US & World Daily Markets Financial Briefing 11-07-2007

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Stocks move higher in early trading

NEW YORK -  Stocks edged higher in early trading Wednesday as Wall Street, coming off a sharp decline a day earlier, refrained from big moves ahead of two major second-quarter earnings reports.
   
Investors shaken by earnings warnings earlier in the week appeared to be taking a cautious stance as they awaited profit reports from biotechnology company Genentech Inc. and fast-food chain operator Yum Brands Inc. Genentech and Yum, which was recently upgraded by a UBS analyst, are expected to release their results after the market closes.
   
In early trading, the Dow Jones industrial average rose 7.15, or 0.05 percent, to 13,508.85.
   
Broader indexes also lifted slightly. The Standard & Poor's 500 index rose 0.06, or less than 0.01 percent, to 1,510.18, and the Nasdaq composite index gained 1.81, or 0.07 percent, to 2,640.97.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 5.00 percent from 5.03 percent late Tuesday.
       
On Tuesday, the major stock indexes plummeted in a selloff fueled in part by Standard & Poor's and Moody's saying they would slash the ratings of billions of dollars worth of bonds backed by risky property loans. A spike in oil prices and disappointing forecasts from Home Depot, Sears and homebuilder D.R. Horton had also weighed on the stock market, which is positioning itself for next week's onslaught of earnings reports.
   
After the market closed Tuesday, investors got some good news when Chevron Corp. said it expected its quarterly financial results to get a boost from higher commodity prices and stronger refining margins.
   
Meanwhile, merger-and-acquisition activity continued. Liz Claiborne confirmed Wednesday it is seeking a buyer for 16 of its 36 apparel brands, while steelmaker Gerdau Ameristeel Corp. said late Tuesday it is acquiring Chaparral Steel Co. for $4.22 billion.
   
Crude oil futures fell 47 cents to $72.34 a barrel on the New York Mercantile Exchange, ahead of the Energy Department's weekly report on U.S. oil and gasoline inventories.
   
Aside from the oil report, there are no major economic data scheduled to be released Wednesday. Investors will likely be listening, however, for clues about monetary policy from Philadelphia Fed President Charles Plosser's speech in London about housing prices and monetary policy.
   
Also, Fed Gov. Kevin Warsh and Treasury Undersecretary Robert Steel will be testifying in Washington on hedge funds before the U.S. House Financial Services panel.

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Dollar stays depressed on continued hang over from US subprime woes

LONDON - The dollar remained depressed, with yesterday's twin warnings on the US subprime market casting a pall over the outlook for the US economy and, in turn, the US currency.
   
The dollar has been the victim of a frenzied rout after rating agencies Standard & Poors and Moody's placed billions of dollars worth of US subprime bonds on review for possible downgrades.
   
Daniel Katzive at UBS said signs of renewed stress in US credit markets have given rise to talk of possible rate cuts in the world's biggest economy.
   
Additionally, credit markets have been a major destination for foreign investors, so prolonged impairment in that market could interrupt an important source of dollar demand, he said.
   
Subprime loans are those made to borrowers who do not qualify for conventional ones. As the economy slows, these will tend to default at a much higher rate than ordinary loans. Talk of trouble in this section of the market is particularly worrying amid ongoing evidence of a US housing market slowdown.
   
Any impact on the US economy will likely trigger a response from the US Federal Reserve, which has held its key Fed funds rate at 5.25 pct since August last year. Yield differentials between the US and others have worked against the dollar, and any impact on the economy from housing will likely exacerbate that negative for the US currency.
   
While the Fed is likely to keep its benchmark Fed funds rate unchanged at 5.25 pct over the coming months, the European Central Bank is poised to lift its refi rate to 4.25 pct in September while the Bank of England is set to raise its key repo rate once again to 6.00 pct in early autumn.
   
Separately, resurgent oil prices are also weighing on the dollar as sellers of the commodity are seen more likely to diversify incoming dollars than their Asian reserve manager counterparts," according to Katzive at UBS.
   
The euro stayed close to its all time high of 1.3786 usd set yesterday while the pound set a fresh 26-year high above 2.03 usd.
   
Elsewhere, the yen was steady as the Bank of Japan starts its two-day rate-setting meeting. The market only attaches the slightest of possibilities of a hike in the base rate to 0.75 pct.
   
Analysts noted a drop in risk appetites after the dollar's slump yesterday which in turn translated into some reluctance to take on fresh carry trades which benefit from the low yielding status of the yen.

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Euroshares lower, investors unconvinced amid credit fears

LONDON - At 12.25 pm, the Dow Jones STOXX 50 Index was 37.35 points, or 0.95 pct lower at 3,906.51, while the STOXX 600 declined 3.24 points or 0.82 pct to 390.7.
  
The DJ STOXX 600 Index fell 3.16 points, or 0.8 pct to 390.86 while the DJ Euro STOXX 50 Index, which tracks the performance of blue chip companies in 12 countries using the euro, fell 44.73 points to 4,429.70.
        
Back in Europe, particularly US-sensitive stocks such as automakers, luxury goods and industrial groups were on the defensive after the dollar hit a record low against the euro yesterday.
   
Car maker DaimlerChrysler was hit by rumours earlier that its deal with Cerberus over the sale of its Chrysler unit may fail. Shares dropped more than 3 pct before recovering after the company reportedly denied the rumour.
       
Elsewhere, Fiat was a top gainer on the MIB, up 1.2 pct. "Yesterday the company gave some indications on orders received for the new 500 model," one trader said. "The figures are higher than expected," he added.
   
Other car makers were mainly retreating this morning, with BMW down 1.47 pct, while Renault declined 0.49 pct.
   
The financial sector was equally weighted down by the fears in the sub-prime mortgage market in the US. Deutsche Bank fell 1.63 pct, while Commerzbank dropped 1.52 pct, with BNP Paribas declining 1.57 pct and Fortis down 0.91 pct.
   
Italian peer Banca Popolare di Milano lost 1.70 pct on concerns that plans to accelerate cost-cutting measures and layoffs may be blocked by trade unions, which control the majority of the cooperative bank's board.
   
Over in Spain, Banco Popular Espanol SA fell 1.09 pct following the bank's surprise announcement of the acquisition of TotalBank in Florida for 300 mln usd cash.
       
Staying with M&A, Air Liquide extended yesterday's gains, up 3.02 pct, as speculation continued that the group receive a bid from a private equity group.
       
Over in the food sector, Unilever was a case in point, rallying for a second day as the market increasingly viewed the Anglo-Dutch food and personal care group as a prime takeover target, with Colgate and private equity firms mentioned as possible bidders on London's trading floors. The shares surged 4.17 pct.
   
Speculation was further fuelled after Danone's 12.3 bln eur bid for Dutch nutrition company Numico. The fallout following the offer for Numico continues to be be felt in the food and beverage sector where some investors are banking on further consolidation.
   
Nestle was also the target of speculation and gained 0.37 pct in a falling market, amid rumours the Swiss food giant may sell its 75 pct stake in eye care company Alcon Inc.

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Hong Kong - The Hang Seng Index closed down 278.82 points or 1.22 pct at 22,607.02, off a low of 22,539.70 and high of 22,850.40. Turnover was heavy at 100.90 bln hkd.
     
Among China financials, China Merchants Bank was flat at 28.25 hkd, ICBC dropped 0.10 hkd or 2.01 pct at 4.87 and China Construction Bank fell 0.15 hkd or 2.50 pct to 5.85.
   
Bank of China was down 0.06 hkd or 1.37 pct at 4.31, after hitting a high of 4.48 hkd in early trade. Bank of Communications outperformed the sector, closing up 0.18 hkd or 2.04 pct at 9.02.
   
Among insurers, China Life lost 0.60 hkd or 1.95 pct at 30.16, while Ping An was up 0.15 hkd or 0.26 pct at 58.85.
   
The Hang Seng China Enterprises Index finished down 217.87 points or 1.65 pct at 13,003.25, off a low of 12,881.16.
   
Large-caps were lower, with HSBC losing 2.1 hkd or 1.45 pct at 143.2 and China Mobile down 0.60 hkd or 0.69 pct at 85.9.
   
Cheung Kong was down 1.10 hkd or 1.01 pct at 108.20, reversing early gains, while Hutchison Whampoa ended down 1.2 hkd or 1.40 pct at 84.75. Stock exchange operator HKEx lost 2.50 hkd or 1.87 pct at 131.1 after recent strong gains.
   
Bangkok - The Stock Exchange of Thailand (SET) composite index slumped 12.17 points or 1.42 percent to 846.28 points and the blue chip SET 50 dropped 10.55 points to 606.28. Losers topped gainers 268 to 117, with 92 stocks unchanged, on volume of 6.1 billion shares worth 34.4 billion baht.
   
The baht hit a fresh 10-year high against the dollar, closing at 33.33-34 to the greenback from Tuesday's close of 33.48-50.  Against the euro, the Thai unit was at 45.81-89 from 45.58-80.
   
The index was down after a week of sharp rises, which saw Thai stocks reach their highest level since December 1996, just before the central bank floated the baht on July 2, 1997, sparking the regional economic meltdown.
   
Thailand's top energy firm PTT lost 6.00 baht to 302.00 and its unit PTT Exploration and Production decreased 4.00 baht to 123.00.
   
The top lender Bangkok Bank was down 2.00 baht at 131.00, and third largest Kasikorn Bank also dropped 2.50 baht to 85.00.
   
Thai Airways International slipped 0.25 baht to 43.25, while the largest mobile phone operator Advanced Info Service dipped 0.50 baht to 93.00.

Kuala Lumpur -The Kuala Lumpur Composite Index (KLCI) fell 12.18 points or 0.89 percent to 1,359.27.
   
The FTSE Bursa Malaysia 30-large cap index lost 69.57 points or 0.8 percent to 8,589.75, while the second board index added 0.73 point or 0.63 percent to 116.41. Losers led gainers 575 to 347, with 268 stocks unchanged and 162 counters untraded. Trading volume was 1.346 billion shares, valued at 2.429 billion ringgit.
      
Index heavyweights were mostly lower as Tenaga slid 20 sen or 1.8 percent to 10.90 ringgit, Telekom Malaysia lost 30 sen or 2.8 percent to 10.40 ringgit and Maybank fell 20 sen or 1.6 percent to 12.20 ringgit.
   
Plantation stocks bucked the trend, supported by the strong performance of crude palm oil (CPO) futures contracts traded on Malaysia's Derivatives Exchange.
   
IOI Corp, the world's largest palm oil producer, gained 10 sen or 0.8 percent to 5.40 ringgit, Kuala Lumpur Kepong, a non-government controlled palm oil major, added 10 sen or 1.0 percent to 9.70 ringgit and government-linked Sime Darby was up 10 sen or 1.0 percent at 9.70 ringgit.
      
Malaysia-based Top Glove, the largest rubber glove maker in the world, dropped 10 sen or 1.2 percent to 8.20 ringgit after the company said Tuesday it had received a filing of an intellectual property suit filed by US company Tillotson Corp against global rubber glove makers, seeking royalty payments for its patented nitrile gloves.
   
Malaysian oil, gas and car distribution company UMW Holdings rose 20 sen or 1.5 percent to 13.70 ringgit after the company said it is expanding its oil and gas division to the Indian market via the acquisition of a 51 percent stake in India's United Seamless Tubular Pte Ltd.
      
At the close, the ringgit was quoted at 3.4490/4520 against the dollar. Three-month interbank rates were quoted at 3.55/58 and the overnight rates were at 3.48/51.

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Copper falls on predictions of decline in Chinese imports

LONDON - Copper fell on fears that China is set to import less of the red metal in the second half of the year. Preliminary trade data released yesterday showed that Chinese copper imports (including products) declined by 3.7 pct in June from May, following massive inflows into the world's largest consumer in the first quarter.
   
China imported 50 pct more of the red metal in the first six months of 2007 -- the majority in the first three months of the year -- than in the same period last year, building up large stockpiles.
   
"I expect Chinese imports will be around the level of last month in the third and fourth quarters, they won't be at the levels they were in the first few months of the year," said Jon Bergtheil, an analyst at JP Morgan.
   
At 11.23 am, LME copper for three-month delivery was down to 7,863 usd a tonne from 7,915 usd at the close yesterday.
   
Prices remain underpinned, however, by ongoing industrial unrest in the Americas, which some speculate could push prices back up.
   
"(The copper price) has come up against a big technical level of 8,000 usd. People are sitting waiting to see if there's enough steam in the strikes to take us through," said Bergtheil.
   
Codelco, the world's biggest copper producer, has stopped operations at its Andina plant in Chile, because of labour protests.
   
A strike which began on Monday at Collahuasi, Chile's third biggest mine, is also continuing to stoke supply jitters. Collahuasi's output accounts for nearly 3 pct of total global supply.
   
In Canada, the strike at Xstrata's Montreal copper refinery, which has been running since early June, still continues.   
     
In other metals, lead hit another all-time high of 3,000 usd, before easing to 2,985 usd. Lead closed at 2,930 usd yesterday. Lead has rallied to a succession of all-time highs in recent months after China imposed a 10 pct export tax on the metal to address internal shortages.
   
The tax exacerbated a global shortage of the metal linked to the suspension of exports from Australia's Port Esperance, through which lead is transported from the Magellan mine.
   
Nickel recovered slightly to 33,200 against 32,645 usd, after losing a hefty 5.1 pct yesterday. The grey metal has lost around a third of its value since hitting a record high of nearly 52,000 usd in May. Prices have been hit hard by stainless steel producers, one of nickel's key consumers, switching to alternatives because of the high costs.
   
Aluminium was down at 2,803 usd from 2,808 usd, and zinc eased to 3,400 usd from 3,405 usd. Tin edged higher at 14,175 against 14,150 usd.

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