US & World Daily Markets Financial Briefing 30-10-2007

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Stocks fall ahead of Fed rates decision

NEW YORK - Wall Street pulled back in early trading Tuesday as investors grew more uneasy ahead of the Federal Reserve's decision on interest rates.
   
The market has been angling for a rate cut following the Fed's half-point reduction in September, and investors expect the central bank to deliver a quarter-point cut at the conclusion of its two-day meeting on Wednesday. But inflation remains a threat, with oil prices near record highs and the dollar in sharp decline, and there is no certainty the Fed will indeed lower rates.
   
The price of commodities from crude oil to corn has risen as the dollar has lost ground to other currencies, and that could mean higher inflation throughout the economy. However, those arguing for lower interest rates say such a stimulant is needed to prevent a housing slump and credit market troubles from hurting economic growth.
   
Merrill Lynch & Co. Chairman and Chief Executive Stan O'Neal retired as expected after the stock brokerage last week posted the biggest quarterly loss in its 93-year history last week. Alberto Cribiore, a director since 2003, was named as interim non-executive chairman.
   
The Dow Jones industrial average dropped 34.95, or 0.25 percent, to 13,835.31. Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.02, or 0.33 percent, to 1,535.96, while the Nasdaq composite index lost 5.48, or 0.19 percent, to 2,811.96.
   
Bonds prices fell on Tuesday. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.39 percent, up from 4.38 percent late Monday.
   
Corporate earnings were mixed. Procter & Gamble Co. -- which makes including Tide detergent, Crest toothpaste and other products -- said fiscal first-quarter profit rose 14 percent on strong sales growth across most regions. However, the company cautioned that higher commodity costs will squeeze second-quarter margins. The stock fell $2.04, or 2.8 percent, to $69.79 in morning trading.
   
Colgate-Palmolive Co. posted a 22 percent jump in third-quarter earnings on robust sales of its home and family care products and improved cost controls. The company forecast double-digit earnings growth for the rest of the year and 2008. Its shares dipped 25 cents to $74.01.
   
United States Steel Corp. on Tuesday said third-quarter earnings dropped nearly 36 percent as concerns about the economy's strength affected its major markets, leading the steelmaker's results to miss Wall Street expectations. Shares fell $5.83, or 5.2 percent, to $106.67.
   
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange. The Russell 2000 index of smaller companies fell 1.67, or 0.20 percent, to 820.05.
   
Overseas, European markets moved lower, while Asian markets ended mixed. Britain's FTSE 100 fell 0.62 percent, Germany's DAX index dropped 0.42, and France's CAC-40 dipped 0.51 percent.

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Dollar stays above all-time lows vs euro ahead of Fed decision

LONDON - The dollar is relatively steady above yesterday's all-time record low against the euro, as investors booked some profits ahead of tomorrow's interest rate decision from the US Federal Reserve.
   
Dollar sentiment has been particularly bearish in the run-up to the meeting, as the markets priced in the possibility of a half point cut in the Fed funds rate to 4.25 pct. However, that has changed now and the market thinks it very unlikely that the Fed will be so aggressive, given the seeming calm in credit markets and the spike up in oil prices above 90 usd a barrel.
   
"The incentive to take profit has also been sprinkled with a degree of last-minute trepidation as to whether the FOMC will actually deliver the scenario that has helped drive the dollar to its current depths," said Bank of New York Mellon's Neil Mellor.
   
That trepidation has been raised by an article today from noted Fed watcher Greg Ip in the Wall Street Journal that a Fed rate cut is "no sure thing" and that officials are not seriously considering a half-point reduction in overnight rates.
    
The euro posted a new all-time high yesterday of 1.4438 usd. Meanwhile, the Australian dollar hit a 23-year high of 0.9270 against its US counterpart, helped by expectations that the Reserve Bank of Australia will raise interest rates again at its meeting next week.
   
Though the dollar has steadied against the euro, it has slumped to a new  26-year low against the pound following further hawkish comments from a key swing voter on the Bank of England's rate-setting body. Earlier, the pound rose to its new 26-year high of 2.0671 usd.
   
Kate Barker, one of nine members of the Monetary Policy Committee, said there is little evidence that there has been a major change in peoples' attitudes following the recent financial turbulence.
   
Speaking during a visit to Guernsey, Barker questioned whether things have changed enough to warrant a fall in borrowing costs, according to an article on The Guernsey Press and Star website. 
   
Elsewhere, the Swedish krona rose after the Riksbank raised its key repo rate by 25 basis points to 4.00 pct as expected and reiterated that rates will need to rise again during the first half of next year. Explaining the move, the central bank cited strong growth and rising employment levels, as well as "rapid" increases in lending and house prices, which are leading to a rise in inflation expectations.

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Euroshares down midday, Wall St seen opening lower; Continental, Michelin slump

LONDON - Europe's leading exchanges continued to lose ground in midday deals, with Wall Street heading for a lower open and as quarterly reports from the likes of UBS, Michelin and Continental dealt a blow to investors.
   
At 11.50 am, the Dow Jones STOXX 50 Index was down 16.00 points or 0.41 pct to 3,856.79, while the STOXX 600 shed 1.45 points or 0.38 pct to 385.15.
   
Shares in UBS fell 1.05 pct after it said that following its third-quarter writedowns, exposure to sub-prime residential mortgage backed securities (RMBS) is 16.8 bln usd as of the end of September 2007.
   
Losses were contained as the Swiss bank presented strong net money inflow numbers in its wealth management unit. "They say the fourth quarter has started with good results from all units," another trader noted. However, investors will be disappointed with the group's outlook for its Investment Banking unit, he added. "We were looking for a positive contribution of around 1 bln eur," he said, while UBS announced today that the investment banking unit is "unlikely" to make a positive contribution to results for the last three months of the year.
   
Elsewhere, automotive suppliers Michelin and Continental were in focus.
   
Michelin plummeted 6.19 pct after the group released its nine-months sales report after the market close last night and said sales rose 4 pct to 12.6 bln eur in the nine months to Sept 30. Michelin also said its full-year recurring operating margin will "approach" the level reported for the first half.
   
Rival Continental AG released third-quarter EBIT of 426.1 mln eur, up from 394.1 mln, and in line with the 432 mln eur seen by analysts. The group reiterated its full-year guidance which calls for full-year sales and EBIT to come in higher than during 2006. In addition, it announced a capital increase of about 14.6 mln new shares to fund its takeover of Siemens VDO automotive unit. Shares dropped 3.15 pct.
   
Shares in Norsk Hydro ASA fell 6.54 pct after the Norwegian aluminium producer's third-quarter profits fell short of market expectations.
   
Meanwhile, Pernod Ricard was a bright spot in an otherwise difficult day on the earnings front. The French spirits group posted a forecast-beating 11.6 pct rise in organic sales growth for the first quarter, on a solid performance across all geographic regions and undemanding year-earlier comparisons.
   
Pernod Ricard confirmed its full year guidance for "strong growth" in sales and operating profit from ordinary activities, based on current market conditions and on a like-for-like basis. The stock was last up 1.63 pct.
   
In corporate takeover news, shares in Vinci climbed 3.77 pct amid market speculation that PPR's Francois Pinault may team up with ArcelorMittal to make a 70 eur per share offer for the company.
   
And Vallourec fell 2.79 pct. The French producer of seamless steel tubes said it has agreed to buy three US tubemaking companies from Grant Prideco Inc for 800 mln usd in cash.
   
In the UK, Umbro PLC charged 3.55 pct ahead amid rumours that Mike Ashley's Sports Direct International PLC is purchasing shares in the market to add to its existing 15 pct stake. Last week, Nike, the world's biggest sportswear company, announced an agreed 295 mln stg, 193.06 pence per share offer for Umbro, kit supplier to the England football team.

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Asian stocks mostly lower as traders lock in gains ahead of Fed decision

SINGAPORE - Stock markets across Asia were mostly lower Tuesday as investors locked in gains on the recent rally, with losses held in check by expectations that the US Federal Reserve will conclude a two-day meeting that starts today with another interest rate cut.
   
The Hang Seng Index closed at a fresh record high, up 51.32 points or 0.2 pct at 31,638.22, after setting an intra-day record of 31,958.41. The Hong Kong authorities are expected to follow a US rate cut with one of their own as their currency is pegged to the US dollar.
   
The Shanghai Composite also gained as the Chinese currency, the yuan, continued to appreciate. The benchmark index closed up 2.6 pct at 5,897.19.
   
In Tokyo, Japan's largest drug maker, Takeda Pharmaceutical Co, fell 12.4 pct to 7,119 yen after it said it expects a delay in launching its TAK-475 treatment for high cholesterol in the US after the regulator there said it needs more data. The Nikkei 225 closed down 0.3 pct at 16,651.01 and the TOPIX was up less than a point at 1,607.21.

In Sydney, the S&P/ASX 200 closed down 0.6 pct at 6,750.2 and the All Ordinaries was off 0.5 pct at 6,772.5. Mining stocks eased after their strong rally, while rising oil prices were a worry.
      
The South Korean KOSPI closed down 0.5 pct at 2,052.37, the Singapore Straits Times Index lost 0.6 pct at 3,798.45 and the Kuala Lumpur Composite Index closed up 0.1 pct at 1,412.79. The Jakarta Index fell 0.2 pct to 2,662.92.
   
Among individual stocks, Korean shipbuilder Samsung Heavy Industries Co closed up 1,600 won or 3.2 pct to 52,100 won as investors cheered its strong quarterly results. The shipbuilder announced that its third-quarter operating profit increased nine-fold to 132.4 bln won as it secured more orders from abroad for high-value vessels.
   
In Manila, the Philippine composite index finished down 1.45 points at 3,783.43. The Taiwan weighted index closed down 0.5 pct at 9.757.93. 

In Singapore, shares of shipyard operators and rig builders fell on news of a second Singapore shipyard reporting foreign exchange losses.

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Copper extends losses as firmer dollar, rising stocks dent sentiment

LONDON - Copper extended losses in midafternoon trade in line with other commodities as a further rise in LME-monitored stockpiles knocked sentiment, already dented by the end of a nine-month strike at Southern Copper in Peru.
   
A slight recovery in the US dollar is also dampening buying interest, analysts said. Weakness in the greenback in recent months has made dollar-denominated commodities cheaper for holders of other currencies.
   
"Prices have weakened across the board this morning following rising LME stocks across the complex and especially sizeable inflows into zinc and copper," said Barclays Capital analysts.
   
"LME copper stocks now totaling 161,000 tonnes are at their highest since end-April, with inflows focused on Asian and European warehouses highlighting ongoing weak physical demand conditions," they added.
   
Copper inventories monitored by the LME rose by 3,250 tonnes this morning to 160,750 tonnes, the exchange said, and are now up some 30,000 tonnes, or around 23 pct, from the beginning of October.
   
At 2.12 pm, LME copper for three-month delivery was down 146 usd a tonne at 7,704 usd. Zinc meanwhile was 67 usd lower at 2,838 usd.
   
Inventories of the grey metal also rose sharply this morning, up 4,825 tonnes to 66,525 tonnes. Zinc stockpiles have risen by just under 15 pct in the last fortnight.
   
Tin meanwhile was trading 250 usd lower at 16,600 usd. Aluminium shed 25 usd to trade at 2,502 usd a tonne, nickel was down 350 usd a tonne at 31,300 usd and lead was off 114 usd at 3,535 usd.

Gold continued lower on profit taking having hit a 28-year high yesterday and as players tracked the dollar which came off lows against the euro.
   
At 1.22 pm, spot gold was down at 781.48 usd an ounce against 789.20 usd in late New York trade Friday. Yesterday the metal hit 793.98, its highest level since January 1980, when it hit an all-time peak of 850 usd an ounce.
   
Silver meanwhile has also rallied, hitting its 14.55 usd yesterday, its highest point since late February. The metal was lower at 14.16 usd from 14.36 usd. Platinum was down at 1,438 usd from 1,455 usd, while palladium fell to 364 from 372 usd.

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