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February 6, 2007

What are the futures markets for?

Permalink: What are the futures markets for? by Khurram Naik

Filed under: Investments, Economy, Blog
Insurer Aviva notches record sales

What are the futures markets? Let’s begin with a story about trains. Before trains, the nation was divided into small markets for various commodities, but with trains came the first truly national markets. Now it was cheap for farmers and grain merchants to deliver goods to the places that needed them most - and would pay the most. Chicago became a central location for these grain merchants to deliver their goods and compete for clientele. Now the problem with grain is this. It goes bad. The grain markets were subject to a lot of volatility in price, depending on weather conditions, the ability to export and so forth. A farmer who had a great deal of grain was subject to the risk that the value of their commodity would plummet, and they would be ruined. Farmers and commodity owners needed a way to limit their risk. So they were able to find people who were willing to assume their risk, people with capital to speculate on the price of grains. If these speculators were correct, they would make a profit. If they were incorrect, they would lose.

So we have people with money, and people with risk. The futures markets allows these two groups to match up. What gets traded in these markets are futures contracts. A futures contract is the right, but not the obligation to purchase some asset on a specific future date. The value of such a contract is determined by the market, the net of buyers and sellers interested in trading these assets. When you “buy” a futures contract, you think the asset will increase in value for some time. When you “sell” a futures contract you think the asset will decrease in value. A buyer of a futures contract needs a seller.

The easiest way to understand this is to think of an asset you own. I imagine most people here are homeowners. Your house is an asset. It’s a risky asset. It typically appreciates, but it’s also subject to loss. Real estate is a risky asset. Let’s say you own a house for $500,000 and you want to sell it in a year’s time. You’d really like to get $550,000 in a year’s time, but you’re very concerned with a housing bubble and you don’t want to get stuck with a $400,000 sale. An investor is shopping around, and he wants to buy a house in a year’s time for around $500,000, but he (or she) is concerned the price may get up to $600,000 for that neighborhood. What the two of you can do is enter a contract. You agree to sell the house to the investor in a year’s time for $525,000. You’ve given up some profitability, and so has the investor, but you’ve both limited your risk. The key feature that allowed them to to this was entering a contract to transfer one person’s risk of loss in value in a property to another person who anticipated he couldn’t get a better deal at a later date.

Now this was pretty cumbersome. If you wanted to do this again, it would be an involved process to find another person who’d be interested in this sort of deal. It would be good if there was a whole bunch of people lined up who were interested in buying your house, all in one place. Maybe you get someone to even take you up on a similar contract for $550,000. Or maybe you’d find out other people were cutting deals at $475,000, and so you’d better take sometime around that price. And it would be good if you could standardize the details of the contract so people would know exactly what is being offered, the only issue to discuss is price. This is what the futures market accomplish. By taking standardized contracts for assets that owners need to limit their risk on, futures markets allow speculators to enter the market to trade and invest by assuming this risk.

Khurram Naik is a derivatives broker at Infinity Futures in Chicago. He is a graduate of Carnegie-Mellon and has worked in research in cognitive science and education at Princeton, Harvard and Carnegie-Mellon University. He is also a former field director for a political campaign. He maintains a blog on literature and cognitive science. He can be reached at k.naik@infinitybrokerage.com

January 29, 2007

US banks mixed on merger news, rumors

Permalink: US banks mixed on merger news, rumors by Elaine Frei

Filed under: Investments, Economy, News

New York equities markets were slightly higher on Monday. By midday, the Dow Jones Industrial Average was up 0.1 percent to 12,504.88, while the Nasdaq Composite had gained 0.15 percent to 2,439.12 and the S&P 500 added 0.04 percent to 1,422.71.

The banking sector was mixed on mergers news and rumors. First Republic Bank added 40.2 percent to $53.69 after Merrill Lynch announced that it would buy the bank. Merrill Lynch dropped 1.5 percent to $93.15. Bank of America dropped 1 percent to $51.50 and Countrywide Financial added 4.3 percent to $43.80 on investor reaction to a Friday report that the two were in talks about a merger. Meanwhile, Citigroup was 1.1 percent lower to $54.07 on the announcement that it will purchase Egg Banking from Prudential in the UK.

In the semiconductors sector, Intel gained 2.1 percent to $20.96 after it said it has had success in making, smaller, more powerful microchips.

Pharmaceutical company Bristol-Myers Squibb added 5.9 percent to $27.75 on rumors of a buyout.

Tyson Foods was 3.8 percent higher to $17.33 after it said that profits were up 46 percent in its fiscal first quarter. Earnings were 16 cents per share, well above predictions of 6 cents per share.

British Airways gains 2.7 percent as strike is averted

Permalink: British Airways gains 2.7 percent as strike is averted by Elaine Frei

Filed under: Investments, Economy, News

The London equities markets were mixed on Monday as only 2.5 billion shares traded hands on the session. The FTSE 100 added 0.2 percent to 6,239.9, but the FTSE 250 dropped 0.1 percent to 11,104.

In the airlines sector, British Airways added 2.7 percent to 542p as investors were relieved that a threatened 2-day strike by cabin crew members had been avoided.

Tobacco did well ahead of results due later in the week from British American Tobacco. Citigroup said that BAT could return an estimated £1.5 billion to shareholders without harm to its credit rating. The figure was much higher than the £500 million it currently returns each year. BAT gained 2.8 percent to a record high share price of £15.60. Imperial Tobacco was 0.8 percent higher, to £21.24.

Publisher Yell Group gained 1.5 percent to 608p on positive comments from Merrill Lynch.

Pubs operator Mitchells & Butlers was 1 percent higher to 686½p on reaction to the news that financier Robert Tchenguiz has increased his holding in the company to almost 15 percent.

Brewer SABMiller dropped 1.1 percent to £11.70 as Goldman Sachs took it off it’s “buy” list on valuation concerns.

J. Sainsbury also fell 1.1 percent, to 432½p, as one shareholider placed 12 million shares with Morgan Stanley. The shares were priced at 432p each.

European telecoms decline on Deutsche Telekom profits warning

Permalink: European telecoms decline on Deutsche Telekom profits warning by Elaine Frei

Filed under: Investments, Economy, News

In Europe on Monday the FTSE Eurofirst 300 added 0.3 percent to 1,517.07 on Monday despite declines in the telecommunications sector.

Telecoms were lower after Deutsche Telekom issued its second profits warning in six months, citing competition and currency issues. Citigroup lowered its recommendation on the German telecom from “hold” to “sell” and Deutsche Telekon dropped 4 percent to €13.60. Elsewhere in the sector, France Telecom fell 0.9 percent to €21.18, while Telecom Italia and Swisscom were each 1.5 percent lower, to €2.27 and SFr471.50 respectively.

Car and truck manufacturers was gains on the session. On rumors that it could be a target for Volvo, MAN added 2.6 percent to €78.86. Volvo was 1 percent higher on the talk, to SKr502, while Scania, the recent target of MAN’s failed hostile bid, was up 3.5 percent to SKr485. Fiat gained 2.8 percent to €16.67 on a target share price hike from JP Morgan.

The airline sector was up on merger hopes and on upgrades from UBS, which raised its recommendation on Lufthansa and Iberia from “neutral” to “buy” and hiked target share prices for both Ryanair and Air France-KLM. Lufthansa was up 1.1 percent to €21.38, Ryanair gained 1.3 percent to €11.04, Air France was 1.5 percent higher to €32.67, and Iberia gained 3.3 percent to €3.10. Meanwhile, Alitalia added 1.9 percent to €1.10.

Nikkei, Topix each add 0.3 percent

Permalink: Nikkei, Topix each add 0.3 percent by Elaine Frei

Filed under: Investments, Economy, News

In Tokyo on Monday the Nikkei 225 and the Topix index each added 0.3 percent on the session, to close at 17,470.46 and 1,733.59 respectively.

Export-focused sectors benefited as the yen weakened versus the US dollar. The machinery sector gained 1.4 percent as a whole, with Komatsu ending 3.4 percent higher to ¥2,560.

The steel sector gained on the news that JFE is in talks with South Korea’s Hyundai Steel. Nippon Steel added 1 percent to ¥711, while JFE was 1.6 percent higher to ¥6,800.

Word of a bird flu outbreak in Japan translated to gains for Chugai Pharmaceutical, the manufacturer of Tamiflu, which is believed to be effective against the disease in humans. Chugai added 1.8 percent to ¥2,780 on the session.

Internet and telecommunications company Softbank added 5.6 percent to ¥2,735 on an upgrade from Credit Suisse. The broker upped its recommendation from “under perform” to “outperform” and raised its target share price from ¥1,340 to ¥3,110.

In the retail sector, news that Wal-Mart could be looking for acquisitions in Japan sent its Japanese division, Seiyu, 13.1 percent higher to ¥190 on merger hopes.

Gold, most base metals prices decline

Permalink: Gold, most base metals prices decline by Elaine Frei

Filed under: Investments, Economy

Profit-taking and doubts among speculators about the potential for crude oil price gains sent prices lower on Monday. Brent crude for March delivery dropped $1.14 to $54.15 per barrel, while March contracts for West Texas Intermediate crude on the New York Mercantile Exchange fell $1 to $54.41 per barrel.

Despite predictions of more cold weather in the Northeast United States, Nymex February heating oil prices were also down, by 1.5 cents to $1.5760 per gallon.

Gold was lower in metals markets on Monday, trading at $645.70 per troy ounce ahead of a new decision on interest rates from the US Federal Reserve, due Wednesday.

Base metals prices were mostly lower. The major exception was tin, which added 0.4 percent to $12,250 per tonne on a drop of 375 tonnes on stockpiles and worries over a crackdown on independent smelters in Indonesia.

Nickel dropped 1.8 percent to $37,400 per tonne even though London Metal Exchange stockpiles were 600 tonnes lower to only 2,700 tonnes. Aluminium fell 3 percent to $2,710 per tonne as a strike in Guinea ended.

Copper and zinc were each down 3.8 percent, to $5,590 per tonne and $3,500 per tonne respectively. Copper inventories were up by 5,975 tonnes in LME warehouses as consumption has declined, likely as a consequence of the housing slowdown in the United States.

January 26, 2007

US internet sector gains on week

Permalink: US internet sector gains on week by Elaine Frei

Filed under: Investments, Economy, News

The New York equities markets were lower at midday on Friday and seemed determined to close out the week with losses as well. The Dow Jones Industrial Average was down 0.3 percent at mid-session to 12,468.11, down 0.8 percent on the week and even on the year. The Nasdaq Composite dropped 0.2 percent on the day so far, to 2,437.99, leaving it 0.5 percent lower for the week. Meanwhile, the S&P 500 was 0.1 percent lower to 1,421.85, a drop of 0.6 percent for the full week.

Technology stocks were mixed during the week, with most showing either big gains or big losses. Among gainers were Sun Microsystems and Texas Instruments. Texas Instruments gained 8.7 percent to $30.86 on a glowing quarterly report, while Sun was 9.5 percent higher to $6.32. Decliners included biotech company Amgen, down 3.8 to $71.41 on a report that did not meet expectations., and Advanced Micro Devices, which fell 8.9 percent to $16.15, again on unmet expectations.

In the internet sector, Yahoo added 2.7 percent over the week to $28.38, a gain of 11 percent since the beginning of the month. Meanwhile, eBay did better than expected in earnings and upped its guidance for this year. The online auctioneer added 8.2 percent this week to $32.09.

Automobile manufacturers were mixed. General Motors added 4.1 percent during the week, to $32.84 even though it dropped from its peak of $33.30 after it said it would delay its fourth quarter report even though it expected that the report would show a profit. On the other hand, Ford dropped 0.5 percent to $8.26 after it said it had taken a loss of $12.7 billion in 2006, the biggest yearly loss in the company’s history.

FTSE 100, 250 both lose on day, gain over week

Permalink: FTSE 100, 250 both lose on day, gain over week by Elaine Frei

Filed under: Investments, Economy, News

In London on Friday, the FTSE 100 dropped 0.7 percent to 6,228. This translated to a gain of 0.1 percent for the week. Meanwhile the FTSE 250 was down 0.5 percent on the day to 11,118.6, 0.4 percent higher over the week as a whole.

The tobacco sector was higher. BAT added 1.2 percent to £15.17, while Imperial Tobacco ended 2.6 percent higher to £21.06 as Citigroup said that BAT will likely get more return to shareholders both this year and next.

In the food and beverages sector, Cadbury Schweppes added 0.7 percent to 564p on new bids rumors that had private equity interested. US chocolate maker Hershey’s was also seen as a possible merger partner after its less-than-spectacular report earlier in the week.

The leisure sector was also hit by merger talk surrounding Rank Group, which gained 1.6 percent to 226½p.

Miners were lower on the day, with Xstrata the biggest loser among blue-chip stocks as it dropped 3.2 percent to £23.47. The pharmaceuticals sector was also down, with Shire falling 1.6 percent to £10.81 on a downgrade from Citigroup.

Among banks, Lloyds TSB was 0.3 percent lower to 583½p even though HSBC issued an increased recommendation, from “neutral” to “overweight”, and set a target share price of 630p.

Nokia adds 7.4 percent on week

Permalink: Nokia adds 7.4 percent on week by Elaine Frei

Filed under: Investments, Economy, News

The FTSE Eurofirst 300 ended the week 0.5 percent lower than it began, closing at 1,512.70 on Friday. The declines came after posting a six-year closing high on Wednesday.

This is not to say that there were not individual gains on the week. Mobile phone manufacturer Nokia added 7.4 percent on the week to €16.65 on a significant rise in operating profits in 2006. Deutsche Bank upgraded the company to “buy” and raised its target share price to €18.50.

L’Oreal was 7 percent higher to €80.60 after sales were higher than had been expected in the fourth quarter.

Pernod-Ricard gained 7.7 percent during the week to €158 even though broker comments were mixed. Credit Suisse upgraded the drinks company from “under perform” to “neutral” and raised its revenue growth guidance and target share price. UBS, Morgan Stanley, and ING also upped Pernod’s target share price, but ING also reduced its recommendation from “buy” to “hold”, citing valuation concerns.

Among the losers this week was software company SAP, which dropped 5.8 percent to €35.62. Alcatel-Lucent was 10.8 percent lower to €9.99. Airlines also saw losses, with Lufthansa down 6.9 percent to €21.16 and Air France-KLM 7 percent lower to €32.19.

Crude prices rise on anticipated demand for heating oil

Permalink: Crude prices rise on anticipated demand for heating oil by Elaine Frei

Filed under: Investments, Economy

Anticipated demand for heating oil amid forecasts of cold weather in the United States sent crude oil prices up on Friday. One forecast has temperatures in the Northwest and Midwest US remaining below normal for at least a week.

March contracts for Brent crude was 78 cents higher to $54.90 per barrel by late afternoon in London, a gain of nearly 3 percent on the week but still $5 below its price at the beginning of the year. Meanwhile, West Texas Intermediate crude for March delivery had added 78 cents by late morning trade on the New York Mercantile Exchange to $54.98 per barrel. WTI prices were up almost 6 percent during the week, helped by the announcement that the US will double its strategic oil reserves.

In metals markets on Friday, gold dropped close to $3 to trade at $643.90/$644.90 per troy ounce. It had gone to a nearly six-month high of $654 during Thursday’s session amid rumors that the International Monetary Fund had taken a decision to change guidelines on the accounting for central bank gold loans. The IMF denied the rumors and said it was still looking at the issue.

Three-month nickel hit a new record high for the eighth session in a row when it briefly rose to $38,800 per tonne on Friday on the London Metal Exchange after both sides at the Sudbury nickel mine in Canada rejected offers ahead of a January 31 strike deadline. The possibility of a strike comes at a time when inventories remain at about a day’s worth of worldwide consumption. Elsewhere, three-month aluminium dropped $5 to $2,787 per tonne, $110 below the cash price.

Yen stronger versus most currencies this week

Permalink: Yen stronger versus most currencies this week by Elaine Frei

Filed under: Investments, Economy

The yen had saw a turbulent week this week, sinking to multi-year lows against the US dollar, Australian dollar and sterling, while hitting another all-time low versus the euro before gaining against all but the US dollar by the end of the week despite declines on Friday. The Japanese currency was helped late in the week by weak inflation in Australia, while mid-week reports that the yen’s weakness would be a topic of conversation at February’s G7 meeting helped it versus the euro. Denials of that report on Thursday and lowered expectations for an interest rate increase next month led to new weakness.

By the end of the week, the yen ended up 0.2 percent lower versus the US dollar to ¥121.50, but higher against the euro, Australian dollar, and sterling. The Japanese currency added 0.3 percent over the week to ¥156.80 in relation to the euro, was up 0.5 percent to ¥238 against sterling, and gained 1.9 percent versus the Australian dollar, to ¥93.90.

Sterling, meanwhile, hit a 14-year high versus the greenback and a four-year high in relation to the euro early in the week before a speech by the governor of the Bank of England in which he said that inflation was likely to fall, “possibly quite sharply” after the middle of the year, and after the minutes of the last Monetary Policy Committee meeting were released. The minutes showed that the decision to raise interest rates at the meeting was 5 to 4 instead of the 7 to 2 majority that had been expected. By the end of the week, sterling was 0.7 percent lower to $1.9600 versus the US dollar and had fallen 0.3 percent over the week to £0.6585 versus the euro.

January 25, 2007

Existing home sales down 0.8 percent in December

Permalink: Existing home sales down 0.8 percent in December by Elaine Frei

Filed under: Investments, Economy, News

Even though more corporations issued positive quarterly reports, Wall Street was lower at midday on Thursday. The Dow Jones Industrial Average was 0.4 percent lower to 12,570.66, while the Nasdaq Composite was down 0.7 percent to 2,449.10 and the S&P 500 had dropped 0.57 percent to 1,431.92. The Russell 2000 index of small-caps dropped 0.82 percent to 787.55.

Investor sentiment was not helped by a new report from the National Assoication of Realtors that existing homes sales dropped by 0.8 percent in December. The inventory of existing homes for sale also fell, however, by 7.9 percent to 3.51 million. In addition, the Labor Department said that new jobless claims grew last week at their highest rate in 16 months.

Quarterly reports were released by companies in a number of sectors. Online auctioneer Ebay added $2.88 to $32.88 after it said its profits were up by 24 percent and sales grew by 29 percent in its most recent quarter. Nokia reported that profits were up by 19 percent, gaining 79 cents to $21 on the session so far. AT&T gained 26 cents to $36.89 on profits that were up 17 percent on more wireless subscribers.

Even though Ford Motor said it withstood its largest annual loss ever amid declining sales, the carmaker added 10 cents to $8.30 as investors were relieved that the news wasn’t worse.

Lockheed Martin added 81 cents to $91.95 on a quarterly report that showed earnings up by 28 percent on growth in its military hardware division. The defense contractor raised its full-year forecast on the basis on the new figures.

UK real estate sector up on broker comments

Permalink: UK real estate sector up on broker comments by Elaine Frei

Filed under: Investments, Economy, News

The FTSE 100 dropped 0.6 percent to 6,269.3 in London on Thursday, while the FTSE 250 was 0.2 percent lower to 11,171.1. The 100 briefly reached a six-year high, at 6,335.1, early in the session but dropped later on the slow start in the New York markets.

Real estate was higher on the session after JP Morgan reminded that the UK sector is currently a better bargain than its European rivals. Hammerson added 0.2 percent to £15.03, while British Land was 0.6 percent higher to £16.21.

Publisher Pearson added 0.9 percent to 817½p on bids rumors and after Citigroup upped its target share price to 900p.

The pharmaceuticals sector declined after Credit Suisse said that the sector would extend its underperformance into this year after a sector-wide decline of 5.2 percent last year, mentioning the trouble companies were having bringing new drugs to market and keeping them there once introduced. Shire dropped 1 percent to £10.99, while AstraZeneca fell 1.3 percent to £28.44 and GlaxoSmithKline was 1.4 percent lower to £13.93.

In a related news, medical devices manufacturer Smith & Nephew was 1.4 percent lower to 570½p after it was suggested that its next report might not show as much of an improvement in margins as is hoped.

Semiconductors gain in Europe

Permalink: Semiconductors gain in Europe by Elaine Frei

Filed under: Investments, Economy, News

The FTSE Eurofirst 300, higher early in the session, ended 0.3 percent lower to 1,522.87. The Eurofirst was hurt late by a slow start to the New York trading day.

The semiconductors sector saw gains in the day. Infineon added 2.4 percent to €11, while STMicroelectronics gained 2.5 percent to €14.38. STM was helped by positive comments from brokers that took the focus off the chipmaker’s disappointing quarterly results, announced on Wednesday. WestLB said that the new figures should be looked at in a wider context and hiked STM’s target share price from €16 to €18.

Nokia added 5 percent to €16.26 after reporting record mobile phone sales in the fourth quarter and amid mixed broker sentiment. While Merrill Lynch is advising its customers to buy the cell phone maker, Dresdner Kleinwort is recommending that its clients sell the stock.

Automobile manufacturers declined on new of losses by Ford Motor. BMW fell 1.4 percent to €45.99. DaimlerChrysler and Porsche were each 2.3 percent lower, to €48.64 and €1,010 respectively, with Credit Suisse lowering Porsche’s rating from “outperform” to “neutral” and suggesting that investors take profits. Peugot was down 3.3 percent to €52.

Airlines also saw losses. Iberia fell 1 percent to €3.01, while Air France-KLM dropped 3.9 percent to €32 and Lufthansa was 5.6 percent lower to €20.76 after it said that passenger yields would not grow significantly this year.

Nikkei 225 drops 0.3 percent on stronger yen

Permalink: Nikkei 225 drops 0.3 percent on stronger yen by Elaine Frei

Filed under: Investments, Economy, News

In Tokyo on Thursday, the Nikkei 225 dropped 0.3 percent to close at 17,485.30 as the yen strengthened after recent weakness. The decline came after the index achieved another six-year high early in the session. Despite this, many analysts believe that advances will be limited this year due to shares that they believe are too highly valued at present.

Some export-focused stocks were hurt by the currency’s gains. Printer and copier maker Canon fell 1.2 percent to ¥6,530. But not all exporters declined on the session. Helped by good results in tech stocks in the US, Sony added 1.6 percent to ¥5,720.

There were gains in the pharmaceuticals sector. Chugai Pharmaceutical added 6.5 percent to ¥2,715 after it announced, along with partner Roche, that studies for its new rheumatoid arthritis drug were proceeding well.

Shipper were higher after positive comments from Mizuho Securities. Mitsui OSK Lines was 1.1 percent higher to ¥1,264, while Kawasaki Kisen gained 1.15 percent to ¥1,053.

Yahoo Japan, up 1.05 percent to ¥48,250, reported that its quarterly profits were up by 20 percent.

The real estate sector, which has added more than 40 percent since last July, continued to rise even though some analysts believe that stocks are currently overvalued. Mitsui Fudosan added 1.6 percent on the session to ¥3,100.

OPEC shows signs of crude oil production cuts

Permalink: OPEC shows signs of crude oil production cuts by Elaine Frei

Filed under: Investments, Economy

Crude oil prices were a bit lower on Thursday. Traders worried that demand could grow at the same time that the Organization of Petroleum Exporting Countries seem to be living up to promised production cuts. ConocoPhillips reported on Wednesday that it had been ordered to cut production at its operations in Libya and Venezuela, indicting that OPEC member nations are beginning to comply with already-announced cuts.

Brent crude for March delivery was 13 cents lower to $55.30 per barrel in London, while at midday in New York West Texas Intermediate crude March contracts were trading at $55.28, a decline of 9 cents on the New York Mercantile Exchange after going as high as $55.90 earlier in the session. Gasoline and heating oil were each less than a cent lower, to $1.4609 per gallon and $1.5823 per gallon respectively. Natural gas prices were down to $7.166 per 1,000 cubic feet, a decline of 25.5 cents, even though the US Energy Information Administration said that stockpiles declined by 179 billion cubic feet last week.

Gold was lower in precious metals markets on Thursday, but silver, platinum and palladium were all higher. February Gold had dropped 20 cents to $648 per troy ounce on the New York Mercantile Exchange, while March silver was 19.7 cents higher to $13.47 per troy ounce. April platinum added $6.90 to $1,180 per troy ounce and palladium added $2.85 to $352 per troy ounce.

January 24, 2007

Aetna drops 47 cents after president’s proposal

Permalink: Aetna drops 47 cents after president’s proposal by Elaine Frei

Filed under: Investments, Economy, News

Wall Street was up at midday on Wednesday, with the Dow Jones Industrial Average 0.32 percent higher to 12,573.46, the Nasdaq Composite up 1.09 percent to 2,457.80, and the S&P 500 adding 0.41 percent to 1,433.79. Positive earnings reports from both Yahoo and Sun Microsystems helped the gains, while the previous evening’s State of the Union address from President George W. Bush didn’t seem to have much impact at all on investors’ activities.

After Mr. Bush proposed an expansion in health care coverage in the speech last night, health benefits insurer Aetna dropped 47 cents to $41.71. In a related sector, drug maker Pfizer added 22 cents to $26.59.

ExxonMobil dropped 22 cents to $74.26 after an announcement of higher crude oil, gasoline, and distillate inventories again last week. Alternative energy producers were lower as well, after posting gains before the president’s address. Ethanol maker Xethanol Corp. dropped 17 cents to $2.90, while Archer Daniels Midland fell $1.06 to $31.57.

Sun Microsystems added 43 cents to $6.09 after increased revenues gave the manufacturer of server and storage products its first quarterly profit in several years. Meanwhile, Yahoo gained $2.03 to $28.99 on fourth quarter profits that were higher than had been anticipated. But Advanced Micro Devices dropped $1.39 to $16.12 reported losses in the fourth quarter, which were blamed on flat sales of server chips.

FTSE 100 adds 1.4 percent on session

Permalink: FTSE 100 adds 1.4 percent on session by Elaine Frei

Filed under: Investments, Economy, News

Both the FTSE 100 and the FTSE 250 were higher on Wednesday. The 100 added 1.4 percent to 6,314.8, its highest close since January 3, while the 250 was 0.8 percent higher to 11,192.8.

The oil sector gained on the announcement that the United States plans to double the size of its strategic oil reserves by buying an extra 100,000 barrels of crude oil per day, as well as on a report that Dominion Resources, a US company, had received a bid. BP added 0.6 percent to 548½p, while Royal Dutch Shell gained 1.2 percent to £17.39.

Banks were up as well. Alliance & Leicester was 2.6 percent higher to £11.11, while Royal Bank of Scotland gained 2.9 percent to £21.03 and Northern Rock added 4.1 percent to £12.12 on higher profits than expected and record mortgage lending.

In the mining sector, Kazakhmys added 4.8 percent to £11.19 on a positive broker recommendation. Vedanta Resources was 5.8 percent higher to £11.90 on takeover rumors.

Properties groups benefited after the most recent Bank of England meeting minutes were revealed, showing that the vote was very close on the interest rate hike earlier this month. The closeness of the vote brought hope that interest rates would not be going up again soon, a positive sign for the properties market. British Land added 2.9 percent to £16.12, while Liberty International gained 4.4 percent to £13.18.

European banks in gains

Permalink: European banks in gains by Elaine Frei

Filed under: Investments, Economy, News

The European equities markets were higher on Wednesday, aided by gains in the banking and oil sectors. The FTSE Eurofirst 300 added 1 percent to 1,528, its highest closing level in six years.

In the oil sector, Statoil gained 1.6 percent to NKr163.50 on comments from UBS that outlined the upside of an announced merger with Norsk Hydro. The broker upgraded its recommendation on Statoil from “neutral” to “buy” and hiked its target share price from NKr166 to NKr185.

Banks saw gains in several nations. In Spain, JP Morgan issued upgrades for both BBVA and Santander. BBVA added 1.4 percent to €19.35 after its recommendation was raised from “neutral” to “overweight”, while Santander was 2.3 percent higher to €143.49 on an identical hike in its rating.

In Italy, Morgan Stanley upgraded both Banca Monte dei Paschi di Siena and Capitalia from “underweight” to “equal weight”. Siena was up 0.7 percent to €4.9525 and Capitalia gained 2.3 percent to €7.02. Meanwhile, the broker added Banco Popolare di Verona e Novara to its model portfolio, sending the bank’s shares up 3.1 percent to €24.10.

Meanwhile, UniCredit’s announcement that it will buy out minority shareholders in German bank HVB Group and Bank Austria Creditanstalt send shares in both banks significantly higher. HVB gained 4.2 percent to €36.00, while Bank Austria was 4.7 percent higher to €131.50. UniCredit, which already owns 95 percent of both banks, was up 1.6 percent to €7.2050.

Among losers on the day was SAP. The software maker dropped 6.5 percent to €35.89 when it said that margins would be lower this year and failed to issue an outlook on license sales.

Higher inventories send crude oil prices lower

Permalink: Higher inventories send crude oil prices lower by Elaine Frei

Filed under: Investments, Economy

Oil prices were down on Wednesday after new inventories data showed that crude oil, gasoline, and distillates stockpiles were all higher again last week. Crude oil inventories grew by 700,000 barrels to 322.2 million barrels in the week ending January 19, while gasoline stockpiles added 4 million barrels, much more than had been anticipated, to 220.8 million barrels.

Distillate inventories as a whole were up by 700,000 barrels to 142.6 million barrels; while heating oil stockpiles declined, diesel fuel inventories were up substantially. Stockpiles of gasoline, heating oil, and diesel are all at or above average for the time of year.

Brent crude March contracts were 95 cents lower to $54.14 per barrel, while March delivery West Texas Intermediate crude fell $1.04 by midday to $54.00 on the New York Mercantile Exchange after adding $2.48 on Tuesday, its biggest one-day increase since September 2005. The large increase in prices on Tuesday was triggered by an announcement from the US Department of Energy that the government plans to increase the capacity of the Strategic Petroleum Reserves from 691 million barrels to 1.5 million barrels, nearly double the current capacity.

Prices for petroleum products were also lower. Nymex heating oil and gasoline futures were each over 2 cents lower, to $1.5497 per gallon for heating oil and $1.4230 for gasoline.

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