US & World Daily Markets Financial Briefing 12-03-2007

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Stocks Pause on Subprime News

NEW YORK - Stocks showed little movement Monday as further cracks appeared in the subprime lending sector, stirring concerns that a blowup among companies making loans to consumers with weak credit will spill over into other industries.
   
A warning from New Century Financial Corp. early Monday about its financial woes overshadowed merger news, which often gives a boost to enthusiasm on Wall Street.
   
The renewed concerns about subprime lenders follow a relatively successful week on Wall Street. Stocks etched out gains last week U.S. and overseas markets managed to regain some sense of stability following a sharp pullback that began Feb. 27. Even amid the gains seen last week, however, concerns about subprime lenders weighed on investors.
   
In midmorning trading, the Dow Jones industrial average fell 5.60, or 0.05 percent, to 12,270.72.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 2.06, or 0.15 percent, to 1,400.79, and the Nasdaq composite index rose 1.34, or 0.06 percent, to 2,288.89. Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 199.2 million shares.
   
The Russell 2000 index of smaller companies fell 0.49, or 0.06 percent, to 784.63.

Bonds rose amid the concerns about subprime lenders; the yield on the benchmark 10-year Treasury note falling to 4.55 percent from 4.59 percent late Friday. The dollar was mixed against other major currencies, while gold prices fell.
   
Light, sweet crude fell 87 cents to $59.18 per barrel on the New York Mercantile Exchange.

Overseas, in afternoon trading, Britain's FTSE 100 fell 0.28 percent, Germany's DAX index fell 0.43 percent, and France's CAC-40 0.94 percent.

Stocks in focus
   
New Century warned in a filing with the Securities and Exchange Commission that all its lenders had cut off short-term funding or announced plans to do so. New Century said it would need about $8.4 billion should it be forced to repurchase all outstanding mortgage loans under its financial agreements. The company said it doesn't have sufficient liquidity to meet its obligations for repurchasing mortgages.
   
Trading in New Century shares was halted before the opening bell Monday with news pending.
   
Other subprime lenders fell. Fremont General fell 81 cents, or 10.1 percent, to $7.22, while Novastar Financial Inc. fell 43 cents, or 8.2 percent, to $4.81.
   
Unease about the subprime market has been growing as investors have become increasingly concerned about the ability of some homeowners with spotty credit to continue to pay their mortgages. Many of the mortgages came with low teaser rates and a cooling housing market has made it more difficult for people to refinance to extract cash from equity in their homes.
   
Among the buyout news lending support to stocks Monday is word that private-equity company Kohlberg Kravis Roberts & Co. struck a deal to acquire discount retailer Dollar General Corp. for about $6.87 billion. Dollar General jumped $4.50, or 26.8 percent, to $21.28. The stock's 52 week high had been $18.32.
   
Schering-Plough Inc. rose 11 cents to $23.96 after agreeing to acquire the Organon BioSciences BV pharmaceuticals business of Akzo Nobel NV, a maker of chemicals and coatings, for $14.5 billion.
   
Boeing Co., one of the 30 stocks that make up the Dow industrials, said Kuwait-based Alafco Aviation Lease and Finance Co. agreed to purchase 18 airplanes with a list value of $2.26 billion. The deal includes 12 787-8 Dreamliner airplanes and six 737-800s. Boeing rose 44 cents to $89.95.
   
Procter & Gamble Co., the consumer products company, said it struck a deal to sell its Western European tissue and towel business to SCA, which makes paper and other products, for about $671.9 million. P&G, also a Dow component, advanced 9 cents to $62.25.

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Yen rallies, pound falls as investors unwind carry trades

LONDON - The yen strengthened and the pound was sold off as investors unwind their carry trades -- where money is borrowed in low-yielding countries to be invested in economies with higher returns.
   
Although the yen was weaker this morning after robust US data on Friday, investors are worried about the level of risk in the global economy, particularly after the Chinese trade surplus came in above expectations. Exports for February totaled 82.1 bln usd, up a stunning 51.7 pct year-on-year.
   
"Strong Chinese exports suggest the economy isn't cooling off there and have sparked fears that the (Chinese) government might try to curb future investments to keep growth in check," said Hans Redeker at BNP Paribas.
   
Redeker noted this would weigh on commodity prices, raising risk in the global economy and making carry trades more expensive.
   
Investors are worried that this sort of domino-effect should spiral out of control.
   
The yen is sold mostly in carry trades, so it has gained the most from the unwinding of these trades. The pound and Australian and New Zealand dollars were hurt the most as they have been traditionally bought in search of higher yields.
   
The euro also rose against the dollar as confidence in the US economy remains shaky.
   
"The dollar is also under selling pressure as the jobs data on Friday is not as strong as the headline figure suggested," as a fall in unemployment in February was caused by a fall in the participation rate, according to Redeker, who noted jobs growth may even turn to negative in coming months.
   
With little in terms of data flow today, investors are expected to focus on positioning themselves for risk reassessments and ahead of data later this week.   

The biggest test will be US CPI on Friday, said analysts, although any sell-off in equities and risk assets will likely be a big mover, triggering more unwinding of carry trades.

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Top Stories in Europe at 11.05 GMT

Paris - Akzo Nobel NV said it will sell its Organon Biosciences NV (OBS) unit to Schering-Plough Corp for 11 bln eur in cash. As a result of the sale, Akzo Nobel has cancelled Organon's planned IPO on Euronext Amsterdam.

Societe Generale is facing a class action suit from Canadian life insurer Manulife Financial, which is demanding 1 bln eur compensation from the French banking group for its presumed role in the downfall of Portus Alternative Asset Management in 2005. Manulife, which lost a total of 246 mln cad after the collapse of the fund, is accusing SocGen of failing to carry out the necessary checks on the hedge fund before selling the product to its clients.

Zurich - Swisscom AG said it is launching an all-cash friendly offer for 100 pct of Italy's Fastweb, priced at 47 eur per share up to a maximum total sum of 3.7 bln eur. "The transaction has the potential to boost Swisscom's revenues and EBITDA by about one fifth," and generate further growth thereafter, the group said.

London - Smith & Nephew Plc (S&N) has agreed to buy private-owned Swiss group Plus Orthopedics Holding AG for 889 mln usd in cash, making the British company the fourth biggest maker of replacement hips and knees in the world.
 
The addition of the Plus business doubles S&N's share of the European reconstruction, or replacement joint market. On global terms, it gives the company a 12 pct market share, leapfrogging US peer Biomet to take fourth position.

UK pubs operator Punch Taverns PLC said Adrian Fawcett is stepping down as chief operating officer on March 30 and is leaving the company to join General Healthcare Group, a UK private hospital business, as its chief executive.
 
The group said structures within its Leased and Managed businesses are being aligned. Deborah Kemp will replace Adrian Fawcett as managing director of the leased business.

UK raw materials costs recorded their biggest rise in seven months during February, driven by higher oil prices while further evidence emerged that manufacturers have been able to pass on some of the recent high costs into their prices.
 
The Office for National Statistics revealed that input prices on a seasonally adjusted basis jumped by 1.3 pct in February from January. This is the biggest monthly rise since July last year and reflects the rise in crude oil prices seen during the month.

Frankfurt - Linde Group AG said it has sold the components business of its subsidiary BOC Edwards to private equity company CCMP Capital for around 685 mln eur.
 
The contract states that if CCMP Capital is successful in developing the business and then exiting its investment -- whether through an IPO or a trade sale to a strategic investor -- Linde will receive an additional payment of up to 65 mln eur.

Allianz SE may enter India's asset management and banking sector, following in the footsteps of peers such as Deutsche Bank AG and Citigroup Inc, daily Handelsblatt reported.
 
"We are examining the (...) market and are in talks with regulators", the newspaper cited board member Werner Zedelius as saying, adding that the German insurer is especially interested in private banking.

Amsterdam - Dutch chemicals distribution group Univar NV said its US subsidiary Univar USA has agreed to acquire Chemcentral Corp of the US for about 600 mln usd in cash, including assumed debt.
 
Chemcentral, established in 1926, is a privately held company based near Chicago. It had 2006 revenues of 1.4 bln usd and EBITDA of about 70 mln, making it one of the leading industrial chemicals distributors in the US, Univar said.

Royal Philips Electronics NV said it has sold about 887 mln shares in Taiwan Semiconductor Manufacturing Co Ltd (TSMC) to long-term financial investors in Taiwan. Philips received around 1.3 bln eur in proceeds for the shares, resulting in a non-taxable gain of some 725 mln eur, to be taken in the first quarter of 2007.

Stockholm - Svenska Cellulosa AB said it is to acquire Procter & Gamble's entire European tissue operations for 512 mln eur in cash. SCA said the acquisition will give it access to additional established high quality brands, and is an important step in improving profitability within its European consumer tissue operations.

Suez unit Suez Environnement will concentrate on organic growth, but plans to invest 4-4.5 bln eur in acquisitions "provided they meet the group's financial criteria", chief executive Jean-Louis Chaussade told Agence France Presse during a visit to the United Arab Emirates.
 
Chaussade said the group's debt has stabilised and it is now embarking on a new phase of expansion where it will seek to "maintain a balance between growth and a certain number of financial ratios."

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Asian shares close higher on positive news, optimism for outlook

HONG KONG - Shares across the Asia-Pacific region closed higher on a range of positive news within the markets and a more optimistic mood after a rise on Wall Street on Friday.
   
Tokyo shares finished higher, as the softer yen and the upward revision of the GDP figure for the fourth quarter of last year fuelled investors' confidence in the outlook for the economy.
   
Relatively firm performances on Wall Street Friday and at other East Asian markets today encouraged investors by easing fears of a global meltdown in stock markets in the near future.
   
The blue-chip Nikkei 225 Stock Average closed 128.35 points or 0.75 pct higher at 17,292.39, off a high of 17,325.45, extending its winning streak to three sessions.
   
The TOPIX index of all first-section issues was up 11.05 points or 0.64 pct at 1,741.36, off a high of 1,747.55.
   
An equities official at a brokerage firm said: "Expectations of higher share prices are generally strong, while there is still caution about the US economic outlook." He expects the Nikkei to stay in a narrow trading range in the near term because it demonstrated top-heaviness today, despite the mood of investors.
   
Australian shares closed higher as investor sentiment was supported by Friday's nonfarm payrolls report in the US which showed a strong 97,000 employment gain in February, lifting the Dow industrials and regional equity markets.
   
Australian investors remain cautious after the recent volatility within global equities which should keep local indices rangebound over the week ahead. The S&P/ASX 200 ended up 60.8 points or 1.04 pct at the day's high of 5,891.0.
   
Hong Kong shares were much firmer in afternoon trade, led by property stocks on expectations that the government will fetch firm prices for three plots of residential land up for auction tomorrow.
   
Market was also buoyed by interest in select mainland China stocks, notably China Mobile and China Unicom, with gains made by the Tokyo and other bourses in the region also providing underlying support. At 3.25 pm the Hang Seng Index was up 249.78 points or 1.31 pct at 19,384.66.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on follow-through interest amid hopes for new fund inflows resulting from the expansion of the QFII program, with energy and steel plays in favor.
   
The Shanghai A-share Index was up 17.67 points or 0.57 pct to 3,104.68 and the Shenzhen A-share Index was up 9.77 points or 1.23 pct at 803.43.
   
Seoul shares closed sharply higher as foreign investors actively picked up large cap IT and financial stocks. Dealers said gains in major Asian markets also added to the momentum.  The KOSPI index closed up 17.75 points or 1.25 pct at 1,441.33, after moving between 1,429.68 and 1,441.83.

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Nickel hits fresh high, copper rises on strong Chinese demand

LONDON - Nickel surged to a fresh all-time high amid critically low stocks and a high number of cancelled warrants, which represent pledges to take delivery of the metal.
   
High demand also helped push copper prices higher, as the market paid attention to a fresh report from China, which showed a rise in imports.
   
Nickel continues "to outperform on the rallies and losses are being minimised due to the fact that supply concerns and low stocks remain very much to the fore," said UBS analyst, Robin Bhar.
   
"We believe that base metals should be well supported by trade interest as the peak demand season moves into full swing."
   
Although nickel stocks rose 78 tonnes to 3,948 tonnes, the amount available to the market is just 2,664 tonnes -- less than a day's worth of global consumption.
   
At 12.20 pm, LME nickel for 3-month delivery was at 43,650 usd a tonne, up from Friday's close of 42,400 usd.
   
Bhar added that Chinese customs data was "encouraging" for copper prices. China, the world's largest copper consumer, imported some 240,000 tonnes of refined copper in February compared with 229,000 in January. Encouragingly, imports were higher despite fewer business days in the month as the week-long Chinese Lunar Year celebrations shaved a few days from February.
   
Stocks stored in LME warehouses were also supportive. Inventories of the metal fell 1,550 tonnes to 201,025 tonnes, said the LME in a daily report. Copper was up at 6,210 against 6,130 usd seen at Friday's close.
   
In other metals, tin was at 13,750 usd a tonne against 13,650 usd, aluminium was at 2,745 usd against 2,718 usd, zinc was at 3,285 usd against 3,260 usd, while lead was at 1,850 usd against 1,772 usd.

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