US & World Daily Markets Financial Briefing 19-09-2007

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Stocks move higher following rate cut

NEW YORK - Stocks rose moderately and bonds fell Wednesday as Wall Street extended its rally a day after a half-point rate cut from the Federal Reserve. A mild reading on consumer prices added to the market's momentum.
   
The market soared Tuesday after the Fed slashed the target federal funds rate to 4.75 percent from 5.25 percent because of signs that credit market problems could hurt the overall economy. The Dow Jones industrials, climbing nearly 336 points, had their biggest one-day point gain in nearly five years.
   
On Wednesday, economic data came in that seemed to support the idea that the Fed's rate decrease was a good idea. The readings suggested that amid August's tight credit climate and extreme stock volatility, the housing market weakened while inflation stayed under control.
   
In the first hour of trading, the Dow rose 60.15, or 0.44 percent, to 13,799.54.
   
Broader stock indicators also rose. The Standard & Poor's 500 index rose 10.29, or 0.68 percent, 1,530.07, and the Nasdaq composite index rose 16.67, or 0.63 percent, to 2,668.33.
   
Bonds fell sharply as investors transferred more money from fixed income to stocks. The yield on the benchmark 10-year Treasury note rising to 4.54 percent from 4.47 percent late Tuesday.
   
The Labor Department's August consumer price index slipped 0.1 percent, as expected, while the core CPI excluding food and energy prices rose an unsurprising 0.2 percent.
   
Meanwhile, the Commerce Department said new home construction fell for the third month in a row in August. New homes and apartments dipped last month by 2.6 percent to a seasonally adjusted annual rate of 1.331 million units, the slowest rate in 12 years.
   
In August, commodity prices fell along with stocks as investors drew their cash out of riskier assets and put it into safer government securities. However, crude oil prices are back at record highs above $82 per barrel. Light, sweet crude rose 59 cents to $82.10 per barrel in premarket electronic trading on the New York Mercantile Exchange. Oil closed over $81 per barrel for the first time Tuesday.
   
And in a trend that's likely to exacerbate the effects of high commodities prices on U.S. consumers, the dollar slumped to a new low against the euro Wednesday. Overall, the dollar was mixed against other major currencies, while gold prices rose, extending the strong gains it made Tuesday.
   
But the rate cut was good news for the stock market, especially in industries related to financing and housing. Mortgage lender Countrywide  Financial Corp. rose 97 cents, or 4.8 percent, to $20.85 after its chief executive, Angelo Mozilo, late Tuesday gave a positive forecast for his company.
   
Britain's FTSE 100 rose 2.84 percent, Germany's DAX index rose 2.19 percent, and France's CAC-40 rose 2.80 percent.

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Pound down sharply as MPC minutes indicate no more rate rises

LONDON - The pound was sharply lower after minutes to the Bank of England's September monetary policy decision indicated there are no further rate rises on the agenda.
   
Minutes to the meeting, where the Bank Rate was left on hold at 5.75 pct, said turmoil in the financial markets has diminished inflation risks in the UK.
   
"Taking into account the data on the real economy and financial market developments, the Committee agreed that the upside risks to inflation in the August Inflation Report projections had probably receded," the MPC said.
   
Prior to this, the Federal Reserve's shock decision to cut its benchmark interest rate by 50 basis points had helped sterling recover some of its losses incurred on the fallout from the bank-run on Northern Rock. 
   
However the minutes sent the pound sharply lower again, and an announcement by the BoE that it was changing tack and offering additional 3-month liquidity to banks failed to give it much of a reprieve.   
   
Also weighing on the UK currency were rumours of bids being made for Northern Rock well below its market value.
   
Meanwhile the dollar remained lower across the board following the Fed's aggressive cut.
   
The move was at the top end of expectations and sends a clear signal that the US central bank is moving in pre-emptive fashion to ward off a liquidity crunch arising from the ongoing fallout in the subprime market.
   
While the accompanying statement gave no further indication of where rates will go from here, most analysts expect it to be the first of a series of cuts, and this is weighing on the dollar further.
  
The decision sent the euro to an all time high of 1.3987 usd, and it has been hovering just shy of 1.40 usd ever since.
   
Attention now turns to this afternoon's release of US housing start figures for August.

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Euroshares up midday, financials continue to rally, Wall St set to extend gains

LONDON  - Europe's leading exchanges continued higher as the Federal Reserve's decision to cut both the fed fund and discount rates by 50 basis points boosted sentiment in the financial sector.
   
At 12.32 pm, the Dow Jones STOXX 50 was up 76.12 points, or 2.04 pct, to 3,808.06, with the STOXX 600 climbing 7.70 points or 2.09 pct to 375.37.
   
Although the financial sector rallied throughout the morning, Northern Rock turned to losses again - down 9.48 pct - with rumours emerging of discounted bids for the troubled mortgage bank from Lloyds TSB Group and HBOS, at 200 pence and 100 pence per share respectively, although sources said HBOS was not amongst the bidding parties.
   
In addition, UK fund manager Baillie Gifford has sold its entire stake in troubled UK mortgage lender Northern Rock, sources close to the situation said.
   
Although the fund manager said it had reduced its 5.98 pct stake to "under" the 5 pct threshold, a source confirmed earlier press reports that it had in fact sold its entire share capital in the lender, realising its loss of up 200 mln stg.
  
The UK mortgage-lending banks extended yesterday's gains however, with Bradford & Bingley adding 6 pct and Alliance & Leicester rising 3.66 pct.  Standard & Poor's Ratings Services said this morning the two banks are not as vulnerable as Northern Rock as they have a far lower dependence on wholesale banking.
   
But Credit Agricole lagged a little, up 1.54, after it said third-quarter net profit at its Calyon division is expected to come in "significantly below" that of the same period last year "but nonetheless remain in profit".
   
The shortfall comes after an unauthorised trading position at its Calyon corporate and investment banking arm which will have an estimated 250 mln eur impact on the division's third-quarter results.
   
Generali added 3.93 pct. HSBC initiated the Italian banking group with an 'outperform' stance.
   
Building material groups all benefited as the cut in US rates is expected to boost consumer confidence and help re-energise the US mortgage market. Saint Gobain added 3.62 pct and Lafarge added 3.04 pct.
   
Spanish constructors also rallied with dealers citing a short-squeeze in stocks such as Grupo Ferrovial SA's free-float and the stock gained 8 pct.
   
In the oil sector, Repsol climbed 2.70 pct, ENI rose 2.08 pct and Total moved up 2.26 pct as the price of crude moved back towards the new record high set yesterday.
       
In earnings news, Inditex stormed 3.65 pct higher after its first-half results beat analyst forecasts and as the clothing group issued a bullish second-half outlook.
   
Danish sugar and ingredients maker Danisco AS traded 3.61 pct higher after it posted a strong first-quarter report with better-than-expected margins.
   
Elsewhere, Michelin charged 6.23 pct ahead following an upgrade by Dresdner Bank to 'buy' from 'hold' and after the stock's recent underperformance.  In a note to clients, Dresdner said Michelin is a great restructuring story, which is set to feed into its earnings in 2008.

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Asian markets rally as investors cheer Fed action

SINGAPORE - Stock markets across Asia rallied to multi-month highs Wednesday as investors cheered the surprisingly bold action from the US Federal Reserve to tackle the threat to US economic growth from the turmoil in financial markets.
       
Japan's Nikkei 225 Stock Average ended up 3.7 pct at 16,381.54. The broader Topix climbed 3.8 pct to 1,567.58. The market largely shrugged off the Bank of Japan's decision to keep its overnight call rate target at 0.5 pct for an eighth straight meeting.
   
Hong Kong's Hang Seng set a fresh record at 25,554.64, up almost 4 pct.
   
The Australian S&P/ASX 200 rose 2.6 pct at 6,356.1, while the All Ordinaries was up 2.5 pct at 6,362.0.

The South Korean Kospi closed up 3.5 pct at 1,902.65.
   
The Singapore Straits Times closed up 3.4 pct at 3,594.36, Malaysia's Kuala Lumpur Composite Index rose 1.6 pct to 1,297.16, the Philippines Composite rose 2.2 pct to 3,362.98 and Indonesia's Jakarta index ended 3.3 pct at 2,313.34.
   
The Shanghai Composite underperformed, ending down 0.6 pct at 5,395.27. The Taiwanese Taiex was up 0.3 pct at 8,926.38.

Indian shares closed at a record high, joining in the worldwide rally triggered by the US Federal Reserve's overnight 50 basis points cut in benchmark lending rates.
   
The Bombay Stock Exchange's Sensex soared 4.17 pct or 653 points to close at 16,322. The index had breached the 16,000-mark within minutes of opening today. The National Stock Exchange's S&P CNX Nifty ended up 4.09 pct at 4,732.
   
The Sensex's scorching pace is not expected to slow any time soon, with analysts saying the index could scale a peak of 16,800 over the next few days and cross 17,000 in a month's time. It took seven months for the benchmark index to cross from 14,000 to 15,000 but just 53 days to go from 15,000 to 16,000.

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Gold holds onto gains as dollar continues to languish

LONDON - Gold continued higher in early afternoon trade as the dollar continued to languish against the euro after yesterday's Fed decision to cut US interest rates.
   
The announcement knocked the US currency, which had already tested fresh lows against the euro in recent weeks. Gold, which is an alternative investment to the dollar, typically trends in an inverse relationship to it.
       
At 1.03 pm, gold was trading at 722.70 usd an ounce against 719.80 usd in late New York trade yesterday.
      
With record oil prices, another traditional bullion driver, also supporting gold, the market is now waiting to see if the precious metal can break through the previous high of 732 usd set last May to set a new 28-year record.
   
Simon Weeks, head of precious metals trading at Scotia Mocatta said this morning: "Technically gold is overbought, but in these markets technicals don't tend to have much say."
   
"Exchange Traded Funds picked up another 10 tonnes yesterday, and gold is acting as a portfolio diversifier in times of stress in the market. The dips are there to be bought."
   
ETFs trade commodity futures and back up every ounce of stock bought on paper with the actual physical commodity. As a result, ETFs squeeze supply as they eats up the amount of physical stock available.
   
Among other precious metals, platinum was steady at 1,302 usd an ounce against 1,304 usd an ounce, while its sister metal palladium was trading at 329 usd against 331 usd. Silver was relatively flat at 12.97 usd an ounce versus 12.98 usd.

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