12/02/08

Stocks had slumped in the morning after AIG's regulatory filing raised bets that the insurer will have to write off more bad bets on mortgage debt. The company said that the value of its risky debt portfolio has plunged more than it initially thought, and that it is going to have to change the way it values certain complex credit vehicles. AIG plunged 11 percent, and dragged on other financial stocks throughout the session.

Honeywell and Altria both slipped on news that Dow Jones will be removing the two companies from the index starting next week. The two companies will be replaced by Bank of America and Chevron. This will be first change in the index's components in four years.

Shares of Yahoo jumped after the company rejected Microsoft's $44.6bn takeover bid as too low, raising bets that Microsoft will up the ante. Microsoft lost 1 percent.

Also on the tech front, Motorola and Nortel Networks are reportedly in talks about a deal to combine their wireless-infrastructure units, according to a Wall Street Journal report.

Treasury prices rose, lowering the yield on the 10 year note to 3.62 percent from 3.64 percent.

In currency trading, the dollar fell against the euro and the yen.

US light crude for March delivery added $1.82 to settle at $93.59 a barrel on NYMEX. Crude prices are being pressured by concerns that Venezuelan President Hugo Chavez will cut off his country's oil supply to the US after Exxon Mobil was authorised to freeze $12bn in assets belonging to Venezuela's recently nationalised oil interests.

COMEX gold for April delivery gained $4.40 to $926.70 an ounce.

The Nikkei average ended flat today, with sharp gains in high tech firm TDK Corp and oil exploration company Inpex Holdings offset by steep falls in insurance stocks. Lawson Inc rose in late trade and ended up 2 percent at Y4,050 after Japan Post said it was considering taking a stake in it. Millea Holdings and rival insurers were sold heavily after AIG disclosed potential losses in its derivatives portfolio, raising fears it would become the latest casualty of the credit crisis. Japans largest life insurer, Millea lost 5.7 percent to Y3,810. Mitsui Sumitomo Insurance fell 6.4 percent to Y1,031. Simpo Japan Insurance shed 5.4 percent to Y869. TDK Corp rose 5.6 percent to Y7,230 becoming the biggest booster of the Nikkei by volume. Another strong performer was Tokyo Electron which climbed 3.4 percent to Y6,310.

Yahoo Japan Corp rose 2 percent to Y47,550 after Yahoo Inc rejected Microsoft's takeover bid as too low, raising the possibility of a higher offer.

Inpex jumped 8.7 percent to Y1.07m after oil prices jumped nearly 2 percent to their highest level in a month during US trade.

Hamamatsu Photonics KK remained untraded due to a glut of sell orders, bid down by its daily limit Y2,900, 14.7 percent lower than Friday's close after it reported a 3.4 percent decline in operating profit for October-December.

Nippon Light Material tumbled 17.3 percent to Y143 after the company cut its annual profit and dividend forecasts on the cost of repairing substandard products, asset write downs and sluggish demand for building materials.

Daiwa House Industry was untraded with a glut of sell orders at Y1,211, down 14 percent, after the home builder slashed its net profit forecast for the year to March by nearly 40 percent on Friday to Y35bn.

The Nikkei closed 4.7 points higher at 13022

UK stocks closed lower on Monday as financials and banks weighed, credit spreads widened and inflation data heightened economic concerns. The FTSE 100 fell 76.3 points to close at 5707.7 to track losses in the US, where stocks were hit by renewed concerns over credit losses after AIG received a rebuke from auditors over credit derivative valuations.

Resolution fell 6.2 percent, touching a five month low as traders cited concerns that an extension agreed by possible suitor Pearl with the FSA could jeopardise the company's proposed takeover. Resolution said completion of the deal was being delayed by about a month, to mid March, to allow Pearl "to finalise discussions with the FSA regarding the timing of post completion distributions of capital from the Resolution life companies.

Reflecting general nervousness, European credit derivatives index spreads hit record highs as fears persisted over the state of structured credit products, at the centre of a crisis in credit markets. The tension hit bank stocks, as did price target cuts from HSBC for Barclays, Lloyds TSB, HBOS and Bradford and Bingley, which all finished down between 1.7 and 3.3 percent. Alliance and Leicester also struggling with a price target cut, was 4.5 percent lower. Traders said the stock was also down due to disappointment over Spanish bank Santander's decision last week to rule out a bid for Alliance and Leicester at the present time.

Standard Chartered fell 3 percent after it said its plan to provide liquidity to its Whistlejacket structured investment vehicle had lapsed and a receiver was appointed to manage the vehicle.

In economic news, data showed British factory gate inflations rose more than expected in January.

On the upside Glaxosmithkline added 1.3 percent, making it among the biggest percentage gainers, after UBS upgraded the stock to buy from neutral.

Compass Group rose 1.2 percent after Credit Suisse raised its price target on the company to 415 pence from 400 pence and kept its outperform rating.

Smith and Nephew climbed 1.1 percent after Dresdner raised its price target to 730 pence from 700 pence with a buy rating.

Kazakhmys and Antofagasta gained around 0.7 percent to buck the weaker trend among miners, boosted by a Credit Suisse note that said prices of copper were set to soar.

Unfavourable base effect and increases in utility prices, which start to be phased in from January, are expected to push CPI up to 2.4 percent (2.39 percent to 2 d.p). Petrol prices rose 1.2 percent on the month in January. Electricity and gas prices are set to rise 15 percent in the early months of the year. The Office for National Statistics current practice is to phase the utility price increases in over the course of four months. RPI is likely to remain unchanged at 4 percent, as the gains in those components pushing up the CPI offsets the decline in mortgage interest payments following the December BoE rate cut.

US IBD/TIPP economic optimism (Feb) 15.00 gmt

Weekly confidence readings from the ABC/Washington Post survey have deteriorated in the past two weeks. HSBC think the IBS/TIPP survey could fall to 42 from 43.2, including a drop in the economic outlook component.

The details published in this e-mail are intended for information only and should not be construed as advice under the Financial Services and Markets Act 2000. Aventus Capital Management will not accept responsibility for any actions taken (or not taken) on the basis of information published in this e-mail.

Aventus Capital Management is a trading style, "Aventus" is a trade mark and the Aventus logo is a registered trade mark of Rickerbys Solicitors. Rickerbys is regulated by the Solicitors Regulation Authority. Authorised and regulated by the Financial Services Authority.