15/1/08

The Dow Jones added 171.9 points to close at 12,778.1, the S&P 500 gained 15.25 points to finish at 1,416.25. The Nasdaq jumped 38.36 points to end at 2,478.3.

In a preliminary report ahead of Thursdays scheduled earnings release, IBM stated that results for the fourth quarter will be higher than expected. The company cited currency benefits as one of the main drivers of revenue growth, adding that it expects earnings of $2.80 a share, compared to analysts expectations of $2.60 a share. The stock rallied 5.4% to $102.93 and made up about 40% of the Dow's advance.

Following IBM's report investors favoured stocks with big foreign sales, in the hope that they too would profit from the weakened dollar. Caterpillar Inc gained 1.9% to $67.27, while McDonalds rose 1.2% to $54.96.

Department store operator Sears Holdings Corp reported sales that fell during the key holiday period and warned that it expects fourth quarter earnings to be weaker than expected . Shares fell more than 5% to $91.38.

Sovereign Bancorp together with M&T Bank Corp, said that turmoil in the credit, mortgage and real estate markets have hurt fourth quarter results. Shares slid 0.5% to $10.63 and 1.8% to $72.42 respectively.

Treasury prices went higher, with the yield on the 10 year note slipping to 3.78% from 3.80%.

US light crude oil for February delivery gained $1.55 to $94.24 a barrel. COMEX gold for February delivery spiked $6.10 to $903.80 an ounce.

The Nikkei dropped 138.2 points to close 13,972.6 this morning. It is the first time in two years that the Nikkei has closed below 14,000. Honda Motor Co led the decline after the yen strengthened to the highest in seven weeks, eroding the value of exporters overseas sales. Stocks also declined after Bank of Japan Governor Toshihiko Fukui said the nation's economic expansion is slowing "for the time being", reigniting concern that domestic demand is weakening as growth slows in the US.

The Hang Seng is currently 402.1 points lower at 26,066.1. HSBC Holdings Ltd slumped after The Wall Street Journal reported Citigroup Inc plans to cut its quarterly dividend. China Mobile Ltd fell for a second day after saying it ended talks to sell Apple Inc's iPhone in China.

The London stock market broke a three-day losing streak yesterday after property and retail shares enjoyed a return to favour among investors. Hammerson and department store chain Debenhams were among the top performers as the FTSE 100 finished in positive territory after three losing sessions. The benchmark index closed 13.7 points ahead at 6215.7, as US markets opened strongly after Friday's sell-off.

Among the biggest retail gainers was Debenhams - a FTSE 250 Index stock - after investors had digested reports suggesting a positive like-for-like sales report tomorrow. Shares in Debenhams, which have been rocked by a series of profit warnings, recovered some recent losses to lift almost 13%, or 8.75p to 76.5p.

In the Footsie, this cheered Home Retail Group with shares rising 8p to 281p on hopes for a decent trading update later this week. Small-cap stock Ted Baker added to the positive mood after it said sales rose 12.5% on a year earlier during the two months to December 24. Shares gained 6%, or 28p to 507p.

Back in the top flight, supermarket giant Tesco endured a more difficult session with a fall of more than 1% after analysts at Morgan Stanley said that investors should not bank on the company outperforming the FTSE 100 Index this year. Shares in the firm were at record highs two months ago but eased 6p to 420p.

Property firms moved in the opposite direction as investors looked for value after a wretched run for the sector. Hammerson's announcement that it had secured Marks & Spencer as anchor tenant for a development in Leeds fuelled the gains as its shares rose 9% or 86.5p to 1020p. Land Securities lifted 54p to 1516p, Liberty International soared 60p to 990p and British Land cheered 45.5p to 944.5p.

Among the leading fallers, pharmaceutical firm Shire was on the back foot after a broker downgrade from Merrill Lynch. Shares were down 38p to 1142p. Elsewhere, Forth Ports benefited from takeover speculation after it emerged funds controlled by Australian firm Babcock & Brown had built a 20% stake in the ports operator. Shares were 8%, or 152p, higher at 2090p.

Economics
UK RICS house price balance (Dec) 00.01 gmt

The news on the housing market is volatile, particularly with regards to prices, but overall a further increase is expected in the number of surveyors reporting price falls relative to price rises, pushing the balance down to -45 percent.

UK CPI (Dec) 09.30 gmt

CPI is expected to remain at 2.1 percent in December (2.08 percent to 2.d.p). The global culprits of unpleasant inflation number - food and petrol - are expected to be up 0.6 percent and 1.5 percent on the month respectively. A further decline in core inflation is expected to 1.3 percent. With monster gains in utility prices set to have an impact in 2008, core inflation will need to continue trending down to avoid CPI breaching 3 percent and prompting another explanatory letter from the Governor. RPI is likely to begin its descent as past rate hikes and new rate cuts start to drive down RPI inflation.

US PPI (Dec) 13.30 gmt

The gasoline PPI is seen falling 2 percent and overall energy prices are seen falling 0.5 percent after surging 11.1 percent on November. Finished food prices may rise 0.8 percent as crude and intermediate food prices have continued to increase quickly. The energy and food price movements should offset each other, so that headline PPI roses 0.2 percent. Core PPI is expected to be under control at 0.2 percent. Increased auto incentives may mean reduced prices on passenger cars and trucks this month.

US Retail sales (Dec) 13.30 gmt

December retail sales expected to disappoint. Early estimates from clothing and department stores have weakened and declines for the apparel (-1 percent) and general merchandise categories (-0.5 percent) are expected. Even typically strong areas, like electronics and health stores, may be at risk this month, although non store (including internet) sales should continue to outperform. Total retail sales are expected to be flat, assuming a 0.5 percent rise in auto sales and a small drag from lower gasoline prices. Ex-auto sales may fall 0.2 percent and ex-auto and gasoline sales could fall 0.1 percent.

US Empire manufacturing (Jan) 13.30 gmt

The Empire index has been stronger than the other manufacturing surveys in recent months, as well as for much of the past two years. Last month, the index fell to 10.3 from 27.4, but remained above breakeven level, unlike the Philadelphia Fed (-5.7) and ISM manufacturing (47.7) readings. A decline to 8 is expected for this month.

US Business inventories (Nov) 15.00 gmt

Manufacturing inventories rose 0.8 percent in November. Total business inventories are expected to have risen 0.5 percent, assuming 0.4 percent increases for both wholesale and retail stocks.

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