US & World Daily Markets Financial Briefing 17-10-2007

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Stocks rebound on strong earnings

NEW YORK - Wall Street rebounded Wednesday after key earnings reports from JPMorgan Chase & Co. and Yahoo Inc. and other companies topped Wall Street forecasts.
   
Better-than-expected earnings reports helped investors shake some of their concerns about the ongoing housing slump and lingering problems in the credit markets. The market largely looked past weak housing data, while the Labor Department's reading on September consumer price inflation came in close to analyst expectations.
   
Strong results from component companies of the Dow Jones industrial average, including JPMorgan Chase, Altria Group Inc. and United Technologies Group Inc., helped encourage investors that third-quarter earnings overall might come in better than expected. And technology shares led the Nasdaq higher after robust earnings from Intel Corp., Yahoo Inc. and International Business Machines Corp. late Tuesday.
   
In early trading, the Dow rose 53.65, or 0.39 percent, to 13,966.59. The Standard & Poor's 400 index rose 9.35, or 0.61 percent, to 1,547.88, while the Nasdaq composite index rose 30.73, or 1.11 percent, to 2,794.64.
   
Wall Street's recovery followed two days of declines. Stocks slid Tuesday after banks including Wells Fargo & Co. and KeyCorp reported disappointing quarterly results due to the ongoing credit crisis. Meanwhile, investors were also spooked after Federal Reserve Chairman Ben Bernanke said the housing slump may drag on through next year.
   
JPMorgan Chase said third-quarter profit rose 2 percent record earnings in asset management helped the country's third-largest bank overcome hefty writedowns on its leveraged loans credit loss provisions resulting from the summer's credit market turmoil. Its shares rose $1.09, or 2.4 percent, to $46.20.
   
Yahoo said late Tuesday that third-quarter profit fell less than analysts had expected, raising hopes of a turnaround at the Internet search company. Yahoo gained $2.03, or 7.6 percent, to $28.72.
   
Chipmaker Intel posted a 43 percent increase in third-quarter earnings late Tuesday. The company's shares jumped $1.02, or 4 percent, to $26.50.
   
Beyond earnings, investors absorbed two economic reports that appeared to give the Fed more wiggle room in cutting rates. Central bankers will next meet Oct. 30-31.
   
U.S. consumer prices rose modestly last month, suggesting there are still inflation risks, but they likely wouldn't get in the way of an interest rate cut. The consumer price index rose 0.3 percent in September, reversing August's 0.1 percent decline. The core CPI, which excludes volatile food and energy prices, advanced 0.2 percent for a fourth-straight month.
   
Meanwhile, the Commerce Department said new home construction slowed to the weakest pace in 14 years during September. Housing starts plunged 10.2 percent to a seasonally adjusted 1.191 million annual rate, after falling 3.2 percent in August to 1.327 million.
   
Investors are still waiting for the Fed to release its Beige Book report at 2 p.m. EDT. The report gauges regional economic conditions based on data gathered by the Fed's 12 regional district banks.
   
Oil traded higher ahead of the Energy Department's weekly petroleum report, which is forecast to show crude and gasoline inventories rose last week. A barrel of light, sweet crude rose 36 cents to $87.97 on the New York Mercantile Exchange.
   
Britain's FTSE 100 rose 0.99 percent, Germany's DAX index rose 0.28 percent, and France's CAC-40 rose 1.01 percent.

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Dollar steady at lower levels ahead of US data

LONDON - The dollar was steady at lower levels against major currencies with attention turning to the raft of US data due out later today.
   
The Fed's assessment of the economic outlook for the US and home starts figures are predicted to be more important for market reaction than US inflation numbers.
   
"Given the great uncertainty over potential spill-over effects from housing and tight credit conditions on consumer and business spending, the Fed will likely give increased weight to up-to-date anecdotal reports found in today's Beige Book," said Mitul Kotecha at Calyon.
   
He expects the Fed to cut interest rates by 50 basis points by year-end based on the weak macro growth outlook even though some sections of the market have been placing a lot of weight on reasonably solid near-term activity indicators such as revised payroll data and better-than-expected September retail sales.
   
Today's data is expected to support Fed chief Ben Bernanke's view that the US housing market will be a significant drag on growth in the fourth quarter and through early next year, he added. "We look for homebuilding to continue to slow in September, with starts at a 1.28 mln-unit annual rate," said Kotecha.
   
That aside, US inflation numbers are not predicted to move markets. "Today's US CPI won't have any strong market impact since inflation is not the major concern of the market, especially right ahead of the G7 meeting, said Antje Praetcke at Commerzbank said.
   
Exchange rates are expected to appear on the G7 meeting agenda, happening this weekend in Washington.
   
Elsewhere, the pound came under pressure after it was revealed that one UK rate setter voted for a rate cut earlier this month. Additionally, the rate setting deliberations were seen as dovish.
   
The minutes to the rate setting meeting showed that the debate of the meeting centred on how the turmoil in the financial markets over the past couple of months has affected the economy and whether a "precautionary" rate cut was necessary.
   
Also out today, UK labour market data showed a modest pick up in wages but the gains are still too small to spark off inflationary concerns.
   
Meanwhile, the yen succumbed to increased risk appetite, with the strengthening equity markets helping to improve the tone for the high risk carry trade.

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Euroshares up midday as earnings please; Heineken, Carlsberg confirm eyeing S&N

LONDON - European leading exchanges were higher midday as the Dow looks set to post strong opening gains after a number of bullish earnings statements on both sides of the Atlantic, and as Carlsberg and Heineken confirmed that they are eyeing Scottish & Newcastle.
   
At 12.38 am, the Dow Jones STOXX 50 added 19.61 points or 0.51 pct to 3,883.39, while the STOXX 600 rose 2.95 points or 0.77 pct to 386.97.
       
ASML Holdings NV reported a stronger than forecast set of third-quarter earnings and issued an upbeat outlook. Infineon added 2.4 pct, STMicroelectronics was up 1.34 pct and CSR added 2.1 pct.
       
On a morning filled with M&A rumours, Scottish & Newcastle stormed 18.85 pct higher as Carlsberg and Heineken confirmed the pair are in talks to form a consortium to make a bid for the UK brewing group. Dealers said they believe the deal could be priced between 750 and 800 pence per share.
   
Carlsberg and Heineken added 2.25 pct and 3.33 pct respectively. The news also lifted Inbev 3.86 pct. Grolsch added 3.88 pct and SABMiller was up 3.85 pct.
   
Shares in Franco-Belgian bancassurer Dexia rose 2.08 pct as dealers cited rumours of a possible bid for the bank by French peer Societe Generale SA, and analysts noted that the bank is benefiting from the current credit environment.
   
Shares in Muenchener Re were 0.66 pct lower after the reinsurance giant announced that it is taking over US speciality insurer the Midland Company for about 1.3 bln usd as part of its recently introduced US strategy, but for a price tag which several analysts said looked expensive.
   
In Switzerland, Julius Baer Holding AG shed 1.5 pct after denying reports that said it is considering a sale of GAM, its independent fund manager.
   
Later today, investors will turn an eye towards the US markets, where the Federal Reserve's Beige Book will provide the market with a glimpse of the Fed's thoughts on the current state of the economy.
   
Elsewhere, earnings news drove gains. Groupe Danone rose 5.04 pct as its optimistic outlook offset the disappointment of its third quarter sales figures.  "Third quarter sales figures were a touch below consensus estimates, but the group was optimistic about the outlook up to the end of the year, and confirmed its guidance," a local dealer said.
   
Carrefour added 3.84 pct as investors felt reassured by the group's comments on the French retail market. Although third quarter numbers contained little surprise, Deutsche Bank analysts said the main element to focus on was Carrefour's take on the macro environment.
   
CAC-listed Thomson SA charged up 5.66 pct after news that it plans to exit its European AV and accessories (AVA) activities in a long-awaited restructuring move that will lead to exceptional charges totalling around 90 mln eur.
   
But Rio Tinto traded 2.24 pct lower after the world's third-largest mining group reported "disappointing" third quarter production results having seen costs increase in the quarter. "They missed on volumes and are also talking about cost pressures at Pilbara and bottlenecks in the Australian coal business," said one London-based trader.
   
Over in Norway, Storebrand ASA shed 1.89 pct following "mildly disappointing" third quarter results said one analyst, who declined to be named. Earlier this morning the Norwegian insurer posted third quarter pretax profits slightly below expectations, after seeing the global market turmoil of recent months lead to a weaker overall contribution from its asset management operations.
       
In other news, shares in TietoEnator surged 8.57 pct as the company said it was looking for a new chief executive to turn around the struggling software maker following the immediate departure of Pentti Heikkinen. The market brushed off a profit warning from the company, with one analyst noting that consensus estimates were already so low before last night's warning, that some analysts are likely to revise their estimates upwards soon. 
   
But hopes of a change in management at Alcatel-Lucent proved unfounded as a group spokesman told Thomson Financial News that a rumour circulating in the market this morning that its chief executive Patricia Russo is about to quit "has no merit".
   
Alcatel shares rose more than 4 pct intra-morning after heavy falls yesterday, when peer LM Ericsson AB issued a profit warning that painted a grim picture for year-end and 2008 for the sector. By midday, shares were up only 2.43 pct.

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Asian stocks fall with Wall St; Indian market shaken by regulatory change

SINGAPORE - Stock markets across Asia were lower Wednesday with South Korea leading the decline, as another weak performance on Wall Street and a continued spike in oil prices revived worries about US economic growth.
   
A steep selloff in the India market added to the downdraft in afternoon trade. Trading in Indian shares was halted for an hour following a 9.2 pct plunge that was triggered by a regulatory proposal that would restrict buying by overseas investors.
   
The Indian government said proposals aimed at tightening the purchase of shares and bonds by foreign institutional investors through offshore derivative instruments were aimed at moderating capital inflows and not at discouraging foreign investors. The finance minister Palaniappan Chidambaram later calmed markets by clarifying the stance on the Securities and Exchange Board of India's proposals.
   
He said the proposals by the Securities and Exchange Board of India which triggered heavy selling in early trade  were intended to moderate the inflow of capital via participatory notes, and not as a blanket ban on these instruments.
   
"We have not banned P-notes. We have simply placed a cap on the proportion of money coming through these PNs," Chidambaram told television reporters in New Delhi.       
   
The Bombay Stock Exchange's benchmark Sensex 1.76 pct or 336.04 points lower at 18,715.82, while the National Stock Exchange's S&P CNX Nifty ended 1.92 pct down at 5,559.30 points.
   
The slide weighed on other Asian markets. The Nikkei 225 finished down 1.1 pct at 16,955, while the broader Topix lost 1.5 pct to 1,600. In Tokyo, banking and securities shares were the major decliners. Mitsubishi UFJ Financial fell 42 yen or 4.0 pct to 1,017 yen and Sumitomo Mitsui Financial Group declined 51,000 yen or 5.8 pct to 823,000 yen. Resona Holdings dropped 15,000 yen or 7.5 pct to 186,000 yen and Shinsei Bank was down 23 yen or 6.6 pct at 328 yen. Nomura Holdings fell 115 yen or 5.6 pct to 1,955 yen.
   
The Korean KOSPI closed down 1.1 pc at 1,983.94, ending below the 2,000 level for the first time since Oct 5. The index touched a low of 1,933.82 early in the session, its worst level since Sept 21.
   
Australian indices surrendered early gains as investors took profits across the market and brought a decisive halt to an early rally among resource stocks. The S&P/ASX 200 closed down 0.2 pct at 6,680 and the All Ordinaries was down 0.2 pct at 6,696.
   
In China, banks led the decline following reports the central bank is planning new monetary tightening moves aimed at city commercial banks and rural cooperatives as part of efforts to soak up excess liquidity and curb lending growth. The benchmark Shanghai Composite Index closed down 55.78 points or 0.92 pct at 6,036.28.
   
Hong Kong's Hang Seng reversed early losses to close up 1.19 pct at 29,298.71, boosted by late buying in banks, select property plays and market heavyweight China Mobile.
   
The Kuala Lumpur Composite closed up 2.01 points or 0.2 pct at 1,374.39 while Singapore's Straits Times Index closed up 29.01 points or 0.8 pct at 3,839.73.
   
The Philippines composite closed down 55.18 points or 1.5 pct at a two-week low of 3,760.04, while the broader all-share index fell 29.64 points or 1.2 pct to 2,364.69.
   
Taiwan's weighted index closed down 30.31 points or 0.32 pct at 9,562.16.
   
Meanwhile, Indonesian shares closed mixed, with the main index rebounding from its early losses to finish at a fresh record high supported by gains in oil and mining stocks and a late rebound in select big caps.  The composite index closed up 3.38 points or 0.1 pct at 2,641.59, surpassing its previous all-time high of 2,638.21 set last Thursday.

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Base metals down on stock builds, credit fears; copper below 8,000 usd

LONDON - Base metal prices were down across the complex as credit fears and stock builds weighed on the market. Copper traded below the key psychological level of 8,000 usd into the afternoon in London, while lead lost around 3 pct after both posted significant stock builds.
   
Other metals traded on the LME slipped, with stock builds and broader economic fears dragging prices lower.
   
The base metals complex has been under pressure the past two days, after the extent of the subprime fallout once again caught the market's attention, following a sharp drop in third-quarter results from Citigroup, and comments from Federal Reserve chairman Ben Bernanke about the extent to which the US housing slump could weigh on the economy.
   
"Prices are down across the board, extending the sell off from yesterday," said analysts at RBC Capital Markets. "The increases in copper, lead and zinc stocks into LME warehouses have also played their part generating short-term bear sentiment."
   
Copper stockpiles increased by 2,600 tonnes to 143,125 tonnes in the LME's daily report of metal inventories. The red metal inventories' have increased by over 12,000 tonnes since the beginning of October.
   
At 1.40 pm, LME copper for three-month delivery was down at 7,950 usd per tonne against 8,050 usd at the close yesterday. Analysts said that buyers in China, the world's largest consumer of the red metal, have been reluctant to trade with copper prices above 8,000 usd.
   
Elsewhere, lead prices fell by around 3 pct after inventories rose by 3,775 tonnes to 29,700 tonnes. Lead prices stood at 3,535 usd per tonne against 3,641 usd at the close yesterday.
   
Lead inventories increased by around 15 pct yesterday after slipping close to historical lows in recent weeks -- pushing prices to a series of all-time highs. Lead's recent price gains have finally started bringing stockpiles into warehouses, analysts said.
     
In other base metals, three-month nickel was down at 31,525 usd per tonne against 31,800 usd at the close yesterday.
   
Aluminium eased to 2,489.75 usd per tonne, basis three months, from 2,500 usd, while zinc slipped to 2,970 usd from 3,045 usd. Finally, three-month tin eased to 16,325 usd per tonne against 16,500 usd.

Gold erased earlier losses and headed towards a fresh high as the dollar weakened against major currencies and as Middle Eastern political tensions boosted the metal's safe haven appeal.
    
At 12.54 pm, spot gold was steady at 760.55 usd per ounce against 760.80 usd in late New York trades yesterday, having traded as low as 755.45 usd today and as high as 764.65 usd.
   
Elsewhere, platinum rose to 1,416 usd per ounce against 1,414 usd in late New York trade yesterday. The metal touched an all-time high of 1,428.50 usd per ounce on Monday.
   
Silver eased to 13.59 usd per ounce against 13.63 usd in late trades yesterday, while palladium fell to 365 usd per ounce against 369.75 usd.

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