Markets Tumble After Rate Cut
The bottom fell out of the markets fell after the Fed announced it would lower the federal funds target rate by 25 basis points to 4.25% as expected. The Dow Jones Industrial Average dropped 294.3 points (-2.1%), Standard & Poor's 500 index fell 38.3 points (-2.5%), and the Nasdaq decreased 66.6 points (-2.5%). Volume on the NYSE came in at 1.54 billion shares, and decliners trounced advancers by a ratio of about 5:1. Not only did every sector finish in the red, all but three finished more than 2% down. Crude gained $2.16 to $90.02/barrel. International Trade (8:30 AM), Import and Export Prices (8:30 AM), Quarterly Services Survey (10:00 AM), and the EIA Energy Petroleum Report (10:30 AM) are all due out Wednesday. Traders will be looking ahead to the PPI and CPI later this week.
Fed Cuts Again
The Federal Reserve said Tuesday it has decided to lower its key fed funds target rate by 0.25%, to 4.25%, a move widely expected by economists in light of ongoing turbulence in the credit and residential mortgage markets. The discount rate -- at which banks borrow from the Fed -- moved down 0.25% as well to 4.75%. The Fed has now cut overnight rates by 100 basis points since mid-September. "Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending," it said. The Fed stopped short, however, of dropping inflationary concerns from its agenda. "Elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully." Noteworthy is the missing "balance of risk" statement from last meeting. Equity markets were down sharply in the minutes following the announcement (full story). Before today's cut, CBOT futures predicted 100% odds of a further cut in January. After the announcement, the odds fell to 94%. Nine of ten FOMC governors voted for the move. Boston Fed Governor Eric S. Rosengren would have preferred to lower the target for the federal funds rate by 50 basis points. The rate cut had been widely predicted among economists: 115 out of 124 economists surveyed by Bloomberg predicted the move correctly.
Commentary: Why Markets Are Down Post Fed Cut • The Fed Disappoints - As Does Citi
Why Markets Fell Post Fed Cut
Equity markets fell sharply following the Fed's 0.25% cut to its federal funds target overnight rate. The S&P 500 index was off about 40 points, while Treasurys rallied. Some economists saw the drop as an indication traders were looking for a 0.5% cut, despite the nay-saying of an overwhelming majority of economists. To wit, while a full 115 out of 124 economists surveyed by Bloomberg anticipated a 0.25% cut, CBOT futures indicated that a 0.25% cut was fully discounted, while the odds of a half-point reduction were 28% prior to the move. "By cutting by only 25 basis points, the Fed effectively conveys its sense that recession risks are not as great as what market participants believe. In other words, the Fed sees recession risk as being less than 40 percent whereas the market sees recession risk as at least 40 percent," Moody's chief economist John Lonski said. Others felt the selloff was due to a more hawkish than expected economic outlook. "The rate decision and the Fed statement are more hawkish than market expectations and this should be bearish for equities and bearish for dollar/yen as well, but bullish for the dollar against the euro. This should accelerate the euro's downside against the dollar," JPMorgan Chase's Ken Landon said.
Fed Mulls More Moves to Ease Liquidity
The Federal Reserve, aware that Tuesday's quarter-point rate cut did not satisfy investors as a sufficient effort to aid locked-up credit markets (full story), is considering all means of easing liquidity, sources said Tuesday. The DJIA fell 2.1% following the announcement of the rate cut, erasing a third of its gains since late November (full story). "From talking to clients and traders, there is in their view no question the Fed has fallen way behind the curve," said Morgan Stanley economist David Greenlaw. "There's a growing sense the Fed doesn't get it." The Financial Times said the Fed is likely to propose a new liquidity facility that would auction loans to banks. This facility would give banks access to funds without the stigma associated with the discount window. The WSJ said the Fed is also considering cutting the discount rate again, making longer-term loans available to money-market dealers, and providing easier collateralized loans. New action could be taken as early as Wednesday, sources say.
Additional Reading: The Fed 's Rate Cut Fails to Change Reality
Greenspan: Large Losses Loom
In an op-ed article for the Wall Street Journal Wednesday, former Fed chief Alan Greenspan said August's credit crisis was "an accident waiting to happen." "Virtually overnight," Greenspan writes, "the seemingly insatiable desire for financial risk came to an abrupt halt as the price of risk unexpectedly surged." The freeze was the peak of a five-year mountain of euphoria fed by unprecedented global growth. History, he writes, has not dealt kindly with extended bouts of high risk tolerance. Bubbles, he says, can not be diffused with monetary policy, however nimble. Rather, the 'speculative fever' must break on its own. Greenspan notes that "arbitragable assets (equities, bonds and real estate, and the financial assets engendered by their intermediation) now swamp the resources of central banks. The market value of global long-term securities is approaching $100 trillion." He cautions the current credit crisis will not end until huge inventories of new homes are sold, and home-price deflation ceases. "That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business."
AT&T Rises on Dividend Hike, $15.2B Buyback
Shares of AT&T (T) rose more than 4% Tuesday after the company announced it would increase its dividend and launched a $15.2 billion share repurchase plan. The company raised its dividend by 12.7% and said it would purchase as much as 6.6% of shares outstanding. "Clearly they believe their stock's undervalued, which is great for investor confidence," Wachovia analyst Jennifer Fritzsche said. Some of AT&T's recent strength may be a result of its exclusive partnership with Apple (AAPL) in carrying its iPhone, which helped AT&T add 2 million wireless customers last quarter. The company also announced more plans for its TV service, known as U-verse. At the end of last quarter, the company had only 126,000 subscribers, but the company expects that number to increase 10-fold over the next few years as it makes the service available to more customers. AT&T projects U-verse will be available to 30 million customers by 2010. To build the infrastructure needed and deal with increasing internet traffic, AT&T said it will buy core routers from Cisco (CSCO). "As the demand for Internet and IP-based applications continues to explode, IP traffic on the AT&T network has doubled throughout the past two years, and we fully expect this substantial growth to continue in the future," said AT&T's John Stankey. The move is a win for Cisco, which fended off competition from Juniper (JNPR) for the business. Shares of Cisco were up 1.1% to $27.98 Tuesday. Shares of EchoStar (DISH) slid 3.1%, as analysts took AT&T's enthusiasm over U-verse as a sign a hoped-for DISH acquisition is unlikely. AT&T CFO Rick Lindner said Tuesday the company won't decide until H2 2008 whether it will take on EchoStar on rival DirecTV (DTV) as its sole satellite partner.
Additional Reading: AT&T Touts Its Open Network in Effort to Preempt Google
Earnings call transcript: AT&T Q3 2007
Sony CEO: Holiday Sales Strong
Sony (SNE) CEO Howard Stringer, speaking at a round-table interview, said sales of electronics in the U.S. have been strong, despite the "dodgy" economy. Mr. Stringer said the company is on track to achieve its goal of 5% operating margins by the end of the fiscal year in March. Sony has enjoyed improved sales of its PlayStation 3 console over the past month following the introduction of a cheaper model. In fiscal 2009, Mr. Stringer plans to create a home entertainment network based on the PS3, in order to exploit connectivity with the company's other products. Former CEO Nobuyuki Idei first introduced such a strategy centered around the PS2, but it was met with skepticism due to uncertainty over the company's ability to produce hits at its Films division. Another focus in fiscal 2009 will be to further develop OLED TV technology, which is brighter, thinner and consumes less power than LCD TVs. The end of Mr. Stringer's three-year turnaround plan is rapidly approaching. Sony shares have outperformed the Nikkei 225 (60% vs. 39%) since Mr. Stringer became CEO, but results have been impacted by continued losses at its Games division, which is expected to break even next fiscal year. Mr. Stringer said he expects he'll be around another three years, but not for the next 10. Sony's ADRs fell 0.2% to $54.59 Tuesday, amid a 2.5% drop in the Nasdaq.
Additional Reading: Sony Climbs on News of Dubai Investment; PS3 Tops Wii • RBC Survey Finds U.S. Consumers Spending Big on Electronics • Sony F2Q07 Earnings Call Transcript
Amazon 'Outmaneuvers' eBay in Bill Me Later Stake
Amazon.com (AMZN) said Tuesday it will take a minority stake in Bill Me Later Inc., an alternative online payment technology, and put its service on the Amazon site. Terms of the transaction were not disclosed. Bill Me Later gives consumers open credit accounts with which they can buy merchandise online or by phone without using credit cards. Stifel Nicolaus analyst Scott W. Devitt said that with the investment, Amazon "strategically outmaneuvered" rival eBay (EBAY), which owns the Paypal payment system. "PayPal would have been able to integrate Bill Me Later across its global platform and mitigate/monitor a long-term competitive threat to its franchise... eBay missed one here," Devitt said. The buy is also a boon for Amazon because it should help it cut credit-card processing fees. Bill Me Later is geared toward high net worth, credit-worthy consumers who are uncomfortable entering their credit card information online. It also appeals to merchants, because it charges them less per transaction than credit cards and offers superior data sharing.
Additional Reading: Amazon Invests in Bill Me Later
NBC to Refund Advertisers Due to Ratings Shortfalls
Amid an ongoing Hollywood writers' strike and declining television ratings, NBC has decided to return cash to some advertisers instead of providing them additional spots in what are known as "make goods." This is an unusual move, one of last resort say some industry experts, but fourth-ranked NBC faces further downward ratings pressure since it doesn't have any prominent new shows this season. Furthermore, Nielson's new method of rating commercial viewership of live TV and for three days on DVR has shown a worsening of NBC's ratings compared to minor increases for competitors. The reimbursements are for the Sept. 2006 to May 2007 period and were first reported by Nielsen's Mediaweek, which valued refunds at $500,000, on average, according to media buyers. Mediaweek noted CBS (CBS), ABC (owned by Disney (DIS)) and Fox (owned by News Corp. (NWS)) are issuing makegoods, primarily for Q1. NBC said the cash amount to be returned represents an "extremely small portion" of the company's business. Shares of NBC's parent General Electric (GE) lost 1% to $37.03 on Tuesday.
Additional Reading: GE's Earnings to Grow At Least 10% in 2008 - Immelt • NBC to Bring Docudrama to Prime-Time • NBC First to Buy TiVo Demographic Data to Improve Ad Effectiveness
Kroger’s Profits Up, But Outlook Falls Short
Kroger Co. (KR), the nation's third-largest grocery chain, said Tuesday Q3 profits jumped 18%, but its full-year outlook disappointed investors and the stock slipped almost 5%. Kroger's net income was $253.8 million ($0.37/share) compared to $214.7 million ($0.30/share) last year. Sales jumped 9.8% to $16.1 billion. Analysts were expecting $0.35/share on $15.7 billion of revenue. However, the company said it expects to "slightly exceed" its current projections of $1.64-$1.67/share for the full year (full earnings call transcript later today). Analysts had been forecasting an average of $1.70/share. The company has been hurt by higher fuel costs pinching margins at its gas pumps and increased spending to remodel stores. "You can't just simply set retail at whatever you want it to be," CEO Dave Dillon said. "In gas when you do, your volume drops off substantially." Shares of Kroger fell 7% to $26.35.
Earnings call transcript: Kroger F2Q07 (Qtr End 8/18/07) Earnings Call Transcript
TRANSPORT AND AEROSPACE
Boeing’s First 787 Dreamliner Still on Schedule
Boeing (BA) said Tuesday it is on schedule to test-fly its first 787 Dreamliner in the first quarter of 2008 and deliver the first plane in late 2008. The company was forced to delay the first delivery of the aircraft by six months in October because of shortages of parts and problems in production. Scott Carson, chief of Boeing's commercial airplane group, said there remain "significant supply chain wrinkles," but noted part shortages are declining. The Dreamliner already has 762 orders representing about $120 billion in revenue for Boeing. The airplane manufacturer also held steady on its plans to deliver 109 planes in 2009, but warned those plans assume "no major unknowns are uncovered in flight testing." Boeing will switch on a 787's power for the first time next month. Boeing fell 4.2% to $88.70 in Tuesday's session.
Additional Reading: Boeing Shares Look Undervalued • 787 Dreamliner Site
Earnings call transcript: Boeing Co. Q3 2007
ENERGY AND MATERIALS
GE's Earnings Should Grow At Least 10% in 2008 - Immelt
General Electric (GE) Chairman Jeffrey Immelt said Tuesday the slowing U.S. economy will affect the company's earnings, but strong international growth should push profits up by at least 10% next year. A 10% increase would amount to EPS of $2.42, slightly below analysts' consensus forecast of $2.49. "What I really want to give investors is a sense that 10% is in the bag," Immelt said. The conglomerate plans to either sell or seek partners for its private-label credit card business, which should ease investor concerns that GE is too involved in financial services. That unit represents over 50% of earnings. Financial services has been "a noose around the stock's neck," according to Bear Stearns analyst Ann Duignan. "It's been more difficult to justify an upside to GE using sum of the parts." Over the next few years, industrial operations should account for over 60% of earnings. "There is great visibility in infrastructure and significant global growth," Immelt said, adding that the pace of orders "continues to explode." Healthcare is forecast to grow approximately 10% in 2008 versus an estimated 2% decline in 2007. NBC Universal earnings are projected to rise about 10% next year versus 6% this year. Immelt said EPS should be $0.67-0.69 for Q4 and $2.19-2.21 for 2007, in line with expecations. The company will boost its dividend 11% to $0.31 per quarter and buy back $15 billion in shares over the next three years. GE shares fell 1% to close at $37.03.
Additional Reading: A Look at GE's Past Successes, and Future Potential
Exxon Proposes $1B LNG Terminal Off New Jersey
Exxon Mobil (XOM) said late Tuesday it plans to build a more than $1B / 1.2 billion cf capacity floating liquified natural gas [LNG] terminal 20 miles off the coast of New Jersey. The company predicts a heavy increase in global natural gas demand and said the 20 mile distance minimizes the terminal's footprint concerning environmental, safety and security matters. Exxon currently has three LNG terminal projects (two in Europe and one in Texas), but opposition is fervent along the East/West U.S. coasts. However, residents stand to benefit from easing of gas prices, which were recently 78% higher in the Northeast than the Louisiana benchmark. "Energy independence in this time frame is just impractical, and we will have to rely on additional imports of natural gas," commented Exxon's E.V.P. of Global LNG. The proposed New Jersey project is called BlueOcean Energy. Exxon is a Dow component (DIA) and is a double-digit (%) holding of the ETFs XLE, DIG, IYE. Shares of Exxon lost 1.9% to $90.28 during normal activity and rose 0.1% to $90.40 in late trading.
Additional Reading: Oil & Gas Industry Leaders, Investment Opportunities • Exxon Mobil May Resist Any Downturn in Oil Price Trend • ExxonMobil Q3 2007 Earnings Call Transcript
Citi Splits Its Helm: Pandit CEO, Bischoff Nonexecutive Chairman
Citigroup (C) named Vikram Pandit CEO Tuesday. Pandit previous headed its institutional clients group, and is a former Morgan Stanley (MS) capital markets executive. Citi also said Sir Win Bischoff will take over as "nonexecutive chairman." "I will work closely with Win, Bob and Citi's board and management to assure that our strategy, structure, scale and diversification position the company for growth," Pandit said. "Simplifying the company's organizational structure and aligning our businesses and resources with appropriate goals and economic realities will be among our initial priorities." "To some extent, the resolution of this situation will help because Citigroup has been leaderless for a while and this will at least give them some clarity. Although splitting it continues the ambiguity," economist Milton Ezrati commented following the move. Northstar's Henry Asher, conversely, saw the responsibility split as a positive: "This is the model these institutions need and want to have -- someone in a position of operating power and a non-executive chairman to oversee the bigger picture." Long-time shareholder and critic William Smith was disgusted by the move: "It's disappointing. Pandit is probably a decent manager but he is a segment manager. He is not a CEO. Win Bischoff is an absolute disgrace -- he has absolutely no reason to be even near the chairmanship. This is Citigroup. What is going to have to happen here is you are probably going to have to continue to see big mess-ups." Citigroup shares fell 4.3% after the announcement, which coincided with the Fed's 0.25% rate cut (full story) that sent equity markets down sharply (full story).
Fannie and Freddie Warn: More Gloom Ahead
The CEOs of Freddie Mac (FRE) and Fannie Mae (FNM) warned Tuesday Q4 results will be grim and 2008 will likely be a difficult year. Freddie Mac CEO Richard Syron told an investor conference the mortgage finance company is anticipating a second consecutive quarterly loss of about $2 billion and total credit losses in the $10-12 billion range. "Our fourth-quarter results are not expected to be better than they were in the third quarter," he said. "We think we've been quite cautious in [our estimates], but we did it in the interest of trying to assure people where we are and are trying to go." Syron believes the worst of the housing slump is yet to come: he expects home prices to slide 10% from their peak before the market hits bottom. Fannie CEO Daniel Mudd, speaking at the same conference, forecast "a very tough 2008" and said he expects the housing slump to continue into 2009. "The correction will begin to turn into recovery in late '09, when we start to see credit clear and liquidity restored," he said, while cautioning that "forecasting right now is fraught with peril." Fannie and Freddie said yesterday they will alter their policy of buying delinquent home loans after 120 days in order to reduce their exposure (full story). Both have also slashed their dividends and sold stock to bolster their capital following massive Q3 losses (full stories). Fannie closed down 7.1% at $34.29; Freddie ended the day down 10.6% at $31.31.
WaMu Shutters Subprime Unit, Slashes Dividend
In a move to raise $3.7 billion, Washington Mutual (WM) announced Tuesday it will slash its dividend, cut its workforce, and sell preferred stock. America's largest savings and loan, WaMu has been hit hard by the residential mortgage crisis. It plans to exit the supbrime market completely and cut more than 3,000 jobs. The company's quarterly dividend will also drop to $0.15/share from $0.56/share. CEO Kerry Killinger created a growth plan last year that relied heavily on loans to borrowers with tarnished credit histories, and now the company has the largest exposure to risky loans of the top five mortgage lenders. Killinger's leadership has come under question: "You just might say now's the time to take the golden parachute and walk away," said analyst Richard Bove of Punk Ziegel. The company will also take a $1.6 billion writedown related to home loan losses, and said it will suffer a loss in the fourth quarter. "Credit losses from WaMu's mortgage operations will be noticeably higher than previously estimated," and the bank's profitability will not "begin to recover" until 2010, Moody's said. The company also announced it will shutdown its broker-dealer unit. Shares of Washington Mutual plunged 12.4% to $17.42 Tuesday.
Additional Reading: Washington Mutual Is Headed Lower
Earnings call transcript: Washington Mutual Q3 2007
H&R Block Lower on Tripling of Net Loss, Delayed 10Q
H&R Block (HRB) was last down 7.5% to $18.46 in thin pre-market trading, after it released preliminary fiscal Q2 results of a more than tripling of its net loss to $502.3 million, or $1.55/share. In addition, the company notified the SEC it will be late filing its Form 10-Q. H&R Block said it plans to file no later than Dec. 14. H&R Block also postponed its quarterly conference call. Writedowns related to its discontinued mortgage arm, Option One, accounted for $366M, or $1.13/share of its preliminary losses. Efforts over the past year to sell Option One to Cerberus Capital Management ended in failure last week. H&R Block's net loss from continuing operations expanded to $136M or $0.42/share, compared to -$0.38 last year. Nevertheless, H&R Block reaffirmed its fiscal 2008 adjusted EPS forecast of $1.30 to $1.45, but said it expects results to be closer to the lower-end of the range. Analysts were expecting $1.36/share, on average. H&R Block lost 0.4% to $19.95 on Monday and fell another 3.3% to $19.30 in late trading. H&R Block competes with Jackson Hewitt (JTX) and Intuit (INTU).
Additional Reading: H&R Block's in Big Trouble Heading Into Tonight's Earnings • Activist Fund Breeden Partners Wins 3 Seats on H&R Block's Board
U.S. Bancorp Boosts Dividend, Names CEO as Chairman
U.S. Bancorp (USB) said Tuesday it would boost its dividend by 6.25% to $1.70/year. It also elected CEO Richard Davis as chairman of the board, replacing the retiring Jerry A. Grundhofer. Before joining USB, Davis was VP of Bank of America (BAC). Grundhofer had been seen as more likely to sell the firm to a larger bank until Davis took over as CEO in July 2006; he has since downplayed the odds of serious dealmaking. In October, UBS posted Q3 net income of $1.18 billion ($0.67/share), down slightly from $1.2 billion ($0.66) a year ago (full story). In November, the bank said it would restate Q3 earnings to reflect a $115 million charge related Visa's IPO next year, but said it expects its share of the planned IPO's proceeds should more-than offset the charge. First Call says analysts rate USB a hold, with a mean 12-month price target of $35.35. Shares fell 2.2% Tuesday to $32.85.
Additional Reading: U.S. Bancorp Q3 2007 Earnings Call Transcript
Merck Has High Hopes for Cholesterol, Obesity Drugs in 2008
Merck & Co. (MRK) said Tuesday it will develop and sell obesity and cholesterol treatments that resemble drugs of other companies that have faced safety issues. Merck's experimental cholesterol drug, anacetrapib, will enter final-stage testing next year. It is in the same class of drugs -- CETP inhibitors -- as Pfizer's (PFE) torcetrapib, which has been found to raise the risk of death and to elevate blood pressure (full story). "Anacetrapib had no effect on blood pressure," said Peter Kim, Merck's president of research. "These effects of torcetrapib appear to be due to an off-target, CETP-independent mechanism." Analysts estimate that anacetrapib could have annual sales of $15 billion. Merck's obesity drug taranabant, which is similar to Sanofi-Aventis's (SNY) Acomplia, will also begin final testing. Acomplia was rejected by an FDA advisory panel in June because of concerns that it might increase suicide risk. "There is still a healthy amount of skepticism surrounding [the taranabant] program," said Robert Hazlett of BMO Capital Markets. Merck also plans to market Cordaptive, a niacin drug used to raise good cholesterol that avoids a side effect that has hindered sales of Abbott Labs' (ABT) Niaspan. Cordaptive could have annual sales of $430 million by 2012. In related news, Merck is trying a third time to gain FDA approval to make Mevacor, its older cholesterol treatment, available over the counter. A preliminary FDA review said the drug is "reasonably safe and effective" if used as directed, but there is not yet "adequate consumer comprehension of the proposed product label to ensure safe and effective use."
Asian Markets Drop Wednesday, Mirroring U.S.
Asian indexes fell Wednesday across the board after traders were spooked by the dropoff in U.S. markets when the Fed dropped its target rate 0.25%, disappointing those who had hoped for a more robust 0.5% cut (full story I, II). The Nikkei fell 0.7%. Losers included Canon (CAJ -2.4%), Nissan (OTCPK:NSANY -2.3%), Softbank (OTCPK:SFTBF -1.7%) and Honda (HMC -1.3%). Yahoo Japan (YHOO) was up 2.5%. The Hang Seng plunged 2.41%. Cnooc (CEO -3.8%) and China Unicom (CHU -3.4%) were big losers. MTR Corp. was the only index constituent to close up.Shanghai's Composite Index fell 1.54%. "I think Tokyo is reacting more to Wall Street's negative reaction than to the Fed's decision itself," said Yosuke Shimizu of Monex Inc. The yen declined against all 16 of the most-active currencies as traders speculated investors will begin moving holdings out of a weaker Japanese market into higher-yielding overseas markets. "Winter bonuses will be paid out and retail investors may buy high-yielding assets," one analyst said. "This should be supportive of foreign currencies against the yen." On Tuesday Bank of America forecasted December Japan capital outflows at $7.2 billion; it cut its yen forecast to 110/dollar from 108.
Europe Stocks Near Highs, But Still Down After U.S. Selloff
European markets opened lower Wednesday morning, playing catch-up with a large drop in U.S. markets Tuesday after the Fed dropped its target rate 0.25%, disappointing those who had hoped for a more robust 0.5% cut (full story I, II). Markets were near their highs at 6:00 a.m., as were U.S. index futures. The FTSE 100 is off 0.94%. Troubled U.K. bank Northern Rock (OTC:NHRKF) fell another 6.4% after shedding 3.2% Tuesday. Banks were big losers, including Royal Bank of Scotland (RBS -4.3%) and Barclays (BCS -3.9%). Buyout target Rio Tinto (RTP) was down 3% while its courter BHP Billiton (BHP) fell 2.6%. Rio said Wednesday it saw nothing new in BHP's recent comments that its offer remained 'compelling.' Xstrata, which gained 2.8% Tuesday on after it said it is open to talks with potential suitors, fell back 1.4%. BAE systems (OTCPK:BAESY +1%), Vodafone (VOD +0.2%) and Cadbury Schweppes (CSG +1.1%) were among early gainers. The CAC 40 is down 1.23%. Renault (OTC:RNSDF -3.5%) and AXA (AXA -2.7%) were among losing constituents. Alcatel-Lucent (ALU) shares were up 0.4%. Germany's Dax is off a milder 0.48%. DaimlerChrysler (DAI) is down 2.4%, Infineon (IFX) is off 1.7% and Deutsche Bank (DB) fell 1.6%. Bayer (OTCPK:BAYRY +1.7%) and BASF (OTCQX:BASFY +1%) were among gainers. "Obviously down on the back of the Fed," said Leeds stockbroker David Scott. "It was the over optimists that were hoping for a half (point cut), but they've got problems on the inflationary front (and) can't go slashing rates outrageously."
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