20/09/07

Morgan Stanley reported a drop in quarterly earnings versus expectations for a rise, and a smaller than expected rise in quarterly revenue. The bank is one of many this week reporting results and investors are looking closely to see how hard the sector has been hit by the credit and mortgage market turmoil. Investors initially shrugged off Morgan Stanley's earnings, pushing the stock higher as part of a broad financial sector advance. Mortgage lenders including Countrywide Financial and Accredited Home Lenders both bounced. Countrywide's CEO made bullish comments about his company's financial outlook Tuesday night, following the Fed decision.

CarMax fell 15 percent in active trade after the used car retailer cut its 2007 earnings outlook. The forecast overshadowed the company's higher quarterly sales and earnings.

Housing starts fell to a 12 month low in August, according to a government report that also showed a big drop in building permits. But another government report was more positive, showing a surprise drop in consumer prices in August versus forecasts for a flat reading.

US light crude for October delivery rose 42 cents to settle at $81.93 a barrel on NYMEX, briefly hitting a fresh record trading high of $82.50 after a report showed a tepid rise in weekly crude oil and gas inventories.

COMEX gold for December delivery rallied $5.80 to $729.50 an ounce.

Today brings earnings reports from Bear Stearns, Goldman Sachs and Circuit City. There are also several economic reports due after the start of trading, including the leading economic indicators and the Philadelphia Fed index. Ben Bernanke is due to testify on Capitol Hill as part of a hearing on the suprime mortgage crisis. Treasury Secretary Henry Paulson is also due to testify.

The Nikkei closed 32.2 points higher today at 16413.8, with the overall market buoyed by companies such as Japan Steel Works, while semiconductor linked firms took a hit. Shares of Airful Corp and other consumer finance companies also tumbled on media reports that credit card firm Mitsubishi UFJ Nicos Co expected to post an annual net loss.

UK stocks jumped 176.7 points on Wednesday to close at 6460, as a large interest rate cut by the US Federal Reserve lifted sentiment but Northern Rock fell on speculation of a low takeover bid. Banks and commodity stocks led the FTSE100 to its biggest one day percentage rise since August 17 when the Fed cut its discount rate to calm panicky investors. UK financial stocks benefited from the rate cut, after being hit by worries about the fallout from the risky US subprime mortgage turmoil.

Standard Life climbed 0.8 percent despite the insurer saying it was considering the possibility of making a cash and shares offer for rival Resolution, which has already agreed to merge with Friends Provident. Resolution rose 4.4 percent and Friends Provident added 1.4 percent. Prudential added 6.6 percent.

But Northern Rock reversed earlier gains and shed 16 percent on market rumours of a cut price takeover bid, as stake sales from two investors reignited concerns over its future. The latest share price fall followed a 55 percent slump over Friday and Monday after funding constraints forced the Newcastle lender to ask for emergency funding from the BoE, sparking a run on deposits from savers and raising fears of a wider banking crisis. Traders cited speculation bids from HBOS and Lloyds TSB. All parties declined to comment.

With US crude prices hitting their record high at $82.51 a barrel, BP added 3 percent and Royal Dutch Shell added 2.5 percent.

Miners were also in demand with higher metal prices. Anglo American rose 8.3 percent, topping the FTSE100 gainers. Xstrata, Vedanta Resources , Kazakhmys, BHP Billiton and Antofagasta were among other top gainers in the index. Lonmin rose 5.6 percent, also boosted by market talk of bid interest from Xstrata, Xstrata declined to comment, while Lonmin was not immediately available to comment.

Economics

UK Retail sales (Aug) 09.30 bst

The retail surveys have consistently weakened in the latest reading. The retail spending is expected to be flat on the month, bringing the annual growth rate down again to 4 percent.

UK Public finances (August) 09.30 bst

Net borrowing is expected to be roughly GBP6bn in August, which would take borrowing so far this year to GBP 16.1bn, broadly similar to the GBP16bn seen at this time last year. The Chancellor estimates he will borrow GBP34bn this tax year.

UK CBI industrial trends (Sept) 11.00bst

Industrial sentiment is expected to tick down as prospects for exporting to the US and eurozone have weakened slightly, both due to slightly lower levels of activity and further gains in sterling.

US Initial jobless claims (week 15 Sept) 13.30bst

Initial jobless claims are expected to be 330,000

US Philadelphia Fed (Sept) 17.00 bst

The Philadelphia Fed was the weakest of the major manufacturing surveys last month, although recent readings from ISM manufacturing and Chicago PMI have also fallen. This months are expected to remain at 0.

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