Rising credit fears rock Wall Street
Rising credit fears rock Wall Street
By Anuj Gangahar and Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: July 26 2007 14:14 | Last updated: July 26 2007 15:52
Wall Street stocks declined sharply at the opening bell on Thursday, as disappointing company earnings and housing data compounded rising fears over the state of the credit market.
Purchases of new homes in the US dropped more than forecast in June, signalling no end to the real-estate slump that has hurt sentiment.
Sales fell 6.6 per cent, the most since January, to an annual pace of 834,000 last month from a revised 893,000 rate the prior month that was less than previously estimated, the Commerce Department said.
”The credit market does not feel great. Liquidity and sentiment are the worst since 2002,” said Tom Murphy, corporate sector team leader at Ameriprise Financial. He said the speed of the repricing seen in credit valuations and the decline in liquidity had made investors question their overall investment thesis.
”The market has issues and people are rethinking their views on valuations,” he said.
About an hour into the session in New York, the S&P 500 index was off 1.2 per cent at 1499.36 while the Nasdaq Composite Index was 1.1 per cent down at 2,619.67. The Dow Jones Industrial Average was 0.9 per cent lower at 13,660.38.
Risk aversion across markets switched to a higher gear on Thursday. US stocks had shrugged aside news on Wednesday that debt financing for the Chrysler and Alliance Boots buy-outs had run into difficulties.
Investors were rattled when another hedge fund in Australia, Absolute Capital Group, suspended withdrawals from two of its funds after forecasting losses on collateralised debt obligations it holds. S&P admitted in a Sydney conference call that US subprime losses were exceeding their expectations and historical losses.
Financial stocks were in focus as WestLB, Germany’s third largest state lender, said its supervisory board would hold a press conference later on Thursday and discuss a probe into recent trading losses.
The welter of bad news sparked strong buying of treasury bonds, wider credit spreads and an unwind of carry trades, as the Japanese Yen rallied 08 per cent to Y119.71 against the dollar.
“Prices and spreads have become much more volatile as traders and portfolios back away from markets that they used to know and love,” said William O’Donnell, strategist at UBS.
A barometer of bank risk in the derivative market is the 10-year swap spread. It was trading at 73 basis points early on Thursday, its widest level over the 10-year Treasury yield since 2003.
“There is zero confidence among market traders as to whether 10-year swap spreads are 20bp too wide, or too narrow,” said Mr O’Donnell. “Treasuries remain the one market still functioning and, as such, the place where most desire to be these days.”
Bad earnings news from the housing sector continued as DR Horton, the homebuilder, reported its first-ever quarterly loss. Its shares were down 3.2 per cent at $16.92. Beazer Homes also posted a $123m quarterly loss, sending its shares down 3.5 per cent at $16.45. This followed losses from Pulte Homes and Ryland Group late on Wednesday.
In other earnings news, Exxon Mobil reported a 1 per cent decline in second-quarter net income, hurt by weakness in natural-gas. The stock was down 3.5 per cent at $89.51 in early trade.
3M posted a quarterly profit rise of 4 per cent and also raised its outlook for 2007 profit. The stock was 1.6 per cent higher at $90.99.
There were some bright spots before the open on Thursday.
Ford swung to its first profitable quarter in two years and the stock was up 3.5 per cent at $8.27.
Late on Wednesday, Apple said its fiscal third-quarter profit jumped more than 73 per cent. Greater demand for Macintosh computers, the iPod and solid initial sales of the iPhone fuelled a profit of $818m for the quarter. In pre-market trade, Apple was up 6.8 per cent at $146.63. The stock rose 1.8 per cent to close at $137.26 on Wednesday.
Amid the concerns over credit, economic data were largely ignored. Durable goods rose 1.4 per cent in after a decline of 2.3 per cent in May. Orders for non-defence capital goods excluding aircraft, a gauge of business investment, fell 0.7 per cent after a decline of 1.5 per cent in May.
Stocks closed higher on Wednesday as investors responded to generally upbeat company earnings from companies including Amazon and Boeing and got to grips with fresh housing market data.
The S&P 500 rose 0.5 per cent to close at 1,518.09, the Nasdaq Composite Index was 0.3 per cent higher at 2,648.17. The Dow Jones Industrial Average rallied 0.5 per cent to settle at 13,785.07.
The yield on the 10-year bond was 5 basis points lower at 5.85 per cent. The yield on the two-year note, a barometer of safe-haven buying, was at 4.65 per cent, its lowest level since early May. Crude oil prices were just under $77 a barrel and approaching last year’s record high around $77.95 a barrel.
By Anuj Gangahar and Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: July 26 2007 14:14 | Last updated: July 26 2007 15:52
Wall Street stocks declined sharply at the opening bell on Thursday, as disappointing company earnings and housing data compounded rising fears over the state of the credit market.
Purchases of new homes in the US dropped more than forecast in June, signalling no end to the real-estate slump that has hurt sentiment.
Sales fell 6.6 per cent, the most since January, to an annual pace of 834,000 last month from a revised 893,000 rate the prior month that was less than previously estimated, the Commerce Department said.
”The credit market does not feel great. Liquidity and sentiment are the worst since 2002,” said Tom Murphy, corporate sector team leader at Ameriprise Financial. He said the speed of the repricing seen in credit valuations and the decline in liquidity had made investors question their overall investment thesis.
”The market has issues and people are rethinking their views on valuations,” he said.
About an hour into the session in New York, the S&P 500 index was off 1.2 per cent at 1499.36 while the Nasdaq Composite Index was 1.1 per cent down at 2,619.67. The Dow Jones Industrial Average was 0.9 per cent lower at 13,660.38.
Risk aversion across markets switched to a higher gear on Thursday. US stocks had shrugged aside news on Wednesday that debt financing for the Chrysler and Alliance Boots buy-outs had run into difficulties.
Investors were rattled when another hedge fund in Australia, Absolute Capital Group, suspended withdrawals from two of its funds after forecasting losses on collateralised debt obligations it holds. S&P admitted in a Sydney conference call that US subprime losses were exceeding their expectations and historical losses.
Financial stocks were in focus as WestLB, Germany’s third largest state lender, said its supervisory board would hold a press conference later on Thursday and discuss a probe into recent trading losses.
The welter of bad news sparked strong buying of treasury bonds, wider credit spreads and an unwind of carry trades, as the Japanese Yen rallied 08 per cent to Y119.71 against the dollar.
“Prices and spreads have become much more volatile as traders and portfolios back away from markets that they used to know and love,” said William O’Donnell, strategist at UBS.
A barometer of bank risk in the derivative market is the 10-year swap spread. It was trading at 73 basis points early on Thursday, its widest level over the 10-year Treasury yield since 2003.
“There is zero confidence among market traders as to whether 10-year swap spreads are 20bp too wide, or too narrow,” said Mr O’Donnell. “Treasuries remain the one market still functioning and, as such, the place where most desire to be these days.”
Bad earnings news from the housing sector continued as DR Horton, the homebuilder, reported its first-ever quarterly loss. Its shares were down 3.2 per cent at $16.92. Beazer Homes also posted a $123m quarterly loss, sending its shares down 3.5 per cent at $16.45. This followed losses from Pulte Homes and Ryland Group late on Wednesday.
In other earnings news, Exxon Mobil reported a 1 per cent decline in second-quarter net income, hurt by weakness in natural-gas. The stock was down 3.5 per cent at $89.51 in early trade.
3M posted a quarterly profit rise of 4 per cent and also raised its outlook for 2007 profit. The stock was 1.6 per cent higher at $90.99.
There were some bright spots before the open on Thursday.
Ford swung to its first profitable quarter in two years and the stock was up 3.5 per cent at $8.27.
Late on Wednesday, Apple said its fiscal third-quarter profit jumped more than 73 per cent. Greater demand for Macintosh computers, the iPod and solid initial sales of the iPhone fuelled a profit of $818m for the quarter. In pre-market trade, Apple was up 6.8 per cent at $146.63. The stock rose 1.8 per cent to close at $137.26 on Wednesday.
Amid the concerns over credit, economic data were largely ignored. Durable goods rose 1.4 per cent in after a decline of 2.3 per cent in May. Orders for non-defence capital goods excluding aircraft, a gauge of business investment, fell 0.7 per cent after a decline of 1.5 per cent in May.
Stocks closed higher on Wednesday as investors responded to generally upbeat company earnings from companies including Amazon and Boeing and got to grips with fresh housing market data.
The S&P 500 rose 0.5 per cent to close at 1,518.09, the Nasdaq Composite Index was 0.3 per cent higher at 2,648.17. The Dow Jones Industrial Average rallied 0.5 per cent to settle at 13,785.07.
The yield on the 10-year bond was 5 basis points lower at 5.85 per cent. The yield on the two-year note, a barometer of safe-haven buying, was at 4.65 per cent, its lowest level since early May. Crude oil prices were just under $77 a barrel and approaching last year’s record high around $77.95 a barrel.
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