US & World Daily Markets Financial Briefing 29-01-2008

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Stocks mixed as investors await Fed

NEW YORK - Wall Street was mixed Tuesday as the Federal Reserve opened a two-day meeting expected to result in another interest rate cut.
   
The Fed's imminent rate decision is clearly the market's focus this week, so trading will be marked by investors' conjectures about policymakers' thoughts on the weak economy and crunched financial industry. With a decision not expected until Wednesday afternoon, the market in the meantime digested Tuesday's data on earnings, consumer spending and durable goods.
   
Investors did get some encouragement about the economy after the Commerce Department said orders for big-ticket items rose 5.2 percent in December, the widest jump in five months. In addition, the Conference Board reported consumer confidence fell in December -- but was slightly higher than expected.
   
Economic data will continue to be scrutinized as investors try to determine what the psyche of the Federal Reserve is regarding the economy. Investors are angling for a half-point cut following its emergency three-quarter-point cut last week.
   
In midmorning trading, the Dow Jones industrial average rose 49.27, or 0.40 percent, to 12,433.16. Broader indexes were mixed. The Standard & Poor's 500 index rose 3.86, or 0.29 percent, to 1,357.82, and the Nasdaq composite slipped 3.37, or 0.14 percent, to 2,346.54.
   
Government bond prices fell as stocks rose. The 10-year Treasury note's yield, which moves opposite its price, was at 3.63 percent, up from 3.58 percent late Monday.
   
The dollar was mixed against most major currencies except the yen, and gold prices rose.
   
Oil prices moved higher as traders waited to see what the Fed's next move will be. A barrel of light sweet crude fell 11 cents to $90.88 a barrel on the New York Mercantile Exchange.
   
The Fed is widely expected to lower its key rate, now at 3.5 percent, by as much as one-half percentage point to 3 percent when policy-makers wrap up the meeting on Wednesday.
   
Investors are also focused on President Bush's State of the Union address Monday night. Bush urged Congress, as expected, to expedite its approval of a $150 billion tax relief and business incentive package.
   
As American Express Co.'s fourth-quarter results indicated Monday, companies are being forced to prepare for a climate throughout 2008 of deteriorating credit and slower spending. American Express said its fourth-quarter profit fell 10 percent after socking away more cash in reserve to use in case cardholders can't pay back their debt. AmEx fell 70 cents to $46.70.
   
In other earnings news, 3M Co., the maker of Post-it notes and Scotch tape, reported on Tuesday a decline in net income but the results beat analyst expectations. 3M fell 48 cents to $76.96.
   
The embattled mortgage lender Countrywide Financial Corp., which was recently bought by Bank of America Corp., posted a sharp loss, as expected, due to its missteps in subprime lending. Countrywide rose 28 cents, or 4.7 percent, to $6.23; BofA added 32 cents to $41.52.
   
The Russell 2000 index of smaller companies fell 3.34, or 0.48 percent, to 699.05.
   
Advancing issues barely led decliners on the New York Stock Exchange, where volume came to 182.7 million.
    
In European trading, London's FTSE rose 1.30 percent; Frankfurt's DAX rose 1.31 percent; and Paris' CAC rose 1.83 percent.

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Forex - Dollar weakens as market anticipates US rate cut tomorrow

LONDON - The dollar edged lower, with the pound rising back above the 1.99 usd level for the first time this year, as the market anticipated that the Federal Reserve will deliver another rate cut tomorrow.

Speculation is intensifying that the US Fed Funds Rate will be cut by a further 50 basis points to add to last week's emergency 75 basis point cut following sharp falls on stock markets and amid fears of a global recession.

"This is all about dollar weakness. Everyone is confident that the Fed is going to cut rates," said Mic Mills, a trader at TradIndex.com.

A half point move tomorrow would mean total cuts in US interest rates of one and a quarter points within the space of a week. This very aggressive stance compares with relatively hawkish stances from the European Central Bank and the Bank of England.

The ECB has so far given little indication that it will retreat from its focus on tackling inflation any time soon, with interest rates set to remain where they are for the time being. The BoE meanwhile is expected to deliver a quarter point rate cut next month, but rate-setters have nevertheless indicated that monetary easing in the UK will be gradual and limited.

Early this afternoon, the pound hit a high of 1.9927 against the dollar, its highest level since December 31. A key survey from the Confederation of British Industry this morning showed UK retail sales weakened in January, though not by as much as analysts had feared.

Its distributive trades survey revealed that a balance of +4 pct of retailers reported higher sales than a year ago, down from +8 pct in December but comfortably beats analysts' expectations for a zero balance.

"The CBI distributive trades survey showed a marginally more resilient start to 2008 for retailers than expected. Sales volumes are some way below their decade average, but still holding up better than was typically the case during 2005 and 2006," said Ross Walker at RBS.

This afternoon, attention will turn to key US data releases, including durable goods, the S&P Case-Schiller house price index and consumer confidence data. Further weakness in these data would confirm expectations for a Fed rate cut tomorrow.

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Euroshares open higher on overnight gains for Wall St; Prudential shines

At 8.58 am, the Dow Jones STOXX 50 Index was up 30.58 points, or 1 pct at 3,243.05 while the DJ STOXX 600 Index gained 3.68 points, or 1.2 pct to 322.38.

Shares in Prudential rose 2.4 pct after the UK's second-biggest insurer reported better-than-expected full-year sales, helped by a further strong performance at its fast-growing Asian division.

Swiss Re was up 1.8 pct after Credit Suisse upgraded the company to 'outperform' from 'neutral, as part of a review of reinsurance companies.

Over in the banking sector, Societe Generale was up 2.8 pct. Robert Day, a board member at the bank sold company stock worth 40.5 mln eur on Jan. 18, the day the bank says it discovered a "fraud" that led to massive losses, according to a filing with the stock market regulator AMF.

In broker action of note, shares in Lagardere surged 6 pct after Merrill Lynch lifted its stance on the French media group to 'buy' from 'neutral,' citing an improving outlook for revenue growth and lower exposure than its peers to a slowdown in advertising. The broker set a 60 eur price target.

Also in the media sector, shares in Vocento shed 1.5 pct following yesterday's surprise resignation of Chief Exective Belarmino Garcia Fernandez after only nine months at the helm.

The news prompted downgrades from brokers Merrill Lynch and Cheuvreux. ABN Amro, meanwhile, turned more cautious on European free-to-air broadcasters.

It downgraded TF1 to 'sell' from 'hold,' citing a drop in audience share and "significant execution risks" at the the French media group.

The broker also lowered its rating on Antena3 to 'sell' from 'hold' and Telecinco to 'hold' from 'buy' on a weaker Spanish outlook.

At last check, Antena 3 was down 1.5 pct while shares in Telecinco were off 0.9 pct. TF1 was up 0.4 pct but underperforming the media sector, which put in an overall gain of 0.9 pct.

Elsewhere, shares in EDP Energias de Portugal rose 3.3 pct following the company's announcement that it is planning to extract value from its renewable energy division by preparing a listing for the unit.

UBS reiterated its 'buy' rating and 5.10 eur per share target on the stock in the wake of the announcement, valuing EDP's wind assets on an equity basis at 11.3 bln eur, or 30 pct of the total for the group.

Later in the session investors will be looking to see if Wall Street can build on yesterday's gains although US stock futures are currently suggesting a flat open.

The Federal Open Market Committee, the Fed's monetary policy body, begins a two-day meeting on interest rates. Expectations are that the FOMC will announce a half percentage point cut in its key interest rate on Wednesday. January consumer confidence data and durable goods orders for December are also slated for release.

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Asian stocks conitinue mixed as traders weigh US rate cut hopes

The Nikkei closed up 390.95 points or 3 percent at 13,478.86. The broader Topix was up 35.70 points or 2.8 percent at 1,328.73, after rising to a high of 1,331.71.

Nippon Yusen, Japan's largest shipping company, said its net profit nearly doubled in the nine months to December, buoyed by higher freight rates and an increase in cargo volume.

The Hang Seng was last up 1.4 percent at 24,385.77 and the Kuala Lumpur Composite was up 0.4 percent at 1,386.05. The Shanghai Composite gained 0.2 percent to 4,446.75 and the Philippines Composite rose 0.7 percent to 3,224.24.

The South Korean Kospi was up 0.7 percent to 1,637.91, 0.7 percent at 1,637.91, after briefly trading in the red. The Taiwanese Taiex rose 1.2 percent at 7,576.42.

But the Australian benchmarks closed lower as they caught up on the weak performance in the region on Monday, when the Australian market was closed for a public holiday.

The All Ordinaries index closed 2.2 percent lower at 5,754.50, while the S&P ASX 200 finished down 2.5 percent at 5,716.5.

Among individual stocks, Bank of East Asia rose 1.1 percent to 45.45 Hong Kong dollars. China's biggest bank Industrial and Commercial Bank of China (ICBC) was unchanged at 6.62 dollars, shrugging off a report that it and smaller rival BOC Hong Kong (Holdings) have made bigger provisions against losses in the fourth quarter due to their exposure to subprime-related investments.

The report in the South China Morning Post cited officials from the two lenders. BOC Hong Kong was up 0.2 percent to 19.66 dollars. Its parent Bank of China was flat at 5.56 dollars.

In Seoul, South Korea's largest carmaker Hyundai Motor Co rose 5 percent to 73,000 won on reports that Toyota has raised its US selling prices, giving other rivals some pricing power.

Kia Motors climbed 3.2 percent to 10,300 won. According to recent media reports, Hyundai Motor Group, the parent of Hyundai Motor, was planning to acquire Shinheung Securities in a bid to expand its financial operations.

In Australia, BHP Billiton was off 3 percent at 35.70 dollars while Rio Tinto was down 4.2 percent at 113.57 dollars.

The Bombay Stock Exchange's benchmark Sensex closed down 60.84 points or 0.34 pct at 18,091.94 while the Nifty gained 0.13 pct to 5,280.80 points.

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Metals - Copper turns higher with buoyant equities

At 10.35 am, LME copper for three-month delivery was up at 7,170 usd a tonne against 7,060 usd at the close yesterday.

The base metals complex has tracked equity movements in recent weeks as market players try to gauge the impact of the recent financial market turmoil on metal demand. With Wall Street rebounding yesterday and shares in London up so far today, copper has found a solid bid, supported by continued hopes for strong demand from China.

"While metals might trade on short-term equity market moves they are more broadly governed by global demand," said John Meyer at Fairfax Securities. "Industrial growth remains firm and the impact of a US recession has yet to cut deeply into demand for many commodities."

The short-term fortunes of equities have been buoyed by hopes for a further 0.5 pct point interest rate cut from the Fed this week, as the central bank scrambles to stave off a broader slowdown. The Fed cut interest rates by 0.75 pct points last week to 3.5 pct.

But sentiment remains fragile, and copper traders also fear that severe winter storms across China could reduce short-term demand for the red metal. Deliveries of coal and fresh food have been disrupted due to the storms which have afflicted areas more accustomed to milder winters.

Deutsche Bank's China economist Ma Jun said the storms could have a negative impact on China's growth rate due to higher food and fuel prices in January and February. "Stronger inflation pressure may force further tightening of macro policy and thus hurt growth," he said.

In other metals, nickel was up at 27,400 usd a tonne against 27,000 usd, supported by supply shortages in South Africa -- a result of power cuts -- and by hopes demand from the stainless steel industry is set to rise.

Fairfax's Meyer said a potential shortage of ferrochrome could cause stainless steel producers to return to more nickel rich forms of stainless steel production.

Elsewhere, aluminium rose to 2,545 usd a tonne against 2,512 usd, underpinned by power cuts that have disrupted mine and smelter output both in South Africa and in China.

Standard Bank analyst Walter de Wet said while global stock overhang in aluminium is partly offsetting the impact of the supply shortages for now, the situation bodes for higher prices longer term.

"The end of plentiful cheap electricity should see smelter production costs rise, while production losses (because of blackouts) may speed up the rate at which stock overhangs are depleted," he said.

Zinc was at 2,345 usd a tonne against 2,290 usd, lead climbed up to 2,710 usd against 2,664 usd while tin rose to 16,725 usd against 16,500 usd.

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