US & World Daily Markets Financial Briefing 22-07-2008

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Stocks open lower as Wachovia, others disappoint

NEW YORK - Wall Street traded mixed Tuesday after discouraging quarterly results from Wachovia Corp. and other blue chips heightened concerns about the continuing impact of the credit crisis. A drop in oil prices lifted stocks from a sharp early loss.

The market fell at the opening after results from companies including American Express Co., Apple Inc., and Texas Instruments Inc. fell short of expectations. The reports indicated that not only are companies struggling, but so are consumers.

Wachovia, the nation's fourth-largest bank, racked up an $8.86 billion loss because of charges and reserves for bad mortgage loans. The Charlotte-based bank also cut its dividend for the second straight time, and shares plunged 10 percent.

The bank's results were especially sobering for investors who last week sent stocks soaring after better-than-estimated reports from Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Global banks and brokerages have written down some $300 billion of mortgage-backed securities and other risky investments since the crisis began last year.

However, investors were somewhat encouraged, and the major indexes regained some ground, after oil prices took another fall. after major producers such as Royal Dutch Shell said Tropical Storm Dolly would not likely disrupt operations in the Gulf of Mexico. A barrel of light sweet crude fell $3.95 to $127.11 on the New York Mercantile Exchange.

"Lower oil prices are diverting attention from earnings for the moment," said Ryan Larson, senior equity trader at Voyageur Asset Management. "There's no questions about some negative earnings reports coming out, but we're starting to think some of them might be company specific and not broader. And oil prices are alleviating some fears."

In midmorning trading, the Dow Jones industrial average rose 25.57, or 0.22 percent, to 11,492.91. The blue chip index rose 400 points last week, but ended Monday's session slightly lower. Broader indexes were down. The Standard & Poor's 500 index fell 1.65, or 0.13 percent, to 1,258.35; and the Nasdaq composite index dropped 2.89, or 0.13 percent, to 2,258.35.

In addition to earnings reports, investors also paid close attention to a speech from Philadelphia Federal Reserve President Charles Plosser. He said there could be rate hikes "sooner rather than later" even if employment and financial conditions haven't revived.

Higher rates would make some government debt less attractive, and that sent Treasury bonds sharply lower. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.07 percent from 4.04 percent late Monday.

The dollar was higher against other major currencies, while gold prices rose. Investors are starting to question whether analysts' earnings estimates might be too high. So far, the growth rate of Standard & Poor's 500 index companies reporting has fallen to negative 14.7 percent, according to Thomson Financial. Some 158 members of the S&P 500 were expected to report this week, the busiest since second-quarter earnings season began in earnest earlier this month.

Earnings reports released in the past few days showed some indications that consumers -- responsible for more than two-thirds of U.S. economic growth -- are scaling back on purchases. American Express, whose credit cards cater to more affluent customers, missed projections after setting aside more money to cover souring loans across all its portfolios. Shares plunged $4.36, or 10.7 percent, to $36.50.

Technology stocks dropped after Apple, which makes iPods and iMac computers, beat expectations but issued weak guidance for the current quarter. Shares fell $14.89, or 9 percent, to $151.33. Texas Instruments fell $4.40, or 15.4 percent, to $24.13 after it missed expectations because of a slowdown in orders.

In other earnings news, Caterpillar Inc., which makes heavy equipment, said second-quarter earnings jumped 34 percent as stronger international sales outpaced higher raw material and freight costs. Results surpassed expectations, and shares rose $1.56 to $74.79.

UPS Inc., the world's largest shipping carrier, said profit fell nearly 21 percent in the second quarter despite a 6.7 percent increase in sales. The company also lowered its outlook for the year amid the slumping U.S. economy. The stock edged up 64 cents to $60.12.

The Russell 2000 index of smaller companies rose 3.14, or 0.45 percent, to 700.77. Japan's Nikkei stock average rose 2.98 percent. In afternoon trading, Britain's FTSE 100 fell 1.72 percent, Germany's DAX index dropped 1.05 percent, and France's CAC-40 fell 0.77 percent.

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Forex - Dollar off lows as Paulson, Plosser supply fortifying words

LONDON - The dollar gained some the ground it lost early on, thanks in part to the fortifying words from U.S. Treasury Secretary Henry Paulson and Philadelphia Fed president Charles Plosser.

Paulson reiterated the strong dollar policy and made encouraging noises about the beleaguered U.S. mortgage giants Fannie Mae and Freddie Mac while Plosser hinted that interest rates in the world's biggest economy will rise further.

"Dollar is off its session lows as Treasury Secretary Paulson renews his commitment to back the normal functioning of Freddie and Fannie. Meanwhile, Philadelphia Fed president Plosser calls for higher interest rates," said Ashraf Laidi at CMC Markets.

At 14.52 GMT, the euro was trading at $1.5849 having dropped to around $1.5938 at 11:20 a.m. GMT. The news did not all go in the same direction, however. News from the corporate front was weak. Wachovia, the fourth-largest bank in the United States, announced a record quarterly loss of $8.9 billion and cut dividends. That comes on the heels of steep earnings loss by Amex.

The pound was weaker against the dollar, trading at $1.9977, down from $2.0071 while the euro was at 0.7927 pounds a touch under 0.7938 earlier.

Speaking in testimony before MPs on the Treasury Select Committee earlier, Bank of England governor Mervyn King made no comment on monetary policy. Markets will now be looking to Wednesday's release of the Monetary Policy Committee minutes from the meeting two weeks ago, when interest rates were left on hold at 5.00 percent.

Most expect that arch dove David Blanchflower was still the only member plumbing for a rate cut and attention will focus on whether the majority are more inclined towards higher rates to counteract soaring inflation, or towards lower rates because of fears that the economy could be heading for recession.

Later in the week, focus will switch to the euro zone, with key German Ifo and euro zone provisional PMI surveys due for release.

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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 - JAPAN

The Nikkei 225 Stock Average closed up 3 percent at 13,184.96 amid easing worries over the U.S. credit crisis.

Stocks rose across the board, with commodity-related issues leading the advance while banks extended their gains.

The broader Topix climbed 2.8 percent to 1,287.74.

SOUTH KOREA

The KOSPI finished down 0.1 percent at 1,561.23, as investors dumped high-tech stocks, such as Samsung Electronics and LG Electronics, on fears their earnings may decline in the second half due to a global economic slowdown.

Cautious earnings guidance from Apple and Texas Instruments also dampened investor interest in the technology sector.

AUSTRALIA

The benchmark S&P/ASX 200 index fell 6.2 points to 5,005.6, with financials such as National Australia Bank Ltd. weighed down by nagging credit concerns, offsetting gains in resource firms on firmer commodity prices.

The All Ordinaries index closed up 0.01 percent at 5,075.9.

CHINA

The benchmark Shanghai Composite Index closed down 0.53 percent at 2,846.12 as investors took profits after two days of gains by the key index, with oil refiners and airlines leading the decline in Shanghai after a rebound in crude prices.

The Shanghai A-share Index was down 0.53 percent at 2,985.52, while the Shenzhen A-share Index rose 0.27 percent to 896.88.

The Shanghai B-share Index fell 0.53 percent to 215.08, while the Shenzhen B-share Index lost 1.18 percent to 459.34.

TAIWAN

The weighted index closed down 0.28 percent at 7,065.65, following a rise in oil prices overnight and disappointing earnings news from U.S. technology firms.

Textile and transport firms were hit by profit-taking after sharp gains Monday, but financials held up well due to share buyback news.

PHILIPPINES

Manila's 30-company composite index edged down 0.3 percent to 2,409.98 as crude oil traded back above $130 a barrel, keeping investors jittery about inflation and its impact on consumers and businesses.

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Metals - Copper up on weak dollar

LONDON - Copper rose on dollar weakness and as some supply concerns sparked buying. The dollar failed to claw back any of last night's losses as investors continued to fret about the U.S. financial sector.

The dollar fell as oil prices rebounded and American Express posted disappointing earnings, weighing on equity markets despite better than expected results from Bank of America. Earnings reports published so far by the major U.S. banks have mainly surprised on the upside, but analysts said investors remain wary that several major institutions are set to report major losses.

"Prices over the coming months are likely to be mixed, with oil and growth concerns and the dollar dictating sentiment," said Mark Pervan, ANZ commodity analyst.

He added, however, that reports Peru copper workers may delay a planned strike action should trigger lower prices, as should confirmation of soft preliminary China copper imports data released a couple of weeks ago.

Supporting copper for now, are tight stocks across the globe. According to the LME, global stocks in its warehouses stand at just below 130,000 tonnes, some 80,000 tonnes below the level seen at the beginning of the year.

At 10:40 a.m., three-month copper on the LME jumped to $8,190 per tonne from $8,120 at the close Monday. Aluminium was higher at $3,060.75 per tonne, basis three months, from $3,045.

Nickel rose to $20,675 per tonne, basis three months, from $20,550, zinc was up at $1,876 per tonne from $1,860, tin eased to $23,500 per tonne from $23,550 and lead climbed to $2,130 per tonne from $2,050 at the close Monday.

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