US & World Daily Markets Financial Briefing 11-09-2007

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Stocks rise ahead of Bernanke speech

NEW YORK - Wall Street rose sharply Tuesday as investors, cheered at least momentarily by a decline in the trade deficit and gains in overseas stocks, awaited a speech by Federal Reserve Chairman Ben Bernanke. The Dow Jones industrial average rose nearly 100 points.
   
Market participants will be listening closely for clues about rate policy when Bernanke speaks to the German central bank, the Bundesbank, in Germany at 11 a.m. EDT. Wall Street all but expects the Fed to cut its benchmark federal funds rate at a meeting Sept. 18 after more than a year without change; the debate has largely shifted to a question of by how much, and for how long a loosening campaign could last.
   
Late Monday, Fed Gov. Frederic Mishkin said the Fed must weigh many factors in deciding monetary policy, including the risk to the broader economy posed by a housing slump and financial market volatility, according to Dow Jones Newswires.
   
The stock market has been volatile since midsummer, with jitters high about the sluggish housing market and debt aversion causing a standstill in the credit markets and damaging the economy. Last Friday's jobs report, which showed the first monthly payrolls decline in four years, aggravated those concerns. Mark Zandi, chief economist at Moody's Economy.com, predicted the risk of a recession in the next six to 12 months has increased to nearly 40 percent from less than 15 percent before subprime concerns began riling the markets.
   
Investors nervous about the U.S. economy slipping into recession got a bit of relief from the Commerce Department's report on the U.S. trade deficit. The trade gap narrowed modestly in July to $59.2 billion from $59.4 billion in June, thanks to record exports of farm goods, autos and other products. Many economists had anticipated a widening in the deficit.
   
The Dow rose 99.17, or 0.76 percent, to 13,227.02.
   
Broader stock indexes also gained. The Standard & Poor's 500 index rose 9.86, or 0.68 percent, to 1,461.56, and the Nasdaq composite index rose 19.65, or 0.77 percent, to 2,578.76.
   
Bonds fell as stocks rose, pushing the 10-year Treasury note's yield up to 4.35 percent from 4.27 percent late Monday. The dollar weakened against the euro and British pound, while gold moved higher.
   
Britain's FTSE 100 rose 1.53 percent, Germany's DAX index rose 0.92 percent, and France's CAC-40 rose 1.56 percent.
       
Crude oil and gasoline futures edged higher as traders waited for news from the Vienna meeting of the Organization for Petroleum Exporting Countries. It was expected that OPEC would keep current output targets in place, although Saudi Arabia has been said to be pushing for a production increase.
   
In corporate news, ImClone Systems Inc. and Bristol-Myers Squibb Co. said the drug Erbitux improved the survival rate of lung cancer patients in a late-stage study.

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Dollar nears all-time euro low ahead of Bernanke speech

LONDON - The dollar is close to its all-time low against the euro on mounting expectations that the US Federal Reserve may opt to cut borrowing costs by half a percentage point next week.
   
Most market participants had already priced in a quarter point reduction in the benchmark Fed funds rate, to 5.00 pct, to rein in the effects of the credit crunch on the wider US economy, but last week's disappointing jobs report for August raised the prospect that the Fed may be more aggressive on Sept 18.
   
As a result, all eyes will be on US Federal Reserve chairman Ben Bernanke when he addresses an audience in Berlin, especially after Frederic Mishkin, one of the Fed rate-setters, warned of downside risks from the market uncertainty.
   
"Undoubtedly, it will be Ben Bernanke's latest assessment of the state of play that will carry most weight with the investment community," said Simon Derrick, currency strategist at Bank of New York Mellon.
   
"As such, the Fed chairman's speech at the Bundesbank later today (4pm)  on the issue of global imbalances  could well be key in guiding market sentiment ahead of Friday's glut of US data," he added.
   
Bernanke has already indicated that the central bank is ready to cut rates to protect the national economy from the ill effects of a global credit crunch. His comments a couple of weeks ago, which were made before the news of the 4,000 fall in non-farm payrolls in August, cemented market expectations that the FOMC will cut its rates a quarter point.
   
The ECB's president Jean-Claude Trichet managed to walk a tightrope last week after the central bank kept its benchmark refi rate unchanged at 4.00 pct, and in the end managed to keep all options open for the central bank.
   
While noting the risks posed by the turmoil in the financial markets, he still warned of upside risks to inflation.
   
Though he is no longer signalling "strong vigilance" on inflation risks -- a key phrase used for upcoming rate hikes-- analysts said Trichet still painted a picture where borrowing costs could potentially rise again.

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Euroshares add to gains midday on Dow futures; bullish corporate news

LONDON - Leading European exchanges continued to gain ground midday as the Dow looks set for more gains and as the technology sector made new gains. At 12.36, the STOXX 50 was up 49.34 points or 1.35 pct at 3,705.34 and the STOXX 600 was 5.08 points or 1.4 pct higher at 367.33.
     
In the technology sector, shares in European chip makers Infineon Technologies, STMicroelectronics and ASML Holding gained in morning trading, helped by an upbeat third-quarter outlook from peer Taiwan Semiconductor Manufacturing Co Ltd (TSMC) and broadly positive sentiment on the sector. Shares added 1 pct, 1.45 pct and 1.95 pct respectively.
   
And shares in Ericsson climbed 4.41 pct after dealers cheered bullish comments from the telecom equipment group's chief executive, Carl-Henric Svanberg, about market share and cash flow generation. Nokia gained 2.12 pct.
   
Philips was also boosted by the upbeat mood in the sector and after a number of bullish notes on the group's new profit and sales targets.
   
Separately, Elekta climbed 6.57 pct amid reports that it could be in Philips' sights. "Philips said they would like to make small acquisitions in this area so it makes perfect sense," one London-based trader said. But Elekta said it is not in any M&A discussions with anybody, and said it hasn't been contacted by Philips to that effect.
   
Car stocks were also gaining as upbeat comments from the Frankfurt motor show lifted Renault 4.39 pct and BMW 2.67 pct. DaimlerChrysler added 1.02 pct after CEO Dieter Zetsche said the prospects for increasing dividends in the future are "very good." 
   
German heatlthcare group, Merck KGaA, stormed 5.52 pct higher after it said its Erbitux cancer drug was shown to prolong the lives of people with a difficult-to-treat form of lung cancer, in a study in the last of three stages needed for regulatory approval.
       
Elsewhere, M&A news lifted shares in Bouygues and Alstom -- up 1.87 pct and 5.58 pct respectively -- on a report suggesting government advisers are studying possible tie-up opportunities with state-owned nuclear engineer Areva -- up 3.01 pct. According to French daily Les Echos, French President Nicolas Sarkozy has asked investment bank HSBC and consultants McKinsey to study options for Areva.
   
ThyssenKrupp added 1.28 pct after FT Deutschland reported the steel giant is considering a sale of steering systems unit Presta and has started sounding out potential buyers.
   
In Italy, Finmeccanica was a leading gainer -- up 2.98 pct -- after the group announced its AugustaWestland unit won a 1.2 bln eur order to provide 51 A129 helicopters to the Turkish army.
   
Intesa SanPaolo came off earlier highs -- up only 0.89 pct -- after its in-line update. And Banca Monte dei Paschi di Siena SpA -- down 0.89 pct -- was near day lows as its numbers last night failed to impress investors.
       
Shares in JJB Sports tumbled 14.82 pct after the company's warning that it was likely to miss forecasts by more than 3 mln stg due to tough comparables, prompting Landsbanki to reiterate its 'reduce' advice. The news prompted Landsbanki to reiterate its 'reduce' advice.

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Asia rebounds on bargain-hunting; China ends down on inflation data

SINGAPORE - Stock markets across Asia rebounded Tuesday on bargain-hunting following yesterday's selldown, with the release of positive Japanese economic data buoying sentiment.
   
Japanese business sentiment appears intact as shown by the better-than-expected July core machinery orders, which jumped a seasonally-adjusted 17.0 pct from the previous month to 1.123 trln yen. The rise was much faster than market expectations for an increase of 5.9 pct and was the biggest since October 2003 when orders rose 17.2 pct.
   
The blue-chip Nikkei 225 Stock Average closed up 112.70 points or 0.7 pct at 15,877.67, while the broader TOPIX index edged up 7.17 points or 0.5 pct to 1,532.39.
   
In Australia, business sentiment showed a fall in confidence from July as concerns about interest rates countered strong economic fundamentals, according to a survey by the National Australian Bank (NAB).
   
The S&P/ASX 200 closed up 44.3 points or 0.7 pct at 6,235.5, while the All Ordinaries rose 39 points or 0.6 pct to 6,248.6. Banks underpinned gains on the broader market as investors positioned themselves ahead of the banks' earnings results, due at the end of this month.
      
China A-shares closed sharply lower after August inflation data raised worries that the authorities will move to tighten policy further, including hiking interest rates. The National Bureau of Statistics announced today that consumer price index (CPI) rose 6.5 pct year-on-year in August, accelerating from the 5.6 pct growth recorded in July. The August figure marks the highest monthly inflation level since December 1996.
     
The benchmark Shanghai Composite Index ended the day down 241.32 points or 4.5 pct at 5113.97, the largest daily percentage drop since July 5. The Shanghai A-share Index fell 253.79 points or 4.5 pct to 5,369.00 and the Shenzhen A-share Index was down 82.70 points or 5.32 pct at 1,471.22. The Shanghai B-share Index fell 11.50 points or 3.4 pct to 325.84 and the Shenzhen B-share Index was down 26.67 points or 3.6 pct at 719.55.
   
Hong Kong's Hang Seng Index closed down 47.46 points or 0.2 pct at 23,952.24, as investors locked in profits in the afternoon following a drop on mainland bourses.
   
Meanwhile, in Korea, gains in steel and semiconductor manufacturers pushed the KOSPI up 11.49 points or 0.6 pct to 1,847.36.
   
In the Philippines, exports growth in July accelerated to 4.5 pct year-on-year from 1.5 pct in June, but it still fell short of analyst expectations, triggering a mild selldown in the stock market where the composite index ended down 13.11 points or 0.4 pct at 3,267.97. The all-share index fell 11.93 points or 0.6 pct to 2,067.86.
       
Elsewhere, Singapore's Straits Times Index closed up 1.5 pct at 3,494.57, while Malaysia's Kuala Lumpur Composite Index closed down 0.3 pct at 1,286.33.  Taiwan's weighted index closed up 0.7 pct at 9,003.12 and Indonesia's Jakarta index closed up 0.1 pct at 2,211.41.

Indian shares ended lower despite a firm start as investors sold IT shares, but positive cues from Europe prevented the markets from sliding further.
      
The Bombay Stock Exchange's benchmark Sensex fell 0.35 pct, or 54.06 points, at 15,542.77, while the National Stock Exchange's S&P CNX Nifty lost 0.24 pct, to 4497.05 points. In the BSE 30, 10 shares advanced and 20 declined. In the broader market, 1,398 shares gained, 1,344 lost ground and 58 were unchanged.

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Gold higher as dollar continues to languish

LONDON - Gold was higher in early afternoon trade as the dollar continued to languish near an all-time low against the euro on mounting expectations that the US Federal Reserve will opt to cut borrowing costs by half a percentage point next week.
   
The outlook for the precious metal is good going into the fourth quarter, a period of peak demand for physical supplies of the metal due to the start of the festival season in India, analysts said.
       
At 12.54 pm, spot gold was trading at 704.10 usd an ounce against 703.70 usd in late New York trade yesterday.
   
Gold has been supported in recent days by safe haven buying as investors spooked by the volatility of the equity markets and the prospect of diminishing returns from interest-bearing investments such as currencies flocked to buy the precious metal.
   
Equities dipped dramatically during August after a spate of defaults in the sub-prime mortgage sector fuelled fears of a global credit crunch, and have since been volatile.
   
Meanwhile, the prospect of a Fed rate cut this year has weakened the dollar, along with other interest-bearing investments.
   
Among other precious metals, platinum weakened slightly on profit taking to 1,290 usd against 1,292 usd in late New York trade, while its sister metal palladium followed suit, dipping to 329 usd from 334 usd. Silver was steady at 12.56 usd.

Base metal prices rose across the complex in London as returning investor confidence on expectations of a rate cut by the US Federal Reserve allowed market players to refocus on commodity fundamentals, away from the turmoil fostered by the subprime mortgage crisis.
       
Improving demand figures from China, the world's largest consumer of the red metal, supply threats out of Latin America, falling LME monitored inventories and a dollar riding close to all time lows against the euro, have all contributed to copper's push higher.
   
"Copper took the lead this morning," said Alex Heath, head of base metals trading at RBC Capital Markets. "If you compare the Chinese import figures year on year, you'll see a large jump in what is normally a very quiet month. The country seems to be importing more than the market might have thought.
   
"The market has also priced in a rate cut. The bottom line here is that if rates are cut, the dollar will fall, which will support the metals."
       
At 2.02 pm, copper for three-month delivery was trading at 7,358 usd, against 7,162 usd at the close yesterday.
    
In other metals traded on the LME, nickel traded up at 27,500 usd against 26,750 usd, while aluminium was up at 2,440 versus 2,425 usd at the close yesterday.
   
Elsewhere, zinc rose to 2,740 usd a tonne versus 2,704 usd, while lead prices were up at 2,985 usd a tonne against 2,870 usd. Tin rose to 15,175 usd from 14,725 usd a tonne at the close yesterday.

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