11/7/08

FTSE 100 5406.8, -122.8 Dow 11229, -81.6

FTSE 250 8519.9, -134.7 Nasdaq 2257.85, +22.96

FTSE All Share 2732.28, -57.87 S&P 500 1253.39, +8.7

Nikkei 13039.62, -27.52 Hang Seng 22184.55, +362.77

Oil (Crude) $141.65 Gold $945.21

Base Rate 5% 10 Yr Gilt 4.87%

£/$ 1.9770 Euro/Gbp 0.7985

Markets
Wall Street closed higher on Thursday at the end of a volatile session in which investors swayed between buying stocks hit in the recent battering and worrying about a $5 spike in oil prices and fresh bank and auto sector woes. The DJIA closed 81.58 points higher at 11229.02, the S&P500 added 8.70 points to close at 1253.39 and the Nasdaq added 22.96 points to finish at 2257.85. Stocks rallied through the middle of the afternoon as investors welcomed a $15bn merger in the chemical sector and bought up technology and other shares hit hard in Wednesday's selloff. The gains dissolved as oil prices spiked more than $5 a barrel, surging over $141, on new reports that Iran is again testing missiles and that the cease fire in Nigeria has ended. But stocks erased losses and rallied heading into the close. The late session advance was sparked by reports that Intel's CEO said the company has not been hurt by the US slowdown and continued to enjoy strong global sales.

Stocks slumped Wednesday as questions about Freddie Mac and Fannie Mae's ability to raise capital added to worries about credit markets and corporate profits. Thursday brought new questions about the ability of the two mortgage lenders to stay afloat, dragging on the financial sector. Shares of the two lenders continued to fall on worries about a potential collapse. Former St Louis Fed President William Poole told Bloomberg that the companies were insolvent and may need a government bailout. The Wall Street Journal reported that Bush administration discussions of what to do should the companies fail have reportedly been amplified in recent days. Fannie Mae lost 13 percent and Freddie Mac lost 23 percent.

Lehman Brothers lost another 20 percent on ongoing concerns about its solvency after it posted a $3bn quarterly loss last month. Wachovia said it would report a quarterly loss of between $2.6bn and $2.8bn, prompting Moody's to put the bank's long terms debt rating on review for a downgrade. Elsewhere in the financial services sector, AIG and PMI Group both fell after Moody's downgraded the companies insurance financial strength ratings. Moody's also downgraded PMI's debt.

Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke told Congress that legislation is needed to modernize the nation's financial system. Automakers continued to plummet as well, with GM hitting a 54 year low, despite CEO Rick Wagoner saying bankruptcy rumours are not accurate. Wal-Mart reported stronger than expected June sales, thanks in part to the economic stimulus payments. As a result, Wal-Mart said second quarter earnings will come in ahead of forecasts. Nonetheless, the shares slipped modestly. Costco also reported better than expected June sales and Children's Place also reported sales that topped forecasts. But sales at Limited Brands fell more than expected, reflecting the still sluggish pace of spending for mail based retailers amid a consumer spending slowdown.

Dow Chemical is buying speciality chemical maker Rohm & Haas for $15.3bn plus the assumption of debt. Shares of Dow Chemical slipped 5 percent and Rohm & Haas sank 65 percent. Shares of rival DuPont gained modestly. Shares of Alcoa gained on reports that Chinese aluminium companies will cut back production. The company also reported better than expected quarterly sales earlier this week.

General Motors slumped 8.6 percent hitting a 54 year low. Ford Motor lost 9 percent.

General Electric said it will spin off its consumer and industrial businesses. The stock edged higher.

In economic news, the number of American's filing new claims for unemployment fell last week, the government reported, although the number of American's filing continuing claims rose more than expected. US light crude for August delivery gained $5.60 to close at $141.65 a barrel on NYMEX.

The national average price for a gallon of regular unleaded gas fell to $4.104 after holding steady at a record $4.108 for three days straight. In currency trading, the dollar fell versus the euro and rose against the yen. Treasury prices fell, raising the yield on the 10 year note to 3.83 percent from 3.82 percent.

COMEX gold for September delivery rose $13.40 to settle at $944.50 an ounce. The Nikkei average closed lower today, led by exporters such as Canon Inc, as investors grew cautious ahead of US bank earnings next week. Fast Retailing rose 1.7 percent after the company bucked a weak overall retail trend and posted strong quarterly earnings. The market had climbed in the afternoon on a New York Times report that the US government was considering taking over deeply troubled mortgage finance providers, with bank shares such as Mizuho Financial Group reversing direction and rising sharply. But the rally ran out of steam quickly as investors lost their initial enthusiasm over a possible government bailout of the struggling financial firms.

The New York Times reported that the US government is considering taking over top US mortgage lenders Fannie Mae and Freddie Mac and placing them into conservatorship if their problems worsen, citing people briefed about the plan. The Nikkei closed 27.52 points lower at 13039.69. Fast Retailing rose to Y10,230 after the firm said Thursday its third quarter operating profit rose 33 percent, as strong sales of seasonal items helped it recover from a slump in the previous business year. J.Front Retailing lost 4.7 percent toY550 after the company said its operating profit in the March-May quarter fell 14 percent and issued a profit warning for its business year to February 2009, hurt by weak clothing sales. Inpex Holdings gained 3.3 percent to Y1.24m after oil surged past $141 a barrel amid threats to production in Nigeria and Brazil and an additional missile test by Iran that escalated tensions with the West. UK stocks finished lower on Thursday to close in bear market territory, down 20 percent from a multi year peak a year ago, as oil and banks weighed on the index. The FTSE100 closed 122.8 points lower at 5406.8, reversing the previous sessions gains and shrugging off the Bank of England's expected decision to hold rates steady, after gaining 1.6 percent on Wednesday.

Heavyweight oil stocks suffered as crude prices remained below recent record highs despite trading up to above $147 a barrel. BP fell 2.1 percent and Royal Dutch Shell lost 2.5 percent and BG Group fell 3.7 percent.

Banks were another standout losing sector, with Barclays, HSBC, RBS and Lloyds losing 1.4-4 percent. Bradford and Bingley, however, extended its recovery into a second day, up 4.6 percent on hopes a buyer could sweep up the lender.

Thomas Cook topped FTSE100 losers, down 9.2 percent as concerns over the macroeconomic outlook continued to take its toll on travel stocks. TUI Travel lost 4.9 percent. Cadbury fell 5.7 percent after Merrill Lynch downgraded the company to "underperform" from "neutral", traders said. ITV lost 6.7 percent after UBS analysts predicted a sharp deterioration in the UK TV advertising market in September. Kingfisher fell 5.3 percent after Goldman Sachs cut its price target and added the stock to its conviction sell list. Experian rose 7.9 percent, after it posted a 1 percent rise in first quarter revenues as acquisitions helped it beat forecasts for a drop. LSE slipped 3.6 percent, paring some of its 10 percent gain on Wednesday, when it said first quarter revenue rose 8 percent to £178m.

F&C Asset Management fell more than 28 percent to 97.55 pence after Kaupthing said it had placed 95m shares in the fund at 100 pence each.

Barratt Developments rose 24 percent after the company said it would cut 1200 jobs to cope with the downturn in the housing market and would not pay a final dividend for 2007-08. Taylor Wimpey climbed 15.7 percent.

Economics
US Trade balance (May) 13.30 bst
Petroleum import prices rose an additional 7.8 percent in May, so that total import prices for goods rose 2.3 percent. With petroleum accounting for over 20 percent of imports, the May trade deficit is likely to widen further. Imports of goods are seen rising by USD4.5bn, with a small 0.2 percent rise in volumes. Exports could rise by nearly USD2bn, as a 1.3 percent increase in volumes is expected, while prices rose 0.3 percent. The trade deficit is seen widening to USD63.5bn, from USD60.9bn in April.

US Import price index (Jun 13.30 bst)

Oil prices increased further in June, rising by around 7 percent. Assuming a 0.5 percent rise for non petroleum prices, the import price index by 1.8 percent. Those would take the year on year rate up to a new high of 18.5 percent.

US University of Michigan confidence (Jul, prelim) 14.55 bst

With the Conference Board measure of consumer expectations dropping to an all time low in June, HSBC think that Michigan consumer expectations may fall again this month, from 48.9 to 46.5. However, the current conditions index could rise from 67.5 to 70.1. This would prevent overall Michigan sentiment from falling much, and a small decline to 56 is expected. In the June survey, 1 year median inflation expectations were are 5.1 percent, while the 5-10 year median was unchanged at 3.4 percent.

US Monthly budget statement (Jun) 19.00 bst

The Treasury budget typically shows a surplus in June, as quarterly payments of estimated individual and corporate income taxes are received. However, this year's surplus may be smaller than usual as over USD35bn in economic stimulus payments were processed.

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