US & World Daily Markets Financial Briefing 15-11-2007

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The government's Consumer Price Index rose 0.3 percent in October on high energy and foods costs, in line with September's increase and analysts' forecast. Investors are concerned that rising inflation -especially due to higher fuel prices - could move consumers to cut back their overall spending and also prevent the Federal Reserve from lowering interest rates further in the coming months.
   
Meanwhile, the number of laid off workers filing claims for unemployment benefits rose last week by by 20,000 to 339,000, double what economists expected. And J.C. Penney Co. reported a 9 percent drop in fiscal third-quarter profit on weak sales and cut its fourth-quarter outlook, indicating that housing market
problems are are taking a toll on shoppers, as well.
   
Investors also reacted to a Barron's report late Wednesday that a General Electric Asset Management bond fund has suffered losses in mortgage-backed securities. The General Electric Co. unit is offering investors the option to redeem their holdings in the short-term institutional bond fund at 96 cents on the dollar. The losses in the bond fund raised concerns that the squeeze on credit markets could spread and hurt small investors.
   
Barclays Capital became the latest financial institution to record a writedown on losses stemming from turbulent credit markets. The unit of Barclays Group PLC took a $2.7 billion charge in the third quarter but the also said Thursday its profit beat last year's strong performance.
   
The Dow Jones industrial average fell 45.12, or 0.34 percent, to 13,185.89. Broader stock indicators also dipped. The Standard & Poor's 500 index fell 5.64, or 0.38 percent, to 1,464.94. The Nasdaq composite index fell 3.24, or 0.12 pecent, to 2,641.08.
   
Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, slid to 4.22 percent from 4.25 percent late Wednesday. Oil prices slipped on the New York Mercantile Exchange, where a barrel of light, sweet crude dipped 66 cents to $93.42. Gold prices fell as the dollar
strengthened.
   
In other corporate news, Tyco International Inc. said its fiscal fourth-quarter profit slid 85 percent due to costs related to restructuring and the spin-off of the former conglomerate's health care and electronics units. For the full year, Tyco swung to a loss of $1.74 billion compared with a profit of $3.6 billion last year.
   
Tyco plummeted $1.25, or 19.5 percent, to $5.15. Ralcorp Holdings Inc., a maker of private-label cereals, said it will buy Kraft Food Inc.'s Post cereals division for $1.65 billion plus $950 million in debt. Kraft fell 21 cents to $32.77, and Ralcorp rose $4.55, or 8.2 percent, to $60.04.

The Russell 2000 index of smaller companies fell 4.44, or 0.57 percent, to 778.03. Major stock indexes overseas slumped. Britain's FTSE 100 declined 1.34 percent, Germany's DAX index fell 1.73 percent, while France's CAC-40 shed 1.28 percent. Japan's Nikkei stock average closed down 0.67 percent and Hong Kong's Hang Seng index fell 1.42 percent.

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LONDON - The dollar was marginally firmer as the market awaited key US inflation data this afternoon, while the pound remained close to four-year lows against the euro on expectations that the Bank of England will cut interest rates.
   
Inflation figures out of the US are likely to provide the highlight of a raft of US data today, showing price pressures in the US remain elevated and exacerbating the dilemma for the Federal Reserves as economic growth shows signs of slowing.
   
Also due today, weekly jobless claims should give further signs of strength in the US labour market, but this could well be offset by weakness in the latest Empire State and Philadelphia Fed manufacturing surveys.
  
Meanwhile, the pound recovered slightly after earlier sharp falls but remained weak, particularly against the euro which hit a four-year high of 0.7166 stg in response to weak UK retail sales data this morning. The data showed retail sales fell by 0.1 pct in October from September, the first monthly fall since January and confirming the widespread belief that UK consumer spending is on a firm downward trend.
   
After yesterday's dovish Bank of England inflation report, which all but confirmed that two UK interest rate cuts will be forthcoming next year, the weak figures will add to speculation that the first move could come as early as next month. The BoE's position contrasts with that of the European Central Bank, which has defiantly maintained its anti-inflationary stance despite the economic slowdown in the region.
   
"The daylight between the anticipated interest rate profile in the UK and euro zone now appears to have grown," said Neil Mellor at the Bank of New York Mellon, adding that the euro may be set for further gains against the pound.

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At 12.18 pm, the STOXX 50 was 43.82 points or 1.17 pct lower at 3,689.23, while the STOXX 600 fell 4.75 points or 1.28 pct to 365.71.
   
According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open down 33 points at 13,198. Separately, S&P 500 futures fell 7.10 points to 1,417.1 while Nasdaq 100 futures dropped 19.25 points to 2,038.25.
       
Equally, Credit Agricole was 3.37 pct weaker after the French banking group reported third quarter earnings last night which disappointed investors. JP Morgan downgraded its estimates for earnings per share by 1.4 pct for 2007, following the results, but remained 'overweight' on the stock as it trades at a "significant discount to European banks".
    
Carlsberg and Heineken upped their bid for Scottish & Newcastle to 750 pence per share from 720 pence, which was rejected by S&N last month. Shares in Carlsberg were 0.15 pct higher, while Heineken fell 4.47 pct and S&N added 2.79 pct.
   
In the UK, Cable & Wireless gained 2.16 pct amid vague rumours that France Telecom is casting an acquisitive eye over the UK group, although traders were sceptical. Meanwhile, Tele Atlas fell 4.98 pct after rumours emerged that Garmin may withdraw its bid for the group as TomTom and Garmin settle a patent infringement case.

TomTom added 3.57 pct. In the luxury goods industry, Clarins traded 3.65 pct higher, buoyed by speculation that L'Oreal might use the proceeds of its Sanofi-Aventis stake sale to acquire the luxury cosmetics group.
   
"At worst, the stake sale represents a negative view of Sanofi's fundamentals and the potential for further share declines," said UBS in a note to clients. Shares fell 4.20 pct. Bulgari was hit by profit-taking, down 1.37 pct, after it raised its guidance for the full year last night and said net profit in the third quarter rose 19.6 pct to 40.8 mln.

Analysts at Deutsche Bank said the third-quarter figures were also solid, but noted that the consensus has already been ahead of the company's guidance. Also in earnings news, OMV clocked up 1.23 pct as the group beat expectations by presenting a net income of 489 mln eur for the third quarter.

UniCredit analyst Alfred Reisenberger said OMV's quarterly results were "excellent" and that he was positively surprised by the extent of the company's strong financial results, which was buoyed by contributions from its units Borealis and Petrol Ofisi.
   
And back in France, Atos Origin fell 3.88 pct as uncertainties over the group's ability to meet its 2009 targets outweighed a strong set of third-quarter sales figures. "The sales figures were reassuring but they're not enough to enable the group to meet its 2009 targets which are very ambitious," Isabelle Delattre from Raymond James Asset Management commented.

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SINGAPORE - Stock markets across Asia fell Thursday with Hong Kong leading the decline as a weak performance on Wall Street encouraged investors to lock in gains after Wednesday's 1,300-point rally by the Hang Seng. The Hang Seng ended down 1.4 pct at 28,751.21, led by property and Chinese
stocks.
      
The Nikkei closed down 0.7 pct at 15,396.30, surrendering early gains as a rally among financials fizzled out. The broader TOPIX eked out a modest 0.1 pct gain to 1498.86. The KOSPI ended down 1.3 pct at 1,947.74. The Singapore Straits Times index lost 1.3 pct at 3,477.59
   
In Australia, the S&P/ASX 200 closed down 1.1 pct at 6,528.6 and the All Ordinaries lost 0.8 pct to 6,594.4. The benchmarks flitted between positive and negative territory through the session, as investors took profits in the financial sector and deserted resource heavyweights.
    "  
The Shanghai Composite closed down 0.9 pct at 5,365.27 on expectations the Chinese government will tighten interest rates again as it tries to cool the overheating economy and rein in inflation. Among individual stocks, Hong Kong Exchanges & Clearing gained 3.4 pct to 247.20 hkd in a continued positive response to its third-quarter earnings, released Wednesday.
   
"Hong Kong Exchanges recorded fantastic third-quarter results, with net profit nearly tripling to 1.68 bln usd," said DBS analyst Jasmine Lai in a note. "The strong numbers are not only underpinned by active securities trading activities, but also driven by the robust derivatives market, which contributed 20 pct of total profits."
        
Oil recovered from Tuesday's sell-off. A barrel of light sweet crude rose 2.92 usd to settle at 94.09 usd a barrel on the New York Mercantile Exchange, adding to inflation fears. In Seoul, Samsung Electronics was a standout, gaining 4.2 pct to 570,000 won on news that the company led the global liquid crystal display monitor market in the third quarter.
   
Mining heavyweights BHP Billiton Ltd and Rio Tinto Ltd continued to track lower as investors wait for the next move in the takeover battle. Rio Tinto has rejected a three-for-one share offer from BHP Billiton which would create a 350 bln usd mining behemoth.
   
Another factor weighing on BHP's share price was an earthquake in Chile which cut power to its Escondida, Spence and Cerro Colorado copper mines in the north of the country. The stock closed down 2.5 pct at 41.15 aud and Rio Tinto fell 2.1 pct to 134.59 aud.
   
Woodside Petroleum plummeted 7.3 pct to 48.20 aud after the country's leading oil and gas producer lowered its production forecast for 2008 by as much as 20 pct due to delays in new projects and the sale of fields in Africa.
   
On a positive note, Fortescue Metals Group surged 18.9 pct to 61.20 aud after announcing a massive iron ore discovery in northwestern Australia.  In Tokyo, TDK shed 6.1 pct to 7,530 yen and Trend Micro fell 4 pct to 4,070 yen.
   
Elsewhere, Malaysia's third-largest cellphone company, DiGi, rallied. DiGi, the local unit of Norway's Telenor ASA, said it will acquire Time dotCom's 3G spectrum license for 654.5 mln rgt in an all-share deal. DiGi was the only mobile phone company without a 3G licence. In March, it failed in its second attempt to win a wireless broadband license from the government.
   
The Kuala Lumpur Composite Index closed up 0.4 pct at 1,390. The Philippine Composite closed down 0.3 pct at 3,672. Taiwan's weighted index closed down 0.42 pct at 8,905.41 and the Jakarta index rose 0.5 pct to 2,705.82.

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At 1.55 pm, spot gold was trading down at 796.70 usd per ounce against 813.00 usd in late New York trade yesterday. On November 7, gold fetched 845.58 usd an ounce, its highest value since hitting a record 850 usd an ounce in January 1980.
   
Kitco analyst Jon Nadler said: "Gold remains at risk of heading towards 780 usd support. "Sliding oil prices, meanwhile, softened the threat of inflation, against which gold is often bought as a hedge. "Also something to bear in mind is that we are at 27 year highs and we may be seeing some short-term profit taking to offset against stock market losses," said Ben Coleman, Tradindex trader.
   
The latest set of dollar-boosting data included US Consumer inflation, which rose slightly in October despite an uptick in energy prices, while core consumer inflation, which does not include volatile food and energy prices, also continued to rise modestly, the Labor Department said today. Overall consumer prices rose 0.3 pct last month, in line with expectations and the same increase seen in September.
   
Also the New York Federal Reserve Bank's Empire State Manufacturing Index was essentially steady in November, showing current conditions dipping only slightly to a 27.37 reading after a revised 28.75 in October. Economists had expected a significant pullback to 19.00, following the October spike.
   
Since last week's high traders have booked profits amid increased price-volatility, lower oil prices which have eased from record levels struck last week, and as the dollar staged a very modest recovery. So far today, gold's value has traded in a large range from as low as 795.73 an ounce to as high as 818.15 usd.
   
Nevertheless, gold has risen some 30 pct since the start of this year and analysts, on the whole, call for the metal to test its record high either late this year or early next year. Increased wider market stress has sparked investment into the precious metal as a safe haven, so that if and when equity markets collapse, players can sell off the metal to cover losses. Gold is seen as a safe store of value.
   
Elsewhere, silver was trading lower at 14.64 usd per ounce against 15.07 usd in New York yesterday. Platinum was lower at 1,417 usd per ounce from 1,441 usd, while its sister metal palladium fell to 363 usd per ounce from 371 usd.

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