US & World Daily Markets Financial Briefing 12-09-2007

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Stocks flat after Tuesday's substantial gains

NEW YORK - Stocks tottered in search of a direction Wednesday as investors had little news to help them extend the previous session's sharp gains.
   
Many investors were adjusting their positions while they waited to see what the Federal Reserve will do next Tuesday, when the central bank meets to discuss interest rates. A lowering of the federal funds rate by a quarter percentage point is widely expected.
   
Trading has been marked by sharp volatility in recent weeks as investors search for a sense of the economy's strength amid an ongoing housing slump and credit market problems.
   
The Dow Jones industrial average fell 7.80, or 0.06 percent, to 13,300.59 after rising 180 points on Tuesday.
   
Broader stock indexes were mixed. The Standard & Poor's 500 index futures fell 0.44, or 0.03 percent, to 1,471.05, while the Nasdaq composite index rose 2.83, or 0.11 percent, to 2,600.30.
   
Bond prices rose as investors stockpiled secure government issues. The yield on the 10-year Treasury note, which moves opposite its price, dipped to 4.34 percent from 4.37 percent late Tuesday.
   
On Tuesday, the market rallied as investors grew more optimistic about a rate cut. But overseas equity markets didn't follow suit on Wednesday.
   
In Europe, Britain's FTSE 100 slipped 0.36 percent, Germany's DAX index fell 0.26 percent, and France's CAC-40 lost 0.01 percent.
   
Meanwhile, the U.S. dollar continued its slide against the euro, hitting a record low early before clawing back some ground. The dollar was also weaker against the yen, but higher versus the pound. Gold prices rose.
   
Commodity prices in several markets hovered at record highs on Wednesday ahead of the weekly U.S. inventory report. Oil prices fell 3 cents to $78.20 a barrel, after closing at a record $78.23 Tuesday. Wheat prices finished just shy of $9 a bushel on Tuesday -- an all-time peak -- up from about $5 a bushel in May.
   
In corporate news, Texas Instruments Inc., world's largest maker of chips used in cellular phones, fell 62 cents to $35.11 after offering a third-quarter outlook late Tuesday that fell below Street expectations.

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Euro hits highs against dollar, pound as rate outlooks diverge

LONDON - The euro continued to hit a series of fresh all-time highs against the dollar and climbed to a 16-week high against the pound as investors bet that the European Central Bank could still raise interest rates.  
   
Yesterday European Central Bank president Jean-Claude Trichet told the European Parliament that euro zone monetary policy is still on the "accommodative side" - boosting expectations that interest rates could still go up despite the turmoil in the credit markets.
   
"While it may take a while, the next policy move from the ECB will most likely be a tightening," said Simon Derrick, currency strategist at Bank of New York.
     
Earlier this morning, firm euro zone industrial production figures - showing output was up a monthly 0.6 pct in July and 3.7 pct year-on-year - added to the euro's momentum.
   
Meanwhile a statement by Bank of England governor Mervyn King defending the central bank's arms-length approach to the instability sweeping the world's financial markets weighed on the pound.
  
King said that while the turmoil in the financial markets has "clouded" the UK economic outlook and that it is too soon to quantify the economic impact of higher short-term borrowing costs, he said it should not pose any long-term problems if managed well.
   
While there was no evidence in the statement that an interest rate cut is on the cards, analysts said it made the possibility of a further hike very unlikely.

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Euroshares lower midday in cautious trade after solid gains seen yesterday

LONDON  - Europe's leading exchanges were lower midday as stellar gains by some blue chips were easily offset by falls in others as a result of negative newsflow, and as investors remained cautious on fears of a US recession, with political news from Japan and Russia adding to today's uncertainty.
   
At 12.17 pm, the Dow Jones STOXX 50 fell 17.77 points, or 0.48 pct, to 3702.29 and the STOXX 600 was 1.13 points, or 0.31 pct, lower at 367.28.
   
JP Morgan named Vodafone Group, Telefonica and Deutsche Telekom as its top picks and said they were offering a resilient outlook, adding that aggregate cash flow forecasts for the sector are well supported.
   
Merrill Lynch also highlighted the solid credit standing of the sector compared to the market. Vodafone gained 1.04 pct, as Telefonica added 1.27 pct and Deutsche Telekom rose 0.97 pct.
   
France's Bouygues surged 2.91 pct after the CEO of Egyptian mobile phone operator Orascom, said his company would be interested in buying the group's Bouygues Telecom unit if it were put up for sale.
   
Meanwhile, the airline industry was suffering. Scandinavian airline group SAS lost 2.62 pct after authorities grounded all Bombardier Dash8-400 aircraft in the wake of a second SAS crash in less than a week caused by the aircraft's landing gear.
      
In the most recent incident a SAS Dash 8-400 from Copenhagen to Palanga (Lithuania) crash landed at Vilnius airport overnight after being diverted due to technical problems.
   
Deutsche Lufthansa was the sharpest faller on the DAX, down 2.87 pct, after Morgan Stanley double-downgraded the stock to 'underweight' from 'overweight', while reiterating its 'cautious' view on the sector.
   
The broker equally cut its stance on Air France-KLM to 'equal-weight' from 'overweight' and shares fell 2.70 pct. In a note to clients, the broker said it sees further revenue headwinds ahead for European network airlines, and also said it prefers low cost carriers such as easyJet.
      
In the automotive sector, the IAA car show provided further news.  BMW fell 1.28 pct, with traders pointing to its high exposure to the dollar and comments made yesterday at the IAA car show, which indicate that the group is unlikely to present a strategic review any time soon.
   
Shares in Continental AG gained 1.95 pct as dealers said vague rumours were surfacing that peer Michelin might raise its full-year forecasts and also cited comments made today about the company's VDO unit.
   
Also in Germany, Fresenius Medical Care charged 2.90 pct ahead, after the US Food and Drug Administration said that current guidelines on erythropoetin (EPO) usage were appropriate making it further unlikely that use of the drug will be limited beyond current restrictions in the US.
   
In earnings news, Banco Popolare lost 1.58 pct following the release late yesterday of a disappointing and complex set of first-half results, which prompted domestic broker Intermonte to cut its target to 16.8 eur.
   
And UBI Banca added 2.90 pct as the bank released consensus-beating second-quarter results with net profit at 195.4 mln eur compared with market expectations of 185 mln eur, which however implies a fall from a pro forma net profit of 249.7 mln seen a year earlier. The bank said it included 221 mln eur of integration costs relating to redundancies and a write-off of hardware and software in the results.
   
In Paris, JCDecaux rose 4.17 pct after the group released first-half net profit 7.3 pct higher at 114.1 mln eur, beating analyst estimates and confirmed its full-year organic sales growth forecast of between 7 and 8 pct.

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Asian markets end mixed on Japan PM Abe's resignation

SINGAPORE - Stock markets across Asia ended mixed Wednesday with Japan's Nikkei 225 reversing early gains on growing political uncertainty after Prime Minister Shinzo Abe surprised investors by stepping down.
   
The blue-chip Nikkei 225 Stock Average closed down 0.5 pct at 15,797.60 after rising to as high as 16,032.26 during the session. The broader TOPIX index edged down 0.3 pct to 1,528.27.
   
Abe offered his resignation, saying the government needs a "new direction" following a series of scandals surrounding his cabinet and the loss of majority seats in a recent upper house election.
   
The move fuelled stock market fears of a political deadlock in the near-term and slower progress in implementing Japan's economic reforms. There are fears about how foreign investors -- who accounted for the majority of the market turnover in recent years -- will react to Abe's resignation and the appointment of a new leader.
   
Abe had been in a fight for his political life as the resurgent opposition tried to block his reforms as well as legislation to extend a controversial military mission providing refuelling support to US-led operations in
Afghanistan.
   
Hong Kong's Hang Seng Index was up 1.5 pct at a record 24,310.14, led by sharp gains in property stocks amid growing hopes for a rate cut in the US next week.
   
In Sydney, the S&P/ASX 200 closed down 0.2 pct at 6,220.3, while the All Ordinaries index fell 0.2 pct to 6,236.0.
   
China's benchmark Shanghai Composite Index ended the day up 1.2 pct at 5,172.63. The Shanghai A-share Index rose 1.2 pct to 5,430.76 and the Shenzhen A-share Index was up 1.5 pct at 1,492.74. The Shanghai B-share Index rose 0.7 pct to 327.97 and the Shenzhen B-share Index was up 1.2 pct at 728.35.
   
South Korean shares also closed sharply lower as investors scrambled to cut their positions amid fears of massive programmed-selling pressure arising from the triple-witching tomorrow, when many of the options and futures contracts switch to new contracts. The KOSPI closed down 1.8 pct at 1,813.52
   
In Philippines, the composite closed up 1.2 pct at 3,307.60 after deposed president Joseph Estrada was found guilty of plunder by a corruption court at the end of a six-year trial.
  
Elsewhere in the region, the Singapore Straits Times Index rose 0.3 pct to 3,506.09, Malaysia's Kuala Lumpur Composite fell 0.39 point to 1,285.94, Indonesia's Jakarta index closed down 0.1 pct at 2,209.93 and the Taiwanese Taiex was up 0.2 pct at 9,018.12.

Indian shares closed lower as disappointing Indian industrial output data offset gains from heavy buying in shares of motorcycle maker Bajaj Auto Ltd and energy giant Reliance Industries Ltd.
 
The Bombay Stock Exchange's benchmark Sensex fell 0.24 pct or 37.41 points to 15,505.36, while the National Stock Exchange's S&P CNX Nifty was unchanged at 4,496.85 points. Among the BSE 30, 6 shares advanced and 24 declined. In the broader market 1,541 gained, 1,157 fell and 54 were unchanged.

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Copper continues lower as investors take profits, strike threats ease

LONDON - Copper stayed lower in early afternoon trade as investors took profits after yesterday's gains, with rising stockpiles and the easing of strike threats in Peru also depressing sentiment.
   
"After the extended rally seen on the run up to the close last night, prices have begun to take stock and profit taking has been in abundance from the beginning of the premarket session," said analysts at RBC Capital Markets.  "Stock reporting rime showed net inflows for copper, aluminium and nickel, and outflows for the rest of the complex."
   
At 1.10 pm, copper for three-month delivery was trading at 7,401 usd against 7,475 usd at the close yesterday.
   
News that workers at Southern Copper Corp have called off a strike due for today after the company agreed to restart wage negotiations is also weighing on prices, analysts said.
   
Strike-related news had contributed strongly to yesterday's gains. Southern Copper is the world's fifth largest producer of copper. Its Ilo smelter and Cuajone and Toquepala mines have been plagued with strike action this year.
   
Meanwhile the LME said its stocks of the red metal increased by 650 tonnes this morning, bringing total LME monitored inventories to 137,925 tonnes, around 40 pct higher than they were two months ago.
     
Among other base metals, aluminium also dipped, helped by a sharp rise in LME monitored stockpiles. The metal slid to 2,444 usd from 2,460 usd yesterday. Inventories of the grey metal rose 6,000 tonnes this morning to 890,650 tonnes, according to the exchange. Stocks of the metal have risen by 5 pct in the last week.
   
Meanwhile lead, yesterday's strongest gainer, was steady at 3,020 usd against 3,030 usd at the close last night. The metal has been buoyed throughout the year by supply shortages from key producer Australian, and from China, after the imposition of an export tax on the metal earlier this year.
      
Nickel meanwhile inched up to 27,150 usd from 27,000 usd, and tin to 15,250 usd from 15,200 usd. Zinc was flat at 2,760 usd.

Gold hit a fresh 16-month high of 714.40 usd this morning after the dollar fell to an all-time low against the euro, and as the metal continued to attract support from inflation-hedging with oil prices close to record highs.
   
At 12.53 pm, spot gold was trading at 710.70 usd, an ounce against 711.80 usd at the close. Earlier, the metal touched a fresh 16-month high of 714.40 usd.
   
Among other precious metals, platinum was steady at 1,298 usd against 1,300 usd in late New York trade, while its sister metal palladium dipped to 331 usd from 333 usd. Silver was steady at 12.64 usd against 12.65 usd.

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