US & World Daily Markets Financial Briefing 02-11-2007

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Wall Street pulls back after jobs report

NEW YORK - Wall Street waffled Friday after a surprisingly strong October jobs report failed to alleviate escalating worries about the beleaguered financial sector.
   
The Labor Department said employers added 166,000 jobs to their payrolls in October, the most since May. The figure was nearly double what economists had expected, according to a Thomson/IFR survey. The unemployment rate held steady at 4.7 percent, in line with September and analysts' consensus forecast.
   
But Wall Street was clearly still shaky after Thursday's plunge, which took the Dow Jones industrials down more than 360 points. The market has been mercurial lately, with economic data coming in mixed and the possibility of interest rate cuts ending, and Friday's trading saw the major indexes alternating between gains and losses.
   
The biggest losers in the stock market Friday, as they have been in the past few months, were financial institutions -- including Merrill Lynch & Co., Washington Mutual Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. Multiple analysts have issued research notes in recent days expressing concern about banks' and brokerages' exposure to the tight credit markets and the likelihood of subprime mortgage problems spilling into other types of consumer debt.
   
It's likely that as strong as the jobs number was, investors will need to see more evidence of a stronger economy and more stability in the credit markets before they can make any major commitments to stocks.
   
The Dow fell 41.95, or 0.31 percent, to 13,525.92 in mid-morning trading, partly reflecting the pullback in financial stocks.
   
Broader stock indicators also fell. The Standard & Poor's 500 index fell 5.43, or 0.36 percent, to 1,503.01, while the Nasdaq composite index rose 2.53, or 0.09 percent, to 2,797.36.
   
Bond prices rose. The yield on the 10-year Treasury note, which moves opposite the price, fell to 4.30 percent from 4.35 percent late Thursday.
   
This week has brought a jumble of contradictory economic news.  The market on Thursday was unnerved by news that consumers cut back their spending in September and that the manufacturing sector expanded in October at the slowest pace since March. But earlier in the week, an initial estimate of third-quarter economic growth came in stronger than economists had expected, at 3.9 percent.
   
Oil prices rebounded on the New York Mercantile Exchange, after dropping sharply Thursday. Prices have been exceptionally volatile in recent days as the market treads through record territory. A barrel of oil rose 79 cents to $94.28.
   
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 415.2 million shares.
   
The Russell 2000 index, which tracks the performance of small-company stocks, fell 0.50, or 0.06 percent, to 794.68.
   
European stock markets followed Wall Street lower. Britain's FTSE 100 fell 0.59 percent, Germany's DAX index shed 0.47 percent, and France's CAC-40 declined 0.58 percent.

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Dollar sinks to new record low against euro as market shrugs off US data

LONDON - Even forecast-beating US job creation figures could not prevent the dollar from sinking to a new low against the euro, at 1.4525 usd, reflecting just how weak sentiment on the currency remains.
   
The dollar has been under sustained pressure ever since the troubles in the US sub-prime mortgage market emerged. The Federal Reserve's response has been to lower interest rates, first by a half-point reduction in August and this week, a quarter-point cut, taking the base rate to 4.50 pct in order to shore up the economy. Now though it is starting to look like the Fed will stop there.
   
In the meantime, the fallout from the sub-prime market has continued, with the Fed forced to pump another 41 bln usd into money markets yesterday, its largest injection since the 50 bln it made after the September 2001 terrorist attacks on New York and Washington, prompting fears that the world's banking sector may be into further multi-billion dollar write-downs.
   
Those concerns were accentuated by the news that Citigroup may be forced to slash its dividend to meet its capital ratio requirements.
   
In recent bouts of mounting risk aversion, the dollar has benefited, but analysts think it will now take more uncertainty for the US currency to be supported.
   
Against this backdrop, the day's US jobs data, though keenly awaited, only managed to lift the dollar very briefly.

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Euroshares fall midday, dragged lower by banks, miners; US jobs report awaited

LONDON - Europe's leading exchanges extended prior-session losses midday led by a steep fall in banking stocks on ongoing credit concerns and a pullback in the mining and metals sector on global growth worries.
  
Investors are now waiting to see if a key US jobs report can prompt a recovery on Wall Street following yesterday's sell-off.
   
At 11.38 am, the Dow Jones STOXX 50 Index was down 40.80 points, or 1.1 pct at 3,774.98 while the DJ STOXX 600 Index was off 3.78 points, or 1 pct at 379.85.
   
Turning back to Europe, banks pulled back sharply in a knock-on effect from US broker CICB World Markets' decision to downgrade its recommendation on Citigroup and Bank of America because of their exposure to the US subprime mortgage market.
   
Downgrades of Dexia and Fortis at UBS did nothing to elevate the mood this morning. Fortis, down 4.93 pct, was slashed to 'sell' from 'buy' whilst Dexia, down 1.76 pct, was cut to 'sell' from 'neutral'.
   
Barclays shares fell 5.7 pct on fresh fears over the UK bank's exposure to the US sub-prime mortgage crisis, and on market rumours that the group has sought support from the Bank of England.
   
Mining and metals stocks also took a knock on concern a US-led economic slowdown could lead to weakening demand for raw materials.
   
Among the biggest decliners, ArcelorMittal and Voestalpine fell 4 pct apiece, Anglo American dropped 3.5 pct while Rio Tinto shed 3.4 pct.
   
On the earnings front, British Airways fell 2.44 pct after it revised its revenue guidance to 3-3.5 pct growth because of the continued weakness of the US dollar.
   
Shares in Adecco shed 2.11 pct as some analysts expressed concern over a fall in third-quarter revenue at the Swiss staffing group's French and US operations, even as profit for the three-month period topped consensus forecasts.
   
Other staffing groups traded lower with Randstad off 0.9 pct while Vedior fell 1.8 pct and Hays slipped 0.8 pct.
   
Elsewhere, paper manufacturer Norske Skogsindustrier ASA plunged 7.1 pct after posting significantly weaker-than-expected third-quarter earnings. But analysts said falls were being limited by the continued possibility of a takeover, The group said a combination of weaker selling prices, higher raw material costs and negative currency effects were to blame for the disappointing results.
   
Turning to M&A news, Metro AG gained 4.1 pct after a report in the Handelsblatt newspaper said Arcandor AG's Karstadt department stores aim to acquire the retail giant's Kaufhof unit and then merge it within the unit.
   
Shares in Schneider Electric rose 1.2 pct after a research note from SG Securities re-ignited talk of a takeover by Swiss rival ABB, according to market sources. ABB was down 1.3 pct.
   
Elsewhere, Morgan Stanley started coverage on the reinsurance sector, with preferred insurer Swiss Re started as 'overweight', Munich Re 'equal-weight' and Hannover Re 'underweight'. The broker said in its view, sector winners will be those to embrace insurance linked securities.
  
And SG Securities reshuffled its ratings on the luxury goods sector to take into account slower organic growth as demand weakens in the US and Asia from the fourth quarter of this year and into 2008, with watch companies rather than leather goods groups likely to bear the brunt of the economic slowdown.
   
The broker maintained its 'neutral' stance on the sector, but cut Hermes and Bulgari to 'sell' from 'hold' and Swatch to 'sell' from 'buy. It also cut Swiss luxury goods group Richemont to 'hold' from 'buy' but raised Tod's to 'hold' from 'sell.'

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Japan's Nikkei stock average fell 2.09 percent, while Hong Kong's Hang Seng index fell 3.25 percent.

Indian shares ended higher as heavy buying in blue-chip shares during the last hour of trade pulled up the key index which was dragging its feet at levels over 450 points in the red. The country's largest lender, State Bank of India, hogged the limelight, rising 9 pct after winning government approval to sell stock through a rights issue.
   
The Bombay Stock Exchange's benchmark Sensex ended 1.28 pct or 251.88 points higher at 19,976.23. It had dropped to a low of 19,255.77 points, a loss of 469 points for the day after an overnight plunge on Wall Street dampened local sentiment. The National Stock Exchange's S&P CNX Nifty ended 1.12 pct up at 5,932.40 points.
   
Among the BSE-30, 21 shares gained and 9 lost. In the broader market, 1,403 shares advanced, 1,337 declined and 62 were unchanged.
  
Thai shares closed lower on Friday as selling spread across the board following sharp losses on Wall Street amid concern over the outlook for the US economy.
   
Sentiment was weak as Asian stocks also tumbled on fresh fears over the fallout from the US subprime loan crisis. The Stock Exchange of Thailand (SET) composite index fell 8.39 points or 0.93 percent to 894.34 and the blue-chip SET 50 index lost 7.34 points to 661.86.

Singapore shares closed sharply lower Friday, tracking weaker regional bourses after Wall Street saw sharp losses overnight on fresh concerns about the health of the US economy.
   
The benchmark Straits Times Index declined 88.24 points or 2.3 percent to 3,715.32, after swinging between a low of 3,695.94 and a high of 3,746.98. The index lost 56.23 points or 1.5 percent during the week.
   
Traded volume reached 2.4 billion shares valued at 2.9 billion Singapore dollars.
 
The Kuala Lumpur Composite Index closed the session down 11.68 points or 0.8 percent at 1,397.48, off a low of 1,385.85. For the week, the KLCI inched down 0.9 of a point.   

The FTSE Bursa Malaysia 30-large cap index lost 55.68 points or 0.6 percent to 8,789.11 and the second board index fell 0.7 point or 0.6 percent to 109.98.  Decliners led gainers 599 to 238, with 274 stocks unchanged.

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Copper edges higher after stronger-than-expected US payrolls data

LONDON - Copper edged higher in early afternoon trade after the release of stronger-than-expected US payrolls numbers for October, as investors holding short positions -- or bets that prices will fall -- scrambled
to cover their positions.
   
Aluminium also rose to a 10-week high on the news, which has helped allay fears that slowing economic growth would crimp demand for the base metals, which are widely used in construction and manufacturing.
    
At 1.27 pm, LME copper for three-month delivery was up at 7,540 usd a tonne against 7,505 usd at yesterday's close, when it lost 2.9 pct of its value. Copper opened a touch weaker this morning after sliding to a seven-week low yesterday amid weaker equities, a stronger dollar and rising inventories.
   
LME-monitored stockpiles of the metal rose a further 1,425 tonnes to 168,425 tonnes this morning. The inventories are up some 28 pct from a month ago.  Earlier, the metal touched 7,460 usd, its lowest in a month and a half.
   
Aluminium meanwhile was trading at 2,585 usd a tonne against 2,541 usd yesterday, having earlier touched a high of 2,588 usd, its highest level since mid-August. As well as the payrolls data, prices were supported by a 2,725 tonne dip in LME-monitored inventories of the metal to 915,525 tonnes.
   
Elsewhere lead posted healthy gains, trading at 3,709 usd against 3,570 usd yesterday. "A combination of end of week book squaring and systematic buying is the reason behind the move," said RBC Capital Markets analyst Alex Heath in a note.
   
Nickel was the sole loser, dipping to 32,250 usd from 32,450 usd. The LME said its inventories of the metal, a key component in stainless steel, rose 1,266 tonnes to 38,928 tonnes this morning, the largest net daily inflow since Oct 5.
   
Nickel stocks are currently at their highest level since February 2000, according to analysts.
   
Among other metals, zinc edged up to 2,760 usd from 2,740 usd, while tin rose to 16,550 usd from 16,500 usd.

At 1.16 pm, spot gold was trading at 794.78 usd an ounce against 789.10 usd in late New York trade yesterday. They metal hit a 28 year high of 799.25 usd yesterday, before running into resistance at the key psychological level.
   
Gold, which has gained some 25 pct since mid-August, is getting ever closer to its all time record high of 850 usd an ounce, last seen in 1980 during the fall out from the Iranian revolution.
   
In real terms, having adjusted for inflation, the 1980 price would be equal to 2,079 usd today. However, some analysts have warned that gold remains at risk of large scale profit-taking, especially if it touches the psychologically key 800 usd mark.
   
Elsewhere, the market shrugged off stronger than expected employment data out of the US, with the dollar taking only the slightest boost due to the incredibly weak sentiment currently surrounding greenbacks.
       
Among other precious metals, silver was trading up at 14.41 usd against 14.14 usd in New York yesterday. Platinum fell to 1,441 usd against 1,444.50 usd, while palladium dropped to 366 usd from 372.25 usd.

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