15/11/07

Stocks rose in the morning following a mild wholesale inflation reading which seemed to reassure investors that lower interest rates are not yet driving up pricing pressure. PPI rose 0.1 percent in October, short of forecasts for a rise of 0.3 percent. So called core PPI was flat, missing forecasts for a rise of 0.2 percent. A separate report showed retail sales rose 0.2 percent in the month as expected, while retail sales excluding autos rose a smaller than expected 0.2 percent. Business inventories rose 0.4 percent in September, as forecast. The economic news was generally supportive for hopes that the Federal Reserve will keep cutting interest rates. In addition, investors continued to look for signs that the worst for the financial sector could be lower. Bear Stearns announced a $1.2bn write-down and loss for the current quarter due to the credit crisis that was nonetheless smaller than some had feared. But the tone turned murkier as the session wore on and investors considered rising oil prices and more questions about the bank sector.

Airline stocks were boosted in the afternoon on reports that United Airlines parent UAL and Delta Air Lines are considering a possible merger.

In other news, Fed Chairman Ben Bernanke said that the central bank will begin providing its economic forecast four times a year, instead of the current two. He also said that when the Fed gives its forecast, it will look out three years into the futures, as opposed to the current two years. Bernanke was speaking to a conference on monetary policy at the Cato Institute. These initiatives are part of Bernanke's intent to increase the level of communication between the Federal Reserve and consumers and businesses.

E Trade Financial rallied for a second session, after plunging roughly 60 percent Monday on rumours that it would need to file for bankruptcy.

After the close, Merrill Lynch confirmed market rumours that NYSE Euro-next chief executive John Thain will take over the top spot at the bank, following Stanley O'Neals exit.

Treasury prices fell, raising the yield on the 10 year note to 4.28 percent from 4.26 percent.

In currency trading, the dollar continued to slump against the euro but inched higher against the yen.

US light crude for December delivery rose $2.92 to close at $94.09 a barrel on NYMEX.

COMEX gold for December delivery rose $16.20 to $815.20 an ounce.

The Nikkei fell 103.3 points to close at 15396.3, as TDK Corp tumbled on a UBS downgrade and investors sold Softbank Corp and other issues that posted sharp gains the previous session. But Nikko Cordial Corp jumped 7.2 percent to Y1,660 after it and Citigroup said they had amended some terms of a stock swap deal. TDK plunged 6.1 percent to Y7,530, becoming the biggest drag on the Nikkei 225 after UBS lowered its rating on the company to "sell" from "neutral" and slashed the price target to Y7,000 from Y9,500. Softbank dropped 2.8 percent to Y2,565, giving up part of its 6.7 percent gain from the previous session. Mizuho Financial Group ended down 0.7 percent, giving up earlier gains, at Y546,000. The stocks rose initially on a view that bad news concerning the company has already come out. Mizuho posted a 17 percent drop in its first half profit and cut its full year forecast after sub prime market turmoil sparked losses at its brokerage unit and increased credit costs. Other bank shares were mixed, with Mitsubishi UFJ Financial Group down 0.5 percent at Y962 while Sumitomo Mitsui Financial Group added 1.3 percent at Y802,000. Higher oil prices helped some energy stocks such as Nippon Oil which rose 4 percent to Y921.

UK stocks rose on Wednesday as higher raw material prices lifted commodity stocks and after HSBC and major US banks reassured investors on their exposure to the credit market crunch. The FTSE100 closed 69.7 points higher at 6432.1, major European indexes also ended the day higher.

Banks accounted for 27 percent of the index's rise, soothed by higher third quarter profit from HSBC. The bank added 2.8 percent after it said third quarter profits were ahead of last year's and revenue growth across the group offset a jump in its charge for bad debts in the US. RBS added 2 percent, Barclays added 1.1 percent and Standard Chartered closed 1.4 percent higher. Alliance and Leicester and Northern Rock, however fell. Friends Provident rose 5 percent on market talk of a break-up bid at 230 pence per share.

On the economic front, the BoE signalled interest rates would need to fall in the next few months as it predicted a worsening outlook for both economic growth and inflation. A poll from Merrill Lynch showed European fund managers were becoming increasingly negative about their region's economic prospects, expecting weaker growth, higher inflation and deteriorating corporate earnings.

BP added 2.8 percent, Royal Dutch Shell gained 1.4 percent and Tullow Oil rose 5.3 percent, all boosted by higher US crude prices.

Miners were the other standout gainers as prices of gold and copper rose after Lonmin posted an 11.4 percent rise in pretax profit.

Sainsbury slipped 3 percent despite a 27 percent rise in first half profit, as traders said its proposed property venture with Land Securities failed to excite investors. The joint venture follows the collapse last week of a $22bn Qatari buyout bid for the group.

Scottish and Southern Energy added 3.3 percent after it reported a 42 percent rise in first half profit and said it would continue targeting new sectors like water and emerging technologies.

Economics
UK Retail sales (Oct) 09.30 gmt

The range of retail surveys have all drifted down recently, but only back to slightly below their averages of the past 10 years, a period in which consumer spending has been particularly buoyant. HSBC's model points to annual growth of 4.1 percent. This would be a retreat on the month, which could be construed as a strong reaction to credit conditions tightening, but in HSBC's view is just some retreat after a surprisingly buoyant summer.

US CPI (Oct) 13.30 gmt

Core CPI is seen rising by 0.23 percent. The year on year rate should rise to 2.2 percent from 2.1 percent. Rental inflation may be a bit elevated as both EOR and tenant rent's are seen increasing by 0.3 percent. New auto prices could rise 0.2 percent, as manufacturers reduced their cash incentives. Education costs (HSBC est 0.3 percent) may pick up after a smaller rise last month, while medical services inflation remains high. Food prices are expected to be higher (HSBC est 0.4 percent), along with a 1.7 percent rise in the gasoline CPI, boosted by seasonal adjustment. This is likely to push headline CPI up to 0.3 percent, with the year on year rate rising 3.5 percent from 2.8 percent.

US Empire manufacturing (Nov) 13.30 gmt

Relative to other regional surveys and ISM manufacturing, the Empire index may continue to outperform, as last month's result of 28.8 was accompanied by strong new orders, shipments, and employment readings (all three were 20 or higher). The latest Beige Book noted "continued moderate expansion" for New York State manufacturers. A decline to 18 is expected for this month.

US Initial jobless claims (week Nov 10) 13.30 gmt

Last week's jobless claims fell to 317,000 from 330,000, while the 4 weeks average rose slightly to 329,750. Claims are expected to be 330,000 for this week.

US Philadelphia Fed (Nov) 17.00 gmt

Last months Philadelphia Fed survey showed the headline index moderating to 6.8, but the detail was notably softer as new orders slowed to 3 and shipments dropped to -4. The headline index is expected to fall to 5 this month, but it may be more important to see if the detail shows improvement.

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