Interest-rate derivatives show investors are preparing for another round of turmoil in financial markets.
Stocks in Europe and Asia declined after concern deepened financial firms will post more losses. US index futures also dropped.
Barclays Plc slipped 4.6 per cent and Societe Generale SA slumped 3.8 per cent after JPMorgan Chase & Co said Lehman Brothers Holdings Inc may write down about $4 billion in credit-related investments this quarter as the mortgage market deteriorates. Ciba Holding AG, the world’s biggest maker of colours for plastics, tumbled 16 per cent after posting a loss on a writedown and higher raw-material prices. Home Depot Inc gained 2 per cent as profit beat analysts’ estimates.
The MSCI World Index lost 0.9 per cent to 1,323.87 at 12:43 pm in London as nine of the 10 industry groups decreased. Financial shares have led the MSCI World to a 17 per cent slump this year as losses and writedowns top $500 billion.
“The banking sector is still very, very difficult,” said Hugh Yarrow, a fund manager at Rathbone Unit Trust Management, whose parent company Rathbone Brothers Plc has about $22.3 billion. Any worries about the value of their holdings and “investors just start to panic,” he said in a Bloomberg Television interview.
Interest-rate derivatives show investors are preparing for another round of turmoil in financial markets. The five-year interest rate swap spread has climbed above 104 basis points on concern Fannie Mae and Freddie Mac, the two largest US mortgage finance companies, may need to be propped up by the government.
Breeding Fear: The measure has risen above 100 basis points in the past year ahead of the unwinding of structured investment vehicles, the collapse of Bear Stearns Cos and the seizure of IndyMac Bancorp Inc.
“Fear breeds fear,” Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview. “We are going to get more bad news. Corporate profits are going to be in further decline.”
William Hill Plc and Ladbrokes Plc fell as analysts at JPMorgan recommended selling shares of the UK gaming companies on concern the economic slowdown will cut earnings. Wienerberger AG, the world's biggest brickmaker, led construction companies lower after cutting its forecast following the homebuilding slump in the US
Europe’s Dow Jones Stoxx 600 Index declined 1.6 per cent, while the MSCI Asia Pacific Index slumped 2.1 per cent. Futures on the Standard & Poor's 500 Index fell 0.5 per cent.
Reports today showed German producer-price inflation accelerated to the fastest pace since October 1981 last month, while German investor confidence rose more in August than economists forecast after oil prices retreated from a record.
Barclays, SocGen: Barclays, the UK's third-biggest bank, lost 4.6 per cent to 327 pence. Societe Generale, France's second-largest bank, slid 3.8 per cent to ¤61.96. Commonwealth Bank of Australia, Australia's biggest mortgage lender, sank 2.3 per cent to $41.16.
Lehman will probably post losses in the third quarter following the deterioration in the mortgage market, New York- based analysts Kenneth Worthington and Funda Akarsu wrote in a report to investors dated Monday.
The analysts lowered their per-share estimate for the third quarter to a loss of $3.30 from a profit of 35 cents previously. Lehman will likely keep the Neuberger Berman LLC asset-management unit, the analysts added.
“There are general worries about the health of the US financial sector,” said Matt Buckland, a trader at CMC Markets in London.
Lehman slipped 3 cents to $15 in pre-market trading.
Home Depot, Ciba: Home Depot climbed 54 cents to $27.50. The company posted second-quarter earnings of 71 cents a share, more than the 61-cent average of analysts' estimates in a Bloomberg survey.
Ciba sank 16 per cent to 26.8 francs after reporting a loss in the second quarter. The Basel-based company had a net loss of 606 million francs ($552 million), compared with a 27 million- franc profit a year earlier, after taking a 595 million-franc charge to adjust goodwill at its water and paper-treatment unit.
William Hill, the UK operator of more than 2,250 betting shops, slid 3.9 per cent to 275.75 pence after JPMorgan downgraded the shares to “underweight” from “overweight.” Ladbrokes, a rival firm, was lowered to “underweight” from “neutral” Its shares dropped 5.7 per cent to 223.75 pence.
“We are cutting forecasts across our universe to reflect a recession scenario in 2009,” London-based analyst James Ainley wrote in a note to clients today.
Wienerberger: Wienerberger dropped 4.9 per cent to ¤16.93 after profit sank 39 per cent in the second quarter. Sales slipped 4 per ent to ¤90 million, missing the ¤05 million estimate from a survey of analysts by Bloomberg.
Operating profit will decline by 15 per cent 2008, compared with an earlier prediction of a 10 per cent drop, the company said.
Cie. de Saint-Gobain SA, Europe's biggest supplier of building materials, lost 4.1 per cent to ¤41.48. Lafarge SA, the world's largest cement producer, slid 1.8 per cent to ¤81.65.
Schindler Holding AG retreated 2.4 per cent to 72.4 francs. The world's second-biggest elevator and escalator maker posted second-quarter net income of 147 million francs ($134 million), missing the 149 million francs forecasts by analysts surveyed by Bloomberg.
Solarworld AG climbed to the highest in more than two months on renewed speculation General Electric Co may make an offer for Germany's third-largest solar power company.
The stock is “up again on unlikely rumors that GE will bid ¤37.50 per share for Solarworld,” said Thomas Nagel, a trader at Equinet AG in Frankfurt.
“There is no offer nor are there talks with GE,” Solarworld's Chief Executive Officer Frank Asbeck, 49, said in a telephone interview today. The shares rose 2.4 per cent to ¤32.59.
