US & World Daily Markets Financial Briefing 27-09-2007

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Stocks up on home sales data

Stocks rose modestly Thursday as investors bet that a steep decline in August new home sales will give the Federal Reserve another reason to cut interest rates.

The market's gains were small, though, with Wall Street also concerned that data showing severe economic weakness could signal the possibility of a recession.

The Commerce Department reported that sales of new homes plunged 8.3 percent in August to a seasonally adjusted annual rate of 795,000 units, the lowest level in seven years. The snapshot of the slumping housing market was worse than expected -- economists surveyed by Thomson/IFR anticipated, on average, a drop of 4.6 percent.

Ongoing problems in the housing industry were also reflected by KB Home, which said it expects the industry will continue to suffer through next year. The Los Angeles-based home builder reported before the opening bell that it swung to a loss in the third quarter.

The U.S. economy was a little softer during the second quarter than earlier estimated, according to a government report. The Commerce Department said gross domestic product expanded at a 3.8 percent annual rate in the second quarter -- less than the previously reported 4 percent increase.

However, there was some strong news about the nation's labor force. Jobless claims fell 15,000 to 298,000 in the week ended Sept. 22 -- the lowest level since May and an indication the labor market is still healthy.

These reports followed others issued this week that suggested the economy remains sluggish, which could persuade policymakers to lower rates further after last week's half-point cut. Lower rates make cash cheaper to borrow, so they tend to fuel spending and merger-and-acquisition activity.

The Dow Jones industrial average rose 19.18, or 0.14 percent, to 13,897.33.

Broader indexes also advanced. The Standard & Poor's 500 index rose 3.79, or 0.25 percent, to 1,529.21, and the Nasdaq composite index rose 6.81, or 0.25 percent, to 2,705.84.

Bonds were little changed. The yield on the 10-year Treasury note was at 4.62 percent, the same as late Wednesday.

The New York Fed appeared to be taking no chances in keeping cash available in the markets Thursday. It injected a larger-than-normal $38 billion through various types of repurchases -- including ones that accepted mortgage-backed collateral -- into the U.S. banking system as the end of the month approaches.

In corporate news, a group of investors led by private equity firm J.C. Flowers & Co. told student lender SLM Corp., or Sallie Mae, that it no longer wants to complete a $25 billion buyout. The group said the current economic environment and legislation being signed by President Bush on Thursday make the terms no longer acceptable. The investors said they are willing to discuss terms, though.

Sallie Mae rose $3.44, or 7.6 percent, to $48.45.

KB Home posted a third-quarter loss, but it was narrower than analysts expected. Its shares rose 53 cents, or 2.2 percent, to $24.62.

The dollar was mixed against other major currencies, while gold prices edged higher.

Crude oil prices rose as a tropical depression near Mexico raised concerns about possible disruptions to oil and gas production. A barrel of light sweet crude rose $1.32 to $81.62 on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 254.5 million shares.

The Russell 2000 index of smaller companies was up 2.66, or 0.33 percent, at 811.78.

In European trading, Britain's FTSE 100 rose 0.90 percent, Germany's DAX index rose 0.48 percent, and France's CAC-40 rose 0.84 percent.

In Asia earlier, Japan's Nikkei index and Hong Kong's Hang Seng Index each rose 2.40 percent.

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Euro trades at record high against dollar, supported by strong data

LONDON - The euro was trading at record high levels against the dollar, boosted by robust data, which continues to suggest the European Central Bank will not be in a position to cut interest rates any time
soon.   
   
The euro broke through the record high of 1.4165 usd hit earlier today, hitting a new peak of 1.4174 usd.
   
A string of European data out today, including euro zone money supply figures, German jobless and regional German inflation data have continued to point to a robust euro zone economy, which argues against the need for an easing in monetary policy.
   
"A slew of European data releases this morning provide further support for the view that the ECB will not have to follow the Federal Reserve and cut rates solely as a result of the current credit crisis," said Stuart Bennett at Calyon.
   
The dollar continues to be under pressure as there remains as yet no indication that other major central banks are set to follow the US lead and cut interest rates after the Fed's aggressive 50 basis point rate reduction last week.
   
Meanwhile, the pound rose further against the dollar after a strong Nationwide survey this morning showed the housing market continues to grow despite the recent turmoil on financial markets. The latest distributive trades survey from the Confederation of British Industry also showed the retail sector has not been affected too unduly by the market disruption.
   
The CBI reported a net balance of +12 pct of retailers said sales were higher in September than in the same period a year ago. This was down on August's +15 pct, though the CBI said retailers found sales to be about average for the time of the year.
   
With official data also showing solid growth in UK services sector output in July of 0.3 pct from June, today's batch of economic data further suggests the Bank of England will not cut interest rates any time soon. In particular, recent speculation of a UK rate cut by the end of the year are starting to look premature.
       
Elsewhere, the Australian dollar rose to its highest level against the dollar in two months as the ongoing rise in risk appetite continues to support high-yielding currencies.
   
Rising levels of risk appetite have led to a resumption of popularity for the carry trade, where money is borrowed in low-yielding currencies such as the yen in order to invest in high-yielding assets elsewhere.

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At 12.30 pm, the Dow Jones STOXX 50 Index was up 23.18 points, or 0.61 pct at 3,820.86 while the DJ STOXX 600 Index rose 3.44 points, or 2.92 pct, or 0.78 pct, to 377.9.

Spread bettors, IG Index, said the Dow looks to add another 43 points as hopes that weak US housing data will underline the need for a fresh cut in interest rates to stimulate the economy.

Merger and acquisition talk in the banking sector supplied an early focus.

Shares in Nordea surged 9.5 pct after Swedish business daily Dagens Industri said rival Skandinaviska Enskilda Banken AB (SEB) is planning a 138 skr per share bid for its Nordic rival.

According to the newspaper, SEB has already discussed the proposed deal with its dominant owner the Wallenberg Foundation, though it is not clear if it has also spoken with the Swedish government, which holds a 19.9 pct stake in Nordea. SEB shares were up 4.1 pct.

In the UK, Northern Rock shares gained another 7.14 pct on reports that JC Flowers & Co LLC has been given access to the ailing mortgage lender's books after making a takeover proposal for the bank.

The Daily Telegraph reported that Flowers' offer may be the only approach that might keep the UK bank as one entity, as other interested parties, such as Cerberus Capital Management LP, are seeking to break up the lender and divide the assets.

In other M&A news, Saint-Gobain shares rallied 4.39 pct, topping the percentage gainers on the DJ Euro STOXX 50, an index which tracks blue-chip performance in 12 countries using the euro.

Late yesterday, industrial holding group Wendel said it had purchased a 6 pct capital stake and 5 pct of the voting rights in the building materials group and for 1.56 bln eur, describing it as a long-term investment.

Broker Exane BNP Paribas maintained its 'outperform' rating on the group, saying investors should see Wendel's entry into Saint-Gobain's capital as a guarantee that the group's restructuring and disposal plans will gather pace, creating in the end a more focused and integrated company.

In other news, shares in Havas continued to surge over the morning on renewed hopes of a tie-up with Aegis, spurred on by comemnts by Vincent Bollore in Le Figaro.

The Havas chairman told the French daily that he had raised his stakes in Havas and Aegis to 32 pct and 29.93 pct respectively and that in either case, all options remain open regarding the launch of a public offer.

Havas shares rose 5.8 pct after the French advertising and marketing group posted strong half-year results.

Shares in Royal DSM NV surged 4.43 pct after the Dutch chemicals group said it will reorganise the group's operations and sell some businesses. It also lifted its full-year operating outlook and announced a new 750 mln eur share buyback.

In the auto sector, BMW shares rose 2.83 pct to their best level in more than two months ahead of a reported supervisory board meeting later today.

The company will unveil new long-term targets, including an 8 pct-plus profit margin, and announce plans for alliances with parts suppliers and possibly a fourth car brand, according to news reports.

Deutsche Bank upgraded the car maker to 'buy' from 'hold' and increased its price target to 60 eur per share from 41, saying it expects management to take decisions that will boost revenues and cut costs, with a renewed focus on profitability rather than volume growth.

DaimlerChrysler shares, meanwhile, rose 1.56 pct amid market rumours the German car maker is planning to lift its earnings guidance. The company is holds an extraordinary general meeting on October 4th.

But SAP fell 1.94 pct amid reports that it will slice its earnings forecasts ahead of the upcoming third quarter results. A spokesman said the company is sticking to its full year guidance and doesn't issue third quarter guidance.

Danone fell 1.76 pct as both UBS and SG Secs cut their price targets for the French food producer.

UBS said concerns remain about the full financial impact of the Numico acquisition, about financing costs in the current environment, un-recovered overheads following the disposal of the biscuits business, cost pressures (particularly fresh milk) in 2008 and the difficulties with the Wahaha Chinese venture.

SG Secs is concerned the upcoming sales update may disappoint as poor weather conditions will have limited organic growth.

Later in the session, a raft of economic data out of the US will likely focus investor attention.

With the sluggish US housing market behind so much of the current problems in the credit markets, the latest report on new home sales will be closely scrutinised for any signs of a recovery.

The market will also digest a final estimate of US economic growth in the second quarter with the release of the latest gross domestic product numbers.

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MUMBAI  - Asian stock market summary

In Japan, the Nikkei closed broadly higher, up 2.4 pct at 16,832.22, as shares rose across the board led by banks and other financial stocks driven by the upbeat outlook for earnings in the sector.
   
Rallies in other Asian markets and solid gains on Wall Street overnight also boosted investor sentiment. The yen's softer tone also gave exporter stocks a boost.
   
Australian shares closed at new record highs led by the financial sector as traders put their subprime worries behind them. Investment bank Macquarie Bank surged 4.4 pct to 83.8 aud after announcing an agreement to take over Canadian investment bank Orion Financial for 147 mln cad. The S&P/ASX 200 rose 0.9 pct to end at 6,538.1, while the All Ordinaries index was up 0.9 pct at 6,548.

China's benchmark Shanghai Composite Index ended its two-day correction, closing up 1.33 pct at 5,409.40, with banks getting a lift from a strong rise in newly-listed China Construction Bank (CCB). The Shanghai and Shenzhen A-share indices rose 1.33 pct and 1.57 pct respectively. The Shanghai and Shenzhen B-share indices rose 1.30 pct and 0.47 pct respectively.

In South Korea, the Kospi was another standout, climbing 1.4 pct to 1,945.28 as traders returned from a three-day holiday in buoyant mood. Samsung Electronics jumped 4.5 pct while other large-cap blue chips also rallied on institutional window-dressing activity as the third quarter draws to a close and fund managers adjust portfolios. It was the Kospi's best closing level since late July, with the benchmark index fully recovering the losses suffered after the US subprime loan crisis broke.

Taiwan shares closed at their best levels for the day and the highest in two months, with the weighted index closing up 1.69 pct at 9,413.65, as fund managers boosted their holdings ahead of the end of the current quarter.

Shares in the Philippines closed higher, with index heavyweight Philippine Long Distance Telephone Co (PLDT) extending its record run on its bright earnings prospects and attractive valuation. All sectors rallied, with Wall Street's overnight gains and positive economic indicators boosting sentiment. The Philippine composite index ended up 2.9 pct at 3,577.51.

Indian shares closed on Thursday at their all-time high, led by IT and energy stocks.
   
The Bombay Stock Exchange's Sensex closed above 17,000 for the first time as it rose 263 points, or 1.56 pct, to close at a record 17,185.26. The National Stock Exchange's S&P CNX Nifty too ended at a record 5,008.95 points, up 1.4 pct. The Nifty had crossed the 5,000 mark within minutes of opening today.
   
Reliance Energy, the biggest gainer on the Sensex, jumped 9.4 pct to 1,125 rupees amid reports the company was restructuring its business. Infosys Technologies, up 4.6 pct at 1,908 rupees signalling the broad uptick in other IT stocks propped by the Indian central bank's intervention yesterday to bring down the rupee from its nine-year high of 39.62 against the dollar.

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Lead surged to a new record high above 3,500 usd on worries over falling Chinese exports, possible further supply disruptions in Australia and very tight LME inventory levels.

Although inventories rose by 1,150 tonnes to total 22,000 tonnes today, they remain at their lowest levels in almost 15 years, exacerbating already tight market balances.

Chinese lead exports have been decreasing steadily because of new tax restrictions introduced in June, rising domestic demand and steady declines in output levels.

Meanwhile in Australia, authorities have launched a new investigation into lead contamination at the port of Esperance. The investigation is set to further delay exports of lead concentrate from the Magellan mine.

The mine, source of around 3 pct of global lead supply, has seen its exports suspended since March this year.

At 10.15 am, LME lead for 3 month delivery was trading up at 3,480 usd a tonne against 3,445 usd at the close yesterday, having hit a new record high of 3,520 usd earlier.

Other metals were all trading higher, underpinned by a recovery in Asian and European equity markets and continued weakness in the dollar, which makes metals cheaper for holders of other currencies.

Gains in other commodities like oil and gold also boosted sentiment towards the complex as a whole, with traders still focused on expectations of rising demand in the fourth quarter.

Three month copper was up at 8,040 usd a tonne against 7,940 usd at the close yesterday, still underpinned by possible strike action in Peru and ongoing supply disruptions in Mexico.

Workers at Southern Copper Corp's operations in Peru are due to strike for higher pay from Oct 2, while Grupo Mexico is planning to close its Taxco silver and lead mine because of labour problems and falling reserves.

And miners at its Cananea copper mine, the largest in Mexico, have been on strike since the end of July.

Nickel was up at 32,500 usd a tonne against 32,450 usd at the close yesterday, as expectations of rising demand from the stainless steel industry overshadowed yet another rise in LME inventories.

Zinc climbed to 3,065 usd a tonne against 2,985 usd at the close yesterday, aluminium edged up to 2,510 usd against 2,468 usd while tin jumped to 15,300 usd against 15,275 usd.

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