US & World Daily Markets Financial Briefing 11-08-2008

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Fed's TAF to auction $25 bln, 84-day loans at 2.04% minimum bid rate

Over in the U.S., the DJIA was down 18.20 points at 11,716.20, the S&P 500 index was off 2.13 points at 1,294.19, while the Nasdaq composite index was up 4.12 points at 2,418.22, as investors paused after last week's sharp gains and as oil prices fluctuated on concerns over fighting between Russia and Georgia.

WASHINGTON - The Federal Reserve will auction $25 billion of 84-day loans at a minimum bid rate of 2.04% on Monday, August 11 under its term auction facility.
   
This is the first offering of 84-day loans under the TAF program, which is designed to relieve liquidity pressure in the short-term, inter-bank funding markets.
   
Late last month, the Fed said it would begin to offer the extended loans in addition to the 28-day loans it already offers every two weeks.  The Fed plans to conduct biweekly TAF auctions, alternating between offerings of $75 bln in 28-day loans and auctions of $25 bln in 84-day loans.
   
The Fed has been conducting TAF auctions since December, and has said it will continue to do so as long as financial conditions warrant. Sustained lower oil prices could cause the airline industry to avoid a tipping point, resulting in a profitable 2009 for most carriers, Morgan Stanley said Monday.
   
Analyst William Greene said in the past he has written that amid the current macro backdrop airlines would not become attractive investments until the industry reaches a tipping point, or when "extremely bearish" fundamentals trigger broad, acute financial distress and restructuring.

However, after updating its estimates for current oil prices ($115 per barrel and a $25 per barrel crack spread), Morgan Stanley said the probability of a tipping point event in 2009 has decreased.
   
For 2009, Morgan Stanley now forecasts profit of $1.26 a share for Continental Airlines Inc., profit of 25 cents a share for Delta Air Lines Inc., profit of 15 cents a share for JetBlue Airways Corp., profit of 42 cents a share for Southwest Airlines Co., profit of 32 cents a share for Northwest Airlines Corp., and profit of $2.78 a share for UAL Corp.
   
The brokerage said it expects "significant," upward revisions to consensus estimates in the near-term as its revised estimates are well above consensus.
   
Shares of UAL Corp. jumped 1.5% to $11.31, shares Delta Air Lines gained 1.1% to $9.22, shares of JetBlue increased 22 cents to $5.68, and shares of Northwest Airlines rose 3 cents to $11.25.
  
Meanwhile, shares of Southwest Airlines slipped 10 cents to $15.71, shares of Continental Airlines fell 2 cents to $16.43, and shares of AMR Corp. slid 4 cents to $11.20.

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Forex - Euro stays under pressure as dollar consolidates gains

LONDON - The euro was under pressure, flirting with the $1.50 level as the dollar continued its fine run from last week steady, consolidating after last week's sharp rally by the U.S. currency. But this week has not been all plain sailing for the dollar, with a rise in geopolitical concerns weighing on sentiment.

"The dollar had pushed to fresh five-month highs of $1.4910 against the euro in overnight Asian trade before retreating back to $1.5050s as oil prices rebound to $115.95 per barrel on the escalating conflict in South Ossetia," said Ashraf Laidi at CMC Markets.

The dollar pullback was broad, while sterling bounced off its 21-month lows. Comments by Klaus Liebscher, an ECB governing council member and outgoing governor of Austria's central bank, that there is "no room for complacency" on euro zone interest rates and high inflation, sparked a short recovery in the euro.

The comments conflicted with those of central bank president Jean-Claude Trichet, who surprised markets on Thursday by giving a downbeat growth outlook for the euro zone, leading markets to write off any chances the ECB might raise interest rates again soon, having increased them by a quarter-point to 4.25 percent in July.

However analysts said there is still scant possibility that euro zone interest rates will again, especially with GDP figures this week set to show growth in the 15-nation single currency zone grinding to a halt.

Peter Stoneham at Thomson IFR Markets said: "A couple of euro supportive factors helped underpin a euro bounce...however, the market appears reluctant to undo any more of the dollar's recent recovery and as such we are now seeing consolidation."

Last week the dollar rose 3 percent against the euro, and analysts now believe that the global economic outlook means the conditions are now right to sustain the U.S. currency's rally. Benedikt Germanier, currency strategist at UBS said: "We believe the dollar should hold onto its gains in the near-term, too, due to worsening growth expectations outside the US, the outlook for yields, falling commodity prices and strong capital flows."

At 1428 GMT the euro was trading at $1.4998 down from $1.5016. Elsewhere, the pound was steady after official data revealed pipeline inflationary pressures in the United Kingdom did not rise quite as quickly as markets expected in July.

The Office for National Statistics said output prices rose 0.4 percent from June and jumped 10.2 percent from a year earlier, the highest annual rate since comparable records began in 1986 but better than forecasts for a 0.6 percent monthly rise and an annual increase of 10.3 percent.

In addition, input prices have eased from the record increase seen in June, falling 0.6 percent to bring annual inflation down slightly to 30.1 percent. These figures were also slightly better than expectations for a monthly rise of 1.1 percent and an annual gain of 30.6 percent.

Paul Dales, UK economist at Capital Economics said: "While the Bank of England's Monetary Policy Committee will still be on guard for signs that the rises in pipeline prices are feeding into the high street for some months yet, there is at last some light at the end of the inflation tunnel."

At 1428 GMT, the pound was trading at 0.7817 pence from 0.7813 pounds per euro. Against the dollar, the pound fell slightly to $1.9186 from $1.9212.

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UK and European stockwatch highlights to 10:10 BST

LONDON - Southern Cross Healthcare Group Plc. marginally rose in midmorning trade on the company's latest interim management statement, which prompted Investec Securities to repeat its 'buy' recommendation and 200 pence target. Goldman Sachs has upgraded its recommendation on Bellway Plc. to 'neutral' from 'sell', pointing to the company's strong balance sheet, as part of a review of UK housebuilders in which the broker also lifted price targets across the sector, according to market sources.

Shares in XP Power Ltd. rose in midmorning trade on the back of the company's first-half figures, which saw a marginal rise in adjusted pretax profit and prompted Investec Securities to keep its 'buy' recommendation, whilst it lowered XP's target to 400 pence from 460 pence.

Investec Securities has repeated its 'buy' recommendation on BT Group Plc., whilst reducing its target to 230 pence from 300 pence, following the group's first-quarter numbers on July 31, 2008, traders said. Shares in Mapeley Ltd. fell in early deals in the wake of first-half results Monday, with Merrill Lynch keeping its 'underperform' rating in reaction, according to market sources.

HSBC Pantelakis Securities cut its target of Titan Cement Co. to 27.3 euros from 32.8 euros and kept it at 'neutral' on account of downward revisions to its EPS forecasts. Shares in Workspace Group Plc. ticked higher in early trade, after the company provided the market with its first-quarter results, which revealed a rise in revenues and prompted Altium Securities to repeat its core recommendation of 'buy'.

BAE Systems Plc. was higher early morning after the Sunday Times reported Saudi Arabia may buy 48 and up to 72 more Eurofighter Typhoons through the group, with Merrill Lynch reiterating its 'buy' stance,
market sources said.

Merrill Lynch raised its price target on shares of Bayerische Motoren Werke AG. to 50 euros per share from 40 euros and reiterated its 'buy' rating on the automaker saying that after several negatives recently BMW is positioned for a short-term rebound. RBS has initiated coverage on UCB S.A. with a 'sell' stance and a target of 22 euros, market sources said. Cheuvreux analysts upgraded Nestle SA to 'selected list' from 'outperform' with a 60 euros target after the Swiss food giant's first half results topped market expectations and management gave a reassuring outlook.

RBS has upgraded F&C Asset Management Plc. to 'hold' from 'reduce' with a target cut to 105 pence from 181 pence, market sources said. RBS has downgraded household goods group Henkel AG & Co. KGaA to 'hold' from 'buy' with a target of 28 euros, market sources said. Goldman Sachs has downgraded Experian Plc. to 'sell' from 'neutral' with a target cut to 375 pence from 421 pence, market sources said.

Shares in Straumann AG have been upgraded to 'neutral' from 'sell' at Goldman Sachs with the price target raised to 290 Swiss francs from 225 following the healthcare group's strong first-half results, according to traders. Shares in Daimler AG. were higher in pre-bourse trade as dealers pointed to speculation that the Abu Dhabi Investment Authority (ADIA) is interested in buying a large stake in the automaker, which was spurred on by a media report from Focus magazine. 

UBS has downgraded TNT NV. to 'neutral' from 'buy' with a target cut to 27 euros from 32 euros, market sources said. Shares in Aquarius Platinum Plc. have been upgraded to 'overweight' from 'neutral' at HSBC and to 'buy' from 'neutral' at UBS following the platinum miner's results last week, according to market sources 'HSBC has downgraded Marks & Spencer Plc to 'neutral' from 'overweight', according to dealers.

ING Securities downgraded F. Van Lanschot Bankiers to 'sell' from 'hold' and lowered its target to 52 euros from 60 in expectation of "challenging times ahead" for the Dutch banking group. Deutsche Bank has downgraded Swiss clothes retailer Voegele AG to 'hold' from 'buy' and cut its target to 60 Swiss francs from 115 Swiss francs following the company's first-half results, which the broker described as "disappointing". Shares in ING Groep NV have been downgraded to 'hold' from 'buy' at Citigroup with the price target reduced to 25 euros from 31 as the broker thinks prospects for further outperformance are limited, traders said.

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Asian stock market summary

JAPAN
   
The benchmark Nikkei 225 Stock Average rose 2.0 percent to end at 13,430.91, propped up by export-oriented stocks on the yen's weakness as well as a drop in oil prices that eased fears about inflation and corporate profits.
   
The dollar hit its highest level in about seven months against the yen. The broader Topix index advanced 1.6 percent to close at 1,280.00.

SOUTH KOREA
   
The Korea Composite Stock Price Index closed up 0.79 percent at 1,581.09 points, led by exporters such as LG Electronics, helped by the won's weakness, but steelmakers fell on a outlook on worries that slowing global economies would dent demand for steel products.

AUSTRALIA

The benchmark S&P/ASX 200 index ended up 0.8 percent at 5,026.1, with financial firms leading gains following a solid performance by U.S. financial stocks at the end of last week, though miners retreated on a fall in base metals prices.
   
The All Ordinaries finished up 0.6 percent at 5,069.3.

CHINA

The benchmark Shanghai Composite Index fell 5.21 percent to end at 2,470.07, the lowest closing level in 19 months, following a stronger-than-expected producer price index (PPI) reading.
   
China announced that PPI rose 10.0 percent in July from a year earlier, the fastest rate of growth since 1996. The PPI reading points to strong wholesale prices that are expected to flow on to consumer prices later.
   
Airlines and nonferrous stocks led the declines. The Shanghai A-share Index fell 5.19 percent to 2,592.49, while the Shenzhen A-share Index was down 6.58 percent at 732.42.
   
The Shanghai B-share Index lost 9.00 percent to 165.50, while the Shenzhen B-share Index fell 5.20 percent to 383.06.

TAIWAN
   
The weighted index closed up 1.62 percent at 7,325.62, as a surge in the US dollar and further declines in oil prices outweighed worries about losses at mortgage finance company Fannie Mae.
   
The bellwether technology stocks led the market higher as the extended weakness of the Taiwan dollar was seen making local electronics exporters more competitive.

HONG KONG

The Hang Seng index closed down 25.87 points or 0.12 pct at the day's low of 21,859.34, after hitting a high of 22.235.51.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed up 336.10 points or 2.22 percent at 15,503.92 and the broader 50-share S&P CNX Nifty of the National Stock Exchange closed up 2.01 percent at 4620.40 points.

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Oil prices rise near 117 dollars in early London trade as Georgia conflict halts

LONDON - Crude prices rose on Monday, nearing 117 dollars a barrel, after oil exports normally carried out via Georgian ports were halted over the weekend owing to an escalation in fighting between Georgia and
Russia.
 
New York's main contract, light sweet crude for September delivery gained 1.50 dollars to 116.70 dollars a barrel.
  
Brent North Sea crude for September delivery advanced 1.79 dollars to 115.12 dollars per barrel. The head of Azerbaijan's state oil firm had said on Saturday that exports had been halted via two Georgian ports owing to the fighting.
  
That announcement came shortly after Georgian Prime Minister Lado Gurgenidze said that Russian warplanes had staged a raid near the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, the world's second longest.
 
Georgia does not produce oil but the country is a key transit point for crude and gas exports from Azerbaijan to markets in the West.
  
On Monday, US President George W. Bush condemned the Russian military offensive against Georgia, saying the violence in South Ossetia was unacceptable and Moscow's bombing disproportionate.
  
Russia sent thousands of troops, tanks and air support into South Ossetia on Friday after Georgia launched an offensive to seize control of the province, which broke from Georgia in the early 1990s after the collapse of the Soviet Union.
  
Russia has given the separatist province diplomatic and economic support, including granting citizenship to most of its residents.

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