16/11/07

Stocks were mixed throughout the morning as investors mulled steady consumer inflation, stronger readings on manufacturing and the latest credit market troubles, amid a decline in oil prices. But the market began deteriorating heading into the afternoon, reflecting the recent pattern of gyrating throughout the session and then making a decisive move near the close.

Financial stocks took the brunt of the selling, giving back nearly all of the ground regained in Tuesday's big rally. The worst decliners among the banks included Citigroup, whose stock fell more than 4 percent, and JP Morgan Chase. Fannie Mae and Freddie Mac also plummeted. CE John Stumpf of Wells Fargo told a conference that the US housing slump was far from over and was the worst since the Great Depression.

American International led the  Dow's decliners with a 4.2 percent fall to $56.95 after a brokerage cut its price target on the insurers stock, citing the impact of the credit turmoil.

Among tech stocks, Research in Motion fell 6.3 percent to close at $103.01 and was the biggest drag on the Nasdaq. Apple closed 1.1 percent at $164.30.

After the bell, Starbucks Corp forecast 2008 earnings below many Wall Street estimates due to weak consumer spending, triggering a 7 percent slide to $22.42 in after hours trading. Starbucks ended the normal session at $24.10.

The CPI rose 0.3 percent in October, matching September's rise and meeting forecasts. So called core CPI, which excludes food and energy, rose 0.2 percent, also matching September and also in line with forecasts. Investors have been looking for signs that pricing pressures are remaining mild, even with lower interest rates and higher oil and gas prices threatened to drive up inflation. The weekly jobless claims report showed a surprisingly large jump in new claims last week.

The Philadelphia Fed index rose to 8.2 from 6.8 in November, topping forecasts for a dip to 6. Earlier the NY Empire State index fell to 27.4 in November from 28.8 in October, versus forecasts for a steeper drop to 18.0.

US light crude for December delivery fell 66 cents to $93.43 a barrel on NYMEX after the weekly oil inventories report showed a surprise gain in crude supplies last week.

In company news, Barclays Capital said it took $2.7bn in writedowns related to the credit market. The figure was smaller than what some analysts were calling for a week ago. Additionally the bank said that 2007 profits were running ahead of last years performance.

Additionally, The WSJ reported that UBS could take up to $7.1bn in writedowns, related to the deteriorating mortgage market.

General Electric confirmed reports that a short term bond fund it manages has suffered big losses in mortgage backed securities and that as a result, outside investors have dumped their holdings. However, the company said that the impact won't be felt in current quarter or full year earnings. GE shares lost 1 percent.

JC Penney announced third quarter earnings fell from a year ago and warned that full year profits will miss forecasts as well.

Kraft Foods said it will sell its two dozen Post cereals to Ralcorp Holdings in a stock deal worth $1.7bn, plus the assumption of debt.

Treasury prices rose, lowering the yield on the 10 year note to 4.15 percent from 4.25 percent.

In currency trading, the dollar rebounded a bit against the euro and declined versus the yen.

COMEX gold for December delivery fell $27.40 to $787.30 an ounce.

In Japan, the Nikkei average fell 241.7 points to close at 15154.6 today as Mitsubishi Estate and other property stocks declined on weak condominium sales data, while financial and exporters dropped amid credit woes. Shares of brokerage firms such as Nomura Holdings sank on news reports that a government tax committee has proposed letting temporary tax breaks on capital gains and dividend income expire. Investors meanwhile flocked to defensive stocks, namely food stocks such as Asahi Breweries, making the food subindex the only sector to advance. The dollar fell against the yen, a sign that concerns about a slowdown of the US economy is growing, and falls in Asian stocks also kept the Tokyo market in check.

The FTSE100 closed 72.5 points lower at 6,359.6 as credit fears dragged banking stocks into the red despite a flurry of mixed corporate updates. The index closed lower as data released earlier in the day showed that British retail sales fell last month for the first time since January. Among sectors in focus, lower than expected writedowns from Barclays failed to lift banks, with miners also heading lower as metal prices drifted lower. Northern Rock and RBS fell 4 percent as pressure mounted on the latter to make a statement on its subprime related exposure.

Outside the banking sector, the downturn in credit markets also took its toll. Experian warned of slowing underlying sales, sending its stock tumbling 9.5 percent to top FTSE100 losers.

In commodities, copper and zinc prices slipped as much as 5.5 percent. Miners edged lower including Anglo American, Kazakhymys and Xstrata.

On the upside, tobacco stocks supported, as traders pointed to defensive switching into the sector. BATS added 2.5 percent and Imperial Tobacco was 1.9 percent higher.

SABMiller met forecasts with a 22 percent rise in first half earnings, but said it expected trading conditions to get tougher amid rising costs for energy, grain, glass and aluminium. The shares fell 1.3 percent.

Scottish and Newcastle added 2.2 percent after Heineken and Carlsberg raised their proposed bid for the company to 750 pence a share, an offer Scottish and Newcastle rejected.

C&W added 2 percent as traders cited market talk that France Telecom may be interested in the company. C&W declined to comment.

British Land fell 4.1 percent after the company said its first half net asset value was unchanged as the ongoing property market slowdown has led to valuation mark downs in the second quarter. Liberty International and Segro also ended lower.

Euromoney Institutional Investor closed 13.5 percent lower after it posted a record 50 percent increase in full year adjusted profit before tax but warned that growth was slower in the new year.

Economics
US Net long term TIC flows (Sept) 14.00 gmt

Equity markets recovered in September suggesting some lessening of risk aversion as the Fed reduced rates in the latter part of the month. Not foreign purchases of equities and corporate bonds are seen returning to positive territory. This could take net long term flows to +USD 65bn, while total TIC flows may be lower. Assuming a further reduction in banks net dollar denominated liabilities.

US Industrial production (OcT) 14.15gmt

There was a likely downshift in manufacturing output in October, as indicated by a fall in the ISM manufacturing production index (46.9 versus 54.6) as well as a 0.4 percent drop in aggregate manufacturing worked. The detail of the hours data suggests that the likely categories for declines will include motor vehicles, electric equipment, furniture and apparel. Manufacturing IP is seen falling 0.1 percent. A small rise in utilities output might be enough to keep total industrial production flat. This should mean a drop in the capacity utilization rate to 81.9 percent, down from 82.1 percent.

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