US & World Daily Markets Financial Briefing 16-08-2007

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Stocks extend slide on Countrywide news

NEW YORK - Stocks fell sharply Thursday after a move by Countrywide Financial Corp. confirmed fears of widening problems with some mortgages and tighter access to credit.
   
A sell-off overseas offered Wall Street little reason to try to stanch the bleeding a day after the Dow Jones industrial average closed below the 13,000 mark for the first time since April and the Standard & Poor's 500 index moved into negative territory for the year.
   
Investors' confidence took a drubbing Wednesday on concerns about potential trouble at Countrywide, the nation's largest mortgage lender. Countrywide, referring again to tightening credit conditions, said early Thursday it was forced to draw on an $11.5 bln credit line to fund operations.
   
Also Thursday, the New York Fed, which carries out the central bank's market operation, said it would step in with a 14-day repurchase agreement worth $5 bln. The Fed then said it would accept a second overnight repo of $12 bln. On Wednesday, the Fed accepted a "repo" of $7 bln, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks.
   
Central banks around the world have been supplying blfns of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. But investors' anxiety still prompted them to sell.
   
In the first hour of trading, the Dow fell 76.09, or 0.59 percent, to 12,785.38. The index had fallen more than 100 points within the first few minutes of trading. Broader stock indicators were also lower. The Standard & Poor's 500 index was down 5.40, or 0.38 percent, at 1,401.30, and the Nasdaq composite index dropped 1.41, or 0.06 percent, to 2,457.34.
   
The Russell 2000 index of smaller companies was up 3.55, or 0.47 percent, at 755.09. Overseas, Britain's FTSE 100 fell 3.55 percent, Germany's DAX index fell 2.56 percent, and France's CAC-40 fell 2.82 percent.
   
Bonds continued to rally as investors fled into safer securities. The yield on the benchmark 10-year Treasury note fell to 4.67 percent from 4.72 percent late Wednesday. Investors have also been hoping that policymakers might lower interest rates to help bolster the economy, which is a positive step for Treasurys.
   
However, St. Louis Fed President William Poole told Bloomberg Television after the closing bell Wednesday it wasn't necessary for the central bank to consider lowering short-term interest rates before the regularly scheduled meeting of its rate-setting committee next month.
   
Housing concerns will remain in focus during the session with a report due on July housing starts. Starts are expected to rise by a slightly smaller amount than in June, and data on building permits are expected to show an increase by about the same amount.
   
Investors will also get a reading from the Philadelphia Federal Reserve on regional manufacturing for August. The report will be released at midday.
   
Countrywide fell $3.74, or 17.6 percent, at $17.55 after the mortgage lender borrowed $11.5 bln from a group of 40 banks to fund loans, in a move that shows just how deep the lending crisis has become. The company has been slammed as the credit crunch has driven a number of its smaller peers to liquidation.
   
Also in focus during the session was J.C. Penney Co., which said second-quarter profit edged up nearly 2 percent year-over-year. The results topped Wall Street projections at a time when many on Wall Street have been concerned that consumer spending has slowed, which was reflected in comments from Wal-Mart Stores Inc. and Home Depot Inc. earlier this week.
   
J.C. Penney shares rose 83 cents to $63.40. Wal-Mart, the world's largest retailer, fell 23 cents to $43.05. Home Depot, the world's largest home improvement chain, declined 7 cents to $33.29.
   
Light, sweet crude fell $1.51 to $71.82 per barrel in premarket electronic trading on the New York Mercantile Exchange, giving back Wednesday's gains as storms brewing in the Caribbean didn't appear to pose a threat to energy operations.

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Dollar and yen continue higher amid flight to safety

LONDON - The dollar and the yen were in the ascendant as currency markets continued to retreat from risky positions. The US currency was off highs, however, after housing data out of the country came in weak, in turn highlighting that the troubles from the property sector is likely to remain a mainstay.
   
Investors have been piling into relatively safe investments on fears that the global cutback in credit availability, sparked by defaults on risky or 'subprime' mortgages in the US, will cause a wider economic downturn.
   
Stock markets are falling sharply on these concerns, with financial stocks bearing the brunt of losses as investors anticipate more bad news about banks' exposure to subprime assets.
   
On currency markets, the flight to safety has meant sharp gains for the dollar, partly as US investors repatriate funds from emerging markets, and the yen, as risky 'carry trade' positions are unwound.
   
The US currency gained further across the board as the day progressed, although it came under pressure as housing and employment data missed expectations.
   
The Aussie dollar has today fallen below 90 yen for the first time since March, from highs of more than 107 yen less than a month ago, while the Kiwi is below 80 yen, also for the first time since March, from July's highs of almost 98 yen.
   
The euro and the pound have also suffered, with the credit market woes combining with a patch of weak data to prompt talk that interest rates in the euro zone and the UK have reached their peak.
   
The pound fell below 2 usd this week in the wake of surprisingly soft CPI inflation data -- and today dipped to a two-month low of under 1.98 usd as strong retail sales were undermined by a sharp drop in prices, indicating that retailers had to discount heavily to keep demand up.
   
The euro meanwhile dipped below 1.34 usd today, from all-time highs of over 1.38 usd just a week ago.

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Euroshares lower midday, chemicals fall as both Ciba & Lanxess disappoint

LONDON - Leading European exchanges were lower midday as Wall Street is set for further losses later in the day and after shares in KKR shed a third of their value late last night, spurring investors' concerns about a potential global credit crunch.
      
At 12.00 pm, the Dow Jones STOXX 50 fell 98.14 points, or 2.68 pct, to 3,567.58 as the STOXX 600 dropped 10.52 points, or 2.88 pct, to 354.84.
   
Financials were suffering amid suspicion that further bad news is imminent. Natixis fell 5.10 pct as BNP Paribas shed 3.03 pct and Deutsche Bank dropped 2.80 pct. Chemicals were down as Lanxess disappointed with a quarterly loss that came in higher than expected.
   
"The quarterly loss, which on a net basis was bigger than expected, were a burden on the shares though," said a Frankfurt-based trader. "That Lanxess fell into negative territory on the net loss was pretty clear," said a Frankfurt-based analyst.
   
Negative read across was further aggravated as Swiss speciality chemicals group Ciba plunged 7.10 pct as its second-quarter results missed expectations.  Ciba posted a net profit of 33 mln sfr, down from 60 mln sfr in the year earlier and falling sharply below analyst consensus forecasts of 67 mln sfr.
   
Akzo Nobel fell on the back of a weak overall sector, but traders also noted rumours that the Dutch group's bid for ICI is facing problems as Germany's Henkel might not be able to finance its part of the planned takeover.

On Monday, ICI agreed to an 8 bln stg takeover bid from Akzo Nobel and to plans for Henkel to buy the group's National Starch business for 2.7 bln stg.
   
French group Air Liquide also saw its stock take a hit --down 4.6 pct.    

Meanwhile, the staffing sector was also lower as investors fear that concerns over an economic slowdown may result in companies across Europe tightening their belts and consequently saving on recruitment. Adecco was 4.19 pct lower, Randstad fell 4.92 pct and Vedior retreated 4.67 pct while Hays dropped 3.24 pct.
   
In earnings results, OMV lost 4.39 pct midday -- catching up with losses yesterday when Viennese markets were closed -- although traders said today's second-quarter earnings beat market expectations.
       
Zurich Financial found a little support, outperforming its sector and index slightly --down 1.82 pct-- after the insurer presented first-half net profit which exceeded expectations, and as the group assured investors that its exposure to the sub-prime market is limited with traders pointing to a higher than expected hike in its combined ratio.
   
Also in insurance, Trygvesta AS turned lower in late morning trade, but still outperformed the general market after posted a stronger-than-expected second-quarter report and raising its full-year guidance.
      
On the M&A front, Swedish Match AB outperformed -- down 1.3 pct -- after it agreed to acquire Cigars International Inc, a privately-held US company that specialises in the direct marketing and sales of premium and machine-made cigars and related accessories for an undisclosed sum.

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Korea leads Asian selloff with worst ever single-day decline

SINGAPORE - Stock markets across Asia tumbled Thursday, with the benchmark Korean index clocking its biggest-ever one-day  decline, as investors returning from a national holiday were confronted with continued carnage on Wall Street and across the  globe.
   
The KOSPI closed down 125.91 points or 6.9 pct at 1,691.98, its steepest point drop on record. The low for the day was 1,686.59 and the high was 1,700.72. The closing level was the lowest since May 30 when the KOSPI settled at 1,662.72.
   
The index outpaced the less than 3 pct drop it recorded  on October 9, 2006, when North Korea launched nuclear missiles over the sea between Korea and Japan.
   
In Japan, nine major foreign brokers received combined orders from clients overseas to sell an estimated 59 bln yen worth of shares in a wide variety of sectors and to buy 30 bln yen worth, according to local dealers.
      
The Nikkei finished down 327.12 points or 2 pct at 16,148.49, its worst level since Nov 29, 2006. The index has now lost a full 13 pct from the seven-year high it hit on Feb 26. The broader TOPIX index was down 1.7 pct, to 1,567.46 after touching a low of 1,529.98.
  
News that the Bank of Japan would inject 400 bln yen into the banking system to stem rises in interest rates failed to brake the slide.
   
Elsewhere, the Australian S&P/ASX 200 closed down 76.5 points or 1.3 pct at 5,711.5, with investors unmoved by assurances from the country's prime minister and treasurer that the economy's could withstand the shockwaves from the US credit crunch.
   
"My assessment is the Australian economy remains very strong, and we should be reassured about that," Prime Minister John Howard told journalists in Canberra.
      
Separately, Treasurer Peter Costello said while the fallout on financial markets from defaults in US subprime mortgages was significant, local banks were well capitalised. "The banking sector is very well capitalised, there is a lot of liquidity and we have in place arrangements to ensure there is sufficient liquidity," Costello told the Australian Broadcasting Corporation.
   
In China, A-shares closed sharply lower led by financial stocks as global jitters continued to weigh on sentiment. The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed down 104.44 points or 2.14 pct at 4,765.45.
       
The Shanghai A-share Index was down 109.64 points or 2.14 pct at 5,001.92 and the Shenzhen A-share Index was down 6.71 points or 0.48 pct at 1,381.35.  China B-shares closed lower as well. A slump in large-cap stocks such as property developers in Shenzhen led to the biggest one-day loss in its main index, Shenzhen B-shares, since June 4. The Shanghai B-share Index fell 6.70 points or 2.09 pct to 313.99 and the Shenzhen B-share Index was down 40.72 points or 5.31 pct at 726.19.
  
In Hong Kong, the Hang Seng ended down 703. 33 points or 3.3 pct at 20,672.39.
  
Shares in Taiwan closed sharply lower, with the main index tumbling more than 4 pct, following another heavy wave of selling. The weighted index closed down 391.67 points or 4.56 pct at 8,201.37, the lowest level since May 31 when it finished at 8,144.95.
  
Singapore's Straits Times Index closed down 121.09 points or 3.7 pct at a four-month low of 3,152.16. The index has fallen as much as 15.8 pct from its all-time intraday high of 3,688.58 reached on July 16.
   
The Jakarta composite ended 120.45 points or 6 pct lower, while Malaysia's Kuala Lumpur Composite Index closed down 44 points or 3.5 pct. The Philippines' composite index closed down 188 points or 6 pct, and is now down 23 pct since July 13, when it hit a record high of 3,820.55.

Indian shares closed over 4 pct lower with heavy selling in banking, metals and real estate sectors, triggered by a global sell-off in anticipation of more losses in the US sub-prime lending market and its impact on the US economy. The Bombay Stock Exchange's benchmark Sensex fell 4.28 pct, or 642.70 points, at 14,358.21, while the National Stock Exchange's S&P CNX Nifty dipped 4.38 pct, to 4,178.60 points.
   
All BSE 30 shares closed in the red. In the broader market, 848 shares advanced, 1,858 declined and 39 remained unchanged. All sectoral indices of the Bombay Stock Exchange closed in the red. The BSE Metals Index tumbled 6.51 pct to 10,299.61 points while the Banking Index lost 5.42 pct to 7,421.33 rupees and the Real Estate Index slipped 5.56 pct to 6,980.08 rupees.

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Nickel sinks to 11-month low amid rising fears of global credit crunch

LONDON - Nickel sank to its cheapest price since last September while aluminium hit a ten-month low amid rising fears of a global credit crunch and as overbearing risk aversion continued to weigh on sentiment.
   
Another equity rout today sparked a bout of risk aversion, also seen in other risky assets this morning with precious metals, oil and gas all down too.
    
Nickel shed almost 5 pct, and is now down more than 50 pct since striking an historic high of 51, 800 usd just three months ago. By 9.42 am, nickel for three-month delivery had dipped to 25, 350 usd against 26, 500 usd at the close yesterday. Nickel earlier hit an intraday low of 25, 150 usd.
   
Demand destruction with prices at sky high levels earlier this year, higher supply and lower usage by stainless steel manufacturers who had relied on the metal knocked the price, while recent broader economic woes have exacerbated the grey metal's fall.
   
Aluminium, meanwhile, sank to a ten-month low of 2, 500 usd earlier.
   
Elsewhere, copper, often seen as the base metal board leader, was also engulfed by risk aversion while a daily report from the LME earlier saying inventory rose 3, 300 tonnes to 119, 350 tonnes exacerbated the red metal's fall.
   
"Copper looks on track to test support towards 7, 000 usd. Supply disruptions and robust demand side influences are taking a back seat for now and further short selling or long liquidation is likely," said JP Morgan analyst Michael Jansen.
   
Copper was down nearly 4 pct at 7, 039 usd against 7, 315 at the close yesterday.
   
Among other metals, lead slid to 2, 875 usd from 2, 955 usd. Zinc eased to 3, 135 usd from 3, 230 usd, and aluminium dropped to 2, 497 usd from 2, 543 usd. Tin, the only metal to post a modest gain, rose to 13, 950 usd from 13, 850 usd.
 
At 12.39 pm, spot gold was trading at 663.75 usd an ounce against 669.00 usd in late New York trade yesterday.
   
In fundamental supply/demand news, the World Gold Council yesterday said reduced price volatility and robust Indian buying lifted global gold demand in the second quarter.
   
In other precious metals, silver was down at 12.34 usd from 12.53 usd, platinum eased to 1, 238 usd from 1, 262 usd while palladium was also down nearly 3 pct at 334 usd from 346 usd.

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