US & World Daily Markets Financial Briefing 29-11-2007

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Stocks slip after two-day rally

NEW YORK - Stocks fell Thursday as investors digested a mix of corporate and economic news, including weaker-than-expected earnings from Sears Holdings Corp. and a strong reading on U.S. economic growth in the third quarter.
   
Some pushback was expected after stocks on Tuesday and Wednesday had their biggest two-day rally in five years amid growing hopes that the worst of the credit crisis might be over. But Thursday's news injected a bit of uncertainty back into the market.
   
That was reinforced when the Labor Department said the number of people seeking unemployment benefits last week jumped sharply, suggesting that the labor market is softening. The weekly readings can, however, be volatile.
   
Sears, parent of its namesake department store chain and Kmart, said profits plunged to a penny per share from $1.27 per share a year ago due to lower sales and clearance markdowns.
   
A report showing economic growth in the third quarter was much faster than the government originally thought perhaps helped limit stocks' declines. The Commerce Department revised its estimate of gross domestic product up a full percentage point to 4.9 percent, topping analysts' consensus forecast for a 4.8 percent rise.
      
In midmorning trading, the Dow Jones industrial average fell 63.89, or 0.48 percent, to 13,225.56. Broader stock indicators also fell. The Standard & Poor's 500 index dipped 6.08, or 0.41 percent, to 1,462.94, and the Nasdaq composite index fell 6.49, or 0.24 percent, to 2,656.42.
   
Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to 3.96 percent from 4.04 percent late Wednesday. Bond prices and yields move in opposite directions. The dollar rose against other major currencies, while gold prices fell.
   
In the latest such action, E-Trade Financial Corp. said on Thursday that Citadel Investment Group will provide $2.5 billion in cash to shore up its balance sheet. It also said Chief Executive Mitchell H. Caplan has resigned.
   
E-Trade, which holds billions in risky mortgage debt, said it will sell its entire portfolio of asset-backed securities to Citadel for $800 million and book a $2.2 billion charge on the sale. E-Trade jumped 51 cents, or 9.7 percent, to $5.79.
   
In other corporate news, Sears' results came up far short of Wall Street's expectations; analysts polled by Thomson Financial had forecast a profit of 50 cents per share. The stock fell $15.88, or 13.7 percent, to $100.46.
   
Aeropostale Inc. fell $2.11, or 7.5 percent, to $25.90 after the retailer's third-quarter sales came in below analysts' expectations and a SunTrust Robinson Humphrey analyst downgraded the stock, citing its price. Aeropostale said its quarterly profit rose 11 percent.
   
Investors sent stocks sharply higher in recent days in part because a Federal Reserve official suggested another interest rate cut could be in store. Wall Street also has been calmed by evidence that companies hurt by subprime problems have found financial backers to help stem the damage.
   
The stock market's two-day rebound followed Monday's triple-digit drop in the Dow, which pushed the index to a level 10 percent off its October high -- the measure of a downward correction. But while the advance was impressive, Wall Street's performance since the summer has been highly erratic, with many triple-digit swings, and there were few if any predictions that stocks were now on a solidly upward path.
   
Oil prices spiked after a fire broke out late Wednesday at an Enbridge Energy pipeline carrying crude from Canada to the Midwest. The flow was partially restored Thursday.
   
A barrel of light, sweet crude rose $1.32 to $91.94 on the New York Mercantile Exchange, after climbing as high as $95.17 earlier in electronic activity. The gains follow a two-day drop of more than $7 a barrel.
   
Declining issues outnumbered advancers by about 9 to 5 on the New York Stock Exchange, where volume came to 116.6 million shares. The Russell 2000 index of smaller companies fell 1.40, or 0.18 percent, to 768.64.

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Forex - Dollar remains stronger on views US rate cut will support economy

The dollar held onto its earlier gains against other major currencies, helped by a rise in stocks and the view that a likely US rate cut next month will keep the economy from a hard landing. US stocks rose strongly overnight after the Federal Reserve's vice chairman Donald Kohn indicated that rates would be cut in December, despite the hawkish rhetoric from other Fed officials.
   
As vice chairman, Kohn's comments are often given more weight than those by regional governors, and suggest that the Fed has backed down from its insistence that it would not cut rates any more simply to bail out bad lenders. Despite hawkish Fed comments on inflation risks over the past weeks, markets have been in fact pricing in a rate cut for December, pushing the rate-setters to either go along with a cut or disappoint markets and risk a stock market slump.
   
"Finally, the Fed did blink," said Hans Redeker at BNP Paribas. "Kohn admitted that the recent weakening of credit conditions have come as a surprise to the Fed and that this development was not on the Fed's agenda when formulating its neutral currency statement on October 31," said Redeker.
   
Whereas the dollar first weakened on Kohn's statement last night, due to exchange rate differentials with other countries, the focus this morning turned to the longer-term prospects for the US, which would be improved by another rate cut this year.
   
Eyes will now turn to Fed chairman Ben Bernanke, who is due to speak today. "If his comments work along the same lines as Kohn's, the December rate cut will be a done deal," said Redeker. The euro failed to make any gains despite robust labour market data from Germany showing unemployment fell to 8.6 pct in November from 8.7 pct last month.
   
"Continued improvements in the labour market still point, on the face of it, to some pick-up in consumer spending growth in the coming months," said Jennifer McKeown at Capital Economics. "But with consumer confidence falling lately and signs that the economy is now cooling, the risks are on the downside," she added. In the UK, the pound was also weaker after soft data for house prices and mortgage approvals and cautionary comments from BoE rate-setters.
  
The Nationwide survey showed a 0.8 pct monthly fall in UK house prices in November, whereas  mortgage approvals slumped to a 88,000 rise in October from 100,000 in September. Furthermore, BoE governor Mervyn King told MPs in a testimony that the outlook for the UK economy is "highly uncertain" with downside risk to growth as well as inflationary pressures.
  
Retail sales data from the Confederation of British Industry showed sales held up well in November, although optimism was waning ahead of the crucial holiday season. Overall, the data and the comments suggest next week's policy decision will be "one of the closest and most difficult decisions that the BoE has ever had to make," said George Buckley at Deutsche Bank.
   
He expects them to remain on hold before cutting early next year, although the PMI surveys next week will be crucial in the final analysis.

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Euroshares retreat midday, Wall St seen heading for lower open, A&L soars

At 12.39 pm, the Dow Jones STOXX 50 was 5.75 points or 0.16 pct lower at 3,684.99, while the STOXX 600 fell 0.78 points or 0.21 pct to 363.31.  Markets took a brief hit following disappointing earnings results from US retail giant Sears, but recovered to a large extent with traders pointing to continuous hopes for further interest rate cuts by the US Federal Reserve.
   
According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open down 36 points at 13,253. Separately, S&P 500 futures fell 4.70 points to 1,465.90 while Nasdaq 100 futures were off 0.50 point at 2,095.
   
Back in Europe, Alliance & Leicester grabbed the spotlight, striding 11.25 pct ahead, after the UK mortgage lender used its latest trading update to reassure investors over its medium-term liquidity after recent turmoil in the credit markets.
   
Spanish peer Bankinter rose 3.82 pct following news last night that core shareholder Jaime Botin has asked for Bank of Spain approval to raise his stake to over 20 pct to 29.99 pct from the current 16.15.
   
"But what we are seeing are signs of a definite battle for control of Bankinter ... watch this space," a local brokerage dealer said. And Fortis added 2.70 pct following news of Ping An's investment in the
bank.
   
However, shares in Royal Bank of Scotland were out of investors' favour today, down 1.63 pct with rumours of a 12 bln stg write down circulating on trading floors.  Elsewhere, the oil and gas sector gained ground following a rebound in the oil price after an explosion and fire on a crude oil pipeline from Canada to the US. Oil was up 2.73 usd at 93.33 usd.
   
Leading risers included Acergy, up 2.76 pct, which also announced a new pipeline contract in Angola worth 670 mln usd.  Among miners, Vendanta rallied 5.21 pct higher, well off a 12 pct high after the group brushed aside takeover speculations.
   
Staying with M&A chatter, ThyssenKrupp headed 1.96 pct higher as market rumours resurfaced that South Korea's Posco is mulling a 54 eur per share takeover bid for the German steel maker. In other corporate news, Siemens AG added 0.88 pct after the group's CEO Peter Loescher said the group is targeting a raise in its earnings per share for the current business year, with the focus on organic growth.
   
Over in France, Schneider Electric gained 1.18 pct as investors welcomed reassuring comments on the performance of the group's recent acquisition, American Power Conversion Corp (APC). At yesterday's investor presentation, Schneider raised its operating margin guidance for its Critical Power and Cooling Services unit, created through the merger of APC and MGE UPS Systems.

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Asian markets rally with Wall St on US rate cut hopes, led by Hong Kong

Stock markets across Asia rallied Thursday, led by Hong Kong, as investors cheered the sharp gains on Wall Street after a Federal Reserve official reinforced expectations for another interest rate cut next month.
   
Hong Kong's Hang Seng index closed higher by 4.1 pct while benchmarks in Tokyo and Seoul rose more than 2 pct and Jakarta's composite index set a new record high. The Hong Kong stock market led the gains around the region, with the Hang Seng index closed up 4.1 pct at 28,482.54.
   
In Japan, the Nikkei 225 Stock Average finished up 2.4 pct to 15,513.74, also helped by the yen's weakness. South Korea's KOSPI index gained 2.3 pct to close at 1,877.56. The dollar rose to 110.02 yen in afternoon trading in Asia Thursday from around 108 yen late Wednesday as hopes for another US rate cut spurred carry trades funded by cheap loans from Japan.

Australia's S&P/ASX 200 closed up 1.2 pct at 6,444.5, while the All Ordinaries jumped 1.2 pct to 6,507.2.
      
The Philippine economy expanded by 6.6 pct and the government is expecting full-year growth to surpass earlier estimates. The third-quarter GDP figure was within market expectations, but was slower than the two-decade high of 7.5 pct seen in the second quarter due to sluggish exports.
   
Manila's composite index surged as much as 3 pct but trimmed its gain to 1.2 pct at 3,578.55 at close as investors were spooked by news that a group of renegade soldiers have taken over a hotel in the Makati financial district seeking the ouster of President Gloria Arroyo.
   
"Investors were clearly spooked. That stunt took the steam out of the market. It completely destroyed the momentum of the market," said Francisco Liboro, president of PCCI Securities.
   
The Malaysian economy grew at an annual rate of 6.7 pct in the third quarter, surpassing economists' forecast of 5.6-5.9 pct, with the growth overwhelmingly a domestic demand story. The central bank is expecting growth to remain robust in 2008, predicting an expansion of 6 pct.
   
Malaysia's KLCI was last up 0.6 pct at 1,377.32, while Singapore's Straits Times index added 3.2 pct at 3,478.22. The Jakarta composite index closed higher by 7.74 pct at 2,699.82, after hitting a new all-time high of 2,737.81. The Taiwan weighted index closed up 2.1 pct at 8,447.03  The benchmark Shanghai Composite Index closed up 4.16 pct at 5,003.33.

Indian shares close off the day's highs; ICICI Bank outperforms

The Bombay Stock Exchange's benchmark Sensex ended 0.34 pct or 64.39 points higher at 19,003.26. It had earlier risen 358.14 points to a high of 19,297.01 points, following fresh hopes of a Fed rate cut, which swept through global markets, fanning the appetite for stocks across Asia.
   
The National Stock Exchange's S&P CNX Nifty gained 0.30 pct to 5,634.60 points.Among BSE-30 stocks, 13 shares gained and 17 lost. In the broader market, 1,341 shares advanced, 1,439 declined and 76 were unchanged.

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Metals - Copper up as recovery in global equities helps ease demand woes
 
At 10.06 am, LME copper for 3-month delivery was up at 6,920 usd a tonne against 6,715 usd at the close yesterday, when the metal rose 105 usd.  Copper prices have given up around 15 pct since the troubles in the US housing and credit markets took hold in mid August, sparking worries over the outlook for global growth and for metals demand.
   
Those worries have eased slightly in recent days, however, as US equity markets staged the biggest 2-day rally in 5 years, helped yesterday by speculation of another interest rate cut. Fed vice chairman Donald Khon said the recent financial market turmoil might restrict markets more than previously expected, leading investors to bet the central bank will cut rates again.
   
These bets helped US equities higher, and have taken markets in Asia and Europe up today. "The (US) slowdown may start to recover sooner than the market expects although this is not required to maintain global GDP growth at healthy levels," said John Meyer, analyst at Fairfax.
   
Regarding copper, he said traders might still be reluctant to bet the metal higher near term, notwithstanding today's bounce. In the new year, however, Meyer sees a price recovery in copper as Chinese buying comes back on stream.
   
Elsewhere, traders were tracking LME inventories, which rose again today, this time by 375 tonnes to total 188,600 tonnes, continuing the trend of recent months. The stock increase was capping gains in copper, as it reminded investors that demand for the metal is not holding up well at present, allowing stockpiles
of the metal to build.
   
In other metals, 3-month zinc tracked copper, up at 2,560 usd per tonne against 2,490 usd amid a decline in LME zinc inventories for the 13 consecutive day. Recent gains in zinc aside, the outlook for the metal remains negative as analysts still expect a major surplus will develop in 2008, both of the metal and of the concentrate.
   
"We expect this price weakness to persist in the coming months due to the surplus on the zinc market, although a temporary recovery after the sharp fall is possible at any time," said analysts at Commerzbank.
   
Elsewhere, lead rose to 3,120 usd per tonne, basis three months, against 3,030 usd, while nickel for delivery in three months was up at 28,350 usd against 28,100 usd. Aluminium climbed up to 2,522 usd per tonne from 2,510 usd, while tin prices rose to 16,870 usd per tonne against 16,750 usd.

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