3/12/07

Bernanke said Thursday night that the Fed remains concerned about the problems in the housing and credit markets and the threat posed to consumer spending and the economy. He said the Fed would remain "exceptionally alert and flexible" leading up to the next policy meeting on Dec 11, all of which seemed to signal to Wall Street that the Fed will cut rates again. Traders are currently betting that the central bank will cut rates by at least a quarter percentage point at the next meeting, with some banking on a half point cut.

In other news Friday, personal income and spending gains slowed in October, missing forecasts. The core PCE deflator, the reports inflation component and a measure watched by the Fed, rose 0.2 percent, in line with forecasts. A separate report, the Chicago PMI, rose to 52.9 in November, up from the previous month and topping expectations. The report tracks manufacturing activity in the Midwest. Another report showed a surprisingly large drop in construction spending in October, following a small increase in the previous month.

Dell reported higher quarterly sales and earnings that were nonetheless short of forecasts. Shares fell 12.8 percent on Friday.

Brocade Communications fell 5.8 percent on the Nasdaq after warning that first quarter earnings could miss expectations, due to the mixed corporate spending environment.

Morgan Stanley said Thursday night that Co President Zoe Cruz will leave the bank. On Friday, Motorola said that its president and chief operating officer, Greg Brown, will take over as the company's new CEO, after the current CEO steps down Jan 1. A variety of bank stocks rallied on Bernanke's speech, including JP Morgan Chase, Merrill Lynch and Citigroup.

Treasury prices cut losses by the end of the session, with the yield on the 10 year note at 3.94 percent, up from 3.93 percent.

In currency trading, the dollar gained versus the euro and the yen.

US light crude for January delivery fell $2.30 to settle at $88.71 a barrel on NYMEX.

COMEX Gold for February delivery tumbled $13.20 to settle at $789.10 an ounce, falling along with other dollar traded commodities.

The Nikkei average fell today, after the yen strengthened versus the dollar and a report showed corporate investment in the country fell for a second quarter amid concerns global economic growth is slowing. Canon Inc led a decline among exporters as a stronger domestic currency threatens to dent the value of overseas sales. Fanuc fell among industrial equipment makers.

The Nikkei fell 51.7 points to close at 15628.97, dropping for the first time in three days.

The Nikkei rose as much as 0.8 percent in the morning session on speculation US Treasury Secretary Henry Paulson will announce later today an agreement with lenders to help stem credit losses. Mitsubishi Financial Group led gains among bank stocks.

Canon dropped Y50 to Y5760. Toyota Motor Corp lost Y50 to Y6190. The company made 37 percent of its revenue in its last business year in North America. The yen strengthened to as much as 110.49 versus the dollar, up from 111.24 in NYK, on Nov 30. A stronger yen decreases the value of exporters sales when converted into local currency.

Renewed strength in banking stocks propelled the UK market upwards on Friday, with banking shares leading the climb higher. The FTSE100 closed 83.4 points higher at 6432.5, its highest close in two weeks. Shares in Barclays, RBS, HSBC, Standard Chartered and Alliance and Leicester climbed between 2% and 6.6 percent. Northern Rock ended the day up 1.1 percent at 118 pence after falling as much as 11 percent earlier in the day. Elsewhere, mining stocks were in demand with Anglo American, Vedanta Resources and Tullow Oil rising on buoyant commodity prices.

Economics
UK PMI manufacturing (Nov) 09.30gmt

The CBI industrial trends survey for November showed a rebound in sentiment, buoyed by domestic demand. This index is expected to remain at the level seen in November, which is relatively decent by UK manufacturing standards. But with costs pushing even higher the prices charged component is likely to remain high. So overall it could be seen as a hawkish release.

EMU Unemployment (Oct) 10.00 gmt

The unemployment rate is seen remaining unchanged at 7.3 percent. Current labour market indicators are still holding up, and German national labour market statistics were also encouraging. But weaker business readings (in November in services, but October in manufacturing indicators) remain a concern, and unemployment typically only reacts with a lag.

US ISM manufacturing (Nov) 15.00 gmt

October's industrial production report showed a broad based pullback in manufacturing, with declines in 15 out of 20 sectors and overall manufacturing output down 0.4 percent. This has raised the odds of a sub 50 ISM reading, and a decline to 48 is expected. The Empire Index continued to boom this month, but a large gap has persisted between the two series for much of this year. The Philadelphia Fed was more moderate as headline activity rose to 8.2 from 6.8 and new orders were relatively unchanged.

Japan monetary base (Nov) 23.50 gmt

According to the sources of Changes in Current Account Balances at the BOJ and Market Operations, the monetary base is expected to increase 0.8 percent year on year. November's banknotes in circulation are estimates to increase by 1.6 percent year on year, almost the same pace as in October.

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