US & World Daily Markets Financial Briefing 13-08-2007

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Stocks open higher as banks add liquidity

NEW YORK - Wall Street opened higher Monday after the Federal Reserve and other central banks added more cash to their banking systems, helping investors set aside some concerns about credit tightness.
   
The Fed said minutes after the opening bell that it would add $2 billion in liquidity in a one-day repurchase. That follows a move by the Bank of Japan to put $5 billion into the markets and an addition by the European Central Bank of $65.3 billion; the ECB added more than $200 billion last week.

The moves, following similar injections by the Fed last week, placated Wall Street for now and allowed it to look ahead to a week of fresh economic data.
   
Investors appeared pleased with the Commerce Department's report that retail sales edged up 0.3 percent in July, slightly ahead of market expectations. Wall Street has been closely monitoring consumer spending, as it accounts for two-thirds of total economic activity.
   
After enduring sharp swings to the downside last week, the Dow Jones industrials and other major indexes ultimately finished the week with a modest gain. While stocks opened higher Monday, last week's trading showed that which is most predictable about the markets of late is high volatility.
   
In the first minutes of trading, the Dow Jones industrial average rose 72.84, or 0.55 percent, to 13,312.38.
   
Broader stock indicators rose. The Standard & Poor's 500 index advanced 10.90, or 0.75 percent, to 1,464.54, and the Nasdaq composite index rose 25.04, or 0.98 percent, to 2,569.93.
   
Investors were in a better humor Monday, despite the great deal of uncertainty in the market over the extent of problems in the subprime mortgage sector. Defaults among subprime mortgage holders -- borrowers with weak credit -- began the chain of events that led to the turmoil on Wall Street and other stock markets in recent weeks.
   
Those defaults recently led to the collapse of two Bear Stearns funds with risky mortgage-backed investments and last week prompted French bank BNP Paribas to freeze three funds with exposure to the U.S. subprime mortgage market.
   
Goldman Sachs Group Inc. said Monday that its funds using quantitative strategies, or computer modeling, "are currently under pressure" after global markets sold off on worries about debt and credit.

The investment bank said it and certain large investors have committed to a $3 billion equity investment in its Global Equity Opportunities fund, which "has suffered significantly." The fund had a net asset value of about $3.6 billion before the equity investment. Goldman rose $4.36, or 2.4 percent, to $174.96.
   
Before announcing its latest liquidity injection, the Fed said Monday it stood ready to supply more liquidity to the market. The federal funds rate traded at the central bank's target 5.25 percent; last week, a fed funds rate of about 6 percent triggered cash injections last week.

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Dollar stays well-bid as European equities rally

LONDON - The dollar continued to trade firmly against other currencies amid a lull in bad news from credit markets, with European equities rallying after last week's falls.
   
Trading on both equities and currency markets remain clearly on the cautious side, however, with some-safe haven flows favouring the US currency.
  
Most focus seems to be on the progress of the recent drought in liquidity, at the expense of macroeconomic data.
   
"Backward-looking economic data are perhaps of questionable worth given that financial markets are currently preoccupied with the prospects of a global credit crunch whose possible impact upon the real economy (if any) will not be quantifiable for some weeks to come," said Neil Mellor at the Bank of New York Mellon.
   
Mellor added that the markets' current resilience should not be taken for granted. "Given that market liquidity remains partly dependent on central bank activity (with the ECB taking action once again today) and that it will be some time before we can declare a cessation in unfavourable newsflow, a market on tenterhooks gives only limited grounds for optimism that any stability is here to stay," he said.
   
The ECB today injected just under 48 bln eur of cash into the money market, the third such liquidity-boosting action since last Thursday, in a bid to avert a credit freeze.
   
Meanwhile, despite the dominance of credit crunch fears, data will be monitored to see how far the collapse in the US subprime mortgage market has affected the wider economy.
       
Elsewhere, the pound's weakness against the dollar was exacerbated after the producer price index, an indication of pipeline inflationary pressures, showed input prices falling -- although the fact that output prices are still not showing the strength indicated in recent surveys should keep rate-setters worried about companies' future pricing intentions.
   
However, the credit market woes mean "the Bank of England will have bigger fish to fry this week," said David Page at Investec.
   
Further inflation indications will come tomorrow with key UK CPI data, and PPI data in the US.

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Euroshares higher midday, ECB intervention support, market remains nebulous

LONDON - European shares were higher midday and continued their rebound as the ECB pressed on and intervened for the third time since Thursday to calm market sentiments.
   
At 12.30 pm, the Dow Jones STOXX 50 gained 55.01 points or 1.52 pct to 3,685.05 as the STOXX 600 added 4.61 points or 1.27 pct to 367.38. Given share price last Friday, the STOXX 50 has shed 9.6 pct since mid-July when it reached a high of 4,015.01, while the STOXX 600 has slumped some 7.3 pct after its peak on July 13 at 400.99.    
      
Earlier this morning, the European Central Bank pumped a further 47.665 bln eur into the money market, the third such liquidity-boosting action since last Thursday, in a bid to avert a credit freeze in the markets. But traders were unconvinced and said that while the action resulted in some reassurance, any bad news right now may turn the market.
   
ICI took the spotlight after its board endorsed Akzo Nobel's 670 pence per share cash offer, sweetened with two dividend payments. The offer values ICI at around 8 bln stg, and comes hours before the UK Takeover Panel's 'put-up-or-shut-up' deadline this morning. ICI rose 1.52 pct as Akzo Nobel gained 0.76 pct. But analysts were less enthusiastic and brokerage Rabo Securities said the takeover plan was simply "expensive and risky".
   
Shares in Henkel, which earlier said it signed a letter of intent with Akzo to purchase National Starch and Chemical Co, a subsidiary of ICI, were 0.39 pct lower.
   
Iberia -- up 7.56 pct -- also gained on the back of takeover speculation as British Airways and Texas Pacific are still in the spotlight of market talk as to their interest in the airline.
       
Meanwhile, Technip rebounded and added 6.16 pct as concerns over its Middle East ventures subsided. Also on the rebound, Ferrovial gained 2.13 pct, while MAN added 2.90 pct. Air France-KLM was 1.19 pct higher as the airline group also recovered from last week's losses as investors also shrugged off initial disappointment with the company's first-quarter results.
   
Elsewhere, Novartis underperformed -- down 0.54 pct -- after news that its painkiller Prexige has been banned in Australia after liver problems caused tow fatalities weighing on sentiment.
   
Areva investment certificates fell 1.68 pct after newspapers reported that the nuclear energy group is likely to make fresh provisions of 500-700 mln eur for an additional delay in construction of the Olkuliuto 3 reactor in Finland. A recent rebound in the stock price linked to prospects of a reactor order in China was inappropriate and "we expect a negative impact today," Patrice Lambert de Diesback of CM-CIC Securities said in a note to clients.
   
German conglomerate Siemens declined after two separate media reports gave indications that the bribery scandal at the electronic giants might be larger than assumed. A report in the Sueddeutsche Zeutiung said that Siemens might have made over 1 bln eu in dubious payments.
   
In broker action, Norwegian banking group DnB NOR rose 2.23 pct as investment bank JP Morgan increased its earnings estimates and repeated its 'Overweight' rating, with the group benefiting from a strong Norwegian economy and limited exposure to bad debts.

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Asia shares end slightly higher amid global credit woes

MUMBAI - Shares across the Asia-Pacific region closed slightly up on Monday even as investors remained cautious amid the ongoing global credit crunch brought on by the US subprime mortgage crisis.
   
Asian stocks made large gains in opening trade following last week's tumble but investors were quick to liquidate in the absence of clear signs the financial market turmoil is nearing an end.
   
In Tokyo, shares closed mixed as investors refrained from chasing share prices in either direction as they waited to see if there would be further fallout in financial markets around the world.
       
The benchmark Nikkei index had gained nearly 200 points in the morning session as fears of a global meltdown in stock markets eased, but it had lost most of the gains by the closing bell after cautious investors cashed in at higher levels and minimized their exposure to near-term developments.
   
The blue-chip Nikkei 225 Stock Average closed 35.96 points or 0.2 pct higher at 16,800.05. The broader TOPIX index finished down 1.29 points or 0.1 pct at 1,632.64.
       
South Korea's key KOSPI index closed up 20.77 points or 1 pct at 1,849.26, as bargain hunters stepped in after the market's more than 4 pct fall on Friday. Comments by the finance ministry today that it stands ready to inject funds into the banking system if necessary to prevent any deterioration in credit conditions also gave sentiment a mild lift. The KOSPI index closed up 20.77 points or 1 pct at 1,849.26.
   
Australian shares also closed higher, but off their highs, as investors tested lower levels in afternoon trading amid continuing concerns about turmoil on global financial markets. The S&P/ASX 200 closed up 75.6 points or 1.3 pct at 6,011.6, while the All Ordinaries Index closed up 62.3 points or 1 pct at 6,027.5.
       
In China, A-shares closed mixed with the Shanghai market higher as investors took comfort from an official Xinhua news agency commentary that China's capital markets are developing in line with the overall economy. The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed up 70.70 points or 1.5 pct at a record 4,820.06, off a fresh intraday high of 4,872.55.
       
The National Bureau of Statistics released figures showing the consumer price index rose 5.6 pct year-on-year in July, the highest monthly rise since February 1997. The announcement caused some price volatility in the stock market in early trading but did not lead to a wider sell-off, as most economists had anticipated CPI to rise more than 5 pct.
       
In Hong Kong, share prices closed higher as index heavyweight China Mobile gained on expectations that it will report strong first-half results this week, with the stock also getting a boost from a price target upgrade by Morgan Stanley. The Hang Seng Index closed up 98.39 points or 0.45 pct at 21,891.10. China Mobile closed up 0.95 hkd or 1.12 pct at 85.60, while the property sector index was up 480.89 points or 1.92 pct at 25,488.18.
   
In Taipei, share prices closed flat on persistent worries over the fallout of problems in the US subprime loan market. The weighted index closed up 7.65 points or 0.1 pct at 8,938.96, off a high of 9,030.93 and low of 8,913.40.
   
Malaysian shares closed mixed in quiet trade as the continued uncertainty over the US subprime crisis encouraged profit-taking among cautious investors. Buying interest in plantation and technology stocks kept the key index in positive territory. The Kuala Lumpur Composite Index gained 8.78 points or 0.7 pct to close at 1,296.48.
   
Singapore share prices closed slightly higher after volatile trade through the session. The STI closed up 21.43 points or 0.6 pct at 3,380.61.
   
Philippine shares closed lower, unable to sustain their early gains, with investors quickly cashing in profits amid global financial worries. The 29-company composite index finished down 14.93 points or 0.4 pct at 3,267.03. The broader all-share index fell 9.20 points or 0.6 pct at 2,097.35.
   
Indonesian share prices closed slightly higher, with the main index recovering from its heavy losses earlier thanks to late buying in select blue chips that had been hammered by worries over the US subprime lending problems. The composite index closed up 4.06 points or 0.2 pct at the day's high of 2,211.46, off an intraday low of 2,185.91.
 
Indian shares closed higher, as investors bought shares beaten down in two straight losing sessions, but the sceptre of a worldwide credit crunch forbade them from rising further. The Bombay Stock Exchange's benchmark Sensex closed up 1 pct, or 148.96 points, at 15,017.21. The National Stock Exchange's S&P CNX Nifty rose 0.93 pct to 4,373.65 points.

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Copper climbs in line with resurgent equity markets

LONDON - Copper climbed in line with resurgent equity markets today, as short-term credit risk concerns appear to have eased following cash injections from the central banks.
   
Base metals slid across the complex last week as the fallout from the US subprime mortgage debacle dented investor confidence, and saw funds liquidate their positions to cover losses in equity stocks.
   
After central banks pushed cash into the markets to help liquidity last week, markets have stabilised and recover some of the losses from last week.
   
"Markets are at the mercy of risk indicators currently with the modest improvement in these measures of market liquidity and risk appetite this morning seeing most of the base metals trade higher," said JP Morgan analyst, Michael Jansen.
   
At 2.09 pm LME copper for three-month delivery rose to 7,520 usd against 7,455 usd at the close Friday.
   
Copper had lost around 3 pct since the end of July prior to today's gains. A 200-tonne copper stock fall in warehouses worldwide, as reported by the LME this morning in a daily report, also helped the red metal rise.
   
"Copper and lead in particular have found renewed confidence, especially after stocks showed a net outflow," said analysts at RBC Capital Markets.   

Copper prices were also supported by ongoing strikes at three Grupo Mexico mines, raising market player's fears of a tightening supply picture. Reports that a man was killed during fights between two groups of workers close to the La Caridad mine is likely to heighten tensions.
   
Unions and management at Grupo Mexico's giant Cananea mine are waiting for a court decision on the legality of the strikes, which is due shortly.    

Elsewhere, nickel was steady at lower levels. The grey metal has lost nearly 50 pct since striking an all time record of around 52,000 usd earlier this year, on a combination of demand destruction at higher prices and falling usage.
   
Again this morning, the LME in its daily report said stocks rose, bringing the inventory level in LME-certified warehouses up to 19,224 tonnes.
   
"Rising stocks are evidence of falling stainless demand and we believe the headline figure should easily top 20,000 tonnes over the near term, further pressuring prices," said Bank of America analyst Anatol Feygin.
   
By 2.09 pm nickel was trading at 26,600 from 26,650 at the close Friday.
   
In other base metals, aluminium was up at 2,600 usd from 2,590 usd, zinc was up at 3,345 usd from 3,330 usd and tin was lower at 15,600 usd from 15,800 usd. Meanwhile, lead was up at 2,990 usd from 2,915 usd at the close Friday, supported by a decline in LME monitored stockpiles.

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