US & World Daily Markets Financial Briefing 19-11-2007

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Stocks fell Monday as Wall Street absorbed a gloomy outlook for the banking sector and anticipated bleak news from the National Association of Homebuilders.
   
Setting the tone was Goldman Sachs' downgrade of large banks, and its estimate that Citigroup Inc. would have to write down $15 billion due to its exposure to risky debt over the next two quarters.
   
The worry on Wall Street is that the housing market is getting so weak that it will crimp consumer spending, which until now has helped keep the economy afloat. Ahead of the holiday shopping season, any signs that Americans are pulling back could prevent a December rally.
   
Later Monday, the NAHB releases its November housing forecast. Economists polled by Thomson/IFR expect the index to hold at 18, having dropped to that level in October after eight consecutive months of declines.
   
In midmorning trading, the Dow Jones industrial average fell 79.42, or 0.60 percent, to 13,097.37. Broader stock indicators also declined. The Standard & Poor's 500 index fell 10.01, or 0.69 percent, to 1,448.73, and the Nasdaq composite index fell 11.28, or 0.43 percent, to 2,625.96.
   
Stocks have fallen in six of the last eight sessions. Last week, stock finished higher after a string of volatile sessions. The Dow ended up 1.03 percent for the week, while the S&P 500 index ended up 0.35 percent, and the Nasdaq finished up 0.35 percent.
   
Government bond prices fell Monday. The yield on the 10-year Treasury note, which moves opposite its price, rose to 4.17 percent from 4.15 percent late Friday. The dollar fell against other major currencies, while gold rose modestly.
   
Crude oil futures for January delivery rose 6 cents to $93.90 per barrel on the New York Mercantile Exchange. In corporate news, Citigroup, which said earlier this month it would likely write down $8 billion to $11 billion in the fourth quarter, fell $1.37, or 4 percent, to $32.63 after the Goldman downgrade to a "sell" rating.
   
Lowe's Cos. posted a 10 percent decline in third-quarter profit Monday, which was slightly better than expected. But the home improvement retailer lowered its forecast in anticipation of further deterioration in housing. Lowe's fell $1.03, or 4.1 percent, to $23.98.
   
Celgene Corp.'s announcement late Sunday that it has agreed to buy Pharmion Corp. for $72 a share in a cash-and-stock deal worth $2.9 billion failed to bring any enthusiasm to Wall Street. Celgene fell 29 cents to $64.61, while Pharmion jumped $18.01, or 37 percent, to $67.29.
   
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 181.2 million shares. The Russell 2000 index of smaller companies fell 11.36, or 1.47 percent, to
758.18.
   
Stock markets overseas slumped. In Asian trading, Japan's Nikkei stock average fell 0.74 percent, while Hong Kong's Hang Seng index decreased 0.56 percent. In European trading, Britain's FTSE 100 declined 0.94 percent, Germany's DAX index dipped 0.68 percent, and France's CAC-40 slid 0.65 percent.

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Dollar weakness the main focus amid light data calendar

The dollar is hovering around a cent off its all-time low against the euro and its weakness is causing some friction within major exporters like China and the OPEC oil cartel.
   
Chinese Premier Wen Jiabao pledged today to resolve trade imbalances after the country's surplus hit a record high in October, and to work to let the yuan move more freely as a stronger yuan would make Chinese exports more expensive overseas.
   
Wen said China will work to "increase (the currency's) flexibility and gradually make the yuan convertible under the capital account".
   
The yuan is currently allowed during each trading session to move within a 0.5 pct band on either side of a reference rate against the US dollar.
   
Meanwhile, OPEC's concerns over the US dollar's weakness were accidentally broadcast to journalists from a closed meeting, although the official statement made no mention of the dollar.
   
Also at the summit, Iran and Venezuela said cartel members need to consider pricing oil in other currencies to safeguard their oil revenues.
   
"This past weekend's meeting of the cartel in Saudi Arabia shows all too clearly just how divisive a subject the falling greenback has become," said Simon Derrick at the Bank of New York Mellon.
   
"Pegging against a falling currency can only be maintained at a cost, and a cost that many OPEC members have already begun to pay," he said, noting that inflation is creeping up in many member economies.
   
"A broad-based shift to currency baskets in the near term should certainly not be discounted out of hand," he added.
   
The G20 meeting of finance ministers and central bankers in Cape Town made familiar calls for "greater exchange rate flexibility in a number of surplus economies" but made no direct mention of the Chinese yuan, as had been speculated in some quarters.
   
Later this week, attention should switch back to fundamentals. The minutes to the US Federal Reserve and Bank of England last rate-setting meetings are likely to be key.
   
The Fed minutes come tomorrow and investors will be looking for any signal that borrowing rates will come down again in December, following a quarter-point cut at the Oct 31 meeting.
   
The BoE minutes are due on Wednesday. The central bank left rates unchanged at 5.75 pct in November but the subsequent, surprisingly dovish Inflation Report, along with weak housing indicators, has raised expectations for a cut in the coming months. Investors will be keen to see whether the Monetary Policy
Committee was divided in its decision.
   
"If a more significant split than 8-1 occurred, that would raise the chances of a cut coming sooner than our February call," said analysts at Barclays Capital.
    

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Euroshares extend losses midday, Swiss Re weighs on insureres, financials

At 11.55 am, the STOXX 50 was 25.72 points or 0.70 pct lower at 3,634.30, while the STOXX 600 fell 3.25 points or 0.90 pct to 359.47.
       
Swiss Re shares fell 6.7 pct after the company announced a shock 1.2 bln sfr loss from credit underwriting activities caused by the deterioration in the credit markets.
   
But Friends Provident proved a bright spot, gaining 1.53 pct on a UK media report over the weekend saying a number of insurers including Axa, Zurich and Old Mutual are considering a bid for the company after it failed in its own takeover offer for UK life insurance group Resolution.
   
Standard Chartered, meanwhile, climbed 3.25 pct on a Financial Times report that China's three largest banks have approached Temasek about buying its 17 pct stake in the insurer.
   
Swiss Life was up 4.62 pct as investors welcomed the insurer's 2.5 bln sfr sale of its Dutch and Belgian operations to SNS REAAL.
      
Credit Agricole fell 3.01 pct after the French bank said it has agreed to buy 14.99 pct of Bankinter from a group of investors in the Spanish bank for 809 mln eur. The purchase raises Credit Agricole's stake to 19.53 pct, making it Bankinter's largest shareholder.
   
Staying among financials, Deutsche Postbank climbed 5.37 pct after post chief executive Klaus Zumwinkel said several banks, are interested in acquiring the group's banking unit. In an interview with Frankfurter Allgemeine Zeitung, Zumwinkel reaffirmed nonetheless that Deutsche Postbank is not for sale right now.
   
Cosmetics company Clarins rose 7.95 pct following a report in the French press claiming that PPR is the favoured bidder for the company. Last week, Clarins shares gained after L'Oreal sold part of its stake in Sanofi-Aventis, fuelling rumours it may use the proceeds to make an acquisition.
   
In other M&A news, shares in Grolsch shot up 76.21 pct to 47.40 eur after SABMiller PLC made a recommended offer of 48.25 eur a share for the Dutch brewer, valuing the company at 816 mln eur. SNS Securities analyst Richard Withagen said it was a "knock-out" bid, with more than an 80 pct premium over
the share's Friday closing price.
   
Meanwhile, the battle over British brewery Scottish & Newcastle continues amid reports that Heineken and Carlsberg are gearing up for a hostile takeover, while the Sunday Express said S&N is ready to dispose its French distribution company Elidis in a bid to secure its independence. S&N shares were off 0.66 pct
while shares in Heineken fell 0.22 pct and Carlsberg lost 0.77 pct.
   
Elsewhere, Deutsche Telekom added 2.30 pct on speculation that the group will raise its dividend, while Bayer was in focus amid talk of a placing in the stock earlier today. Staying with M&A chatter, CapGemini briefly spiked after rumours emerged that Wipro and IBM are planning a joint bid 60 eur a share bid
for the IT consultancy. At last check, the shares were down 1.96 pct. In the past four months, Wipro and Infosys have been named as potential suitors for the French group.
   
In terms of broker action, Vivendi SA was trading 2.35 pct higher after Goldman Sachs added the stock to its 'Conviction Buy' list, noting that the French group will continue its re-rating versus the media sector thanks to resilient earnings supported by its subscription-based model.

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Shanghai leads selling

The Shanghai Composite index fell on concerns the Chinese government will take further tightening measures to cool its booming economy. South Korea, Singapore, Malaysia and Hong Kong all surrendered early gains with the Hang Seng falling on concerns related to expected inflows from the
mainland.
   
The Philippines Composite index held up but was off its best level as the rest of the region fell.
   
The S&P/ASX 200 closed up 1.1 pct at 6,535.2 and the All Ordinaries added 1.2 pct to 6,601.3 as Australian fund managers, encouraged by Wall Street's gains on Friday, topped up their portfolios.
   
An 84-point fall in Australian indexes last week lured buyers back into the market as cashed-up fund managers bought stocks that had been sold down heavily recently and now look cheap.
   
The Nikkei closed down 0.7 pct at 15,042.56 and the Topix lost 1 pct to 1,456.61 as losses among heavy industrials weighed against gains in select financial and export stocks.
   
The KOSPI closed down 1.7 pct at 1,893.47.
   
Meanwhile, FedEx Corp lowered its earnings expectations for the fiscal second quarter and full year and Starbucks slashed its earnings forecast for the fourth quarter after it reported traffic at stores open at least 13 months dropped by 1 pct.
 
October housing starts due Tuesday are expected to slow to 1.180 mln from September, while building permits fall 3.6 pct from September, according to IFR. The slew of data "may make financial markets volatile," said Mizuho Research Institute market analyst Koji Takeuchi.
   
The Shanghai Composite fell 0.9 pct to 5,269.82, with banks and property stocks leading the decline. PetroChina Co Ltd joined the Shanghai Composite Index today with the top weighting of 23 pct. For every 1 yuan decline in the stock, the composite will lose about 30 points.

China Petroleum & Chemical Corp (Sinopec) shed 0.52 yuan to 23.13 yuan.  Industrial & Commercial Bank of China lost 0.12 yuan to 8.12 yuan, and Shanghai Pudong Development Bank Co Ltd fell 2.06 yuan to 50.80 yuan.
The country's largest oil producer ended the day down 0.75 yuan at 38.07 yuan with investors concerned its A-shares are still overvalued though it has lost 21 pct from its debut price of 48.60 yuan in Shanghai on Nov 5.
   
The Hang Seng Index closed down 0.6 pct at 27,460.17. China Construction Bank, the third-biggest bank, declined 1.8 pct at 7.31 hkd, Bank of Communications fell 0.7 pct to 11.98 hkd, Ping An lost 3.1 pct at
87.35 hkd, while China Merchants Bank was up 0.3 pct at 33.35 hkd.
   
But China's fixed-line operators rose after a state media report said the Chinese government will soon allow its fixed-line telecom operators to enter the mobile market.
   
China Telecom Corp, the mainland's biggest fixed-line operator, rose 4.6 pct to 5.45 hkd. China Netcom rose 5.5 pct to 21.15 hkd. The country's second largest fixed-line telephone company is planning to invest up to 15 bln yuan starting next year to upgrade its cable network, according to the Economic Observer.
   
BHP was 1.1 pct higher at 41.59 aud after announcing its 50-pct owned and operated Stybarrow oil project offshore northwest Australia has started commercial production. Woodside Petroleum, which owns the other half of the project, rose 3.5 pct to 48.50 aud.
   
In Tokyo, Mitsubishi UFJ Financial Group closed up 1.4 pct at 948 yen. Matsushita Electronics added 2.6 pct to 2,195 yen and Konica Minolta was up 2.7 pct at 2,085 yen. Mitsubishi Materials lost 5.9 pct to 576 yen and Japan Steel Works lost 4.9 pct to 1,513 yen.
   
Elsewhere, the Singapore Straits Times was down 0.9 percent at 3,411.72, and the Malaysian Kuala Lumpur Composite Index was down 0.5 pct at 1,379.91, while the Philippines Composite rose 1.3 pct to 3,645.22.
   
The Taiwan weighted index closed down 1 pct at 8,680.71 and the Jakarta index ended 0.8 pct lower at 2,646.81.

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Oil prices rise on dollar woes

Oil prices rose as the falling dollar made the commodity cheaper for foreign currency holders and as traders fretted over talk by some OPEC members for oil to be denominated in a basket of currencies other
than the dollar.

Chief OPEC hawks Iran and Venezuela said at this weekend's OPEC summit, in Riyadh, cartel members need to consider pricing oil in other currencies in order to safeguard their oil revenues.
   
"Producers have seen their purchasing power decline with the dip in value of the greenback," said Bank of Ireland analyst Paul Harris. He noted also that the summit ended with no mention of moves to increase production.
   
Market players were hoping OPEC would raise production at the summit in bid to stem the rise in oil prices to near 100 usd a barrel. However, the cartel said it will hold off any discussion till its next meeting in December.
   
"The apparent removal of the possibility of increased supply will serve to at least underpin crude oil at these levels. The factors that have precipitated the move to record levels remain intact," said Harris.
   
At 11.01 am, London's Brent crude for January delivery was trading up 51 cents at 92.13 usd per barrel. Meanwhile, New York WTI crude for January delivery was up 74 cents at 94.60 usd per barrel.
   
Traders are awaiting this week's US inventory data for further indications on whether supplies will be stretched tight this winter. Last week, an unexpected increase in US crude stocks weighed on prices.
   
"Wednesdays EIA data will be important for signs that last week's numbers were not abberational and the market is likely to range trade ahead of this data," said Harris.
   
In addition, upside price movements might also be capped by lingering worries over the demand outlook. Last week, both the International Energy Agency and OPEC lowered their 2007, 2008 demand forecasts.
   
The news weighed heavily on oil, halting its ascent on the much-hyped 100 usd mark. However, prices have since recovered following the OPEC summit and as temperatures in the northern hemisphere start dropping sharply.
   
"Weather wise, colder than normal temperatures are expected to remain over the US for the next two weeks," noted Petromatrix analyst Olivier Jakob. Cold temperatures lead to increased demand for crude oil products like heating oil.

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