US & World Daily Markets Financial Briefing 13-03-2007

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Stocks Fall On Subprime Woes

NEW YORK - Stocks fell sharply in early trading Tuesday as investors grew unnerved that troubles for subprime lenders and a weaker-than-expected reading on retail sales signaled trouble for the economy.
   
Investors fled the already weakened stocks of subprime mortgage lenders as the sector's troubles spread. The New York Stock Exchange said shortly before the opening bell it would immediately suspend trading in shares of New Century Financial Corp. and move to delist the stock. The company, which saw trading in its shares halted throughout Monday's session, on Tuesday disclosed more details on the raft of financial hurdles it faces.
   
Word from Accredited Home Lenders Holding Co. that it is grappling with a liquidity shortfall confirmed concerns that the sector's troubles are widespread. Without sufficient liquidity, the company cannot retain or sell the loans it originates.
   
The difficulty of subprime mortgage lenders, who make loans to those with poor credit, overshadowed a profit report from Goldman Sachs Group Inc. that came in well above Wall Street's forecast.
   
In the first hour of trading, the Dow Jones industrial average fell 62.89, or 0.51 percent, to 12,255.73.
   
Broader stock indicators also fell. The Standard & Poor's 500 index fell 7.07, or 0.50 percent, to 1,399.53, and the Nasdaq composite index slid 12.16, or 0.51 percent, to 2,390.13. The Russell 2000 index of smaller companies fell 6.17, or 0.78 percent, to 782.83.

Bonds rose amid the subprime lender concerns and a weak retail reading. The yield on the benchmark 10-year Treasury note fell to 4.51 percent from 4.56 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.
   
In afternoon trading, Britain's FTSE 100 fell 0.71 percent, Germany's DAX index fell 0.88 percent, and France's CAC-40 fell 0.78 percent.
   
The economic data didn't offer support for bullish investors. The Commerce Department said sales at U.S. retailers rose 0.1 percent in February as wintry weather in much of the country kept shoppers away from stores. Investors had expected an increase of 0.3 percent from January.'
   
Stocks in focus

New Century said Tuesday that regulators subpoenaed documents under inquiries into accounting errors that inflated the value of the company's loan portfolio. The Irvine, Calif., company said the Securities and Exchange Commission and the U.S. Attorney's Office for the Central District of California began the investigations two weeks ago.
   
Accredited Home shares plunged $5.50, or 48 percent, to $6 after it disclosed its liquidity troubles.
   
Investors trying to determine the breadth of the problems in the subprime sector pounced on comments from Goldman Sachs. The investment bank said strength remained in mortgages and credit products during the quarter and that while the subprime sector showed "significant weakness," the broader credit environment "remained strong."

Goldman Sachs rose $1.91 to $204.51 after posting a best-ever first-quarter profit amid strong revenue from trading and investment banking.
   
In other corporate news, Jo-Ann Stores Inc. jumped $3.29, or 14.4 percent, to $26.17 after the nation's largest fabric retailer issued a stronger-than-expected profit forecast.

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Euro back above 1.32 usd after strong ZEW, soft US retail sales

LONDON - The euro pushed back above 1.32 usd for the first time since March 3 after a key German survey showed the single currency zone's largest economy in relatively rude health, while official US retail sales data came in below market expectations.
   
The ZEW research institute said its economic expectations index rose to an eight month high of +5.8 points in March from +2.9 in February. Analysts polled by AFX News were expecting a far more modest increase to +3.1 points.
   
"The rise in expectations was stronger than expected and the fourth consecutive monthly increase," said Stuart Bennett, analyst at Calyon. "Hence the market reaction has seen the euro spike higher against the dollar," he added.
   
Analysts said the survey is likely to cement expectations that the European Central Bank will raise its key refi rate by another quarter point to 4.00 pct sometime this summer.
   
Meanwhile, the dollar was further undermined against the single currency by US retail sales data, which raised fears that a stalling housing market is beginning to spill over into consumption indicators.
   
Government data showed that US retail sales rose 0.1 pct in February, lower than the 0.3 pct gain economists had expected. Sales in January remained unchanged from the previous month.
   
The February weakness was tempered by gains in both automobile and gasoline sales. Retail sales excluding automobiles fell 0.1 pct, sharply lower than the 0.3 pct gain economists had expected and the lowest decline since October.
   
Elsewhere, the yen remained well-supported by the continued unwinding of so-called carry trades as investors looked to further reduce risk amid concerns that the US housing market will drag the world's largest economy down.
   
Carry trades, where money is borrowed in countries with low interest rates like Japan to be invested in higher-yielding economies, have been pared back in the last couple of weeks, because of the uncertainties on the world's stock markets. The main beneficiary of this unwind has been the yen, which earlier this week surged to three-month highs against the dollar.

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Top Stories in Europe at 11.05 GMT

Paris - Gaz de France said net profit for 2006 was 2.298 bln eur, up 21 pct from a figure of 1.782 bln a year earlier and driven by sharp growth in gross operating earnings in exploration and production activities.
 
Gross operating profit for the year was 5.149 bln eur, up 21 pct from 4.248 bln eur in 2005, while exploration and production activities saw a hefty 75 pct jump in gross profit to 1.270 bln eur.

Euronext NV, the financial markets operator scheduled to merge with NYSE Group Inc, predicted higher revenues and operating profit again in 2007 as it announced a 50.8 pct jump in net profit to a new peak of 361.8 mln eur last year from 240.0 mln in 2005.
 
EBITA climbed 28.4 pct to 409.0 mln eur in 2006 from the previous record of 318.5 mln the previous year, lifted by the "ongoing positive market conditions for nearly every business unit," the company said.

Zurich - Swisscom AG reported an in-line full year net profit of 1.599 bln sfr, down 20.9 pct year-on-year, citing the impact of provisions for regulatory issues, IT outsourcing costs as well as massive reduction in mobile termination charges. Analysts had forecast net profit to drop to 1.542-1.651 bln sfr, or 1.600 bln on average.

Swiss Re said it is restructuring its EU business, placing the bulk of its operations in the region under the auspices of three new Luxembourg-based legal entities.
 
The changes, which are expected to be put in place between Jan 2008 and mid-2009, come in response to pending reforms of the EU regulatory framework for the reinsurance sector.

Swiss engineering group Sulzer AG said it will seek to issue additional shares of up to 20 pct of its total share capital, to finance a possible bid for UK group Bodycote International PLC. It will propose the measure to shareholders at its upcoming AGM.

Swiss machinery maker Tornos Holding SA reported a full year net profit of 17.2 mln sfr, up from 12.8 mln a year earlier, citing strong growth in Aisa and a positive development in Europe. EBIT in the period increased to 17.6 mln sfr from 14.2 mln, resulting in an EBIT margin of 7.0 pct.

London - Akzo Nobel, the Dutch chemicals company, yesterday refused to rule out using some of the 7.5 bln stg proceeds from the sale of its medicines business to fund a bid for Imperial Chemical Industries PLC (ICI), according to a report in The Times. "We will look at all targets that make strategic sense," Hans Wijers, the chief executive, is cited as telling The Times.

Madrid - Grupo Ferrovial SA has decided against making a bid for the UK recycling and waste management company Cory Environmental, El Economista reported, without citing sources. Yesterday was the deadline to present bids starting at some 600 mln eur for Cory, the newspaper reported.

Frankfurt - The ZEW research institute said its economic expectations index for Germany rose to +5.8 points in March from +2.9 in February, well ahead of consensus. Economists polled by AFX News had expected an increase to only +3.1 points.

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Asian shares close mostly lower on caution ahead of US data release

HONG KONG - Shares across the Asia-Pacific region closed mostly lower with a lack of news to spark buying and investors cautious ahead of the release this week of US economic data.
   
Tokyo shares ended down after investors grabbed profits on the market's three-day advance, given a lack of major leads. Investors were also been less aggressive in buying shares as the end of the fiscal year approaches.
   
The blue-chip Nikkei 225 Stock Average closed 113.55 points or 0.66 pct lower at 17,178.84, off a low of 17,153.20. The TOPIX index of all first-section issues dropped 15.93 points or 0.91 pct to settle at 1,725.43, off a low of 1,724.01.
   
Ryuta Otsuka, a strategist at Toyo Securities, said investors lacked incentives to buy while they waited for new leads such as the latest US retail sales and inflation data. Investors are looking for clues from these data about the outlook for US interest rates, Otsuka said. "The end of fiscal year is the period when investors are less active in picking up shares," he noted.
   
Australian shares closed lower on broad selling, mirroring falls on Asian markets ahead of US economic data releases. Investors took to the sidelines because of lingering uncertainty about the strength of the US economy and with recent market volatility also discouraging buying.
   
The S&P/ASX 200 closed down 26.0 points or 0.44 pct at 5,865.0, off a high of 5,917.7 and a low of 5,860.9.
       
Hong Kong shares were weaker in afternoon trade as investors locked in profits after yesterday's strong gains, with the morning fall in Tokyo's Nikkei index helping drag the market down. At 3.15 pm the Hang Seng Index was down 144.55 points or 0.74 pct at 19,297.87.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on follow-through interest after recent continuous gains, with textile and auto issues gaining ground.
   
The Shanghai A-share Index was up 10.36 points or 0.33 pct to 3,115.04 and the Shenzhen A-share Index was up 8.69 points or 1.08 pct at 812.12, a new all time closing high.
   
Seoul shares closed slightly lower, with heavy institutional sell offs and futures-linked program selling weighing on broad sentiment.
   
Investors were worried that China's inflation data will likely pressure the authorities to take further measures to control liquidity, with caution also emerging ahead of tonight's release of US retail sales data, they noted.
   
China's consumer price index rose 2.7 pct year-on-year in February, compared with a 2.2 pct rise in January, the National Bureau of Statistics said.  The downturn in Tokyo shares also added to the pressure, dealers said.
   
The KOSPI closed down 5.28 points or 0.37 pct at 1,436.05, after moving between 1,433.67 and 1,442.04.

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Gold little changed as players seek direction from dollar; nickel hits high

LONDON - Gold traded sideways as investors sought fresh direction from the dollar and oil prices, both of which also stayed flat. Market participants also shied away from riskier assets, like gold, amid renewed worries about a weakening global economy.
   
"All of the markets are looking to each other for direction," said TheBullionDesk.Com analyst, James Moore. "There is a lack of clarity of vision of where to go," he added, noting "oil seems to be the one to watch."
   
At 10.13 GMT gold rose to 650 usd from 649.70 usd seen at yesterday's close.
   
Further weighing on gold prices, investors saw no need to hedge against oil-led inflationary pressures amid weak energy prices. New York oil prices were below 60 usd as warmer weather in the US softened demand and ahead of OPEC's summit on Thursday, where the cartel is expected to do little to raise prices.
   
Also dampening sentiment, leading shares in London turned lower in opening deals as talk of a UK hedge fund finding itself in financial troubles added to jitters ahead of key US retail data, dealers said.
   
Moore explained the gold market is looking to movements in global equity markets and monitoring "if the risk aversion phase is set to continue."
   
When stock markets worldwide slumped two weeks ago, gold dipped as traders pulled away from riskier assets, and liquidated their positions in a time of crisis.
   
Looking ahead, HSBC analyst James Steel said if oil continued to trade below 60 usd "gold may be weakened further."
   
In other precious metals, silver edged lower at 12.96 usd from 12.99 usd yesterday, platinum was flat at 1,206 usd against 1,203 usd and palladium was unchanged at 350 usd.

Nickel hit another fresh all time high, after the LME reported a fall in stocks, which are already at critically low levels.
   
Inventories of the metal stored in LME certified warehouses across the globe fell by 72 tonnes to 3,876 tonnes. However, fewer than 3,000 tonnes are available to the market -- less than half a day's worth of global consumption.
   
At 11.54 GMT, LME nickel for 3-month delivery was up at 44,150 usd a tonne, up from yesterday's close of 43,800 usd. Nickel hit a high of 44,750 usd earlier in the session.
   
While most base metals were trading higher, lead eased after surging by 8 pct yesterday from Friday's close on reports of further disruptions to supply in a Western Australian mine -- Invernia.
   
Lead was down at 1,873 usd against 1,915 usd at yesterday's close. "Lead has seen some profit-taking despite another stock draw and continued supply concerns," said Heath of RBC Capital Markets. LME stocks fell 650 tonnes to 30,900 tonnes, said the LME's daily report.
   
Inventories of the metal are down to just 1.3 days of annual consumption, based on a lead consumption forecast by JP Morgan.
   
In other metals, copper was flat at 6,265 usd. The market was underpinned as the market continued to draw its attention to strong Chinese demand. The Beijing-based customs office revealed yesterday that China's imports of copper and copper products in February rose 70 pct from a year earlier. Analysts are expecting this trend to continue until at least the end of March.
   
Tin fell to 13,650 usd against 13,700 usd, zinc was flat at 3,290 usd while aluminium was up at 2,755 against 2,773 usd.

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