US & World Daily Markets Financial Briefing 12-11-2007

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Stocks rise as investors stay cautious

Stocks rose tentatively Monday as investors moved back into banking stocks but were still appeared cautious, expecting more fallout from the ongoing credit crisis.
   
The market was waiting to see if there would be more announcements from financial companies of write-downs of mortgage-backed securities and other debt instruments that have plunged in value since the summer. Late Friday, E-Trade Financial Corp. said deterioration in the value of its mortgage-backed securities has fallen significantly. The online brokerage said the weakness will lead to bigger-than expected write-downs in the fourth quarter.
   
Meanwhile, troubled home lender Countrywide Financial Corp. said in a U.S. regulatory filing it could be "severely" limited if its credit rating drops into junk status. Britain's HSBC Holdings PLC was seen as the next major financial institution to write down losses from exposure to the debt markets, according to a report from The Times of London. The bank will announce a $1 billion charge to its portfolio of high-risk subprime mortgages when it reports third-quarter results from its U.S. division, according to the report.
   
Trading was expected to be light because of Veterans Day, with the government bond markets closed. This also could lead to higher volatility as institutional traders take positions ahead of economic reports, including readings on inflation. later in the week.
   
The Dow Jones industrial average rose 35.93, or 0.25 percent, to 13,075.09 after falling 4.06 percent last week. The Standard & Poor's 500 index rose 2.57, or 0.18 percent, to 1,456.27, while the Nasdaq composite index rose 1.85, or 0.07 percent, to 2,629.79.
   
Light, sweet crude fell $2.28 to $94.04 on the New York Mercantile Exchange. The drop came on reports that OPEC would discuss increasing its output at an upcoming meeting in a bid to cool record crude prices. In corporate news, Tyson Foods Inc. fell 75 cents, or 5.1 percent, to $14 after the world's largest meat company forecast earnings for this year that were below what analysts were expecting.
  
Advancing issues outnumbered decliners by about 7 to 6 on the New York Stock Exchange, where volume came to 123.2 million shares. The Russell 2000 index of smaller companies fell 1.62, or 0.06 percent, to
2,626.32.
   
Overseas, Japan's Nikkei stock average closed down 2.48 percent and Hong Kong's Hang Seng index dropped 3.88 percent. In afternoon trading in Europe, Britain's FTSE 100 fell 0.10 percent, Germany's DAX index fell 0.51 percent, while France's CAC-40 shed 0.21 percent.

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Yen buoyant as risk aversion rises

LONDON - The yen was buoyant across the board as carry trades were trimmed back on rising risk aversion.
   
The dollar dropped to a low of 109.26 yen, its lowest level for a  year and a half, while the euro fell below 160 yen for the first time in nearly two months.
   
"Along with a constant drip of credit-related problems simmering in the background, the yen's recent ascent has been part of a broad retrenchment in risk amidst concern over the impact on global growth of multi-decade highs in many currency pairs and asset prices," said Simon Derrick, currency strategist
at Bank of New York Mellon.
   
Analysts have also noted that the yen's return to favour in recent days and weeks has not all been about the weakness in the dollar. The acceleration in the appreciation of the Chinese yuan has also helped the Japanese currency against the Swiss franc.
   
Another record Chinese trade surplus in October has stoked talk of further appreciation in the yuan and/or another interest rate rise from the People's Bank of China.
   
With very little economic data and US trading trimmed by Veteran's Day, currency markets are likely to take their cue from equity markets, which appear to have steadied after Friday's losses.
   
US economic data, particularly retail sales and inflation numbers, over the coming few days will be closely monitored to see if they fuel market expectations of another interest rate cut to 4.25 pct in December from the US Federal Reserve.
   
The dollar has enjoyed some respite today, apart from against the yen.
   
However, most commentators think the dollar's gains today have been exaggerated by the lack of liquidity associated with the US holiday. "It's not durable," said Neil Mackinnon, chief economist at ECU Group. "The backdrop of credit and banking worries will keep the dollar bears in control," he added.
   
Elsewhere, the pound has been suffering badly on concerns about the UK economy though this morning's producer price data for October diminished market expectations of an imminent rate cut from the Bank of England.
   
Wednesday's Inflation Report from the central bank will be closely monitored. Though it is expected to paint a gloomier picture of the UK economy's prospects for 2008 than previous ones, the BoE is still likely to emphasise ongoing inflationary pressures.
   
Downbeat predictions about the economic outlook in the UK, fuelled by Friday's sharp decline in banking stocks, has pushed the pound down to its lowest level since January 2005 against the euro.

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Euroshares flat in midday trade; banks rebound, oil and gas stocks pull back

LONDON - Leading European shares traded flat as a rebound in the banking sector was offset by falling oil and gas stocks fuelled by a drop in crude, with EADS a notable outperformer after its Airbus unit lifted the sales forecast for its A350 XWB plane.
      
Deutsche said bank share prices have fallen more dramatically than their earnings, with the sector down more than 20 pct. Rescue talk for Northern Rock also underpinned gains.
   
The UK mortgage lender's shares climbed 4.3 pct after Olivant Advisers Limited, an investment group led by former Abbey chief executive Luqman Arnold, confirmed it is working on a plan to bail out the stricken company.
   
Olivant said it would also take a minority stake in Northern Rock, but would not make a takeover offer for the bank. Yesterday, the Sunday Times reported that Olivant would buy a stake of 10-20 pct, and would forego executive salaries and fees in the hope that Northern Rock shares rise on the back of a successful
recovery programme.
   
Barclays was up 5.8 pct on a Sunday Times report that the UK bank is working with its auditor PriceWaterhouseCoopers to provide a detailed review of its financial performance when it releases its trading statement later this month, The Sunday Times reported. The paper said the company normally uses just words to guide the market, but Barclays has decided to change tack in an attempt to quell market speculation about its potential exposure to sub-prime loans.
   
HSBC underperformed the banking sector, down 0.8 pct, after the UK's Sunday Telegraph said HSBC PLC will this week reveal a further 1 bln usd (475 mln stg) of bad debts stemming from its American mortgage business. It said Britain's biggest bank will reveal the additional provisions alongside a group trading update and third-quarter results from its US business, scheduled for Wednesday.
       
Shares in Deutsche Hypothekenbank AG shot up 17.1 pct after German state bank NordLB launched a 36.09 eur per share takeover offer, valuing the real estate financing specialist at 485 mln eur.
   
Technology stocks continued to struggle as investors remained cautious on the outlook for tech spending amid slowing order growth at Cisco Systems and a downbeat outlook from Qualcomm.
   
Oil and gas stocks moved lower as crude futures fell back, with New York light sweet crude for December delivery down 1.05 usd at 95.27 usd a barrel.
   
Standard Life shares rallied 7.6 pct after the UK group abandoned its 4.9 bln stg bid for Resolution, paving the way for rival bidder Pearl Group to take over the life insurer.
   
Swiss Re added 1.6 pct. The Swiss insurer had agreed to buy some of Resolution's assets from Standard Life, had the UK company been successful in its bid.  Exane BNP Paribas upgraded the stock to 'outperform' from 'neutral' citing the reinsurer's expectation-beating third-quarter earnings posted last week.
   
Shares in Vallourec climbed 3.6 pct on fresh rumours that it was the maker of seamless steel tubes was the subject of takeover interest. Hagemeyer shares climbed 1.3 pct while Rexel shares rose 1.1 pct. The two companies said they are to enter exclusive takeover talks after Rexel raised its bid to 4.85 eur per share, from a previous 4.60 eur.
   
Hagemeyer's management board and supervisory board are backing the bid, Hagemeyer and Rexel said in a joint statement. On the earnings front, Telefonica climbed 1 pct after the Spanish telecom operator said net profit climbed 51.0 pct to 7.848 bln eur in the nine months to September from 5.198 bln a year earlier, beating analyst forecasts for 6.562-7.143 bln, driven by solid organic growth in both Spain and Latin America.
   
Tiscali was up 1.1 pct as it prepares to release third-quarter results expected to show a rise in earnings before interest, tax, depreciation and amortization to 36.0-42.0 mln eur from 26.5 mln a year earlier. Third-quarter sales are expected to reach 203.0-219.0 mln eur, against 168.9 mln a year earlier.
   
Elsewhere, Arcandor shares were up 3.2 pct after chief executive Thomas Middelhoff said he expects the group to "positively surprise" with its results on Dec 18.
   
In broker action, shares in Henkel gained 2 pct after UBS upgraded the household products company to 'buy' from 'neutral' and increased the target to 41.5 eur, from 37.5 eur.
 

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Tdk Asian markets slide as yen spike sends Nikkei to 16-month low

SINGAPORE  - Stock markets across Asia tumbled Monday, with the Nikkei slumping to an almost 16-month low as the yen's rapid appreciation against the dollar weighed on exporters while fresh disclosures of
subprime-related losses at US banks pressured financials.
   
The Hong Kong benchmark lost 3.9 pct at 27,665.73 while the Shanghai composite index fell 2.4 pct at 5,187.74, led by financials after the Chinese government increased reserve requirements for banks, the ninth such move this year.

"The overall market sentiment is turning bad," said Castor Pang, strategist at Sun Hung Kai Financial in Hong Kong. "A lot of negative factors are weighing on the market such as the drop in (the) Dow Jones (index) and the latest increase in reserve ratio."
   
The Nikkei 225 closed down 2.5 pct at 15,197.09 after touching a low of 14,998, its worst level since July 2006. The broader Topix lost 2.5 pct to 1,456.40. The strong yen weighed on the shares of big exporters including Honda Motor, Nissan Motor, Mitsubishi Materials and TDK.
 
   
The Singapore Straits Times closed down 2.5 pct at 3,511.12 and the Kuala Lumpur Composite Index fell 1.4 pct at 1,382.35.  The South Korean KOSPI closed down 3.4 pct at 1,923.42 after hitting a low
of 1,901.87.
   
The Australian market fared slightly better as sharp gains by miner Rio Tinto Ltd helped offset some of the pressure on financials. Rio Tinto closed up 6.7 pct at 139.72 aud on speculation that BHP Billiton Ltd will increase its opening offer for the world's third largest mining company. BHP Billiton fell 1.8 pct to 41.70 aud.
   
Rio Tinto is at the centre of attention and the market is betting on the higher offer, especially as Rio hasn't come out and said it is against a merger," said Ric Klusman, head of institutional trading at Aequs Securities. The S&P/ASX closed down 1.4 pct at 6,455.3 while the All Ordinaries index was off 1.3 pct to 6,523.3.
   
In Tokyo, Mitsubishi Materials closed down 4.7 pct at 583 yen, Honda lost 3.6 pct to 3,760 yen and Nippon Steel lost 5 pct to 645 yen. Mitsubishi Corp fell 3 pct to 3,207 yen. Tyre-maker Bridgestone lost 6.2 pct to 2,125 yen. TDK lost 8.2 pct to 7,760 yen.
   
In Seoul, steelmaker Posco closed down 3.4 pct at 566,000 won and Hanjin Shipping lost 6.8 pct to 44,300 won. The Philippine composite index ended down 2.3 pct at 3,618.37, while the Taiwan weighted index closed down 3.35 pct at 8,670.61. The Jakarta index fell 1.3 pct at 2,671.90.

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Oil prices fall on OPEC output

Oil prices fell about $2 a barrel Monday after reports that OPEC would discuss increasing output at an upcoming meeting in a bid to cool record crude prices.
   
Saudi Arabia's oil minister said Sunday that the Organization of Petroleum Exporting Countries would discuss the issue of boosting production when it meets later this year.
   
"The comments by the Saudi oil minister on the weekend didn't necessarily say that they're going to increase production, it wasn't quite that extreme, but the mere fact that he's speaking aloud about it shows that the issue is there," said Tobin Gorey, commodity strategist at the Commonwealth Bank of Australia in Sydney.
   
Light, sweet crude for December delivery dropped $2.40 to $93.92 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. In London, December Brent crude futures fell $1.92 to $91.26 a barrel on the ICE Futures exchange.
   
Reports of an attack an Exxon Mobil oil export terminal in Nigeria temporarily halted the slide, but company officials said operations were not disrupted and calm appeared to have been restored.
   
Heating oil futures fell 4.88 cents to $2.5700 a gallon (3.8 liters) on the Nymex, while gasoline prices declined 5.89 cents to $2.3971 a gallon. Natural gas futures fell 15.4 cents to $7.743 per 1,000 cubic feet.
   
Oil prices had surged to near $100 per barrel recently amid concerns about supplies, a weak U.S. dollar and OPEC's apparent reluctance to pump more crude into the market.
   
Many traders and analysts say the effect of any output hike on prices is likely to be limited as the recent rise in crude futures has had more to do with speculation than a real demand. OPEC's next policy meeting is set for Dec. 5 in Abu Dhabi.
   
Estimates of where crude prices will go vary. Many analysts expect prices to rise to at least $100 a barrel, but a growing chorus is warning that futures are due for a sharp downturn soon.
   

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