US & World Daily Markets Financial Briefing 14-03-2007

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Stocks waver as investors seek direction
 
NEW YORK - Wall Street fluctuated Wednesday, seeking a direction a day after concerns about faltering subprime mortgage lenders sparked a broad selloff in stocks.
   
The market showed its continuing nervousness about soured loans among subprime lenders. H&R Block Inc. added to unease by announcing after the closing bell Tuesday that it would increase its losses for the third quarter because of a $29 million writedown at its mortgage arm.
   
The anxiety over mortgage lenders, particularly the subprime lenders that make loans to people with poor credit, pushed the Dow down by more than 240 points Tuesday, its second-biggest drop in nearly four years. The pullback resembled a 416-point drop in the Dow seen two weeks ago that began in part after a nearly 9 percent drop in stocks in Shanghai and amid concerns about subprime mortgages.
   
In morning trading, the Dow Jones industrial average fell 7.93, or 0.07 percent, to 12,068.03.
   
Broader stock indicators were little changed. The Standard & Poor's 500 index rose 0.82, or 0.06 percent, to 1,378.77, and the Nasdaq composite index fell 0.24, or 0.01 percent, to 2,350.33. The Russell 2000 index of smaller companies fell 1.65, or 0.21 percent, to 767.47.
   
U.S. stocks were more stable in the early going than overseas markets were Wednesday. In afternoon trading, Britain's FTSE 100 fell 1.57 percent, Germany's DAX index fell 2.03 percent, and France's CAC-40 fell 1.85 percent.
   
Bonds were little changed; the yield on the benchmark 10-year Treasury note remained flat at 4.50 percent from late Tuesday, while gold prices fell. Light sweet crude was unchanged at $57.93 per barrel on the New York Mercantile Exchange.
   
Following Tuesday's sobering declines in stocks, some investors might have found reassurance about the well-being of the economy in General Motors Corp. report that it turned a profit for the fourth quarter, its first since the first quarter of 2006. GM, which rose 40 cents to $30.91, benefited from a big gain from the sale of about half its stake in its General Motors Acceptance Corp. financing arm.
   
But trouble at GMAC's Residential Capital LLC real-estate financing business added to investor concern Tuesday after ResCap said it has struggled with a slower pace of loan originations and a further erosion in its subprime business.
   
H&R Block, the nation's largest tax preparer, said it would delay filing its annual report and said the reduced value of its mortgage business pushed its quarterly loss higher. The stock fell $1.05, or 5.2 percent, to $19.
   
In economic news, the deficit in the broadest measure of foreign trade narrowed by 14.6 percent in the final quarter of 2006 to $195.8 billion, the smallest quarterly imbalance since the summer of 2005, helped by a lower foreign oil bill. For 2006, the Commerce Department said the current account deficit, which reflects not only trade in goods and services but also investment flows between countries, set a record for the fifth consecutive year.
   
The Labor Department said the prices of imported goods rose 0.2 percent in February when excluding oil prices. In January, import prices fell 0.9 percent.    

Weighing in again with mortgage data, the Mortgage Bankers Association said Wednesday its weekly mortgage index, which measures mortgage loan application volume, rose 2.8 percent on a seasonally adjusted basis from the prior week. On Tuesday, the group's report that new foreclosures jumped to their highest-ever level in the fourth quarter of 2006 helped touch off the day's cavalcade of sell orders.
   
In other corporate news, Citigroup Inc. rose 10 cents to $48.85 after announcing plans to begin a tender offer for Nikko Cordial Corp. on Thursday after raising its offer for Japan's third-largest brokerage to quell shareholder opposition.
   
Lehman Brothers Holdings Inc., the fourth-largest U.S. investment house, credited robust trading and an expansion overseas with driving first-quarter profits. Lehman fell $3.52, or 4.9 percent, to $68.48 as it began a conference call with analysts.
   
The recent volatility in the U.S. markets, while perhaps normal, still drew concern from some investors who had grown accustomed to the calm conditions since U.S. stocks began their steep climb in July. Even before Wall Street's recent unease, volatility might have been expected to increase as the week neared the expiration of contracts for stock index futures, stock index options and stock options on Friday.

The confluence of events, which Wall Street has dubbed triple witching, can bring volatility as investors try to square their options and futures orders.
   
Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume came to 247.9 million shares.
   

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Dollar edges higher after better-than-expected US current account data

LONDON - The dollar edged up against major currencies after data released this afternoon showed the US current account narrowed by more than the market had expected during the fourth quarter.
   
The figures showed the US current account deficit narrowed to 195.8 bln usd in the fourth quarter, its lowest quarterly level in more than a year and much better than analysts' forecasts for a bigger shortfall of 203.5 bln usd.
   
The data will help ease concerns about the very high deficits the US is running and also caused equity markets to come off their earlier lows, in turn helping the dollar, analysts said.
   
"US equities are bouncing modestly and that in-turn should support the greenback intraday," said Jamie Coleman at Thomson IFR Markets.
   
Normally, however, such an improvement would be more positive for the dollar, but with worries over troubles in the US sub-prime lending market dominating, trade gains for the dollar were very limited, he added.
   
Sub-prime loans are loans made to borrowers who do not qualify for conventional loans and will tend to default at a much higher rate than ordinary loans as the economy slows.
   
Against the yen, the dollar made bigger gains, with the Japanese currency coming off earlier six-day highs resulting from the recent unwinding of so-called carry trades.
   
Carry trades are where money is borrowed in countries with low interest rates such as Japan in order to invest in higher yielding assets elsewhere and have been pared back recently due to the increase in risk aversion.
   
Elsewhere, the pound remained weak after earlier reaching eight-day lows against the dollar and its lowest level against the euro since July last year as the high-yielding currency is one of the main casualties of carry trade unwinding.

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Top Stories in Europe at 11.05 GMT

Frankfurt - At least five preliminary bids worth between 3.8-5 bln eur have been submitted for Merck KGaA's generic operations, the Wall Street Journal reported. Israel's Teva Pharmaceutical Industries Ltd; US-based Mylan Laboratories Inc; Iceland's Actavis Group HF; and India's Ranbaxy Laboratories Ltd  submitted bids by yesterday's deadline, a person familiar with the matter told the newspaper.

Oslo - Holding company Aker ASA said it has decided to offer its entire 40.1 pct stake in subsidiary Aker Yards ASA to Norwegian and international institutional investors. The announcement comes less then three months after Aker sold 2.34 mln shares in Aker Yards, cutting its stake in the Norwegian shipyard group to 40.1 pct from 50.4 pct.

Milan - Mediaset SpA CEO Giuliano Adreani said that the television company will not bid for Fastweb SpA, but that it may bid for Endemol NV. Mediaset's announcement regarding Endemol rejects media speculation that the company was seeking to counter Swisscom AG's 47 eur per share offer for the broadband supplier.

Pirelli & C SpA chairman Marco Tronchetti Provera and Capitalia SpA's chairman Cesare Geronzi are expected to meet today to discuss the possibility of selling Pirelli's stake in Telecom Italia SpA to an Italian consortium, the daily La Repubblica said.
 
According to the daily, a consortium of Italian banks and foundation is ready to buy Pirelli's 80 pct stake in Olimpia SpA, which in turn controls 18 pct of Telecom Italia.

London - Algoma Steel Inc said yesterday that talks on a possible sale to Salzgitter AG have been terminated and the Canadian steelmaker has entered talks with a number of other parties.
 
"While discussions with Salzgitter were under way, a number of other interested parties contacted Algoma expressing interest in acquiring the company. Algoma will be providing some of these parties with information about the company and entering into preliminary discussions with them," Algoma said in a statement.

Madrid - Acciona SA said it has "no agreement" to sell its stake in Endesa SA to EON AG, but that it is open to talks with the German utility. Earlier, El Confidencial reported that the Spanish builder is 'very likely to sell' its 21.03 pct stake in Endesa to EON and that representatives of both firms have already met to this effect.

Munich - Bayerische Motoren Werke AG said it posted a 6.8 pct growth in full-year 2006 EBIT and expects 2007 pretax profit to be higher that in 2006, excluding the 372 mln eur one-off gain from its bond exchangeable into Rolls-Royce PLC shares. BMW, which reported other key 2006 financial results on March 8, said today that 2006 group EBIT totaled 4.050 bln eur compared with 3.793 bln in 2005, with EBIT from its industrial operations at 3.157 bln, down from 3.362 bln.

Hypo Real Estate Holdings AG said its full year adjusted consolidated net income rose 28 pct to 429 mln eur, while unadjusted net rose 43 pct to 542 mln eur as all segments saw growth.
  
Net interest income grew 12 pct to 811 mln eur due to strong new business in previous years and as the average margin in the German real estate portfolio improved, the company said.

Paris - JCDecaux reported full-year net profit of 201.1 mln eur, up 4.1 pct on 2005 and below analyst forecasts due to higher tax and financial charges and a one-off 4 mln eur goodwill impairment charge, but the operating margin was ahead of management guidance as higher profitability in transport offset a decline in street furniture margins, a trend the group sees continuing into 2007.

According to a consensus of analyst forecasts compiled by Thomson Financial, net profit was expected to rise to 212.73 from 195.30 mln a year earlier, with operating profit at 334.57 mln, up from 299.00 mln.

Zurich - Ascom Holding AG reported a full-year net profit of 17.1 mln sfr, down from 144.8 mln a year earlier, mainly due to the absence of divestment gains which had boosted net profit a year earlier. In 2005, net profit was boosted by a gain from divestments, with discontinued operations contributing 116.8 mln sfr to the operating result.

Brussels - Euro zone employment rose a provisional 0.3 pct in the fourth quarter from the third quarter and was up 1.6 pct year-on-year, EU statistics office Eurostat said. In the third quarter, euro zone employment rose 0.3 pct from the second quarter and increased 1.5 pct year-on-year.

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Asian shares close sharply lower on Wall Street plunge

HONG KONG - Shares across the Asia-Pacific region closed down sharply after Wall Street plunged overnight on fears of rising defaults within the US subprime mortgage lending market and the effect it might have on the wider economy.
   
Tokyo shares ended broadly lower as the slump in US stocks sparked a sell off, reviving fears of more turmoil in global equity markets, dealers said.
   
Growing concerns over the US subprime mortgage sector also weighed on the dollar and caused the yen to surge, hurting sentiment towards Japanese exporters.
   
The Nikkei 225 Stock Average closed down 501.95 points or 2.92 pct at 16,676.89, off the day's low of 16,628.85. The TOPIX index of all issues on the Tokyo Stock Exchange's first section lost 50.49 points or 2.93 pct to 1,674.94, off a low of 1,671.80.
   
"The stock market here overreacted to the declines on Wall Street, which were less extensive than the Nikkei's today, and which were due to a factor basically not relevant to Japan," said Tatsuo Kurokawa, strategist at Japan Asia Securities.
   
He said the yen's surge rekindled anxiety over the earnings of Japanese exporters, but he also pointed out that investor confidence in Japan's economic outlook was supported by Monday's upward revision of the December quarter GDP data.
   
Australian shares finished sharply down as investor sentiment sagged after US shares overnight experienced their second largest sell-off this year, sparked by concerns that rising defaults within the US subprime mortgage market could spill over into the wider economy.
   
Heavy selling occurred within local banking stocks and the resources sector, fuelled by base metals falling in London trading overnight in reaction to the US equities sell-off. The S&P/ASX 200 closed down 123.1 points or 2.10 pct at the day's low of 5,741.9.
   
Hong Kong shares had dropped by over two pct in afternoon trade following the falls in Wall Street and Tokyo. At 3.35 pm the Hang Seng Index was down 547.79 points or 2.83 pct at 18,785.35.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on fears of fresh credit-tightening measures and weakness in overseas markets. The Shanghai A-share Index ended down 61.46 points or 1.97 pct to 3,053.58 and the Shenzhen A-share Index finished down 5.94 points or 0.73 pct at 806.18.
   
Seoul shares closed sharply lower, with the main index down two pct, as foreign investors aggressively cut their positions in both spots and futures following the slump in US stocks.
   
Bargain-hunting by retail investors was not strong enough to reverse the market's direction, with the lackluster performance of other Asian markets further weighing on sentiment. Declines were broad, with builders and lenders hit hardest.
   
The KOSPI index closed down 28.68 points or 2.00 pct at 1,407.37, after moving between 1,405.13 and 1,416.80.

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Copper edges lower as global equities sell-off sparks demand worries; gold falls

LONDON - Copper prices edged lower as the sell-off on Wall Street yesterday spilled over onto Asian and European bourses today, with investors worried weakness in the US housing market might crimp demand for the metal.
     
LME copper for 3 month delivery was down at 6,190 usd a tonne at 12.35 pm against 6,220 usd at the close yesterday.
   
UBS Investment Bank analyst Robin Bhar noted while the market is concerned about slowing demand in US, the majority of demand for base metals comes from the developing world rather than the developed world.
   
He added supply demand fundamentals remains tight in most metals markets. "Demand destruction in the base metals sector is still proving to be elusive, mainly affecting demand at the margin," he said.
   
But he added that for metals like nickel, which yesterday hit a new all time high of 44,750 tonnes, demand destruction may become more widespread going forward. "We are hearing of weakening conditions in the stainless steel sector," he said. Stainless steel demand accounts for about 70 pct of total nickel consumption.
   
For the time being, however, nickel remains underpinned by critically low stocks and strong demand. LME nickel for 3 month delivery was up at 44,050 usd a tonne against 43,600 usd at the close yesterday.
   
The LME said in a daily report today nickel stocks held in its warehouse fell by 60 tonnes to 3,816 tonnes, leaving only 2,418 tonnes on warrant or available to the market - less than a day's worth of global consumption.
   
In other metals, zinc was down at 3,215 usd a tonne against 3,220 usd, aluminium was down at 2,717 usd a tonne against 2,737 usd, lead was up at 1,860 usd a tonne against 1,850 usd while tin was down at 13,525 usd against 13,600 usd.

At 12.28 pm gold fell to 640 usd from 648.25 usd at yesterday's close. "I don't think this is the end of the corrective phase as further risk reduction, and the necessity to generate cash for margin calls are likely to see gold and other commodity markets sold off," said TheBullionDesk.Com analyst, James Moore.
   
The price of gold tumbled as players shied away from risk amid concerns about US economic growth.
   
Stock markets have continued to weaken since yesterday when an increase in bad subprime mortgage loans in the US sparked a sell-off on Wall Street that stirred worries about the US economy and oil demand.
   
Subprime lenders offer loans to those who do not qualify for prime market rates because of blemished or limited credit.
   
In addition, recently reported poor February retail sales in the US, lower than expected hiring prospects for the spring in the US, and an OPEC summit tomorrow -- which is widely expected to do nothing to raise oil prices -- "isn't playing in gold's favour," noted Kitco analyst, Jon Nadler.

In other precious metals, platinum was down at 1,202 usd against 1,216, palladium was down at 342 usd from 345 while silver was also down at 12.65 usd against 12.83.

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