US & World Daily Markets Financial Briefing 18-10-2007

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Wall Street tumbles as BofA disappoints

NEW YORK - Wall Street fell in early trading Thursday after Bank of America Corp. missed analysts' earnings expectations and provided investors with further evidence of how the credit crisis has affected the economy.
   
BofA, considered a bellwether for the banking industry because it has branches across the country, said "significant dislocations" in the capital markets caused third-quarter results to fall 32 percent. The disappointing results follows similar reports from other financial companies including Citigroup Inc. and Washington Mutual Inc.
   
Banks and brokerages have been hurt during the third quarter in the fallout from the subprime mortgage crisis. As people with weak credit defaulted on loans at an alarming rate, it triggered a global aversion for risk that led the credit markets to freeze up.
   
Treasurys rallied and the dollar fell to a new record low against the euro after a government report showed that the number of newly laid off workers filing claims for unemployment benefits shot up last week by the largest amount since February. The Labor Department's report was far worse than economists expected, and signaled that the labor market could be starting to weaken from a downturn in housing and the global credit turmoil.
   
In the first hour of trading, the Dow Jones industrial average fell 22.68, or 0.16 percent, to 13,869.86. Broader indexes were also lower. The Standard & Poor's index fell 4.88, or 0.32 percent, to 1,536.36, while the Nasdaq composite index was down 8.68, or 0.31 percent, at 2,783.99.
   
The yield on the benchmark 10-year Treasury note, which moves inversely to prices, fell to 4.52 percent from 4.55 percent late Wednesday. Treasury prices rallied sharply Wednesday after investors' nervousness about housing was exacerbated by a dramatic plunge in building starts.
   
Bank of America said capital markets losses offset growth in other businesses, and the company doubled its loan-loss provisions. This caused net income to decline to 82 cents per share from $1.18 a year earlier -- a big miss considering analysts polled by Thomson Financial projected a profit of $1.06 per share. Shares of the Charlotte-based bank fell $1.90, or 3.8 percent, to $48.13.
   
E-Trade Financial Corp. late Wednesday reported an unexpected loss because of its exposure to credit markets. The discount brokerage took a $200 million write-down linked to mortgage-related investments, and its shares tumbled $1.04, or 8.4 percent, to $11.43.
   
Pharmaceutical stocks were weaker after Pfizer Inc. said third-quarter profit plunged due to a $2.8 billion pretax charge to end investment in the inhaled insulin drug Exubera. The world's largest drug company also had lower sales of blockbuster cholesterol drug Lipitor. The stock rose 19 cents to $44.74.
   
The Hershey Co., the nation's largest candy maker, said profit tumbled 66 percent because of lower sales and higher promotional costs. The maker of Hershey's Kisses and Reese's candy missed Wall Street projections, and shares fell $1.32, or 3 percent, to $42.97.
   
The Russell 2000 index of smaller companies fell 3.98, or 0.48 percent, to 820.91. Britain's FTSE 100 fell 1.34 percent, Germany's DAX index fell 0.88 percent, and France's CAC-40 fell 1.13 percent.

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Dollar stays on back foot ahead of Philadelphia Fed survey; G7 meet eyed

LONDON - The dollar remained on the back foot ahead of tonight's Philadelphia Fed survey, and with most players sidelined ahead of the G7 meeting of the world's biggest economies' meeting in Washington this weekend.
   
The US currency has been suffering since weak housing market data and dovish Federal Reserve comments yesterday increased concerns about the health of the world's largest economy, and reignited prospects for a rate cut.
   
"A number of recent US economic data releases have instilled nagging doubts into those looking for a further near term cut in US interest rates; but yesterday's downbeat Beige Book and weak September housing starts ... may have rekindled the average doves' faith," said Simon Derrick, currency strategist at Bank of New York.
   
Market players will look to tonight's Philadelphia Fed's business conditions survey to provide evidence as to whether the US manufacturing sector is experiencing a similar slowdown.
   
The survey is predicted to show a decline in the index to 7.5 in October from 10.9 in September.
   
In the meantime, most players are fixating ahead on the G7 meeting of finance ministers and central bankers starting this weekend.
   
While the G7 meeting has been much-hyped to bring about some change in rhetoric in order to stem the dollar's steep losses, analysts are not holding out much hope.
   
US officials are clearly showing little interest to intervene, despite protests from elsewhere about the dollar's steep decline.
      
Elsewhere, the pound was slightly stronger following robust UK retail sales figures which weighed on expectations of a Bank of England rate cut in November.
   
The Office for National Statistics reported that retail sales in September rose 6.3 pct from a year ago, the highest rise since September 2004 and above analyst expectations for a 5.6 pct increase.
   
"September's strong rise in UK retail sales - albeit accompanied by heavy price discounting - increases the chances that the Monetary Policy Committee will hold off a while longer before cutting interest rates," said Vicky Redwood, UK economist at Capital Economics.
   
She added that the data confirms other evidence "that the economy grew more strongly in the third quarter than the MPC expected."

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Euroshares lower midday, Nokia up 5 pct, Bank of America drags US futures down

LONDON - Europe's leading exchanges were lower in midday trading with earnings results from Bank of America weighing on US futures. Earlier today, Nokia's third quarter results catapulted the stock to a 5 1/2 year high and managed to lift the market briefly into positive territory. 
   
At 12.24 pm, the Dow Jones STOXX 50 Index was down 25.57 points, or 0.66 pct at 3,852.53 while the DJ STOXX 600 Index dipped 2.73 point, or 0.71 pct to 383.89.
   
Nokia was the biggest story among European stocks midday, with shares of the world's largest mobile telephone maker storming more than 5 pct higher as it revealed a 92 pct surge in earnings per share for the quarter.  Traders cautioned however that the average selling price of handsets declined to 82 eur from 90 eur previously - well below the 89 eur anticipated by analysts.
   
Analyst Roland Pitz at HVB was however less worried noting that "All signs show that the top three products (N95, 6300, E65) which did well in the previous quarter, sold well also in the third quarter".
   
Pitz added that the improvements in EBIT margins in the mobile unit, at 22.6 pct, were an additional, positive surprise. A Helsinki-based trader said the numbers could lead to upgrades of more than 10 pct.
   
SAP, the German software maker also reported third quarter results, but shares dropped 3.33 pct with traders noting the report was "merely in line" with expectations. 
   
Staying in the technology sector, Logitech International shares surged 10.54 pct on the back of strong second-quarter sales figures and an upbeat outlook for the full year.
   
Staying in Zurich, Syngenta shares rose 4.42 pct to an all-time high after the pesticides group posted forecast-beating third-quarter earnings, boosted by demand from Latin America, while in Europe, exceptional disease pressure in crops led to increased fungicide sales in major markets.
   
Novartis shares edged up 0.48 pct as a solid third-quarter performance was tempered by concerns over the group's pharmaceutical division.
   
Nestle shares edged up 0.39 pct. The food group reported nine-months sales of 78.7 bln sfr up from 72.2 bln in the same period last year as price increases managed to offset rising input costs. The results were in line with analyst forecasts. The food group also reiterated its full year outlook.
   
Elsewhere, Casino Guichard-Perrachon rose 1.23 pct, after advancing some 4 pct earlier on market rumours that UK retailer Tesco is mulling a bid for the French supermarket chain.
   
Lagardere was still trading 1.77 pct higher midday, although the French group earlier refuted a report as "groundless", which suggested a delisting.
   
In an unsourced report this morning, French weekly Nouvel Observateur claimed chairman Arnaud Lagardere is considering selling 40 pct of the group to "friendly investors", including the Qatar government, and then delisting the company.
   
Volkswagen, MAN AG and Scania were again in focus as rumours over a potential three-way tie-up resurfaced, following a report in a Swedish newspaper which suggests that Volkswagen and Wallenberg family-controlled entities have agreed Scania will bid for MAN. Scania fell 1.67 pct, Volkswagen added 2.71 pct and MAN AG soared 4.80 pct.
   
Elsewhere, Repsol rallied 3.36 pct after Merrill Lynch upgraded the Spanish oil group to 'buy' from 'neutral,' citing fresh impetus coming from restructuring at the company, including the partial spin-off of its Argentine arm YPF and the future sale of a 30 pct stake in Gas Natural SDG SA.

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Asian stocks rally as investors focus on growth fundamentals

SINGAPORE - Asian stock markets rallied Thursday with the Hang Seng briefly trading above 30,000 for the first time as investors shrugged off another set of grim US housing data and record oil prices to focus on the regional growth story that many say shows no sign of losing steam.
   
The Indian Sensex rose 2.4 pct to 19,167, recovering losses made Wednesday on worries a regulatory change would push foreign investors out of the market. Shanghai was left out of the rally after comments from a government official suggested that the authorities are concerned about the rapid rise in Chinese shares.
   
The Hang Seng closed up 0.6 pct at 29,465.05 after touching a high of 30,025 in the first few minutes of trade. The Shanghai Composite index closed down 0.9 pct to 6,036.28.
   
Japan's Nikkei 225 closed up 0.9 pct at 17,106 and the broader TOPIX rose 1.1 pct to 1,617.
   
While the state of the US economy is still a theme for investors, emerging markets will continue to attract foreign capital, given their strong economic fundamentals, said K Ajith, an analyst at Singapore broker UOB Kay Hian. "The market is taking its cue less from the US but more from Hong Kong and China," said Ajith.
   
Some analysts are now cautioning that the dizzying gains enjoyed by Asian markets this year have left them vulnerable to a sudden correction.  The Hang Seng has gained almost 50 pct so far this year, easily outperforming the major US benchmarks. The Dow Jones Industrial Average is up just 11.5 pct, while the S&P 500 is up 8.9 pct and the Nasdaq composite up 15.6 pct.
   
Chinese indices have fared even better. The Shanghai Composite is up about 122 pct, while the Dow Jones CBN 600 is up 178 pct. The Indian Sensex has gained 36 pct.
   
"The bubble is well formed and expanding but could burst any time," said Sophie Biro, an analyst at Credit Suisse in Hong Kong. "Under an environment of strong liquidity, the market tends to ignore standard valuations and concentrates on growth potential. But as stocks reach new valuation extremes, they are more vulnerable to fall once the markets start to revert," she said in a note.
   
Meanwhile, Hong Kong shares gained on a report suggesting the much-anticipated program that would allow mainland Chinese citizens to trade Hong Kong stocks directly may be ready in two months. The Hang Seng China Enterprises index, which tracks 43 stocks from the mainland, gained 259.98 points or 1.3 pct, after hitting a record high of 20,516.85.
     
In Seoul, chip giant Hynix Semiconductor tumbled to its lowest level in nearly two years after its quarterly earnings fell short of estimates. The share closed down 700 won or 2.6 pct at 26,100 won. The KOSPI closed up 21.15 points or 1.1 pct at 2,005.09. Taiwan's weighted index closed up 74.91 points or 0.78 pct at 9,637.07.
   
Elsewhere, the Singapore Straits Times index closed down 0.8 pct at 3,809.69, while the Kuala Lumpur Composite closed up 0.1 pct at 1,376.32. Shares in Jakarta closed down 0.9 pct at 2,626.74, whereas the Philippine Composite index ended 0.3 pct higher at 3,771.

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Copper continues lower; rising stockpiles raise fears of slowing demand

LONDON - Copper continued to trade below 8,000 usd, failing to break above the key level as another large increase in London Metal Exchange monitored inventories made market players question the strength of fourth-quarter demand.
   
With the possibility of a slowdown in the US economy, lower numbers of home starts reported in America last month, and evidence that Chinese traders are currently reluctant to deal when prices are at higher levels, copper has drifted south in recent days.
   
"The slowdown in the US is likely to continue and will result in lower demand for industrial metals such as copper," said analysts at Commerzbank. "The LME reports copper inventories rising on a daily basis so the price of copper is likely to continue to be weak."
   
However, prices have been held close to the psychologically important 8,000 usd level by bargain hunters buying on the dips, in the believe that supply and demand fundamentals remain tight enough to send prices higher.
   
At 2.12 pm, LME copper for three-month delivery was down at 7,897 usd per tonne against 7,965 usd at the close yesterday. Earlier, copper dipped below 7,900 usd, touching an intra-day low of 7,885 usd.
    
Copper stockpiles increased by 4,625 tonnes to 147,750 tonnes in the LME's daily report of metal inventories. Inventories of the red metal have increased by over 16,000 tonnes since the beginning of October, sparking fears of slowing demand.
   
"Despite the positive sentiment which saw prices rise last week, there is still uncertainty over all," said Barclays Capital analyst Sudakshina Unnikrishnan. "The near-term demand picture still looks unclear at the moment."
   
Elsewhere, lead inventories increased significantly for the third straight day, up 1,750 tonnes today to 31,450 tonnes, having previously sat close to historical lows over the past weeks -- which has seen prices rally up to a series of all-time highs.
   
Lead's recent price gains have finally started bringing stockpiles into warehouses, analysts said, with over 5,500 tonnes delivered since Monday.
   
However, while prices have slipped over the past two days, lead has proved resilient, edging higher today as the fundamental supply picture remains nervous.
     
Lead prices stood at 3,595 usd per tonne against 3,550 usd at the close yesterday. Lead rallied up to its all-time highs on a combination of low LME inventories, continuing supply disruptions in Australia, strong demand from the battery industry and limited Chinese exports.   
   
In other metals, three-month nickel was slightly higher at 32,000 usd per tonne against 31,800 usd at the close yesterday. Aluminium for three month delivery edged up to 2,525 usd per tonne from 2,510 usd, while zinc was down at 2,942.75 usd from 2,975 usd. Finally, three-month tin eased to 16,225 usd per tonne against 16,400 usd.

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