US & World Daily Markets Financial Briefing 10-08-2007

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Stock prices tumble again; Dow drops 130

NEW YORK - Wall Street skidded further Friday as investors again succumbed to anxiety over tight credit conditions even after the Federal Reserve said it would do all it can to "facilitate the orderly functioning of financial markets."
   
In early trading, the Dow Jones industrials dropped 136.73, or 1.03 percent, to 13,133.95, adding to a 387-point plunge on Thursday. Broader stock indicators also fell. The Standard & Poor's 500 index fell 19.86, or 1.37 percent, to 1,433.23, and the Nasdaq composite index fell 36.01, or 1.41 percent, to 2,520.48.
   
The market, which has been gyrating for weeks over fears that credit is drying up, actually suffered a milder loss than expected at the opening. That indicated that the Fed, which also injected cash into the banking system early Friday, had helped soothe investors somewhat, but the drop still showed the depths of fear that have investors yanking money out of stocks.
   
Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni president of Yardeni Research in Great Neck, N.Y.
   
But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting." He noted that it was Fed rate cuts that soothed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management.
   
Early Friday, the New York Fed announced a three-day repurchase agreement, or "repo," to inject liquidity into the market. The Fed said early Friday it would accept $19 billion in mortgage backed securities. The move came after the fed funds rate, the rate banks charge each other for overnight loans, ticked above 6 percent again Friday -- well above the Fed's target of 5.25 percent and a sign that credit was becoming harder to obtain.
   
The Fed stepped in after the same occurrence Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system. In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.
   
The Fed's move pushed the fed funds rate down to 5.375, still above its target.
   
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 206.2 million shares. The Russell 2000 index of smaller companies fell 13.11, or 1.67 percent, to
771.76.   

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Euro loses ground as interest in ECB tender betrays banks' worries

LONDON - The euro lost some of the gains made earlier today after the European Central Bank's decision to tender additional funds was met with increased interest by European banks, suggesting these institutions remain worried about a lack of liquidity in the financial system.
   
The ECB awarded 61.05 bln eur of liquidity at its 3-day quick tender only a day after awarding 95 bln eur. While there were 49 banks receiving funds yesterday, there were as many as 62 today, bidding for a massive 110 bln eur. The spread of the bids was very wide, suggesting some banks were worried about not obtaining the money they needed.
   
"This indicates there is still some nervousness in the market," said Deutsche Postbank analyst Heinrich Bayer.
   
The implication that European financial players are still panicky about a lack of liquidity pushed the euro off gains made earlier today. Additionally, analysts have come to wonder how long the ECB can continue to inject cash into the money market while at the same time signalling a rate hike in September.
   
If the credit crunch remains in place for the next few weeks, "it is likely that a September move can be ruled out," said Stuart Bennett. If, on the other hand, the crisis resolves itself quickly with the help of central banks, the ECB will probably go ahead with a hike in September, Bennett said.
   
Also weighing on the euro were second-tier statistics from the morning, with a dip in French industrial production suggesting downside risk to second quarter GDP as well as an easing in Italian HICP inflation, where the annual rate for June was revised down to 1.7 pct from 1.9 pct previously.
   
Elsewhere, the yen remained strong, as the risk aversion pushed investors to continue to unwind carry trades -- trades which use low-yielding currencies to fund higher-yielding investments.
   
The US dollar and Swiss franc also remained strong on safe-haven bids, whereas the biggest casualties have been the higher-yielding pound as well as the Australian and New Zealand dollars.

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Euroshares continue to slide midday, investors sell off ahead of weekend

LONDON - Europe's leading exchanges continued to slide lower midday, amid fears over a global credit crunch, as traders noted further intervention by the ECB and with investors eager to dispose of their holdings ahead of the weekend.
   
At 12.21 pm, the Dow Jones STOXX 50 fell 117.97 points or 3.14 pct to 3,633.51, while the STOXX 600 retreated 11.38 points or 3.04 pct to 362.89.
       
European financials were suffering heavily throughout this morning, and the Dow Jones sector index for banks fell 4.29 pct. Royal Bank of Scotland is in focus, as its shareholders will gather at an extraordinary general meeting today to cast their vote on the group's bid for rival ABN Amro and are anticipated to approve the deal.
   
Shares dropped 5.39 pct, while peer Barclays declined 5.21 pct, Societe Generale lost 6.34 pct and KBC was 3.78 pct lower, despite posting strong second quarter results.
       
Thyssenkrupp also fell victim to depressed markets, down 1.21 pct, while its third quarter results were impressive.
       
Adecco declined 4.87 pct as the temporary employment group presented overall solid second quarter results, which were however uninspiring. The only negative point was Adecco's disappointing second quarter sales growth, he said.
   
Petroplus Holdings fell 8.71 pct, as it released net profit which was 39 pct below consensus, impacted by the acquisition of two refineries in France, and maintenance shutdowns in two other refineries.
   
Staying in Switzerland, OC Oerlikon Corp retreated 14.50 pct, off lows of more than 19 pct falls, amid speculation that falling share prices could cause problems for major shareholder Victory Industriebeteigung AG.
   
A-TEC Industries AG dropped 6.17 pct after it dismissed reports that it is in negotiations with Italy's KME Group S.p.A. on the sale of A-TEC's stakes in Norddeutsche Affinerie AG and Cumerio, as well as the A-TEC unit Montanwerke Brixlegg.
   
Elsewhere, Fraport gained 4.57 pct as dealers pointed to rumours that the airport operator might be the target of a possible takeover attempt, and others said the gains were due to a large amount of misplaced shorts.
      
Shares in carmaker Peugeot fell 4.15 pct and analysts pointed towards the weakening market, and also noted that many traders have likely taken a long position in the stock ahead of a strategy announcement due on Sept 4.
   
Alitalia was only 0.59 pct lower, as Corriere della Sera reported that a group of six industrial and financial investors represented by Antonio Baldassarre has sent an expression of interest in the airline to the Italian treasury minister. The newspaper cited Baldassarre, who has been chairman of state-owned broadcaster RAI and chairman of the country's Constitutional Court.
   
In broker action, Delhaize is a clear buying opportunity according to ING, following the supermarket group's excellent second quarter results yesterday.

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Asian stocks close sharply lower, battered by US subprime worries

MANILA - Share prices closed sharply lower across Asia, tumbling as rattled investors sold off stocks on concerns that the turmoil in the US subprime mortgage market may be spreading to the international financial sector.
   
The Nikkei 225 Stock Average plunged 406.51 points, or 2.4 pct, to close at 16,764.09, its lowest level since March 16. The blue-chip gauge lost 1.3 pct for the week.
   
South Korea's key KOSPI closed down 80.19 points, or 4.2 pct, at 1,828.49. The point decline was the KOSPI's third largest ever, while the percentage fall was the biggest in over three years, wiping out about 40 trln won in market capitalisation.
   
Australia's S&P/ASX 200 lost 3.7 pct, equal to more than 53 bln aud in market cap. Hong Kong's benchmark Hang Seng slid 2.9 pct, before trade was suspended because of a typhoon. Taipei's weighted index dropped 2.7 pct.
   
Singapore's Straits Times index was down 53.99 points or 1.6 pct to 3,359.18 as the government's more upbeat economic growth estimate for the year after a strong first-half performance fell on deaf ears, with investors more concerned about tightening global credit markets.
   
The Bank of Japan pumped 1 trln yen into money markets Friday. That was more than double the 400 bln yen the BoJ injected on Thursday and the highest since it offered 1 trln yen on June 29.
  
An official in charge of BoJ's market operations, who declined to be named, said the fund injection was done "to contain overnight night call rates because they moved higher."
   
Overnight call rates traded at 0.53/0.54 pct this morning, according to data by market brokers, higher than the BoJ's 0.5 pct target and up from the weighted average of 0.517 pct on Thursday.
   
In Australia, the Reserve Bank added more than twice the average daily amount of money it injects into the banking system. The central bank's market data showed it injected 4.95 bln aud into the banking system Friday, well above the daily average for the year of around 1.86 bln aud.
     
Elsewhere in Asia, Malaysia's composite index fell 25.69 points or almost 2 pct to 1,287.70, Indonesia's equity benchmark slumped 34.01 points or 1.5 pct at 2,207.40, while the Philippines' composite index closed down 03.24 points or 3 pct at 3,281.96.
   
In China, shares were lower though traders said investors were more concerned about the inflation data due Monday. The benchmark Shanghai Composite Index closed down 4.73 points or 0.1 pct at 4,749.37.

Indian shares closed off the day's lows on value buying in blue-chip software stocks after the indices took punishment from the sharp sell-off in global stock markets for the better part of the session.
   
The market ignored key economic data released today to focus primarily on overseas cues. Government data showed inflation rose 4.45 pct for the 12 months to the week ended July 28, faster than the 4.36 pct recorded a week earlier and that India's industrial output grew at 9.8 pct in June compared with a revised
10.9 pct in May.
   
The Bombay Stock Exchange's benchmark Sensex closed 1.54 pct or 231.90 points lower at 14,868.25, while the National Stock Exchange's S&P CNX Nifty closed 1.59 pct down at 4,333.35 points.

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Gold recovers after stumbling on credit crunch fears

LONDON - Gold was modestly higher as players saw good value in current prices, which have trended lower in recent days amid increased volatility and risk aversion in the broader financial markets.
   
"Further risk aversion will no doubt generate more long liquidation in the coming session however gold is back into an area of previously strong support," said BaseMetals.com analyst James Moore.
   
Gold fell to a one week low of 659.50 usd yesterday as investors rushed into the US dollar and US treasuries amid a growing global liquidity crunch linked to US sub-prime mortgage market woes.
     
At 10.42 am, spot gold was trading up at 663.90 usd an ounce against 661.85 usd in late New York trades yesterday.
   
Elsewhere, platinum was up at 1,268 usd from 1,265 usd yesterday. Platinum fell sharply yesterday after as wage agreements were reached at the top two producers, reducing supply concerns, while the market was also sold down on the back of rising risk aversion globally.
   
"The white metal remains vulnerable to bouts of liquidation however the metals fundamentals are still very favourable and investment demand continues to absorb increased production," said Moore.
   
Silver rose to 12.70 usd from 12.62 usd, while palladium was little changed at 357 usd from 358 usd.

Base metals continued lower following yesterday's sharp losses, fuelled by ongoing fears of a credit crunch caused by the US sub-prime debacle.
      
At 11.07 am, LME copper for three-month delivery fell to 7,380 usd against 7,480 usd at the close yesterday. The Shanghai Futures Exchange said today that its copper stockpiles fell 1.74 pct to 89,968 tons in the week to Aug 10.
   
Inventories at LME monitored warehouses declined by 950 tonnes, according to its daily report of metal stockpiles. Falling inventories would generally see prices rise higher, as they indicate continued strong demand for the red metal.
   
However, overall imports into China, the world's largest consumer of copper, eased by by around 3 pct from June to July, at 206,830 tons. Copper prices are underpinned by supply concerns, with continued strike action in south and central America.
   
A court ruled on Wednesday that workers at three Grupo Mexico mines, including the giant Cananea mine, can continue their strike despite a government ruling that the walkout is illegal. Meanwhile in Peru, workers at Southern Copper Corp are still threatening action amid a lack of progress in wage negotiations.
   
In other metals traded, nickel was down at 26,900 usd a tonne versus 27,100 usd at the close yesterday. Nickel hit an 11 month low of 26,850 usd in intra-day trade yesterday.
       
Elsewhere, aluminium eased to 2,590 usd a tonne versus 2,603 usd. Aluminium was underpinned by a fall in LME inventories of 1,400 tonnes. Zinc dropped to 3,280 usd a tonne versus 3,395 usd, while lead fell to 2,882 usd a tonne against 2,960 usd.
   
Tin was down at 16,360 usd versus 16,650 usd, having hit an all-time high of 17,050 on Tuesday. On a longer term view, however, analysts say tin will continue to get support from falling exports from Indonesia, the world's second largest producer of the metal.

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