US & World Daily Markets Financial Briefing 05-03-2007

The world's most trusted name in professional trader education. Click Here

Stocks Extend Decline in Early Trading

NEW YORK - Wall Street extended its slide Monday, falling on nagging concerns about mortgage defaults and as tumbling stock markets abroad again spooked investors.
   
Concerns about losses over soured loans by subprime lenders were again a factor in the selling on Wall Street. HSBC Holdings PLC, Europe's largest bank, said its 2006 earnings rose 5 percent but that it suffered $10.6 billion on losses on bad loans from its U.S. subprime mortgage operations. Subprime lending involves mortgages to customers with poor credit ratings.
   
A rising yen stoked further concern about an erosion in the yen carry trade, which refers to the process of borrowing yen to acquire assets with greater yields in other currencies. A slowdown could hurt liquidity worldwide. On Monday, the U.S. dollar fell to about 115 yen from above 120 yen less than a week ago.
   
Investors appeared to have been somewhat consoled by comments attributed to U.S. Treasury Secretary Henry Paulson by Japan's finance minister, Koji Omi. Neither Omi nor Paulson, who began a three-nation Asian tour in Tokyo on Monday, were concerned by the fluctuations in regional stock markets, Omi told reporters in Tokyo. Both men contend the market mechanism was functioning well, Omi said.
   
In the first hour of trading, the Dow Jones industrial average was down 42.86, or 0.35 percent, at 12,071.24.
   
Broader stock indicators also fell. The Standard & Poor's 500 index was off 9.00, or 0.65 percent, at 1,378.17, and the Nasdaq composite index fell 18.51, or 0.78 percent, to 2,349.49.
   
Bonds were little changed, with the yield on the benchmark 10-year Treasury note at 4.50 percent, the same as late Friday. The dollar was higher against other major currencies except for the yen, while gold prices slipped.
   
Investors will be watching for the Institute for Supply Management, which is scheduled to report its index on the services sector at 10 a.m. The market is expecting the reading on the largest slice of the economy to come in at 57.5, down slightly from 59.0 in January.
   
Also Monday, St. Louis Fed President William Poole is expected to speak on inflation and economic growth in Santiago, Chile.
   
Drops in Asian and European stocks appeared to leave U.S. investors unnerved. The Nikkei fell for the fifth straight session to close down 3.3 percent, Hong Kong's Hang Seng index fell 4 percent and the Shanghai Composite Index, which has proven volatile in recent weeks, fell 1.6 percent.
   
In afternoon trading in Europe, Britain's FTSE 100 was down 1.31 percent, Germany's DAX index was down 1.67 percent, and France's CAC-40 was down 1.31 percent.

VantagePoint's market forecasts are nearly 80% accurate.  Take a look at actual  forecasts and see the difference they can make in your trading. Click here to see two recent forecasts now.

Yen continues rise; Pound, Australian and Kiwi dollars see sharp losses

LONDON  - The yen remained strong, benefiting from the ongoing reassessment of risk in global financial markets, with the pound and the Australian and Kiwi dollars hurt most as they touch multi-month lows against the Japanese currency.
   
Investors are paring back their carry trades -- where money is borrowed in countries with low interest rates to be invested in higher-yielding economies -- in order to cut losses as the turbulence in financial markets makes these trades riskier and more costly. This has helped the yen, while higher-yielding currencies against which the yen is typically sold in carry trades have conversely been pummelled by markets.
   
"Today's activities thus far only serve to dampen hopes that last week's turmoil across the financial markets was but a fleeting reappraisal of investors' risk appetite," said Neil Mellor at Bank of New York. "In short it is starting to feel like 'crunch day'".
   
The currencies that lost the most in this trading were the pound as well as the Australian and New Zealand dollars.
   
The pound's losses were compounded by a weak services PMI, which fell to 57.4 in February from 59.2 in January, suggesting past interest rate hikes may have started to affect the economy.
   
While only a minority of analysts expects the Bank of England to hike rates this week, that probability is seeping away.
   
"All in all, this result together with the equity market turmoil reduces the likelihood of the Bank of England acting on Thursday," said Zaki Kada at Thomson IFR Markets.
  
Meanwhile, the Australian and New Zealand dollars have also remained under pressure, both down over 2.0 pct against the yen today. Typical high-yielding currencies now being sold to cut risk exposure, the New Zealand dollar is at three-month lows against the yen, while the Aussie dollar touched its weakest level against the yen since the middle of October.
   
Analysts at BNP Paribas said the Aussie dollar may have still further to fall as it is sensitive to commodity prices, which are also falling. In particular, while the Chinese economy slows, as the government recently said it will, commodity prices will continue to ease, suggesting more losses for the Aussie currency.
   
The yen also reached three-month highs against the dollar and the euro. The Swiss franc, another funding currency like the yen, reached a one-month high against the dollar in overnight trading.

Inflation picked up in September in Europe as both areas show fragile economic growth. Just as in the U.S., rising energy prices are to blame. Read free, daily market reports available only at CMS Forex and open your free demo trading account today. Click here

Top Stories in Europe at 11.05 GMT

Frankfurt - The European Central Bank is planning to lower its 2007 inflation forecast to 1.8-1.9 pct from 2.0 pct on Thursday due to lower oil prices, Financial Times Deutschland said without disclosing where it obtained the information. For 2008, the ECB is expected to slightly raise its inflation forecast of currently 1.9 pct, the report said.

Private equity behemoth Blackstone Group is the leading contender in the bid for DaimlerChrysler AG's Chrysler unit, Sueddeutsche Zeitung said, citing Detroit News. Blackstone is currently examining the faltering automaker's financial situation, the US newspaper said on Saturday, citing people familiar with the sales process.

Porsche AG said its first half pretax profit surged to 1.59 bln eur from 277.8 mln eur a year earlier, more than the preliminary 1.45 bln eur reported in January, the company said in a note to investors published in Frankfurter Allgemeine Zeitung. Net profit in the carmaker's fiscal first half to Jan 31, rose to 1.14 bln eur from 169.8 mln eur a year earlier, helped by rising sales of its own model as well as the positive impact of its 27.4 pct stake in Volkswagen AG, it said.

Paris - Accor said it has signed a memorandum of understanding to sell 72 hotels in Germany and 19 in the Netherlands to Moor Park Real Estate for 863 mln eur, including a 43 mln eur renovation programme to be paid for by the new owner. The hotels earmarked for sale are Novotel, Mercure, Ibis and Etap Hotel properties representing a total of 12,000 rooms.

Zurich - Roche Holdings AG confirmed its full-year sales and EPS outlook at its annual general meeting earlier today. Roche reiterated that it expects double-digit sales growth at both group level and for the pharmaceuticals division with a core EPS growth target in line with sales growth.

Amsterdam - ABN Amro Holdings NV has agreed to buy a 93.4 pct stake in Pakistan's Prime Bank for 172 mln eur, the Dutch bank said. ABN Amro also said it will launch a tender offer for all remaining shares of Prime Bank from minority shareholders.

Endemol NV has declined to say why its chief operating officer Tom Barnicoat resigned today, effective immediately. A spokesman said that Barnicoat and the supervisory board had come to an agreement "in an amicable way" but declined to say why Barnicoat had decided to leave.

London - Bermuda-based drinks group Bacardi, maker of the world's leading rum brand, has written to the the Swedish government to express its interest in buying Swedish vodka brand Absolut, the Financial Times reported, citing Barcardi's CEO. Sweden's centre-right government presented a bill to parliament on Friday to sell state holdings in six companies including the owner of the Absolut Vodka brand, Vin and Sprit.

Apollo Management LP confirmed it has agreed to a 1.008 bln stg takeover of Britain's biggest estate agency chain Countrywide PLC. The company said the offer values Countrywide shares at 590 pence each at a 28 pct premium to Countrywide's share price on Sept 13 2006.

Shares in HSBC Holdings PLC rose on Monday morning, bucking the wider market, after the UK banking giant said its 2006 bad debt charge was in line with its own guidance, dispelling fears of a worse than expected surge in doubtful loans. The bank said impairment losses grew 34 pct on the year to 10.573 bln usd in 2006, driven by a jump in defaults at its US mortgage lending arm.

Milan - The Italian services sector purchasing managers' index rose to a seasonally adjusted 56.2 in February from 55.4 in January, according to market sources. Economists polled by AFX News were expecting a reading of 55.8.

Get a FREE $50,000 Forex demo.  Free streaming quotes, guaranteed executions, 1% margins, and zero commissions! Click Here.

Asian close lower on Wall St; stronger yen drags Tokyo down

HONG KONG - Shares across the Asia-Pacific closed lower, as the wave of selling begun last week was fuelled by Wall Street's fall on Friday, and selling in Tokyo was exacerbated by a stronger yen.
   
Tokyo shares ended sharply lower, with the yen's continued appreciation discouraging investors.
   
The blue-chip Nikkei 225 Stock Average finished 575.68 points or 3.34 pct lower at 16,642.25 -- its lowest close since December -- off a low of 16,532.91.  The TOPIX index of all first-section issues declined 58.88 points or 3.42 pct to settle at 1,662.71, off a low of 1,656.74.
   
Australian shares closed sharply lower as global investors stepped up the unwinding of the yen carry trade, leading overseas investors to withdraw from the Australian share market to place their assets back into yen and other currencies.
   
The near one pct fall on the Dow Jones industrial index on Friday added to the negative sentiment prevalent in the market, in addition to the general sell-off in metal prices in overseas trading on Friday.
   
The S&P/ASX 200 closed down 132.4 points or 2.29 pct at the day's low of 5,653.6. The key index is now 6.46 pct below last Monday's record close of 6,044.0.
   
Hong Kong shares had slid three pct in afternoon trade after the fall on Wall Street last week was reinforced by the drop on the Tokyo bourse today. The market was also hit by HSBC's fall ahead of its 2006 results announcement, with investors concerned over the bank's weak US mortgage business. At 3.20 pm the Hang Seng Index was down 590.39 points or 3.04 pct at 18,851.62.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on renewed selling pressure, following recent weakness in overseas markets, with steel makers and financial stocks hit. The Shanghai A-share Index was down 47.36 points or 1.59 pct to 2,926.60 and the Shenzhen A-share Index was down 3.26 points or 0.43 pct at 757.39.
   
Seoul shares finished sharply lower, with the main index down more than two pct, as foreign investors aggressively cut their positions in both spots and futures.
   
The KOSPI index closed down 38.32 points or 2.71 pct at 1,376.15, marking the largest percentage decline since last June's 2.90 pct. The low for the day was 1,375.84 and the high was 1,404.34.
   
Lingering concerns over the US economy and the direction of global equity markets, coupled with investor caution ahead of the Bank of Korea's rate decision and triple witching Thursday, weighed on broad sentiment. Steep losses in regional markets, especially in Tokyo shares, added to downward pressure.
   
Taipei shares closed sharply lower as caution prevailed throughout the session amid market weakness across the region following Wall Street's slide last week.
   
The market took a turn for the worse after President Chen Shui-bian said Taiwan needs formal independence from mainland China and a new constitution, which, dealers said, sparked renewed worries over cross-strait relations.
   
The weighted index closed down 285.59 points, or 3.74 pct, at 7,344.56, after moving between 7,306.07 and 7,565.95, on turnover of 131.66 bln twd.

Trade with RCG fxtrader™, the platform offering instant access to 12 major FX trading pairs with low spreads (2 pips EURUSD, USDJPY) and global news from 3 major sources.  Trade with a registered and regulated company in business for 80 years. Smart money trades here – Get your FREE Trial Today!

Copper falls as traders shy away from risk, other metals follow suit

LONDON - Copper fell as traders shied away from investing in risky assets amid a global equity sell-off sparked by steep losses last week on the Chinese stock market.
   
Rumours last week that the Chinese authorities are set to take steps to control the booming economy have sent jitters though markets worldwide. Slower Chinese growth could ease demand for base metals, especially copper which is essential for the country's fast growing manufacturing sector.
   
At 12.39 pm, LME copper for three month delivery was down at 5,840 usd a tonne against 6,020 usd at Friday's close.
   
"Copper finally succumbed to the meltdown seen in equity, precious and energy markets, falling beneath key support at 5,950 usd per tonne in early trade this morning," said UBS analyst Robin Bhar.
   
Nickel also fell, after a rise in stocks amid the broader market sell-off did little to boost sentiment. The metal has lost nearly 6 pct since hitting a fresh all time high of 42,000 usd last Thursday.
   
Nickel stocks stored in LME warehouses rose 204 tonnes to 3,690 tonnes, said a daily LME report. Nickel was down at 39,700 usd a tonnes from 41,100 usd at Fridays close.
   
Ed Meir, an analyst at Man Financial, expects nickel could dip further as jittery traders choose to sell. "Given the fact that much of the recent equity weakness we are seeing is China-related, we are surprised that more selling has not hit nickel so far," he said. "(We) would not be surprised to see some more selling set in."
   
In other metals lead was down at 1,800 usd a tonne against 1,855 usd at the close Friday, zinc fell to 3,240 usd against 3,320 usd, aluminium was down at 2,688 usd against 2,748 usd while tin fell to 13,125 usd against 13,200 usd.

Gold falls to lowest point in more than a month

LONDON - Gold extended last week's near 6 pct slide to trade at more than one month lows as the precious metal remained under pressure from weakening global equity markets and risk averse trading activity.
   
At 10.51 am, spot gold was quoted at 638.55 usd an ounce, down from the 642.60 usd level seen in late New York trades Friday. Earlier, the precious metal fell to 637.45 usd, its lowest point since Jan 23.
   
"There's a lot of jitter and nervousness in the market ... I think the fundamentals have been left at the sidelines," said Gerry Schubert, director of precious metals trading at Fortis Bank.
   
He said while there has been evidence of good physical demand, investors are still liquidating profitable gold positions to cover possible margin calls in other markets like equities.
   
Silver was down at 12.58 usd an ounce against 12.88 usd in late New York trades Friday, platinum was down at 1,182 usd an ounce against 1,202 usd while palladium was flat at 344 usd.

Increase the odds for Forex Trading success with this free online course. Learn to build a solid Forex Trading foundation and discover proven strategies for continued success.  Access this wealth of knowledge here absolutely free.

Online Trading Academy - Learn more to earn more.