since early 2002. The US Federal Open Market Committee's statement in its interest rate setting meeting on Tuesday would be watched for gold's next direction though a cut is not expected, analysts said.
"Fed's decision and the statements thereafter would be the key to the immediate trend in bullion," said Pradeep Unni, senior research analyst at Richcomm Global Services DMCC.
India to import 300 tonnes silver in Sept
NEW DELHI: India will import around 300 tonnes of silver in September by ocean freight to meet heavy demand after a drop in prices, after buying just 56 tonnes in the seven months to July-end, a trade body said on Monday.
"By the month-end we are getting some 15 containers of silver, which is equal to 300 tonnes. After that, demand will probably slow down a bit," Suresh Hundia, president of the Bombay Bullion Association, said.
Silver demand has surged on lower prices and as Indians prepare to mark a series of religious festivals.
International silver prices were at $10.93 an ounce on Monday, down from about $19.45 on July 13, due to a fall in crude prices and dollar volatility.
Multi-Purpose Pipeline Project
DUBAI: India has expressed keen interest in the over USD 11 billion Med Stream project, a multi-purpose offshore pipeline venture which can transport crude oil at cheaper rates to the country from Turkey.
Officials from India, Turkey and Israel met for the first time on Saturday in the Turkish capital Ankara discussing technical issues of the Med Stream pipeline project.
Indian state oil company IOC's Director B M Bansal, Undersecretary of Turkish Energy Ministry Selahattin Cimen and Director General of the Israeli Ministry of National Infrastructure Hezi Kugler had attended the meeting, Kuwait's news agency KUNA reported.
The project to connect Turkey and Israel via the Mediterranean Sea is planned to transport oil, natural gas, water, electricity and fiber optic cables.
Kugler, speaking to reporters after the meeting, said the project aimed at building a multi-purpose undersea pipeline linking, in its first phase, Turkey with Israel to transfer oil, natural gas, fresh water, electricity cables and fibre optics cables.
The Indian side, he said, showed interest in this project specially with regards to the imports of crude oil instead of shipping it by tankers.
Initial studies estimated the cost at eight billion euros, said Kugler. Technical studies should begin by end of this year and establishment of the pipeline might begin by the end of next year or in 2010.
Israel believes this project was an economic and strategic option," which would secure 90 per cent of the Jewish state's crude oil needs, as well as reduce the cost of shipping by oil tankers, he said.
Rupee Ends at 45.95/96
The rupee ended at 45.95/96 per dollar, from the previous close of 45.75/76, as losses in the local share market and dollar demand from importers weighed.
Read more!Thursday, September 11, 2008
Sensex loses 238 pts on rupee jolt, Lehman loss
MUMBAI: Indian equities continued their slide on Wednesday at a faster rate, as bad news poured in from world markets. European stocks weakened after the European Commission expressed doubts over the region’s economic growth and a possibility of further doom in the banking sector. Leading US investment bank Lehman Brothers Holdings reported a third quarter net loss of $3.9 billion — the biggest in its 158-year history. It now plans to sell a majority stake in its asset-management unit, spin off commercial real-estate holdings and cut dividend in an effort to shore up capital.
Back home, the rupee hit a 2-year low, breaching the psychological 45-mark to the dollar in the process, spelling further bad news for the economy as a whole.
Metal and oil & gas stocks were the worst performers, as the 30-share Sensex fell 238.15 points on Wednesday to close at 14,662.61. All the BSE sectoral indices ended in the negative with the metal index plunging over 5%. Analysts opine that the commodity cycle is in a downturn phase and consequently the companies are likely to face a pressure on earnings. The S&P CNX Nifty slipped 68.45 points to close at 4400.25. The BSE mid and small-cap lost over 60 points each to close at 5,708.93 and 6,903.42, respectively.
The slide in the rupee, however, failed to energise IT shares, with the BSE IT index closing marginally below its previous close. Dealers say worsening financial conditions in the US would impact the revenue of IT companies, hurting their growth. “The balance of payments dynamics and US dollar strength will cause the rupee to weaken. We expect the rupee to weaken against the dollar to 46-47 by December 2008, but it will likely pull back to 45 by March 2009,” said Macquarie Research in a note to its clients. “Be prepared for more aggressive intervention by RBI in the forex market. Also, the government is likely to ease restrictions on capital inflows in order to check the pace of the rupee’s depreciation,” the noted added.
On the global front, OPEC in Vienna decided to reduce supplies by 500,000 barrels a day. Consequently, crude oil for October rose as much as $1.56 to $104.82 a barrel on the New York Mercantile Exchange (NYMEX). The last trading price at the exchange was $101.67 a barrel on Wednesday. “Domestic market has factored in the receding oil prices. If they fall below $90 a barrel, there could be a rally in the indices, but it won’t be a sustained one. In the near term, the range would continue to be between 4,400 and 4,700,” said India Infoline head-research Amar Ambani.
Market breadth continued to be weak with retreating stocks outnumbering gainers nearly two for one. Total turnover in markets was close to Rs 70,000 crore, a rise of Rs 10,000 crore over the previous close. However, the improvement in volumes is of little cheer as foreign funds continue to dump stocks. As per provisional data, they net sold Rs 1,037 crore shares on Wednesday. Domestic institutions cushioned the sales to some extent, with net purchases of Rs 492 crore.
Markets across the Asia-Pacific ended on a mixed note. China’s Shanghai Composite index advanced 0.2% and South Korea’s KOSPI Composite index gained 0.7%, while Japan’s Nikkei 225 index ended down 0.4% and Hong Kong’s Hang Seng index lost 2.4%.
Suntory may pick 15% stake in Mallya's United Spirits
BANGALORE: Japanese spirits giant Suntory is believed to be interested in acquiring a 10-15% stake in Vijay Mallya’s United Spirits (USL) for about $600 million. USL is already in preliminary talks with multinational drinks giants Diageo, Pernod Ricard and Bacardi for a stake sale.
A potential sale could value USL, the world’s third largest spirits marketer by volume, at around $6 billion. A top USL source confirmed Suntory’s interest “for a strategic alignment,” adding that details of Suntory’s interest are still being gathered. In November last, ET had first reported on Mr Mallya’s move to offload shares in the flagship spirits company.
“There are several interested players who know it is a one-time chance to get their distribution act right in India. And I will be looking at unlocking maximum shareholder value,” Mr Mallya told ET. The USL stock closed at Rs 1,313 on Wednesday, valuing a 15% stake at around $430 million.
A deal, if it goes through, could be the biggest overseas venture for the 110-year old Suntory, arguably the most storied alcoholic beverage maker in Asia. A deal with USL will give it access to a strong Indian distribution network. USL, which caters to over 55% share of domestic spirits consumption, is expected to kick off a formal process to induct a strategic investor soon.
Mr Mallya is looking at unlocking value from 13.7 million treasury stock — banked in a trust — that came out of the overlapping capital from the merger of group companies. The treasury stock accounts for 14-15% of the company’s share capital, and placing these with a strategic investor will not dilute the promoter stake, which currently stands at 37%.
Diageo and Pernod Ricard are already engaged in discussions with Mr Mallya, but there have been concerns about “the lack of a clear horizon” following the deal. It is believed that potential suitors are awaiting clarity on management rights, if any, which USL is willing to offer.
Further, unlike the other three suitors, Suntory has no presence in the highly regulated Indian spirits market. In 2001, Mr Mallya had inducted Scottish & Newcastle as a strategic investor in his beer business at Rs 575 per share, against the prevailing stock price of Rs 130-140, industry analysts pointed out.
Separately, while talking to media in Bangalore on Wednesday, Mr Mallya said he was indeed in discussions with global majors, confirming an earlier ET report.
Diageo was widely seen as a front-runner to pick up the stake, but it subsequently emerged that USL has received expressions of interest from Pernod Ricard and Bacardi as well. While no investment bank has been mandated for the unfolding strategic divestment, at least three banks are seen vying to take the process formal.
Rupee loses ground, 1$ --> Rs.45 : Forex
NEW DELHI: Rupee depreciated sharply against dollar on Wednesday as it breached the Rs 45 a dollar level to close at 45.12 against previous close of Rs 44.84 on Tuesday. Softening of crude prices has boosted the perception regarding US economy, which has pushed up value of dollar against most of the currencies in the world. Rupee also suffered because of that and it touched the lowest level in the last 22 months on Wednesday. While exporters, who stand to gain, rejoiced the fall, importers ran for cover. The worst hit will be the oil marketing companies, which import crude. As they are selling at substantially lower price than the import cost, depreciation of rupee will make the cost of imported crude higher and increase their deficit. While importers rushed to buy dollar, expecting it to appreciate further in the short-term, exporters withdrew from the market. This widened the gap in the demand and supply. A senior banker said unless the Reserve Bank Of India intervenes with dollar supply, fall of rupee will continue. The depreciation will also affect the government's effort to contain inflation. As prices of commodities are fixed on the basis of landed imported value in the rupee term, the depreciation of rupee will push prices up. The good news is that prices of commodities like steel and copper are falling in the international market. But, the depreciation in rupee against dollar will moderate the impact of fall in the global prices in the domestic market. A senior banker said that so far, RBI is not intervening to arrest the fall in rupee as this will improve India's export competitiveness. But, he said the central bank would not allow the currency to fall below the current level. Therefore, he added that RBI is likely to intervene in the market by increasing the supply of dollar to arrest the fall in rupee against dollar. As dollar appreciated against most of the currencies, the gold price in the international market fell sharply. On Wednesday, the yellow metal traded at $763.20 per ounce - the lowest level since October 25, 2007. It fell by over Rs 200 per 10 gram in the Indian market. On Multi Commodity Exchange, gold closed at Rs 11,441 per 10 gram. The silver price also fall sharply to close at Rs 18,550 per kg. |
Tuesday, September 9, 2008
Forex - Details
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