27/11/07

Early reports from the nation's retailers were positive, but were soon overshadowed by revived worries that the financial and housing market crisis could send the economy into a recession. Those worries were sparked by the drop in bond yields and developments in the financial sector. Adding to the concerns were news that HSBC Holdings is stepping in to bail out two of its flailing funds, bets that Citigroup could announce big layoffs and analyst downgrades of government banked mortgage lenders Fannie Mae slumped on an analyst downgrade.

Early reports on Black Friday and the weekend showed a strong turnout of shoppers, although no big spenders. Investors were also tracking Cyber Monday results. But the upbeat early signs about consumer spending failed to distract Wall Street from the broader worries.

In economic news, Etrade Financial slipped in active trade after a Wall Street Journal article said that any potential buyout could be delayed by concerns about its weakened mortgage portfolio.

Citigroup lowered its near term outlook on the homebuilders, saying it is hard to see when the bottom will be made for the hard hit industry. Centec, Lennar and KB Home were among the names cited in the report.

Boeing inched higher after Wachovia upgraded the jet maker to outperform from market perform, according to Briefing.com.

Treasury prices jumped, lowering the yield on the benchmark 10 year note to 3.83 percent, the lowest level since June 2005, from 4 percent late Friday.

In currency trading, the dollar dipped versus the euro, but held above the all time low hit on Friday. The dollar fell versus the yen.

US light crude for January delivery fell 48 cents to settle at $97.70 on NYMEX, erasing earlier gains.

COMEX Gold for December delivery settled at $826.50 an ounce, down from Friday's close.

Japanese stocks ended higher after a day of volatile trade that saw the Nikkei cover a 510 points range, with moves both up and down led by banking stocks such as Mizuho Financial Group. An earlier surge of short covering that took both the Nikkei and the broader TOPIX index into positive territory in a matter of minutes was sparked by news that Citigroup has reached a deal to sell a $7.5bn stake in itself to the Abu Dhabi Investment Authority. The sale is seen providing a shot of funds to the biggest US bank, which has been one of the hardest hit by subprime mortgage defaults and resulting credit crunch. The dollar soared, rising above Y108, and stocks, led by financial firms, followed exporters also got a boost. But shares in Citigroup, which is also listed in Japan, fell 4.2 percent to Y3,450 after initially turning positive on the news. Citi shares listed on TSE had the largest trading volumes since its debut on the bourse on Nov 5, with 41,700 shares changing hands, far beyond the previous record of 16.650 shares on Nov 7.

The FTSE100 fell on Monday, ending a two day winning run as fears over credit related losses besieged banking stocks, but troubled Northern Rock rose as its future appeared more secure. The FTSE100 closed 81.6 points lower at 6180.5, well off the day's high of 6307.8 and after losing 0.5 percent last week in volatile trade.

Banks accounted for more than 21 points of the indexes losses, as investors remained cautious towards the sector on concerns of more credit related losses stemming from a crisis in risky or subprime US mortgages. HSBC fell 1.9 percent after the bank stepped in to support its two structured investment vehicles with funding of up to $35bn to prevent forced sales of assets. Goldman Sachs also said in a note HSBC would likely need a further $12bn in provisions for its US subprime mortgage and home equity loans. Elsewhere, Barclays fell 2.6 percent, RBS lost 1.9 percent and Alliance and Leicester fell 4.8 percent. Northern Rock jumped 28.2 percent after a consortium led by Virgin Group was picked as the preferred bidder to rescue the mortgage lender.

Miners were mixed, with Vedanta, Xstrata and Kazakhymys up. But Rio Tinto eased 1.6 percent despite rebuffing larger rival BHP Billiton's takeover bid worth about $124bn and media speculation China's sovereign wealth fund may put together a bid of its own. The Chinese fund denied any such move. BHP slipped 1.7 percent, while Anglo America dipped 2.7 percent.

British Airways dropped 4.6 percent. Sources familiar with the situation said a consortium led by the airline and private equity group TPG had decided to withdraw its E3.4bn takeover bid for Iberia. British Airways said it would not exercise an option to buy additional Iberia shares from Spanish lender BBVA and Logista.

Kelda gained 3 percent after the company said it had agreed to be bought by a consortium of investment firms for around £3bn.

Mitchells and Butlers was down 5.1 percent following Sunday's denial of takeover talks with Punch Taverns.

National Grid added 1.6 percent after Lehman Brothers upgraded its rating on the stock to overweight from equal weight.

Economics
US S&P/Case-Shiller home price index (Sept Q3) 14.00 GMT

The S&P/Case Shiller index has been falling in year on year terms since January. The magnitude of the decline has increased each month, reaching -4.4 percent on the year in August for the composite index of 20 metro areas. A further drop is seen to -4.8 percent, in September, given that other housing indicators have weakened across the board, including median and average existing home sale prices. Separately, the quarterly national index is seen hitting a new low of -4.2 percent year on year for Q3.

US Consumer confidence (Nov) 15.00 gmt

Consumer confidence is seen falling nearly 9 points to 87 from 95.6. Consumer expectations are seen falling 5 points to around 75, based on the decline in the latest University of Michigan survey. The bigger factor could be present situation index, where a substantial 14 points drop to 105 is expected. Compared with the Michigan current conditions index (down 20 points since January), this series has held up relatively well so far and could be due for a big fall.

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