2/08/07

Stocks got off to a bad start on the back of a stock selloff in the previous session as credit concerns, a slumping real estate market and corporate earnings compounded investors nervousness. But stocks bounced into the black briefly after the Institute for Supply Management reported that nationwide manufacturing activity fell more than expected the National Association of Realtors pending home sales index jumped more than expected in June. Oil prices weighed in following the government's weekly report on crude inventories, which showed a huge drawdown last week. US light crude for September delivery fell $1.68 to $76.53 a barrel after reaching a peak of $78.77.

After the closing bell, Walt Disney added 83 cents to $33.83 after posting higher profit that came in above expectations.

Starbucks closed 52 cents higher at $27.20 after posting higher quarterly earnings and maintained its full year profit outlook.

Applebee's also reported higher quarterly earnings, as did Weight Watchers thanks to higher sales. But Electronic Arts closed 54 cents lower at $48.10 after posting a quarterly loss and shares slipped 1 percent in extended trade.

In earlier news, Rupert Murdoch finally won his battle for the publisher of The Wall Street Journal. Dow Jones agreed to be taken over by News Corp for $5.6bn.

Time Warner closed 62 cents lower at $18.64 after reporting second quarter earnings that topped analysts estimates and said it has authorized an additional $5bn stock repurchase. Investors weren't impressed and shares tumbled nearly 5 percent.

Treasury prices fell, raising the yield on the benchmark 10 year note to 4.79 percent from 4.74 percent late Tuesday.

The dollar gained against the euro and was little changed versus the yen.

COMEX gold for December fell $3.40 to $675.90 an ounce.

The Nikkei average rose 113.1 points to close at 16984.1 as property firms gained after solid corporate earnings results and a jump in land prices, while Japanese drug maker Astellas Pharma Inc climbed on higher profit. But Toyota Motor Corp and other major automakers declined after US auto sales dropped in July as weakness in the housing market sapped demand. Shares of Mitsubishi Estate rose after solid earnings and government data showed on Wednesday land prices in Tokyo jumped 17 percent last year in the biggest increase by far since Japan's bubble years. Mitsubishi Estate jumped 5.3 percent to 3,170 yen, while Mitsui Fudosan Co climbed 4.2 percent to 3,230 yen and Sumitomo Realty and Development Co advanced 2.9 percent to 3,560 yen.

Astellas Pharma climbed 3.1 percent to 5,050 yen, after it booked a 52 percent rise in quarterly income on Wednesday and said it would further trim its European operations cutting 200 jobs.

Toyota retreated 0.7 percent to 7,050 yen after its US sales slipped 3.5 percent year on year last month, its first decline in almost three years.

Honda Motor fell 1.7 percent to 4,170 yen after a 3 percent sales slide in July. Nissan Motor list 1.1 percent to 1,240 yen although its July sales gained 6 percent.

The FTSE100 closed 109.5 points lower at 6250.6 on Wednesday, as the US credit crisis continued to weigh and as traders looked ahead to the BoE's interest rate decision today. Subprime mortgage woes from the US pushed numerous sectors deep into negative territory with banks, miners and oil companies hardest hit.

Northern Rock fell 4.4 percent and HSBC lost 1.5 percent despite Citigroup raising the latter's rating to "buy" from "hold" and price target to 1,050 pence from 1000 pence. HBOS fell 2.8 percent despite unveiling a 13 percent jump in profits and its biggest dividend rise since it was formed six years ago but problems in its core UK retail unit hit its shares.

Cadbury was the biggest faller after it reported a drop in first half profitability amid rising dairy prices and said the sale of its North American soft drinks business was still in the balance. Cadbury said last week it was postponing the sale of its North American soft drinks business, because of turbulant debt markets. The stock fell 8.2 percent.

Man Group fell 5.5 percent on the neagtive US sentiment and after it said on late Tuesday that the NAV of its closely watched AHL managed futures strategy fell 6.79 percent over the last week.

British Airways fell 2.9 percent after it was hit with almost £270m in fines from US and UK authorities for price fixing on fuel surcharges. The OFT fined BA £121.5m in the department's biggest ever civil penalty. The US department of Justice fined BA $300m as part of a wider investigation that also resulted in a fine for Korean Air Lines and notice that Virgin and Germany's Lufthansa would have to pay restitution to customers.

On the economic front, the BoE started its two day policy meeting and will announce its rate decision at 1100 gmt today. Economists see rates rising to 6 percent by the year end, but the majority do not see this happening in August.

Economics
UK Bank of England Rate Announcement (Aug) 1200 BST

After raising interest rates in July analysts expect rates to hold at 5.75% in August. There wouldn't be a statement issued and so the focus will then turn to the Inflation Report which will be published on August 8th.

US Initial Jobless Claims (week 28 Jul) 1330 BST/0830 EDT

Last week's initial claims fell to 301,000, and the 4 week average has fallen to 308,500. Look for a rise to 310,000 this week.

US Factory Orders (Jul) 1500 BST/1000 EDT

We know durable orders rose 1.4%. Assuming a 0.5% rise in non-durable orders, total factory orders rose 1%.

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