US & World Daily Markets Financial Briefing 21-07-2008

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Stocks higher after Bank of America results

NEW YORK - Wall Street rose modestly Monday after Bank of America Corp. posted results that beat expectations, raising hope the credit crisis might be easing for the nation's biggest retail banks.

The largest U.S. bank by assets reported that higher investment banking and record revenue helped drive earnings during the second quarter. With BofA's results, four of the nation's five biggest banks have now reported better-than-expected earnings, and that's raising hopes that the financial sector is starting to recover from the year-old credit crisis.

Investors also were optimistic that mergers and acquisitions, which have been sluggish since the credit crisis began last year, might be reviving. Swiss drug maker Roche Holding announced plans to acquire the stake in Genentech Inc. it doesn't already won for $43.7 billion, making it the seventh-largest pharmaceuticals company in the U.S.

However, for the time being it appears that Yahoo Inc. has staved off an attempt by activist shareholder Carl Icahn to take control of the Internet company. Icahn, who has argued in favor of selling Yahoo to Microsoft Corp., will become a Yahoo director along with two of his nominees.

There are a number of key earnings reports expected during the day, including Apple Inc., drug makers Merck & Co. and Schering-Plough Corp., and chipmaker Texas Instruments Inc. Some 158 members of the Standard & Poor's 500 index and 10 members of the Dow Jones industrials are slated to post results this week.

In midmorning trading, the Dow Jones industrial average rose 39.00, or 0.34 percent, to 11,535.57. Broader indexes were also higher. The Standard & Poor's 500 index added 4.89, or 0.39 percent, to 1,265.57; and the Nasdaq composite rose 14.46, or 0.63 percent, to 2,297.24.

On Friday, Wall Street closed out an impressive week: The Dow rose 3.57 percent, the Nasdaq increased 1.95 percent, and the S&P rose 1.71 percent. Bond prices dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, edged up to 4.10 percent from 4.09 percent from late Friday.

The dollar was mixed against other major currencies, while gold prices rose. Oil prices moved higher. Light, sweet crude rose 10 cents to $129.00 on the New York Mercantile Exchange. Prices fluctuated in overnight trading on concerns the threat of new sanctions against Iran over its nuclear program may escalate tensions in the oil-rich Middle East.

In economic news, Treasury Secretary Henry Paulson sought to reassure the public Sunday that the banking system is sound, while also preparing people for more troubled times ahead. "I think it's going to be months that we're working our way through this period -- clearly months," he said.

Genentech surged $11.07, or 13.4 percent, to $93.50 on speculation that Roche might have to offer more to acquire the company -- or face the possibility of another bidder. Shares of the U.S. drug maker are now trading at a 52-week high.

BofA rose $2.73, or 9.9 percent, to $30.21. An increase in bad debts due to the ongoing housing slump pushed profit down 41 percent, but it still surpassed expectations due to a solid performance in its non-real estate businesses.

Toymaker Hasbro Inc. said second-quarter profit rose, helped by the weaker dollar and demand for toys inspired by "Star Wars" and "Indiana Jones." Sales jumped 13 percent to $784.3 million. However, concerns about costs and a campaign to raise prices pushed shares down 19 cents to $37.80.

Advancing issues led decliners by a 3-to-2 basis on the New York Stock Exchange, where volume came to 51 million shares.

The Russell 2000 index of smaller companies rose 3.53, or 0.51 percent, to 696.61. Overseas, Japan's Nikkei stock average fell 0.65 percent. In morning trading, Britain's FTSE 100 rose 0.69 percent, Germany's DAX index added 1.11 percent, and France's CAC-40 rose 0.89 percent.

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Forex - Dollar firms on firm Bank of America results

LONDON - The dollar stabilised against the euro as early U.S. earnings reports came in on the strong side, giving stock market futures a boost ahead of the Wall Street open. Bank of America posted second quarter earnings of $0.72 a share, better than market expectations for $0.53, leading to optimism that the beleaguered U.S. banking sector is beginning to stabilise.

The news pushed Bank of America shares up more than 6 percent in pre-market trading, meaning the euro fell to $1.5857 at 1135 am GMT, having been at $1.5908 earlier this morning. Manuel Oliveri, currency strategist at UBS, said earnings reports are likely to continue to dictate the dollar's movements over the coming days.

"We expect the market to remain focused on earnings reports of several major blue-chips, especially those within the banking sector, and a continuation of last week's solid results will help the dollar and risk appetite to maintain some momentum," he said.

Other banks in the spotlight this week include Regions Financial Corp, Fifth Third Bancorp, SunTrust Banks, Wachovia and Washington Mutual.

However focus will also be on U.S. economic data with the Fed's Beige Book and existing and new home sales figures all due for release this week. Analysts said the data is likely to reinforce previous evidence that the economy is facing rising inflation despite slowing growth, re-inforcing the Federal Reserve's policy dilemma.

Antje Praefcke, currency strategist at Commerzbank, said: "The market is worried about a possible stagflation in the U.S. and maintains its rather dollar negative mood, especially since this week's U.S. fundamentals are likely to underline this view."

Elsewhere, the pound recovered some lost ground after falling to a day low following downbeat comments from Bank of England policy-maker David Blanchflower. The MPC member warned the British economy is heading into recession and interest rates should fall to "well below" their current 5 percent. At 1135 am GMT sterling was trading at $1.9961 having earlier fallen to a day-low of $1.9906.

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Euroshares fall on weak financials; Wolters Kluwer warning weighs

LONDON - Europe's largest exchanges opened flat after modest gains in the United States on Friday with oil still below $130 per barrel but soon turned lower as banks fell prey to profit-taking after last week's surge and investors steel themselves ahead of a cascade of earnings news this week after a warning from Wolters Kluwer Monday.

At 9.09 a.m., the DJ STOXX 50 was down 14.32 points, or 0.5 percent, at 2821.83 and the DJ STOXX 600 was down 1.88 points, or 0.67 percent, at 278.81.

After the steep rally in banking stocks at the end of last week, caution returns with news shareholders subscribed for only 8.3 percent of shares in HBOS's 4 billion pound ($8 billion) rights issue adding to nervousness.

Shares in the UK banking group fell back 3.19 percent as the group's underwriters now have to try to sell almost 3.8 billion pounds worth of shares.

Aegon fell 2.04 percent, Fortis fell back 1.73 percent, Credit Agricole moved 1.64 percent lower. Wolters Kluwer lowered its full year organic growth guidance to 3 percent from 4 to reflect the impact of recent market conditions on its non-subscription product lines, particularly within Corporate & Financial Services. Shares fell 4.2 percent.

Shares in Reed Elsevier fell 2.83 percent, although losses were capped by weekend reports American publishing giant McGraw Hill and private equity firms Bain and TPG are among two dozen companies that have expressed an interest in acquiring the group's 1.25 billion pounds trade magazine division.

Nokia shares fell 1.31 percent after sharp selling in the technology sector in the US on Friday with a number of cautious broker comments also weighing.

Shares in oil companies rallied as tensions with Iran threaten oil supplies and pulled the price of crude off last week's lows.

In afternoon trade, New York's main contract, light sweet crude for August delivery, rose 79 cents to $129.67 a barrel, having fallen $16 last week.

Total rose 2.11 percent, ENI added 1.33 percent and Repsol YPF rose 0.5 percent.

In broker changes, Alstom and SKF added 1.47 percent and 1.53 percent respectively as Deutsceh Bank upgraded the pair to 'buy' from 'hold' while Legrand slumped 5.17 percent after Deutsche Bank downgraded the electrical equipment group to 'sell' from 'hold'.

BT moved 0.25 percent higher after shares in the UK telecoms group was upgraded to 'buy' form 'hold' at RBS.

Roche shares fell 2.05 percent as uncertainty about news the group is to buy out the minorities in Genentech overshadowed better than expected numbers from the Swiss healthcare group.

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Asian stock market summary

MUMBAI - SOUTH KOREA
The KOSPI index closed sharply higher, up 3.5 percent at 1,562.92 -- its largest percentage gain in more than five months -- as investors rushed to snap up oversold stocks.
   
Sentiment was lifted by lower oil prices and better-than-expected earnings at some U.S. banks.

AUSTRALIA
The benchmark S&P/ASX 200 index closed up 3.5 percent at 5,011.8, staging the biggest one day rise in four months, with financial stocks making strong gains as concerns about the state of credit markets eased. The broader All Ordinaries index gained 3.3 percent to 5,075.4.

CHINA
The benchmark Shanghai Composite Index closed up 2.99 percent at 2,861.42, led by property developers and brokers, with sentiment boosted by regulator reassurances that market stability will be maintained.
   
Property stocks led the gains with property developers in favour on renewed speculation over a Disney theme park in Shanghai, while brokers rose sharply after CITIC Securities reported better-than-expected first half earnings.
   
The Shanghai A-share Index was up 2.99 percent at 3,001.57, while the Shenzhen A-share Index rose 3.45 percent to 894.46. The Shanghai B-share Index rose 2.07 percent to 216.22, while the Shenzhen B-share Index gained 1.15 percent to 464.80.

TAIWAN
The weighted index re-gained 7,000-points level, closing up 3.97 percent at 7,085.67, as worries eased over the financial sector and oil prices fell sharply last week.
   
The financial sector index surged more than 6 percent after U.S. banking giant Citigroup announced better-than-expected second-quarter results.

PHILIPPINES
Manila's 30-company composite index finished up 1.1 percent at 2,416.62, as investors picked up select bargains across the board, with the drop in crude oil prices below $130 a barrel bringing some relief to a market rattled by soaring inflation and the possibility of a more serious global economic downturn.

JAPANESE MARKETS WERE CLOSED FOR PUBLIC HOLIDAY

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Crude oil back above $130 a barrel

Oil prices rose back above US$130 a barrel Monday on concerns that the threat of new sanctions against Iran over its nuclear program may escalate tensions in the oil-rich Middle East.

A slightly weaker dollar and concerns about a storm in the Gulf of Mexico also contributed to higher prices. By midday in Europe, light, sweet crude for August delivery was up US$1.67 to US$130.55 a barrel in electronic trading on the New York Mercantile Exchange.

Last week, Nymex crude fell more than US$18 from a trading record of US$147.27 hit on July 11. The contract settled at US$128.88 on Friday, down 41 cents.

In London, September Brent crude rose US$1.67 to US$131.86 a barrel on the ICE Futures exchange. Talks on Saturday ended with Iran stonewalling Washington and five other world powers on their call to freeze uranium enrichment. In response, the six gave Iran two weeks to respond to their demand, setting the stage for a new round of U.N. sanctions.

The U.S. sent Undersecretary of State William Burns to the talks in hopes the first-time American presence would encourage Tehran into making concessions. But the talks' lack of progress may lead to "further isolation" for Iran, State Department spokesman Sean McCormack said Saturday.

Iran state radio on Sunday quoted President Mahmoud Ahmadinejad as saying the talks were "a step ahead." "The talks didn't resolve the problem of Iran's nuclear program, and that has been a factor in prices ticking higher today," said David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney. "Part of the reason prices had fallen recently was on the expectation a deal could be made there."

The U.S. dollar fell slightly against the euro and the Japanese yen on Monday, another cause for investors to buy oil futures. The euro rose to US$1.5884 from the US$1.5843 it bought in New York late Friday, while the dollar fell to 106.59 Japanese yen from 106.89 yen on Friday.

Buying oil and other commodities gives investors a hedge against inflation and a weakening dollar. When the dollar gains ground, however, it usually helps push down oil prices. Prices also rose Monday on concerns that Tropical Storm Dolly may disrupt oil operations in the Gulf of Mexico, Moore said.

The storm drenched Mexico's Yucatan Peninsula and was expected to reach the Gulf of Mexico Monday afternoon packing sustained winds near 50 mph."Over the next 12 to 18 months we expect prices to fall on demand side adjustments to the high prices," Moore said. "But there are certainly chances for short-term spikes with issues such as Iran or storms."

In other Nymex trade, heating oil futures rose 4.17 cents to US$3.7332 a gallon (3.8 liters) while gasoline prices rose 3.71 cents to US$3.2080 a gallon. Natural gas futures rose 16.7 cents to US$10.737 per 1,000 cubic feet.

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