US & World Daily Markets Financial Briefing 10-09-2007

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Stocks higher as market waits for Fed

NEW YORK - Wall Street rebounded Monday as investors hoped that speeches from Federal Reserve officials will offer insight into the central bank's plans following a dismal employment report Friday.
   
Also lifting stocks -- particularly in the technology sector -- were signs of strength in the semiconductor industry. Intel Corp., the world's largest chip maker, boosted its third-quarter revenue outlook on stronger-than-expected chip demand, while rival Advanced Micro Devices Inc. stock rose after releasing its latest chip.
   
There's little economic data due Monday, but San Francisco Fed President Janet Yellen, Dallas Fed President Richard Fisher and Fed Governor Frederic Mishkin are slated to speak at various events. Investors will be keen to learn their perspectives on the health of the economy and for any hints as to what the central bank might do when it meets Sept. 18.
   
Atlanta Fed President Dennis Lockhart said early Monday investors should consider Friday's unemployment report alongside a mostly strong batch of retail sales reports seen recently. And over the weekend, Philadelphia Fed Chief Charles Plosser said in reference to Friday's payroll number that the Fed's Open Market Committee doesn't make rate decisions based on any one number, according to Dow Jones Newswires.
   
For many investors, a rate cut after more than a year of the Fed standing pat on rates is inevitable. The debate, as they see it, is whether the Fed will reduce rates by a quarter percentage point or a half percentage point.
   
The Dow Jones industrial average rose 43.41, or 0.33 percent, to 13,156.79.
   
Broader stock indexes also gained. The Standard & Poor's 500 index rose 2.66, or 0.18 percent, 1,456.21, and the technology-dominated Nasdaq composite index was up 7.19, or 0.28 percent, at 2,572.89.

The Russell 2000 index of smaller companies was up 3.60, or 0.46 percent, at 779.39. In afternoon trading, Britain's FTSE 100 was up 0.28 percent, Germany's DAX index was down 0.12 percent, and France's CAC-40 was up 0.19 percent.
   
The market appeared to be steadying itself after a sell-off on the jobs report that sent the Dow down 250 points. While some investors had hoped for weakness in the report to help the Federal Reserve justify cutting interest rates when it meets next week, the market was stunned by a loss in jobs when a gain had been expected.
   
Bonds were little changed, with the yield on the benchmark 10-year Treasury note at 4.37 percent, the same as late Friday. Light, sweet crude fell 66 cents to $76.04 per barrel on the New York Mercantile Exchange.
       
The rise in the stock market Monday follows a week in which the major indexes all lost more than 1 percent due to Friday's retrenchment. The Labor Department's report that August payrolls fell, marking the first monthly decline in four years, further depressed a market already uneasy about a lackluster housing market, tightening availability of credit and a rise in mortgage defaults. The drop in payrolls stirred concerns of a recession.
   
With consumer spending accounting for about two-thirds of economic activity, Wall Street is concerned about any drop in employment that would make consumers hesitant to spend.
   
Giving technology stocks a boost, Intel rose 38 cents to $25.85 after raising its sales outlook, and Advanced Micro Devices rose 39 cents, or 3 percent, to $13, after releasing its newest microprocessor.
   
Also, Apple Inc. rose nearly 3 percent after selling its one millionth iPhone on Sunday.
   
The market absorbed more news of fallout from mortgage failures. Countrywide Financial Corp. said after the closing bell Friday it would cut as many as 12,000 jobs -- up to 20 percent of it work force -- as the mortgage lender tries to ride out upheaval in the mortgage industry. The company expects new mortgages to fall 25 percent next year.
   
Countrywide fell 51 cents, or 3 percent, to $17.70.

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Yen softens on profit taking, delayed reaction to weak GDP data

LONDON - The Japanese yen softened against other major currencies as investors took profits on the strong gains made since last week, as well as due to a delayed reaction to weak Japanese GDP figures.
   
The yen rose strongly last week on risk aversion after woeful US jobs data scared markets into expecting the worse, including a recession in the US which could derail global growth. The yen, traditionally used to fund risky trades, was boosted, particularly against the dollar. Investors now seem to be taking profits on some of those gains.
   
At the same time, weak Japanese GDP, which fell by a quarterly 0.3 pct in the second quarter, is also likely to blame for the yen's retreat.
   
"It would appear that the Asian session was more preoccupied with the falling equity markets and the associated flight out of carry trades than the contraction in Japanese economic growth during the second quarter," said Peter Stoneham at IFR Markets.
   
"Into European (trading) the focus looks to have changed with the poor Japanese GDP data finally having a negative impact on the yen," said Stoneham.
   
This has caused the yen to weaken mostly against the dollar, which slumped on the poor US jobs report on Friday, and gave traders an opportunity to buy back into the dollar.
   
Against all other currencies, however, the dollar remained weak on the assumption that the Federal Reserve is going to cut rates at its September 18 meeting, if not before.
   
"The jobs data has now shifted the focus from whether the Fed will cut on September 18 to what magnitude the cut will be," said Mitul Kotecha at Calyon.
   
Kotecha noted that the market is looking for the Fed to react with aggressive rate cuts, possibly by 50 basis points this month alone.
       
Meanwhile, both the euro and the pound remained buoyant against the dollar and yen, with economic data largely ignored in favour of the larger topics of risk aversion.
   
French industrial production rose a strong 1.3 pct from June to July, a reversal of the 0.6 pct drop in the previous month. In the UK, producer prices remained benign, with a 0.6 pct drop in input prices and a modest 0.1 pct monthly gain in output prices in August.

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Euroshares flat midday, ahead of Wall St open; Philips outperforms

LONDON - Europe's leading exchanges were flat midday, with investors keeping on the sidelines after last week's disappointing US jobs report and ahead of an expected muted open on Wall Street, although Philips
extended gains from the morning session after the release of its "Vision 2010" plan.
   
At 12.46 pm, the Dow Jones STOXX 50 was 0.58 points, or 0.02 pct, lower at 3,683.98, as the STOXX 600 was 0.44 points, or 0.12 pct, lower at 365.14.
   
Philips rose 3.67 pct as the electronics group said it expects to more than double its per-share profit from EBITA by 2010 under its "Vision 2010" plan unveiled today. Philips estimates the new plan will deliver cost savings of 150-200 mln eur.
   
In the banking sector, the battle over ABN Amro was centre-stage again following a note by brokerage Kempen and several news reports over the weekend, which suggested the RBS-led consortium may lower its bid for the Dutch bank.
   
In the note entitled 'ABN Amro - Bets Off?', Kempen analyst Ryan Plaecek cited press speculation that shareholders of both Barclays, which is also bidding for ABN Amro, and RBS are pressuring the banks to reduce or abandon their bids.
   
He added that there is also talk that Merrill Lynch -- the main underwriter of the RBS-led bid -- is facing difficulties of its own in digesting the financing it has underwritten. Shares in RBS fell 0.28 pct, while Barclays shed 0.94 pct and ABN Amro was 1.39 pct lower.
   
Insurers were in focus as broker Citigroup said the sector should weather the US sub-prime mortgage crisis better than its banking peers. The broker's top picks in the sector are Axa, Prudential, Legal & General, Allianz, Zurich Financial Services, Swiss Re, Royal & Sun Alliance and ING.
   
In another note on the sector, Credit Suisse said investors should focus on European companies with a strong property and casualty insurance operations, while shifting away from groups with a US life insurance picks.
   
Munich Re, Amlin and Unipol are the broker's top picks.     

In other broker action, the chemicals industry hit the spotlight as Deutsche Bank reiterated its 'buy' stance on shares in Bayer, Linde, BASF and Syngenta, which it named its 'top picks', and said the credit crunch may allow some corporates to better compete with private equity on the M&A front.
   
The broker said companies will be able to undertake acquisitions for more reasonable prices, if private equity is discouraged by a potential slowdown in the US.
   
Bayer added 0.98 pct, while BASF gained 0.16 pct and Syngenta charged 1.54 pct ahead. Linde shed 0.26 pct.
   
Shares in Porsche were trading 1.08 pct lower following reports that the group will not hike its stake in Volkswagen until spring 2008.
       
Meanwhile, AP Moller-Maersk AS lost 1.29 pct, as SEB Markets said the group's Maersk Line is losing US market share.
       
Sustainable energy stocks rose following a report Iberenova, the world's largest wind farm company, will raise up to 4 bln eur when it is floated by parent company Iberdrola SA. The Independent on Sunday reported Iberdrola hopes to list Iberenova division, which analysts say will be valued at between 16 bln eur and 20 bln eur, next month in Madrid.
   
EDF Energies Nouvelles was up 2.66 pct, while Sechilienne-Sidec added 1.92 pct and in Germany, Solon was 0.96 pct higher with Solarworld adding 0.62 pct.

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Asia tumbles as US jobs report revives recession fear; Japan GDP weighs
 
SINGAPORE - Stock markets across Asia tumbled Monday after a far weaker-than-expected US jobs report on Friday revived fears that the problems in the subprime mortgage sector have begun to hurt the broader economy, a key market for Asian goods.
   
A weaker-than-expected GDP report from Japan and renewed yen strength brought further pressure. The Nikkei 225 index closed down 2.2 pct at 15,764.97, the broader Topix fell 2 pct at 1,525.22.
   
In Seoul, the KOSPI lost 2.6 pct to 1,835.87. Heavy programmed selling pressure from the simultaneous expiry of futures and options contracts for the KOSPI and options contracts for individual stocks -- so-called triple-switching -- added to the market's downturn.
   
Japan's latest economic indicator also disappointed investors Monday. The revised gross domestic product data for the second quarter showed a 0.3 pct drop from the first quarter, compared with the preliminary reading of a 0.1 pct rise. It was the first contraction in Japanese growth in three quarters after the government revised past data to reflect a change in its methodology for seasonal adjustment.
   
The report further weakens the Bank of Japan's case for raising rates in September, according to Norio Miyagawa, an economist at Shinko Research Institute.
   
"A Bank of Japan interest rate hike in September was already at risk because of the subprime trouble and the increasing possibility that the Fed will lower rates. Today's revised GDP confirms that the central bank will leave rates steady this month," said Miyagawa.
   
In Sydney, the S&P/ASX 200 closed down 1.4 pct at 6,191.2, while the All Ordinaries index fell 1.4 pct to 6,209.6. Miners, which rallied last week on talk that BHP Billiton Ltd had teamed up with Brazil's CVRD in preparing a joint bid for Rio Tinto Ltd, the world's third largest miner, fell across the board. All three companies declined to comment on the speculation. BHP Billiton fell 3.7 pct to 38.30 aud, while Rio Tinto lost 2.7 pct to 98.28 aud.  

China A-shares closed higher after shares rebounded in late trade, shrugging off early losses due to warnings from the securities watchdog of heightened market risk, and inflation concerns. In a statement posted on the website of China Securities Regulatory Commission (CSRC), the securities watchdog said, "there is mounting risk in the market, and both internal and external factors are likely to cause large volatilities in the stock market."
   
The benchmark Shanghai Composite Index closed up 1.5 pct at 5,355.29. The Shanghai A-share Index ended up 1.5 pct to 5,622.79 and the Shenzhen A-share Index was up 1.5 pct at 1,553.92. The Shanghai B-share Index rose 1.3 pct to 337.33 and the Shenzhen B-share Index finished up 1.8 pct at 746.21.
   
Hong Kong's Hang Seng index closed up 17.09 points at 23,999.7.
   
Elsewhere, Singapore's Straits Times Index fell 1.4 pct at 3,441.87, Malaysia's Kuala Lumpur Composite Index slipped 1.1 pct at 1,290.70.    

The Philippines composite index fell 1.6 pct at 3,281.08 on domestic political concerns as investors were hesitant to move ahead of a graft court's verdict Wednesday on former President Joseph Estrada's corruption trial.
   
In Jakarta, the composite index closed down 1.4 pct at 2,209.64. The Taiwanese Taiex was down 0.9 pct at 8,937.58. The Stock Exchange of Thailand (SET) composite index fell 1 pct to 801.46.

Indian shares closed flat, paring earlier losses, boosted by oil refiner Reliance Industries Ltd's acquisition of the assets of Malaysia-based Hualon Corp and on buying in shares of select blue-chip companies.
   
The Bombay Stock Exchange's benchmark Sensex rose 0.04 pct or 6.41 points to 15,596.83, while the National Stock Exchange's S&P CNX Nifty lost 0.04 pct to 4,507.85 points. Among the BSE 30, 16 shares gained, 13 lost and one closed unchanged. In the broader market 1,649 shares advanced, 1,095 declined and 48 were unchanged.
   
Buying was seen in blue-chips that cater to domestic demand, with uncertainty looming large over the strength of the US economy. Meanwhile RIL said it expects the Hualon acquisition to increase group revenues by about 1 bln usd.

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Gold continues higher on safe haven buying as dollar languishes

LONDON - Gold was higher as the dollar posted further losses against the euro after Friday's weak US economic data fuelled expectations for a cut in interest rates, with safe haven demand from investors also fuelling gains.
   
At 2.25 pm, spot gold was trading at 703.60 usd an ounce against 700.30 usd in late New York trade Friday.
   
Buyers have been flocking to gold as the dollar continued to weaken and amid fluctuations in the equity markets. The metal is typically seen as a safe haven for investors in times of volatility elsewhere.
   
"Buoyed by fresh rate cut-anticipatory declines in the US dollar, bullion buyers started to come out in growing numbers, showing that when it comes to a potential crisis of confidence, few substitutes to the metal remain viable options," said Jon Nadler, an analyst at Kitco Bullion Dealers.
   
The precious metal soared to a 16-month high above 700 usd on Friday after US payrolls data came in much worse than expected, knocking the dollar to fresh lows against the euro as expectations for a Fed rate cut were buoyed.
   
Among other precious metals, platinum eased to 1,289 usd per ounce against 1,294 usd per ounce, while palladium was relatively steady at 333 usd against 335 usd. Silver was flat at 12.53 usd.

The base metals complex continued to fluctuate in a narrow range as market players remained fearful of a possible recession in the US dampening demand across the board.
   
While the metals remain well supported by their own fundamentals, the complex continues to eye the broader economy for clues of future demand during the ongoing financial market turmoil fostered by the US subprime debacle.
   
The complex was hit hard on Friday by news that US employment figures had fallen for the first time in over four years, with speculation this was the first concrete sign of the broader economy being contaminated by subprime spillover.
    
At 2.12 pm, copper for three-month delivery was trading at 7,215 usd, against 7,170 usd at the close on Friday, while nickel traded down  at 26,850 usd against 27,000 usd.
   
Copper, which tends to lead the way in the base metals complex, remains well supported by its own fundamentals. Strike fears out of Latin America are giving prices a boost, as supply remains tight in the market.
   
Management at Southern Copper's Ilo smelter and Cuajone and Toquepala mines are to hold to hold talks with unions today in an effort to avoid a strike due to start on Sept 12.
   
Grupo Mexico, Southern Copper's parent company, is already dealing with a strike at its giant Cananea copper mine.
   
In other base metals, aluminium dipped to 2,433 usd against 2,447 usd, while tin crept higher to 14,800 usd from 14,650 usd. Meanwhile, zinc fell to 2,722 usd a tonne versus 2,775 usd at the close on Friday, while lead prices were up slighty at 2,885 usd a tonne against 2,875 usd.

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