US & World Daily Markets Financial Briefing 14-11-2007

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Stocks rise as credit concerns wane

NEW YORK - Wall Street rose modestly Wednesday as investors grew more optimistic that the worst of the credit crisis is over and as the government released tame October inflation data.
   
The stock market was relieved after Bear Stearns Cos. Chief Financial Officer Sam Molinaro said Wednesday the investment bank's leveraged finance business is improving. He said the company expects to take a $1.2 billion writedown during the fourth quarter, which eased concerns that the losses might
be much higher.
   
Wednesday's news followed reassuring comments from Goldman Sachs Group Inc.'s chief executive about its own credit exposure that sent stocks climbing and helped propel the Dow Jones industrials up nearly 320 points.
   
Britain's HSBC Holdings PLC did say Wednesday it would have to write down a further $3.4 billion from its U.S. business during the third quarter because of exposure to subprime loans, but the market had been anticipating the move.
   
The Dow rose 15.04, or 0.11 percent, to 13,322.13. Broader stock indicators also gained. The Standard & Poor's 500 index rose 3.90, or 0.26 percent, to 1,484.95, while the Nasdaq composite index rose 2.38,
or 0.09 percent, to 2,676.03.
   
Treasury bonds fell as investors felt more secure about stocks. The 10-year Treasury note's yield, which moves in the opposite direction of its price, rose to 4.29 percent from 4.26 percent late Tuesday.
  
The Labor Department reported wholesale prices registered a slight gain in October, held down by a drop in energy costs. The moderation in inflation could be temporary, however, with oil prices surging to fresh records in early November.A barrel of light sweet crude rose $1.85 to $83.02 on the New York Mercantile Exchange, after plunging Tuesday by $3.45.

And while the wholesale price report suggests the Fed could afford to lower rates further when it meets on Dec. 11 to calm the shaky markets, the central bank did indicate after its Oct. 30-31 meeting - where it cut rates by a quarter-point -- that it was satisfied with the current state of the economy and still concerned about rising inflation.
  
Meanwhile, the Commerce Department reported retail sales managed a small increase in October as consumers struggled to cope with a steep slump in housing, tighter credit conditions and soaring energy costs. It was the weakest showing since August and represented a significant slowdown from September
sales.
   
Overseas, Japan's Nikkei stock average closed up 2.47 percent and Hong Kong's Hang Seng index rose 4.90 percent. In afternoon trading in Europe, Britain's FTSE 100 added 1.37 percent, Germany's DAX index rose 0.55 percent, while France's CAC-40 rose 1.79 percent.

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Forex - Pound steadies out at weaker levels after BoE inflation report
   
The BoE's inflation report forecasts showed that, if UK interest rates follow market expectations and fall to 5.1 pct by the end of 2009, inflationwill meet the BoE target rate of 2.0 pct. If, on the other hand, interest rates stay as they are at 5.75 pct, CPI inflation would undercut the target, coming in around 1.75 pct.
   
The European single currency, in particular, hit a four-year high against sterling of 0.7112. The European Central Bank is not expected to cut interest rates for some months as inflation remains significantly above target.
   
Growth data this morning backed up the view that the euro zone economy is currently too buoyant for the ECB to cut rates. Official data showed euro zone GDP growth accelerated to 0.7 pct in the third quarter from 0.3 pct in the second.
   
Howard Archer at Global Insight said that, even though euro zone growth is set to slow in the coming months, elevated inflation means rates should stay at 4.00 pct "well into 2008".
   
Later today, comments from Federal Reserve chairman Ben Bernanke should put the dollar firmly in focus as investors seek further insight on the path of interest rates. The Fed, like the ECB and BoE, is seeking to steer a path for monetary policy that deals with elevated inflation and signals the economy is slowing.
   
Wholesale PPI inflation and retail sales data today had little immediate impact on the dollar against most currencies, although it did strengthen against the yen.
   
US producer prices, which measure inflation pressures before they reach the consumer, rose 0.1 pct in October, lower than analysts' expectations for a 0.3 pct rise but nonetheless putting the annual rate at 6.1 pct, the highest since Sept 2005.
  
Meanwhile retail sales in October rose 0.2 pct, as economists had expected, following an upwardly revised 0.7 pct increase in September.

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Barclays Euroshares off highs midday, lower open on Wall St, tech sector outperforms

At 12.28 pm, the Dow Jones STOXX 50 added 11.43 points or 0.31 pct to 3,723.30, while the STOXX 600 gained 0.95 points or 0.26 pct to 369.47.
   
The Nasdaq is however expected to climb after a strong performance seen in the Asian and European technology sectors. Europe's DJ STOXX 600 for the industry rose an aggregate of 2 pct with Infineon surging 4.22 pct as investors chose to focus on a largely solid fourth-quarter performance, excluding weakness at subsidiary Qimonda. 
   
In the Netherlands, ASML added 1.988 pct in sympathy and also boosted by news that Tokyo Electron reported a 67.8 pct jump in net profit in Taiwan and Japan - two of the industry's biggest markets. 
   
Peer Alcatel-Lucent rose 2.84 pct as JP Morgan started coverage on the telecom equipment maker with an 'overweight' rating, while Merrill Lynch upgraded the company to 'neutral' from 'sell'. JP Morgan said it expects strong optical growth and the potential for low-cost DSL adoption to more than offset wireless weakness.
   
In the steel industry, Arcelor Mittal, up 2.81 pct, Salzgitter, up 3.95 pct, and Kloeckner & Co, up 2.06 pct, impressed with presenting better than expected third quarter figures. Salzgitter said it expects overstocked steel inventories to be reduced over the coming months due to production cuts by European
steel-makers.
   
In the German market, Hypo Real Estate rallied 3.93 pct and Deutsche Bank rose 1.07 pct. Over in the UK, HSBC rose 1.72 pct, also after the group specified that it will have to write down 3.4 bln usd for loan impairment charges in the USA, but only 700 mln usd of that is related to mortgages. Peer Barclays added 0.66 pct, making up some of the 40 pct in value it lost during the past months as investors' sold of on subprime-related fears.
    
Meanwhile, Scor shares climbed 6.20 pct as investors welcomed consensus-beating third quarter earnings from the French insurer, with one dealer also taking comfort from the company's reassuring remarks on its subprime exposure. "Scor said it had 68 mln eur of exposure, which represents around 0.4 pct of total overall investments, which is fairly low," said a dealer.
   
The utility sector underperformed today, down an aggregate 0.82 pct, with RWE shedding 4.88 pct after the group said it is delaying the IPO of its American Water unit and cancelled its share buyback programme. The utility giant also presented third quarter earnings which came in slightly below expectations.    
   
Spanish peer Iberdrola was 1.21 pct lower as concerns about the outlook for the renewables business in the US were compounded by reports the utility's share of a 1.2 bln eur payback in exchange for free allocation of CO2 emission rights could be higher-than-expected. Analysts highlighted the fact that Iberdrola's 2008-2010 strategic plan unveiled last month clearly bets on its burgeoning renewables business for future earnings growth, with the US market a key target.
   

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Asian markets rally with Wall Street as Wal-Mart, Goldman ease fears

The Hang Seng led the advance, ending 4.9 pct higher at 29,166.01.  The Hang Seng China Enterprises Index rose 6.8 pct to 17,837.13 on renewed optimism that Chinese citizens will be able to buy and sell Hong Kong shares in the coming months under a program dubbed the "through train", after a press report that the scheme's implementation is on track.
   
The Shanghai Composite closed up 4.9 pct at 5,412.69 and Taiwan's Taiex was up 2.5 percent at 8,942.93.
The Nikkei closed up 2.5 pct at 15.499.56 and the TOPIX was up 2.2 pct at 1,497.71. Financials such as Daiwa Securities and Mitsubishi UFJ Financial rebounded from recent lows, while exporters found support in a slightly weaker yen.
   
The South Korean KOSPI finished up 2.1 pct at 1,972.58. Shipping company STX Pan Ocean rallied 15 pct to 4,310 won after it said third-quarter net profit soared to 144 mln usd from 2 mln usd a year ago.
   
In Australia, the S&P/ASX 200 ended up 1.3 pct at 6,598.6, while the All Ordinaries rose 1.2 pct to 6,650.
There was more bad news on the subprime sector from Countrywide Financial. The big US mortgage lender said loan funding fell 48 pct in October from a year earlier as it continued to be caught up in the credit market crunch.
  
   
Still, financial stocks, which have been beaten down in recent sessions, rallied across the region. Mitsubishi UFJ Financial closed up 6.3 pct at 958 yen, Mizuho Financial rose 6.4 pct to 550,000 yen and Nomura added 4.9 pct to 1,946 yen. Mizuho is one of a number of Japanese banks due to report first-half
earnings later today.
   
In Australia, National Australia Bank ended up 2.2 pct at 44.84 aud and Commonwealth Bank rose 1.5 pct to 61.30 aud.  Australia & New Zealand Banking Group advanced 1.1 pct to 28.70 aud and Westpac closed 1.3 pct higher at 28.71 aud.
   
In Hong Kong, China's biggest bank by assets, Industrial and Commercial Bank, rallied 5.4 pct to 6.49 hkd. The second-biggest, Bank of China, gained 4.9 pct to 4.69 hkd and China Construction Bank, the third-largest, rose 7.1 pct to 7.98 hkd.
   
China has raised its key one-year lending rate five times this year to 7.29 pct and is expected to hike again after CPI data released Tuesday showed inflation up more 6 pct for a third straight month.
   
Outside of financials, China Mobile shares was up 9.2 pct at 140.80 hkd, after China's largest mobile phone operator said it plans to bring Apple's iPhone to China. The iPhone -- an internet-enabled mobile telephone, portable digital media player and digital camera in one - is currently being released in Europe.
   
South Korea's largest mobile carrier, SK Telecom, closed up 7.1 pct at 256,000 won after it was named preferred bidder to buy Hanaro Telecom, the nation's second-largest broadband service provider, local news provider Edaily reported on Wednesday.
   
Hanaro's largest shareholder, a consortium comprising American International Group and Newbridge Capital, has been looking for a buyer for its 39.36 pct stake in the company, which is valued at about 900 bln won.
   
Elsewhere, the Kuala Lumpur Composite Index closed up 0.1 pct at 1,384.58, the Philippine Composite rose 2.3 percent to 3,681.62 and the Jakarta Composite added 1.4 pct to 2,691.87. Singapore's Straits Times Index rose 1.4 pct at 3,524.91.

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Metals - Copper rises as outlook for metal demand improves

At 1.59 pm, LME copper for 3-month delivery was up at 7,085 usd a tonne against 6,925 usd at the close yesterday. Copper fell to 6,790 usd a tonne earlier this week, its lowest price since late August.
   
Weak demand, reduced threats to production after a nationwide strike in Peru ended late last week and a slightly stronger dollar seen earlier this week forced selling.
   
"Although sentiment in metals has turned decisively negative in recent weeks, we think it could be dangerous to get too bearish on the complex," said MF Global analyst Edward Meir. "For one thing, although the conventional wisdom is calling for the US economy to slow considerably, we need to see more evidence of this over the next several weeks."
   
A weak physical demand picture was still weighing for now, however. Markets reckon rising inventory, with a daily report from the LME showing stocks growing, is a sign demand is weaker than expected. Today's LME report said copper stocks rose 775 tonnes to stand at 178,650 tonnes.
   
Looking ahead, all eyes will be fixed on the US economy. Markets will listen to US Federal Reserve chairman Ben Bernanke, who is due to make a speech later today, for clues about the world's biggest economy's health.
   
Meir at MF Global said: "A set of decent numbers out of the US this week could do the trick here (to lift prices significantly), as we are still relatively oversold. "Elsewhere, tin prices surged to 17,220 usd a tonne against 16,900 usd at the close yesterday, nearing a 27-year high of 17,225 usd touched last Wednesday.
  
Zinc rose to 2,704 usd a tonne against 2,640 usd, while nickel was trading up at 33,900 usd a tonne against 33,450 usd, despite another rise in LME inventories.
   
Nickel has been underpinned recently by expectations that demand from the stainless steel market is set to recover and that this recovery will eat into rising inventories, which have risen to their highest level since 2000.     Lead prices rose to 3,535 usd against 3,483 usd, while aluminium climbed to 2,704 usd against 2,577 usd.

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