US & World Daily Markets Financial Briefing 28-08-2007

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Wall Street falls ahead of Fed minutes

NEW YORK - Wall Street fell in early trading Tuesday as investors cautiously awaited minutes from the Federal Reserve's Aug. 7 meeting that could provide insight into whether it may cut rates.
   
At the central bank's last meeting, policymakers held rates steady and said that although tight credit and the housing market may drag on the economy, inflation remains its predominant concern. The market has since tumbled further from record levels of mid-July and the Fed, raising worries about the market turmoil's effect on the economy, lowered the discount rate, the interest it charges banks.
   
Although the Fed has indicated since the meeting it will take the steps needed to contain damage to the economy from market turbulence, investors nonetheless may shudder if the Fed's minutes suggest it is unwilling to waver in its stance against inflation.
   
In the first hour of trading, the Dow Jones industrial average fell 69.58, or 0.52 percent, to 13,252.55.
   
Broader stock indicators were also lower. The Standard & Poor's 500 index was down 10.23, or 0.70 percent, at 1,456.56, and the Nasdaq composite index shed 19.20, or 0.75 percent, to 2,542.05.
   
On Monday, the stock market retreated from last week's strong gains after a report said sales of existing homes slipped in July for a fifth straight month to their slowest pace in nearly five years.
   
Fixed-income investors waited cautiously to see what the Fed's next move might be, with bond prices little changed. The yield on the benchmark 10-year Treasury note was unchanged Tuesday at 4.57 percent. The dollar was mixed against other major currencies, while gold prices were slightly lower.
   
Light, sweet crude rose 16 cents to $72.13 a barrel in premarket electronic trading on the New York Stock Exchange. Oil prices fell last week on credit worries and as Hurricane Dean missed U.S. oil facilities in the Gulf of Mexico. They have rebounded in recent days, though, due to refinery problems and strong gasoline demand.
   
Keeping alive credit worries, a Standard & Poor's housing index showed that U.S. home prices in the second quarter posted the sharpest decline since 1987, when the index was started. When home prices fall, owners have a hard time refinancing, which can lead to more defaults and delinquencies.
   
The Russell 2000 index of smaller companies was down at 8.40, or 1.06 percent, at 781.05. In afternoon European trading, Britain's FTSE 100 fell 0.95 percent, Germany's DAX index fell 0.35 percent, and France's CAC-40 fell 1.13 percent.

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Dollar weaker ahead of consumer sentiment survey

LONDON - The dollar was weaker in midday trade, with today's consumer sentiment survey likely to attract interest in an otherwise quiet day for data.
   
The Conference Board consumer confidence survey for August is expected to fall to 104.5 from 112.6 in July. The index is the latest sign of how business is holding up after the recent financial market turbulence, sparked by rising defaults on sub-prime loans that led to a crisis of confidence in credit markets and a drought in liquidity.
   
CMC Markets market analyst James Hughes said any dollar strength is likely to be inconsistent as long as US data remain weak.
   
"Unless we start seeing some very robust signals out of the US -- perhaps suggestions that the population is willing to spend its way out of a recession -- then further volatility will follow," he said.
   
The latest dollar-hostile developments include yesterday's existing home sales figures for June, which showed inventories of unsold homes at a 16-year high, and a report in this morning's Times that US bank State Street has 22 bln usd of exposure to debt conduits, the off-balance sheet vehicles that have contributed greatly to the uncertainty in financial markets.
   
Signs that there are more knock-on-effects to come from the credit crisis have previously helped the dollar, inasmuch as risk sentiment has waned, but further bad economic newsflow is now fuelling speculation the Federal Reserve will cut interest rates to prevent harm to the wider economy.
       
The yen has also been volatile, strengthening since yesterday as risk appetite is dented by the bad news out of the US. Weakening risk sentiment supports the yen as it means investors refrain from the risky carry trade strategy of selling the low-yielding Japanese currency to invest in higher-yielding ones.
       
Meanwhile, the euro continued to strengthen after a stronger-than-expected key German business survey and robust money supply figures for the 13-nation single currency area.
   
The Ifo research institute said its business climate index for Germany in August fell to 105.8 from 106.4 in July. While the figure was down on last month, analysts had expected a larger fall to 105.3 following the recent turbulence in financial markets. The business assessment index, which measures current conditions, rose to 111.5 from 111.3 in July, above forecasts for a decline to 110.6.
   
Separately, data showed M3 money supply grew 11.7 pct in July year-on-year, up from a 10.9 pct year-on-year growth rate in June and above expectations for an 11.1 pct rise.

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Euroshares lower midday as Wall St set for more losses, financials weigh

LONDON - Europe's largest exchanges remained weaker in midday deals as Wall Street is expected to add to yesterday's losses in opening deals. At 12.20, the STOXX 50 was down 26.17 points, or 0.7 pct, to 3,695.77 and the STOXX 600 was 2.73 points, or 0.74 pct, lower at 368.36.
     
Barclays fell 1.47 pct after reports it has exposure of several hundred million dollars to failed debt vehicles created by its investment banking arm amid growing scrutiny over its links to SachsenLB, the troubled German public sector bank.
   
It has also emerged that Barclays set up an SIV-lite investment vehicle on the German bank's behalf less than three months before it got into financial difficulties, the Financial Times reported.
   
Societe Generale fell 1.84 pct. Credit Agricole fell 1.48 pct and Allied Irish Banks was down 1.7 pct. BNP Paribas led the STOXX 50 fallers -- down 2.24 pct -- after Bear Stearns downgraded the french banking group to 'peer perform' after reviewing valuations in the French banking sector.
   
Elsewhere, the London Stock Exchange added 2.44 pct amid renewed takeover speculation fired by reports that several groups were interested in acquiring Nasdaq's 31 pct stake in the UK exchange. This morning, NYSE Euronext refused to comment on a report that the company and Australia's ASX Ltd may be interested in acquiring part of Nasdaq's stake.
   
Meanwhile, Italian newspaper Il Corriere della Sera cited interest from two Italian foundations who had received preliminary offers from Nasdaq's advisors JP Morgan and UBS.
   
In other M&A news, Suez led the STOXX 50 risers -- up 1.12 pct -- after Suez chairman Gerard Mestrallet told French President Nicolas Sarkozy the government needs to resolve the impasse over valuation that has stalled the merger with mostly state-owned Gaz de France -- up 0.5 pct.
   
"After the government delayed its decision on the merger to an undetermined date, getting more clarification would be helpful to both stocks," one large European bank's analyst said.
   
In the auto sector, talks to create a three-way combination of Volkswagen's commercial vehicles unit with those of Scania AB & MAN AG are being stalled by Swedish investor Peter Wallenberg, Financial Times Deutschland said.
   
Volkswagen shed 0.29 pct, as MAN declined 0.12 and Scania was 2.19 pct lower. But German car group DaimlerChrysler added 0.65 pct ahead of its second-quarter results tomorrow. Carrefour added 0.64 pct ahead of its interim numbers on Thursday.
   
Shares in peer Casino added 1.47 pct after they were upgraded to 'buy' from 'hold' by Citigroup. Belgian supermarket group Colruyt -- up 0.48 pct -- initiated at ING with 'buy' rating, 180 eur target.
   
In other broker action, Deutsche Post dropped 3.40 pct after Goldman Sachs downgraded to 'sell' from 'buy' and cut its target to 18 eur from 24 eur, saying any delay in German mail liberalisation seems unlikely, implying volume loss and margin erosion for the company.
   
Premiere fell more than 5 pct after Lehman Brothers cut its target on the stock to 21.50 eur from 23 eur and said it lowered its estimates as it considers the 250 mln eur rights issue an expensive form of financing. UBS said some might see the rights issue as a sign the group can't afford to bid for TV rights for games.

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Asian markets mixed on weak Wall Street; Korea outperforms

SINGAPORE - Stock markets across Asia were mixed Tuesday, after a weak performance on Wall Street, although the South Korean benchmark outperformed as shipbuilding and steel stocks returned to favour.
   
The Kospi index ended up 1.5 pct at 1,829.31, with shipbuilder Hyundai Heavy Industries Ltd adding 7.9 pct. Hyundai Heavy is the world's largest shipbuilder measured by the value of backlog orders.
   
In Tokyo, the Nikkei ended down 0.1 pct at 16,287.49. The broader Topix index slipped 0.2 pct to 1,584.60.
   
China A-shares closed at record levels for a seventh day after the country's largest insurer China Life surged on strong interim earnings, helping offset losses in banks. The benchmark Shanghai Composite Index closed up 44.57 points or 0.9 pct at 5,194.69. The Shanghai Composite Index breached 5,200 points for the first time in the afternoon. Analysts said at such level share prices fully reflect earnings growth of listed companies in the first half.

The Shanghai A-share Index was up 47.27 points or 0.9 pct at 5,455.69 and the Shenzhen A-share Index was up 1.71 points or 0.1 pct at 1,507.89. The Shanghai B-share Index fell 1.33 points or 0.4 pct to 313.77 and the Shenzhen B-share Index ended down 5.83 points or 0.8 pct at 727.22.
   
In Hong Kong, the Hang Seng fell 213.97 points or 0.9 pct to 23,363.8 as speculation mounted over whether China will see through its plan to allow its citizen to invest in markets abroad. There are concerns that the plan will be shelved entirely as the government has delayed approving the investment process.
   
Taiwan shares closed up 9.24 points or 0.1 pct at 8,727.55 as some last-minute buying into companies which reported strong first-half earnings helped offset early falls.
   
The Reserve Bank of Australia said Tuesday there are signs that the recent credit squeeze is easing in Australia and elsewhere. "In recent days, there have been some encouraging signs of improvement in markets, both here in Australia and overseas," deputy governor Ric Battellino said in a speech at a finance conference.
   
The RBA has been injecting extra cash into Australia's banking system since Aug 10, when problems in US subprime mortgages spilled over into money markets, affecting liquidity.
   
Australian shares closed marginally lower, with continued strong earnings reports limiting losses in financial stocks following Wall Street's fall.  The S&P/ASX 200 index ended down 9.0 points or 0.2 pct at 6,176.2, while the All Ordinaries index closed down 7.7 points or 0.1 pct at 6,177.2.
   
Indian shares edged up 0.5 pct to close a volatile session which saw investors buying to square off short positions, but subdued global markets capped further gains. Short covering was more pronounced in IT, consumer goods and energy stocks, with just two days to go before the futures and options contracts expire.
   
The Bombay Stock Exchange's benchmark Sensex rose 0.52 pct, or 76.81 points, at 14,919.19 points, while the National Stock Exchange's S&P CNX Nifty gained 0.29 pct, to 4,315 points. In the BSE 30, 19 shares advanced and 11 retreated. In the broader market, 1,546 shares gained, 1,070 lost and 78 were unchanged.

Among the smaller bourses, the Kuala Lumpur Composite Index ended up 0.1 pct at 1,278.95. The Philippines Composite ended up 1.4 pct as it caught up on gains posted across Asia Monday, when it was closed for a public holiday.
   
Singapore's Straits Times Index closed down 45.44 points or 1.3 pct at 3,343. The Indonesian composite index closed down 15.74 points or 0.7 pct at 2,159.61.

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Coffee dips on reports of higher-than-expected Brazilian harvest
 
LONDON - Coffee was lower in quiet trade after the UK bank holiday yesterday, with prices pressured by a production report from the Brazilian authorities that suggested the country's next harvest will be larger
than expected.
  
A report released by Conab, the National Food Supply Corp, on Friday said coffee production in 2007/08 was likely to reach 32.6 mln bags, down from 42.5 mln bags a year before but around 1.6 pct higher than the harvest forecast in the body's April report.
   
"A lack of positive news and two days of strong declines could exert more pressure on the trade," said analysts at Chicago-based trading note the Hightower Report. "The trade also reacted negatively to the estimated production data from Brazil. Conab expects a slight increase in the 2007/08 harvest to 32.6 mln bags, up from 32.1 mln bags previously, while the market had expected more bullish news."
   
A lack of buying interest ahead of a long holiday weekend in the US and positive early signs for the 2008/09 Brazilian growing season is also weighing on prices, they said. Brazil is the world's biggest coffee producer. Around 31 pct of its annual coffee output is of Robusta beans.
       
At 1.02 pm, coffee for September delivery was down at 1,650 usd on the Euronext Liffe from 1,668 usd at the previous close.
   
Meanwhile cocoa prices were also pressured lower, amid reports of a better-than-expected harvest from major producers in West Africa.  Cocoa for September delivery was down at 910 stg from 921 stg.
   
Among other soft commodities traded on the Liffe exchange, No 5 sugar for October delivery was up at 281.70 usd from 279.00 usd.

Copper prices eased after the report of a massive increase in stockpiles at the London Metal Exchange monitored warehouses weighed on sentiment already lowered by poor housing data from the US.
   
Copper inventories increased by 10,075 tonnes to 135,625 tonnes, with most stocks going into warehouses in the Far East. At 10.41 am, copper for three-month delivery was trading at 7,225 usd against 7,320 usd at the close on Friday.
   
The base metals complex has been pressured in recent weeks by concerns over the outlook for the US economy, with investor confidence shaken by fears of a possible credit crunch.
       
In other metals, nickel was lower at 26,800 usd from 27,750 after a large increase in stockpiles. Nickel inventories increased by 1,980 tonnes to 23,106 tonnes at LME monitored warehouses, with the largest increase at Rotterdam in Holland.
   
Elsewhere, aluminium was down at 2,550 usd from 2,568, zinc slid to 3,080 usd against 3,130 usd and tin fell to 14,400 usd from 14,600 at the close on Friday.

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