US & World Daily Markets Financial Briefing 26-07-2007

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Stocks tumble on credit, energy concerns

NEW YORK - Wall Street tumbled in early trading Thursday as investors grew increasingly anxious about escalating oil prices and rising concerns about mortgage and corporate lending. The Dow Jones industrials fell more than 120 points.
   
The steep decline continued a weeks-long streak of volatility on Wall Street -- investors who had been able to shrug off concerns about subprime problems and a more difficult environment for corporate borrowing were clearly once again worried.
   
The rising price of oil, which hovered around $77 a barrel, also took a toll on stocks.
   
Traders also weighed a mixed batch of second-quarter earnings reports, with major names like Ford Motor Co. and Exxon Mobil Corp. posting better-than-expected gains. But disappointing results from home builders including Pulte Homes Inc. and D.R. Horton Inc. -- squeezed by a sluggish environment from home sales and continued defaults in subprime loans -- weighed heavily on the market.Macro running .....
   
"You have to factor in the new price for oil, concerns about the leveraged buyout market, and the tone of earnings reports," said Art Hogan, chief market analyst at Jefferies & Co.
   
He said there remains concern throughout the market that the number of private-equity deals -- a main driver of the market's record run -- might dry up because buyout shops are having difficulties accessing credit. On Wednesday, a group of banks had to postpone a $12 billion offering to raise funds for Chrysler Group's acquisition by Cerberus Capital.
   
In the first hour of trading, the Dow Jones industrial average fell 126.32, or 0.92 percent, to 13,658.75.
   
Broader stock indicators were also sharply lower. The Standard & Poor's 500 index was down 17.98, or 1.18 percent, at 1,500.11 and the Nasdaq composite index tumbled 32.25, or 1.22 percent, at 2,615.92.

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Dollar falls to 2-1/2 month low against yen ahead of Wall Street opening

LONDON - The dollar hit a two and a half month low against the yen on expectations of a disappointing opening on Wall Street amid ongoing concerns about the health of the US economy.
   
The Dow Jones index of leading shares is expected to open some 120 points lower. That is more than double the losses anticipated earlier.
   
"There's a lot of nervousness in equity markets and that increase in risk aversion has helped the Japanese yen in particular," said Neil Mackinnon, chief economist at ECU Group.
   
The main reason the yen enjoys support in these risk averse times is that Japanese investors look to repatriate funds. This has helped push the dollar down to a low today of 119.44, its lowest level since May 11.
   
Steve Barrow, currency strategist at Bear Stearns, reckons the dollar could fall down as far as 115 yen in the near term.
   
"However, over the long haul, we doubt that much will have changed as a result of current tensions in credit/mortgage markets and hence we'd expect yen to slide to 125 yen, if not 130 against the dollar and to fall to 180 against the euro," he added.
   
This afternoon's US data did very little to alter the market's predominant position. While the volatile durable goods data disappointed to the downside, the weekly jobless claims figures continued to show the labour market in fairly rude health.
   
Earlier in the session, the euro rose modestly after money supply data for the single currency zone and a German business sentiment survey reinforced the market's view that the European Central Bank will raise borrowing costs again in September in 4.25 pct.
   
"We look for a peak refi rate of 4.75 pct in mid-2008 and see upside risks for the euro against the Swiss franc and the pound," said UBS currency strategist Daniel Katzive.
   
Meanwhile, the pound remained soft as further evidence emerged of a slowdown in the UK's housing market. As a result the market is now seeing only a 42 pct chance of a September quarter point rate hike to 6.00 pct from the Bank of England, and is becoming more wary in pricing in further tightening.

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Euroshares lower midday, Dow set for opening losses, mixed earnings

LONDON - Leading European exchanges were lower midday as the Dow looked set to fall in opening deals and as investors digest a mixed set of earnings.
   
In Europe, Renault slumped 3.14 pct as initial enthusiasm after the group's better tan expected quarterly earnings waned. The bears moved in and focus shifted to JP Morgan's bearish report. The broker cut its recommendation to 'neutral' from 'overweight'.
   
And shares in Swedish truck and bus producer Scania dived 9.64 pct after the company's second quarter pretax came in well below market estimates hit by higher costs. Scania's profits after financials rose 45.9 pct from a year earlier to 2.895 bln skr, but fell short of analysts forecasts of 3.046 bln skr.
   
Car parts group Autoliv was also lower -- down 1.378 pct -- after it said its operating margin will continue to be negatively affected by high material costs, supplier issues and pricing pressure in the automotive industry. It said this means the group operating margin in the third quarter is likely to be approximately 7 pct, slightly below the 7.2 pct level recorded for the same quarter in 2006.
   
And EADS slumped 2.47 pct -- having added more than 1.5 pct in early deals -- as chief financial officer Hans Peter Ring confirmed earlier reports that the company's Airbus Military unit may face delays in the delivery of its A400 M aircraft and the NH90 helicopter. This overshadowed the better than expected second quarter numbers and increased cash flow forecasts.
   
In the same sector, Dassault Systemes -- down 2.24 pct -- also disappointed as its second quarter net profit rose less than expected, up 8.5 pct to 37.9 mln eur.  
   
Shares in Legal & General were down over 6 pct in morning trade after the UK life insurer said new life and pensions sales made a lower contribution to first half profits than analysts had expected.
   
And most other financials were lower as continuing concern about the prospects for the global markets continue and about the health of global credit markets continue to weigh. Axa fell 3.41 pct, Societe Generale fell 2.39 pct and ING slipped 2.18 pct.
   
The oil and gas sector was also mixed as Royal Dutch Shell gained 1.84 pct as the group reported a slightly better than hoped for set of second quarter earnings and as oil prices gained in Asian trade.
   
Staying in the sector, French oil services company Technip also outperformed -- down 0.32 pct -- as it unveiled a 92.3 pct surge in first half net profit to 147.7 mln eur from 76.8 mln a year earlier - well ahead of analysts' forecasts of 66-77 mln eur.
   
Also in oil and gas, ENI added 0.04 pct after its in-line numbers but Repsol dropped 3.76 pct after its reported a much weaker than expected set of  second quarter numbers.
   
Astrazeneca was up 0.07 pct after the UK pharmaceuticals group's second quarter earnings, as initial fears about the progress of the MedImmune faded and investors focused on the solid underlying performance.
   
Shire was 0.16 pct higher after the UK specialist pharmaceutical company upgraded its 2007 guidance after reporting an acceleration in its second quarter revenue growth.
       
Meanwhile, utility and media giant Vivendi was outperforming -- down only 0.37 pct -- after presenting a strong set of first half figures, which prompted UBS to repeat its 'buy' stance.
   
In chemicals, DSM is up 4.62 pct as it raised its full year operating profit outlook and booked better-than-expected second quarter results due to higher volumes and increased prices. Net profit excluding one-off items was 158 mln eur, up from 152 mln a year ago, and beat estimates of up to 134 mln eur.
   
Peer Lonza Group AG also beat market expectations and gained 2.05 pct.    

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Asian shares mostly down on profit taking; China up on strong profit outlook

MUMBAI - Shares across the Asia-Pacific region dipped on Thursday with Japan's Nikkei index hitting a two-month low on profit-taking, and jittery investors in Australia selling banking stocks over heightened interest rate concerns.
      
The Nikkei 225 Stock Average dropped 156.33 points or 1 pct to close at 17,702.09, its lowest level since May 30, when it finished at 17,588.26.  The broader TOPIX index fell 16.85 points or 1 pct to 1,737.18.  Meanwhile, shares in Japan's biggest shipping line, Nippon Yusen KK, were up seven yen or 0.6 pct at 1,225 after it announced that its net profit was 132 pct higher in the fiscal first quarter ended June than a year earlier.
   
Australian share prices ended sharply down as heightened interest rate concerns continued to weigh on the market following Wednesday's release of inflation data for the June quarter. The data, showing a 1.2 pct rise in headline consumer price inflation and a 0.9 pct increase in the core measure, has made a 25-basis-point rate hike in early August an odds-on bet, prompting selling in banking stocks.
      
The S&P/ASX 200 closed down 82 points or 1.3 pct at the day's low of 6,258.5. The All Ordinaries Index lost 76.6 points or 1.2 pct to settle at 6,301.4.
   
Over in China, The Shanghai A-share Index finished up 22.78 points, or 0.5 pct, to 4,558.54. The benchmark Shanghai Composite Index also hit an all-time intra-day high of 4,371.51 in afternoon trade, but profit-taking in banks and properties stocks trimmed the gains by the close.
   
The index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, ended up 22.49 points or 0.52 pct at a record 4,346.46. China B-shares closed higher on positive sentiment, up 8.72 points or 2.82 pct at 318.04, after the benchmark index hit an all-time high.
   
South Korean share prices closed sharply lower, with the KOSPI retreating from a new intraday high, as foreign investors decided to pocket gains from the market's record breaking run-up. The KOSPI opened up on the back of Wall Street's overnight rebound and some positive US earnings results, but it then fell back in the face of foreign profit taking. Weakness in regional markets also weighed on sentiment.  The index closed down 40.68 points or 2 pct at 1,963.54, after rising to a new all-time intraday high of 2,915.48.
      
Share prices in Taipei closed substantially weaker at their lowest levels of the day as profit-taking gathered momentum and reversed the early gains which had been tracking Wall Street's recovery overnight. The weighted index closed down 173.71 points or 2 pct at 9,566.42, off an intraday high of 9,807.91.
   
In Hong Kong, share prices closed lower, wiping out gains from morning trade, as the local bourse was dragged along by sharp declines in other major Asian markets due to profit-taking. The Hang Seng Index closed down 150.49 points or 0.64 pct at 23,211.69, off a low of 23,127.80 and an all-time high of 23,557.74.
   
Singapore shares closed sharply lower taking a cue from the regional bourses and as investors dumped shares after manufacturing data for June came in weaker-than-expected.
   
The Economic Development Board announced during the midday break that Singapore's manufacturing output was 7.4 pct lower in June than a year earlier, dragged down by a slump in biomedical industry output and as electronics production remained weak. The Straits Times Index closed down 53.81 points or 1.5 pct at 3,579.73.
   
Indonesian shares closed lower for a second straight day as investors pocketed profits from recent rallies. The composite index closed down 29.30 points or 1.2 pct at 2,365.26.
   
Elsewhere, in Malaysia shares closed mixed as the market surrendered much of its earlier gains in late trade after sharp falls in Singapore and other regional markets spooked local sentiment. The Kuala Lumpur Composite Index was up 7.42 points or 0.5 pct at 1,387.15, off an intraday high of 1,389.07.
   
Philippines share prices closed higher as bargain-hunters picked up select blue chips following Wall Street's rebound Wednesday. The composite index finished up 14.17 points or 0.4 pct at 3,659.68, off the day's high of 3,666.29. The broader all-share index rose 3.90  points or 0.2 pct to 2,372.42.

Indian shares ended up finishing a volatile session after the expiry of July derivatives today, dealers said. The Bombay Stock Exchange's 30-share Sensex closed at 15,776.31 points, up 76.98 points or 0.49 pct. The National Stock Exchange's 50-share S&P CNX Nifty ended at 4,619.80, up 0.68 pct.

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Cocoa steady as market monitors potential higher crops in West Africa

LONDON - Cocoa was steady having traded lower yesterday on predictions of a bigger West Afrian crop but traders kept a close eye on political developments in key producer the Ivory Coast.
   
Prices remain at higher levels, however, with a tight supply outlook keeping cocoa on the Euronext Liffe just 6 pct off a four year high struck earlier this month.
   
"Overall, price activity over the past few sessions has been wide ranging but sideways in nature," said Sucden analyst Stephanie Garner. "(Cocoa's currently) very much dominated by reactions to news reports or rumours with little in the way of confirmation hence the price re-adjustment that follows the next and following trading sessions," she added.
    
At 2.00 pm on the Euronext Liffe, cocoa for September delivery was down at 1,070 stg a tonne against 1,071 stg at the close yesterday.
   
Cocoa rose earlier this week on news the Ivory Coast army had been put on full alert ahead of the president Laurent Gbagbo's first visit to the rebel held North. The military was alerted because last month, rockets were fired at prime minister Guillaume Soro's plane when he was flying in the same northern region.
   
However, while this news provided a brief boost to cocoa, political risks in the Ivory Coast had already been priced into the market, causing prices to consolidate.
   
Prices have since been under pressure by reports of rainfall in West Afria.
   
"When it rains during the mini-dry season it tends to be good for crops," said Fortis analyst Jonathan Parkman.
   
Some traders predict that the improving crop outlook could push prices lower, unless a further supply threat emerges in one of the key west African producers.
   
In other softs traded on Liffe, Robusta coffee for September delivery was down at 1,826 usd a tonne against 1,836 usd, while No 5 white sugar for October delivery rose to 314.20 usd a tonne against 311.30 usd.

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