US & World Daily Markets Financial Briefing 29-10-2008

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US STOCKS-Market slips on profit-taking, oil's climb

NEW YORK - U.S. stocks slipped on Wednesday as profit-taking and concerns about rising oil prices offset optimism about a possible interest-rate cut and signs of a thaw in credit markets.

A day after after Wall Street roared to its second-best advance ever, investors paused to gauge if the market would continue to bounce back from 5-year lows.

Shares of airlines and consumer-oriented companies, including retailers, were among the top drags as investors fretted about higher oil prices on spending and business costs. Home Depot shares fell nearly 2 percent, while rival home improvement chain Lowe's Companies Inc shed 1.3 percent.

Even after Tuesday's surge on Wall Street, there remain worries about the severity of a global recession. Consumer products company Procter & Gamble warned volatile markets would weigh on annual results, sending its stock down 3 percent.

"The stock market is just fully reflecting the economic realities that are enveloping us," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "There's just so much psychological baggage built into this market. Some people see a small pop and just want to get out."

The Dow Jones industrial average fell 3.75 points, or 0.04 percent, to 9,061.37. The Standard & Poor's 500 Index shed 5.75 points, or 0.61 percent, to 934.76. The Nasdaq Composite Index slipped 10.78 points, or 0.65 percent, to 1,638.69.

The Federal Reserve is widely expected to cut its benchmark fed funds rate by at least 50 basis points from the current 1.5 percent. Its decision is expected around 2:15 p.m. (1815 GMT).

"These rate cuts could pave the way for higher commodity prices, and that's something I want to focus in on next," said Ablin in a reference to the possible inflationary effect of a rate cut.

The costs for banks to borrow dollars from each other over three months fell for a 14th straight day on Wednesday, suggesting that confidence was returning in the credit markets.

Healthcare company Johnson & Johnson was down 3.7 percent at $61.80 on the New York Stock Exchange, making the stock a top drag on the Dow after the stock was cut by J.P. Morgan Securities.

Home Depot shares fell to $21.14, while Lowe's fell to $19.32. Shares of discounter Wal-Mart Stores Inc, among Tuesday's stellar performers, dropped 1.4 percent to $54.36.

Procter & Gamble shares declined to $61.25. Among airlines, Delta shares shed nearly 2 percent to $8.07. On Nasdaq, chip maker Qualcomm was a top drag, off 3.8 percent at $37.44.

But shares of Boeing climbed nearly 4 percent to $50.86, making the stock a top boost to the Dow after government data showed surging demand for aircraft drove an unexpected increase in September orders for new orders for long-lasting manufactured goods.

Boeing has also been gaining on hopes a strike by machinists will end soon. U.S. crude for December rose 5 percent to $66.23 a barrel on expectations that coordinated rate cuts would boost the global economy, increasing demand for energy.

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FOREX-Dlr falls broadly on firmer stocks; Fed in sight

LONDON -  The dollar fell against other major currencies on Wednesday, as markets expected the U.S. Federal Reserve to deliver a substantial interest rate cut later in the day and as share prices gained in
Europe and Asia.
   
The yen also lost ground on talk that Japan's central bank may jump on the monetary easing bandwagon even though it already has rock-bottom interest rates. Higher-yielding currencies, such as the euro and sterling, were bolstered as risk aversion eased somewhat. However, sentiment remained fragile and analysts questioned whether such gains would be sustainable.
   
"The dollar has proved to be the weakest currency today on rate cut expectations and a bounce in equity markets," said Adarsh Sinha, currency strategist at Barclays Capital in London. "The dollar and yen have been negatively correlated with rises in equities. But there is a lot of uncertainty and it's not obvious the situation will last."
   
At 1156 GMT, the euro was up half a percent against the dollar at $1.2790. Against the yen, the euro was down 1 percent at 124.34 yen, but still well above recent six-year lows below 114 yen.
   
The dollar was down 1.7 percent against the yen at 97.02 yen, having gained more than 6 percent on Tuesday. The Fed will announce its rate decision at 1815 GMT after concluding its two-day rate-setting Federal Open Market Committee meeting on Wednesday.
   
Markets expect the Fed to cut the benchmark federal funds rate by at least 50 basis points, which would bring it down to one percent, with some traders suggesting it might even cut rates by 75 basis point.
   
Meanwhile, speculation grew that the Bank of Japan could cut interest rates on Friday. That helped the Nikkei index of Japanese shares close 7.7 percent higher.
   
The yen briefly dipped against the dollar after China said it was cutting interest rates, having eased borrowing costs earlier the month in coordination with other major central banks.
   
China's central bank cut banks' benchmark lending and deposit rates by 0.27 percentage point on Wednesday. The PBOC gave no reason for the easing, which takes effect on Thursday .
   
"There's building evidence in China that the slowdown we're seeing everywhere else is taking place there as well," said Derek Halpenny, European head of FX research at BTM-UFJ in London. "The last time China cut rates was on the day of the coordinated action -- that's what the market will speculate on but we're not in the extreme circumstances we were in when they made the first coordinated move."
   
Markets expect the European Central Bank to cut its key interest rates by another half point at its November meeting and the Bank of England is also expected to slash rates next week.

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Banks boost European shares; eyes on Fed rates

LONDON -  European shares were up nearly 5 percent at midday on Wednesday, led higher by banks ahead of the U.S. Federal Reserve's interest rate decision later in the day and after China unveiled its own rate cut.
   
By 1157 GMT, the pan-European FTSEurofirst 300 index was 5.1 percent higher at 877.3 points, having touched 881.5 earlier, rising for a second consecutive day after five days of losses. "I think everybody now is looking for the central banks to take a knife to interest rates and really just cut them very aggressively from here onwards," said Mike Lenhoff, chief market strategist at Brewin Dolphin.
   
The index has shed 42 percent so far this year, amid turmoil across the financial markets that has seen banks broken up or nationalised and left investors fretting about the onset of global recession. "I'm not sure that everyone is looking at this as a turn in the market just yet, but it certainly provides a bit of healthy respite from what has been a fairly dreary, monotonous and tedious bear market," said Lenhoff.
   
Wall Street marked its second best day ever on Tuesday, with major U.S. stock indexes surging around 10 percent. The Federal Reserve is set to announce its rate verdict at 1815 GMT. In a Reuters survey, primary dealers expected the Fed funds rate will be cut to 1 percent from 1.5 percent.
  
Japan may also cut borrowing costs this week, a source with knowledge of the matter said. Tokyo's Nikkei average soared 7.7 percent. The European banks were the outstanding gainers, with Santander up 9.8 percent, UBS up 11.3 percent, and Standard Chartered adding 16.7 percent.
   
BBVA rose more than 8 percent after saying nine-month recurrent net profit rose 9.1 pct to 4.321 billion euros from 3.962 billion, compared with 4.18 billion forecast in Reuters poll.
  
Oil and gas producers boosted the market, with BP and Royal Dutch Shell gaining 5.6 and 6.5 percent, respectively, and Total up 8.8 percent as U.S. crude oil rallied 5.6 percent.
   
Volkswagen, Europe's biggest faller, dived 36.4 percent after Porsche took steps to ease a squeeze on short-sellers that had more than quadrupled the stock in days and briefly made it the world's most valuable company. Deutsche Boerse meanwhile said it would cut the weighting of shares in the blue-chip German DAX index.
   
Porsche stock leapt 38.9 percent.
   
Analysts said they expected the Fed to cut rates by half a percentage point. Fed fund futures showed a 58 percent probability of rates coming down to 1 percent and a 42 percent probability of a cut to 0.75 percent.
This is likely to be followed by cuts in Japan, the euro zone and Britain by the end of next week.
  
Around Europe, Britain's FTSE 100 added 4.9 percent, Germany's DAX was flat, and France's CAC rose 6.6 percent. Topping the FTSE 100, shares in Old Mutual soared 26.9 percent, bouncing back after falling on Tuesday on U.S. economic concerns.
   
Bayer added 3.5 percent after it stood by its full-year guidance on Wednesday, defying a slump at its plastics and foams unit and citing strong demand for its prescription drugs and its farming pesticides.
   
EADS rose 8.6 percent after Louis Gallois, chief executive of the French European aerospace group, said on Tuesday its Airbus aircraft unit had not seen a wave of cancellations due to the global financial crisis.
  
On the downside, Norwegian telecoms group Telenor sank 17.4 percent after reporting a bigger fall than expected in third-quarter core earnings and saying it would buy 60 percent of Indian operator Unitech Wireless for $1.07 billion. Telenor also maintained its full-year outlook..

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Asia Market Summary

Japan's Nikkei average climbed 7.7 percent in volatile trade on Wednesday, with exporters such as Honda Motor climbing after the yen weakened on expectations that the Bank of Japan will cut interest rates later this week.

Trade was active but choppy, with the benchmark Nikkei climbing, then paring gains before ending at the day's high.

Japan's central bank is considering cutting rates from an already low 0.5 percent at Friday's policy meeting, a source told Reuters.

If it did pull the trigger, it would join an expected round of rate cuts in coming days as central banks grapple with a darkening global economic outlook.

"The reports about the BOJ's rate cut helped trigger short covering, but that alone is not sufficient reason for investors to keep buying stocks," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.

"Even if the BOJ did cut rates, that wouldn't improve economic fundamentals, leaving the market still at the mercy of supply and demand, and currency moves." Some market analysts said it had simply been time for a rebound, given how far the Nikkei had fallen.

The Nikkei's slide to a 26-year low drove its price-to-book ratio below 1 to 0.87 as of Monday, a rare development that means the value of all companies in the index is below the total value of the assets they hold. The ratio had never been below 1 until this month, according to Thomson Reuters data going back to 1991.

The benchmark Nikkei .N225 added 589.98 points to finish at 8,211.90. It has gained 14.6 percent over the past two days. The broader Topix .TOPX jumped 5.9 percent to 830.32.

The Korea Composite Stock Price Index closed down 3.02 percent at 968.97 points, off the peak of 1,078.33 points and moving in a 158-point range between the session's highs and lows, its biggest ever single daily swing.

The Hang Seng index closed up 105.78 points or 0.84 pct at 12,702.07, off a low of 12,333.94 and high of 13,307.42.
   
Turnover was 59.23 bln hkd.

Australian shares are set to rise sharply on Wednesday, breaking a five-session losing streak, after Wall Street shares surged as part of a worldwide equities bounce.
  
December share price index futures rose 242 points in after-hours trade to 4,044 -- a 249.4-point premium to the underlying index, which eased 0.4 percent on Tuesday to a fresh four-year closing low.
   
St. George Bank, which has agreed a takeover by Westpac Banking Corp, releases its full-year results, while drinks group Foster's holds its annual meeting.
   
Rallying metals prices could give mining stocks a lift, with the Australian markets top-weighted stock BHP Billiton projected to rise 4.4 percent based on its New York close.
   
New Zealand benchmark NZ50 index jumped 3.4 percent to 2,778.2 in early trade.
    
The benchmark index of the Bombay Stock Exchange (BSE), the Sensex, closed 36.43 points or 0.4 percent higher at 9,044.51. The S&P CNX Nifty of the National Stock Exchange ended 0.46 percent higher at 2,697.05. The November series futures contracts expire today.

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Copper leads base metal bounce; Fed verdict eyed

LONDON -  A bounce in copper took other base metals higher on Wednesday, buoyed by rising global equity markets as investors eagerly awaited an expected interest rate cut from the U.S. Federal Reserve's later in the session.
   
By 1125 GMT, copper for three month delivery on the London Metal Exchange rose to $4,280 from $4,130 at the close on Tuesday and compared with a session high at $4,325.
   
Prices of the metal used in power and construction have however, fallen by more than 50 percent since a record high of $8,940 in July. "I'm not sure there is anything overly fundamental out there in terms of improved demand," said Andrew Keen, an analyst at Sanford C. Bernstein Research. "What you're seeing is a bit of a bounce off the bottom."
   
"The metals complex and the equities are mostly trading on a global macro trade. Any incremental reasons for a bit of a relief rally are probably going to help both," he added.

Metal prices were underpinned by China's central bank, which cut banks' benchmark lending and deposit rates by 0.27 percentage point, the third cut in six weeks. "It was expected so should be factored into the market," said Robin Bhar, a metals analyst at Calyon in London.
   
"There was clear evidence that growth in China was slowing both in data and officials saying that ... we'll see more moves to stimulate growth over the next six months or so - everywhere but specifically in China."
   
The United States is expected to cut interest rates by at least half a point to 1 percent on Wednesday, a measure Japan, the European Central Bank and Britain are forecast to follow by the end of next week to bolster economies facing recession.
  
In economic data, China's implied copper consumption rose 5.3 percent in September from the previous month, Reuters calculations using Chinese customs data show, but collapsing prices mean demand is softer than it appears.
   
Aluminium hit $2,154.75 a tonne its highest in over one week and was last at $2,146 from $2,105. The metal used in transport and packaging has come under pressure in recent months, as a slowing economic climate pulled the price down from its all-time high of $3,380 in July 2008.
   
Nickel rose as much as 6.9 percent at $12,800 but was last at $12,550 from $11,970 at the close on Tuesday. Lead was at $1,515 from $1,470, while zinc rose 7 percent to $1,230 before tracking back to $1,222 from $1,150. Tin rose 3.1 percent to $15,200 but was last at $15,000 from $14,750.
   
Offering possible market direction ahead of the Fed rate decision, U.S. durable goods data for September is due at 1230 GMT, while U.S. crude stock data is due 1535 GMT.

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