1/08/07

The Dow Jones lost 146.3 points to close at 13,212, the S&P 500 fell 18.65 points to end at 1,455.25. The Nasdaq dropped 37.01 points to finish at 2,546.27.

It was American Home Mortgage Investment Corp that sent the market lower after releasing a statement at 1:30pm EST saying it could no longer fund loans and may have to liquidate some of its assets. The impact of the news was magnified due to the relatively high quality of home loans that American Home held - the company does not really touch on the subprime sector. Shares in the company plummeted 90% to close at $1.04.

Apple Inc slumped after analysts speculated that the company may be cutting production of its iPhone or iPod media player. Shares in the company dropped 6.8% to $131.76 - an Apple spokeswoman was not immediately available for comment.

The Dow Jones/News Corp saga continued with the Bancroft family members, who own a 32% stake in Dow Jones, have now agreed to back News Corp's $5 billion offer. News Corp edged 0.8% lower to $22.66 while Dow Jones jumped 11% higher to $57.38.

US light crude oil September delivery jumped $1.38 to close at $78.21 a barrel - an all time record close. COMEX gold for December delivery added $2.70 to $679.30 an ounce.

Treasury prices unsurprisingly rose, lowering the yield on the 10 year note to 4.74% from 4.8%.

The Nikkei loses 377.9 points to close at 16,871 this morning. Mitsubishi UFJ Financial Group and Mizuho Financial Group reported quarterly profits that plunged - sending a measure tracking banks 4.7% lower. Chip related companies including Kyocera Corp declined after the speculation that Apple Inc will cut production of its iPhone or iPod.

The Hang Seng is down 818.1 points at 22,366.8 this morning. Other than the obvious impact of the US, China Life Insurance falls as some investors take advantage of recent gains. Cathay Pacific Airways Ltd led airlines lower on speculation jet fuel costs will increase after crude oil prices closed at a record.

The London market staged a rally yesterday as investors shrugged off economic concerns and picked up bargains following the FTSE 100's recent heavy losses. Strong results from Lloyds TSB and Taylor Wimpey boosted the banking and housing sectors, while a firm opening in the US added to positive sentiment. The FTSE 100 closed 154 points higher at 6360.1, an increase of more than 2% and its highest single day gain since March 2003 - following a strong showing across the board, with just one stock ending the day in negative territory.

Positive results from Lloyds TSB, which included a dividend increase for the first time in five years after its half-year profits rose by 12%, helped the firm leap 23.5p to 558p. The news lifted Royal Bank of Scotland, ahead 22.5p to 592.5p, while HBOS also cheered - up 33p to 969.5p.

House builders also made progress after forecast-beating results from Taylor Wimpey, despite the firm's prediction of a more subdued housing market in the second half of this year. Persimmon was one of the beneficiaries with an increase of 60p to 1161p, while Barratt Developments added 33p to 935p. Taylor Wimpey improved 10%, or 30.25p, to 330.25p in the FTSE 250 Index after also unveiling plans for a £750m share buyback.

Back in the top flight, pharma giant GlaxoSmithKline made gains after US government health advisers recommended keeping diabetes drug Avandia on the market. That was a relief for investors, as Glaxo shares gained 40p to 1255p, an improvement of nearly 4%. Consumer products giant Unilever recouped losses from earlier in the session after a downgrade by Merrill Lynch that foresaw cost pressures for the company and takeover talk fading. The stock ended the day up 6p at 1550p.

However, the update saw rival Reckitt Benckiser drop 10p to 2652p, making it the only stock to close in the red. Miners added weight to the benchmark index, sent up by an increase in metal prices. Anglo American led the pack with a rise of more than 5%, or 144p, to 2904, Vedanta Resources lifted 88p to 1789p and BHP Billiton climbed 70p to 1473p.

Economics
UK PMI Manufacturing (Jul) 0930 BST

The CBI survey suggested manufacturers' business sentiment fell back in July so we expect this index to also retreat although remain consistent with expansion. Given the current inflation concerns the pricing component of this survey is probably the most important at this juncture. The CBI survey showed pricing expectations eased back in June and analysts expect this survey to also, but remain high in historical context.

US ADP Employment (Jul) 1315 BST/0815 EDT

Analysts expect ADP private employment to rise by 85,000. Forecasts are around 110,000 for total nonfarm payrolls assuming a 25,000 increase in government jobs.

US Pending Homes Sales (Jun) 1500 BST/1000 EDT

Pending home sales have slowed sharply, falling nearly 115 over the past three months. Analysts look for housing demand to continue slowing with an additional decline of 0.5% in June.

US ISM Manufacturing (Jul) 1500 BST/1000 EDT

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