US & World Daily Markets Financial Briefing 28-11-2007

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Citigroup Stocks jump as rate cut hopes increase

Wall Street jumped in early trading Wednesday, driving the Dow Jones industrials up more than 100 points after a top Federal Reserve official hinted that the central bank may lower interest rates again.
   
Fed Vice Chairman Donald Kohn told the Council on Foreign Relations that recent financial turbulence has reversed some of the improvement seen in markets in previous weeks, and could squeeze credit for households and businesses. He said tight financial conditions may merit "offsetting" policy from the central
bank.
   
For investors, the possibility for lower rates seemed more compelling than persistent concerns about economic growth. The Commerce Department reported orders for big-ticket manufactured goods fell 0.4 percent in October -- the third straight month of decline and a weaker reading than the market expected.
   
The Dow rose 112.67, or 0.87 percent, to 13,071.11, adding to the blue-chip index's 215-point gain on Tuesday. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 14.53, or 1.02 percent, to 1,442.76, and the Nasdaq composite index gained 36.21, or 1.40 percent, to 2,617.01.
   
Government bonds slipped as stocks rallied. The yield on the benchmark 10-year Treasury note rose to 3.98 percent from 3.95 percent late Tuesday. Wall Street has had a volatile week so far. Economic and credit market concerns sent the Dow plunging 240 points on Monday, pushing the index to the level of a 10 percent market correction before it rebounded on Tuesday.

Investors, though still anxious about the credit market crisis and losses at major financial institutions, were somewhat relieved after the investment arm of Arab city state Abu Dhabi invested $7.5 billion in Citigroup Inc.
   
Late Tuesday, Wells Fargo & Co. projected $1.4 billion in pretax losses on home equity loans that borrowers have stopped repaying amid a worsening housing slump. The losses at the fifth-largest U.S. bank were substantially less than charges taken by its larger competitors.
   
The dollar was mixed against other major currencies, while gold prices fell. Crude oil rose 46 cents to $94.88 a barrel on the New York Mercantile Exchange.The Russell 2000 index of smaller companies rose 11.97, or 1.61 percent, to 755.24.

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Forex - Dollar hangs on to gains; US data eyed

The dollar has held on to its gains since the start of the week as the heavy sell down on the currency appeared to stall, although the afternoon's US data will provide a key test on whether sentiment remains depressed.
   
Analysts said that at least part of the dollar's rise is due to the vagaries of risk appetites. "The latest boost in risk appetite favoured US stocks as opposed to their European counterparts, contributing to euro-dollar downside. The strongest performing sector in the US was financials," UBS analysts said.
   
"As we've seen, the dollar is now finding some supporters -- albeit at knock-down prices -- and perhaps also worth of note is that the US dollar moved back above the psychologically important parity level against its Canadian counterpart last night for the first time in almost two months," CMC Markets's
James Hughes said.
   
The effect may well prove fleeting, as the case for lower interest rates in the US continues to build. Indeed, a continued string of weak data is fuelling speculation the Federal Reserve Bank will trim US interest rates again next month following its 0.75 points of cuts since the summer.
   
Today, the theme is expected to continue with the keenly awaited US existing home sales figure seen dropping further as problems in the housing market show no end in sight. "The consensus forecast is a 1.2 pct drop in sales of existing homes to 4.95 mln units in October from an annual rate of 5.04 mln units in September," Northern Trust's Paul Kasriel said.
   
Additionally, the Fed's assessment of economic conditions later this afternoon will also be keenly scrutinised. Hughes believes the Fed's Beige book later this evening may well hold the most sway. "A bullish tone from the Fed tonight could easily lift sentiment yet further as we approach the month end," he said.

If the Fed paints a gloomy picture, the dollar could well resume falls. So far, a fall in US durable goods orders in data just out dented the dollar slightly. New orders for durable goods fell 0.4 pct last month after falling a revised 1.4 pct in September. Durable goods orders sank 5.3 pct in August. October's decline marks the first three months of consecutive declines since January 2004.
   
Over in Europe, a sharp rise in area wide money supply helped keep the euro somewhat well bid.
M3 money grew 12.3 pct in October, from 11.3 pct in September and higher than the 11.5 pct rise predicted. The European Central Bank has underscored increasing money supply as a concern and October's rise will back up expectations for euro zone interest rates to stay elevated for the time being.

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Euroshares trade flat, but Thales gains as CEO rules out Safran merger

"If you look at the volumes over the last week, we've been doing between 2.2 and 2.7 bln in London against New York's 6.2-6.4 bln. We don't seem to have any appetite at the moment," said David Buik, partner with BGC Partners. "We're either fearful for the future or we're so chilled out that we're just laid back and waiting for Christmas. I rather think it's the former."
   
The banking sector put in a solid gains for a second straight session as the Abu Dhabi Investment's Authority multi billion-dollar cash injection for Citigroup, raised hopes other subprime-hit banks could benefit from sovereign fund support.
   
UBS was viewed as a likely candidate, as the stock gained 3.6 pct on rumours of Chinese sovereign interest in the Swiss bank.
   
A London-based trader said the rumour has been circulating since last week. Although he put no store by it, he said UBS gains show "no one is going to try and be the other side of a sovereign fund at the moment".
   
Thales shares rallied 3.5 pct as the market welcomed remarks by chief executive Denis Ranque ruling out a merger with Safran, citing Safran's exposure to current dollar weakness. In an interview with Les Echos, Ranque said the tie-up, mulled in various forms for the past two years, will not take place because conditions are no longer favourable to Thales shareholders.
   
Safran shares dipped 0.2 pct in early trading. Staying in France, shares in Clarins fell 3.7 pct as the takeover premium on the stock dissipated further after the cosmetics company said the Courtin-Clarins family, its majority shareholder, does not envisage giving up control of the society.
   
Potential suitors for the company include PPR.  Only last week, Christian Courtin, who with brother Olivier owns 65 pct of the perfume and cosmetics maker, ruled out a takeover of the company. In other corporate takeover news, shares in Stork NV gained 7.1 pct after a consortium led by Candover tabled a new takeover bid valuing the company at 1.5 bln eur.
   
Elsewhere, shares in Sage surged 5.2 pct after the software supplier posted strong full-year results and said its new year had started well. In broker action, shares in Linde climbed 2.1 pct after Citigroup lifted its rating by two notches to 'buy' from 'sell,' as part of a broader note on the industrial gases sector.
   
Linde offers a defensive investment option amid downside risks and increased volatility in equity markets, the broker said. It also stands to benefit from rising energy costs, which opens up new markets, such as gasification of fossil fuels, Citi said.
   
As part of the sector review, Air Liquide was another gainer, up 0.7 pct after Citi lifted its price target on the French industrial gases company, highlighting the its strong growth potential.

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Asian stock markets ended mostly weaker Wednesday, coming off their highs despite Wall Street's rebound overnight, as global market volatility indicated continuing concerns over the health of the US
economy.

Hideyuki Suzuki, a strategist at SBI Securities in Tokyo. The Nikkei 225 Stock Average finished 0.5 pct lower at 15,153.78, after trading between 15,089.35 and 15,280.91. In Australia, the benchmark S&P/ASX 200 closed down 1 pct at 6,370.1, dragged largely by the slump in resource-related stocks after commodity prices fell overnight.
       
Concerns over China's tightening monetary policy will continue to hound investors following media reports that the Chinese central bank plans to impose next year a quarterly lending quota on foreign and Chinese banks operating in the mainland.
   
Banks in China have also been asked to submit their lending plans for 2008. The Chinese authorities have been imposing credit control measures, including raising the key lending rate and increasing the reserve requirement for banks, to cool the economy and curb inflation.

But so far the measures have failed with GDP growth remaining above 11 percent and inflation at more than 6 percent. The Shanghai composite index closed 1.2 pct lower at 4,803.39. South Korea's KOSPI index ended down 1.4 pct at 1,834.69, while Singapore's Straits Times index closed down 0.09 pct at 3,369.72.
   
"There is a little bit of a light now with the Abu Dhabi investment in Citigroup and this is pointing the way that there will be other investors out there who will be putting their money into other banks," said Howard Gorges, vice chairman at South China Securities in Hong Kong.
   
The Hong Kong market has been volatile since reacting quickly to Citigroup's announcement in late Tuesday trade. The Hang Seng Index closed down 0.59 pct at 27,371.24. Notwithstanding the prevailing weakness, Gorges is optimistic the Hong Kong market will stage another rally before the year is over.
   
Elsewhere, Malaysia's KLCI closed up 0.1 pct at 1,366.58, while Jakarta's composite index closed 1.7 pct higher to 2,671.90. Taiwan's weighted index closed down 1.2 pct at 8,276.26, while the Philippine composite index closed up 0.4 pct at 3,537.00, off a high of 3,572.03.

Indian shares fall nearly 1 pct as Asian weakness saps early enthusiasm

The Bombay Stock Exchange's benchmark Sensex fell 0.99 pct, or 188.86 points, to 18,938.87, after surging to an intra-day high of 19,316.76. In the BSE 30, 7 shares gained and 23 lost. In the broader market, 1,306 shares advanced, 1,497 declined and 70 were unchanged. 

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Oil edges higher ahead of US crude supplies data

Oil prices edged up a touch midday ahead of data due out later this afternoon from the US Department of Energy which is expected to show inventories of crude oil dipped for the second week in a row. Prices eased this morning after yesterday's sharp correction on speculation that OPEC will further hike output at its upcoming production meeting in Abu Dhabi, and on fears over a slowdown in the US economy.
   
But speculation that US crude stockpiles eased in the week to Nov 23 have arrested the slide. A counter-seasonal draw in OECD stockpiles in the third quarter fuelled crude's recent gains to record highs, and any further signs stocks are falling is likely to underpin the market.
   
Analysts polled by Thomson Financial News are predicting the data, released at 1530 GMT, will show an 800,000-barrel drop in US crude stockpiles and a 900,000-barrel drop in distillates.  As such, the data might provide a near-term lift to prices, especially if temp eratures continue to drop. "Today the market will be paying close attention to the weekly US fuel inventories report from the EIA," said analysts at Sucden.
   
"Market participants are still concerned over the current levels of stockpiles and fear it may not be sufficient to keep up with the winter demand," they added.
   
At 12.40 pm, Brent crude for January delivery was trading up 39 cents at 92.91 usd a barrel. Meanwhile, New York WTI crude for January delivery was up 3 cents at 94.45 usd a barrel. Prices slid sharply after speculation surfaced that OPEC may opt to raise production at its next output meeting in Abu Dhabi in December.
   
Iraqi Oil Minister Hussein Al-Shahristani said yesterday OPEC may increase production by up to 500,000 bpd when it meets on Dec 5.  The comments came after Saudi Arabia's Oil Minister Ali al-Naimi confirmed OPEC output has risen to 9 mln bpd this month, roughly in line with pledges made at the last output meeting in September.
   
Fresh expectations for a hike, and fears that a slowdown in the US economy could dent oil demand, precipitated a 3.28 usd drop in WTI (West Texas Intermediate crude) prices yesterday and a 2.35 usd drop in Brent.  Analysts remain divided, however, over whether an output increase is likely or necessary.
   
"As far as OPEC goes, I don't think they've made up their minds," said Mike Wittner, an analyst at Societe Generale. "A lot will depend on what prices do between now and the meeting." "In the first quarter of next year globally we are pretty balanced, and I don't think we need a lot more OPEC crude," he added.
   
"If OPEC decides on an output increase (next month) it will be for January, and any oil they put on the water then will arrive at a time refineries are going into maintenance."

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