US & World Daily Markets Financial Briefing 27-11-2007

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Wall Street advanced in early trading Tuesday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc.  a vote of confidence for the nation's largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market.
   
The banking industry has been battered in recent months as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless. Major financial institutions, including Citi and its competitors, have had to book some $80 billion of writedowns on those holdings a trend that has left the markets nervous about the full extent of the damage.
   
Investors were relieved that Citi was able to secure an injection of capital, and that others might be able to do the same thing. Concerns about further writedowns caused the Dow Jones industrials to plunge 240 points Monday, bringing the blue chip index, along with the Standard & Poor's 500 index, down 10 percent from recent highs, a decline that signifies a correction.

Investors are still waiting for the Conference Board to issue its reading on November consumer confidence due at 10 a.m. EST. Analysts expect a weaker reading with the index expected to fall to 90.5 from 95.6 the prior month, as gas prices rose and loans became harder to obtain.
  
The Dow rose 93.64, or 0.73 percent, to 12,837.08. Broader stock indexes also moved higher, with the S&P 500 index up 10.14, or 0.72 percent, at 1,417.36, and the Nasdaq composite index up 24.94, or 0.98
percent, at 2,565.93. A pullback in oil prices aided the market's gains. A barrel of light, sweet crude dropped $2.86 to $94.84 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.
  
Government bond prices fell. The yield on the 10-year Treasury note rose to 3.94 percent from 3.85 percent late Monday. Abu Dhabi's purchase of a stake in Citigroup will make the Gulf Arab state one of the bank's largest shareholders. Sheikh Ahmed Bin Zayed Al Nahayan called Citi "a premier brand and with tremendous opportunities for growth."
   
Citigroup shares rose 77 cents, or 2.6 percent, at $30.57. In other corporate news, Barclays Group PLC, Britain's No. 3 bank by market value said retail banking in the United Kingdom was delivering good growth and the company projected 2007 earnings per share would be "broadly in line" with the current market consensus.
   
Earnings news from retailers was mixed Tuesday. Staples Inc., the world's largest office products supplier, said third-quarter profit fell 5 percent due to lower sales at stores open at least one year, or same-store sales, and costs from a legal settlement. Excluding the settlement charge, earnings topped Wall Street expectations and shares surged $2.15, or 10.9 percent, to $21.91.
   
American Eagle Outfitters Inc.'s fiscal third-quarter earnings slipped 1.5 percent on weaker-than-expected sales and higher markdowns, but the results met analysts' consensus forecast. The retailer of casual clothes for teens said same-store sales this month are "slightly positive." Shares rose 11 cents to
$21.48.

Pulte Homes Inc. shares rose 21 cents, or 2.3 percent, to $9.37 after it said late Monday that housing demand remains weak and inventories high but the homebuilder reaffirmed its fourth-quarter forecast. The company expects to break even or earn as much as 10 cents per share.
   

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Forex - Euro continues to benefit from strong German Ifo, regional CPI data

The euro picked up against the dollar, continuing to benefit from strong German Ifo and regional inflation data, while market participants looked ahead to the release of US consumer confidence data this afternoon.
   
The Ifo German business climate index rose to 104.2 in November from 103.9 in October, against forecasts for a drop to 103.4, suggesting economic activity has not as yet taken a major hit from the adverse conditions of a strong euro and high oil prices.
   
Meanwhile, regional German inflation figures have so far suggested nationwide German CPI will come in much higher than the consensus for an annual gain of 2.8 pct. This would justify the European Central Bank's concerns about rising inflationary pressures and keep alive speculation euro zone interest rates will remain on hold for the time being.
   
"On balance, today's releases will probably strengthen the ECB's resolve to stay on hold until well into 2008," Gilles Moec at the Bank of America said. The latest figures from the key state of Bavaria showed year-on-year inflation at 3.1 pct.

Figures from North Rhine-Westphalia, Baden-Wuerttemberg, Brandenburg and Saxony also showed annual CPI of 3.0 pct or above, while Hesse CPI was 2.9 pct. The Federal Statistics Office uses data from these six states to compile the provisional CPI figure for Germany as a whole.
   
"Data from the individual states suggests that national CPI in Germany could possibly rise by as much as 0.4 pct month-on-month and 3.0 pct year-on-year in November, boosted by high oil and food prices," said Blerina Uruci at Thomson IFR Markets.
   
The news gave a boost to the euro after dropping in overnight and early European trade on concerns that European politicians will intensify their rhetoric about the risks to the economy of a soaring currency, which on Friday surged to a new record high of close to 1.5 against the US dollar.
   
Elsewhere, markets were looking ahead to the release of US consumer confidence data this afternoon for further clues on whether or not the Federal Reserve will deliver another rate cut next month. The Conference Board's estimate of consumer confidence for November will give an indication of how the US consumer is holding up in the face of sky-high oil prices and a sharp slowdown in the housing market.
   
"Any suggestion that the credit squeeze is limiting consumption across the Atlantic will add weight on the Fed to push through another rate cut at the last scheduled rate-setting meeting of the year in just two weeks time," James Hughes at CMC Markets said.
   
Meanwhile, the yen picked back up again after European equity markets turned lower as the currency's movements continued to be determined by share price movements and the levels of risk appetite among investors.

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At 12.12 pm, the Dow Jones STOXX 50 lost 7.66 points or 0.21 pct to 3,590.60, while the STOXX 600 fell 1.83 points or 0.51 pct to 353.95. The financial sector was gaining ground today, albeit off highs in midday trading having gained more than 1.7 pct earlier.
    
Barclays added 2.92 pct as its full-year trading statement pleased investors. Traders also said news that the Abu Dhabi Investment Authority will invest 7.5 bln usd in Citigroup is raising hopes that other funds will come in and snatch up shares in the sector.
   
UBS was one of the major gainers, advancing 3.18 pct, with BNP Paribas adding 2.55 pct and Deutsche bank trading 1.89 pct higher. "This advance will largely be driven by financials," one Frankfurt-based trader said, noting that in Europe, the technology sector was capping the impact on the general indices. "Techs didn't fare too well in the US last night and we are still accounting for that here," he said.
   
While the broader industry was an aggregate 1.64 pct lower, Wincor Nixdorf was a major decliner, down 3.46 pct, followed by Logitech, which fell 3.25 pct.
  
Elsewhere, Iberia extended yesterday's losses, down 1.91 pct, after the British Airways-TPG consortium said late yesterday that it has abandoned its bid plans. "BA's move takes the M&A heat right out of the stock," a dealer at a leading European bank said. "With Caja Madrid controlling over 23 pct of the capital, any further bid moves aren't going to be easy without the savings bank's prior consent," he noted.
   
Staying with M&A news, NH Hoteles gained 1.48 pct on speculation that Grupo Inversor Hesperia SA is mulling another takeover bid for the Spanish hotel chain, triggered by Negocio's rumour column today. "It looks like Hesperia is set to take charge of NH, and no one is ruling out the possibility of another takeover bid," a trader at a leading Spanish brokerage said.
   
"But this is a rumour we've heard many times in the past," he noted. Over in Milan, Fondiaria-SAI rose 2.01 pct after announcing it won the auction to buy 83.32 pct of Serbia's second largest insurer DDOR Novi Sad for 220 mln eur.
   
Meanwhile, Belgian telecoms group Telenet NV gained 1.33 pct after the group reached an agreement with the Belgian cable TV companies and Interkabel to acquire their TV activities for 170 mln eur plus annual payments, prompting an upgrade at Dexia Equity Research.
   
Turning to broker action, PT Multimedia SGPS was 1.53 pct lower after the stock was initiated with an 'underweight' stance at JP Morgan with an 8 eur per share target. In a note to clients, the broker said PTM's attractive growth has been more than priced in by now.
   
In the French market, Credit Suisse cut its recommendation for shares in PPR to 'neutral' from 'outperform' and slashed its price target to 105 eur from 144. Shares were 2.66 pct lower.

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Asian stockmarkets close mixed as credit worries resurface
 
Asian stockmarkets were mixed Tuesday, with most falling as Wall Street's tumble overnight due to a worsening credit crisis unnerved investors. But late buying on news that Citigroup will get a 7.5 bln usd capital injection from the Abu Dhabi government helped the Japanese and South Korean markets erase early losses to close in positive territory.
    
"News of [the capital injection into] Citigroup, one of the most badly hit by the subprime loan mess, helped soothe the market's wariness to an extent, immediately sending the dollar back to above 108 yen," said Takashi Kudo, a director of NTT Smart Trade in Tokyo.
   
Japanese shares have been falling in recent months as investors are worried that the strong yen will crimp earnings of exporters. South Korea's KOSPI index closed up 0.2 pct at 1,859.79, after being down nearly 3.2 pct at one stage.
   
The Australian stock market closed off its lows, with the S&P/ASX 200 down 0.6 pct at 6,432.7 and the All Ordinaries down 0.6 pct at 6,493.60, with the news about Citigroup giving some support. Hong Kong's Hang Seng index closed down 1.5 pct at 27,210.21.

The Shanghai composite index was down 2.0 pct at 4,861.11. "The Hong Kong market will be in a consolidation mode until the end of the year because of the escalating subprime problem," said Alex Tang, research head at Core Pacific-Yamaichi in Hong Kong.
   
The current market weakness should provide good buying opportunities for investors in Asia, said Adrian Mowat, a Hong Kong-based strategist at JP Morgan. "Market movements are being driven by what is happening in the US, which we don't believe will have a meaningful fundamental impact on Asian economies," said Mowat.

HSBC said it will put two funds with mortgage exposure on its balance sheet. It is betting that taking ownership of Cullinan Finance Ltd and Asscher Finance Ltd  which in total have 45 bln usd in assets will restore investor confidence.
   
"Investors think HSBC's move could mean the problems in the US are worse than expected," said Tony Tong, an analyst at China Everbright Securities in Hong Kong. "Asia may not be affected by it directly, but due to worsening sentiment over the credit situation in the US, we know it's not entirely insulated from the problem," he said.
   
HSBC finished down 2.0 pct at 130.90 hkd. On a smaller scale, the move by Singapore's DBS Group to fully settle the 1.1 bln sgd of asset-backed commercial paper held by DBS clients called Red Orchid Secured Assets (ROSA), reflects the worsening environment in credit markets around the world, and banks with exposure to instruments known as collateralized debt obligations will be affected.
   
DBS Group retreated 20 cents to 19.2 dollars, leading the Singapore market lower. The benchmark Straits Times index was down 1.3 pct to 3,372.64. The closure of ROSA is not surprising because there is almost no appetite for holding the commercial paper, said David Lum, analyst at Daiwa in Singapore.
       
The Philippine composite index closed down 0.4 pct at 3,524.19. Malaysia's KLCI closed up 0.1 pct at 1,364.99, while the Jakarta composite index closed down 0.8 pct at 2,627.95. Taiwan's weighted index closed down 1.8 pct at 8,375.76.

Indian shares snap two-day rally to close lower as US credit worries resurface

The Bombay Stock Exchange's benchmark Sensex fell 0.62 pct or 119.81 points at 19,127.73, while the National Stock Exchange's S&P CNX Nifty dropped 0.59 pct to 5,698.15 points.
   
Among the BSE 30, 12 shares gained and 18 lost. In the broader market 1,299 shares advanced, 1,478 declined and 66 were unchanged.

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Metals - Copper continues lower on fears of economic slowdown

Copper fell in London as concerns over the state of the broader economy re-emerged, stalling the gains of the last two days.
   
"Base metals price movements continue to be choppy with sentiment driven by movements in wider financial markets and the recovery in prices from last week's sell-off still looks fragile and vulnerable to gyrations in the wider markets," Barclays Capital analysts said.
   
Copper prices had bounced after hitting an eight-month low of 6,430 usd per tonne, for the three-month contract, on Nov 22, but with equities down in London today, the red metal has followed them lower. At 1.55 pm, LME copper for three-month delivery was down at 6,650 usd per tonne against 6,750 usd per tonne at Friday's close.
   
Copper has lost some 15 pct since mid-August, as the global credit crunch forced some market players to liquidate their positions in a bid to raise cash. Large inventory builds recently at LME monitored warehouses have left copper vulnerable to the downside, indicating lower than expected demand from key consumer China during the fourth quarter.
   
With fears the US the world's second largest consumer of copper after China is heading for a slowdown, market players fear demand for copper and other base metals could be dented. "The credit crunch is still dominating the background," Standard Bank analyst Leon Westgate said. "It had bounced higher from the sell-off but there's still been no surge in Chinese buying."
   
Copper has been underpinned, however, by continued weakness in the dollar, which has made commodities priced in the US currency cheaper for overseas investors. The first dip in copper inventories in over two weeks today is also lending some support. Copper stockpiles fell by 400 tonnes to 187,000 tonnes.
   
The threat of a possible contract workers strike throughout Chile is also slowing any sell-off, with most analysts believing the medium-term supply fundamentals remain relatively tight on continued demand out of China and other developing nations.
   
Elsewhere, three-month zinc tracked copper lower, down at 2,375 usd per tonne against 2,389 usd. Lead was slightly higher at 3,002 usd per tonne, basis three months, against 3,000 usd. Nickel for delivery in three months was unchanged at 28,850 usd, aluminium inched up at 2,515 usd per tonne from 2,510 usd while tin rose to 16,800 usd per tonne from 16,650 usd.

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