US & World Daily Markets Financial Briefing 20-07-2007

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Stocks fall on Caterpillar, Google earns

NEW YORK  -  Stocks fell in early trading Friday, retreating from record levels following disappointing results from longtime favorites Caterpillar Inc. and Google Inc. In the bond market, the yield on the benchmark 10-year Treasury note fell to 5 percent and at times slipped below that threshold.
   
The pullback came a day after the Dow Jones industrial average finished above 14,000 for the first time and the Standard & Poor's 500 index likewise logged a record close.
   
While a stock market retrenchment might not be surprising following the market's recent strong gains, Caterpillar, one of the 30 stocks that comprise the Dow, unnerved some investors when its results fell well short of expectations. Caterpillar has been one of the best-performing stocks in the Dow and has been a big contributor in the blue chips' march to 14,000.
   
Beyond the blue chips, technology shares were also hit after a strong run Thursday. After the closing bell Thursday, Google turned in a second-quarter profit that fell short of Wall Street's high expectations. In addition, Microsoft Corp. disappointed investors following several robust quarters that beat analyst estimates. Thursday's results were in line with estimates.
   
In early trading, the Dow fell 64.71, or 0.46 percent, to 13,935.70. Caterpillar fell $6.75, or 7.8 percent, to $80.43. Broader stock indicators also fell. The Standard & Poor's 500 index fell 5.32, or 0.34 percent, to 1,547.76. The Nasdaq composite index fell 15.74, or 0.58 percent, to 2,704.30. Google depressed the Nasdaq, falling $36.89, or 6.7 percent, to $511.70.
   
Friday could see added volatility because of the expiration of four types of options contracts -- an occurrence known as quadruple witching.   

Bonds rose, with the yield on the 10-year Treasury note falling to 5.00 percent from 5.03 percent late Thursday. In recent months, rising bond yields following economic jitters had unnerved some investors as bond prices trade inversely to yields.
  
Stocks have been able to strike higher despite rising oil prices. Often increases in oil can stir concerns of inflation and decreased consumer spending.

On Friday, light, sweet crude rose 6 cents to $75.98 in premarket electronic trading on the New York Mercantile Exchange. Oil traded above $76 Thursday for the first time in 11 months.
   
No major economic news is scheduled for release Friday. However, St. Louis Federal Reserve President William Poole is scheduled to speak on the subprime mortgage market in St. Louis.
   
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 356.7 million shares. The Russell 2000 index of smaller companies fell 4.21, or 0.49 percent, to 847.64.
   
Overseas, Japan's Nikkei stock average rose 0.23 percent. In afternoon trading, Britain's FTSE 100 fell 0.09 percent, Germany's DAX index fell 0.77 percent, and France's CAC-40 fell 0.80 percent.

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Pound up on strong Q2 GDP, dollar largely rangebound

LONDON - The pound was higher as strong GDP numbers boosted expectations the Bank of England will raise interest rates again the the coming months.
   
The UK economy grew 0.8 pct in the second quarter of the year, beating expectations of a 0.7 pct rise. This news, coupled with a higher-than-expected CPI reading of 2.4 pct earlier this week, has kept sterling well supported in anticipation that rates will rise again.
      
The BoE has raised rates five times since August last year, with the latest hike to 5.75 pct coming at the start of this month. Markets now expect rates to hit 6.0 pct later this year, which would be their highest level since February 2000.
   
Elsewhere the dollar and euro were largely rangeound, with little news to shift focus away from ongoing concern about the US subprime sector.

This was emphasised again by Federal Reserve chairman Ben Bernanke last night when he told the Senate Banking Committee that the credit losses associated with subprime are estimated at between 50 and 100 bln usd.
   
However the dollar didn't move much yesterday on this comment, indicating that a lot of negative news has already been priced into the US currency.
   
Meanwhile, the appetite for the carry trade - a risky strategy where investors borrow in low-yielding currencies to invest in high-yielding currencies elsewhere - was strong, little affected by China's decision to raise interest rates by 27 basis points to 6.84 pct.
   
Niels From, currency strategist at Dresdner Kleinwort, said the strength in US and Asian equity markets suggests that this appetite for risk-taking is building and is likely to keep the Australian and New Zealand dollars well supported, while weighing on low-yielding currencies such as the yen.

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Euroshares mixed midday as Wall St seen lower; European earnings mixed

LONDON - Leading European exchanges were mixed in midday deals as the Dow is seen lower on profit-taking and as investors digest a mixed bag of European earnings news.
      
In Europe, Ericsson B shares fell 3.88 pct as the Swedish telecoms group published a disappointing set of second-quarter numbers.
   
A dealer at a major Scandinavian brokerage said that, while sales and gross margins were in-line in the period, operating profit was 5 pct below the broker's forecasts. The broker also said organic cash-flow was weak.
   
And Tietoenator fell 14.39 pct after their disappointing second-quarter updates. "The results were clearly disappointing and the guidance indicated further margin pressure," a dealer at a local brokerage firm said.
   
Another brokerage, Carnegie, which has a 'neutral' stance on the shares, said in a note to clients the second quarter was a "major disappointment".
   
FIM Securities said in its morning review that the market was expecting profitability, excluding the one-off items, of around 8 pct, but the company delivered only half of that.
   
But shares in Swedish Match AB jumped 5.18 pct as the tobacco products group reported weaker-than-expected second-quarter profits, but issued a stellar outlook with a surprisingly low forecast for corporate tax rate.
       
Kone climbed 3.53 pct after the lift-and-escalator manufacturer reported second-quarter numbers comfortably ahead of market estimates.
   
In other earnings news, Prisa ticked 0.43 pct lower after its second-quarter update, which UBS said was broadly in-line.
   
Elsewhere, Technip added another 1.5 pct on ongoing talk that Saipem might make a new bid for the group. Although few think a deal is likely, analysts still think the deal would be good news for Saipem. Saipem shares were unchanged.
   
Danone added 0.39 pct as a report in Les Echos re-ignited speculation that US giant PepsiCo could make a bid for the French group. The paper said PepsiCo would have to pay a control premium of at least 30 pct which would value the French group at 43 bln eur. But shares were off earlier highs as few think a deal a deal would succeed.
   
In the tech sector, Vallourec fell on news it has sold its Precision Soudage and Vallourec Composants Automobiles Vitry businesses to Arcelor Mittal for an undisclosed sum.
       
In the healthcare sector, Elan slumped 6.65 pct after it said last night that the European Medicines Agency (EMEA) has refused to approve its application for the use of Tysabri in the treatment of Crohn's disease.
   
Novartis, though, gained 1.53 pct after announcing a raft of positive product news, with the EU's Committee for Medicinal Products for Human Use recommending diabetes drug Galvus, pagent syndrome treatment Aclasta and Alzheimer medication Excelon, in the form of a skin patch, for EU approval.  This offset news Citigroup has cut its stance to 'hold' from 'buy'.
   
In other broker news, EON was up 1.29 pct after Lehman Brothers resumed coverage on the utility company with an 'overweight' stance and a price target of 140 eur per share,
   
EDP added 1.19 pct as ABN Amro upped its rating to 'hold' from 'sell'. And SGS soared 2.4 pct as Merrill Lynch upgraded the stock to 'buy' with a price target of 1,650.

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Thai shares close higher in line with region, Wall St's record finish

BANGKOK - Thai share prices closed higher Friday in line with strong regional markets, which followed a record finish on Wall Street.
   
But buying was modest amid concern over export-linked issues as the baht remained at 10-year highs against the US dollar, despite the central bank's interest rate cut aimed at curbing the local unit's too-rapid rise.
   
The Stock Exchange of Thailand (SET) composite index rose 3.28 points or 0.4 percent to 850.54 and the blue chip SET 50 gained 2.34 points to 608.65.
   
Gainers led losers 173 to 158, with 134 stocks unchanged on turnover of 3.4 billion shares worth 21.1 billion baht.
   
The Thai baht fell against the dollar but still closed at near 10-year highs of 33.65-67 after Thursday's 33.50-51. Against the euro, the Thai currency was quoted at 46.35-40 from 46.27-32.
       
Although there were few domestic leads, stocks managed to close higher on positive sentiment after the US market on Thursday finished above 14,000 points for the first time, Chai said.
       
Thailand's top energy firm PTT fell 2.00 baht to 306.00 and unit PTT Exploration and Production also declined 2.00 to 120.00. Bangkok Bank rose 5.00 to 131.00.

Indian shares close flat on profit-taking after strong show for most of the day

MUMBAI - Indian shares, which had remained firm for most of today's session, closed nearly flat as investors locked in profits -- with Bharti Airtel Ltd and Larsen & Toubro Ltd paring their earlier gains.
   
Profit selling was also triggered once European markets either pared their early gains or had slipped into the red.
   
The Bombay Stock Exchange's benchmark Sensex closed at 15,565.55 points, up 0.10 pct or 15.42 points. It had touched an all-time high of 15,683.03 this morning.
   
The National Stock Exchange's S&P CNX Nifty closed the day at 4,563.65, up 0.03 pct.

Asian money markets summary

BEIJING - Asian late money market rates (vs previous close):

Hong Kong: 3-month HIBOR rate 4.42 pct (4.4)
                                overnight rate 3.6 pct (3.6)

Jakarta: overnight rate  6.54802 pct (8.54422)
       
Kuala Lumpur: 3-mth KLIBOR bid/ask 3.55/58 pct ( 3.55/58)
                                      overnight rate 3.48/50 pct (3.49/51)
       
Manila: overnight rate 7.000 pct (7.0)
       
Seoul: 3-yr corporate bond yield 5.75 pct (5.74)
                      3-yr state bond yield 5.41 pct (5.40)
       
Singapore: avg overnight rate 2.375 pct (2.25)
                               3-month SIBOR 2.4375 pct (2.52)
       
Sydney: 90-day bank bill rate 6.443 pct (6.447)
       
Taipei: overnight rate 2.010 pct ( 2.004)
       
Tokyo: unsecured overnight rate 0.505 pct (0.500)
                      3-month TIBOR 0.75833 pct (0.75583)

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Sugar prices drop in London after rising to 6 week highs, coffee flat

LONDON - Sugar prices fell in London as traders again took their cue from New York, where the market came under selling pressure after rallying yesterday to near 4 month highs.
   
Analysts said news that China has raised interest rates in a bid to cool its booming economy might also be weighing a bit on sugar, which is in any case starting to look overbought.
   
"It a very nervous situation, the market is getting over bought and you will see severe reactions ... we've got record surpluses ... once the immediate fund orders are finished there's no support for prices," said a trader.
   
At 12.39 pm on the Euronext Liffe, sugar for October delivery dropped to 313.30 usd a tonne against 316.40 usd at the close yesterday, when it hit a six week highs.
   
London rallied yesterday as traders this side of the Atlantic covered their short positions or bets on price falls after New York raws rose to their highest level since early April.
   
New York raws have been underpinned recently by a surge higher in crude oil prices, which has sparked speculation demand for sugar-based ethanol might increase going forward.
   
There have also been reports the harvest from Brazil is going to be delayed. Brazil and ethanol use aside, analysts say the recent recovery in sugar, which has come under extreme pressure this year from a huge market surplus, is partly down to strength in other commodities and a weak dollar.
       
In other softs traded, coffee for September delivery was flat out at 1,877 usd a tonne, as the recovery from last week's sell off ran out of steam amid a somewhat uncertain near term price outlook.
       
Robusta prices rose to a nine-year intra-day high of 1,945 usd on June 22 amid strong demand and expectations supplies will be tight ahead of the upcoming Vietnam harvest.
   
However, the bean was sold off quiet strongly towards the end of last week, before staging a modest recovery this week.
   
"There's clearly a perception in the market that there is a supply problem (which is part of the reason we're as high as we are). Some people support that idea but others say there's plenty of coffee nearby. The Vietnam crop is expected to be big," said a trader. Vietnam is the world's largest producer of the Robusta coffee bean traded in London.
   
Elsewhere, cocoa for September delivery dropped to 1,108 stg a tonne against 1,112 stg.

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