US & World Daily Markets Financial Briefing 15-08-2007

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Dow Industrials Drop Below 13,000

NEW YORK - The Dow Jones industrial average has fallen below 13,000. In the opening minutes, it's fallen 37.07 to 12,991.85. The Nasdaq Composite is off 6.60 to 2,492.07 while the Standard & Poor's 500 index has dropped 3.45 1,423,09.
   
Declines in the market come a day after Dow Jones industrial average fell more than 200 points, and as stock markets posted losses worldwide.
   
Investors seemed to have little reaction to the government's report that consumer price inflation rose only modestly in July.
   
The market also seemed unaffected by an announcement from the Federal Reserve -- made soon after the Labor Department's inflation report -- that it is ready to add more cash to the banking system if needed. Central banks worldwide have supplied blns of funds to the interbank lending market over the past week to head off a liquidity crunch and keep interest rates stable.
   
The Labor Department said its Consumer Price Index -- a gauge of price inflation on food, energy and consumer products -- rose 0.1 percent in July, meeting the consensus forecast of economists polled by Thomson Financial.
   
Investors are also watching for further signs of a slowdown in consumer spending. The stock market skidded sharply Tuesday after Wal-Mart Stores Inc., one of the 30 stocks in the Dow Jones industrials, reduced its profit outlook as weak economic conditions led consumers to curtail spending.
   
Department store chain Macy's Inc. on Wednesday said second-quarter profit fell short of its initial expectations, which were lowered in July. Chairman, President and Chief Executive Terry J. Lundgren said in a statement he is optimistic business will improve in the second half of the year "despite what appears to be a more challenging economic environment," but the company's earnings outlook for the third and fourth quarters fell short of analysts' consensus forecast.
   
The potential for a slowdown in consumer spending -- which has been a major prop for the economy -- has compounded investors' worries over a shrinking of available credit due to widespread problems in the subprime mortgage market.
   
In other corporate news, agricultural equipment maker Deere & Co. reported profit climbed 23 percent in the fiscal third quarter -- topping analyst estimates -- as sales growth overseas offset falling sales in the U.S. and Canada.
   
Packaged foods maker Sara Lee Corp. said profit swelled above market expectations as sales climbed in nearly every division. The maker of Jimmy Dean sausage and Sara Lee baked goods posted net income of $117 mln versus $8 mln a year ago.
   
In afternoon trading, Britain's FTSE 100 lost 1.48 percent, Germany's DAX index slipped 0.77 percent, and France's CAC-40 dropped 1.54 percent.
  
Light, sweet crude rose 90 cents to $73.29 in premarket electronic trading on the New York Mercantile Exchange, as Tropical Storm Dean strengthened in the Caribbean and headed west -- posing a potential, if still distant, threat to oil installations in the Gulf of Mexico.

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Norwegian krone benefits from Norges Bank rate hike

LONDON - The Norwegian krone gained ground against other currencies after the central bank raised interest rates, as widely expected.
   
The central bank, or Norges Bank, lifted its sight deposit rate by a quarter point to 4.75 pct, saying that it was concerned that inflation would rise too high unless borrowing costs are increased.
   
The market had been widely expecting the move, so the krone's gains were limited. It did manage, however, to push the euro back below 8.00 nkr, touching 7.98 nkr after the announcement from 8.02 nkr. The krone likewise gained on the US dollar, which inched down to 5.92 nkr from 5.95 nkr previously.
   
The Norwegian krone had weakened slightly over the past few days on ongoing fears of a credit crunch in financial markets. Because Norway is an oil exporter, the krone tracks oil prices, and the fall in stock markets has in recent days led to softer oil prices and a retreat in the krone.
   
The dollar stayed well bid as stocks market got off to another round of falls after a dismal performance on Wall Street overnight.
   
While the fallout on US sub-prime sector has rendered the country's credit market a no-go area, funds are flocking to US fixed income assets -- a key factor boosting the dollar.
   
Notably, the euro slipped under 1.35 usd for the first time since end June, the drop all the more noticeable as the euro had stood over 1.38 usd just a week ago.
   
In line with the trend of risk aversion, the yen was higher across the board, much at the expense of higher yielding currencies such at the Aussie and Kiwi dollars.
   
Elsewhere, the pound's falls accelerated after news of a drop in wages and a dovish set of minutes from the Bank of England added to the argument that UK interest rates have already peaked.
   
The UK currency had started the day on the back foot after surprisingly weak inflation figures were released yesterday.

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Euroshares fall midday as Wall Street set to fall again, credit concerns persist

LONDON - Europe's leading exchanges remained lower midday as ongoing fears over hedge fund and bank exposure to the US subprime market looks set to weigh.
   
Volume was thinner than usual, with the Vienna and Milan markets closed for a public holiday, and bank holidays across a number of Euronext markets.  At 13.20 am, the Dow Jones STOXX 50 Index was down 39.8 points, or 1.09 pct, at 3,635.07, while the DJ STOXX 600 Index fell 4.06 points, or 1.11 pct, to 362.88.
   
In Europe, strategists are looking for further clues on the next moves from Europe's central banks.
   
"The most interesting event of the session could be the Norgesbank meeting and statement," ABN Amro told clients. "A decision to not hike rates would act as a signal that other G10 Central Banks also in the midst of a rate hike cycle might also move into a holding pattern."
   
Earlier, a dovish set of minutes from the Bank of England and an unexpected fall in UK earnings growth added to a growing conviction among strategists that UK rates have peaked at 5.75 pct.
   
ABN Amro, though, said that the BoE would have to be convinced that recent market stress will continue before calling a halt to rate hikes. For the moment at least, there seems little doubt, with European markets all weaker again and financials feeling the worst of ongoing credit crunch concerns.
   
Eight out of the ten top decliners on the DJ STOXX 50 were financial plays. Societe Generale led the fallers, sliding 2.9 pct, even as the French bank denied market rumours of heavy losses at its Lyxor Asset Management fund.
      
Among other notable decliners, BNP Paribas fell 3.54 pct and Credit Agricole dropped 2.85 pct, while Allied Irish Banks fell 3.01 pct and BBV Argentaria fell back 2.36 pct.
   
In the UK, the banking sector was further depressed as Standard Chartered, Barclays, Royal Bank of Scotland and HSBC all trade ex-dividend. Shares were down 4.01 pct, 2.9 pct, 4.01 pct and 1.34 pct respectively.
   
Deutsche Bank was down 3.19 pct after Merrill Lynch downgraded its stance to 'neutral' from 'buy', and UBS fell a further 2.28 pct after Cheuvreux cut its recommendation to 'outperform' from 'selected list'. Credit Suisse cut its rating on the Swiss banking group to 'neutral' from 'outperform' yesterday after the banking group's bearish outlook statement.
   
And French insurer Axa shed 2.19 pct after Credit Suisse cut its recommendation to 'neutral' from 'outperform'.
   
Other blue chip fallers included Carrefour -- down 2.16 pct -- which was dragged down by US giant Wal-Mart's gloomy outlook yesterday.
  
EON dipped 0.52 pct after the German utility company posted second-quarter earnings, which traders said were at the low end of analyst expectations. Analysts generally were not too worried by the numbers and were reassured by the reiterated full year forecast.
       
And Nestle was a bright spot. The Swiss food giant's shares stormed 7.03 pct higher after it reported a better-than-expected set of half-year results, announced a 25 bln sfr buyback and raised its full year guidance.
     
France Telecom -- up 1.02 pct -- added to gains yesterday after internet reports this week that the French incumbent's Orange unit is close to securing a deal with Apple to sell the iPhone in France.
   
Volkswagen added 0.92 pct, with traders pointing to rumours Porsche AG might be considering raising its stake in Europe's largest auto maker.

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Indonesian share prices ended the morning session sharply lower Wednesday in the wake of Wall Street's fall on concern that the effects of the problems in the US subprime mortgage market will persist.
   
The weakening of the Indonesian rupiah also depressed prices. At the break, the composite index was down 115.62 points or 5.3 percent at 2,053.02.
   
The LQ-45 index was down 24.93 points at 426.51. Losers led gainers 214 to four, with 10 stocks unchanged. The volume traded was 1.99 billion shares valued at 2.05 trillion rupiah. The rupiah was at 9,398 rupiah to the US dollar, compared to 9,355/9,360 rupiah late Tuesday.

Share prices in Taipei closed sharply lower following big drops on overseas bourses amid continuing worries over the fallout of US subprime mortgage loans problems and deteriorating global credit environment. The weighted index closed down 317.95 points or 3.57 pct at 8,593.04, its lowest level since June 15 when it finished at 8,573.64. The index moved in a range of 8,808.59 and 8,561.02. Turnover was 163.46 bln twd.

New Zealand share prices closed sharply lower Wednesday amid renewed turmoil in world markets and with foreign investors selling local shares as the New Zealand currency dived.
       
The benchmark NZSX-50 index fell 61.22 points or 1.53 percent to 4,004.46 on moderate turnover worth 134.7 million New Zealand dollars. The New Zealand dollar closed local trading at 71.65 US cents, down from 73.20 on Tuesday.

Australian shares closed sharply lower Wednesday as concerns about the state of credit markets outweighed a raft of mostly positive earnings reports. The S&P/ASX 200 closed down 176.8 points or 3.0 percent at 5,788.0, its low for the day. The high was 5,933.6. The benchmark index has now shed more than 10 percent of its value since reaching a record high on July 24, and is back to its levels in mid-March.
   
The All Ordinaries index fell 181.0 points or 3.0 percent to 5,801.5. Losers beat gainers 1,351 to 144, with 199 stocks unchanged. Volume traded reached 3.24 billion shares worth 8.12 billion Australian dollars.

Jakarta shares extended losses on Wednesday afternoon amid worries that fallout from the US subrime mortgage trouble is set to continue, causing more global market volatility. A weaker rupiah added to the negative sentiment, while some investors cut holdings ahead of an upcoming long weekend with the market to close Friday for the country's Independence Day holiday. At 2.18 pm, the composite index was down 121.89 points, or 5.6 percent, at 2,046.75.

Japanese share prices closed sharply lower Wednesday, with the benchmark Nikkei index at its weakest level in eight months, as investors fretted about the continuing fallout from the credit crisis in the
US.
   
The blue-chip Nikkei 225 Stock Average closed 369.00 points or 2.2 percent lower at 16,475.61, but off the day's low of 16,433.30. It was the index's weakest finishing level since Dec 8, when it settled at 16,417.82.
The broader TOPIX index shed 43.31 points or 2.6 percent at 1,594.15, after touching a low of 1,590.56.
    
In Hong Kong, the Hang Seng Index closed down 631.60 points or 2.87 pct at 21,375.72, off a low of 21,303.35 and high of 21,637.50. Turnover was 77.81 bln hkd.

Malaysian shares closed sharply lower Wednesday, with construction, property and industrial stocks bearing the brunt of the latest global sell-off, triggered by fears the US subprime crisis may be
prolonged.
   
The Kuala Lumpur Composite Index (KLCI) closed down 36.52 points or 2.8 percent at 1,251.82, off an intraday low of 1,247.31 and a high of 1,277.01. The FTSE Bursa Malaysia 30-large cap index lost 179.18 points or 2.2 percent to 7,950.13 and the second board index dropped 3.16 points or 2.9 percent to
103.89.

Thai share prices closed sharply lower Wednesday as investors continued to dump stocks on lingering worries over the US subprime mortgage crisis.
       
The Stock Exchange of Thailand (SET) composite index dropped 19.90 points or 2.51 percent to 773.92 and the blue chip SET 50 index lost 15.98 points to 548.47. The Thai baht fell slightly from Tuesday's close, finishing at 34.15-17 to the dollar. Against the euro, the Thai currency was quoted at 46.05-13 from 46.63-71.

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Base metals continue lower into the afternoon as credit woes continue

LONDON - Base metals continued lower across the board in afternoon trade, as ongoing weakness in the European equity markets and a lower opening on Wall Street outweighed more bullish news on Chinese demand and strikes in Latin America.
   
In-line US industrial production numbers and a marginally better-than-expected August reading from the Empire State Manufacturing Index had little impact on the markets.
   
Weakness in global equities has led institutional investors to liquidate their positions in the metals markets to cover losses elsewhere, and has unleashed a wave of risk aversion with regard to 'riskier' assets such as commodities.
   
Strength in the dollar, which has been heavily bid in response to the crisis, is adding to the pressure on metals, analysts said.
   
"European equities are 1 pct lower on average... following on from the poor close to Asian stocks and US stocks in overnight trading," said Michael Jansen, an analyst at JP Morgan. "The US dollar has risen for three straight days. This backdrop is almost universally bearish for the metals complex and is overriding what has been a relatively good set of data overnight, including an 18 pct expansion in Chinese industrial production."
   
At 2.38 pm, copper for three month delivery had dipped to 7,330 usd against 7,420 usd at the close yesterday.
   
Among other base metals, nickel eased to 26,900 usd from 27,300 usd, while lead slid to 2,965 usd from 3,006 usd. Tin slipped to 13,725 usd from 14,290 usd, zinc eased to 3,222 usd from 3,299 usd, and aluminium dropped to 2,535 usd from 2,553 usd.

Gold continued to fall on dollar strength and as players liquidated positions in a bid to raise cash to cover losses on equity markets.
   
The precious metal moves in the opposite direction to the US currency as it's seen as an alternative asset and dollar strength makes gold more expensive for those trading in other currencies.
   
"Gold prices slumped in a disconcerting manner overnight and early Wednesday, as more liquidations hit the market in the wake of renewed global credit problems-driven turmoil," said Kitco analyst Jon Nadler.
   
At 1.45 pm, spot gold was trading at 662.75 usd an ounce against 669.00 usd in late New York trade yesterday.
   
The precious metal has lost around 1 pct so far this month as investment flows have been coming in and out amid shaky global markets, rocked by worries over US subprime loan defaults and fears of a worldwide credit crunch. While some players sold gold to raise cash and cover losses elsewhere, others bought the yellow metal as it is traditionally seen as a safe haven asset.
       
Platinum fell to 1,258 usd against 1,271 usd yesterday, having dipped to as low as 1,255 usd, the lowest level since late May. In other precious metals, silver was down at 12.39 usd from 12.72 usd while palladium was also down at 342 usd from 350 usd.

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