13/02/08

Stocks surged through most of the session, with the Dow at one point up more than 210 points. But the market was unable to sustain those gains through the close, with the tech sector and commodity stocks turning lower.

Wall Street reacted favourably to news that Buffett has thrown a lifeline to the bond insurers and the delinquent homeowners might get some help from the major mortgage lenders, as it helped ease fears about the economic outlook. Berkshire Hathaway has offered to insure about $800bn in tax exempt bonds. The offer was made to the three big bond insurers, MBIA, Ambac Financial and FGIC. Buffett said one firm already rejected the offer and the other two had not responded. Regulators appear to be working on a package to bail out the insurers, and Buffett's proposal seemed to further sentiment that a big fallout in the sector can be avoided or moderated, reassuring investors.

In other news, six mortgage lenders have temporarily halted foreclosure proceeding against delinquent homeowners as part of a joint effort with the government to address the fallout from the housing market crisis. Under the news program, borrowers will be given an additional 30 days to work out new payment plans with the lenders. However, loan modifications are not automatically given and any terms reached are provisional.

Separately the Federal Reserve said it has auctioned $30bn in funds to commercial banks in the fifth in its series of auctions that have added $130bn to the banking sector. The central bank has been adding money to the financial system as a means of combating the credit crisis. The Fed has also cut interest rates five times since September, including twice at the end of January, so as to protect the economy from falling into recession amid the credit and housing market crisis.

In economic news, an afternoon report showed that the January Treasury budget rose less than expected. However, the budget deficit is more than double what it was a year ago in the four months since October, which starts the fiscal budget year.

General Motors reported better than expected quarterly results. But it also indicated that it needs to keep cutting costs by offering buyouts to 74,000 employees, its entire US hourly workforce. GM gave up early gains, turning lower.

In other markets, Treasury prices fell, raising the yield on the 10 year note to 3.66 percent from 3.61 percent.

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

US light crude oil for March delivery fell 81 cents to settle at $92.78 a barrel on NYMEX.

COMEX gold for April delivery fell $15.60 to settle at $911.10 an ounce.

The Nikkei average ended up 46.34 points today to close at 13068.30, giving up most of its earlier bets ahead of important Japanese and US economic data. Major banks such as Mitsubishi UFJ Financial Group fell, offsetting gains in exporters such as Canon Inc.

UK stocks rose on Tuesday as a Warren Buffett rescue offer for troubled bond insurers led stocks higher. The FTSE100 closed 202.3 points higher at 5910. A strong open on Wall Street buoyed UK stocks, as positive earnings news and Buffett's offer to reinsure $800bn worth of debt insured by top bond insurers lifted financial companies.

Banks accounted for 47 points of the index rise. Barclays gained 6.2 percent, HBOS added 5.8 percent, and RBS was 4.1 percent higher. British bank results are due to start today, led by Bradford and Bingley.

Commodity stocks gained as platinum prices hit record highs, and consolidation hopes swirled the sector. Lonmin added 6.3 percent, while Vedanta Resources was up 6.8 percent and Rio Tinto was 5.4 percent higher. Rio reports final earnings results today.

Oil stocks edged higher, with US crude at $92 a barrel as Venezuela repeated its threat to stop exports to the US. BP added 2.8 percent and RDSB climbed 4.5 percent.

ICAP was the top leader in the FTSE100 after mobile phone gambling specialist Probability said it had placed £1.7m in shares with IPGL, a vehicle led by Marks and Spencer, the chief executive of the interdealer broker. ICAP gained 7.2 percent.

In economic news, British consumer price inflation rose in January to its highest since June 2007, but the rise was smaller than most economists had forecast. The Bank of England will publish its quarterly inflation forecasts today.

There appears to be no let up in the weak housing market data. Further bad news is anticipated on this front, taking the balance of surveyors reporting price falls, relative to price rises, down to -62.5 percent.

UK Unemployment (Jan/Dec) 09.30 gmt

In the last major economic downturn (in the early 90s) the labor market didn't start to weaken for a further three quarters. Given that growth is only just moderating, it is likely to be some time before this begins to show up in weaker employment numbers. There is a chance that the unemployment rate actually declines in this release, but the business surveys fairly unanimously show that employment intentions are lower than they were a year ago.

UK Average earnings (Dec) 09.30 gmt

The wage numbers will start to take precedence again in the coming months, as the Committee resumes its focus on the wage rounds in order to assess whether workers are managing to restore their real purchasing power following higher food and energy prices. Wage growth is expected to remain muted and labour disputes are likely to make front page news for some time yet.

UK Bank of England quarterly Inflation Report. 10.30 gmt

It appears the market is looking for c100bp of rate cuts over the coming year. In the Inflation Report, the Bank of England is expected to pare back these expectations. It is thought the Bank of England will wish to sound hawkish over the next few months, because inflation is set to pick up strongly and the major pay settlements are underway.

US Retail sales (Jan) 13.30 gmt

January sales may show a contrast between lower auto sales (unit sales fell 6.7 percent from 16.3m to 15.2m) but surprisingly firm ex-auto sales, which could rise 0.6 percent. In particular it is thought GAFO sales (general merchandise, apparel, furniture, and other) could rise 1.1 percent after a 0.5 percent decline in December. Weekly ICSC chain store sales quietly improved in January, even as much attention was placed on slower year on year growth rates. Gasoline prices levelled off in January and should have a relatively small impact. Total retail sales are seen falling 0.3 percent.

US Business inventories (Dec) 15.00 gmt