US & World Daily Markets Financial Briefing 14-09-2007

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Stocks fall on retail sales report

NEW YORK - U.S. stocks fell Friday after the government reported August retail sales excluding autos fell sharply, suggesting that consumers held off spending in the face of turmoil in the financial markets. Bond prices jumped.    

Also pressuring stocks was news that the Bank of England approved emergency funding for lender Northern Rock PLC to head off a possible liquidity crisis. Northern Rock issued a profit warning and blamed the shortfall on credit market turmoil.
  
In the first hour of trading, the Dow Jones industrial average fell 53.24, or 0.40 percent, to 13,371.64. Broader stock indicators also fell. The Standard & Poor's 500 index fell 6.55, or 0.44 percent, to 1,477.40, and the Nasdaq composite index fell 11.74, or 0.45 percent, to 2,589.32.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.41 percent from 4.48 percent late Thursday.
   
Some investors moved out of stocks and into bonds as some of the sense of safety that drove stocks higher Thursday seemed to dissipate. Weaker retail sales were expected after the chain stores reported disappointing results earlier this month. Still, the report was worse than economists predicted.

The Commerce Department said retail sales fell 0.4 percent in August excluding vehicle sales, compared with a 0.7 percent rise in July and economists' consensus forecast for a 0.1 percent increase.
   
Investors have been on edge over whether tight credit, a housing slump and volatility on Wall Street have hurt the consumer, whose willingness to spend is critical to economic growth. The feeble retail sales figure perhaps adds to the case of those calling for the Federal Reserve to cut its benchmark federal funds rate when policymakers meet Tuesday. But while investors have been clamoring for such a cut to stimulate business activity, Friday's report raised concerns about a slowdown in economic growth.
   
In another report likely to stir concern about the economy, industrial production in August edged up by just 0.2 percent, the weakest advance in three months. The figure reflects a 0.3 percent decline in output from U.S. factories.
   
Merrill Lynch downgraded shares of chip maker Intel Corp. and payment card provider American Express Co., Dow Jones Newswires reported, sending both stocks lower.
   
A separate report Friday showed that consumer confidence, as measured by the RBC Cash Index, fell to 71.1 in early September, a sharp drop from an August's level of 89.3. It was the worst reading since May 2006.

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Dollar falls after weaker-than-expected US retail sales data

LONDON - The dollar fell after figures this afternoon showed retail sales rose by just half what the market had forecast and revealed an unexpected fall in sales excluding autos.
   
Official figures showed US retail sales rose by 0.3 pct in August, below the 0.6 pct increase analysts had expected. Excluding autos, retail sales fell by 0.4 pct against forecasts for a 0.1 pct rise.
  
Audrey Childe Freeman, currency analyst at CIBC World Markets said the weak reading was not entirely surprising given the turmoil in markets, but nevertheless it represented "more bad news for the greenback pre-FOMC".
   
The Federal Reserve meets to set interest rates next week, and Rob Carnell, economist at ING, said the figures add pressure for the central bank to "cut rates by 50 basis points and not try to get by with a smaller 25 point cut".
   
At 12.50 pm GMT, the euro was trading at 1.3884 against the dollar, up from 1.3876 just prior to the data release. Against the yen, the dollar fell to 114.61 from 114.83 yen previously.

A series of factors combined to batter sterling today, which slumped to year lows against the euro, while the market awaited this afternoon's key US retail sales data for further direction on the dollar.
   
This morning's revelaton that UK mortgage lender Northern Rock PLC has had to seek emergency funding from the Bank of England sent the pound tumbling, but these falls were then exacerbated by a leak of the latest Rightmove survey revealing a 2.6 pct monthly drop in housing asking prices.
   
"Sterling is under pressure against all fronts this morning," said Geoffrey Yu at UBS.
   
The Northern Rock news pushed the pound to nine month lows against the euro as investors began to fret about the potential implications for other major UK financial institutions.
   
Elsewhere, the yen was firmer as the Northern Rock news sparked an increase in risk aversion and an unwinding of yen carry trades.

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Euroshares fall midday as Northern Rock's funding woes reignite credit concerns

LONDON - Europe's leading exchanges were lower midday after UK mortgage lender Northern Rock sought emergency funding from the Bank of England, prompting renewed concern about the health of the global credit markets and the implications for economic growth.
   
At 12.40 am, the Dow Jones STOXX 50 Index was down 64.26 points, or 1.71 pct at 3,700.94 while the DJ STOXX 600 Index fell 6.67 points, or 1.79 pct to 365.55.
       
Northern Rock shares dropped 24.41 pct to their worst level in over three years. The UK mortgage company has been forced to turn to the Bank of England for emergency funding as the credit squeeze brought about by the crisis in the US sub-prime market has made commercial lenders more wary about lending to each other.
   
Northern Rock added that it now expects its full-year earnings to fall short of analyst forecasts. Credit Suisse lowered its price target on the stock to 500 pence from 746 pence, and maintained its 'underperform' rating.
   
Today's news prompted the Swiss broker to ask what the mortgage lender's base valuation is. "In the near term we believe Northern Rock will be valued as a distressed asset and attention will turn to the book value," the broker told clients, in a note.
   
Among the notable decliners, Alliance & Leicester fell 8.16 pct, Bradford & Bingley dropped 9.38 pct. HSBC was down only 0.45 pct as Credit Suisse said the banking group is clearly a safe haven.
   
UK housebuilders were also sharply lower as concern about the demand for mortgage-backed houses weighed. Concerns grew after the leaked Rightmove survey on UK asking prices showed a shock 2.6 pct fall in UK asking prices. "This is the biggest fall for three years. On a day when we have had the Northern Rock news this is clearly negative," said one London trader."It will of course hit UK consumer confidence."
   
Taylor Wimpey slumped 7.61 pct. Barratt Developments dropped 10.22 pct and Bovis Homes fell 9.26 pct.
   
Elsewhere, German mortgage lender Interhyp AG lowered its 2007 guidance as a result of a continually difficult demand for private mortgage loans in Germany. Interhyp shares plunged 30.45 pct to their worst level in over a year.
   
Among other German mortgage lenders, Hypo Real Estate was off 3.2 pct, Deutsche Postbank dropped 4.7 pct, Commerzbank was off 3.7 pct, and Deutsche Bank was down 1.6 pct.
   
Other financials were also lower as SG Secs downgraded a number of banking stocks to reflect concerns about the credit crunch and Ladesbanki downgraded a number of fund managers.
   
SG Secs downgraded its stance on shares in Natixis -- down 4.37 pct -- and Deutsche Bank -- down 1.51 pct -- to 'sell' from 'hold' and double-downgraded shares in Credit Suisse -- down 2.06 pct -- to 'sell' from 'buy.'
   
Shares in Invesco PLC and Schroders PLC were 4.04 pct and 5.6 pct lower in late morning deals, with Landsbanki cutting its ratings on the asset managers to 'reduce' from 'hold', and to 'hold' from 'buy' as part of a fund management review.
   
Given the growing uncertainty, the flight to safty helped boost selected utilities. Suez led the handful of STOXX 50 risers -- up 1.17 pct-- and Gaz de France added 1.43 pct as Credit Suisse upped its stance on the later to 'outperform' from 'neutral' and raised its price target for the utility to 38.50 eur from 36 eur following the weak performance of the stock after the merger announcement with peer Suez.
   
Shares in German utilities, including DAX heavyweights RWE AG and EON AG were higher in morning trade as dealers pointed to a combination of factors including reports that new network regulations could boost profits and a report that EON plans to raise its prices in the long future. EON added 0.97 pct and RWE added 0.38 pct.
   
Also on the Blue Chip riser board, Bayer clung on to earlier gains as Bear Stearns reinitiated the stock with an 'outperform' rating and a 75 eur target. Shares added 0.11 pct.
      
But cosmetics group Clarins slipped 2.36 pct after its first-half profit fell 12.4 pct as currency effects and losses in the US market offset overall sales growth. Separately, Clarins said it is not holding talks with L'Oreal.
   
Elsewhere, Roche shares fell 0.64 pct after the US Food and Drug Administration said it will review cancer drug Avastin as a first-line treatment for metastatic breast cancer -- potentially delaying an approval.
   
And GlaxoSmithKline was off 1.49 pct after the UK's Times newspaper said two UK pension funds are competing to lead a US lawsuit against the pharmaceutical giant that accuses the drug-maker of misleading the market about its diabetes medication Avandia.

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Asian markets cheered by Wall Street, Macquarie's upbeat earnings outlook

SINGAPORE - Stock markets across Asia rose Friday, cheered by Wall Street's advance overnight and a surprisingly upbeat earnings forecast from Australia's Macquarie Bank, raising hopes it has weathered the recent turmoil in financial markets.
   
Australia's leading investment bank said it expects a record net profit in the first half to September, sharply higher than the 730 mln aud posted in the same period a year ago.
   
In Singapore, the Straits Times Index closed up 0.9 pct at 3,536.40 with property stocks underpinning gains. A number of indicators suggest that housing demand remains intact even after the recent trouble in markets and the US subprime crisis.
   
The number of Singaporeans upgrading from public housing to private condominiums has been rising and demand appears to be spreading into the mid-to mass-market segment.
   
The property sector was also in focus in Hong Kong, where the Hang Seng set a fresh record of 24,898.11, rising 1.5 pct. Hong Kong billionaire Li Ka-shing's flagship property company, Cheung Kong, gained 5 pct to 127.80 hkd.
   
In Japan, the Nikkei rose 2 pct at 16,127.42 and the TOPIX index rose 1.4 pct to 1,544.71.
   
The South Korean Kospi rose 1.2 pct at 1,870.02 as foreign and institutional investors snapped up shares of shipbuilders, steel makers and retailers amid hopes that their earnings will be unaffected by any slowdown in the US economy.
   
The Taiwanese Taiex rose 1.2 pct at 9,031.63, the Philippines composite was up 0.2 pct at 3,294.55 and the Thai SET rose 0.6 pct to 807.10.
   
The Malaysian Kuala Lumpur Composite index closed up 0.4 pct at 1,289.50. Indonesia's Jakarta Composite rose 0.1 pct at 2,225.61
   
China's benchmark Shanghai Composite Index ended up 0.7 pct at 5,312.18, after volatile trade, led by steel and machinery stocks. The Shanghai and Shenzhen A-share indices rose 0.7 pct and 1.6 pct respectively, and the Shanghai and Shenzhen B-share indices rose 5.7 pct and 4 pct respectively.

Indian shares reversed impressive early gains and ended almost unchanged as European shares suffered heavy losses after profit warnings from big overseas mortgage lenders Northern Rock and Interhyp sapped
enthusiasm on the domestic exchanges as well.
   
The Bombay Stock Exchange's benchmark Sensex fell 0.07 pct or 10.64 points to close at 15,603.80. The equity market bellwether had earlier traded 210 points or 1.34 pct higher at 15,824.65 points, just shy of a record of 15,869 points set late July.

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Gold a touch higher after weak US data dents dollar

LONDON - Gold was a touch higher in afternoon trade after some weaker-than-expected US data which helped the metal reverse earlier losses.
   
At 14.17 pm, spot gold was trading at 709.40 usd an ounce having risen briefly above 710 usd after the US data. Gold had been at 709.30 usd in late New York trades yesterday.
       
Among other precious metals, platinum rose to 1,292 usd from 1,298 usd, while its sister metal palladium eased to 326 usd against 333 usd. Silver was trading at 12.51 usd versus 12.54 usd.

Copper trod water as a decline in stockpiles of the metal in both London and Shanghai was counterweighed by weakness in the European equity markets, with investors staying on the sidelines ahead of next week's US Fed rate-setting meeting.
       
"Metals prices were steady in early Friday LME trading, with the market looking to capitalise on the previous session's stout rally, although the market remains wary of further economic squalls," said William Adams, an analyst at BaseMetals.com.
   
"Declines in weekly copper warehouse stocks on the Shanghai Futures Exchange also helped, with further short-covering expected ahead of the weekend," he added.
   
At 10.57 am, copper for three-month delivery was trading at 7,518 usd per tonne, against 7,538 usd at the close yesterday.
   
Volatility in the equity markets is undermining investor sentiment, analysts said. Wall Street put in a strong performance yesterday, but European bourses are weaker this morning after mortgage lender Northern Rock said it was seeking emergency funding from the Bank of England.
   
"In the current skittish equity environment, we expect front ends to come under pressure," said analysts at Deutsche Bank.
       
Southern Copper Corp said yesterday that concentrate shipments to refineries have been reduced and the company's output for the year lowered as a result of strikes at three Mexican sites, including Cananea, the largest copper mine in Latin America.
   
And stockpiles of the metal monitored by the Shanghai Futures Exchange continue to decline, down 6 pct at 59,765 tonnes last week, their lowest level since May. The LME said its stocks of the red metal also fell this morning, by 1,325 tonnes to 135,750 tonnes.
   
Among other base metals, nickel had risen to 28,250 usd against 27,950 usd, tin had edged up to 15,100 usd from 15,073, and lead had inched up to 3,177 usd from 3,170 usd. Zinc had eased to 2,845 usd from 2,880 usd, while aluminium dipped to 2,472 usd from 2,480 usd.

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