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MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Wednesday, June 11, 2008
Summary Stock prices were sharply lower once again on
Wednesday, with all three major indexes losing about 2 percent of their
value, after oil prices shot back near their record high, stoking fears
about inflation and the potential toll on consumers. More signs of trouble in the financial sector further
soured the mood on Wall Street. The Financial Times said on Wednesday
that Lehman Brothers may look to raise more capital, hammering shares of
the investment bank. Lehman's stock has declined about 30 percent in
four straight days of losses. Lehman ended the day down $3.75, or 13.64 percent, to
close at $23.75, its lowest close since October 2002. Adding to the Lehman rival Goldman saw its shares fall $4.81, or
2.88 percent to close at $162.40. Goldman has been the sole major
investment bank to avoid fallout from the subprime mortgage crisis, but
traders said on Wednesday there was talk that it may have to write off
bad loans The Federal Reserve offered no comfort after its
report on regional economic conditions said higher energy and commodity
prices are being passed on to consumers in some areas, causing inflation
pressures. The report, known as the "Beige book," also said economic
activity was generally weak. Shares of energy-hungry companies, including
airlines, took a beating. Delta Air Lines fell $0.57, or 9.61 percent,
to close at $5.36, while FedEx was down $3.60, or 3.99 percent, to close
at $86.57. Fuel worries also weighed on NASDAQ’s transport components.
Shares of YRC Worldwide YRCW, Shares of retailers also fell, with Wal-Mart down
$1.26, or 2.11 percent, to close at $58.52. Alcoa was the top drag on the Dow, falling $3.4, or
7.96 percent, to close at $39.32 after JPMorgan cut its rating on the
aluminum producer's stock. Confounding the day's downward trend was Staples,
whose shares rose $1.23, or 5.31 percent, to $24.38 after Staples won
its battle to buy Corporate Express, the Dutch office supplies firm, for
$2.65 billion. Shares of Anheuser-Busch rose after the closing bell
following an announcement that it received an unsolicited takeover bid
from Belgian competitor InBev, the maker of Stella
Crude Oil Prices Up Sharply...Once Again
Crude oil prices on Wednesday rose sharply after a
report showed stockpiles in the Domestic crude futures settled up $5.07 at $136.38 a
barrel, within reach of last week's record near $140. Oil prices are being pressured by demand from Representatives of the world's biggest oil consumer
and producer nations will meet in Wednesday's oil price gains came after the Energy
Information Administration reported that crude stockpiles dropped 4.6
million barrels last week, the fourth consecutive weekly decline amid
soft import levels. Domestic crude inventories have fallen by 7 percent
since early May, intensifying concerns that global oil production is
failing to keep pace with rising demand from developing Asian economies. The report comes after the EIA and the International
Energy Agency on Tuesday reduced their forecasts for oil production from
non-OPEC nations this year amid steep field declines and delays in new
projects. The slowing growth in non-OPEC oil production was
expected to keep the world oil market tight even as high prices and
economic turmoil bite into consumption, a factor that led the EIA on
Tuesday to raise its 2008 oil price forecast by 12 percent to $122.15 a
barrel. A decline in the dollar on Wednesday also encouraged
buying. In recent months the weak dollar has drawn billions of dollars
into commodities markets as investors seek a hedge against inflation. Oil prices also received a boost from news that Shell
Oil was extending its force majeure on oil shipments from At the same time, figures
from the Chinese government point to a 25 percent year-on-year increase
in the nation's imports of oil in May, which experts said was related to
stockpiling ahead of the Beijing Olympics and increased demand for fuel
after the earthquakes.
Beige Book Reports Trying Economic Conditions
According to the Fed’s Beige Book, released on
Wednesday, businesses are facing rising costs but retailers have had
only "mixed results" trying to raise selling prices with the economy
still weak. "Business contacts in most districts reported
increases in input prices ... especially prices for energy, petroleum
derivatives, metals, plastics, chemicals, and food," the Fed said in its
Beige Book summary of economic conditions. The report said manufacturers reported "some ability"
to pass along their higher production costs to their customers, but
suggested the heightened price pressures had not ignite a broad consumer
inflation. "Retailers reported mixed results with respect to raising
final goods prices," the report said. The anecdotal report, based on an informal survey of
the Fed's contacts across the nation, said economic activity was
generally weak in late April and through June 2, the period covered by
the report. The upward march of energy and other commodity prices has
triggered inflation worries and raised expectations the central bank's
next step may be to increase interest rates to relieve price pressures. The report painted a vivid picture of a shaky economy
plagued by rising prices for energy, food, and some other raw materials.
Fed districts described economic activity as "softer, weaker, or lower,"
or "slower, sluggish, or modest." At the same time, consumer spending slowed as incomes
were "pinched" by rising energy and food prices, the Fed said.
Manufacturing was "soft," and residential real estate markets remained
"weak," the report added. At the same time, pressure to raise workers'
wages was moderate or limited, although hiring was "spotty," the Fed
said.
$46 Billion Offered for Anheuser-Busch
Anheuser-Busch, the nation's largest brewery,
received a purchase offer Wednesday from a Belgian brewer that might be
too good to refuse. Anheuser-Busch reported late Wednesday that InBev SA
gave it an unsolicited bid to buy the company for roughly $46 billion.
It's unclear whether senior Anheuser-Busch executives think the deal
makes sense, but shareholders may be drawn to the offer, $65 per share,
a steep premium over the company's closing price of $58.35 Wednesday. "Anheuser-Busch said that its board of directors will
evaluate the proposal carefully and in the context of all relevant
factors, including Anheuser-Busch's long-term strategic plan," the
company said in a statement. "The board will pursue the course of action
that is in the best interests of Anheuser-Busch's stockholders." Speculation has been rife in recent weeks that a
takeover bid was coming. The beer industry has been consolidating in
recent years amid rising ingredient costs and stale demand in the Shares of Anheuser-Busch soared 7.6 percent to $62.80
after hours, when the announcement was made. They had risen 2 percent in
late-afternoon trading, when rumors of the deal were reported on CNBC. Opposition to a potential takeover has already been
fierce in Anheuser-Busch's hometown of
Merrill Lynch May Sell Crown Jewels
Merrill Lynch CEO John Thain said that the world's
largest brokerage would consider selling its stakes in Bloomberg and
BlackRock if it needed more capital. Merrill has never before said it
would consider selling its stake in Bloomberg or BlackRock, and his
willingness to shed some of the firm's strongest assets signal how
difficult capital raising has become for investment banks. Merrill Lynch raised more than $12 billion from a
series of large outside investors, including sovereign funds such as But another factor would also make issuing common
shares costly for Merrill: investors who gave money to Merrill in
December and January must receive extra compensation if Merrill raises
additional capital at too low a price. An analyst estimated that if Merrill wanted to raise
$1 billion of new capital by issuing stock, it would have to raise a
total of $2.7 billion because of the compensation for prior investors.
Given that cost, assets like the Bloomberg stake might make more sense
to sell, even if Merrill would prefer to hold onto them. The investment bank agreed not to sell its stake in
BlackRock until sometime in 2009, but Merrill could ask for permission.
Merrill agreed to sell its investment management business to BlackRock
in February 2006, taking a 49.8 percent stake in the asset manager. Merrill has a 20 percent position in Bloomberg and it
has been an investor for more than two decades. The majority of the
company is held by founder Michael Bloomberg. Bloomberg must approve any
buyer of Merrill's stake.
A Four Trillion Dollar Loss When the
economy does finally level off, the feeling on Wall Street is that home
prices will have lost a third of their value, high-yield bond valuations
will hit levels close to those seen during the last recession, and what
may amount to $1 trillion of Wall Street losses may translate into
almost $4 trillion of lost access to capital. That's the
view of top credit analysts, who say the housing decline, sparked last
year by subprime mortgage debt defaults, will likely last another two
years as a wider group of consumers, including prime borrowers, feel the
pinch from a tightening of credit. Credit
markets also will be under pressure from massive write-downs and losses
stemming from consumer debt. The International Monetary Fund has
estimated write-downs from global investment banks may approach $1
trillion, while J.P. Morgan forecasts the figure may climb as high as
$600 billion. A senior
Fitch Ratings analyst forecast more defaults and delinquencies for "There are a
lot more mortgage defaults to come," said Glenn Costello, a Fitch
Ratings managing director. "We see an ongoing high level of default."
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MarketView for June 11
MarketView for Wednesday June 11
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