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U.S. stocks fell on again on Friday, with the S&P 500 Index dropping a fourth day in a row, as weaker-than- estimated retail sales drove down consumer shares and Intel sank to a six-month low. Nordstrom (NYSE:JWN). declined 7.2% after saying expenses increased in the second quarter, while retailers J.C. Penney Co. (NYSE:JCP) and Kohl’s Corp. (NYSE:KSS) both retreated at least 3.2%. Intel (NASDAQ:INTC), the largest maker of computer processors, fell on concern about increased competition although the better than expected Michigan consumer confidence mid afternoon did help the market rebound from the intra day lows. Utilities had the only gain among 10 industry groups in the S&P 500 after Dyneg received a takeover bid.

Blood Diamond Soup

Today stocks in Europe are better bid, bouyed by some M&A action with news that Vedanta has bought a 60% in Cairn Energy and a possible mega takeover deal of Aviva by RSA in the insurance space

Today’s Market Moving Stories

  • Overnight Asian stocks fell, led by electronics and finance companies, after Japan’s economy expanded at the slowest pace in three quarters and Hong Kong announced measures to cool home prices. Japanese economic growth came in below expectations at 0.1% qoq annualised with consumer spending stalling again. China has now taken over from Japan as the world’s number 2 economy with its economy valued at 1.33trn above Japan’s 1.28trn. Sony retreated 3.1%t, while Honda Motor Co. sank 1.% in Tokyo. Taiwan’s Asustek Computer Inc. slipped 1.% after JPMorgan. and Citigroup. analysts both cut their recommendations on the stock amid concern demand is slowing. Hong Kong’s Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, tumbled 4.4% on concern real- estate demand in the city will fall. Bloomberg reports that Hong Kong’s tightening of mortgage lending rules and plan to increase the supply of land may help cool surging home prices in the city, according to property agency Midland Holdings Ltd. Downpayments for apartments costing HK$12 million ($1.54 million)or more will rise to 40 percent, from 30 percent, with immediate effect, Hong Kong Monetary Authority Chief Executive Norman Chan said Aug. 13. The government will increase land sales next year, Financial Secretary John Tsang said earlier.

  • U.K. house prices fell late July and early August by an average of almost GBP150 a day as supply of new properties for sale sharply outstripped demand for a third straight month, a survey by Rightmove showed Monday. Expected interest rate rises in 2011 are set to weigh further on house prices through 2010 and into 2011. According to Rightmove’s latest index, house prices in mid-August fell 1.7% on the month but were 4.3% higher from a year earlier. That was the biggest monthly drop since December last year and compares with a 0.6% monthly decline and a 3.7% annual gain in July. The decline in asking prices comes as 29,220 new properties–the highest August level for three years–were put up for sale per week, a 41% increase from August last year. The number of potential buyers, meanwhile, remains low by comparison, as the holiday season means many Britons are not actively looking for a new home.

  • The FT reports that the Dodd-Frank financial reform bill has opened a 90-day window for banks to buy back $118bn in high-cost securities, a move that would enable them to replace the instruments with cheaper capital but is likely to cause tensions with regulators and investors.Wall Street executives and lawyers say several banks are considering redeeming “trust preferred securities” (Trups)– a hybrid of debt and equity – by taking advantage of a clause triggered by the new rules. Trups – equity instruments that pay interest like bonds – became popular in the financial crisis when banks sold more than $40bn-worth to investors ranging from Warren Buffett to small savers. Financial groups are interested in buying back the securities because Trups are an expensive form of capital. Banks needed to offer high interest rates to entice investors. Banks have an extra incentive to redeem Trups because the new law states that they will no longer count as tier one capital – a key gauge of financial strength – from 2013. The banks can buy back the securities now because most Trups’ contracts state that a legal change gives issuers three months to redeem them at face value. The removal of Trups from tier one capital amounts to such an event, lawyers say. “It is a big issue,” said a top US lawyer. “The question for banks is: do you want to keep paying high interest rates knowing that Trups are going to lose their status as tier one?” However, some executives counter that redeeming Trups could upset regulators, who are against reductions in bank capital, and investors, who bought them to hold for the long term. Moody’s estimates that US banks have about $118bn of Trups outstanding. The securities account for a significant part of tier one capital at lenders like Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C), according to the credit rating agency.

    Obama Talks Economics

Hindenburg Omen’ Suggests Slump in Stocks”

Bloomberg reports that stocks triggered a technical indicator known as the Hindenburg Omen that may signal a more severe selloff, according to analysts who follow charts to predict market moves. The market signal, named for a German zeppelin that caught fire and crashed more than seven decades ago, occurs when an unusually high number of companies in the New York Stock Exchange reach 52-week highs and lows. The indicator last occurred in October 2008, according to UBS AG.

The Standard & Poor’s 500 Index yesterday completed the biggest three-day decline since July 1, after an unexpected increase in unemployment claims added to evidence an economic recovery is weakening. The benchmark gauge for U.S. stocks has dropped 3.4 percent so far this week as Federal Reserve policy makers said growth “is likely to be more modest” than they previously forecast. The indicator may suggest “a savage equity downturn is imminent,” said Albert Edwards, a London-based strategist at Societe Generale SA, who has told investors to favor bonds over stocks for more than a decade. “Equities are tottering on the edge as increasingly recessionary data becomes apparent. It would not take much to tip them over that edge.”

The Hindenburg signal was triggered yesterday as the proportion of stocks reaching new one-year highs and lows both exceeded 2.2% of the total listed on the NYSE, according to Michael Riesner, a technical analyst at UBS in Zurich. The number of stocks at a 52-week high must not be more than twice the number marking lows, the technical theory also says, according to analysts. The indicator is only valid in a rising market, as defined by the NYSE Composite Index’s rolling average value in the last 10 weeks. It must also occur when the NYSE McClellan Oscillator, a measure of market momentum, is negative.

The Hindenburg Omen must be confirmed with a second occurrence within 36 days, according to Riesner. He said the signal occurred seven times in 2008 as the S&P 500 posted its biggest annual drop since the Great Depression “It’s an interesting name but what you really have as a technical background is a classic distribution phase in the market,” Riesner said. “It’s the classic tug of war between bulls and bears that you have there.” In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. UBS (NYSE:UBS) is ranked as the top bank for equity technical analysis and charting according to a 2010 Thomson Extel survey.

The Economic War

Company / Equity News

  • An Aviva (NYSE:AV) statement this morning confirmed that Ireland cricket team sposnsor RSA made a cash offer of GBP5bn for the UK, Ireland and Canadian general insurance businesses in late July. RSA will have funded through a rights issue. Aviva rejected the deal unanimously with the belief that the best value to its shareholders is through retaining the businesses within the group. Aviva posted total 2009 Life and GI combined revenues of GBP2.8bn (under IFRS), of which GI contributed 1/3rd at GBP960m and the UK GI at GBP535m. The statement comes across as quite unwavering in tone suggesting that Aviva would reject under any offer. But further weekend press is indicating that RSA has received commitment by three banks (Deutsche Bank (NYSE:DB), BNP Paribas (OTCQX:BNPQY), HSBC (HBC)) to underwrite a rights issue of up to GBP5bn. Also the issue that Aviva did not consult shareholders o/w Stalif is one of the larger ones of the offer and may come under some pressure to reconsider as investors look for more cash return from Aviva. Feels like this story has further to run,
  • The reasons Aviva provides for retaining the businesses as described in the press release are-

    . As part of its normal planning process the Board, supported by external advisers, recently completed a strategic review and concluded that having both Life and Non-Life businesses delivers significant capital and earnings benefits and that there are further synergies to be realised over the short to medium term.

    . Aviva is the leading general insurance business in the UK and Ireland, and the number 2 player in Canada, and should be valued accordingly.

    . The general insurance market is presently at a cyclical low. Accordingly, the current business performance does not reflect its full earnings potential. For example, Aviva’s general insurance businesses in aggregate made operating profits of £1.0bn in 2009 compared to £1.7bn in 2006.

    - The group’s recent 2010 first half results demonstrated the significant momentum delivered by management’s actions, with a material improvement in current year profitability, ahead of the market recovery occurring.

    . There are significant synergies for Aviva derived from the composite model in terms of a single global brand, cross-selling opportunities and shared back office services.

    . The combination of the Life and Non-Life businesses allows Aviva to operate with substantially less capital than the two businesses would do on a stand-alone basis, which is likely to be further reinforced under the Solvency II proposals.

    . The GI Business is highly cash generative which supports growth in the franchise alongside a healthy and increasing dividend for shareholders

    Could the recently opened Aviva (Landsdowne Rd) become the RSA ?

  • Bank of America (BAC) is considering reducing its 34% stake in BlackRock Inc., the world’s largest asset manager, a person briefed on the matter said. The bank, which acquired the holding through the purchase of Merrill Lynch & Co. last year, hasn’t reached a final decision, and no deal is imminent, the person said, declining to be identified because the deliberations aren’t public. The bank’s carrying value for the stake was $10.1 billion as of June 30, while the fair market value was $9.3 billion, according to an Aug. 6 regulatory filing.
  • Vedanta Resources (OTCPK:VDNRF) has agreed to buy 51% to 60% of Cairn Energy Plc’s (OTCPK:CRNCY) Indian oil unit for an aggregate consideration of about $8.5 billion to $9.6 billion in cash.
  • Hennes & Mauritz (OTCPK:HNNMY) (H&M to you and me), Europe’s second-largest clothing retailer, said total sales rose 21% in July, compared with the same month a year earlier. Sales in stores open at least a year increased 10%.
  • BP’s (NYSE:BP) relief well and bottom-kill procedures, aimed at permanently plugging its Gulf of Mexico Macondo well, are suspended until the company completes an analysis of complications that might result in a new oil leak. BP determined that 1,000 barrels of oil remain trapped in the well after cement was pumped in from the top earlier this month. Now U.S. officials fear some of that could be released, or new leaks may form, when the company pumps in more mud and cement into the bottom of the well for the final plug. “The National Incident Commander has requested further analysis to mitigate possible risks of a bottom kill procedure,” BP said in a statement on its website yesterday. “This work is ongoing.” The London-based company will probably need until tomorrow to come up with the plan, National Incident Commander Thad Allen said during a conference call with reporters on Aug. 14.
  • German construction company Hochtief AG (OTC:HOCFF)nMonday raised its outlook for new orders and order backlog after posting a 13% increase in second-quarter net profit. The Essen, Germany-based company now expects new orders and order backlog to increase in the full year compared to the EUR22.47 billion new orders and EUR35.59 billion order backlog it achieved in 2009. It previously expected new orders and order backlog to decline compared with a year earlier. “We have kept the flow of work coming. This can be seen from new orders, which were well in excess of work done and sales for the first half of the year in the group,” said Chief Executive Herbert Luetkestratkoetter in a statement. The MDAX-listed company confirmed its sales and earnings outlook, saying it still expects sales for the full year to be in line with the EUR18.17 billion of 2009, while it expect pretax profit and net profit to post a slight increase on the year. In 2009, pretax profit was EUR596.9 million and net profit was EUR191.7 million. Second-quarter sales were EUR5.08 billion and net profit reached EUR54.1 million.
  • Economy Air - Going Down Fast!

    Novartis (NYSE:NVS) CEO Joe Jimenez left open the possibility the Swiss drugmaker may raise its $9.8 billion offer to buy out eye-care company Alcon Inc.’s minority shareholders. Novartis will negotiate with Alcon’s board after the acquisition of Nestle SA’s (OTCPK:NSRGY) 52% stake in Alcon is complete, Jimenez said. Novartis in January exercised an option to buy Nestle’s shares for an average of $180 each in cash, and offered to purchase stock held by the public at a lower price.

  • Ireland’s Independent News & Media is planning a relaunch of the Sunday Tribune as a colour compact newspaper, a move which will place it in direct competition with the Daily Mail. This comes after Tribune Newspapers, in which INM has a 29.9% controlling stake, made losses of €3m last year and is on course again this year to make similar losses. The Sunday Tribune’s readership fell by 4.7% in the 12 months to June, while the Sunday Times saw an increase in its readership by 12% in the same period

And finally

Disclosure: None

Source: Report From Europe: M&A Buoys Stocks in Europe