US & World Daily Markets Financial Briefing 05-09-2007

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Stocks open lower following run-up

NEW YORK - Stocks fell sharply in early trading Wednesday as investors grew cautious a day after Wall Street rallied on hopes for an interest rate cut.
   
Investors' concerns about spreading fallout from market turmoil intensified after the European Central Bank said it would consider steps to curb recent euro money market upheaval. The statement was a sign the ECB might not lift its benchmark interest rate when it meets Thursday; there had been speculation it would raise the rate a quarter percentage point to 4.25 percent.
   
Wall Street is waiting for economic data that could help indicate whether the Federal Reserve will reduce its benchmark federal funds rate when it meets in two weeks. The Fed's Beige Book, which describes economic conditions in regions around the country, is due Wednesday afternoon. Wall Street could be disappointed if the Beige Book's largely anecdotal findings don't help make the case for a rate cut, which markets have been pining for.
   
The Fed has held rates steady for more than a year in a bid to reduce inflation that remains above its comfort level. The Beige Book could help indicate whether the economy has been slowed by a stumbling housing market, rising mortgage defaults and tightening access to credit. Stock markets have been volatile for more than a month over such concerns.
   
Wall Street will also be looking to data on how the housing market is faring. In the first hour of trading Wednesday, the National Association of Realtors' report on pending sales of existing homes is slated to arrive.
   
Investors had been somewhat more optimistic in recent sessions and sought stocks that have been turned into bargains by declines. The Dow Jones industrial average rose in three of the last four sessions, jumping 91 points Tuesday.
   
In early trading, the Dow Jones industrial average fell 93.64, or 0.70 percent, to 13,355.22. Broader stock indicators fell. The Standard & Poor's 500 index fell 13.51, or 0.91 percent, to 1,475.91 and the Nasdaq composite index fell 15.86, or 0.60 percent, to 2,614.38.
   
Bond prices rose. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.51 percent from 4.55 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.
   
Britain's FTSE 100 fell 0.78 percent, Germany's DAX index declined 0.77 percent, and France's CAC-40 fell 1.16 percent.
   
In corporate news, MGIC Investment Corp., a mortgage insurer, and Radian Group Inc., a credit risk manager, said Wednesday they are dropping plans to merge because of troubles in the mortgage industry. MGIC agreed in February to pay about $5 billion in stock for Radian. Neither side will pay a breakup fee.
   
Radian fell $1.87, or 10.3 percent, to $16.24, while MGIC rose $1.13, or 3.7 percent, to $31.47. The deal's collapse could cause jitters on Wall Street as investors have been trying to determine whether the housing pullback and credit tightening might not only slow dealmaking but upend transactions already under way.
   
Mattel Inc. announced a third major recall of Chinese-made toys in little more than a month because of excessive amounts of lead paint. The world's largest toy maker said the move affects about 800,000 toys. Mattel fell 79 cents, or 3.6 percent, to $21.18.
   
Costco Wholesale Corp., the warehouse retailer, fell $3.22, or 5.2 percent, to $58.39 after reporting its August same-store sales rose a weaker-than-expected 2 percent largely due to strong international sales.
Same-store sales, or sales at stores open at least a year, are a widely followed indicator of retail health.
   
Most major retailers will be reporting their August sales on Thursday. Apple Inc. slipped 5 cents to $144.11 ahead of an announcement Wednesday that analysts expect will include upgrades to its iPod digital media players.

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Pound gains after solid services data, BoE intervention; Yen edges up

LONDON - The pound gained after a solid PMI survey on the services sector offset earlier weak housing and consumer data, and after the Bank of England finally announced a move to tackle the liquidity crisis in money markets.
   
The CIPS survey of purchasing managers in the services sector jumped to 57.6 from 57.0 in July, well above forecasts for a decline to 56.5 and providing further evidence that the UK economy continues to hold up well despite the recent turmoil on financial markets.
       
Focus for the time being will centre on tomorrow's interest rate decision by the Bank of England, where rates are widely expected to be left on hold at 5.75 pct given the financial market uncertainty. Speculation is mounting, however, that the BoE may -- unusually for an unchanged rate decision -- issue an accomanying statement, given that the August inflation report assumed that interest rates would have to rise further.
   
Meanwhile, there was some relief in sterling markets as the Bank of England finally announced measures to add some liquidity into the financial market system. This follows the recent barrage of criticism reported in the media from banking officials at the BoE's inaction, in contrast to other major central banks including the European Central Bank and the Federal Reserve.
   
In its operational update, the BoE said it is raising its aggregate reserves target by 6 pct, from 16.560 bln stg in the maintenance period ending today to 17.63 bln stg. The BoE said that increase in the demand for reserves will be supplied at the Bank Rate of 5.75 pct in the Open Market Operation (OMO) tomorrow.
   
The move comes as UK three-month sterling Libor rates have jumped to their highest level since late 1998, reaching more than 100 basis points above the central bank's base rate.
   
However, analysts pointed to the BoE's insistence that the move is designed to tackle overnight rates which have been inflated by liquidity problems, rather than longer-term rates such as three months which are more likely to be caused by credit problems.
   
"These (longer-term) rates will remain elevated until wider concerns over the US sub-prime crisis and associated credit issues start to ease," said Jonathan Loynes at Capital Economics.   
      
The yen meanwhile edged higher as investors continue to remain wary of risk and gradually unwind carry trades -- a popular and risky trade until the recent market turmoil where money is borrowed in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere.
   
The Canadian dollar gained slightly after the Bank of Canada left interest rates unchanged at 4.50 pct as expected. In its accompanying statement, the BoC said the economy is now operating further above its potential and noted that inflation remains above the bank's target.
   
At 1.33 pm GMT, the US dollar was trading at 1.0528 Canadian dollars, down from 1.0534 cad just before the announcement.

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Euroshares down midday ahead of ECB, BoE meetings tomorrow, Dow seen lower

LONDON - Leading European exchanges moved lower midday as Dow is seen posting heavy opening losses and as investors here took profits ahead of tomorrow's rate-setting meetings by the ECB and BoE.
   
At 12.49 am, the Dow Jones STOXX 50 was down 34.12 points, or 0.9 pct, at 3,769.75 and the STOXX 600 was 3.64 points, or 0.96 pct, lower at 375.84.
   
Statoil was leading its peers higher, up 2.19 pct, on the back of an upgrade by Citigroup to 'buy' from 'sell' ahead of Statoil's upcoming merger with the oil and gas activities of Norsk Hydro ASA. Norsk Hydro was up 2.63 pct.
   
Total also gained ground, up 0.2 pct, as dealers cheered the group's smaller-than-expected reduction in its production targets while indeed, also pointing towards the oil price.
   
Utilities, though, were under pressure again, with Suez and Gaz de France adding to this week's losses as investors continued to take profits after the pair announced the final terms of their merger on Monday. The pair fell 1.69 pct and 1.4 pct respectively.
   
The deal is placing pressure on peers RWE and EON, down 1.31 pct and 0.82 pct, as investors fear heightened competition. The pair are also being weighed down by reports earlier this week that the German Environment Minister wants to close a number of nuclear plants earlier than many had expected.
   
The automotive sector was in the spotlight following a mixed showing in US August car sales data overnight.
   
Renault led the fallers after a bearish note from UBS, which said the French car group would be hurt more than its German manufacturers if the likely further slowdown in US car sales materialises. Shares fell 3.27 pct. BMW was down 0.92 pct, while DaimlerChrysler fell 1.12 pct
   
But Porsche added 1.57 pct as UBS lifted its rating on the German luxury group to 'buy' from 'neutral'. And Scania added 1.85 pct after raising its market forecast for the European heavy truck market to 420,000 units per year from its previous estimate of 385,000.
   
Banking stocks put in a mixed showing after Lehman Brothers upped the sector to 'overweight' from 'underweight' but made a number of downgrades in the sector. Credit Suisse, down 0.74 pct , was downgraded to 'equal-weight' from 'overweight'. Deutsche Bank was down 0.81 pct after it was downgraded to 'underweight' from 'overweight'. Societe Generale slumped 2.34 pct after it was downgraded to 'underweight' from 'equal-weight'.
   
But Credit Agricole topped the STOXX 50 riser board, adding 1.06 pct, after the broker upgraded the French banking group to 'overweight' from 'equal-weight'. And Banco Espirito Santo was the only gainer among Lisbon blue chips after its was upgraded to 'overweight' from 'equal-weight'. Shares added 0.12 pct.    

In earnings news, ABB Ltd lost 2.21 pct following disappointment over the engineering group's new set of targets, which were only 'in-line', and the lack of any buyback news, prompting profit-taking. Vinci added 0.13 pct after the group reported better-than-expected first-half EBIT last night and announced a large buyback programme.

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Asian markets close mixed; Japan hit by US growth fears

SINGAPORE - Stock markets across Asia closed mixed Wednesday after a positive close on Wall Street overnight, but Japan faltered on concerns about growth in the US, a key market for Japanese goods.
   
In Tokyo, The Nikkei 225 closed down 262.02 points or 1.6 pct and the broader Topix lost 1.7 pct. The South Korean Kospi also lost ground, down 9.15 points or 0.5 pct at 1,865.59.
   
But most other Asian benchmarks were higher, with the Hang Seng index closing above 24,000 points level for the first time on expectations weak  US data will tip the Federal Reserve's hand and lead it to cut its key fed funds rate at its meeting on Sept 18. The Hang Seng Index closed up 183.10 points or 0.77 pct at 24,069.17, off a low of 23,839 and a new all-time high of 24,283.15.

In China, the benchmark Shanghai Composite Index closed up 16.67 points or 0.31 pct at 5,310.72.
   
In Australia, the S&P/ASX 200 closed down 30.6 points or 0.5 pct at 6,262.7, while the All Ordinaries lost 0.3 pct. Retailer Coles Group rose 51 cents or 3.6 pct to 14.75 aud while conglomerate Wesfarmers edged up 23 cents or 0.6 pct to 38.81 aud after Coles said its board has recommended an enhanced share-and-cash offer from Wesfarmers.
   
In Philippines, the composite closed up 0.9 pct, as electric utility Meralco rebounded from its recent  lows. In late trade the stock jumped five pesos or 6.5 pct to 82, recouping some of the losses suffered in the past two sessions after the regulator set lower-than-expected tariff ceilings on rates for the next four years.

Indian shares closed flat as investors opted for a cautious stance ahead of key US economic data to be released later this week. The Bombay Stock Exchange's benchmark Sensex closed 0.12 pct or 19.25 points lower at 15,446.15, while the National Stock Exchange's S&P CNX Nifty slipped 0.08 pct to end at 4,475.85 points.
   
In Malaysia, the Kuala Lumpur Composite rose 1.1 pct at 1,297.93 on optimism that the government will announce positive measures for the corporate sector and individual taxpayers when the 2008 national budget is unveiled Friday.
    
Meanwhile, the Taiwan's weighted index closed down 0.10 pct at 8,913.85 and the Jakarta Composite finished down 0.50 points at 2,214.62.
   
In Singapore, the stock exchange said the Straits Times Index computation may not be fully reflecting the  movement of its components. The exchange cautioned on its website not to rely on the index reading until further notice.

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Gold continues lower on profit-taking after yesterday's 6-wk highs

LONDON - Gold continued lower in midafternoon trade as investors took profits after yesterday's gains, with a slightly firmer dollar and softer equity markets also conspiring to hold prices down.
   
But the precious metal remains near six-week highs as strong supply and demand fundamentals and strength elsewhere in the commodities complex continue to underpin positive sentiment, analysts said.
   
At 2.33 pm, spot gold was trading at 679.65 usd an ounce against 682.20 usd in late New York trade yesterday.
   
Silver meanwhile tracked gold lower to trade at 12.16 usd against 12.29 usd.
   
"Prices are still in lockstep with gold..., but participants are paying especially close attention to the potential direction of the US economy as silver's fortunes very much depend on good offtake from industrial sources," said Jon Nadler, an analyst at Kitco Bullion Dealers. "In fact, there appears to be some doubt about outperformance of gold by silver in coming months."
   
Among other precious metals, platinum eased to 1,268 usd per ounce against 1,272 usd, while its sister metal palladium edged down to 328 usd from 332.50 usd.

At 10.38 am, copper for three-month delivery was trading at 7,370 usd against 7,328 usd at the close yesterday.
  
Southern Copper workers at the Toquepala and Cuajone mines and the Ilo smelter have rejected the company's pay offer from several weeks ago. Southern Copper is one of the world's largest producers of the red metal.
  
The latest strike news adds to the woes of Grupo Mexico, Southern Copper's parent company, which is already dealing with a strike at its giant Cananea copper mine.
  
In other base metals, nickel slipped to 28,350 usd against 28,650 usd. Nickel lost around 4 pct yesterday after demand from stainless steel producers continued to wane.
   
Nickel hit a record high of nearly 52,000 usd in May on tight inventories, but stocks have rapidly increased since, as high prices drove previous buyers to source alternatives to the metal.
    
Lead rose to 3,065 usd from 2,976 usd, while zinc was up slightly to 2,964 usd against 2,935 usd at the close yesterday.

The price of milling wheat traded on the Euronext Liffe exchange hit a fresh record high of 300 eur per tonne as reports of a poor harvest in the southern hemisphere fuelled buyers' fears of a shortage. Wheat has set a series of fresh highs in recent weeks on fears crops from key producers Australia and Argentina have been affected by drought.
   
"Every day brings a new record, and we don't really know where this is going to stop," said one trader. "The European market is following the rise in the US market, which in its turn is following the European market. It's endless."
   
The high comes a day after US wheat futures traded on the Chicago Board of Trade hit a new record above 8 usd per bushel, climbing to their daily trading limit.
  
At 2.26 pm, milling wheat for November delivery trading on the Euronext Liffe had reached 297 eur per tonne, off its earlier high of 300, against 285 eur yesterday.

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