US & World Daily Markets Financial Briefing 26-10-2007

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Stocks up on Microsoft, Countrywide

NEW YORK - Stocks advanced sharply in early trading Friday, with Wall Street encouraged by strong earnings from Microsoft Corp. and an optimistic outlook from Countrywide Financial Corp.
   
Investors appeared to be paying more attention to the profits reports than to the rise in crude oil to over $92 a barrel in Asian trading. After spiking overnight, December crude futures were up $1.32 at $91.78 on the New York Mercantile Exchange.
   
The earnings reports gave investors hope that the problems in the housing market are contained and that U.S. consumers still have spending power. For another gauge of the consumer, investors will be watching for the University of Michigan's final reading on October consumer sentiment, scheduled to be released
at 10 a.m. EDT.
   
The Dow Jones industrial average rose 92.59, or 0.68 percent, to 13,764.51.
   
Broader stock indicators also gained. The Standard & Poor's 500 index rose 14.37, or 0.95 percent, to 1,528.77, and the technology-dominated Nasdaq composite index soared 59.05, or 2.15 percent, to 2,809.91.
   
Treasury bonds fell. The yield on the 10-year Treasury note, which moves inversely to the price, rose to 4.40 percent.
   
Countrywide posted a wide loss of more than $1 billion in the third quarter, but the beleaguered mortgage lender, whose stock has plummeted due to rising subprime mortgage defaults, said it will be profitable in the fourth quarter and next year.
   
Microsoft's reported late Thursday that its profit jumped 23 percent, thanks to brisk sales of the new Halo 3 video game, Windows and Office. Microsoft shares rose $3.53, or 11 percent, to $35.52.
   
The financial sector continues to show signs of uneasiness following the summer's credit market problems. The New York Times reported that after Merrill Lynch & Co. posted its sharp third-quarter loss Wednesday, the investment bank's chairman and chief executive floated the idea of a merger with Wachovia Corp.
   
The credit squeeze, brought about by escalating subprime mortgage defaults, has given the banking industry trouble. Wall Street hopes the Federal Reserve will lower interest rates again when it meets next week, after cutting them in September.
   
In European trading, Britain's FTSE 100 rose 1.25 percent, Germany's DAX index rose 0.45 percent, and France's CAC-40 rose 0.41 percent.

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Dollar flounders, sets fresh record lows against euro

LONDON - The hapless dollar set a series of fresh record lows against the euro and was down against a host of currencies as fears of a recession in the US began to take hold after a some weak economic numbers over the week.
   
The data include an unexpected drop in durable goods orders and higher-than-expected weekly employment numbers yesterday alongside a continually weak housing market and rocketing oil prices.
   
Later today, a drop in the University of Michigan consumer sentiment survey is expected, making it likely that the dollar will drop further. Economists expect the University of Michigan survey to show a final October consumer sentiment of 82.0, down from its 83.4 preliminary reading.
   
Against this backdrop, markets are predicting that US rate setters will be forced to go on a rate cutting spree in order to shore up the wider economy.
   
"Increased certainty that the Fed funds rate will fall by at least 50 basis points this year to 4.25 pct means that the dollar will be treated as a low yielding currency, specifically due to the onset of further rate cuts in 2008," Ashraf Laidi at CMC Markets said.
   
More rate cuts are expected to follow in 2008.
   
"It is the anticipation of further rate cuts that reinforces the depreciation of the greenback, especially as the deepening housing recession is expected to continue into 2008, translating into repercussions for employment, homeowner's equity and consumer spending," he added.
   
No wonder then that the dollar is now languishing at a record low against the euro (1.4287 usd), a 33-year low against the Canadian dollar and a new 23-year low against the Aussie dollar. It held up better against other low yielding currencies -- namely the yen and the Swiss franc
   
The dollar's weakness against the euro was also more stark as it comes at a time when euro zone data is starting to weaken.
   
It was revealed today that Euro area M3 grew 11.3 pct year-on-year in September, down from a year-on-year growth rate of 11.6 pct in August, and in line with the consensus forecast.
   
Elsewhere, the pound rose to three-month highs against the dollar, supported by the US rate cut talk.
      
The yen was stable against the dollar, as risk appetite remained subdued. "Dollar/yen trades in a tight range as risk sentiment remains skittish," said analysts at BNP Paribas.
   
However, they added that risk appetite could re-merge following Industrial and Commercial Bank of China's announcement that it will buy a 20 pct stake in South Africa's Standard Bank -- the biggest foreign direct investment in the country since 1994.

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Euroshares turn higher midday, telecoms & automotive advance, Wall St seen up

LONDON - Leading European shares turned higher in midday trading, with Wall Street heading for a higher open and the telecommunications and automotive sector advancing with ease, in quiet trading ahead of the
weekend.
   
At 12.20 pm, the Dow Jones STOXX 50 Index rose 4.76 points or 0.12 pct to 3,821.42, while the DJ STOXX 600 Index added 0.06 points or 0.02 pct to 381.89.
       
Back in Europe, selected players in the automotive sectors are in focus, with Renault shares climbing 3.28 pct after its Nissan unit said its first-half operating profit rose 5.3 pct from a year earlier on brisk sales in the US and a weak yen, which more than offset the impact of weaker domestic sales and higher procurement cost. Nissan also maintained its full-year outlook. Renault said Nissan will contribute 329 mln eur of its second-quarter profits to Renault's second-half net income.
   
French rival Peugeot rose 3.96 pct as the company delivered consensus-beating third quarter sales and confirmed its sales targets set under its CAP 2010 plan. Under the development plan, announced in September this year, Peugeot is aiming to sell 4 mln vehicles per year by 2010 and achieve an operating margin of 5.5-6 pct.
   
In Germany, Volkswagen ticked up 0.97 pct after it posted a 9-month operating profit of 4.3 bln eur on a 5.1 pct increase in sales to 81 bln eur. Equinet analyst Tim Schuldt focused his attention on the automaker's outlook, which he said disappointed the market. "The forecasts look quite conservative to me," he said. Volkswagen reiterated its forecast for full year pretax profit of at least 5.1 bln eur, unit sales of more than 6 mln vehicles and higher revenues.
       
Vivendi surged 4.76 pct. ABN-Amro upgraded the group to 'buy' from 'hold'  saying a recent sell-off in its share price represents a buying opportunity.
   
The broker cited the earnings growth outlook for its Canal+ pay-TV channel, a more favourable climate for acquisitions and a stabilizing regulatory environment in the French telecom sector. Furthermore, the group said it is raising its stake in Maroc Telecom to 53 pct from 51 pct as part of a share exchange deal with Morocco's Caisse de Depot et de Gestion, confirming an earlier report in Les Echos.    
   
Peer TeliaSonera announced much better-than-expected third quarter numbers across the board, and a 10 bln skr extraordinary dividend for 2007. "The company is sending all the right signals at all levels, topline, profits, and capital structure. There are no uncertainties, everything is clear," Anders Berg, an analyst at Evli Bank said. The stock rallied 6.01 pct.
   
Norway's Telenor ASA rose 1.50 pct, following a string of broker notes which reiterated confidence in the company's prospects in the longer-term. Analysts appeared unfazed by the group's earnings results released yesterday, which came in slightly below expectations.
   
In the media sector, TF1 shares fell 3.85 pct. There was some concern its 1.5 pct increase in advertising sales growth in the third quarter came as a result of increased discounts offered to advertisers. The television company is trying to fend off increasing competition on advertising rates from digital channels.

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Asian markets rally on upbeat earnings, US rate cut hopes

SINGAPORE - Asian stock markets rallied Friday, with Hong Kong setting a fresh record, as upbeat corporate earnings encouraged investors to chase shares higher and set aside concerns from the US subprime crisis.
   
Investors ignored Wall Street's lacklustre performance and record-high oil prices, which are now above 92 usd a barrel, amid expectations that the US Federal Reserve will again cut its key rate next week.
   
"Expectations of rate cuts in the US is the major driver that's pushing the Hong Kong market higher," said Castor Pang, a strategist at Sun Hung Kai Financial.
   
Earnings in Japan and Hong Kong were further evidence of Asian resilience, indicating that the region can absorb soaring oil prices.

In Hong Kong, the Hang Seng index closed up 1.8 pct at a fresh record of 30,405.22, after touching an intra-day high of 30,562.63. The Hong Kong market was similarly buoyed by strong earnings from ICBC and Ping An Insurance (Group) Co. Japan's Nikkei 225 Stock Average closed up 1.4 pct at 16,505.63.
   
The Singapore Straits Times Index closed up 1.7 pct at 3,771.55.
   
In Australia, the S&P/ASX 200 closed up 1.2 pct at 6,700.6, while the All Ordinaries index finished up 1.1 pct at 6,716.4
   
Mining stocks also led the gains in Manila, where the composite index rose 0.5 pct at 3,784.88.
   
The Jakarta composite index closed up 1.1 pct at 2,624.43 and Malaysia's Kuala Lumpur Composite Index added 1.5 pct at 1,398.35. Taiwan's weighted index closed up 0.7 pct at 9,631.51.
   
South Korea's KOSPI was up 2.6 pct at 2,028.06.

Indian shares ended 2.5 pct higher, only a little off the all-time highs hit during the session, as investors bet on the nation's growth prospects after the market regulator put in place new norms to ensure greater transparency in overseas investments.
   
The Bombay Stock Exchange's benchmark Sensex closed 2.52 pct or 472.28 points higher at 19,243.17. It had earlier hit an all-time high of 19,276.45 points. The National Stock Exchange's S&P CNX Nifty rose 2.50 pct, ending at 5,702.30 points.
   
Among BSE-30 shares, 23 shares advanced and 7 declined. In the broader market, 1,725 shares advanced, 1,045 declined and 63 were unchanged.

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Gold at fresh 28 year highs as oil rallies, dollar drops

LONDON - Gold rallied to fresh 28-year highs as oil prices rose to new record levels, stoking inflation fears and safe haven buying in gold, and as the dollar hit another record low against the euro earlier.
   
The US currency is coming under increasing pressure from speculation the Federal Reserve will cut interest rates next week in a bid to prop up the ailing economy.
   
A weak dollar tends to benefit gold as the metal is seen as an alternative asset to the US currency. On the other hand, rising oil prices boost bullion as they increase its appeal as a hedge against inflation.
   
Gold is also bought as a safe haven asset, and with oil prices rising further above 90 usd a barrel today on increased tensions in the Middle East, gold is looking like a safe bet.
   
"The escalation of conflict between Turkey and PKK terrorists as well as the imposition of new US sanctions against Iran do not only lead to higher oil prices but also increase the appeal of gold as a save haven," said Dresdner Bank analyst Peter Fertig.
   
At 11.20 am, spot gold was up at 775.80 usd an ounce against 767.60 usd in late New York trades yesterday. Earlier the metal hit 778.35 usd, its highest levels since January 1980.
   
Gold has hit a series of fresh 28-year high for more than a month now.
   
Analysts say while the speed of its ascent means there is a risk of a near term pull back in prices, the metal remains set to test the 800 usd level longer term.
   
Elsewhere, gold's rally boosted silver to an eight-month high of 14.12 usd an ounce earlier this morning. It was quoted at 14.05 usd against 13.86 usd in mid-morning trades.
   
Platinum was up at 1,450 usd against 1,443 usd, still underpinned by mine closures in South Africa, the world's largest platinum producer. Last week, the metal hit an all-time high of 1,457.50 usd an ounce.
   
Palladium was trading up at 368 usd an ounce against 364 usd.

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