US & World Daily Markets Financial Briefing 15-10-2007

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Stocks fall amid earnings, spiking oil

NEW YORK - Stocks fell moderately Monday as investors parsed quarterly corporate results and weighed news that major U.S. banks will set up a fund to help bail out the credit markets. Bonds fell after an upbeat economic reading.
   
The stock market's modest moves early Monday comes as investors await third-quarter reports due this week from more than 80 members of the Standard & Poor's 500 index and as investors saw oil push to new highs.
   
Citigroup Inc., the nation's biggest financial institution, reported that third-quarter results fell 57 percent because of investments in mortgage-backed securities. The drop wasn't as severe as the company had warned could occur.
   
The bank -- along with JPMorgan Chase & Co. and Bank of America Corp. -- announced the creation of a fund used to help revive the asset-backed commercial paper market.
   
The fund will buy assets from structured investment vehicles, also known as SIVs, which buy corporate bonds and subprime mortgage debt. The bailout was orchestrated by the Treasury Department to avoid a fire sale in the market.
   
In the first hour of trading, the Dow Jones industrial average fell 20.89, or 0.15 percent, to 14,072.19.
   
Broader stock indicators also fell. The Standard & Poor's 500 index fell 1.73, or 0.11 percent, to 1,560.07, and the Nasdaq composite index slipped 2.61, or 0.09 percent, to 2,803.07.
   
Bonds fell sharply following a better-than-expected economic reading. The yield on the benchmark 10-year Treasury note rose to 4.70 percent from 4.65 percent late Friday. The dollar was lower against most other major currencies, while gold prices rose.
   
Light, sweet crude rose to record levels, jumping $1.45 to $85.14 per barrel in premarket electronic trading on the New York Mercantile Exchange as tensions rose between Turkey and Iraq, stirring concerns about the availability of supplies.
   
The week's economic calendar is light, putting more of the focus on quarterly results. On Monday, the New York Empire State Index -- a regional economic indicator published by the Federal Reserve Bank of New York -- came in better than expected for October. The index rose to 28.75 from September's 14.70.
   
Treasury Secretary Henry Paulson is expected to deliver a speech at the University of Texas during the session. Meanwhile, Fed Chairman Ben Bernanke is set to speak before the Economics Club of New York Monday night.
   
Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 102.9 million shares. The Russell 2000 index of smaller companies fell 3.10, or 0.37 percent, to 838.07.
   
Overseas, Britain's FTSE 100 fell 0.35 percent, Germany's DAX index fell 0.23 percent and France's CAC-40 rose 0.20 percent.

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Euro edging back up to all-time dollar high ahead of G7

LONDON - The euro is edging back up towards its highest ever level against the dollar as investors continue to sell the US currency ahead of this weekend's G7 meeting of finance ministers and central bankers in Washington.
   
With the US Treasury seemingly unconcerned by the slide in the dollar and the Europeans talking about the need to sort out global imbalances rather than direct comments on the US currency's weakness, market participants think little will be said in this weekend's communique.
   
"With the G7 stopping short of a direct call for a stronger dollar (or weaker euro), the dollar downtrend should extend further," said Steve Pearson, currency strategist at HBOS.
   
Earlier the euro hit a high of 1.4242 usd, not far off its all-time high of 1.4282 usd, achieved at the start of October.
   
Even strong US data of late has done little to stem the dollar selling tide and investors will be keeping a close eye on a speech on the economic outlook this evening from US Federal Reserve chairman Ben Bernanke.
   
The market's conviction that last month's 50 basis point rate reduction from the Fed marked the start of a series of rate cuts has diminished sharply because of relatively firm US data and record oil prices.
   
The Fed slashed its benchmark interest rate by 50 basis points last month to 4.75 pct as it sought to restore market confidence following the onset of the credit crunch.
   
Dealers said they were also closely monitoring the Chinese Communist Party's 17th Congress which opened Monday.
   
Chinese President Hu Jintao said in a speech that the Chinese yuan currency will "gradually" be made fully convertible, but provided no timetable for the move.
   
China regularly comes under fire from major trade partners for artificially keeping down the value of its currency in order to make its exports cheaper on international markets.

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Euroshares edge lower midday on profit taking, Philips; oil sector outperforms

LONDON - Leading European shares traded slightly lower as some investors chose to lock in recent gains, with Philips a notable decliner after analysts expressed disappointment over the performance of its medical equipment business in the third quarter.
   
But strength in oil and gas companies sparked by a fresh record high for crude prices put a floor under declines.
   
At 11.58 am the Dow Jones STOXX 50 Index was down 5.44 points, or 0.1 pct at 3,927 while the DJ STOXX 600 Index dipped 0.52 points to 390.11.
    
Turning back to Europe, Royal Philips Electronics NV extended early losses after the company cut its margin outlook for its medical systems division in the wake of third quarter results that showed a slowdown in sales growth for the business.
   
On a more positive note, Philips reported sales and operating profit (EBIT) ahead of market forecasts in the third quarter, driven by strength in its lighting and consumer business. The Dutch electronics giant also said it will announce further steps in its programme to return cash to shareholders when it publishes its fourth quarter results.
   
In the banking sector, shares in Northern Rock plunged 24.6 pct as investors looked past takeover chatter and built fresh short positions amid some sceptical broker comment regarding hopes of a speedy resolution to the bank's plight.
   
The stricken UK mortgage bank confirmed it is in talks with potential buyers, but said the discussions were at a preliminary stage, and that there was no certainty as to their outcome.
   
Elsewhere in the sector, shares in Banco Santander SA rose 1.9 pct after both UBS and Societe Generale Securities resumed coverage on the stock with 'buy' ratings.
   
Wood processor and paper companies came under pressure after UPM-Kymmene warned that its third-quarter operating profit, excluding special items, will come in lower than last year's 209 mln eur, on the back of higher wood costs and a stronger euro. The warning came ahead of the company's third-quarter results due on Oct 30.
   
UPM-Kymnene shares tumbled 5.9 pct, dragging other sector players down with it. Norske Skog was down 4.8 pct, Stora Enso fell 3.9 pct while Holmen fell 2.9 pct and M-Real slumped 6.5 pct.
   
Over in France, LVMH shares climbed 3.3 pct, topping the percentage gainers on the Euro STOXX 50, an index which tracks blue-chip performance in 12 countries using the euro.
   
The luxury goods maker posted a 15 pct growth in third-quarter organic sales ahead of consensus forecasts for growth of 11 pct to 13 pct. The company reiterated its guidance for a "significant increase in its results in 2007", supported by its brand momentum.
   
Hennes & Mauritz climbed 1.5 pct after the Swedish fashion group said its sales in Sept rose 25 pct year-on year, while market expectations were for a 20.8 pct rise, according to a survey of analysts by SME Direkt.
   
On the M&A front, Air Liquide shares gained 1.4 pct as talk that US chemical giant Dow Chemical could be looking to buy the French group circulated again.
   
Meanwhile, Gaz de France and Suez said they expect to complete their planned merger in the first half of 2008, after which the new company, GDF Suez, will have "sustained profitable growth". EBITDA is seen rising 10 pct in 2008, and will reach 17 bln eur by 2010.
   
GDF Suez has targeted an average annual dividend rise of 10-15 pct through 2010, based on GDF's 2007 dividend payout. GdF shares were up 17 pct while Suez gained 1.8 pct.
   
The oil and gas sector surged as oil hit fresh-all time highs in London and New York, as continuing supply concerns were reinforced by heightened tensions between Turkey and Kurdish rebels in northern Iraq. BP was up 2 pct, Total gained 2.1 pct while Royal Dutch Shell rose 2 pct.

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Asian stocks mixed ahead of US data; Hong Kong, Shanghai set records

SINGAPORE  - Stock markets across Asia ended mixed Monday with the Japanese and Australian benchmarks limping after recent gains while Shanghai and Hong Kong set fresh records as investors continued to bet on the China growth story.
   
Most regional markets were flat as investors marked time ahead of some key US data and the start of third-quarter earnings season with heavyweights including Citigroup, Google and Intel due to report this week.
   
Shanghai and Hong Kong outperformed, after Chinese President Hu Jintao told the Communist Party Congress that China will improve the overall competitiveness and structure of its capital markets. The Shanghai Composite index was the top performer in the region with a 2.2 pct gain to 6,030.
   
The Hang Seng also stretched into record territory and closed up 2.4 pct at 29,540.78. Chinese fund managers and banks allowed to trade Hong Kong shares under the Qualified Domestic Institutional Investor (QDII) program are buying shares of Chinese companies traded in the city, which are still cheaper compared to their mainland counterparts. "The market is driven by liquidity coming from the mainland and other countries who want to cash in on Hong Kong's record runs," said Howard Gorges, vice chairman at South China Securities.
   
Meanwhile, Japanese shares closed mixed, with the benchmark Nikkei index finishing moderately higher on perceptions the US economy remains sturdy based on recent economic data. The Nikkei 225 closed up 0.2 pct at 17,358.15, while the broader TOPIX fell 0.1 pct to 1,657.44.  In Tokyo, gainers included marine transportation, non-ferrous metal producers and air transportation stocks.
   
In Sydney, the S&P/ASX 200 ended down 0.2 pct at 6,739 after reaching a record 6,800.7. The All Ordinaries lost 0.1 pct to 6,751.6 as weakness in the banking sector weighed against gains by the big miners.
   
The Shanghai A-share Index rose 133.51 points or 2.15 pct to 6,330.48 and the Shenzhen A-share Index was up 7.82 points or 0.49 pct at 1,602.14. China B-shares closed mixed with the Shenzhen index dragged down by large property developers, as the latest credit tightening move by the central bank dampened sentiment in the sector, dealers said. The Shanghai B-share Index rose 4.89 points or 1.28 pct to 387.14 and the Shenzhen B-share Index fell 6.91 points or 0.90 pct to 759.61.
       
South Korean shares closed higher, reversing early losses in a late rally as retail investors bet strong third quarter earnings will push the KOSPI index to fresh highs. Sentiment was also boosted by a strong performance by Chinese shares, even after the central bank raised the reserve requirement for commercial banks by half a point. The KOSPI closed up 0.4 pct at 2,035.39.
   
In Taiwan, the local bourse initially took a lead from the firmer US markets, but encountered pressure as companies with operations on the mainland saw some selling on fears of more macro-economic measures in China after the country's latest decision to raise bank reserve requirements.

Indian shares rose over 3.5 pct to close over the psychologically-important 19,000 points mark, as foreign funds continued to bet heavily on emerging markets to spearhead future global growth.
   
The Bombay Stock Exchange's benchmark Sensex closed 3.47 pct or 639.63 points higher at 19,058.67. It had earlier hit an all-time high of 19,095.75 points. The National Stock Exchange's S&P CNX Nifty rose 4.46 pct to 5,670.40. Among the BSE 30, 28 shares gained and 2 lost. In the broader market, 1,899 shares advanced, 875 declined and 64 were unchanged.
   
The Straits Times Index closed up 4.77 points or 0.1 pct at 3,862.02. Malaysian and Indonesian markets were closed for a public holiday.

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Copper consolidates at higher levels, sentiment remains upbeat

LONDON  - Copper consolidated following earlier  gains, as traders took in better-than-expected US manufacturing data and continued to bet supply-demand balances will tighten going into next year.
   
Data out in the US earlier showed the Empire State manufacturing index nearly doubled to 28.75 in October. Economists had expected a small drop to 14.00 after the index's 10-point plunge to 14.70 in September.
   
"With the metals heading higher, this better-than-expected manufacturing data will be seen as supportive for metal demand," said BaseMetals.com analyst William Adams.
   
At 2.25 pm, LME copper for three-month delivery was up at 8,220 usd per tonne against 8,015 usd at the close on Friday, having hit an intra-day high of 8,261 usd per tonne earlier, its highest point in more than a week.
   
The gain in copper came despite a 1,500 tonne daily increase in LME stocks to 139,650 tonnes. The rise was the tenth in a row and took overall stocks to their highest since May.
   
"General bullish sentiment in the base metals complex is lifting certain markets that are tight. We think copper and lead would be outperformers," said Standard Chartered analyst Dan Smith.
   
He added the rise in copper was particularly noteworthy as last week's strike at Southern Copper Corp's facilities in Peru has ended and as Chinese buying remains muted at these high levels.
   
Elsewhere, lead hit a new all-time peak as historically low LME inventories, continuing supply disruptions in Australia, strong demand from the battery industry and low Chinese exports continued to boost the metal.
   
Lead for three-month delivery rose to 3,850 usd per tonne from 3,764 usd in afternoon trades, having hit a new record of 3,890 usd per tonne earlier this morning.
   
The LME said in a daily report today lead stocks held in its warehouses rose 25 tonnes to total 22,500 tonnes. However, overall stocks remain near their lowest levels since 1990.
   
Three-month nickel was up at 32,700 usd per tonne against 31,975 usd, boosted by a second consecutive fall in LME inventories, this time by 144 tonnes to a total of 36,036 tonnes.
   
Aluminium rose to 2,500 usd per tonne, basis three months, from 2,470 usd, while tin climbed to 16,550 usd against 15,950 usd and zinc went up to 3,168 usd from 3,060 usd, boosted by a 100-tonne decline in LME inventories.

Gold rose to a 28-year peak as the dollar weakened further against the euro and as oil prices held near new record levels set on Friday, sparking inflation concerns. Meanwhile, platinum set a new all-time record on continuing supply worries in South Africa.
      
At 11.04 am, spot platinum was quoted up at 1,422 usd per ounce against 1,417 usd in late New York trades on Friday, having earlier set a new all-time record high of 1,425.00 usd per ounce.
   
Spot gold was up at 755.93 usd per ounce against 748.75 usd in late New York trading, having earlier climbed to 756.58 usd -- its highest point since January 1980.

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