US & World Daily Markets Financial Briefing 14-02-2008

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Stocks fall following Bernanke comments

In midmorning trading, the Dow Jones industrial average fell 49.91, or 0.40 percent, to 12,402.33.

Broader stock indicators also declined. The Standard & Poor's 500 index slipped 2.97, or 0.22 percent, to 1,364.24, and the Nasdaq composite index fell 5.55, or 0.23 percent, to 2,368.38.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.78 from 3.73 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude oil rose $1.20 to $94.47 per barrel on the New York Mercantile Exchange.

Corporate news appeared to ease some of Wall Street's concerns about the debt markets. Bond insurer MBIA Inc. said Wednesday it raised $1.1 billion from the sale of a nearly 40 percent stake in the company. The move was aimed at avoiding a ratings downgrade that would deprive the company of a top rating for its financial strength. Such a downgrade could make it hard for the company to draw new business.

MBIA, which rose 61 cents, or 5.2 percent, to $12.25, writes insurance policies that would repay bondholders should a bond issuer default. Concerns about the soundness of bonds and, in turn, the bond insurers have eroded Wall Street's confidence about the debt markets in recent months.

The Wall Street Journal reported Thursday that some banks are floating proposals before members of Congress that would have the federal government assume some of the risk from troubled loans.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 199.6 million shares.

The Russell 2000 index of smaller companies fell 3.52, or 0.49 percent, to 718.41.

Overseas, Japan's Nikkei stock average jumped 4.27 percent -- its biggest advance in nearly six years -- following strong economic growth figures and sizable gains on Wall Street on Wednesday. In afternoon trading, Britain's FTSE 100 rose 0.62 percent, Germany's DAX index rose 0.36 percent, and France's CAC-40 added 0.67 percent.

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Forex - Dollar drops on easing recession fears; market awaits Bernanke testimony

LONDON - The dollar was weaker as easing recession fears prompted a move back into risky assets, while the market awaited this evening's testimony by US Federal Reserve chairman Ben Bernanke.

The combination of strong US retail sales data yesterday and Japanese GDP figures overnight allowed a revival in risk appetite as investors' concerns about slowing global growth eased.

"Risk sentiment was the main driver of dollar underperformance as a better-than-expected retail sales report yesterday in the US was followed by an optimistic preliminary fourth-quarter GDP growth forecast in Japan," said Alina Anishchanka at UBS.

"These releases eased markets' concerns regarding slower global growth, boosting risk appetite," she said.

Renewed risk appetite has boosted stock markets and re-ignited demand for the carry trade, where money is borrowed in low-yielding currencies, mainly the yen, in order to invest in areas with high interest rates.

The yen has been broadly weaker as a result, while higher-yielding currencies such as the Australian dollar, the pound and the euro have benefited, causing the Australian dollar to hit a one-month high against the yen.

Analysts remain broadly sceptical, however, the current trend of optimism can persist, given that the key problems within the financial sector are still far from being resolved, while recent economic data have been volatile.

"For current trends to persist, the good news flow must surely continue to come thick and fast," said Neil Mellor at the Bank of New York.

"Otherwise, we strongly suspect that they will simply constitute increasingly attractive selling opportunities for investors whose fears over the global outlook are unlikely to be fully assuaged for some time to come," he said.

Elsewhere, the market's attention later today will be firmly focused on Bernanke's testimony to the US Senate, though most expect he will do little to dent expectations the Fed will continue with aggressive monetary easing.

"Bernanke's testimony to the Senate is likely to attract a fair share of attention as traders try and judge just how much further the Fed will attempt to cut rates in trying to stave off recession," said James Hughes, market analyst at CMC Markets.

In January the Fed cut interest rates by a large 125 basis points, taking the Fed funds rate down to 3.00 pct, in an aggressive attempt to stave off recession.

UBS' Anishchanka said the chances are that Bernanke will "reiterate downside risks to growth and the need for further easing".

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Euroshares up in opening deals as overseas markets rally

At 9.14 am, the DJ STOXX 50 added 17.80 points or 0.55 pct to 3,259.47 while the DJ STOXX 600 rose 2.91 points or 0.90 pct to 326.21.

Banks and financials are also in focus in the European market this morning as UBS, Commerzbank and Zurich Financial released earnings results for the full year.

Switzerland's UBS fell 1.52 pct after it said it had swung to a full year net loss of 4.384 bln sfr, down from a profit of 12.257 bln a year earlier, after booking losses of 18.4 bln usd on US subprime market positions over the year.

Meanwhile, Commerzbank, up 0.33 pct, underperformed the DAX after unveiling largely in-line fourth-quarter results and proposing a dividend of 1 eur a share, which traders said was at the lower end of their expectations.

Swedbank AB shot 7 pct higher after it said operating profits amounted to 15.586 bln skr, and net interest income to 19.157 pct, while market expectations were for 15.032 bln skr and 18.851 bln skr pct respectively.

And Zurich Financial Services Group gained 5.10 pct after it topped analyst expectations with its full-year net profit and reassured investors about its subprime exposure.

Staying in the sector, IKB Industriebank surged 16.72 pct on the back of news late last night that the ailing bank is to receive 1.5 bln eur in additional capital of which the German government will supply 1 bln eur.

Next to the banking sector, the automotive industry was again outperforming this morning, up 1.87 pct in aggregate.

Daimler rose 2.83 pct after the luxury car maker released earnings for the full year which showed an improvement in EBIT to 8.7 bln eur from 4.9 bln seen a year earlier despite the expensive disposal of its Chrysel division during 2007.

Automotive supplier Nokian Tyres also helped boost the sector as it climbed 7.16 pct higher as investors continue to stock up following excellent fourth quarter results presented yesterday.

France's Renault bucked the trend, down 1.68 pct, as investors were unimpressed with its full year earnings results and outlook for 2008.

Staying in France, Cap Gemini rose 8.02 pct after beating expectations with its full year earnings and Danone added 2.85 pct as it delighted shareholders with a solid set of numbers and launched its first medium term targets since the acquisition of Numico. Natixis reiterated its 'buy' stance as a result.

And for airlines, Air France fell 0.15 pct as it said its net profit fell in the third quarter, hit by currency effects and higher oil prices.  

Rio Tinto was undeperforming, up 0.45 pct, while Anglo American added 2.51 pct. Turning to economic news, data on euro zone GDP growth in the fourth quarter does not bode well for the upcoming six months.

German GDP growth slowed to 0.3 pct in the fourth quarter from 0.7 pct in the third quarter, while French GDP growth also eased to 0.3 pct from 0.8 pct.

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Asian markets rally with Wall St on upbeat retail sales, GDP lifts Japan
 
Hong Kong's Hang Seng closed up 3.7 percent at 24,021.68, while the Shanghai composite index was up up 1.4 percent at 4,552.32.
   
Positive economic data from Asia also boosted market sentiment, with Japan's Nikkei 225 surging 4.3 percent to 13,626.45 after the Japanese economy grew at a much faster pace than expected in the fourth quarter.
   
Japan's economy grew 0.9 percent in real terms in the fourth quarter, or at an annualised rate of 3.7 percent, buoyed by brisk capital investment and consumer spending.
   
Ten economists polled by Thomson Financial News were looking at a 0.4 percent rise for the quarter and an annualised pace of 1.5 percent, on average. The GDP data was a "positive surprise," said Mitsushige Akino, chief fund manager at Ichiyoshi Management.
   
Commonwealth Bank of Australia was up 1.8 percent at 47.05 Australian dollars after dropping 6.5 percent yesterday when it reported disappointing half-year results.
   
Australia & New Zealand Banking Group was up 2.7 percent at 24.44 dollars, National Australia Bank gained 3.3 percent to 31.41 dollars, while Westpac

Banking Corp rose 3.9 percent to 24.16 dollars. Sentiment in the Australian market was also buoyed by better-than-expected data, with unemployment falling to a record low of 4.1 percent in January from 4.3 percent in December. Analysts had expected the jobless rate to remain at 4.3 percent.
   
The S&P/ASX 200 closed up 2.6 percent at 5,684.8, while the All Ordinaries jumped 2.4 percent to 5,748.2.
   
Singapore's Straits Times index finished up 3.3 percent at 3,045.59 as investors ignored news that Singapore's GDP contracted 4.8 percent in the fourth quarter from the third quarter as analysts believe the weakness is temporary and unlikely to be repeated in the first quarter.
   
Elsewhere, South Korea's KOSPI index finished up 4 percent at 1,697.45, Taiwan's Taiex gained 4.2 percent to 7,865.28, and the Jakarta composite index rose 2.5 percent to 2,675.65.

Bucking the trend, the Philippine composite index finished down 0.4 percent at 3,211.60 as caution prevailed amid a brewing political turmoil in the country.
   
Malaysia's Kuala Lumpur Composite Index (KLCI) finished up 0.9 percent at a high of 1,436.10. The KLCI had risen ahead of the general elections, to between 1,450-1,500 in January, said Ridzuan.
   
Among individual stocks, Australian miners were up following a strong full-year profit report from Rio Tinto, released after the market closed on Wednesday.
   
Rio Tinto, the world's third-largest miner, surged 4.0 percent to 133.77 Australian dollars after its full-year earnings landed at the top end of market consensus estimates, supporting its argument that BHP Billiton's bid under-values the company.
   
BHP Billiton closed up 4.5 percent at 39.03 dollars. Shipping stocks across Asia extended their gains, tracking the continued recovery of the Baltic Dry Index, a benchmark for the cost of shipping various
commodities like coal and iron ore.
   
Korea Line Corp closed up 5.8 percent at 174,500 won, while STX Pan Ocean added 14.9 percent to 2,050 won.
   
In Hong Kong, Pacific Basin was up 5.5 percent at 12.68 Hong Kong dollars, while China Cosco added 10.05 pct to 23.0 dollars.      

China Shipping Development rose 4.4 percent to 37.95 yuan in Shanghai. Japan's Nippon Yusen ended 2.5 percent higher at 992 yen, Mitsui OSK added 5.5 percent to 1,480 yen. Kawasaki Kisen Kaisha was up 4.8 percent at 1,088.

The Bombay Stock Exchange's 30-share Sensex rose 817.49 points or 4.82 pct to 17,766.63 while the National Stock Exchange's 50-share S&P CNX Nifty climbed 5.53 pct to 5,202.00 points.

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Metals - Aluminium holds onto gains amid South African power crisis

LONDON  - Aluminium held onto gains after the chief executive of South African power utility Eskom confirmed proposals are under way to buy back significant amounts of power from industrial customers.

Although CEO Jacob Maroga did not mention the impact on aluminium smelters, an Eskom source told Reuters last night the utility is considering a complete power-supply buy-back from three smelters for 2008.

The smelters at risk include BHP Billiton's Bayside and Hillside operations in South Africa, as well as the Mozal smelter in Mozambique. Together, the three smelters produce around 1.5 mln tonnes of aluminium a year.

At 1.37 pm, LME aluminium for 3 month delivery was up at 2,778 usd a tonne against 2,691 usd at the close yesterday, having earlier touched 2,825 usd a tonne, its best level since late July.

Analysts at Standard Bank said while a total power-supply buy-back in South Africa is unlikely, "some power restrictions are inevitable". They noted also reports that Rio Tinto might delay or postpone its Coega smelter.

South Africa is currently in the midst of a power supply crisis that last month sparked a five-day closure of mines and smelters and a round of blackouts across the country.

Aluminium smelting is extremely energy intensive but not very labour intensive and Eskom believes it is an obvious industry to target in its attempt to increase South Africa's generation capacity as soon as possible.

Elsewhere, the LME said in a daily report aluminium stocks held in its warehouse fell by 1,825 tonnes to total 956,075 tonnes. The fall underlined the market's supply worries, boosting aluminium prices.

Although overall aluminium stock levels are not low as yet, the market fears they could trend down going forward, especially if the South African power crisis worsens.

In China, where smelter output has also been constrained by power outages and by severe weather conditions, the market estimates up to 650 tonnes of Chinese aluminium could be lost.

In other metals, three-month copper was down at 7,725 usd a tonne against 7,780 usd, amid renewed worries over the move by Chinese players returning from new year holidays to hold back on buying.

Fairfax analyst Marc Elliot said there are reports the Chinese are "holding out for lower prices in anticipation of shipments due which will improve availability".

In addition, the metal is under pressure from speculation data out tomorrow that will show copper inventories in warehouses monitored by the Shanghai Futures Exchange rose by 10,000 tonnes or 50 pct in the week to today.

Offsetting this, however, are ongoing falls in LME stocks.

The LME said in a daily report copper stocks in its warehouses fell again, this time by 2,950 tonnes to 154,650 tonnes. Overall stocks are at their lowest since last October.

The stock falls have been underpinning copper for much of this year, overshadowing worries that demand will wane if the US economic growth slowdown worsens.

In other metals traded, tin fell to 17,050 usd a tonne against 17,200 usd, nickel dropped to 27,650 usd against 28,000 usd, zinc fell to 2,390 usd against 2,415 usd and lead edged up to 3,050 usd against 3,030 usd.

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