17/10/07

Earlier Tuesday, LM Ericsson warned that its third quarter sales, operating income and cash flow all would be lower than expected. Shares in the company tumbled 23 percent on the news.

Wells Fargo reported slightly higher earnings, despite taking a write-down totalling nearly $500m over mortgages that had lost value.

On the corporate front, shares of newspaper publisher EW Scripps surged nearly 9 percent in afternoon trade after the company said it would split into two companies, with its new firm controlling its cable TV and Internet holdings.

Bear Stearns added 2 percent following reports that China Citic Bank is bidding for a stake in the battered Wall Street bank.

In economic news, The National Association of Home Builders reported that its monthly survey of builder confidence fell to its worst reading on record during October, while the outlook for the future also remained at a record low. That report came just after Federal Reserve Chairman Ben Bernanke warned in a speech Monday night that weakness in the housing market would likely drag on growth through early next year. Treasury Secretary Henry Paulson also offered his take on the housing market Tuesday, warning that current housing crisis posed a risk to the larger economy, but did not warrant a bailout.

Treasury prices rose, lowering the yield on the 10 year note to 4.64 percent from 4.67 percent.

The dollar gained versus the euro and against the yen COMEX gold moved slightly lower after hitting a 28 year high, as prices fell 20 cents to $762 an ounce.

Today investors will be closely watching the CPI report and the housing starts report for September both released before the opening bell. The Fed Beige Book report, a reading on regional economic conditions is due later on in the session.

The following companies are due to deliver quarterly results before the opening bell, Altria, Coca-Cola, JPMorgan Chase and United Technologies.

Tokyo stocks closed lower today, with the Nikkei 225 ending below 17,000 for the first time since Oct 1, with worries over fallout from the US credit squeeze weighing on bank and brokerage stocks. The Nikkei 225 ended 182.61 points lower at 16955.31, after briefly recovering the 17000 line in the early afternoon. But the index extended its losses later, with investors spooked by news that trading in Indian stock markets had been suspended for an hour after sharp falls there.

UK stocks ended lower on Tuesday as weakness in banking stocks outweighed gains in energy shares, which were fuelled by record high oil prices. The FTSE100 closed 30.2 points lower at 6614.3. Bank stocks took nearly 17 points off the FTSE100, accounting for 56 percent of the index's decline. RBS fell 2.3 percent and Barclays lost 1.8 percent. Lloyds TSB fell 2 percent after US prosecutors said on Monday they filed civil money laundering charges against Lloyds and the Bank of Cyprus, alleging they helped launder hundreds of millions of dollars generated from a securities fraud. Lloyds said it did not believe there was any basis for the action. Northern Rock rose 3.4 percent to top the FTSE100 gainers after the Times said American investment group JC Flowers was expected to submit a formal offer for the mortgage lender in the next two to three weeks.

On the upside, energy stocks climbed as US crude prices climbed towards $88 a barrel, hitting a new record and extending a rally that has added eight dollars in a week on tight supplies, strong demand and tension in northern Iraq. BP rose 0.7 percent, while Royal Dutch Shell added 1.5 percent. BG Group added 2.1 percent, also lifted by renewed market talk of a bid involving Shell and Petrobas. Traders also cited talk of stake building in BG, with one trader citing talk that a US investment bank was involved in a stake build and an announcement on any stake purchase was likely to be made soon.

Economics
UK Bank of England minutes (Oct) 09.30 bst

At the September meeting all members of the MPC voted to leave rates unchanged. Between that meeting and the October meeting, there was the first bank run in 140 years. Some members may have felt this would have repercussions great enough to justify a lowering of the base rate. However, the BoE was under immense pressure at this point, and it is believed the MPC will have wanted to show something of a united front. So it is expected that all members will have voted to leave rates unchanged again.

UK Unemployment (Aug/Sept) 09.30 bst

For the past few months the labor market has been recovering from a weak patch earlier in the year. We are likely to see a small improvement again this month, but the questioned is whether this momentum will be maintained. The main employers over the past five years have been the finance and public sectors. With these sectors looking to cut costs, employment might be trimmed later in the year and into 2008.

UK Average earnings (Aug) 09.30 bst

Although employment improved in the latest report, wage growth remained muted. HSBC expect this to continue as demand for labor is met by migrant inflows and increased labor supply, so a tightening in the labour market doesn't lead to a pick up in wages.

US CPI (Sept) 13.30 bst

Core CPI is expected to rise 0.17 percent, with the year on year rate staying at 2.1 percent. OER is expected to rose 0.23 percent and tenant rent to rise 0.19 percent, in line with the recent trend. Apparel and auto prices should be muted or even decline, while medical care and education costs may continue to pose upside risks. Meanwhile the headline CPI is expected to rise 0.2 percent, taking the year on year rate up to 2.6 percent from 2 percent. Gasoline prices at the pump rose 0.6 percent, but this may be offset by a 0.1 percent decline in the CPI for food, as the PPI for finished foods has now dropped for four straight months.

US Housing starts (Sept) 13.30 bst

September housing starts are expected to fall to 1300k. Homebuilder optimism remains very weak. Housing starts in the midwest appeared to bottom out in February, but recent declines in building permits suggests that starts in this region will soon begin to fall again. There is also expected to be a decline in the south, while the northeast may rebound a bit.

US Federal Reserve's Beige Book 19.00 bst

This Beige Book should include inflation collected up to 8 October. Comments on real estate markets are likely to remain pessimistic. Retailer comments should be mixed, as some apparel stores may blame warm weather for sluggish sales. Most districts should report modest or moderate increases in employment, along with continued labour shortages for various categories of workers.

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