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

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U.S. stock futures jump after Fed outlines moves to add liquidity

U.S. stock futures jumped ahead of Wednesday's open after the Federal Reserve, along with several other central banks, outlined plans to provide ample liquidity to the marketplace. S&P 500 futures were up 30.20 points at 1,508.30. Just prior to the Fed's announcement, the futures were trading around 1,491.30.

Dow industrials futures were up 210 points at 13,660 and Nasdaq 100 futures climbed 35 points to 2,125.00, vs. pre-Fed announcement levels of around 13,547 for Dow futures and 2,104 for Nasdaq 100 futures.

The Fed had said that it will hold 4 term auctions to add liquidity to the banking system, in cooperation with the central banks of Canada, England, Switzerland and the eurozone. The Fed also announced swap agreements with the European Central Bank and the Swiss National Bank. The Fed said the moves were made to "address elevated pressures in short-term funding markets."

The Federal Reserve will hold four term auctions to add liquidity to the financial markets, it announced today, in cooperation with the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.

The Fed has also established swap agreements with the European Central Bank for 20 bln usd and with the Swiss National Bank for 4 bln usd, which could help them intervene in European dollar markets.
"(The measures) are designed to address elevated pressures in short-term funding markets," the Fed said in a statement announcing the auctions.

"What you see it is doing is providing DOLLAR liquidity to foreign central banks," said FAO Economics' Robert Brusca. "This, in turn will give the various foreign central banks the ability to provide to their own banking systems funding in dollars, easing the liquidity strains we have seen on LIBOR (the London Interbank Offered Rate for overnight lending)."

The first of the TAF auctions will be on Dec 17 for up to 20 bln usd with a 28-day term. The second will be on Dec 20, also for up to 20 bln usd and with a 35-day term. Third and fourth auctions will be conducted on Jan 14 and 28 with amounts and terms to be decided in January.

Any financial institution that's qualified to borrow from the Fed's discount window will have access to the TAF and can use the same collateral it would use for discount window loans.

"Clearly, the Fed is feeling its way in the dark here," said Ian Shepherdson at High Frequency Economics. "We think these measures are a step in the right direction, but there is simply no way to know for sure how effective they will be. The big question, though, is why the Fed did not make this announcement yesterday, instead of allowing the markets to be hugely disappointed by their actions."

The new credit facilities may encourage banks to borrow directly from the Fed though they have up to now been reluctant because of the perceived "stigma" attached to discount window loans.

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Forex - Major currencies stable as market continues to digest Fed cut

Major currencies were trading within a tight range against each other as the market continued to digest last night's quarter point interest rate cut decision by the Federal Reserve. However, high yielding currencies were gaining as risk appetite was boosted by talk that the Federal Reserve will attempt to ease liquidity on financial markets.

"Reports overnight of liquidity provision arrangements started to circulate in markets, and there has been a big shift in risk appetite as a result," said Stephen Pearson, chief currency strategist at Bank of Scotland Treasury.

"High yielding currencies have been outperforming and pound has been helped by that," he said.
With Wall Street expected to open higher supported by those rumours, Pearson added that currency markets are likely to take their lead from the scope of risk appetite on equity markets today.

The focus on risk appetite left the market taking slightly stronger-than-expected industrial output data in its stride, leaving little impact on the euro. Industrial output in the euro zone rose 0.4 pct in October from September, and was up 3.8 pct year on year, above forecasts for a month-on-month rise of 0.2 pct and a year-on-year rise of 3.9 pct.

Elsewhere, the pound briefly dipped after UK employment data, but quickly recovered. The data was generally stronger than expected, with the claimant count falling to take both the level and the rate to their lowest levels since 1975.

The Office of National Statistics said the claimant count, measuring the number of Britons claiming the jobseeker's allowance, fell by 11,100 in November, substantially beating forecasts for a 5,000 fall. However, average earnings including bonuses softened slightly, rising by 4.0 pct in the three months to October, down from 4.1 pct in the quarter to September, and below expectations for 4.2 pct.

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Euroshares off lows midday as Dow seen recovering some ground; banks still down

At 12.24 pm, the STOXX 50 was down 31.31 points, or 0.83 pct, at 3752.05, and the STOXX 600 was down 2.85 points, or 0.76 pct, at 370.73. The Blue Chip index plunged 294.26 points to 13,432.77 last night.

In Europe, financials were dragged lower by the fall in the global stock markets after the FOMC's rate decision and after a slew of gloomy updates overnight from the likes of US mortgage lenders Fannie Mae and Freddie Mac. BNP Paribas fell 2.33 pct, Axa fell back 2.91 pct, and Fortis was down 1.84 pct.

Northern Rock tumbled 7.47 pct after the Times said Cerberus, the American private equity firm, dropped out of the running, a report in The Times said.

Sources close to the bank told the paper that only two bids were being seriously considered by the Northern Rock board and its advisers. Virgin Group remains the preferred bidder, but shareholders favour a proposal from a consortium led by Luqman Arnold, the former Abbey National chief executive.

Later today, FTSE is expected to confirm the beleaguered UK mortgage lender will be demoted from the FTSE 100. Weakness in the US and Asian REIT and property sectors dragged their European peers lower. Klepierre fell back 3.36 pct. Sacyr fell back 1796 pct. Redrow slipped back 0.36 pct

Gecina shares remain suspended after reports core shareholders Joaquin Rivero and Bautista Soler have adjusted their stakes in the French property company in order to avoid launching a full bid. According to Cinco Dias, Rivero and Soler had reported a 33.5 pct stake in Gecina to Spain bourse regulator CNMV, and a 33.16 pct stake three months later to French bourse regulator AMF.

Barratt Developments bucked the trend to turn 3.65 pct higher as speculation it will be demoted from the FTSE 100 was overshadowed by ongoing takeover speculation. Yesterday, Lafarge and Bouygues were mooted as potential suitors.

M&A hopes pushed Clariant and Premiere higher. Clariant climbed more than 10 pct mid-morning on talk Lanxess is looking to buy the Swiss chemicals group. By midday, though, shares were off highs -- up only 5.8 pct as some said the rumours lack credibility.

One Swiss analyst said the current weakening market for chemicals, rising raw material prices and Clariant's inability to compensate for this with higher prices all serve to undermine this scenario. Premiere -- up 2.41 pct -- continued to be buoyed by talk of a bid from french media behemoth Vivendi.

BG Group added 2.22 pct amid vague talk the exploration group has made another sizeable discovery. But M&A hopes failed to keep mining groups in the black after a sharp fall in copper prices overnight.

Xstrata shares fell back 1.42 pct after the Anglo-Swiss mining group confirmed it is engaged in discussions with other industry participants regarding issues of mutual interest such as "industry consolidation", but said these are at a "very preliminary" stage and no offer has been made.

BHP Billiton was down 2.51 pct and Rio Tinto was down 2.89 pct as wrangling between the pair continues.
BHP said in a statement it is continuing to seek an opportunity to discuss its proposed offer for Rio.

The statement was released ahead of a briefing for media and investors to be hosted by BHP chief executive Marius Kloppers later in the day. It also comes a day after Rio applied to the UK Takeover Panel to set a deadline for BHP to make a formal bid.

EDP Energias de Portugal and Gamesa fell 1.28 pct and 1.69 pct respectively as the disappointing final price for Iberdrola SA's renewables business IPO weighed on sector valuations.

This morning, Iberdrola Renovables said it has set the final price for its initial public offering at 5.3 eur a share, at the bottom of the 5.3-7.0 eur per share indicative price range and valuing the company at 22.3 bln eur.

EDP chairman Antonio Mexia said the company would study a possible IPO of its renewable energy arm next year. EDP's renewable assets are made up of its NEO wind unit in Europe and Horizon in the US, which the company acquired for about 2 bln eur in the spring.

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Asian stocks retreat with Wall Street as Fed rate cut disappoints

The Hang Seng ended down 705.78 points or 2.4 pct at 28,521.06, with China stocks and properties weighed down by profit-taking. In Tokyo, the Nikkei closed down 0.7 pct at 15,932.26 and the broader Topix index was down 0.9 pct at 1,556.93, with some exporters reversing early losses after the US dollar rebounded against the yen.

The dollar was last quoted at 111.04 yen, after slipping to 110.62 yen late Tuesday as investors unwound yen-funded carry trades. Sony Corp turned higher to finish up 0.2 pct after falling as low as 6,100 yen while Toyota Motor Corp ended 0.6 pct lower at 6,320, off a low of 6,220 yen.

Among banks, Mizuho Financial Group was down 1.9 pct at 623,000 yen, Sumitomo Mitsui Financial Group was down 0.6 pct at 954,000 yen and Mitsubishi UFJ Financial Group was 0.2 pct lower at 1,225 yen. Positive economic indicators released by Japan's Ministry of Finance failed to lift the market's mood.

Before the opening bell, the ministry said the current account surplus rose 45.7 pct to 2.229 trln yen in October from a year earlier, buoyed by brisk exports to the EU and Asia. The figure was above the 2.070 trln yen surplus economists were expecting. Sell-off attracts bargain seekers. In Australia, the S&P/ASX200 closed down 1 pct at 6,615.20 and the All Ordinaries lost 0.9 pct to 6,675.4.

Index leader BHP Billiton was down 2.3 pct at 43.20 aud, while Rio Tinto was down 3.1 pct at 142 aud. BHP said it is considering the possible next steps in relation to its offer to buy Rio. In the resources sector, Herald Resources jumped 23.5 pct to 2.26 aud after receiving an all-cash offer of 2.25 aud from Indonesia's coal giant PT Bumi Resources.

Elsewhere in the region, South Korea's KOSPI closed 0.1 pct higher at 1,927.45 on bargain-hunting after falling 1.5 pct in early trade. The Shanghai Composite index closed down 1.5 pct at 5,095.54.

The Singapore Straits Times index closed down 1.1 pct at 3,549.25, while the Jakarta index was down 0.5 pct at 2,795.84. Malaysia's Kuala Lumpur Composite Index was down 0.7 pct at 1,423.72 and the Philippine Composite index closed down 1.8 pct at 3,605.59. Taiwan's weighted index closed down 1.7 pct at 8,490.84.

Indian shares close at record high for the second day on hopes of higher inflows

Indian shares had slipped in the morning, in line with world markets after the US Fed cut its benchmark interest rate by a 25 basis points. Global markets had already factored in a 25-basis-point drop and had been rallying on hopes of a bigger cut.

The country's index of industrial production jumped 11.8 pct in October from 4.5 pct last year, and a revised 6.8 pct in September, government data showed.

However, Indian markets rebounded during the day. The Bombay Stock Exchange's benchmark Sensex, which had opened more than 200 points lower, rose 84.98 points over yesterday to close 0.42 pct higher at 20375.85, while the National Stock Exchange's S&P CNX Nifty closed up 1 pct at 6159.30.

Stocks of companies with lower capitalisation also extended gains. The BSE's midcap index closed 152.51 points or 1.66 pct higher at 9339.49, while the smallcap index advanced 217.15 points or 1.86 pct to close at 11884.99. 

HDFC, which hit a new 52-week high of 3,125 rupees in intraday trade, was the top-riser on the Sensex today. It ended the day 5.33 pct higher at 3103.95 rupees.

CDMA-based telecom service provider Reliance Communications rose 3.5 pct to close at 765.75 rupees amid reports it might be awarded licences for GSM operations countrywide.

Steelmaker Tata Steel, which will invest up to 2 bln usd to build an iron ore mine in Ivory Coast, gained 3.42 pct to 864.45 rupees.

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Oil trades near 90 usd ahead of weekly snapshot of US fuel inventories

Oil traded steady around the 90 usd mark ahead of today's weekly snapshot of US fuel inventories from the Energy Information Administration.

At 10.18 am, New York's WTI (West Texas Intermediate) crude for January delivery was down 18 cents at 89.84 usd per barrel, having earlier hit an intraday high of 90.24 usd before running into year end selling pressure. Meanwhile, London's Brent crude for January delivery was down 18 cents at 89.81 usd per barrel.

Prices have eased by around 10 pct after hitting an all time record high of 99.29 usd in November. Oil has been pressured lower by the possibility of slowing demand in the wake of the recent economic turmoil, and by book squaring by investors coming into the year end.

However, OPEC's decision to leave its output quotas unchanged last week has lent a floor to prices, with investors still viewing supplies as tight due to the rising consumption from China, India and other developing nations.

Goldman Sachs today raised its 2008 WTI average price forecast to 95 usd from 85 usd. However, some analysts think oil prices are ready to head lower, consolidating after failing to break the 100 usd barrier.

Looking ahead today, analysts polled by Thomson Financial News have predicted US crude stockpiles will drop by 1 mln barrels in this week's EIA report, while inventories of gasoline and distillates are seen as rising by 1 mln barrels and 1.5 mln barrels respectively. The weekly report normally has a significant impact on crude oil price direction.

Today's EIA data is released at 3.30 pm GMT.

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