US & World Daily Markets Financial Briefing 20-09-2007

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Stocks slip after brokerage earnings

NEW YORK - Stocks dipped Thursday as Wall Street stopped to cash in profits from its big rally, due to weaker-than-expected earnings at Bear Stearns and caution ahead of testimony from Federal Reserve Chairman Ben Bernanke.
   
Wall Street's declines were modest, though, thanks to a strong third-quarter earnings report from Goldman Sachs and a drop in jobless claims last week. The Labor Department said jobless claims declined by 9,000 last week -- a good sign for the economy, particularly given August's decrease in payrolls and that the market had been predicting a slight rise in claims.
   
And Goldman Sachs Group Inc. reported a surprisingly large 79 percent rise in profit, saying it managed to hedge losses in subprime mortgages during the tumultuous third quarter. In August, stocks plunged and credit markets tightened up due largely to problems in the housing market.
   
But Bear Stearns & Cos. didn't weather the storm as well. Wall Street had forecast a profit decline, but Bear Stearns' 62 percent drop was larger than anticipated.
   
Wall Street was also hesitant given that Bernanke, along with Treasury Secretary Henry Paulson, is scheduled to testify at 10 a.m. EDT about the mortgage and credit markets before the House Financial Services Committee. In prepared remarks, Bernanke said the credit crisis has created "significant market stress" and gave fresh assurances that regulators step in to curb the fallout.
   
Since the Fed's big half-point cut in its target fed funds rate, the Dow Jones industrials has surged more than 400 points over the past two days.
   
In early trading Thursday, the Dow slipped 30.24, or 0.22 percent, to 13,785.32. The Standard & Poor's 500 index fell 3.63, or 0.24 percent, to 1,525.40. The Nasdaq composite index fell 7.39, or 0.28 percent, to 2,659.09.

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Pound recovers on UK data, BoE's King comments; Euro stays over 1.40 usd

LONDON  - The pound recovered moderately after strong UK retail sales data and a better-than-expected manufacturing survey decreased the likelihood that the Bank of England will cut interest rates soon.
      
Focus for this morning centred on Bank of England governor Mervyn King's testimony before MPs on the Treasury Select Committee where he was grilled on the central bank's much criticised response to the Northern Rock crisis.
   
Rumours had been circulating that King could be forced to resign over the issue, but in the event King was seen as giving a good account of himself as he shifted the blame onto legislation, especially the Market Abuses Directive, which prevented his "preferred" measure of using a covert lender of last resort operation.
   
"The testimony is likely to quell some of the rampant media speculation about an imminent shift in leadership at the central bank. It also makes it clear that the BoE still does not intend to provide an all-encompassing bail-out to the money market, and that liquidity will be made available but only 'at a price'," said Daragh Maher at Calyon.
   
In this way, the Bank will argue that it is avoiding any threat of future 'moral hazard', he said. The pound "rallied a little through the testimony, perhaps because it reduced some uncertainty regarding the outlook for the Bank itself", he said.
   
In truth, however, there was "little tangible" for currency markets to cling to in the testimony.
   
Earlier today, the euro had risen to a seventeen-month high of over 0.70 against the pound as the Bank of England's sudden series of U-turns on providing extra liquidity to the markets was seen as undermining its credibility and led to speculation that the governor Mervyn King may resign.
   
Elsewhere, the attention of currency markets continued to centre on the dollar and fears that Saudi Arabia could be set for a move away from the dollar peg after it failed to cut interest rates following the Federal Reserve's move earlier this week.
   
The euro surged above the key psychological 1.40 level against the dollar, earlier hitting a new record high of 1.4064 usd, though it has since settled just below the 1.4050 usd level.

The Canadian dollar came within a whisker of parity against its US counterpart, buoyed by broad dollar weakness and strong oil prices.
   
The US dollar hit a low of 1.0001 cad as the Canadian currency benefited from a broad rise in risk appetite after the Federal Reserve's 50 basis point rate cut earlier this week. At 1.24 pm, the US dollar was trading at 1.0020 cad.

The Czech crown hit an all-time high of 19.56 to the dollar at 3.40 pm CET, beating yesterday's record of 19.66 which came after Wednesday's cut in Federal Reserve interest rates. On Monday the crown hit an all-time high to the euro of 27.38, up from 28.60 two months ago.

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Euroshares lower midday as Dow seen lower; banks weak on ongoing woes

LONDON  - Europe's leading exchanges fell in midday trade dragged lower by US futures and ongoing selling in the banks sector.
   
At 12.59 pm, the Dow Jones STOXX 50 Index was down 31.14 points, or 0.72 pct, at 3,804.14 while the DJ STOXX 600 fell 2.82 points, or 0.75 pct, to 374.92.
      
Among European banking stocks, Northern Rock shares plunged 19.84 pct as  institutional investors exited their positions after a week of plunging share prices.
   
"The key driver is the institutional shareholders' desire to exit - they've obviously had a torrid time," said James Hamilton, an analyst at Numis Securities. Citigroup cut its target on the UK mortgage lender to 150 pence  from 400 pence with a worst-case scenario of 6 pence a share, and reiterated its 'sell' stance.      Rival UK mortgage lender Alliance & Leicester tumbled 7.05 pct. Dresdner cut its recommendation to 'hold' from 'buy'. 
   
Staying in the sector, shares in Deutsche Bank were down 2.92 pct after Chief Executive Josef Ackermann said the company has made mistakes in the current credit markets crisis and expects its third-quarter results to be negatively affected by the turbulence.
   
HBOS was 3.38 pct lower -- although well off intra-morning lows of 809 pence -- after a spokesman vehemently denied market rumours that it has approached the Bank of England for financial support.
   
BNP Paribas was also off earlier lows. Shares had fallen mid-morning amid market talk that it might be sitting on a large trading loss.
   
A Paris-based trader said the talk was sparked by Tuesday's statement by Credit Agricole of a 250 mln eur loss in its third-quarter results, due to unwinding credit derivative positions unduly taken by one of its traders in New York.
      
Commerzbank made a short foray into positive territory mid-morning after it reassured its investors, reiterating ts full-year target of an adjusted after-tax return on equity of more than 12 pct. By midday, though, the shares were 0.17 pct lower again.
   
European stock exchange operators were also in the spotlight as London Stock Exchange shares stormed 10.25 pct ahead to an all-time high after Borse Dubai agreed to acquire a 28 pct stake in the company from US operator Nasdaq Stock Market Inc.
   
Elsewhere, the Qatar Investment Authority said it has bought a 20 pct stake in the London Stock Exchange -- a move which was welcomed by the LSE's Chief Executive, Clara Furse. The QIA said it had bought the stake as a long-term investment and would not be making an offer for the exchanges operator.
   
It did though reserve the right to change its mind if another party made an offer for the group. It is thought two large crosses bought at 1,585 pence this morning -- one of 18.9 mln shares thought to belong to US hedge fund Paulson and another of 20 mln shares -- were the QIA buying up LSE shares.
   
For its part, Borse Dubai sought to play down speculation that it might try to buy the LSE.
  
In other M&A news, Friends Provident was the the top FTSE 100 riser as talk re-emerged that the Uk life insurer could be bid for by Zurich Financial. The news comes a day after Standard Life said it is considering a cash and shares offer for Resolution -- which agreed a merger with Friends Provident in July.
   
And Air Berlin shares were 1.39 pct higher after the discount carrier said it will buy airline Condor Flugdienst GmbH in two stages from Thomas Cook Group Plc in a deal worth between 380 and 475 mln eur.
   
As part of the agreement, UK-based Thomas Cook will receive up to 29.99 pct of Air Berlin's shares, the German carrier said in a statement. Air Berlin will take over 75.1 pct of Condor in Feb 2009 and a further 24.9 pct in Feb 2010.
   
And Alitalia was up 1.23 pct after reports that Air France-KLM will make an offer for the ailing Italian flag carrer imminently.

Sainsbury climbed 3.25 pct after the UK supermarkets group has agreed to give Qatari suitor Delta Two a limited period of due diligence following ten weeks of negotiations between the two parties.
   
German peer Metro stormed 7.64 pct higher as the group's board announced it has nominated Eckhard Cordes as the company's new chief executive, replacing Hans-Joachim Koerber.

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Asian markets mostly higher as Wall Street extends rally to second day

SINGAPORE - Stock markets across Asia were mostly higher Thursday, buoyed by a second day of gains on Wall Street overnight although persistently high commodity prices and continued worry about the stress in credit markets capped the gains.
   
Japan's Nikkei 225 Stock Average closed up 0.2 pct at 16,413.79, but the TOPIX index slipped 0.1 pct to 1,566.84.
   
The Hang Seng rose 0.6 pct at 25,701.13, after hitting a new all-time high of 25,773.60.
   
In Sydney, the S&P/ASX 200 closed up 0.6 pct at 6,393.7 and the All Ordinaries closed up 0.6 pct at 6,400.9. Mining stocks were in focus after nickel prices jumped more than 10 pct on the London Metal Exchange Wednesday, while copper touched a seven-week high.
       
Diversified miner BHP Billiton Ltd hit a an intra-day high of 41.50 aud before closing at 41.01 aud, up 1.4 pct. Rio Tinto Ltd also benefited from higher metal prices, rising 0.9 pct to 102.7 aud.
   
Banks were mixed, with Australia's largest retail bank, Commonwealth Bank, up 0.1 pct at 55.90 aud, while ANZ Banking Group fell 0.5 pct to 28.42 aud. National Australia Bank fell 0.6 pct to 37.99 aud and Westpac eased 0.2 pct to 27.41 aud.
   
In Seoul, the Kospi was up 0.3 pct at 1,908.97 as investors reacted calmly to the FTSE Group's decision to maintain South Korea's rating as an advanced emerging market. The country was hoping the global index provider would elevate it to developed market status after the government stepped up reforms of its financial markets.
     
Meanwhile, Taiwan, which also failed the FTSE test, was up 0.6 pct at 8,983.03. Technology stocks led the advance with AU Optronics Corp up 3.8 pct at 51.60 twd and Chi Mei Optoelectronics Corp advanced 2.7 pct to 34.40 twd on expectations of an upswing in the prices of liquid crystal display (LCD) panels.
   
China's benchmark Shanghai Composite Index closed up 1.4 pct at a record on strong gains in large cap financials and airlines. The Shanghai A-share Index rose 1.4 pct to 5,741.54 and the Shenzhen A-share Index was up 1.1 pct at 1,580.90. The Shanghai B-share Index rose 0.2 pct to 360.18 and the Shenzhen B share Index was up 0.4 pct at 779.46.
   
Indian shares closed slightly higher Thursday, after choppy trade which saw the benchmark indices slip in and out of the red as investors cashed in on yesterday's record gains. However, information technology stocks suffered losses on fears the strengthening rupee will hit revenues.
   
The Bombay Stock Exchange's Sensex ended 25.20 points or 0.15 pct higher at 16,347.95, while the National Stock Exchange's S&P CNX Nifty ended the day 0.32 pct up at 4,747.55. The Sensex had closed 653 points or 4.17 pct higher at 16,322 yesterday, bolstered by the US Fed rate cut.

Elsewhere, the Singapore Straits Times Index closed down 1.2 pct at 3,552.46, Malaysia's  Kuala Lumpur Composite was up 0.9 pct at 1,308.67 and the Philippines Composite rose 2.4 pct at 3,442.38. The Jakarta Composite fell 0.4 pct to 2,304.63.

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Copper erases earlier losses on falling stocks, fading recession fears

LONDON - Copper erased earlier losses and rose towards 8,000 usd per tonne on falling inventories and as fears of US economic slowdown faded, at least for now. The red metal was supported by an earlier LME report which said stocks continued to fall as the market heads into the seasonally busy final quarter.
   
"Copper is just garnering support from the outbreak of fiscal bonhomie," said ABN Amro analyst Nick Moore, adding a "continued drawdown" in global stocks was also underpinning the metal.
   
At 2.22 pm, LME copper for three-month delivery was trading at 7,895 usd per tonne, up incrementally from 7,885 usd at the close yesterday.  Stocks of the red metal stored in LME-certified warehouses fell 500 tonnes to 133,375 tonnes, the exchange said in a daily report.
   
Copper, the leader of the base metals board, has, like other commodities, become closely linked to wider financial markets as fears of a global credit crunch have engulfed markets worldwide since early August.
   
A US Federal Reserve decision earlier this week to cut interest rates by 50 basis points boosted metals yesterday and helped diminish fears of a recession. There is a good chance base metals will firm further as demand picks up into the seasonally strong fourth quarter, said BaseMetals.Com analyst William Adams.
   
Meanwhile, aluminium, which has long suffered from rising inventories, stayed at lower levels after the International Aluminium Institute (IAI) said global daily production rose to 104,200 tonnes in August, its highest level since the IAI began compiling data in 1973.
   
ABN's Moore predicted the metal, used extensively for car manufacturing, will see a "demonstrable surplus" for 2007 and until the end of this decade. Aluminium was trading at 2,460 usd per tonne, basis three months, against 2,484 usd.
   
In other base metals for delivery in three months, nickel was lower at 33,100 per tonne from 33,800 usd, tin was down at 15,200 usd per tonne against 15,400 usd yesterday, lead rose to 3,260 usd per tonne from 3,236 usd, while zinc was lower to 2,905 usd per tonne from 2,985 usd.

Gold soared to new highs above 730 usd on continued dollar weakness. The metal hit 730.95 usd this morning, higher than the peak of around 730 usd struck last May. The yellow metal is now just 14 pct lower than an all time high of 850 usd in January 1980.
       
At 1.13 pm, gold was trading at 730.50 usd an ounce against 721.50 usd in late New York trade yesterday, having reached as high as 730.95 usd.
   
Among other precious metals, platinum rose to 1,311 usd an ounce against 1,309 usd an ounce, while its sister metal palladium was steady at 332 usd against 332.25 usd. Silver rallied more than 2 pct to 13.22 usd an ounce versus 12.97 usd, following gold's footsteps.

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