US & World Daily Markets Financial Briefing 30-08-2007

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Stocks fall as uncertainty remains

NEW YORK - Stocks dropped in early trading Thursday, with Wall Street taking few chances amid concerns that shrinking credit is hurting the economy and uncertainty about the Federal Reserve's intentions.
   
Thursday's economic data disappointed investors. The Commerce Department said second-quarter gross domestic product rose 4.0 percent -- its fastest pace in more than a year, but a bit lower than many anticipated. The report also suggested that business investment, not consumer spending, was the main driver of growth.
   
And to Wall Street's surprise, the Labor Department said U.S. jobless claims rose last week to the highest level since April. Any signs of weakness in employment, one of the stronger pillars of the economy right now, raises concerns that problems in the housing market are spreading further.
   
The Dow Jones industrials gained nearly 250 points Wednesday after losing about 280 points in the prior session, as investors grew more optimistic about the chance of an interest rate cut and sought out bargains. Fed Chairman Ben Bernanke, expected to speak in Wyoming on Friday, said in a letter to Sen. Charles Schumer, D-N.Y., that Fed policymakers are "prepared to act as needed" if the market's turmoil damages the economy.
   
But the Fed's objectives are not yet clear, and so with investors wanting to collect some of their gains from Wednesday ahead of Labor Day weekend, Wall Street pulled back again. Worse-than-expected quarterly earnings reports from Freddie Mac and H&R Block Inc., who both pointed to troubles in mortgage lending, also triggered selling.
   
In early trading, the Dow fell 79.82, or 0.60 percent, to 13,209.47. Broader stock indicators also fell. The Standard & Poor's 500 index dropped 8.98, or 0.61 percent, to 1,454.78, and the Nasdaq composite index slipped 11.98, or 0.47 percent, to 2,551.18. The Russell 2000 index of smaller companies fell 4.20, or 0.53 percent, to 783.12.
   
Bond prices rose as stocks declined. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.52 percent from 4.56 percent late Wednesday.
       
Government-sponsored Freddie Mac, the nation's second-largest buyer and guarantor of home mortgages, said its second-quarter profit dropped 45 percent, after it recorded larger provisions on its books for bad loans.
   
And H&R Block Inc. reported that its first-quarter loss was bigger than during the same period last year, as it struggled with its mortgage lending arm.
   
Light, sweet crude fell 40 cents to $73.11 a barrel on the New York Mercantile Exchange. In Europe, Britain's FTSE 100 fell 0.06 percent, Germany's DAX index slipped 0.05 percent, and France's CAC-40 rose 0.12 percent.

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Dollar prospers as risk appetite returns

LONDON - The dollar was firm as some appetite for risk resurfaced following a heavy hint from US Federal Reserve chairman Ben Bernanke that US borrowing costs may be cut next month.
   
In a letter to Senator Charles Schumer, Bernanke said the Fed is "prepared to act as needed" to mitigate some of the impact from the disruption in the financial markets.
   
His comments reinforced expectations that the central bank will cut its key Fed funds target rate from the current 5.25 pct at its next rate-setting meeting on Sept 18. As a result they helped lift risk appetite across the financial markets, most evidently in the performance of US stocks overnight.
   
And though a prospective rate cut reduces the dollar's yield attraction, the US currency has garnered some support from more hopes the Fed will do enough to prevent the US economy from sliding into recession in the wake of the sub-prime crisis.
   
In the currency markets, the increased appetite for risk is most evident in the performance of the yen as some investors start to edge back into more riskier trades, such as carry trades.
   
"The yen crosses were once again on the backfoot -- and the dollar was on the rise -- following their substantial rebound yesterday," said Bank of New York Mellon currency strategist Neil Mellor.
   
During the height of the market turmoil earlier this month, carry trades, where investors borrow in low-yielding currencies to buy higher-yielding assets, have been unwound heavily.
   
This unwinding has seen the dollar fall from a high of 124 yen in mid-June to a low of below 114 in mid-August, while the euro has dropped from just below 169 yen in mid-July to around 150 in mid-August.
   
Despite this slight reversal in risk aversion today, the markets remain in jittery mood, with speculation mounting that more needs to be done by the world's major central banks to raise confidence, particularly in credit markets.

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Euroshares flat midday, US futures point to lower open; techs and oils advance

LONDON - Europe's leading stocks were trading flat midday as US futures point towards a lower open on Wall Street today, while the technology, oil and retail sectors provided some momentum throughout the
morning.
   
At 12.18 pm, the Dow Jones STOXX 50 was 1.76 points or 0.05 pct higher at 3,677.99, while the STOXX 600 advanced 0.56 points or 0.15 pct to 367.37.
   
In Europe, shares in Infineon were also in focus after it received an upgrade to 'outperform' from Sanford Bernstein. In a note to clients, the broker said the electronics sector could reach around 92 pct utilization by the end of the year, which would improve pricing and margin in the fourth quarter and at the beginning of 2008. Shares gained 1.78 pct.
   
Peer ASML added 0.85 pct, as Alcatel-Lucent added 0.63 pct and Dassault Systemes rose 1.68 pct. Shares in Nokia were 2.57 pct higher as investors contemplated the significance of the group's shift towards services and away from being solely a hardware provider. Yesterday, the group unveiled an online music and gaming store, together with new handsets that will hit shelves in time for Christmas.
   
Oil stocks comprised the second highest climbers after US stockpile data out yesterday showed a much higher than expected draw on inventories.  Total climbed 2.04 pct, Repsol added 1.12 pct and BP rose 1.01 pct.
   
BG soared 2.67 pct and also received an upgrade to 'buy' from 'hold' at Dresdner Kleinwort which reiterated its target of 875 pence, following a recent weakness in the share price.
   
On the earnings front, food retail was a key focus as Ahold, up 5.16 pct, issued stronger than expected interims and announced a new share buyback. Earnings during the second quarter also pleased investors.
   
Carrefour, which added 0.67 pct, said it will float its Carrefour Property unit, partly to finance buybacks.
   
Elsewhere in the sector, Sainsbury added 0.65 pct after a meeting between the UK group and Qatari investment fund Delta Two, as banking sources are hopeful this is a sign a successful conclusion to the talks could be reached soon, enabling the Qataris to begin what is expected to be a lengthy due diligence process.
   
Tesco added 0.63 pct. It said today its offer for Dobbies Garden Centres PLC will remain open for acceptance until Sept 14. Tesco said acceptances received after the closing date will not be considered valid, but the retailer may buy late-tendered shares for prices below the offer price of 1,500 pence a share.
   
Among financial stocks -- recently battered by global credit concerns, Credit Agricole shone, up 1.71 pct, after adding more than 4 pct earlier today, on the back of better than expected second-quarter numbers. Natixis stormed 5.96 pct as the bank announced a higher-than-expected first-half net profit of 1.565 bln eur. Analysts at Cazenove said the net profit was 12 pct ahead of their estimates on higher revenues and lower provisions.
   
And Deutsche Bank shed 1.49 pct after a number of rumours about the banking giant, including talk of a profit warning or that CEO Josef Ackermann will resign, began to circulate.
   
Belgian brewer InBev added 3.13 pct higher, after the brewery giant posted a forecast-beating set of second-quarter results. KBC raised its rating to 'accumulate' from 'reduce' and increased its target to 62.0 eur from 57.0.
   

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Asian stocks rally with Wall Street; Malaysia, Philippines get GDP boost

SINGAPORE - A rally on Wall Street overnight on renewed hopes for a US interest rate cut sent Asian stock markets higher Thursday, with stronger-than-expected economic data from Malaysia and the Philippines underpinning gains in those markets.
     
The Nikkei 225 Stock Average closed up 140.99 points or 0.9 pct at 16,153.82, while the broader TOPIX index gained 10.68 points or 0.7 pct at 1,568.23.
   
Oil shares were in demand after crude oil soared to 73.51 usd a barrel on the New York Mercantile Exchange on Wednesday. Showa Shell Sekiyu KK rose 5.6 pct to 1,368 yen, Nippon Oil Corp climbed 4.3 pct to 937 yen, Cosmo Oil Co Ltd was up 3.7 pct at 509 yen and Idemitsu Kosan climbed 270 yen or 2.2 pct to 12,300 yen.
       
In Australia, the S&P/ASX 200 index closed up 34.7 points or 0.6 pct at 6,135.0, but well off the day's high of 6,190.7 as  bank stocks were sold off in late trade after the Australia & New Zealand Banking Group warned that the financial environment has become more uncertain amid the recent turmoil in credit markets.
    
ANZ fell 1.4 pct to 28.59 aud, Commonwealth Bank was down 0.6 pct at 53.86 aud and National Australia Bank fell 0.6 pct to 39.05 aud. Macquarie Bank was down 28 cents at 71.22 aud while Babcock & Brown Ltd fell 40 cents to 22.50 aud. Index leader BHP Billiton was up 1.9 pct, at 37.75 aud and Rio Tinto was up 1.1 pct at 91.10 aud. Australia's All Ordinaries index advanced 36.6 points or 0.6 pct to close at 6,138.0.

South Korean shares closed higher, rebounding from yesterday's modest losses, with technology stocks leading the rally. A further solid increase in Korean service sector output for July, in the wake of upbeat July industrial output data yesterday, added to the positive tone, as the KOSPI index closed up 15.51 points or 0.9 pct at 1,841.70.
    
Philippine shares closed sharply higher, lifting the main index to its best level in almost four months, after President Gloria Arroyo said GDP rose by 7.5 pct in the second quarter from a year earlier, topping the average estimate of economists polled by Thomson IFR for a rise of 6.9 pct. The Manila composite index jumped 110.81 points or 3.4 pct to close at 3,320.34. The broader all-share index rose 64.71 points or 3.1 pct to 2,110.00.
   
Malaysian shares ended slightly higher on stronger-than-expected second quarter economic growth, but trade was quiet, with cautious investors declining to extend positions ahead of the long weekend. The central bank said Wednesday Malaysia's gross domestic product grew 5.7 pct on an annualised basis, topping the estimate of economists polled by Thomson Financial for a 5.2-5.5 pct rise. The Kuala Lumpur Composite Index was up 10.23 points or 0.8 pct at 1,273.93. The Malaysian stock market is closed tomorrow as the nation celebrates its 50th year of independence.
   
In Hong Kong, the Hang Seng index closed up 463.94 points or 2 pct at 23,484.54.
      
In China, the benchmark Shanghai Composite Index closed up 58.46 points or 1.14 pct at 5,167.88. The Shanghai A-share Index was up 60.85 points or 1.1 pct at 5,426.40 and the Shenzhen A-share Index was up 29.29 points or almost 2 pct at 1,512.02. The Shanghai B-share Index rose 8.33 points or 2.7 pct to 322.23 and the Shenzhen B-share Index was up 20.56 points or 2.9 pct at 737.81.
   
Meanwhile, Singapore shares closed mixed after late selling in banks triggered by subprime worries dragged the main index lower. The Straits Times index closed down 13.51 points, or 0.4 pct, at the day's low of 3,321.15.

Indian shares closed higher tracking global markets that rose in anticipation of the US Federal Reserve cutting key interest rates. Trading remained volatile as derivative contracts for August expired today.
   
The Bombay Stock Exchange's benchmark Sensex rose 0.86 pct, or 128.70 points, to 15,121.74, while the National Stock Exchange's S&P CNX Nifty rose 0.69 pct, to 4,389.35 points. In the BSE 30, 22 shares gained and 8 lost. In the broader market, 1,564 shares advanced, 1,080 retreated and 72 remained unchanged.

Indonesia's composite index closed up 15.83 points or 0.7 pct at 2,150.72, while Taiwan's weighted index closed up 127.89 points or 1.5 pct at 8,771.21.

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Gold eases as dollar gains against euro, amid investor caution

LONDON - Gold eased in afternoon trade as the dollar strengthened against the euro, with nervousness ahead of an expected lower opening on Wall Street also weighing on sentiment.
      
Movements on the equity markets are having an pronounced impact on gold at present, after a slide in share prices earlier this month knocked prices dramatically lower.
   
"While myriad factors will influence the long-term price of gold, including foreign exchange markets, mine supply, physical demand, and central bank activity, in the short-term, issues of liquidity and investor confidence will dominate price direction," said James Steel, an analyst at HSBC.
   
At 2.17 pm, spot gold was trading at 663.93 usd an ounce against 666.30 usd in late New York trade yesterday. The metal gained more than 3 usd per ounce in New York trade yesterday on the back of rising oil prices.
   
Expectations of a pick-up in physical demand for gold as the Indian festival season gets underway are helping to underpin the metal, however, analysts said.
   
The strong rise of the rupee and a hike consumer spending raised India's gold demand by as much as 72 pct in the first half of the year, according to the World Gold Council, and it is expected to remain strong going forward.
   
The WGC said demand for gold in India reached an all-time high of 317 tonnes in the second quarter of 2007.
   
Among other precious metals, platinum was steady at 1,261 usd per ounce against 1,265 usd, while its sister metal palladium fell to 324 usd from 328 usd. Silver eased a touch to 11.78 usd from 11.84 usd per ounce.
 

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