US & World Daily Markets Financial Briefing 05-11-2007

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Stocks pull back amid credit concerns

NEW YORK - Stocks pulled back in early trading Monday as concerns about soured debt mounted after Citigroup Inc. warned it plans to book $8 billion to $11 billion in additional losses.
   
The scope of Citi's expected losses led to renewed concerns among investors worldwide over credit. The expected write-downs came on top of the $6.5 billion in asset markdowns and other credit-related losses the company recorded in the third quarter.
   
The re-emergence of credit concerns -- like those that riled Wall Street this summer -- comes as the market is also contending with concerns about the health of consumer spending and with rising expectations that the Federal Reserve is leaning away from cutting interest rates when it meets next month.
   
Some of the uncertainty about debt centers on who might be holding more bad  debt, including some that is kept at arm's length in off-book investment vehicles but that nonetheless could require some banks to take a hit should the investments falter.
   
In the first hour of trading, the Dow Jones industrial average fell 85.43, or 0.63 percent, to 13,509.67. The Dow had been down more than 100 points in the opening minutes.
   
Broader stock indicators also fell. The Standard & Poor's 500 index fell 10.43, or 0.69 percent, to 1,499.22, and the Nasdaq composite index fell 25.29, or 0.90 percent, to 2,785.09.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.31 percent from 4.32 percent late Friday.
   
The decline in stocks and the unease over Citi's debt follows the widely expected decision by Charles Prince to resign as the company's chairman and chief executive at an emergency meeting of its board Sunday. Citi fell $1.75, or 4.6 percent, to $35.98. It was the steepest decliner among the 30 stocks that make up the Dow industrials.
   
Prince's resignation comes less than a week after Stan O'Neal stepped down as CEO at Merrill Lynch & Co. Both Citi and Merrill have struggled with securities they hold that are tied to subprime loans, those made to borrowers with poor  credit. A faltering housing market has made it difficult for those struggling with mortgage payments to refinance and pay off debts.

Now, foreclosure rates are spiking and many banks are left holding loans worth far less than they had once been.
   
As it had Friday, Merrill fell amid concerns it would have to make an announcement of further write-downs. Last month, Merrill said it would write off $8.4 billion in losses. Merrill fell $1.83, or 3.2 percent, to $55.45 after falling nearly 8 percent Friday.

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Dollar steady above all-time euro lows; pound battered after UK PMI data

LONDON - The dollar remained steady above its all-time euro low but remains firmly on the backfoot as concerns over the US housing sector and the associated exposure in the US banking sector dominates sentiment.
   
Fears about the US banking sector as well as the world economy have been stoked further by yesterday's resignation of Chuck Prince as chairman of Citigroup and the associated 8-11 bln stg writedown.
   
Any assistance that Friday's better than expected US jobs report for October may have afforded the dollar has been more or less offset by the sub-prime related losses and associated writedowns and management changes at major institutions.
   
"A strong payrolls report for October didn't help the dollar, as heightened fears of further major credit-related losses by US banks saw traders price in more Fed (US Federal Reserve) easing," said NAB Capital strategist John Kyriakopoulos.
   
As well as being near its all-time low against the euro, the dollar is close to a 26-year low against the British pound, despite a soft report into the UK's services sector earlier today.
   
However far today's bounce-back reaches, the dollar remains firmly on the defensive and this week's economic news is unlikely to help, analysts said.
   
"We believe that the dollar will stay weak for now, as investors remain confident that economic prospects are more compelling elsewhere," said Ashley Davies, currency strategist at UBS.
       
Elsewhere, the pound was under selling pressure after the UK services purchasing managers' index (PMI) showed a sharp fall in October, suggesting UK growth is set for a sharper slowdown.
   
The Chartered Institute of Purchasing and Supply's PMI for the services sector dropped to 53.1 in October, the lowest level in over four years, from 56.7 in September. 
   
Though only two of the 41 economists polled by Thomson Financial News expect a rate cut this Thursday, today's data has stoked some market jitters, especially after the central bank's surprise move in January to lift rates.  

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Euroshares down midday, Wall St headed for sharply lower open, financials weigh

LONDON - Europe's leading exchanges were down in midday trading with the financial sector weighing on sentiment here and overseas, where US futures point to a sharply lower open on Wall Street after news that Citigroup will have to write off an additional 8-11 bln usd in subprime-related losses.
   
At 12.02 pm, the Dow Jones STOXX was trading 31.38 points, or 0.83 pct, lower at 3,752.15, while the STOXX 600 shed 3.41 points, or 0.90 pct, to 376.51.
   
"Investors have lost some of their trust in the banks' ability to accurately estimate their true exposure and losses," one Frankfurt-based trader said. "Apart from that there is nothing going on here (in Europe). We're waiting for the US, which is probably going to take a plunge today. But really, this 'crisis' can go on for a couple of years. The US is the biggest risk at the moment for everyone involved," he added. Right now, it's largely in the financials corner, but sooner or later the consumer will have to follow," he noted.
   
Rumours surrounding the UK's Alliance & Leicester did nothing to elevate the mood. Traders pointed to vague speculation that the bank approached the Bank of England for help and the stock plunged 6.09 pct. Among the major sector decliners, BNP Paribas was off 3.59 pct, while Deutsche Bank fell 2.72 pct.
   
UBS was down 3.35 pct on a Swiss news report that the bank's board would consider ousting Chairman Marcel Ospel if subprime-related losses are revised upward.
   
Shares in Munich Re were 1.72 pct lower after the world's second-largest reinsurer released third-quarter figures this morning which were in line with expectations, but failed to offer any surprises.
   
Elsewhere, EADS fell 4.98 pct after the group announced higher-than-expected charges related to delays in its A400M military aircraft programme and scrapped its 2007 guidance for earnings before interest and tax (EBIT).
   
STMicroelectronics rose 1.4 pct after the semiconductor maker finalised a licensing and supply deal with Nokia for 3G chipsets. A Paris-based dealer said today's announcement of the 3G deal, although not new, was galvanising positive sentiment around the share. "Basically, with STMicro, there's very little risk," he commented.
   
Shares in Siemens AG were 2.14 pct higher with investors expecting strong fourth-quarter figures from the electronics giant amid talk that it might widen its margin targets in key segments for the coming business year.
   
Volkswagen shares were down 2.78 pct. German weekly Der Spiegel said Porsche plans to delay increasing its stake in Volkswagen because of the resistance from workers' councils and the current strength of Volkswagen's share price.
   
On the merger and acquisition front, Sainsbury shares slumped 19.28 pct to an eight-month low after Delta Two, the Qatari-backed investment fund, pulled out of talks over a possible 10.6 bln stg takeover of the UK supermarket chain.
   
Delta said that, since its original proposal was submitted to Sainsbury's board, the required funding and cost of capital has increased significantly, adversely affecting the investment case.
   
Shares in Philips rose 2.66 pct on news that it plans to sell its 70 pct stake in ailing unit MedQuist if the price is right. Philips bought a 60 pct stake in MedQuist in 2000 for 1.2 bln usd, but the US unit has been in dire straits in recent years due to lawsuits over alleged securities violations and billing practices.

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Asian markets hit by subprime fears as Citi CEO quits; Hong Kong leads

HONG KONG - Stock markets across Asia fell Monday, weighed down by renewed concerns about the subprime sector meltdown in the US after the head of Citigroup quit and the bank announced up to 11 bln usd in additional writedowns.
   
"No one is sure when this will stop," said Stuart Smith, a private client advisor at Bell Potter Securities in Sydney. "There's real concern about the losses."
   
Political uncertainty in Japan following the surprise resignation of the main opposition leader at the weekend and the state of emergency in Pakistan added to the downdraft.
   
Hong Kong shares fell on expectations that a Chinese investment programme, dubbed the "through train", which will allow mainland citizens to trade Hong Kong stocks directly, will be further delayed after Chinese Premier Wen Jiabao set four conditions for its implementation.
   
Hong Kong stocks have scaled record highs in the two months since the Chinese government unveiled the programme. Investors are hoping that mainland investors will buy Hong Kong-listed shares of Chinese companies which are cheap in comparison to their counterparts listed in Shanghai. The Hang Seng plunged 1,526.02 points, or 5 pct, to 28,942.32, making it the worst performer in the region.
       
In Singapore, the Straits Times Index was down 1.2 pct at 3,670.18 and the Kuala Lumpur Composite lost 0.9 pct at 1,384.73. The Jakarta index closed down 2.1 pct at 2,652.48.
   
The Taiwanese Taiex bucked the trend, adding 0.3 pct at 9,308.60. The Philippine Composite was the only other benchmark to trade in the black, closing up 0.4 pct at 3,774.81, as investors bought shares after a four-day weekend.

Banking stocks across the region dipped after Citigroup, the world's biggest bank, rattled investors with the announcement that it expects additional writedowns of 8-11 billion dollars to reflect the declining value of the roughly 55 bln usd in US subprime-related securities it holds on its books.
   
Japan's top banks may lower their year-to-March earnings estimates when they release their mid-term results this month as there appears to be little hope the Bank of Japan will raise interest rates anytime soon, he said.
   
Investors had expected that the negative impact of the subprime loan trouble would have run its course by around September and October, after the losses were revealed, said Kazuhito Takahashi, equity general manager at Daiwa Securities SMBC. The Nikkei 225 closed down 1.5 pct at 16,268.92 and the broader TOPIX lost 1.6 pct to 1,575.13.
     
In Sydney, Commonwealth Bank fell 1.8 pct to 60.08 aud, National Australia Bank dropped 1.4 pct to 42.50 aud, ANZ lost 0.6 pct to 29.79 aud and Westpac fell 1.1 pct to 30.15 aud.
   
Macquarie Group, trading for the first time since a restructuring of Australia's leading investment bank, fell 5.2 pct to 78 aud. Investment firm Babcock & Brown dropped 4.1 pct to 28.42 aud. The Reserve Bank of Australia (RBA) is expected on Wednesday to hike its cash target rate 25 basis points to 6.75 pct as it moves to contain Inflationary pressures within a strong domestic economy.
   
The Australian S&P/ASX 200 finished down 1.7 pct at 6,582.3 and the All Ordinaries lost 1.6 pct to 6,620.1. The South Korean KOSPI ended down 0.2 pct at 2,015.76 after trading below 2,000 for much of the session.

Elsewhere, Shanghai-listed shares of PetroChina opened at nearly three times their issue price, helping the Chinese oil major overtake Exxon Mobil as the world's biggest company by market capitalization. The Shanghai Composite closed down 2.5 pct at 5,634.45.
       
In Seoul, Kookmin Bank stock closed down 4 pct to 67,200 won after a newspaper reported that it has clinched a deal to buy a small local brokerage, Hannuri Investment & Securities, for 280 bln won.

Indian shares closed lower Monday on selective profit taking in bluechips and tracking other Asian markets that fell on renewed concerns over the credit crisis in the US. The Bombay Stock Exchange's Sensex closed 385.45 points lower, or 1.93 pct, at 19,590.78 while the National Stock Exchange's S&P CNX Nifty closed 1.43 pct lower at 5847.30.
  
India's biggest oil exploration company Oil and Natural Gas Corp (ONGC) was the biggest Sensex loser, shedding 4.9 pct to 1,299.05 rupees, in sharp contrast to the 52-week high of 1,386.90 rupees it touched last Friday.

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Indian spot gold closes lower on global cues

MUMBAI - Indian spot gold prices closed lower Monday, with dealers attributing this to a a mix of strengthening dollar and falling oil prices.
   
Gold in London fell as the dollar recovered from an all-time low against the euro, which it touched on Friday, and on oil prices that eased to an intra-day low of 94.12 usd a barrel.
   
"We saw better-than-expected demand from wholesalers in Kolkata while demand was moderate in Mumbai and slack in the southern parts of the country," a senior treasury official with a Mumbai state run bank said.
 
He said this demand might be in anticipation of the compulsory purchases that consumers may make in the run up to the Hindu festivals of Diwali and Dhanteras.
   
"Demand has been poor at the retail level," said SK Jain, a partner of New Delhi-based Prakashchand Sheelchand Jewellers. "High prices have acted as a dampener on demand with festivals and the marriage season round the corner," Jain added.
   
Mumbai gold of .995 and .999 purity fell 60 rupees to close at 10,230 per 10 grams and 10,280 per 10 grams, respectively. Silver of .999 purity closed lower by 70 rupees at 19,355 per kg.

Robusta coffee hovers near fresh 10 year high in London

LONDON - Robusta coffee climbed higher in London, moving back towards a fresh 10-year high on strong investor interest and low stocks.
   
Coffee hit a ten year high of 2,394 usd last week, before retreating slightly as some of the fund money which had helped propel Robusta's rally came out of the market, as investors were happy to bank profits after new highs were reached.
   
However, fundamentals for Robusta in London remain strong, with crops at historically low levels, ongoing concerns about weather conditions in key producers, and a fresh influx on interest from non-physical fund buying.
   
Keeping prices capped are reports of good weather conditions in Brazil, the number one producer of Arabica coffee, however the extent of crop damage caused by the earlier drought, which had pushed up prices, is still uncertain. Also, the market could currently be overbought, due to the number of funds
currently investing in the market, a trader said.   
   
At 1.58 pm, Robusta coffee for November delivery was up 16 usd at 2,350 usd per tonne, having earlier hit an intraday high of 2,362 usd. Robusta has soared by almost 50 pct since the start of this year as investor interest in commodities has surged as players diversify their portfolios.
   
In a recent interview, Nestor Osorio, head of the International Coffee Organisation said coffee price volatility was largely down to investment funds. He said financial traders' decisions to buy or sell coffee moves the price "despite the fact that there was no change in market fundamentals, production, consumption, or the climate."
  
Meanwhile, wheat prices continued to edge lower after their recent run up to a series of all-time highs. News that Argentina, normally the world's sixth largest exporter, was returning exports to market following better than expected crops was weighing on prices.
   
Argentina had stopped exports of wheat in March due to poor crops led to fears of a national shortage. However, the resumption of exports has been accompanied by a large tariff from the government, analysts said.
   
"Although it may not be overtly bearish of wheat, certainly it is not bullish," said Dennis Gartman, editor of The Gartman Letter trading note.
   
Milling wheat for November delivery was down 1.25 eur at 228 eur a tonne on the Euronext Liffe in Paris, while feed wheat for January delivery was down 1 stg at 155 stg a tonne on the Euronext Liffe in London.
   
Elsewhere on the Euronext Liffe in London, cocoa for December delivery was down 6 stg at 953 usd a tonne, while No. 5 white sugar for December delivery was down 2 usd at 280.50 usd a tonne.

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