US & World Daily Markets Financial Briefing 16-10-2007

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Stocks dip on Bernanke's sobering words

NEW YORK - Wall Street extended its retreat Tuesday after Federal Reserve Chairman Ben Bernanke said the night before that the slumping housing market remains a "significant drag" on the economy.
   
Bernanke's comments during a speech at the New York Economic Club revived concerns that a recovery from the summer's credit crisis might take longer than expected -- a sobering thought for investors, who are sifting through mixed third-quarter earnings and watching energy costs rise.
   
The stock market had its biggest drop in more than five weeks Monday after a consortium of banks led by Citigroup Inc., which reported a steep profit decline that day, announced plans to set up a fund to help bail out the credit markets.
   
On Tuesday, Wells Fargo & Co. shares fell more than 3 percent after the bank said its third-quarter earnings increased by a bit less than analysts anticipated, and that it boosted loan loss reserves in anticipation of further problems in consumer credit. KeyCorp shares also fell more than 3 percent after the Midwest regional bank posted a 33 percent drop in third-quarter profit.
   
In early trading, the Dow Jones industrial average fell 47.15, or 0.34 percent, to 13,937.65.
   
Broader indicators also fell. The Standard & Poor's 500 index slipped 6.96, or 0.45 percent, to 1,541.75, and the Nasdaq composite index dipped 14.29, or 0.51 percent, to 2,765.76.
   
Treasury bond prices rose, pushing down the yield on the 10-year Treasury note to 4.67 percent from 4.68 percent at Monday's close. Prices and yields move in opposite directions.
   
Bernanke said in his speech that the deepening housing slump probably will be a drag on economic growth. Still, he again pledged to "act as needed" to help financial markets that were sent reeling this summer.
   
He did say that inflation remains in check. That could be a key factor for policymakers when deciding whether to cut interest rates at their Oct. 30-31 meeting.
   
But while core inflation -- which excludes volatile food and energy prices -- is mild, oil prices are pushing further into record territory.
   
Despite expectations of higher inventories in the weekly U.S. supply report released on Wednesday, a barrel of light, sweet crude rose 51 cents to $86.64 on the New York Mercantile Exchange, on fears Turkey will pursue Kurdish rebels into Iraq and disrupt oil supplies in the region.
   
Investors will get some more economic data on Tuesday with the National Association of Home Builders/Wells Fargo housing market index for October scheduled to be released at 1 p.m. EDT. The report is expected to show a decline from September.
   
Britain's FTSE 100 fell 0.42 percent, Germany's DAX index fell 0.36 percent, and France's CAC-40 fell 0.87 percent.

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Pound falls as soft inflation figures boost rate cut expectations

LONDON - The pound was lower against all major currencies following the release of figures showing UK inflation remained well below the Bank of England's target during September.
   
The Office for National Statistics said the annual CPI inflation rate remained at 1.8 pct in September, the same rate as in August, against analyst expectations for a slight rise to 1.9 pct.
   
This means CPI has been below the BoE's 2.0 pct target rate for three months running and has weighed on sterling since it raises expectations that UK interest rates could be cut before the end of this year.
   
Daragh Maher, currency strategist at Calyon, said the figures have "invariably got the market wondering whether the Monetary Policy Committee might be tempted into a rate cut at the November meeting, ahead of the new set of CPI and growth forecasts in its next Quarterly Inflation Report".
   
Meanwhile a slightly stronger-than expected German economic expectations survey did little to prevent the euro from dropping further against the dollar.
   
The ZEW research institute said its October economic expectations index for Germany was at -18.1, unchanged from September, beating the consensus estimate of -22.0. However the current conditions component did decline - falling by four points to 70, meaning the question of whether the next move in euro zone interest rates will be up or down remains firmly in the balance. 
   
Falls in European stock markets meanwhile have helped the dollar continued to rise from yesterday's lows as risk aversion rises.
   
Major global equity markets closed down yesterday, and most exchanges in Europe have all been trading lower today, hit by rising oil prices and rising political tension between Turkey and the US. This has led to support for the dollar as investors opt to buy safe-haven assets such as US Treasuries.
   
The greenback has also gained a boost from comments by European Central Bank President Jean-Claude Trichet who reiterated previous statements that US authorities want a strong dollar. Trichet also said that the Chinese yuan should be allowed to appreciate, boosting expectations that exchange rates will be on
this weekend's G7 meeting agenda.
   
"We believe that the market is too complacent about the outcome of the G7 meeting on October 19 and see a non-negligible risk that the G7 statement will call for a faster appreciation of Asian currencies against the dollar in general and will explicitly object to yuan and yen weakness," said Niels From, currency analyst at Dresdner Kleinwort.
   
The only US data due out this afternoon are industrial production figures, which are expected to show a modest 0.1 pct rise in September after a 0.2 pct increase in August.   

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Euroshares lower midday, Ericsson plunges by a third of its value

LONDON - Europe's leading exchanges continued to trade lower midday, with Ericsson performing a nosedive, losing almost a third of its value, on the back of its profit warning issued earlier in the session.
   
At 12.12 am, the Dow Jones STOXX 50 Index was down 43.27 points, or 1.11 pct, at 3,852.56 while the DJ STOXX 600 Index was off 3.67 points, or 0.95 pct, at 383.28.
   
Ericsson's shares shed close to a third of their market value, down 29.26 pct, after it cut its guidance due to a shortfall in revenues from mobile network upgrades and expansions, which also hurt profit margins.
   
Peer Alcatel-Lucent dropped 5.51 pct following the announcement and as WestLB Research downgraded the Franco-American group to 'reduce' from 'hold'. "We believe Alcatel will face severe top-line and margin issues in its mobile business," the broker said in a note to clients.
   
Nokia fell 3.12 pct and in Norway, Eltek lost 8.37 pct. Siemens shares were 3.16 pct lower, also weighed down by vague rumours that it was preparing to issue a profit warning.
   
In the banking sector, Northern Rock shares fell 3.4 pct, extending heavy losses as a number of potential acquirers for the embattled UK mortgage lender pointed to a protected struggle to take over the company.
   
Private equity firm JC Flowers is expected to submit a firm proposal for Northern Rock in the next two to three weeks and believes that it is further ahead than the Virgin Group-led consortium, the Times reported, citing sources close to the US investment group.
   
Over in the Netherlands, Advanced Metallurgical Group shed 8.7 pct on the back of rumours that Credit Suisse placed some 5.3 mln shares in the Amsterdam Euronext-listed company in an accelerated bookbuild.The placing represents around 20 pct of shares in issue.
   
In earnings news, Roche slid 3.00 pct after the Swiss pharma giant reported 9-month sales fell short of analyst expectations. Analysts expressed concern that sales in diagnostics and pharma were weaker than expected. While drugs like Avastin and Rituxan performed well, Herceptin and Tarceva were under pressure, they pointed out.
   
A Paris-based trader said: "This is where Roche's refusal to give earnings data on a quarterly basis will hurt them as the bulls will have nothing to back up their margin improvement stances."
   
SKF shares fell 3.7 pct after the Swedish engineering group's profit margins in the third quarter disappointed.
   
And shares in French retailer Carrefour were 1.12 pct lower with investors remaining cautious ahead of the retailer's third-quarter results which are due after the market closes later today.
   
Analysts highlighted concerns over the impact of the Galland law under which retailers are prohibited from selling products below their invoice cost.
   
Peer Ahold lost 1.19 pct after Dresdner Kleinwort cut its stance on the stock to 'add' from 'buy', highlighting Ahold's 15 pct outperformance in comparison to the European market since July and said it will leave its estimates unchanged for the moment given the weaker US dollar.
   
Elsewhere, the tech-sector is in focus, with Soitec climbing 3.0 pct after the semiconductor component maker said it expects to post an operating profit for its second half as sales recovered in the second quarter following a sharp plunge in the first. Its upbeat outlook prompted Fortis to upgrade the company to 'buy' from 'hold'.

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Asian stocks track Wall St as credit worries resurface, China rallies

SINGAPORE - Stock markets across Asia fell Tuesday, tracking Wall Street's decline on renewed concerns about the crisis in credit markets and worries that record oil prices will dampen consumer spending in an already slowing economy.
   
In Tokyo, Nomura finished down 10 yen or 0.5 pct at 2,070 after it said it is pulling out of the residential mortgage-backed securities (RMBS) market in the US in view of ballooning losses stemming from US subprime loans. Japan's biggest brokerage also said it will cut its staff in the US to 900 from 1,300 as it closes its RMBS division and reduces broker-dealer operations as it struggles to turn around its remaining US operations. The Nikkei closed down 1.3 pct at 17,137.92 and the broader TOPIX fell 1.9 pct to 1,625.25.

In Sydney, the S&P/ASX 200 lost 0.7 pct at 6,692 while the All Ordinaries was down 0.6 pct at 6,711.3.
   
Chinese shares continued to rally, with banks leading the charge in Shanghai. China Merchants Bank gained 0.96 yuan at 42.08 after it said net profit for the first nine months is expected to be up more than 100 pct from a year earlier. China Construction Bank rose 0.18 yuan to 10.13 after joining the Shanghai Composite Index today. Industrial and Commercial Bank of China added 0.29 yuan at 8.15. The Shanghai Composite closed up 61.97 points or 1.03 pct at 6,092.06.
   
The Hang Seng index closed down 586.23 points or 1.98 pct at 28,954.55. "Today's fall is no big deal. Our market gained more than 700 points yesterday and we're just slightly above where we were yesterday," Tony Espina, chairman of the Hong Kong Stockbrokers Association, said.

"When the key index approached the 30,000 points level this morning, strong resistance was met and this triggered profit-taking, with property counters taking the strongest hit among different sectors," Espina said.
   
In Malaysia, the Kuala Lumpur Composite closed down 2.87 points or 0.2 pct at 1,372.38. The Philippines Composite closed down 1.2 pct at 3,815.22. Singapore's Straits Times Index fell 1.3 pct to 3,810.72.
   
South Korea's KOSPI ended down 1.5 pct at 2,005.76. Steel maker POSCO finished down 0.9 pct at 669,000 won before reporting third-quarter earnings that fell short of expectations. The company said operating profit increased to 1.07 trillion won in the third quarter thanks to its strategic focus on upscale products, up 0.8 pct from a year ago. But the number was below the 1.25 trillion won earned in the second quarter and the consensus forecast of 1.13 trillion won.
   
Indian shares closed nearly flat after volatile trade as purchases by foreign funds offset the downward pressure exerted by overnight losses on Wall Street which took a toll on the broader Asian market.
   
The Bombay Stock Exchange's benchmark Sensex closed 0.04 pct or 6.81 points lower at 19,051.86. It had hit a low of 18,777.75 points before recovering on the back of foreign fund inflows. The share market barometer had earlier opened higher and risen to a record 19,174.45 points on brisk buying in select
blue-chip stocks.  
   
Among the BSE 30, 12 shares gained and 18 lost. In the broader market, 1,212 shares advanced, 1,543 declined and 62 were unchanged.

The Indonesian market was closed for a public holiday.

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Gold retreats back below 760 usd after rushing to fresh 28-year high

LONDON - Gold retreated below 760 usd after rushing to a fresh 28-year high earlier as geopolitical tensions between Turkey and Kurdish rebels attracted safe haven buying and inflationary hedging against record oil prices.
   
Ankara is currently discussing military action in Iraq's autonomous Kurdish region, which it believes the separatist guerillas of the Kurdistan Workers' Party (PKK) are using as a base to launch raids against Turkish military and civilian targets.
   
The tensions have sparked fears that rebels may target key Middle East crude pipelines, pushing oil prices to fresh record levels in both London and New York and taking gold to multi-year highs.
   
"Safe haven buying is contributing to a further increase in gold prices with the new Turkish-Iraqi dimension to geopolitical instability in the Middle East," said analysts at Gold investments. "Oil is up due to the rising tensions between Turkey and Iraq."
   
At 1.28 pm, spot gold was down slightly at 756.80 usd per ounce against 757.30 usd in late New York trades yesterday, after market players booked profits when bullion jumped well above the 760 usd level. It hit a fresh 28-year high of 767.05 usd this morning -- its highest point since January 1980.
   
Gold tends to rise in line with oil prices as the metal is seen as an inflationary hedge against higher fuel costs, while geopolitical tensions tend to boost bullion by sparking safe haven buying.
   
However, some analysts have warned that gold has risen too quickly, and could benefit from a period of consolidation.
   
Elsewhere, platinum fell to 1,401 usd per ounce against 1,420 usd in late New York trades yesterday, when the metal touched an all-time high of 1,428.50 usd per ounce on supply concerns in South Africa.
   
"Given the already tight fundamentals and the likelihood for industrial action by South African mine workers we expect platinum to remain at record levels in the coming sessions, potentially testing above 1,450 usd an ounce," said TheBullionDesk.com analyst James Moore.
   
Silver slipped to 13.67 usd per ounce against 13.76 usd in late trades yesterday, while palladium fell to 359 usd per ounce against 372.00 usd.

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