US & World Daily Markets Financial Briefing 04-12-2007

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Stocks fall amid economic unease

Stocks fell in early trading Tuesday as investors awaited next week's Federal Reserve meeting and faced renewed concerns about profits at Wall Street banks. The market is looking for the Fed to again lower interest rates, though the size of the cut, if any, is under debate. But despite prospects of a rate cut, economic concerns weighed on investors.

JPMorgan downgraded major securities firms on Wall Street amid a decline in the debt markets and a slowdown in growth of revenue. The downgrade affected big names like Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc.

In the first hour of trading, the Dow Jones industrial average fell 61.53, or 0.46 percent, to 13,253.04. Broader stock indicators also fell. The Standard & Poor's 500 index fell 10.16, or 0.69 percent, to 1,462.26, and the Nasdaq composite index fell 19.77, or 0.75 percent, to 2,617.36.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.85 percent from 3.85 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell 48 cents to $88.83 per barrel on the New York Mercantile Exchange amid speculation that OPEC will raise production when it meets Wednesday. Also, a U.S. intelligence report that concluded Iran halted its nuclear weapons development program in 2003 helped push prices lower.

As it tries to determine the Fed's move, Wall Street is anxious for the arrival of the November employment report, which is due Friday. It could indicate the direction of consumer spending, which is seen as crucial to maintaining economic growth.

With many on Wall Street expecting the Fed to cut interest rates, the debate has shifted to whether the cut will come in a quarter point or a half percentage point after a rate reduction at each of its last two meetings. The bank's key rate now stands at 4.5 percent. Beyond broader economic concerns, investors looked to corporate news for clues about the health of the economy.

Merck & Co., one of the 30 companies that comprise the Dow Jones industrial average, affirmed its 2007 profit forecast and predicted higher sales of its human papilloma virus vaccine Gardasil and diabetes treatment Januvia would drive earnings growth next year. The drug developer also said it still expects to eliminate 7,000 jobs by the end of 2008, having cut 6,000 positions as of Sept. 30. Merck fell $1.62, or 2.8 percent, to $57.14.

Nokia Corp. fell $1.37, or 3.4 percent, to $38.86 after predicting the global market for mobile devices to grow 10 percent in 2008 and that its share will increase. However, the world's largest mobile phone maker disappointed investors with its targets for its operating margin.

Sirius Satellite Radio Inc.'s acquisition of rival XM Satellite Radio Holdings Inc. might not win regulatory approval by a Tuesday deadline, contends Cowen & Co. analyst Thomas Watts. While shareholders approved the $5 billion plan last month, it might not win all the governmental approvals it needs before the Federal Communications Commission's 180-day review period expires. Sirius fell 24 cents, or 6.4 percent, to $3.51, while XM fell $1.25, or 7.9 percent, to $14.58.

Overseas, Japan's Nikkei stock average closed down 0.95 percent, while Hong Kong's Hang Seng index rose 0.77 percent. In afternoon trading, Britain's FTSE 100 fell 1.22 percent, Germany's DAX index slipped 0.35 percent, and France's CAC-40 fell 1.48 percent.

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Forex - Dollar falls on speculation Gulf states to depeg from the greenback

The dollar was lower following renewed speculation that members of the Gulf Co-operation Council will depeg their currencies from the US currency.

Speculation of a depegging increases demand for free floating currencies such as the euro on the basis that the Gulf states could revalue their currencies against it and diversify their foreign reserves out of the dollar and into these other currencies.

Meanwhile stronger-than-expected producer price data added to the euro's strength as they cemented further expectations that the European Central Bank will be unlikely to cut interest rates anytime soon.

Euro zone producer prices rose 0.6 pct in October from September, and were up 3.3 pct year-on-year, - above analyst expectations for readings of 0.4 and 3.1 pct respectively.

Meanwhile, the yen continued to firm on the back of lower equity markets. Financial stocks have dragged major European exchanges lower, with sky-high interbank lending rates sparking fears of a liquidity shortage going into the new year.

The yen tends to firm on heightened risk aversion as investors shy away from risky carry trades where they sell low-yielding currencies such as the yen to invest in high yielding ones elsewhere.

"The yen is marginally stronger against most major currencies underlining the continued risk aversion stemming from concerns over the financial market impact from the US housing market collapse," said Derek Halpenny at the Bank of Tokyo-Mitsubishi.

Elsewhere, the pound was steady following a key retail survey showing high street sales grew by less than expected in November. The British retail Consortium reported like-for-like sales were up 1.2 pct last month - higher than the 1.0 pct seen in October, but below forecasts for a 1.5 pct increase.

However the figures had little impact on the pound, with analysts saying they were not enough on their own to convince undecided Monetary Policy Committee members to vote for an interest rate cut this week.

Finally, the Canadian dollar was slightly weaker ahead of this afternoon's interest rate decision. The Bank of Canada decides on rates at 1400 GMT, with markets pricing in around a 70 pct chance of a cut. The Canadian dollar was surging earlier this year, reaching parity with the US dollar, and rising well beyond this.

But speculation of a rate cut coupled with fears about the impact of the credit crunch on the Canadian economy have taken it back to trading on the weak side of parity; a no-change decision today could provide some respite.

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Euroshares lower midday, US futures down, Nokia, Thyssen suffer

At 12.14 pm, the DJ STOXX 50 lost 42.39 points, or 1.13 pct, to 3,695.36, while the STOXX 600 fell 5.19 points, or 1.41 pct, to 363.62.

M&A chatter exchanged on trading floors today included, again, a rumoured bid from Microsoft for SAP, Novartis mulling a bid for Bayer and a Chinese sovereign fund supposedly interest in a 5 pct stake in Deutsche Post.

Meanwhile, US futures are not expected to offer much upside, with spread bettors IG Index expecting the DJIA to open some 40 points lower at 13,290. Separately, S&P 500 futures were off 5.70 points at 1,470, while Nasdaq 100 futures dropped 8 points to 2,067.

Back in Europe, steel makers were in focus with ThyssenKrupp sharply lower, down 5.52 pct, following disappointing full-year earnings results, which also weighted on peer ArcelorMittal, down 3.20 pct.

Automotive stocks were also losing ground with the sector shedding 3.26 pct in aggregate, as macroeconomic concerns resurfaced following weaker-than-expected US November car sales data and the news that some American car makers are cutting scheduled production in 2008.

Shares in Peugeot fell 4.61 pct, Porsche lost 4.43 pct and supplier Continental AG was trading 3.75 pct lower.

In the financial sector, Northern Rock fell 6.42 pct amid reports that JC Flowers is to begin a series of meetings with its board to gain preferred bidder status alongside or instead of Virgin Group, according to the Times.

Meanwhile, the Financial Times reports that the UK treasury is currently drawing up contingency plans to pay out the bank's depositors if the stricken mortgage giant has to be put into administration.

Peer Royal Bank of Scotland lost 5.01 pct as investors showed concern over the group's trading statement on Thursday.

Equally, Banco Popolare retreated 4.09 pct with traders citing an interview by chairman of the supervisory board Carlo Fratta Pasini, in which he said that the bank is considering revising its targets due to current market conditions.

Elsewhere, shares in Swiss Life, which yesterday announced a 1.16 bln eur takeover bid for Germany's AWD, rose 0.76 pct after the group said this morning that it targets more than 1.2 bln sfr in net profit for 2007 and added that it aims to increase earnings per share by at least 12 pct a year.

The news consoled investors who sent the stock 7.15 pct lower last night on the back of the takeover announcement.

Over in Amsterdam, TomTom slumped 9.09 pct lower after the group announced a 500 mln eur capital increase to finance the takeover of peer Tele Atlas.

Traders noted that the news highlighted that TomTom's financial ratios will come under pressure by the deal.

And in the Finnish market, Nokia shed 4.24 pct after its revised guidance for the upcoming business year failed to impress investors, with traders noting that "everyone owns" shares in Nokia, suggesting few potential buyers at this stage.

Construction group ACS fell 1.87 pct as investors weighed the potentially negative impact of news that Albert Frere has sold 2.2 pct of Iberdrola SA as a prelude to the disposal of his entire 5 pct stake.

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Asian stocks end mixed as subprime worry weighs vs rate cut hopes

The Nikkei ended down 1 pct at 15,480.19 and the Topix was down 1.1 pct at 1,515.50.  Australian benchmarks closed slightly lower as resource stocks fell with declining base metals prices. The S&P/ASX 200 closed down 2.7 points at 6,530.8 and the All Ordinaries was down 0.1 pct at 6,588.8.

"The whole global growth story is continuing to be under question," said Justin Gallagher, head of sales trading at ABN Amro. The Singapore Straits Times closed up 0.2 pct at 3,527.87, while the Malaysian Kuala Lumpur Composite Index fell 0.3 pct to 1,415.81.

The Hang Seng index closed up 0.8 pct at 28,879.59 and the Shanghai Composite rose 1 pct to 4,915.89, buoyed by hopes for another US rate cut. In Seoul, the KOSPI closed up 0.8 pct at 1,917.83 and the technology-laden KOSDAQ added 1.4 pct to 747.53. The Philippines Composite finished up 0.5 pct at 3,644.45. The Taiwan weighted index closed up 0.8 pct at 8,651.28 and the Jakarta Index was up 1 pct at 2,752.94. Economic worry

Meanwhile, Deutsche Bank analyst Mike Mayo slashed his earnings estimates and price targets for Morgan Stanley, Lehman Brothers, Merrill Lynch, Bear Stearns and Goldman Sachs. Gold prices rose as investors again increased exposure, with month-end book-squaring out of the way. The most-active February Comex gold price rose 5.60 usd to 794.70 usd per ounce.

Oil prices ended higher after a choppy session ahead of this week's OPEC meeting which could result in the oil cartel deciding to lift production. The January Nymex crude oil contract rose 60 cents to 89.31 usd a barrel and was last quoted at 89.70 usd a barrel in Asian trade. China eyes Rio

Among individual stocks, BHP Billiton Ltd, the world's largest miner, closed down 0.2 pct to 43.10 aud while its takeover target Rio Tinto Ltd dropped 2.6 pct to 143.10 aud.

In Hong Kong, Ping An Insurance Group, the second-largest insurer in China, closed up 1 pct at 87.95 hkd after it won regulatory approval to invest up to 15 pct of its assets in Hong Kong stocks and major overseas equity markets. Ping An made its biggest overseas investment last week when it bought 4.18 pct of Europe's leading bancassurance company, Fortis Group, for 1.81 bln eur.

Li Ka-shing's Tom Group media play fell 6.8 pct to 0.69 hkd on profit-taking after surging more than 23 pct yesterday on rumours, which it denied, that it had invested about 60 mln usd in social networking website Facebook.

China Southern Airlines was up 0.8 pct at 9.66 hkd, reversing early losses, following news that Li's Cheung Kong had sold 77 mln shares of the mainland carrier at 8.67 hkd per share. The sale reduced Cheung Kong's interest in China Southern to 0.85 pct from 7.41 pct.

China Resources Land was up 4.2 pct at 19.72 hkd after it said it will acquire three plots of land in mainland China from its parent for 4.53 bln hkd. Citigroup raised its target on China Resources Land to 26 hkd from 23.71 hkd and maintained its buy recommendation.

CNOOC was up 1.6 pct at 14.26 hkd though Credit Suisse cut its rating on the oil firm to "neutral" from "buy" and lowered its target to 15 hkd from 17 hkd, saying the stock looks fully valued. In Tokyo, shipping shares were key decliners with Mitsui OSK Lines down 6.1 pct at 1,497 yen, Nippon Yusen KK falling 4.2 pct to 898 yen and Kawasaki Kisen Kaisha 7 pct lower at 1,184 yen.

Marubeni Corp fell 2.9 pct to 810 yen after a report said the trading company is entering the US wind power market by purchasing an affiliate of US energy giant AES Corp for about 2.4 bln yen.

In Korea, SK Telecom closed up 4.8 pct at 262,000 won with sentiment lifted by the announcement that it had reached an agreement to acquire a major stake in Hanaro Telecom for 1.09 trln won. Other telecom stocks were also firmer on hopes for further deals in the sector. KT, the nation's largest fixed-line telecom company, rose 3.2 pct to 49,800 won and its cellphone carrier subsidiary, KT Freetel, gained 1.7 pct at 32,550 won.

India Shares

The Bombay Stock Exchange's benchmark Sensex traded little changed for most of the day but closed 73.91 points or 0.38 pct lower at 19,529.50, while the National Stock Exchange's S&P CNX Nifty closed 0.11 pct lower at 5858.35.

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Metals - Base metals continue lower, economic fears hammer prices down

Base metals continued lower into the afternoon in London, with prices hammered lower by resurgent economic fears in the market. At 1.02 pm, LME copper for three-month delivery was trading at 6,610 usd per tonne against 6,800 usd at the close yesterday. Earlier, copper hit an intraday low of 6,580 usd.

Copper has fallen sharply today despite inventories of the red metal declining for only the second time in 17 days by 1,325 tonnes to 188,175 tonnes. Despite today's fall, the overall rise in stocks recently continues to point to slower-than expected demand for copper during the fourth quarter.

"With LME stocks still rising and physical markets soft, we expect further downside moves in the short-term," said analysts at Barclays Capital.

In Mexico, the threatened closure of three Grupo Mexico mines follows more than three months of walk-outs by workers. The strikes continue while unions appeal against a ruling that branded the strikes illegal. Grupo Mexico management has threatened to shut mines in the past as a means of pressurising the government.

Among other metals, nickel fell to 25,850 usd per tonne, basis three months, from 26,800 usd. Metals - Base metals continue lower, economic fears hammer prices down Base metals continued lower into the afternoon in London, with prices hammered lower by resurgent economic fears in the market.

Although metal prices recovered slightly last week as investors priced in high hopes for a forthcoming US interest rate cut, nervousness has re-established itself as the dominant sentiment over the last two days. With the US economy looking increasingly likely to enter a period of protracted slowdown, if not outright recession, investors fear demand for base metals could be curtailed dramatically.

Copper, the bellwether for base metals demand, is down by almost 6 pct today, and has given up almost 500 usd since the beginning of the week. With the falls coming despite news Grupo Mexico has threatened to shut three of its mines, and a dip in London Metal Exchange-monitored inventories today, the strength of negative sentiment is all too evident.

At 1.02 pm, LME copper for three-month delivery was trading at 6,610 usd per tonne against 6,800 usd at the close yesterday. Earlier, copper hit an intraday low of 6,580 usd.

Copper has fallen sharply today despite inventories of the red metal declining for only the second time in 17 days by 1,325 tonnes to 188,175 tonnes. Despite today's fall, the overall rise in stocks recently continues to point to slower-than expected demand for copper during the fourth quarter.

Among other metals, nickel fell to 25,850 usd per tonne, basis three months, from 26,800 usd. Aluminium for delivery in three months eased to 2,449 usd per tonne from 2,459 usd, having broken key technical resistance at the 2,500 usd mark yesterday. Zinc dipped to 2,390 usd per tonne from 2,490 usd and lead dropped to 2,850 usd per tonne from 2,954 usd, both basis three months.

Finally, three-month tin dropped to 16,350 from 16,675 usd per tonne. For delivery in three months eased to 2,449 usd per tonne from 2,459 usd, having broken key technical resistance at the 2,500 usd mark yesterday. Zinc dipped to 2,390 usd per tonne from 2,490 usd and lead dropped to 2,850 usd per tonne from 2,954 usd, both basis three months. Finally, three-month tin dropped to 16,350 from 16,675 usd per tonne.

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