US & World Daily Markets Financial Briefing 18-07-2007

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Stocks fall on subprime, profit concerns

NEW YORK - Stocks retreated Wednesday after Bear Stearns Cos. told investors there was little value left in two failed hedge funds, renewing concerns that soured subprime loans will wreak financial havoc on Wall Street.
   
The downturn in stocks nonetheless was expected after the rally that began last week and that Tuesday nudged the Dow Jones industrials past the 14,000 mark for the first time. With no major catalyst behind the advance, the record run has perhaps been puzzling to market watchers trying to determine if it has room to build or has run its course.
   
The latest concerns came as Bear Stearns said two hedge funds it manages were left essentially worthless by bad bets on subprime loans, which are made to those with poor credit. A weaker housing market has made it more difficult for borrowers who get behind on payments to refinance and pay off debts.
   
JPMorgan Chase & Co. posted better-than-expected earnings before the opening bell, but the bank said it increased reserves set aside to cover mortgage losses. Also adding to investor concern, Intel Corp. reported lackluster profit margins for the second quarter, and Yahoo Inc. lowered its forecast.
   
In the first hour of trading, the Dow Jones industrial average fell 39.75, or 0.28 percent, to 13,931.80. The Standard & Poor's 500 index fell 4.77, or 0.31 percent, to 1,544.60, while the Nasdaq composite index dropped 17.15, or 0.63 percent, to 2,695.14.

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Dollar posts modest rise after stronger-than expected CPI, housing data

LONDON - The dollar posted a modest rise after US inflation and housing figures came in stronger than expected.
   
The CPI measure of inflation rose 0.2 pct in June from May, the smallest monthly increase since January but above analyst expectations of a 0.1 pct rise.
   
Meanwhile in the US housing sector, which is generally seen as the economy's weakpoint, figures showed the number of new homes built in June posted a 2.3 pct rise from a year ago to a 1.467 mln unit annual rate. The consensus forecast had been for a more moderate rise to 1.450 mln units.
   
The figures caused the dollar to make a moderate gain against the euro, although its moves are likely to be limited while markets await Federal Reserve chairman Ben Bernanke's testimony to congress.
   
At 1.44 pm, the euro was at 1.3755 usd having been at 1.3780 shortly before the data was released. The pound also slid further off its morning high against the greenback, dropping to 2.0464 usd from 2.0505.

The pound, which had earlier set a 26-year high of 2.0547 usd, retreated steadily to below the 2.04 usd level on the news that the 9-strong BoE rate-setting committee was split by a 6-to-3 margin to hike borrowing costs to 5.75 pct this month.
   
The news was seen as a little less hawkish than expected and led to a slight scaling back in rate hike expectations.
   
Markets still predict another quarter point hike, to 6.00 pct, over the coming months but appear to be a little less certain whether an increase to 6.25 pct will materialise.
   
However, Bear Stearns analysts said the data will do little to change the outlook for interest rates in the UK.
   
"The tone of the MPC hawks remains uncompromising and it sounds like the UK is on a collision course with 6.0 pct rates before year end," they said. "There is obviously a split in thinking in the MPC in terms of how far rates need to go, so timing for the next move will be down to the data and (BoE governor) Mervyn King's hearts and minds campaign in the next few months," they added.

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Euroshares lower ahead of US inflation data, earnings reports

LONDON - At 1.12 pm, the Dow Jones STOXX 50 fell 21.17 points or 0.78 pct to 3,951.22, while the STOXX 600 dropped 2.53 points or 0.64 pct to 395.26.
   
In Europe, declines of more than 1 pct were seen across leading indices, but market watchers were not surprised. "We think that is fully in line with a rangebound market that we have called for this summer month," Bernd Meyer, strategist at Deutsche Bank said.
   
Siemens came into focus after news reports that Blackstone teamed up with TRW and made a 12 bln eur bid for Siemens' VDO automotive unit. On the other hand, Continental is rumoured to be preparing a 14.5 bln eur increase to its own offer for the unit.
   
Dealers were cautious about the Continental rumour however, and pointed out that this may well be too high a price to pay for the Siemens divison.   Earlier today, industry sources said Continental AG has raised its offer  to about 11 bln eur from 10 bln.
   
Market sources agreed that a Continental takeover would offer higher synergy effects than an IPO or an acquisition by Blackstone. Shares in Siemens outperformed a declining market, down 0.67 pct, while Continental was 0.97 pct lower.    
   
Elsewhere, Alitalia plunged 4.03 pct on news that one of the last potential bidders for the Italian flag carrier has withdrawn from the race.
   
Air One pulled out of the bidding process to buy an at least 39.9 pct stake in the airline from the government, putting at risk the company's privatisation. After the withdrawal of Air One, the fund Matlin Patterson remains the only potential candidate left to take over Alitalia, with binding offers due to be sent by July 23.   
   
Equally, EMI Group declined --1.87 pct lower-- after Warner Music Group Corp said overnight it would not make a bid for the company, meaning Terra Firma's 2.4 bln stg offer is now more likely to succeed.
   
Sainsbury added 1.28 pct after the UK's third biggest supermarket chain confirmed it has received a preliminary approach from Qatari group Delta (Two) Ltd which could lead to an offer being made for the company. The company issued a statement after the Financial Times reported that Delta has made a tentative offer of 610 pence a share, valuing the business at about 12 bln stg.   
    
Imperial Tobacco was a top performer, up 1.59 pct, after its 50 eur per share cash offer for Altadis which values the Franco-Spanish group at 8.6 bln stg. The offer represents a premium of 32 pct over the Altadis closing share price on March 12, adding that the offer will be financed through new bank facilities of 9.2 bln stg.
   
Over in Germany, shares in DaimlerChrysler dropped 2.42 pct, with investors worried that the Cerberus/Chrysler deal may run into problems.

People familiar with the situation said the buyout firm has assigned several Wall Street investment banks to place more than 60 bln usd in debt as part of the acquisition to finance the deal. "It might also once again heat up speculation that the whole Chrysler deal may be at risk as the car maker struggles to find lenders to finance the deal," one Frankfurt-based trader said.
      
On earnings news, ASML added 2.55 pct as the group's upbeat outlook more than compensated for the second quarter earnings and order book figures which were at the low end of expectations. Exane BNP Paribas upgraded the Dutch group to 'outperform' from 'neutral', saying the update was reassuring.
   
LogicaCMG added 5.19 pct after the Anglo-Dutch computer services company said IT services revenues increased 3.3 pct for the half year, with strong growth in the Nordic region, Netherlands, Germany and France compensating for a decline in UK sales. Panmure Gordon repeated its 'buy' recommendation.
   
Other technology stocks took their lead from the US where Intel and Yahoo issued disappointing updates.
   
After hours, Intel lowered full year capex targets and reported weaker than expected margins. And Yahoo guided forecasts lower. Cap Gemini fell 1.27 pct. Infineon lost 1.13 pct and STMicroelectronics was 1.13 pct lower.

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Asian money markets summary

BEIJING  - Asian late money market rates (vs previous close):

Hong Kong: 3-month HIBOR rate 4.4 pct (4.38)
                                overnight rate 3.60 pct (3.60)
       
Jakarta: overnight rate  4.00283 pct  (4.02489)
       
Kuala Lumpur: 3-mth KLIBOR bid/ask 3.55/58 pct ( 3.55/60)
                                      overnight rate 3.48/50 pct (3.49/51 )
       
Manila: overnight rate 7.00 pct (6.65625)
       
Seoul: 3-yr corporate bond yield 5.74 pct (5.75)
                      3-yr state bond yield 5.40 pct (5.42)
       
Singapore: avg overnight rate 2.0625 pct (2.0626)
                               3-month SIBOR 2.1875 pct (2.1875)
       
Sydney: 90-day bank bill rate 6.440 pct (6.450)
       
Taipei: overnight rate 2.007 pct ( 2.001)
       
Tokyo: unsecured overnight rate 0.506 pct (0.512)
                      3-month TIBOR 0.75417 pct (0.75333)

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Copper dips as lead, tin come off highs

LONDON - At 2.17 pm, LME lead for three-month delivery was trading at 3,160 usd a tonne against 3,206 usd at the close yesterday. Earlier, the contract rose to a fresh record high of 3,260 usd a tonne, exceeding yesterday's 3,230 usd record.
   
"Lead continues to dominate gains in LME trading ... on news that last week's explosion at Doe Run's Herculaneum refinery will see modest disruptions to supply of lead and lead alloys," said JP Morgan analyst Michael Jansen.
   
Doe Run is the world's second largest refiner of lead. Although output at the plant has been reduced to about half of normal volumes, the company expects production will return to normal by next week Monday.
   
However, the disruption at the plant has exacerbated already existent supply worries in the market, including the suspension of shipments from the Magellan mine in Australia earlier this year.
   
Added to this, there are worries that lead sales from China will continue declining on account of the government's new 10 pct tax on exports of the heavy metal.
   
In news out in Asia earlier, China raised the resource tax on lead, zinc, copper and tungsten mines, effective from Aug 1, although there there has been little initial reaction in the market to this news.
       
Lead prices have almost doubled since the start of the year, and have been hitting a series of record highs in recent months.
   
Tin was down at 14,660 usd a tonne against 14,300 usd at the close yesterday, having hit a 3 month high earlier of 14,850 usd a tonne on further technical fund buying.
   
Alex Heath, head of base metals at RBC Capital markets said while he Indonesia's crackdown on illegal tin mining has boosted tin prices this year, he remains cautious going forward.
   
"Given that technical buying has built in a certain speculative premium, we think a catalyst such as a sudden increase in LME stocks could see a rapid turnaround in the fundamental and technical appetite for tin," he said.
       
Copper dipped to 7,745 usd a tonne against 7,770 usd at the close yesterday, with analysts saying today's resumption of stock declines on the LME would have to be sustained for the metal to have a chance of recouping the 8,000 usd level.
   
The LME said in a daily report earlier copper stocks held in its warehouses fell by 775 tonnes to total 98,625 tonnes. However, today's dip in stocks come after two days of increases.
   
Also, while copper stocks have fallen below 100,000 tonnes from around 200,000 tonnes at the start of the year, some participants are expecting the stock downtrend to ease going forward.
      
Nickel was up slightly at 32,350 usd a tonne against 32,000 usd at the close yesterday, recovering briefly from a losing streak that has knocked nearly 40 pct of its value in around two months.
   
"Prices have fallen 20,000 usd from their all-time highs set earlier this year and the near-term outlook for nickel prices continues to look rather weak in light of rising LME stocks, moderating stainless steel activity and recent announcement by Posco that it would cut its stainless steel output by 50 pct in July and August on the back of slower demand," said analysts at Barclays Capital.
   
They added, however that by the end of the fourth quarter prices should strengthen once again as they expect the current phase of de-stocking should have run its course by then.
   
Aluminium was down at 2,778 usd against 2,800 usd while zinc was up at 3,483 usd a tonne, against 3,515 usd.

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