US & World Daily Markets Financial Briefing 24-07-2007

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Stocks fall sharply on earnings concerns

NEW YORK - Wall Street pulled back sharply in early trading Tuesday following several disappointing earnings reports and amid renewed concerns about the mortgage lending market. The Dow Jones industrials lost more than 100 points.
   
Among the many earnings reported before the opening bell, chemical maker DuPont Co. reported flat second-quarter profit as higher sales offset the cost of energy and research. American Express Co. reported late Monday that quarterly profit climbed 12 percent on record card member spending. However, the nation's third-largest credit card brand said cardholders are also shirking more payments.
   
Both companies are Dow components. In early trading, the Dow fell 101.20, or 0.73 percent, to 13,842.22. Broader stock indicators declined. The Standard & Poor's 500 index shed 12.26, or 0.80 percent, to 1,529.31. The Nasdaq composite index lost 21.06, or 0.78 percent, trading at 2,669.52.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note down to 4.94 Tuesday from 4.96 percent late Monday.
   
Countrywide Financial Corp. posted sharply lower second-quarter profit and slashed its earnings forecast as mortgage banking earnings were cut in half. The largest U.S. mortgage lender is used as one of the barometers of the housing industry, which has continued to slump amid delinquencies and defaults in
subprime loans.
   
McDonald's Corp., the world's largest restaurant chain, posted a loss after taking a charge for the sale of its Latin American outlets. Excluding that charge, it reported earnings per share that matched Wall Street expectations.
   
AT&T reported a 61 percent increase in second-quarter earnings, lifted primarily by its buyout of BellSouth Corp. The telecommunications company was also aided by faster growth in its Internet protocol services and by a gain in wireless subscribers.
   
Also in focus during the session are a number of companies that posted late Monday, including Texas Instruments Inc. The largest supplier of chips used in mobile phones said second-quarter profit fell from a year ago but was still able to meet Wall Street projections.
   
Shares of Netflix Inc. tumbled after the DVD rental service reported that the number of subscribers shrank for the first time in its 8-year history. The company was still able to report a profit rise for the second quarter.
   
Meanwhile, Wall Street will be watching for any new developments in Rupert Murdoch's News Corp.'s attempts to purchase Dow Jones & Co. The family that controls the publisher of The Wall Street Journal is expected to decide within days if it will approve the $5 billion offer.
   
Britain's FTSE 100 dropped 1.37 percent, Germany's DAX index fell 1.48 percent, and France's CAC-40 fell 1.40 percent.

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Canadian dollar climbs on buoyant retail sales figures

LONDON - The Canadian dollar firmed strongly after retail sales for May came in well above expectations. Sales rose 2.8 pct in May from April, well above expectations for a 0.5 pct, and the strongest monthly increase since December 1997.
   
"Almost all categories experienced decent sales growth, and the recent statistical evidence that the Loonie (Canadian dollar) was crimping into domestic growth seem to have been dashed," said Peter Wadkins at Thomson IFR Markets.
   
At 1.51 pm the US dollar was trading at 1.0372 cad having been at 1.0446 shortly before the figures were released.
 
The pound remained close to its 26-year highs against the dollar despite a survey of the UK's manufacturing sector activity which came in below consensus.
   
The Confederation of British Industry said the new orders book balance for manufacturers slumped to -6 pct in July from +8 pct in June, well below consensus for a +6 reading. The output balance eased to +10 pct, from +25 pct a month earlier, against predictions of a moderation to 21 pct, while the confidence balance eased to -1 pct from +7 pct in April.
   
"These are the kind of numbers that underline that the UK's robust growth outlook is not invulnerable," and that higher borrowing costs are finally having an effect on businesses, said David Brown at Bear Stearns.
   
However, despite the weak numbers, the pound gave up little ground, as the CBI remained upbeat about the future.
   
"While the recent manufacturing growth looks to have moved down a notch, we should not be speculating about an end to this year's manufacturing recovery," said Ian McCafferty, chief economic adviser to the CBI.
   
Meanwhile, the euro also remained high, underpinned by the dollar's inherent weakness and after the euro zone PMI indicators came in roughly as expected earlier this morning.
   
The manufacturing PMI provisional estimate eased to 54.8 in July from 55.6 in June, missing expectations for a 55.5 reading. The services PMI also dipped, to 58.1 from 58.3, but in line with the market consensus.
   
The euro had no trouble remaining above the 1.3800 usd level as investors continue to worry that the troubled US subprime mortgage market may hurt the wider US economy, keeping the US dollar lower.
       
That is why higher-yielding currencies, most notably the pound, the Aussie and Kiwi dollars, and even the euro have gained so much against the dollar.

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Euroshares lower in cautious trade as BP turns lower on CEO comments

LONDON - Europe's leading exchanges were lower midday in cautious trading with earnings reports providing most of the direction today, and as BP shares dropped after its chief executive Tony Hayward said he sees further pressure on earnings ahead in the near term.
   
At 12.22 pm, the Dow Jones STOXX 50 Index fell 23.57 points or 0.60 pct to 3,915.67, while the STOXX 600 rose 2.18 points or 0.55 pct to 392.81.
   
In Europe, the oil and gas sector was in focus next to utilities as UK giant BP released second quarter results, which were lower but came in slightly ahead of expectations, while the company's chief executive said there may be further pressure on earnings in the near term due to rising costs.
   
BP's shares turned lower in late morning trade, dropping 1.00 pct at last check. The company's results compared unfavourably with last year, due to a decline in production.
   
Clean net profit, which strips out non-operating items, fell to 5.346 bln usd from 6.112 bln last time, in line with the forecast range of 4.764-5.634 bln usd and slightly ahead of the consensus figure of 5.051 bln usd.
   
Evolution Securities analyst Richard Griffith said: "The downstream (refining) was better than we expected. The upstream (exploration and production) was in line. But overall when you strip out the fair value accounting item, the results were only just ahead of expectations."
   
Also in the sector, shares in Norsk Hydro fell 0.31 pct as investors weighed weakness in its oil and gas production business over strong results out of is aluminium operations.
   
In Germany, EON fell 1.73 pct after the company said it expects to lose at least 10 mln eur after its nuclear plants Kruemmel and Brunsbuettel, which it jointly owns with Vattenfall Europe AG, were shut down on June 28.
   
A spokesperson of EON confirmed reports saying EON and Vattenfall together are losing 1 mln eur every day in Kruemmel alone, a reactor that it owns 50 pct of. In addition, the energy supplier has to buy additional electricity to make up for the losses in its own production. EON does not expect the losses to negatively influence its 2007 financial results.
   
In the banking sector, Banca Italease SpA plunged 1.07 pct on a report in the Il Sole 24 Ore daily that the Bank of Italy may impose extraordinary measures for the bank, which is facing financial difficulties. The newspaper said these measures could involve a change of the bank's management or the appointment of an administrator.
   
Shares in Banco Bilbao Vizcaya Argentaria SA were sharply higher as news of a 3.2 bln eur exchangeable bond issue fuelled speculation of corporate moves. Earlier, UBS said it is selling about 3.2 bln eur in mandatory exchangeable notes into BBVA.
       
Over in Finland, Outokumpu fell 4.55 pct, after "very good" second-quarter operating earnings were overshadowed by a "disappointing" outlook for July-September.
   
The company warned nickel-related inventory losses could push it it "substantially" into the red during the third quarter. It said underlying demand for stainless steel remains "strong", but noted that demand from distributors, which have been busy destocking in recent weeks, is "very weak".
   
Staying in the Nordic region, Svenska Cellulosa AB (SCA), up 4.49 pct, after its first half results beat expectations.
       
Akzo Nobel added 1.43 pct as analysts gave a largely positive reception to the chemical company's second-quarter results. The Dutch company, however, did not update investors on whether it plans to make a revised offer for its UK peer Imperial Chemical Industries.
   
Broker Collins Stewart said a higher bid of up to 650 pence a share is likely, as failure to complete "a significant acquisition" would leave it vulnerable to a bid itself. ICI has already rejected a 7.2 bln stg, 600 pence a share, takeover offer from Akzo Nobel. 
   
The French car sector was buoyant ahead first half results due tomorrow from Peugeot and Renault.
   
Peugeot's shares, already boosted yesterday by a price target hike from Exane BNP Paribas, saw more broker optimism today when Morgan Stanley analysts said there is a "high probability of 'surprise and delight'" with its first half figures. Peugeot was last up 1.87 pct while Renault gained 1.06 pct.

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Asian shares close mostly up; Hong Kong shares hit a new record

MUMBAI - Shares across the Asia-Pacific region were mostly up on Tuesday, with stocks in Hong Kong hitting a new record and Tokyo shares closing higher after bargain hunting in late trade.
   
Shares closed higher in Hong Kong for the fourth straight session, as China insurers posted strong gains after Ping An
 
Insurance projected over 100 pct growth in first-half earnings. Dealers said select property stocks were also supported on expectations that local housing prices will see a strong rebound in the coming months and bolster full-year earnings of developers. The Hang Seng Index closed up 107.32 points or 0.46 pct 23,472.88, off a low of 23,410.54 and a new all-time high of 23,534.38.
   
Over in Japan, gains were limited however, as investors were cautious ahead of the earnings announcements of key companies and the outcome of the Upper House elections on July 29. The blue-chip Nikkei 225 Stock Average closed up 38.39 points or 0.2 pct at 18,002.03, after moving between 18,018.94 and 17,906.11. The broader TOPIX index of all issues listed on the first section was up 8.7 points or 0.5 pct to 1,765.99, off a high of 1,768.53 and a low of 1,752.41.
   
KDDI Corp surged 40,000 yen or 5 pct to 870,000 after Japan's second-largest telecom operator said on Monday its operating profit in the fiscal first quarter to June rose 15.6 pct.
   
Yahoo Japan Corp announced after the closing bell that its net profit for the three months to June rose 22.7 pct from a year earlier, driven by its brisk advertising and auction businesses. The company's shares closed up 1,150 yen or 3 pct at 40,750.
   
South Korea's KOSPI index briefly crossed the 2,000-point mark to touch a new all-time intraday high, but closed little changed from Monday after profit taking emerged. It ended down 0.79 points or 0.04 pct at 1,992.26, after rising to 2,005.02 at open.
   
Australian shares ended higher, buoyed by the production reports by some mining companies, including index-leading  BHP Billiton. Shares in the world's largest diversified resources group rose 50 Australian cents or 1.3 pct to finish at 38.78 aud, after it said its output of iron ore, copper, nickel, aluminium and metallurgical coal, for the year to end-June had reached record levels.
   
The S&P/ASX 200 closed 31.9 points or 0.5 pct higher at a new record 6,422.3. The All Ordinaries Index advanced 27.7 points or 0.4 pct to settle at 6,455.5, just off the record close of 6,456.7 set on Friday, having set a new intra-day high of 6,464.3.
    
Shares in Australia's largest listed gold miner Newcrest Mining jumped 1.59 aud or 6.5 pct to 26.07 aud, after it said its output for the year to end-June had reached a record 1.62 mln ounces, up from 1.53 mln ounces the year before.
   
China shares closed mixed as investors locked in profits. China A-shares closed mixed, ending a two-day rally, as investors traded cautiously as the index neared its record high. Heavyweight insurance companies led the decline, while property stocks were boosted by the yuan's continuing strength.

The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed down 3.03 points or 0.1 pct at 4,210.33. The Shanghai B-share Index was down 0.80 points or 0.3 pct at 298.73, and the Shenzhen B-share Index was up 2.53 points or 0.3 pct at 774.62.
   
Share prices in Taipei closed higher on follow-through interest, with investors encouraged by Wall Street's gains overnight amid US buyout news and upbeat corporate results. The weighted index closed up 122.49 points or 1.3 pct at 9,744.06, on turnover of 284.71 bln twd. Ample market liquidity and a positive outlook for company earnings also supported the market, dealers said.
   
Singapore shares were also higher as investors bought blue chips following Wall Street's jump Monday. The benchmark Straits Times index was up 29.78 points or 0.8 pct at a new record high of 3,665.13, on expectations of robust quarterly earnings from shipyards and banks.
   
In Malaysia, share prices closed higher with the benchmark composite index closing at a new all-time high, as news the government will unveil the Northern Corridor Economic Region next Monday spurred buying interest in construction and property stocks. The Kuala Lumpur Composite Index closed up 10.65 points or 0.8 pct at 1,392.18.
   
Jakarta share prices closed higher as investors continued to accumulate select big caps including banks and Astra International in anticipation of strong first half to June earnings. The main index finished at a record high for the fourth straight day, breaking the psychologically important 2,400-point level. The composite index closed up 20.93 points or 0.9 pct at a new record of 2,401.14 points, beating its previous all-time high of 2,380.21 set yesterday.
    
Meanwhile, Philippines shares closed slightly lower after president Gloria Arroyo's annual address to Congress Monday outlining her growth plan for the remainder of her term failed to inspire investors. The 29-company composite index ended down 31.55 points or 0.8 pct at 3,706.24, off its day high 3,741.80. The broader all-share index lost 12.81 points or 0.5 pct to 2,406.57.

Indian shares ended marginally higher but off the day's highs, as investors locked in gains after the market witnessed a steep rise in early trade. Indices had risen sharply in the morning on firm buying from foreign funds in select blue-chip stocks.
   
The Bombay Stock Exchange's 30-share Sensex closed at 15,794.92 points, up 62.72 points, or 0.4 pct. The National Stock Exchange's broader S&P CNX Nifty ended at 4,620.75, up 1.4 points or 0.03 pct.

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Gold hits fresh 10 week peak as dollar plunges

LONDON - Gold hit a fresh 10 week peak as the dollar plunged to a new all-time low against the euro, further increasing the appeal of the metal as an alternative asset to the ailing US currency.
   
The metal rose to a fresh 10 week peak of 687.38 usd an ounce, before retreating back down to 686.10 usd at 2.23 pm. In late New York trades yesterday, the metal was quoted at 681.00 usd.
     
Gold has gained some 4 pct since the start of the month, as the deterioration in credit spreads related to sub-prime mortgage issues increased demand for safe haven assets like bullion.
   
Although analysts say the metal might have trouble topping key technical resistance areas ahead of the key 700 usd level, they say the fact that gold has risen in euro terms this past week is encouraging.
   
A rise in gold against all currencies, not just the dollar, is usually taken as the mark of a true bull market in bullion, and analysts are now waiting for the metal to breach the 500 eur level.
    
In other precious metals, platinum edged up to 1,329 usd an ounce against 1,327 usd amid ongoing concerns about labour disputes in South Africa, the world's largest platinum producer. The National Union of Mineworkers has reportedly claimed strike action is imminent unless the deadlock with Angloplat can be resolved over the coming week.
  
Palladium dipped to 365.00 usd an ounce against 368.50 usd, while silver edged up to 13.42 usd against 13.26 usd.
  
At 1.43 pm, LME copper for three-month delivery was trading at 8,064 usd, up slightly from 8,025 usd at the close yesterday.
   
Earlier the red metal dipped as low as 7,960 usd after the threat of industrial action in Latin America eased. Striking workers at Xstrata's CCR refinery in Montreal will return to work tomorrow after agreeing to a new labour contract, the company said.
   
Among other base metals, nickel dropped to 32,450 usd from 33,405 usd, pressured by a further rise in LME stockpiles, which increased a further 804 tonnes this morning to 12,642 tonnes.
   
Lead meanwhile rose to 3,461 usd against 3,390 usd yesterday, and tin crept up to 15,525 usd from 15,330 usd. Aluminium inched up to 2,834 usd against 2,825 usd yesterday, while zinc rose to 3,769 usd from 3,695 usd.

Sugar futures edged lower on speculation that Indian traders might soon make unrefined supplies available to the market, but prices remained underpinned by a strong outlook in the ethanol market. With crude oil prices near record high levels, interest in sugar as an ingredient for alternative energy lent support.
    
At 1.58 pm on the Euronext Liffe, sugar for October delivery dipped 90 cents to 310.10 usd a tonne against 311.40 usd at the close on Friday.
       
Elsewhere, cocoa was down slightly following reports of heavy rainfalls in the Ivory Coast, the world's largest producer. Traders took the weather news as a sign that crops could do well this year, increasing supply to the market. Cocoa for September delivery was down at 1,070 stg a tonne against 1,083 stg at the close yesterday.
       
In other softs traded on Liffe, Robusta coffee for September delivery was down at 1,823 usd a tonne against 1,853 usd at the close on Friday. Prices slipped in light trade but with tight global supply, with traders still heavily dependent on supplies from Vietnam providing a floor.

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