US & World Daily Markets Financial Briefing 31-08-2007

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Stocks rise ahead of Bush, Bernanke

NEW YORK - Stocks opened sharply higher Friday as Wall Street awaited a plan by President Bush to help borrowers facing trouble paying their mortgages. The advance also came ahead of a speech from Federal Reserve Chairman Ben Bernanke that Wall Street hopes will at least hint at a rate cut.
   
Investors were growing optimistic that months of mortgage troubles could be eased by Bush's expected 11:10 a.m. EDT announcement of plans to help struggling borrowers keep their homes. Mortgage lenders Countrywide Financial Corp. and Accredited Home Lenders Holding Co. surged ahead of his speech.
   
Bernanke begins speaking at 10 a.m. EDT at the central bank's annual conference in Jackson Hole, Wyo., before the long Labor Day weekend. Though many market watchers say it's unlikely Bernanke will make any big waves in his speech today, investors will be listening closely for clues about future Fed moves.
   
Since the stock market started tumbling in late July on fears that problems in mortgage and corporate lending would lead to a credit freeze and hurt the economy, the Fed has injected tens of billions of dollars into the banking system and lowered its discount rate -- the charge on its loans to commercial banks. But the Fed hasn't yet said it will lower the benchmark federal funds rate, and Wall Street's uncertainty over what the central bank will do next has kept the markets volatile.
   
In early trading, the Dow Jones industrial average rose 118.44, or 0.89 percent, to 13,357.17. Broader stock indicators also rose. The Standard & Poor's 500 index rose 15.65, or 1.07 percent, to 1,473.29, and the Nasdaq composite index rose 27.19, or 1.06 percent, to 2,592.49.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.56 percent from 4.51 percent late Thursday. Bond prices move opposite their yields. Light, sweet crude rose 89 cents to $74.25 per barrel in premarket electronic trading on the New York Mercantile Exchange.
   
In Europe, Britain's FTSE 100 rose 1.34 percent, Germany's DAX index rose 1.38 percent, and France's CAC-40 rose 1.37 percent.
   
The U.S. bond market will be closing early at 2 p.m. EDT ahead of the holiday weekend.
   
Before Bernanke's and Bush's speeches, investors also digested data to discern how much the housing slump and credit problems are dragging on the broader economy.
   
The Commerce Department reported on personal income and spending and the core personal consumption expenditures deflator, one of the Fed's preferred gauges of inflation. Personal incomes and spending edged up by 0.5 percent and 0.3 percent, respectively, and year-over-year core PCE stayed at 1.9 percent -- within the Fed's comfort range.   

Later Friday morning, Chicago purchasing managers will release their monthly index of Midwest manufacturing, a precursor to next week's national manufacturing index from the Institute for Supply Management. Also, the University of Michigan will report on August consumer sentiment.
   
In corporate news, Dell Inc. reported after the market closed Thursday that its second-quarter profit soared 46 percent. The computer maker rose 27 cents to $28.73.
   
Countrywide rose 68 cents, or 3.5 percent, to $20.32, while Accredited Home rose $2.29, or 36 percent, to $8.60 rose ahead of Bush's speech.   

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Dollar firms vs yen as risk appetite resumes ahead of Bernanke speech

LONDON - The dollar was firmer against the yen as the market's appetite for risk increased amid reports that US President George Bush will outline plans to help ease the crisis in the subprime mortgage market and US Federal Reserve chairman Ben Bernanke will give a clear hint that interest rates may be cut soon.
   
US media said Bush is expected to announce help for homeowners who have fallen behind on their mortgages, in what would be the administration's first official response to troubles in the US housing sector which has caused turbulence in global markets in recent weeks.
   
Meanwhile, Bernanke addresses the annual symposium in Jackson Hole, Wyoming, at around 3 pm amid expectations he will indicate that the Fed may cut rates on Sept 18 to help alleviate the crisis in the US subprime market.
   
The combination of Bush and Bernanke have helped swell investors' appetite for risk, most evident in the market's expectation that the Dow Jones index of leading US shares will open up by more than 100 points.
   
In the currency markets, the increased appetite for risk is most evident in the performance of the yen as some investors start to edge back into riskier positions, such as carry trades. The yen falls on rising risk appetite as more investors take the strategy of selling low-yielding currencies like the yen to invest in higher-yielding ones elsewhere.
   
"The yen story seems to be with equity markets doing well and an element of risk returning to the market," said Neil Mackinnon, chief economist at ECU Group.
   
However, Mackinnon said the picture in the currency markets is being complicated at the moment by it being month-end, with investors looking to square up positions, especially ahead of Labor Day in the US on Monday.
   
In addition, he noted that dollar/yen and pound/dollar in particular are approaching key Fibonacci technical levels.
   
Despite the technical developments in the currency markets, Bernanke will undoubtedly be the focus of the market's attention today.
   
Neil Mellor, currency strategist at Bank of New York Mellon, reckons that the "real test" of the Fed chairman's resolve not to cut the Fed funds rate too soon will come next week when key US economic data is released.  

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Euroshares extend gains midday, US futures higher ahead of Bernanke speech

LONDON - Europe's leading shares extended their gains midday as US futures point to a higher open on Wall Street today ahead of a long weekend on the other side of the Atlantic, where investors are focusing on a speech by the Federal Reserve chairman later in the day.
   
At 9.42 am, the Dow Jones STOXX 50 added 5.79 points or 0.16 pct to 3,722.44 as the STOXX 600 was 0.56 points or 0.15 pct higher at 371.55.
   
Back in Europe, the oil and gas sector was striding ahead, mirroring a rise in Brent crude contracts to more than 72 usd a barrel. Shell gained 1.42 pct, as Repsol advanced 1.22 pct and ENI rose 1.40 pct.
   
Earnings news was dominating the market elsewhere, and Bouygues was one of the more volatile stocks, up in early deals after exceeding the market's expectations and giving in later as Morgan Stanley said the weak construction margins presented are a cause for concern. But Citigroup said the operating numbers were "excellent" and Merrill Lynch said it was positively surprised by the margins in the group's telecoms unit. At last check, Bouygues was 1.03 pct higher.
   
Luxury goods retailer PPR soared 5.01 pct after it said first half operating profits from ongoing businesses were 630 mln eur, up 40 pct, boosted by a 1.4 percentage point gain in margins to 6.8 pct as earnings at the Gucci Group soared 55 pct.
   
The media sector is also in focus after Morgan Stanley double upgraded shares in M6 to 'overweight' from 'underweight' and lifted its rating on TF1 to 'equal-weight' from 'underweight' in a sector review.
   
In a note to clients, the broker said it is becoming more confident in broadcasters after the sub-sector underperformed last year and as some of the volatility stemming from sporting events subsides as companies diversify.
   
Staying in the sector, Vivendi fell 1.15 pct after its second quarter earnings report failed to impress investors.
   
Shares in Arcandor, meanwhile, shot 12.81 pct higher as the retail and tourism giant released its second-quarter results, which showed the company swinging to an operating profit, helped by the first-time full consolidation of tourism unit Thomas Cook Group.
   
Also in retail, Metro was 0.82 pct lower on profit taking after a sharp increase yesterday ahead of today's announcement that Haniel Group increased its stake in Metro to 34.24 pct from 18.56 pct by buying shares of the group on the market.
       
In M&A talk, L'Oreal made some ground - up 1.68 pct- after chief executive Jean-Paul Agon said the groups has "never had so many" opportunities for acquisitions and is looking at every possible target as part of its strategy to grow sales by 1 bln eur annually.
   
Norsk Hydro climbed 2.01 pct after 'Business Line' reported that the Norwegian company has taken a 10 pct farm-in stake in Indian state-owned ONGC Ltd's deep water block in the Krishna Godavari Basin.
   
Norsk Hydro has the option to buy another 10 pct in the KG-DWN-98/2 block after commerciality, it added.
   
Later in the day, US consumer sentiment measured by the Reuters/University of Michigan index will be released and is expected to reveal a fall to 82.0 from its preliminary August reading of 83.3, which was already a 1-year low.
   
Describing this and the earlier Conference Board index, Global Insight's Brian Bethune and Nigel Gault said that "since confidence has been falling throughout the month, the current situation is even worse than portrayed by these monthly averages."

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Asian markets buoyed on reported Bush plan to ease credit crisis

Stock markets across Asia posted gains Friday as investors cheered a report that the Bush administration plans to unveil policies later today in a bid to reduce the wave of mortgage defaults in the US.
   
Citing unnamed senior administration officials, the Washington Post reported that Bush will propose changes to the Federal Housing Administration mortgage insurance program that would allow more homeowners to refinance with FHA insurance if they fall behind on adjustable-rate mortgages.
   
Taiwan's weighted index closed up 210.95 points or 2.4 pct at 8,982.16, while Hong Kong's Hang Seng Index closed up 499.6 points or 2.1 pct at 23,984.14.
   
In Japan, the Nikkei 225 Stock Average closed up 415.27 points or 2.6 pct and the broader TOPIX index rose 40.02 points or 2.6 pct to 1,608.25.  Among technology stocks, Sony Corp advanced 5.5 pct to 5,580 and Matsushita Electric Industrial gained 2.8 pct to 2,020 yen.
       
Japan's July industrial output, consumer price index and jobs data, released before the opening bell, were broadly in line with market expectations and had little impact on early trade. Investors are more closely focused on Bernanke, hoping for a sign the Fed is willing to act to stem the crisis in credit markets by cutting its fed funds rate, either at its next meeting Sept 18 or before.
   
Australian shares closed sharply higher, lifting the benchmark indexes to their best levels in five weeks, as investors focused on positive economic data and strong corporate earnings. The S&P/ASX 200 closed up 112.2 points or 1.8 pct at 6,247.2, and the All Ordinaries index gained 110.3 points or 1.8 pct to 6,248.3. The key market indexes were not available for most of the morning session due to a technical glitch but trading continued.
       
In South Korea, the announcement of current account surplus for July added to the market's conviction about the health of the economy. The KOSPI index closed up 31.54 points or 1.7 pct at 1,873.24. The Bank of Korea said the current account surplus reached 1.64 bln usd in July, the highest in eight months, largely due to smaller overseas dividend payouts and brisk exports.
   
China A-shares closed at a record high as investors gained confidence on hopes that government moves to allow individuals to invest directly in the Hong Kong stock market could be delayed.

The benchmark Shanghai Composite Index closed up 50.94 points or 1 pct at a record 5,218.83. The Shanghai A-share Index ended up 53.72 points or 1 pct at 5,480.11 and the Shenzhen A-share Index was up 19.15 points or 1.3 pct at 1,531.17. The Shanghai B-share Index rose 1.17 points or 0.4 pct at 323.40 and the Shenzhen B-share Index was up 5.29 points or 0.7 pct at 743.10.
   
The Jakarta composite index closed up 43.62 points or 2 pct at 2,194.34, the Philippine composite index closed up 44.95 points, or 1.4 pct at 3,365.29, and Singapore's Straits Times Index closed up 71.76 points or 2.2 pct at 3,392.91. The Malaysian market was closed for a national holiday.

Indian shares closed over 1 pct higher, cheered by strong first-quarter economic growth and lower inflation.
   
Government data showed the country's first-quarter GDP grew by 9.3 pct, beating forecasts, fuelled by strong growth in manufacturing and services sectors. But the country's wholesale price index (WPI), a key measure of inflation, fell to 3.94 pct for the week to Aug 18, against 4.10 pct recorded last week.
   
The Bombay Stock Exchange's benchmark Sensex rose 1.30 pct, or 196.86 points, to 15,318.60 and the National Stock Exchange's S&P CNX Nifty rose 1.17 pct to 4,464.00.

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Copper above 7,500 usd level on improving investor sentiment

LONDON - Copper prices pushed above 7,500 usd as market sentiment improved ahead of US President George W. Bush's detailed reforms to help struggling subprime mortgage borrowers.
   
Lending support to improving market sentiment, Federal Reserve Chairman Ben Bernanke is due to speak on Housing and Monetary Policy at 3 pm London time and investors will watch closely for any hint of an impending interest rate cut.
   
"Confidence does seem to be seeping back into the market, with traders now looking for higher prices to finish off the week," said analysts at RBC Capital Markets.
   
At 2.23 pm, copper for three-month delivery was trading at 7,539 usd against 7,401 usd at the close yesterday.
   
Market fundamentals, which usually drive commodities prices, have been largely overshadowed in recent weeks by the financial market turmoil stemming from the subprime fallout, with fears of a global credit crunch uppermost in investors minds.
   
Prices in the base metals complex have tracked equities due to the dual fears of a slowdown in the wider economy dampening demand, and of further selling by funds who were quick to exit risky but profitable commodity positions when they needed to cover losses in tumbling equities.
   
Copper prices have edged higher in recent days, as equities have generally improved, despite daily violent fluctuations in the market.
   
Copper prices are capped by rising inventories at LME-monitored warehouses, which posted an increase for the twelfth day in a row today, rising 500 tonnes to 139,425 tonnes.
   
Elsewhere, tin was up at 15,550 usd versus 15,400 usd continuing several days of substantial gains on fears that supplies from key producer Indonesia will be less than expected. Exports from the world's second-largest tin producer are now thought to be around 80,000 tonnes, almost 10,000 tonnes less than initial government projections.
   
Aluminium was up at 2,560 usd versus 2,531 usd, while lead was up to 3,200 usd from 3,200 usd. Zinc was up at 3,122 against 3,040 usd.

At 2.43 pm, spot gold was trading at 672.85 usd an ounce, against 667.25 usd in late New York trade yesterday.
   
Among other precious metals, platinum was up at 1,263 usd an ounce against 1,260 usd, while its sister metal palladium was steady up at 330 usd against 327 usd. Silver rose to 12.05 usd from 11.77 usd an ounce.

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