US & World Daily Markets Financial Briefing 22-10-2007

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Stocks fall in early trading

NEW YORK - Wall Street turned mixed in volatile trading Monday as investors pulled away from stocks amid worries about the credit and housing markets and disappointing corporate earnings.
   
The market remained uneasy although several companies including drug maker Merck & Co. and toymaker Hasbro Inc. reported decent third-quarter results. Investors were still mindful of the downbeat profit outlooks from some blue chip companies and Standard & Poor's downgrade of another series of mortgage-backed securities; those developments sent stocks plunging Friday, taking the Dow Jones industrials down 366 points.
   
Over the weekend, the world's economic leaders not only said that calming the turbulent global financial markets will require vigilance, but they also warned of inflation risks -- which puts central banks like the U.S. Federal Reserve in a tight spot. The Fed lowered interest rates on Sept. 18 to make borrowing cheaper amid a growing credit market crisis, and Wall Street hopes policy makers reduce rates again when they meet next week.
   
Fed Governor Randall Kroszner at a speech in Washington reaffirmed that the central bank will "act as needed" to calm the financial markets, according to Dow Jones Newswires. He also said problems with structured credit products -- which dampened the profits at several banks in the third quarter -- are recovering, but gradually.
   
The Dow was off 57.55, or 0.43 percent, at 13,464.47 in the first hour of trading, after falling more than 100 points in the opening minutes. The S&P 500 index was down 4.48, or 0.30 percent, at 1,496.15. But the Nasdaq composite index was up 3.17, or 0.12 percent, at 2,728.33, as bargain hunters snapped up tech stocks.
   
In European trading, Britain's FTSE 100 fell 1.43 percent, Germany's DAX index fell 1.20 percent, and France's CAC-40 fell 1.36 percent.
   
Treasury bonds slipped as investors cashed in on Friday's steep gains. The yield on the 10-year note, which moves inversely to its price, rose to 4.41 percent from 4.40 percent late Friday.
   
On Friday -- the 20-year anniversary of the Black Monday crash -- investors sold off stocks and bought up safer assets like U.S. Treasury bonds as the prospect of a thaw in the frozen credit markets grew dimmer.
   
The Dow finished last week down 4.05 percent; the S&P 500 index finished down 3.92 percent; and the Nasdaq composite index ended down 2.87 percent.
   
Most major companies reporting earnings Monday posted solid increases in income. Hasbro rose $1.29, or 4.5 percent, to $29.70 on its results, and Merck rose 11 cents to $53.22.
   
Schering-Plough Corp.'s profit gain fell short of expectations, however. The drug maker fell $2.71, or 8.3 percent, to $30.
   
Also giving the stock market pause, Lehman Brothers downgraded the mortgage finance sector and the specialty finance sector.
   
A pullback in oil and gold prices helped support stocks. Crude oil futures fell $1.27 to $87.33 a barrel on the New York Mercantile Exchange.
   
In economic data Monday, the Chicago Federal Reserve's index of national business activity indicated that growth was below average in September for the second consecutive month.
   
In corporate news, investment bank Bear Stearns Cos. and Chinese bank Citic Securities Co. announced a deal to buy stakes in each other and create a Hong Kong-based joint venture that will offer markets servicing across Asia.

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Euroshares remain weak midday, US futures point to lower Wall St open

LONDON - Europe's leading exchanges remained weak midday, with Wall Street unlikely to bring any relief as US futures point towards a second session of heavy losses ahead.
   
At 12.15 pm, the STOXX 50 was trading 57.66 points, or 1.51 pct, lower at 3,762.24, while the STOXX 600 shed 6.58 points, or 1.73 pct, to 374.30.
   
"We are tracking Wall Street's Friday losses at the moment and from what I see the Dow futures are some 98 points lower at the moment," a trader in Germany said. "If futures are that low already, it shouldn't come as a surprise later though," he noted, adding that utilities were holding their ground as bank came under pressure again.
       
"Banks are again somewhat in focus after the news that Commerzbank may have misjudged its situation a bit," the trader said. Shares in the German bank were down 4.065 pct at last check.
   
Financial Times Deutschland cited Commerzbank AG chief executive Klaus-Peter Mueller, who said the bank 80 mln eur write-down due to its US subprime mortgage exposure is not enough. In addition, traders pointed to newswire reports which cited the group's CEO as stating the credit crunch has not increased the likelihood of a takeover, thereby dissipating any takeover speculation surrounding the bank.
   
In M&A chatter, Carlsberg came under pressure amid reports that the group is planning a 30 bln dkr rights issue to fund its part of a takeover of Scottish & Newcastle, which, according to the Independent, is mulling a sale of its BBH unit in a bid to defend its autonomy.
   
Analyst Marcel Hoojmaijers at Landsbanki Kepler said both reports are weighing on Carslberg today, while he also noted that a sale of S&N's Baltic operations would frustrate any takeover interest by Heineken and Carlsberg. Carlsberg fell 2.25 pct, while Heineken shed 1.40 pct as S&N declined 0.7 pct.
   
Over in the automotive sector, Volkswagen AG added 0.25 pct, as investors await tomorrow's EU court ruling with regards to the disputed "VW law", which may pave the way for a full takeover by Porsche AG.
   
Meanwhile, DaimlerChrysler declined 4.02 pct with traders pointing to a report that suggests the group is planning to hand out record discounts to promote its vehicles in the fourth quarter.
   
Techem surged 17.28 pct after the group said Macquarie Bankd relaunched its takeover bid eight months after the Australian bank failed to completely acquire the company.
   
Staying in the German market, utilities held their ground with EOn adding 0.87 pct and RWE rising 0.28 pct, after Merrill Lynch raised its price targets on the companies to 148 eur from 140 eur, and to 104 eur from 95 eur respectively.
   
In earnings news this morning, Electrolux was 5.89 pct lower as the home appliances maker reported weaker-than-expected third-quarter profits and issued a more cautious outlook statement.
   
Kuehne & Nagel also failed to impress investors, trading 1.6 pct lower although in line with the market, as its 9-month earnings report was deemed "unspectacular". "The numbers are quite good, but largely in line with our expectations," Markus Hesse, analyst at Oppenheim Research said. 

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Asian stock markets tumble as nervous investors scale back risk

SINGAPORE - Asian stock markets tumbled Monday with the benchmark South Korean index losing almost 5 pct at its worst level after Wall Street's steep decline Friday prompted investors across the region to scale back risky positions.
   
Reflecting the risk-averse mood, the yen spiked higher against the dollar as traders moved to unwind carry trade positions, in which they borrow in a low-yielding currency to invest in higher-yielding currencies and assets.
   
Investors are nervous about a possible repeat of Black Monday, the market crash of Oct 19, 1987, which had its 20th anniversary on Friday.
   
Asia has been relatively unscathed by the broader financial market crisis as few banks had invested in subprime instruments. But the region's very resilience may now make it vulnerable if too much money flows in and pushes asset prices to unsustainable levels.
   
Analysts are worried that if the market overshoots, the correction that follows could be ugly. Morgan Stanley warned last week that the Hong Kong market could experience a shake-out in the next three months. The brokerage cut its outlook on the stock market to "cautious" from "in-line" and said the Hang Seng could fall to 24,000 points.
   
The Hong Kong index closed down 3.7 pct at 28,373.63. The index had gained about 40 pct since August, driven by expectations of strong inflows from the Chinese mainland after the government relaxed investment rules for its citizens.
   
"We see a 30 pct probability of a correction to 24,000 in the coming three months, which would take us down to fair value from where we could resume the bullish trend," said Morgan Stanley analyst Rob Hart.
   
In Tokyo, the Nikkei 225 closed down 2.2 pct at 16,438.47 and the broader Topix lost 1.8 pct to 1,563.07.

In Sydney, the S&P/ASX 200 was down 1.9 pct at 6,577.3 and the All Ordinaries was off 2 pct at 6,592.1.
   
Financial stocks suffered the brunt of the selling with leading investment bank Macquarie Bank falling 4.1 pct to 79.65 aud on fears that its capacity to grow profits through deal-making across the world might be clipped by another shakeout on world financial markets.

Indian shares ended mixed but off the day's lows, with indices bucking the weak trend in global markets, on hopes that officials will act promptly to soothe jitters over likely restrictions on the participatory notes avenue for foreigners to access Indian markets.
   
Market regulator Securities and Exchange Board of India (Sebi) had Tuesday proposed restricting the indirect route for foreigners to buy Indian stocks. The proposals regarding participatory notes had since kept local indices under pressure through the week.
   
Later today, Sebi is scheduled to hold a conference call with foreign institutional investors to address their concerns about the proposals it put forward last week.
           
The Bombay Stock Exchange's benchmark Sensex ended 0.31 pct or 54.01 points higher at 17,613.99, while the National Stock Exchange's S&P CNX Nifty ended 0.60 pct lower at 5,184.00. Among the BSE 30, 16 shares gained and 14 lost. In the broader market, 1,345 shares advanced, 1,340 declined and 70 were unchanged.
    
The Korean Kospi lost 3.4 pct to a four-week closing low of 1,903.81 after earlier falling to 1,875.23. Exporters took a hit with Samsung Electronics finishing down 3.3 pct to 522,000 won and Hyundai Motor sliding 1.5 pct to 64,000 won.
       
Elsewhere, the Philippines Composite closed down 4 pct at 3,667.87 led by shares of Ayala Land, the country's biggest property developer and owner of a Manila shopping mall that was hit by a blast on Friday.
       
The Kuala Lumpur Composite Index closed down 1.4 pct at 1,350.81, the Singapore Straits Times fell 2.8 pct to 3,642.64, and the Jakarta composite index closed down 4.3 pct at 2,453.21.
   
The Shanghai Composite Index lost 2.6 pct to 5,667.33 and the Taiwanese weighted index lost 2.6 pct to 9,360.63.

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Gold drops below 750 usd, tracks equities lower on renewed macroeconomic fears

LONDON - Gold dropped below 750 usd in a fall of over 2 pct as nervous investors rushed to lock-in profits after macroeconomic concerns once again rose to the fore.
   
On Thursday, gold had touched a near 28-year high of 770.90 usd after rallying up by over 100 usd since mid-August.
   
"Last week we saw the new highs and now we're seeing some profit-taking as a result," said Commerzbank spot-trader Michael Kempinski. "There were funds busy in the gold market, and when stocks crash they tend to lock-in profits. We're seeing some quite healthy consolidation, but there was some difficulty holding the 750 usd level. Some days you get the dollar stronger, oil coming off and stocks going down, and it's quite hard to trade against that."
   
Oil prices have declined today, dropping over 2.50 usd since touching above 90 usd for the first time ever in New York early on Friday.
      
Earlier, gold dropped as low as 745.13 usd, before recovering up to 750.80 usd at 2.05 pm. Gold has lost around 2 pct since closing at 764.50 usd in New York on Friday.
   
Gold prices remained underpinned by good physical demand from jewellers and possible safe-haven buying by investors looking to spread risk across their portfolios during the current market turmoil.
   
"The drivers remain very positive for gold so we could just be seeing some short-term profit-taking," said Barclays Capital analyst Suki Cooper.
   
Meanwhile, platinum, which touched an all-time high last week, eased to 1,433 usd against 1,442 usd, largely in sympathy with gold. Prices remain well supported, however, by suspected production outages at key producers in South Africa.
   
Anglo Platinum, which was forced to close one of its mine shafts last week after the death of a worker, said it is losing some 1,300 ounces of production per day because of the closure.
   
Added to supply outages at fellow miner Lonmin, total platinum mining production in South Africa is currently down around 10 pct, analysts said.
   
Among other precious metals, palladium was trading at 353 usd against 365.50 usd, while silver was down at 13.36 usd against 13.54 usd.

Stockpiles of copper at London Metal Exchange-monitored warehouses increased by a further 2,150 tonnes to 151,100 tonnes. Inventories have increased by over  19,000 tonnes since the beginning of October, heightening fears that fourth-quarter could be lower than first expected.
   
"Prices are weaker across the breadth of the complex this morning following LME stocks rising for most of the base metals," said analysts at Barclays Capital. "Macroeconomic concerns and weaker equity markets are weighing on sentiment".
   
At 3.02 pm, LME copper for 3 month delivery was down 110 usd to 7,750 usd a tonne.
  
In other base metals, lead was down 100 usd at 3,565 usd a tonne, as another increase in stockpiles weighed on the market. LME inventories increased by over 10,000 tonnes last week, and a further 3,000 tonne rise in today's report has done little to encourage investors to buy.
  
Aluminium was down 15 usd at 2,536 usd a tonne, underpinned by a 3,175 tonne fall in LME inventories to 929,475 tonnes and expectations that supply/ demand balances in the market will tighten next year.
   
Tin bucked the trend to trade up 75 usd at 16,225 usd a tonne, while nickel dropped 850 usd to 31,650 usd a tonne. Meanwhile, zinc fell 80 usd to 2,890 usd a tonne.

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