US & World Daily Markets Financial Briefing 21-08-2007

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Stocks fluctuate on credit worries

NEW YORK - Wall Street tottered in search of a direction Tuesday as more credit problems emerged, raising investors' anxiety about what the Federal Reserve might do next to steady the markets and the economy.
   
Speculation grew on Wall Street that troubled Countrywide Financial Corp. might be a takeover target due to losses linked to distressed subprime mortgages. And, investors expected more layoffs after Capital One Financial Corp. said it was shuttering its GreenPoint Mortgage unit and slashing 1,900 jobs.
   
Wall Street remains worried that a broadening credit crisis triggered by distressed subprime loans will curtail borrowing to the point where it hurts companies across the economy. The Fed has taken a number of steps to prop up the nation's financial institutions, including injecting more liquidity into the banking industry and cutting the discount rate.
   
But many on Wall Street want the Fed to do more, including lowering the more important federal funds rate. And that could be a topic of discussion when Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson meet Tuesday afternoon with Senate Banking Committee Chairman Christopher Dodd to discuss the market's recent turbulence.
   
Target Corp. and a number of other retailers reported mostly lackluster second-quarter earnings before the open, giving investors little to trade off of. However, BJ's Wholesale Club Inc. posted better-than-expected results.
   
In the first hour of trading, the Dow Jones industrial average fell 14.80, or 0.11 percent, to 13,106.55, having moved in and out of positive territory.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index was down 0.87, or 0.06 percent, at 1,444.68, and the Nasdaq composite index edge up 2.02, or 0.08 percent, to 2,510.61. The Russell 2000 index of smaller companies rose 1.80, or 0.23 percent, to 789.25. Overseas, Britain's FTSE 100 rose 0.46 percent, Germany's DAX index rose 0.79 percent, and France's CAC-40 rose 0.84 percent.
   
The session followed the erratic pattern of Monday, when the Dow changed course several times and swung in a 200-point range before closing only slightly higher. Traders have been trying to find their footing following the Fed's decision to cut the discount rate on Friday.
   
Bonds were flat, with the yield on the benchmark 10-year Treasury note at 4.60 percent. Investors have bailed out of stocks due to recent volatility, and moved swiftly into safer investments like Treasuries.
   
Oil prices fell 28 cents to $70.84 in premarket trading on the New York Mercantile Exchange. Investors have been wary as Hurricane Dean picks up pace toward Mexico, where major oil companies like state-run Pemex Oil have already battened down oil rigs in the Gulf of Mexico.
       
Capital One shares rose 13 cents at $66.85 after it announced changes to its mortgage lending strategy. Meanwhile, rumors that Countrywide might be vulnerable to a takeover attempt sent its shares up 72 cents at $20.54.
   
BJ's Wholesale Club said second-quarter profit spiked 37 percent, topping Wall Street expectations. The company, which operates 175 warehouse-style stores in the U.S., said sales rose 8 percent. Shares rose $1.54, or 5 percent, at $32.33.
   
Target rose 76 cents to $59.85 after it reported second-quarter profit matched Wall Street projections.
   
Staples Inc., the largest U.S. office supplies retailer, reported a higher quarterly profit on Tuesday, matching Wall Street projections. However, it issued a cautious forecast for the rest of the year. The stock fell 30 cents at $23.01.
   
Luxury retailer Saks Inc. narrowed its second-quarter loss, but missed Wall Street projections. The department store operator also provided a lackluster sales outlook, and shares fell 21 cents at $17.73.

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Canadian dollar weakens as retail sales disappoint

LONDON - The Canadian dollar weakened after retail sales data for June came in on the weak side. Retail sales fell 0.9 pct in June from May, pushed lower by a slow automotive sector, following May's rise of 2.8 pct -- which was the highest in almost a decade.
   
At 1253 GMT, the US dollar was at 1.0599 cad, up from 1.0575 just before the data. However, the pair had fallen off their high of 1.0616 just after the release, suggesting a mixed reaction from the market.
   
"Canadian dollar traders are getting a view of the economy that reveals slowing inflation, faltering retail demand, but an optimistic view of current conditions," said Peter Wadkins at Thomson's IFR Markets. Wadkins said this outlook is "indicative of a Bank of Canada on hold, particularly as consumer confidence is expected to have plummeted in August".

The US dollar was weaker against the euro amid ongoing speculation that the Federal Reserve may cut its key Fed Funds rate soon. The Fed cut its discount rate - the rate at which the central bank lends to commercial banks needing short-term liquidity - on Friday, but the move failed to bring any lasting calm to markets, and rumours are mounting that it will go one step further today by cutting the its key interbank rate.
   
Even if no move is announced, comments from Fed chairman Ben Bernanke and US Treasury Secretary Hank Paulson about the state of global markets will will be a key focus this afternoon. The two are meeting with the Chairman of the Senate Banking Committee Christopher Dodd this afternoon.
   
Last week, the yen was the main beneficiary from the Fed's surprise 50 basis point discount rate cut. It shot higher against the dollar as 'carry traders', who had  previously sold the yen heavily to buy high-yielding currencies, beat a hasty retreat following the Fed's 50 basis point discount rate cut.
   
Earlier the euro was under some pressure after a key German business survey disappointed to the downside, reinforcing concerns that the European Central Bank will not be able to raise borrowing costs again in the current environment.
   
The ZEW research institute said its economic expectations index for Germany, the euro zone's largest single economy dropped to -6.9 points in August from +10.4 points in July, well below consensus on the back of the US subprime mortgage crisis. Economists polled by Thomson Financial News had expected the index to ease to -5 points. ZEW also said its economic expectations index is well below its historical average of 32.6 points.
   
Elsewhere, the pound dropped after the Bank of England confirmed that it lent 314 mln stg from its credit standing facility yesterday.

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LONDON - Europe's leading exchanges moved back in to positive territory midafternoon as the Dow is expected to add to yesterday's gains. At 13.11 am, the Dow Jones STOXX 50 index was up 10.24 points, or 0.28 pct lower at 3,668.43 and the STOXX 600 was up 1.04 points or 0.29 pct at 363.37.
  
Elsewhere, the pound dropped after the Bank of England confirmed that it lent 314 mln stg from its credit standing facility yesterday. It was not known who the borrower was or indeed if it was just a single bank, although traders said Bradford & Bingley -- down 1.09 pct -- was the most frequently mentioned name. The UK group, though, denied it borrowed the money.
   
Banking stocks across Europe were lower on ongoing concern about the prospects for the credit markets, with financials accounted for 5 of the top 10 fallers on the STOXX 50.
    
Adding to market jitters was news this morning that German economic confidence has plummeted -- well below levels strategists had been expected.
   
The ZEW research institute said its economic expectations index for Germany dropped to -6.9 points in August from +10.4 points in July. Economists polled by Thomson Financial News had expected the index to ease to -5 points.
   
Shares in Deutsche Bank were 0.35 pct lower -- but off opening lows -- after reports Germany's largest bank borrowed funds from the US Federal Reserve last week via its discount window, a line of direct loans from the US central bank.
   
Local traders said that while a certain stigma is attached to using the accelerated lending facility in the US, the move should not be viewed as a indication that the bank is in trouble.
   
DnB -- down 2.5 pct -- was hit by a story in today's Dagens Naeringsliv newspaper, which suggests that the bank could suffer losses of up to 600 mln nkr due to questionable housing loans. While DnB has already said it does not have direct exposure to the US sub prime market, analysts say it does have about 90 bln nkr in these high risk housing loans.
   
And shares in Dexia SA slumped 1.81 pct as traders said investors were unconvinced by chief executive Axel Miller's reassurances in a radio interview this morning about the exposure of the Belgo-French financial services group to the fallout of the US sub-prime crisis.
  
Northern Rock fell 1.12 pct after a statement from the UK mortgage banking group last night failed to reassure and Bear Stearns and Panmure Gordan issued bearish notes on the group's outlook.
   
A trader at a major US brokerage pointed out there are many rumours in the market at the moment and there will be no real facts until the US brokers report earnings in mid-September. "Until then we will continue to be rumour-driven and very volatile," he said.
   
Utilities were also posting strong losses, with bearish comment from Standard & Poor's Ratings Services weighing on the sector. The agency said the credit environment for major European utilities has deteriorated in 2007 due to merger and acquisition activity and regulatory issues. EON fell 0.95 pct. RWE fell back 0.63 pct, Iberdrola was down 0.61 pct and United Utilities was 0.92 pct lower.
   
But selected stocks were offering investors some relief with M&A a key driver. Bayer led the STOXX 50 risers -- up 4.61 pct -- were gaining ground in morning deals as rumours resurfaced that Novartis may bid for the German pharmaceutical giant.
   
"This has been around before and people seem to believe it. The shares are close to their record highs since the beginning of this year," one Frankfurt-based trader said. Analysts, though, continue to believe a deal -- although attractive to Novartis -- would be difficult to push through.
       
Carrefour added 2.15 pct after it announced the sale of its Swiss hypermarket activities. While the move was expected, analysts welcomed the price-tag. "The price is decent," said analysts at Cheuvreux.
   
Vestas stormed up 7.73 pct after the Danish group reported stronger-than-expected second-quarter results driven by impressive margin gains, which prompted Dresdner Kleinwort to up its stance to 'buy' from 'hold' and Jyske Bank to lift its recommendation to 'buy' from 'accumulate'.
   
Shares in Lindt & Sprungli climbed 3.48 pct after the Swiss chocolate maker's issued strong interim results and issued an upbeat outlook. SG Secs repeated its 'buy' stance, saying the Swiss chocolate group "is an under-researched hidden gem despite its strong performance."
   
In broker news, Volkswagen added 1.42 pct as WestLB upgraded the German car group to 'buy' from 'hold' and raised its target for the German automaker to 180 eur, saying margins look set to grow. And shares in Arcelor Mittal added 4.12 pct as Credit Suisse issued a bullish note on the steel sector and said the French listed group is its top pick in the sector.

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Asian stock markets extend recovery, but credit concerns remain
 
MUMBAI - Most stock markets in the Asia-Pacific region extended their recovery Tuesday as confidence gradually returned after the recent slump, even as fears of fresh trouble in credit markets remained.
   
Dealers said worries that US mortgage woes could spark a full-blown credit crisis have receded since the Federal Reserve stepped up its efforts to calm the turmoil on Friday, slashing the lending rate it charges commercial banks.
   
Australian share prices closed higher, rebounding from losses in early trading, with the gains led by miners and banks and sentiment lifted by advances in key Asian markets and a slew of healthy earnings reports. The S&P/ASX 200 index ended 56.8 points or 1 pct higher at 5,989.4, while the All Ordinaries index closed 52.1 points or 0.9 pct higher at 5,978.6.
   
Philippine shares closed sharply higher, with the main index posting its biggest one-day points gain in seven years, as investors played catch up with other global bourses following a holiday break on the local market yesterday.
   
The main composite index closed up 283.18 points or 9.8 pct at 3,167.52, after touching an intraday high of 3,171.16. The broader all-share index ended up 150.94 points or 8 pct at 2,016.16.
   
Tokyo shares closed higher, with sentiment also boosted by the yen's softer tone in Asian trading hours. The blue-chip Nikkei 225 Stock Average closed up 168.86 points or 1.1 pct at 15,901.34. With the 3 pct gain on Monday, the index has recovered 72 pct of the whopping 874.81-point loss suffered last Friday. The broader TOPIX index rose 26.31 points or 1.7 pct to 1,549.88, off a high of 1,565.43.
  
In South Korea, the KOSPI closed up 4.91 points or 0.3 pct at 1,736.18 as investors locked in early gains. Acquisition deals involving Korea Exchange Bank and SK Telecom buoyed investor sentiment although the buying momentum lost steam towards the close, with the market failing to duplicate the sharp rebound on Monday.
   
China A-shares closed higher led by banks and metal firms. Investors continued to buy banks on expectations of strong earnings and sound prospects, while metal stocks were spurred by acquisition news. 
    
The Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed at a record for the second straight day, up 50.35 points or 1.03 pct at 4,955.21.  The Shanghai A-share Index was up 53.16 points or 1.03 pct at 5,202.40 and the Shenzhen A-share Index was up 20.21 points or 1.4 pct at 1,443.57. The Shanghai B-share Index rose 0.62 points or 0.2 pct to 314.9 and the Shenzhen B-share Index was up 10.27 points or 1.5 pct at 718.13.
   
Hong Kong shares closed higher, following the trend in other regional markets where early gains were pared late in the day. The Hang Seng index closed up 133.72 points or 0.6 pct at 21,729.35.
      
Elsewhere, the Singapore Straits Times Index fell 2.8 pct at 3,228.66, Jakarta's composite index lost 2.4 pct to 1,993.01, Malaysia's Kuala Lumpur Composite Index (KLCI) closed down 1 pct at 1,231.48, and Taiwan's weighted index slipped 0.43 pct at 8,479.08, on continuing credit crunch fears.
   
Indian shares fell heavily to close lower, rattled by political uncertainty over the Indo-US nuclear deal and global liquidity worries. The Bombay Stock Exchange's benchmark Sensex closed down 3.04 pct, or 438.44 points, at 13,989.11 while the National Stock Exchange's S&P CNX Nifty fell 3.19 pct to 4,074.90 points.
   
All 30 shares in the Sensex fell today. In the broader market, 493 shares advanced, 2,234 retreated and 39 remained unchanged. All the sectoral indices on the Bombay Stock Exchange fell, with banking, metals and real estate being the worst hit.

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Gold higher on weaker dollar, some safe haven investment flows

LONDON - Gold edged higher towards 660 usd, boosted by a weaker dollar against the euro and as safe haven investment flows lent some support.
   
Physical buying also held up prices, but the threat of another risk aversion-led sell off remained a threat amid jittery wider financial markets.
   
At 2.15 pm spot gold was trading at 657.70 usd an ounce against 656.60 usd in late New York trade yesterday.
   
Gold moves in the opposite direction to the US currency as it is seen as an alternative asset and a weaker dollar makes the metal cheaper for those trading in other currencies.
   
Numis Securities analyst John Meyer said gold was "behaving more like a safe haven investment," and holding up well compared with other commodities, like oil and copper, which had lost more of their value amid jittery markets fearful of a credit crunch.
   
Meyer added physical demand is likely to pick up in the coming months ahead of key Indian festivals.
   
In recent weeks, commodities across the board suffered a sell-off, on fears US subprime loan defaults would spill into the wider markets and spark a global credit crunch. Traders sold riskier assets and fled to safer havens, and also liquidated positions in a bid to raise cash with the crisis.
   
Gold, traditionally seen as a safe haven investment, failed to attract enough buyers to lift prices but has seen a level of interest strong enough to underpin prices.
   
The yellow metal has tested a wide range of intraday lows and highs since the start of the month, from 641 usd to 676 usd. "There is no absence of nerves still, in many a market. Thus, today's gains could be limited, short-lived, or both," said Kitco analyst Jon Nadler.
   
Elsewhere, palladium was down, and the metal has lost more than 10 pct since the start of the month, mostly because risk aversion swept across the market.
   
"Fund longs and weak fundamentals continue to paint a negative picture and could pressure the metal back towards 300 usd," said TheBullionDesk.Com analyst James Moore.
   
By 2.15 pm palladium was down at 323 usd from 329 usd. In other precious metals, silver was lower at 11.71 usd from 11.73 usd while platinum was lower at 1,240 usd from 1,245 usd.

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