US & World Daily Markets Financial Briefing 20-11-2007

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Stocks rose in early trading Tuesday, recovering from steep losses a day earlier as strong results from Hewlett-Packard Co. relieved investors even as they awaited minutes from the Federal Reserve's last meeting.
   
Having swooned Monday due to growing anxiety about upcoming losses at the world's major banks, Wall Street seemed to think its sell-off was a bit overdone, considering that third-quarter earnings outside the financial sector have generally shown solid growth.
   
After the closing bell Monday, H-P posted a 28 percent rise in profit that easily surpassed analysts' average forecast. The computer and printer maker also lifted its financial outlook and authorized an additional $8 billion for stock buybacks. Its shares rose 51 cents to $49.95.
   
The stock market has been mercurial lately, though. What Fed policy makers said behind closed doors on Oct. 31, when they lowered interest rates by a quarter-point, will be released at 2 p.m. EST and read closely for hints about future rate actions.
   
In the meantime, investors had some disappointing data to digest. Government-sponsored lender Freddie Mac reported a $2 billion quarterly loss, wider than the one it suffered a year earlier. The nation's second largest guarantor of home mortgages, hit hard by the sinking housing market, also said it is considering a dividend cut. Freddie shares plunged $8.95, or 24 percent, to $28.55.
   
And a Commerce Department report on housing starts did little to convince investors that the housing market is anything other than dismal. Housing starts unexpectedly rose in October after hitting their lowest level in about 15 years in September, but building permits declined more than economists anticipated.
   
The Dow Jones industrial average rose 70.56, or 0.54 percent, to 13,029.00. Broader stock indicators also rose. The Standard & Poor's 500 index rose 7.70, or 0.54 percent, to 1,440.97, and the Nasdaq composite index gained 16.47, or 0.64, to 2,609.85.
   
Government bonds rose slightly. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.07 percent from 4.08 percent late Monday.

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Euro scales new four-year highs vs pound, record high vs dollar

The euro hit a new four-and-a-half year high against the pound, and climbed above 1.48 usd for the first time, as the European single currency continued to benefit from diverging expectations for interest rates in the UK, US and the euro zone.

The euro hit 0.7175 stg in early afternoon trade, its highest level since June 2003, before settling back to around 0.7165 stg.The all-time euro/sterling high of 0.7255 was struck in May 2003.
   
The euro has been climbing steadily against the sterling since the Bank of England's dovish Inflation Report last week, which suggested UK interest rates will have to fall from the current 5.75 pct in order to keep inflation around the 2.0 pct target.

The BoE is expected to cut rates by a quarter point in the coming months, perhaps as early as December.
The European Central Bank, by contrast, is expected to keep its key rate on hold at 4.0 pct for the time being as euro zone inflation remains stubbornly high.

Meanwhile the euro rose briefly above 1.48 usd for the first time ever, setting a fresh all-time high of 1.4804 before moving back down to 1.4795.
   
The dollar has slid against most major currencies today on continued talk that Middle East currencies are considering de-pegging it from the greenback. Reports in Saudi Arabia said the oil-giant is considering a revaluation of its currency the riyal, while the United Arab Emirates government is also reported to be studying a change to its exchange rate regime.

This has prompted wider speculation that countries may increasingly use the euro as a safe-haven currency rather than the dollar.

"When concerns over the economy grow, you turn to stable currencies - for example the dollar, but ultimately the dollar is going down so now you would buy the euro," said Neil Mellor, currency strategist at Bank of New York.

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At 12.29 am, the STOXX 50 added 10.51 points or 0.57 pct to 3,613.09, while the STOXX 600 rose 2.13 points or 0.6 pct to 356.83.  Spread bettors, IG Index, said the Dow looks set to climb 96 points today, recouping some of the 218.35 points it lost yesterday.
   
Gains will be capped ahead of the Federal Reserve's minutes from its last meeting on interest rates. Investors are hoping there will be a clear indication on where US rates will go next.
   
Back on this side of the Atlantic, mid-morning rumour driven woes in the banking sector waned and UK shares recovered as talk the Bank of England will reduce its penalty lending rate added to positive news from interdealer broker ICAP and Bradford & Bingley.
   
"Bradford & Bingley is up after agreeing to the sale of a portfolio of commercial property loans and its Housing Association loan book to Dexia," one London based dealer said. ICAP said its profit for the full year would be ahead of analysts' current forecasts as it unveiled a 34 pct increase in first-half earnings.
   
Northern Rock, though, lost another 8.43 pct after reports US hedge fund Cerberus Capital Management has withdrawn from the bidding process for the beleaguered UK mortgage lender.
   
But shares came off earlier lows after a source said US buyout firm JC Flowers had submitted an offer to buy Northern Rock under which it would repay 15 bln stg of the stricken lender's estimated 25 bln stg emergency borrowing from the Bank of England immediately.

Credit Agricole fell 0.72 pct after Goldman Sachs cut its rating to 'neutral' from 'sell' and Credit Suisse downgraded the French banking group to 'underperform' from 'neutral'.
   
Elsewhere the airline sector was a major focus with Easyjet up 0.95 pct after its better-than-expected full-year earnings.
   
The group also lifted its guidance for pretax profits for the current year to 20 pct after previously guiding for organic growth of 15 pct -- still below the 30 pct consensus forecast. German peer Air Berlin added 0.3 pct after its third-quarter earnings report, which showed a 19.4 pct rise in profits to 60.8 mln eur.
   
But Iberia was 0.85 pct lower after Banco Bilbao Vizcaya Argentaria SA said it will sell its 6.99 pct stake Spanish flag carrier to core shareholder, Caja Madrid, for 240 mln eur. The news dampened hopes a takeover bid is imminent.
   
And Alitalia slipped 0.49 pct as Aeroflot said it is not interested in taking part in the Italian flag carrier. Also in the sector, Grupo Ferrovial SA rose 4.54 pct after the UK Civil Aviation Authority said it is proposing to allow its BAA airport operator unit to increase its airline charges at Heathrow and Gatwick.
   
Elsewhere, Norwegian fertiliser group Yara International ASA added 3.13 pct following bullish comments made by its CEO on the group's capital markets day
   
Earlier, Yara CEO Thorleif Enger said he was confident about the future. Atlas Copco added 3.81 pct after the group reiterated its outlook at its Capital Markets Day. Chief executive Gunnar Brock said he expects to see

And Michelin added 1.74 pct after its bullish update on global tyre sales in October. But shares in Clariant fell 3.45 pct to its lowest point since 2004, after Merrill Lynch cut its rating to 'sell' from 'neutral'.

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Stock markets across Asia recouped most of their early losses in late trade Tuesday, led by Japan after a press report said the US Federal Reserve will publish upbeat economic forecasts for the US when it releases the minutes from its October meeting later today.
   
The Fed will indicate it expects the US economy to pull through the current rough patch and regain strength in 2008, the FT reported on its website. The report will show that policymakers are much more optimistic than financial markets and may challenge expectations of further rate cuts, said the paper.
   
"Optimism here towards the US economy in addition to rumours of an emergency Fed meeting, also heard in late New York trading, resulted in a major rally on the TSE," said Haruya Ida, analyst at Thomson IFR in Tokyo.
   
The Nikkei closed up 1.1 pct at 15,211.52 after hitting an intra-session low of 14,751.27, its weakest intra-day level since July 24, 2006. The broader TOPIX reached a low of 1,420.57, its lowest intra-day level
since Oct 28, 2005, before finishing up 0.9 pct at 1,469.27.
   
The dollar strengthened, pulling back above 110 yen after trading as low as 109.61 early in the day. Other benchmarks also swung into positive territory, including the Hang Seng which closed up 1.1 pct at 27,771.21.
   
The Shanghai Composite closed up 0.5 pct at 5,293.70 and the Singapore Straits Times rose 0.8 pct to 3,438.27. The Taiwanese Taiex was flat at 8,680.86.
   
The KOSPI closed down 1.1 pct at 1,872.24, also comfortably above a low of 1,819.18. The S&P/ASX 200 closed down 1.7 pct at 6,425.4 and the All Ordinaries was down 1.7 pct at 6,490.2.

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Metals - Copper falls amid further stockpile increases, demand woes

At 10.39 am, LME copper for 3 month delivery was down at 6,710 usd against 6,795 usd, having earlier hit 6,550 usd, its lowest since mid-March.
   
The metal lost more than 5 pct of its value yesterday as global equity markets fell sharply amid increased risk aversion and ongoing worries over the fall out from the US sub-prime mortgage crisis.
   
The LME said in a daily report today copper stocks in its warehouses rose by 350 tonnes to 181,275 tonnes. Stocks are now at their highest since late March.
   
"Copper stocks have been increasing for several months, possibly indicative of some softening in copper demand," said David Moore, an analyst at Commonwealth Bank of Australia.
   
He added while US growth is believed to have been heavily checked by the housing and credit market woes, concerns are now emerging that recent monetary tightening will weaken Chinese demand.
   
China is the world's largest copper consumer, after the US. Metals markets are now awaiting US data on October housing starts, scheduled for release at 1.30 pm, for further clues on the extent of the current housing market slump.
   
In addition, the release of the minutes to the last FOMC meeting in October will also be closely scrutinised. Players are looking for clues as to future rate cuts by the Fed.
   
Elsewhere, zinc was down at 2,338 usd a tonne against 2,355 usd, having earlier hit 2,250 usd - its lowest since March 2006.  The outlook for the metal has turned decidedly negative in recent weeks, although today's 375 tonne drop in LME inventories has helped patch up some of the recent damage.
   
"Zinc supply is expected to increase strongly in the coming year as new projects add to supply," said Moore. In other news, the International Lead and Zinc study group said the zinc market was in a deficit of 46,000 tonnes in the first 9 months of this year, compared to a deficit of 373,000 tonnes in the prior year period.
   
Lead was up at 3,070 usd against 3,050 usd. It too was benefiting from a drop in LME inventories, by 475 tonnes, which helped spark a bounce off a two and a half month low of 2,950 usd hit earlier.
   
The International Lead and Zinc study group said the lead market was in a deficit of 89,000 tonnes in the first 9 months of this year, compared to a deficit of 76,000 tonnes last year. Lead was battered yesterday by reports the Magellan mine in Australia could resume exports by the middle of next year.
   
The closure of the mine on environmental grounds in March this year was one of the key reasons that lead eventually rallied to an all time high of 3,890 usd an ounce.
   
In other metals, nickel was down at 29,700 usd a tonne against 30,200 usd, aluminium edged up to 2,524 usd against 2,509 usd while tin fell to 16,700 usd against 16,775 usd.

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