US & World Daily Markets Financial Briefing 19-10-2007

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Stocks slide as oil crosses $90 a barrel

NEW YORK - Stocks opened lower Friday as crude oil crossed $90 per barrel overnight, heightening concerns that rising energy costs will hurt both businesses and consumers.
   
Investors are being drawn to energy futures in part as a hedge against the weakening U.S. dollar. The greenback fell to a new low against the euro Thursday and also sagged against the yen.
   
On Friday, oil also moved higher on continued worries over tensions between Turkey and Kurdish rebels in northern Iraq. A barrel of light, sweet crude passed $90 per barrel in European trading before retreating, and was last up 33 cents at $89.80 on the New York Mercantile Exchange.
   
Investors also looked toward another batch of earnings reports, including disappointing results from Caterpillar Inc., 3M Co. and Xerox Corp. Technology stocks showed more-modest declines after Google Inc. reported stronger-than-expected profits, and prompted a number of analyst upgrades.
   
In the first hour of trading, the Dow Jones industrial average fell 118.28, or 0.85 percent, to 13,770.68. Broader stock indicators also fell. The Standard & Poor's 500 index fell 11.46, or 0.33 percent, to 1,528.62, and the technology-heavy Nasdaq composite index dropped 18.77, or 0.67 percent, to 2,780.54.
   
Friday's early pullback pales in comparison to what traders on the floor of the New York Stock Exchange had to contend with exactly 20 years ago. On Oct. 19, 1987 -- a day still known as Black Monday -- the Dow plunged 23 percent on concerns about interest rates and slowing economic growth.
   
Bonds rose again Friday, extending a rally to five sessions. The yield on the benchmark 10-year Treasury note fell to 4.47 percent from 4.50 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.
   
In corporate news, Caterpillar, one of the world's largest construction equipment makers, posted a 21 percent increase in its third-quarter earnings. However, the company's results fell short of Wall Street's expectations and the company lowered its full-year forecast. Caterpillar, one of the 30 stocks that comprise the Dow industrials, fell $2.55, or 3.3 percent, to $75.11.
   
3M, the maker of Scotch tape and Post-It Notes, said quarterly profit jumped 7 percent on strong growth across all regions, but sales missed expectations. The company raised its profit outlook for the full year. The stock fell $2.96, or 3.1 percent, to $91.77.
   
Xerox, the world's biggest supplier of office printers and copiers, slipped 12 cents to $17.09 after posting better-than-expected quarterly earnings. The company said equipment sales rose 14 percent from the year-ago period.   

Wachovia Corp. fell 87 cents to $47.27 after reporting third-quarter profits fell 10 percent due to write-downs related to difficult credit market conditions. The nation's fourth largest bank also signaled increasing credit troubles ahead.
   
Google rose $13.27, or 2.1 percent, to $652.89 after the search engine leader said advertising spending lifted third-quarter profit by 46 percent.   

With little in the way of economic news expected, investors will monitor what Federal Reserve Chairman Ben Bernanke and St. Louis Fed President William Poole might say on a panel discussion at the bank's conference on monetary policy. The panel is set to begin at 9 a.m. EDT.
   
Britain's FTSE 100 fell 0.51 percent, Germany's DAX index fell 0.45 percent, and France's CAC-40 fell 0.36 percent.

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Dollar enjoys modest corrective rebound ahead of G7, pound storms ahead

LONDON - The dollar enjoyed a modest corrective rebound against the euro just ahead of today's meeting of G7 finance ministers and central bankers in Washington, while the pound surged ahead after stronger than anticipated UK economic growth data.
   
The US currency, which earlier hit a fresh all-time low against the euro, has been on the backfoot in recent weeks on concerns about the state of the US economy. The low probability of any new strategy emerging from the G7 has exacerbated that decline, pushing the euro up to an all-time high of 1.4318 usd.
   
"The euro's break higher to new lifetime highs on the eve of the G7 suggests that the market is unconvinced that any significant enhancement to the statement on currencies can be agreed, especially as this conflicts with the broader G7 policy of addressing global imbalances as well as US monetary policy" said Hans Redeker, global head of FX strategy at BNP Paribas.
   
However, he said he wouldn't be surprised to see comments on the wires today from some European officials as they press their concerns about the rise in the euro on the sidelines of the meeting.
   
But here again, there appear to be divisions within the European camp. While French and Italian politicians have voiced concerns about the euro's rise, Germany and other euro zone countries appear more relaxed about it. Analysts also said coordinated action by the G7 was unlikely because the strength of the euro reflected the good health of the euro zone economies.
   
"The renewed dovish shift in US interest rate markets following the very weak September housing starts data has put further pressure on the dollar," said Mitul Kotecha, head of global foreign exchange research at Calyon.  "As a result it is difficult to see the dollar strengthening any time soon unless US interest rate markets come under renewed pressure," he added.
   
The market is also keeping an eye on oil prices, which hit a record high of 90.02 usd per barrel in New York on concerns about tensions between Turkey and Iraq.
   
In recent weeks, the dollar has been undermined by the increased prospect of another US interest rate cut later this month, after the Federal Reserve slashed its key rate last month by a half-point to 4.75 pct.
      
Elsewhere, the pound stormed ahead after stronger than anticipated UK GDP data diminished market expectations that the Bank of England will be cutting borrowing costs anytime soon.   
   
In its preliminary estimate for the third quarter, the office for National Statistics revealed that the economy grew by a quarterly 0.8 pct.

The Candian dollar has shot to a fresh 31-year high against the US currency following a jump in the country's inflation reading. The annual rate of CPI inflation in Canada during September shot up to 2.5
pct from 1.7 in August, its highest reading since May 2006.    

Ashraf Laidi, currency strategist at CMC Markets said that while the Bank of Canada seems intent on keeping interest rates on hold, "rising oil prices and an improved rate differential (following the US cut) are both seen benefiting the currency across the board".
   
At 1.57 pm BST the US dollar was trading at 0.9663 cad, just off its new 31-year low of 0.9650. Shortly before the inflation data was released, the dollar was trading at 0.9730.

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Euroshares flat midday as US futures recover; oil stocks advance

LONDON - Leading European exchanges were recovering midday as US futures bounce of earlier lows and as the high crude price lifts oil stocks in a generally weak day of trading.
   
At 12.47 am, the STOXX 50 was down 5.49 points, or 0.14 pct, at 3842.65 and the STOXX 600 was up 0.18 points, or 0.05 pct, higher at 383.56, with a number of M&A stories offsetting a generally quiet day.
       
In Europe, oils remained higher as the price of New York crude remained close to new record highs of 90.7 usd per barrel. Repsol-YPF led the STOXX 50 risers, up 3.37 pct, further boosted by ongoing hopes it will sell its Gas Natural stake. ENI was up 0.42 pct and Total up 0.37 pct.
   
Royal Dutch Shell, which was upgraded by Goldman Sachs to 'neutral' from 'sell', added 0.68 pct. Burren Energy, though, was let out in the cold. The US broker cut its stance on the UK group to 'neutral' from 'buy'. Shares slipped 0.17 pct.
   
Elsewhere, AstraZeneca shed 2.58 pct following the decision late yesterday by the European Patent Office's Board of Appeal to revoke the patent for the UK drug group's asthma treatment Symbicort leading brokers to cut estimates.
   
HSBC cut its target for AstraZeneca to 2,850 pence from 2,900 with a maintained 'overweight' rating. Peer, GlaxoSmithKline shrugged off a request by European regulators that it add stronger warnings to its Avandia diabetes medicine as Exane BNP paribas said Europe accounts for only a small percentage of global sales.
   
Glaxo's shares also found support after it received a positive ruling on its Avamys hay fever spray, adding 0.32 pct.
   
In earnings news, shares in Swedish defence group Saab AB fell 0.95 pct after the company reported weaker-than-expected nine-months results, hit by higher costs.
   
Saab said its nine-month pretax profit amounted to 1.269 bln skr, while market expectations were for a pretax profit of 1.307 bln skr, as recorded by SME Direkt.
   
In M&A News, Umbro PLC surged a further 11.76 pct, after confirmation last night that it has received a takeover approach, with Nike Inc reported to be a possible suitor.
   
Vallourec added 3.66 pct as talk of a bid returned, with some analysts saying shareholder Bollore has already agreed to tender his 4 pct stake in the group to Gazprom.
   
Redrow was up 4.37 pct amid vague talk it is to be bid for. Persimmon -- up 2.08 pct -- was the main name in the frame.
   
Over in Spain, Iberia shed 0.87 pct after Lufthansa denied a report in Expansion, which said it is mulling a 3 eur-per-share bid for the Spanish airline, citing company spokeswoman Aage Duenhaupt.
   
And shares in supermarket group Casino Guichard-Perrachon edged up 0.58 pct as investors reacted positively to news the group is to cash in on part of its property portfolio. In a pre-market news release, the group said it plans to raise a total of 650 mln eur through the disposal of real estate assets in France and La Reunion.

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Asian stocks fall as surging oil prices raise fears for economic growth

SINGAPORE - A fresh spike in oil prices above 90 usd a barrel weighed on stock markets across Asia Friday as investors worried that rising energy costs will hurt companies and consumers and put the brakes on global economic growth.
   
Asian markets are set to ease further next week on heightened concerns of a slowdown in the global economy although they are generally expected to weather the surge in oil prices and the global economic slowdown because the economic boom in China has made them more resilient to external shocks.
   
Indian shares traded weaker for a second day on continued jitters that efforts by the authorities to moderate capital inflows into the country may cool demand in the equities market. However, buying at lows by domestic funds prevented a steeper fall.
    
The Bombay Stock Exchange's benchmark Sensex fell 2.44 pct, or 438.41 points, to 17,559.98. It had also hit a low of 17,226.18 points in afternoon trade. The National Stock Exchange's S&P CNX Nifty fell 2.54 pct, to 5,215.30. 
   
Among BSE 30 stocks, 7 shares advanced and 23 declined. In the broader market, 550 shares gained, 2,184 lost and 33 were unchanged. At close today, the benchmark Sensex has lost 8.53 pct since hitting a record 19,998.66 points in morning trade yesterday.
   
In Tokyo, a stronger yen hurt shares of the big exporters, with Canon down 2.8 pct at 5,930 yen, Toyota off 1.6 pct to 6,250 yen and Nissan Motor also slipping 0.8 pct to 1,114 yen. The yen was hovering around 115.09-13 yen against the dollar. The Nikkei 225 ended the day lower by 1.7 pct at 16,814.37 with a firmer yen putting added pressure on export stocks. The Topix lost 1.6 pct to 1,591.28.  

In Sydney, mineral sands miner Iluka Resources fell 28 cents or 5.5 pct at 4.89 aud after cutting its 2007 earnings guidance because of the Australian dollar's appreciation to 23-year highs against the US dollar. The S&P/ASX 200 was down 0.9 pct at 6,706.3 and the All Ordinaries was off 0.9 pct to 6,723.3.
       
Elsewhere, Malaysian shares closed lower, erasing the small gains made in the last two days, as concerns emerged over the impact of high oil prices on global economic growth. The Kuala Lumpur Composite closed down 0.5 pct at 1,370.17.
   
The Philippines Composite bucked the regional trend to close up 1.3 pct at 3,819. Philippine Long Distance Telephone Co rebounded from a seven-day losing streak and closed up 85 pesos or 2.8 pct to 3,110 pesos.
   
The Singapore Straits Times fell 1.6 pct to 3,747.98.
   
Shares in Taiwan also closed weaker outweighing gains in select technology stocks on the back of strong earnings reports from global majors such as Nokia and Google. The weighted index closed down 25.35 points or 0.26 pct at 9,611.72.
   
Indonesian shares closed sharply lower for the second straight session as investors continued to lock in profits following recent record-setting rallies. The composite index closed down 52.99 points or 2.0 pct to 2,563.75.

The Shanghai Composite closed down 0.12 pct at 5,818.05, while the Hong Kong market was closed for a public holiday. The Korean KOSPI fell 1.8 pct to 1,

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Gold steady as dollar rebounds slightly from record low

LONDON - Gold was steady, off earlier highs, as the dollar rebounded slightly after this morning hitting an all-time low against the euro, with the US currency seen weakening more later in the year if the Fed opts to cut interest rates again.
   
Weakness in the dollar is favourable to gold, which is seen as an alternative investment to the US currency. It also makes dollar-denominated gold cheaper for holders of other currencies.
   
Platinum too is within a few dollars of its all-time high hit earlier today, buoyed up by supply concerns in the world's number one producer South Africa.
   
Strength in oil prices, which hit record levels again this morning in New York, is also boosting sentiment towards the commodities complex as a whole, analysts said.
       
At 12.58 pm, spot gold was quoted at 768.80 usd an ounce against 768.10 usd in late New York trade yesterday.
   
But while prices still look well supported by dollar weakness and healthy investment interest, the precious metals complex appears overbought and could be due for a correction, analysts said.
   
"Although the geopolitical environment, oil prices and the US dollar remain price positive for gold, the build of speculative positions to all-time highs could expose prices to a short-term correction," noted analysts at Barclays Capital.
   
Meanwhile platinum was trading at 1,452 usd against 1,449 usd yesterday, just off the all-time high of 1,454 usd it hit earlier this morning.
   
The white metal has also taken support from the lacklustre dollar, and has been pushed higher by supply disruptions in South Africa, its largest producer.
   
Prices rallied yesterday after a mine operated by South Africa's Northam was closed after three fatalities, and after Anglo Platinum said it had also closed a mine shaft after a worker was killed.
      
Among other precious metals, palladium was trading at 367 usd against 371 usd, while silver was steady at 13.81 usd against 13.80 usd.

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