The Star Online: Business
The Star Online: Business |
- US stocks sink on fresh fears about global economy
- News Corp bid for BSkyB referred to regulator
- Italian markets hit by debt crisis contagion fears
| US stocks sink on fresh fears about global economy Posted: 11 Jul 2011 05:57 PM PDT NEW YORK: July doesn't look so promising anymore. The European debt crisis appears to be widening, with concerns about government debt defaults spreading beyond Greece to much larger countries like Italy and Spain. If that happens companies that do business internationally could see their revenue and profits decline as European countries and companies curtail purchases. What's more, a widespread financial crisis could cause a credit crunch in Europe and elsewhere. The concerns sent stocks down. After a rally that sent markets up sharply the last two weeks of June, the Standard & Poor's 500 index dropped 24.31 points, or 1.8 percent, to 1,319.49 on Monday. The Dow Jones industrial average had its biggest percentage drop in nearly a month. It fell 151.44 points, or 1.2 percent, to 12,505.76. And after closing one point off its 2011 high late last week, the Nasdaq composite fell 57.19, or 2.0 percent to 2,802.62. Italy and Spain, Europe's third and fourth largest economies, have seen bond yields rise sharply. It's the latest sign that investors are less willing to hold the debt of those countries. Italy's largest banks, UniCredit SpA and Intesa, fell sharply on European exchanges. Some investors believe several of Italy and Spain's financial institutions might not pass an upcoming stress-test for European banks. "What the European Union is trying to do is keep the problem contained at a sovereign level and not have the infection spread to the banking system," said Jack Ablin, chief investment officer at Harris Private Bank. "To see a bank drop that much that fast suggests there may be a breach." That has led to fears in Europe and elsewhere that the aid from international lenders may not be enough to stop a broad deterioration of the European economy. The S&P fell broadly, led by financial companies. Financial stocks in the index fell 2.8 percent as bank stocks sank. Investment manager Janus Capital Group fared worst, falling 6.8 percent to $9.16. Citigroup Inc. led banks down, declining 5.3 percent to $39.79. If Europe's debt crisis continues to spread, bank lending could seize up. Banks are also expected to report weak earnings beginning later this week. Of the 500 companies in the S&P index, 492 fell. The euro fell against the dollar and U.S. government bond prices rose. The euro fell below $1.40 for the first time since May 23 and hit a record low against the Swiss franc. The yield on the 10-year Treasury note fell to 2.95 percent from 3.02 percent late Friday. Bond yields fall when their prices rise. Markets seemed to be recovering during the last half of June. The last week of the month, the Dow had its best week in two years after several positive reports on manufacturing and consumer spending. All three major indexes were close to their previous highs for the year, reached April 29. But the run-up just gave markets more room to fall, says Ralph Fogel, an investment strategist at Fogel Neal Partners in New York. "When markets are at their bottom, they don't listen to bad news. But because we're at the top end, they listen," said Fogel. The broadening of Europe's debt troubles follows disappointing U.S. employment news and a setback in negotiations over the country's borrowing limit. The government reported Friday that employers pulled back sharply on hiring in June, compounding fears that the U.S. economy was in even worse shape than previously thought. The unemployment rate rose to 9.2 percent. Weekend budget talks between Republicans and Democrats also stalled, raising the possibility that lawmakers might not reach an agreement on raising the country's debt limit before an Aug. 2 deadline. President Obama said he wouldn't sign a short-term extension to the limit. "Markets don't like when they don't know what's going on," said Fogel. "They don't appreciate politics." News Corp. fell 7.6 percent on Monday, the most of any company in the S&P 500, as its phone hacking scandal threatened the approval of its proposed takeover of British Sky Broadcasting, a highly profitable satellite TV company in Britain. The deal will now be reviewed by British competition authorities, which will put off a final decision for several months. Wells Fargo fell 2.6 percent after the bank offered to settle for $125 million with pension funds that accused it of not warning investors about risky mortgage-backed securities. Insurer American International Group Inc. fell 3.6 percent after saying it would fire one or more of the banks it used for its recent public stock offering when it sells more stock later this year. The move indicates that the company might not have confidence in its ability to sell more stock at a desirable price. Gulfport Energy Corp. fell 6.2 percent. The oil and natural gas producer plans to sell 3 million shares to repay debt and pay for acquisitions. Aluminum maker Alcoa Inc. fell 2.9 percent ahead of announcing its second-quarter results. Alcoa's report marks the unofficial beginning of U.S. earnings season. Aluminum is used in everything from airplanes to beer cans; the company's results typically offer insight into the health of the broader U.S. economy. The company reported earnings after the market closed. Its income more than doubled as higher sales and prices offset increasing prices for raw materials, the company reported. Alcoa earned 32 cents per share. Analysts expected the company to earn 33 cents per share, according to FactSet. The company reaffirmed its forecast for 12 percent growth in global aluminum demand this year. Alcoa was down 0.4 percent in early aftermarket trading. Several companies did post gains on Monday. Arch Chemicals Inc. rose 11.7 percent after saying it would be bought by Swiss drugmaker Lonza for $1.2 billion. Arch makes antibacterial products. Chip-maker Microsemi Corp. was up 2.3 percent after an Oppenheimer analyst upgraded its rating on the company. The analyst cited a growing backlog of orders and improving profit margins. LinkedIn rose 1.1 percent after web analytics company Comscore said that in June, the professional networking site was second only to Facebook among social networking sites in its number of unique visitors. LinkedIn had 33.9 million unique visitors in June. Facebook had 106.8 million unique visitors. Six stocks fell for every one that rose on the New York Stock Exchange. Volume was lighter than usual at 3.5 billion shares. - AP Earlier global market situation World stocks slump on renewed EU debt concerns LONDON: Concern that the eurozone's debt crisis could infect Italy and Spain sent global stocks spiraling downward Monday while markets were still reeling from last week's dismal jobs report in the U.S. Shares in Europe and the U.S. tumbled Friday after Washington announced that the American economy created just 18,000 jobs in June - a fraction of the figure expected. Asian markets followed the trend when they opened Monday. The downbeat sentiment was worsened by indications that Europe's debt crisis might be spreading beyond the three countries that have already received rescue packages. There have been mounting concerns that after Greece, Ireland and Portugal, much-larger Spain could need a bailout to manage its tremendous debt load. Now it seems Italy, the eurozone's third-largest economy, could also be affected. On Monday, the Milan Stock Exchange plunged nearly 4 percent - the second session in a row that it has taken a big hit - and the spread between the country's 10-year bond yield and the German benchmark hit a record high. Spain's IBEX 35 index tumbled 2.7 percent. As the market tensions grew, eurozone officials were meeting Monday to figure out how to get banks to participate in the next rescue of Greece. Those negotiations have been plagued by threats from ratings agencies that they would consider a bank rollover of Greek debt a default. "It's fair to say that sentiment was shot to pieces by the much-worse-than-expected non-farm payrolls data on Friday, and with concern that the European debt crisis could spread to Italy there's no real incentive to treat this weakness as a time for bargain hunting," said Yusuf Heusen, a sales trader with IG Index. Those worries are also weighing on the euro, which fell more than 1 percent to $1.4048. Some have said Europe's debt crisis calls into question the future of the common currency, but the slide also reflects investors' preference to park their money in the dollar, which is considered relatively safe in times of uncertainty. "The euro is likely to remain under downward pressure in the European trading session as the ongoing eurozone debt crisis continues to intensify," said Lee Hardman, a currency economist for Bank of Tokyo-Mitsubishi UFJ. On Monday in Europe, France's CAC-40 fell 2.7 percent to close at 3,808, while Germany's DAX lost 2.3 percent to 7,230. The FTSE index of leading British shares closed down 1 percent at 5,929. One of the biggest losers has been British Sky Broadcasting, which has shed around 2.3 billion pounds ($3.7 billion) in market value since the British government called into question a takeover of the satellite broadcaster by News Corp. Rupert Murdoch's News Corp. is under scrutiny after revelations that one of its tabloids hacked into the phones of crime and terrorism victims. It shuttered the paper, the News of the World, on Sunday. Shares in BSkyB closed down 4.6 percent, while the parent company's had fallen 6.7 percent by mid-day in New York. Earlier in Asia, Japan's Nikkei 225 stock average lost 0.7 percent to 10,069.53 and Hong Kong's Hang Seng retreated 1.7 percent to 22,347.23. South Korea's Kospi fell 1.1 percent to 2,157.16. Also dragging sentiment was data released Saturday showing China's inflation accelerated to a three-year high in June even as the overheated economy began to cool. The Shanghai Composite index edged up 0.2 percent to 2,802.69. The news that the global economy is still struggling pushed oil prices down Monday. Benchmark oil for August delivery was down $1.25 to $94.95 a barrel in electronic trading on the New York Mercantile Exchange. - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| News Corp bid for BSkyB referred to regulator Posted: 11 Jul 2011 05:54 PM PDT LONDON: A final decision on Rupert Murdoch's biggest takeover battle has been delayed for several months after the British government referred News Corp.'s bid for British Sky Broadcasting PLC to competition authorities, as a phone hacking scandal showed no sign of abating. The announcement Monday from Culture Secretary Jeremy Hunt followed News Corp.'s withdrawal of a promise to spin off Sky News, which had been a condition for buying the 61 percent of the satellite broadcaster that it doesn't already own. Britain's Competition Commission now must hold a full-scale inquiry into whether the takeover would break anti-monopoly laws. These inquiries usually take six months and Murdoch must be hoping that the current febrile atmosphere surrounding the bid cools down. "I think it is a smart move, it allows politicians some wiggle room, it takes all the political pressure off," Louise Cooper, media analyst at BGC Partners said. She added that Murdoch had done the government a favor by forcing a competition inquiry - a favor which the media mogul will hope to redeem in the future. News Corp.'s second dramatic move following last week's decision to close the News of the World, the tabloid newspaper at the heart of the phone hacking scandal, came as the government was facing intense pressure to block the bid from all sides of the political spectrum. Deputy Prime Minister Nick Clegg urged Murdoch to "do the decent and sensible thing" and reconsider the bid for BSkyB, while Ed Miliband, the leader of the opposition Labour Party, has threatened a Parliamentary vote on the bid. Murdoch arrived in London Sunday to personally manage the crisis enveloping his media empire, which has seen the share prices of both News Corp. and BSkyB take a battering over the past few days. BSkyB shares closed down 4.6 percent at 716 pence ($11.40) on the London Stock Exchange, rebounding from earlier lows. Just a week ago, BSkyB's shares were trading as high as 850 pence, meaning the company has shed around 17 percent of its value, or around 2.3 billion pounds ($3.7 billion). By midday New York time, News Corp. shares were down 6.8 percent at $16.16, meaning it has lost around $3 billion worth of its value on Monday alone. Murdoch has a history of getting out of tight situations in Britain, ever since he took control of the News of the World back in 1969. He clearly hopes that taking the proposed takeover out of the political arena may help him get full control of BSkyB. "News Corp. continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the U.K.," the company said. A failure to clinch the 7.5 billion pound ($11.9 billion) takeover would be a huge setback for Murdoch, who has built up a global media empire over four decades. The company owns Fox News and the 20th Century Fox film studio, and a raft of newspapers and media outlets all round the world. As well as being News Corp.'s biggest ever acquisition, full control of BSkyB would have given News Corp. 100 percent of what has become an increasingly profitable enterprise. In the last financial year, BSkyB made a pretax profit of a little under 900 million pounds ($1.43 billion) through its offering of exclusive sports rights and blockbuster movies. Just a week ago, it looked like the British government was going to wave the deal through, subject to certain conditions, including spinning off the Sky News network. One of the major worries among Murdoch critics was that his stable of news outlets would have too much power over the British media. Earlier in the day, Prime Minister David Cameron said News Corp. needed to resolve the difficulties in its U.K. unit, News International, over the phone-hacking scandal before pressing ahead with the BSkyB bid. "If I was running this company, BSkyB and News Corp., I would be focused on clearing up the mess that there is in News International, with all the problems that are still coming out," Cameron said following a speech in London. "I suspect there are more problems to come out." Cameron himself is under pressure too for his close ties to key figures in the scandal, including former News of the World editors, Andy Coulson and Rebekah Brooks. Coulson has been arrested, while Brooks continues to face mounting pressure to step down from her job as chief executive of News International. Brooks and several executives have offered to be interviewed by police as witnesses, a source at News International confirmed, speaking on condition of anonymity. The scandal, meanwhile, gave a small group of News Corp. shareholders new fuel to expand a lawsuit against the company. The lawsuit, brought by shareholders owning less than 1 percent of News Corp.'s stock combined, accuses the company of large-scale governance failures. It extends an existing lawsuit and was filed in Delaware Chancery Court by a group led by Amalgamated Bank. Several municipal and union pension funds joined in the lawsuit. - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| Italian markets hit by debt crisis contagion fears Posted: 11 Jul 2011 05:52 PM PDT MILAN: Italian financial markets slumped on Monday, with the spread between the 10-year bond yield and Germany's benchmark hitting a new record, as investors worried the country may become engulfed in Europe's debt crisis. Traders fear Italy's banks will take heavy losses on the debt of bailed-out countries like Greece and that government debt will ultimately prove too big to manage without international help. The bond spread hit 300 points, a record, before edging back slightly. The interest rate on a 10-year Italian bond was 5.64 percent by late afternoon, more than twice the 2.67 percent rate for the German equivalent, considered the safest in the eurozone. In an effort to keep speculators at bay, the stock market regulator set a limit on short-selling - when traders sell stocks they do not actually own in the hope of buying them back at a lower price. But the measure, which runs through Sept. 9, failed to support stock markets much, with Milan's FTSE MIB index closing down 3.96 percent. Banks led the decline - Unicredit dropped by as much as 10 percent and Intesa Sanpaolo by 9 percent, before recovering a bit on closing. Fiat Industrial and Telecom Italian also were among the worst performers. European Central Bank member Lorenzo Bini Smaghi noted Italian banks were heavily exposed to the sovereign debt crisis - finance ministers in Brussels were discussing Monday how to get the private sector to contribute to the cost of bailout efforts. "In Italy there is a strong correlation between sovereign debt and bank risk, because of the elevated public debt and because the banks are holding an important quantity of sovereign bonds," Bini Smaghi was quoted as saying by the news agency ANSA. He said Italian banks were undercapitalized compared with their European counterparts and called for them to raise more cash soon. The issue is a sensitive one as European financial regulators will reveal on Friday the results of stress tests on 91 EU banks. Mario Draghi, next to take the helm of the European Central Bank, expressed confidence last week that Italian lenders would pass the test, though markets are clearly jittery. Beyond the banks, investors are also worried about the country's massive public debt, of nearly 120 percent of GDP, and poor growth prospects. Two ratings agencies have warned the country needs to get its public finances in order or risk a downgrade. The government has introduced a 48 billion ($68 billion) austerity package, now in parliament, to balance the budget by 2014. The market's reaction has been skeptical, however, with stocks and bonds falling steadily since its presentation last week. Germany Chancellor Angela Merkel on Monday expressed confidence Monday that Italy will push through the plan. "I have firm confidence that the Italian government will approve just such a budget ... and, in so doing, Italy will send a signal that it feels committed to consolidation and fighting debt," she said. "The euro in itself is stable, but we have a debt problem in some countries." Just as Italy needs to project a strong political front, a rift has appeared between Premier Silvio Berlusconi and his finance minister, Giulio Tremonti, raising the specter of political instability. Berlusconi in an interview with La Repubblica last week said that Tremonti was not a team player. "He thinks he is a genius and everyone else is an idiot," Berlusconi said. "I put up with it because I've known him for a long time and that's how he is." Tremonti has been embarrassed by a corruption probe into the activities of a former aide, and last week issued a statement saying he was giving up housing the aide had offered him for the nights he spends in Rome. Tremonti also had to make up with another minister after a microphone caught him calling Renato Brunetta "an idiot" during a press conference presenting the austerity measures. The two tried to paper it over with a meeting later in the day, issuing a statement saying they had worked on pressing issues including the austerity budget and the government's efforts to balance the budget. Berlusconi has kept a low profile since an appeals court Saturday ordered his family's investment arm to immediately pay 560 million ($797 million) to a rival in a 20-year-old case involving corruption in the takeover of the Mondadori publishing house. - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
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