8/11/07

Before the bell, GM reported a bigger than expected loss, which included a $39bn charge related to the writedown of tax credits for losses over the past three years, sending GM down 5 percent. GM rival Toyota Motor, which had been hit by sluggish sales in its two most important markets, Japan and the US, nevertheless reported an 11 percent increase in profits and it raised its earnings forecast for the full year.

Citigroup continued its recent fall, falling 3 percent. Morgan Stanley fell over 5 percent while Goldman Sachs lost over 3 percent and Lehman Brothers was 4 percent lower.

Washington Mutual fell over 16 percent after the company suggested that more weakness lay ahead in 2008. The company said that losses on loan defaults will continue to decline at the same rate in the first quarter of 2008 as in the current quarter.

Freddie Mac and Fannie Mae fell after New York Attorney General Andrew Cuomo issued a subpoena to both companies as part of an investigation into loans the pair purchased from banks such as Washington Mutual.

Time Warner reported improved revenue that beat forecasts as it reaffirmed its 2007 outlook. It also announced that its America Online unit was making an acquisition.

The Nasdaq agreed Wednesday to pay $652m in cash for the Philadelphia Stock Exchange, the third largest options market in the US. Nasdaq said in a statement that it expects the deal for the nation's oldest stock exchange to close in the first quarter and start to add to Nasdaq's bottom line in 2009. Nasdaq plans to maintain the Philadelphia Exchange's structure, operating the electronic options trading platform alongside the options trading floor in Philadelphia. The Philadelphia Exchange in August hired retained financial advisory services firm Greenhill and Co to outline its options, including a possible sale. The move comes as Nasdaq has been shaped by a wave of consolidation among the world's exchanges.

Following the close, Cisco sank after its solid quarter and in line guidance failed to impress investors.

In economic news, the Labor Department reported that worker productivity grew at its fastest rate in four years in the July-September quarter. At the same time, wage pressures and unit labor costs fell.

Treasury prices rallied as stocks fell, lowering the yield on the 10 year note to 4.33 percent from 4.37 percent late Tuesday.

Light sweet crude for December delivery lost 33 cents to close at $96.37 a barrel on NYMEX after setting a new trading high during the session. The run up to $100 a barrel stalled after the weekly inventory report revealed that supplies fell less than expected.

The dollar continued to slide to a new record low against the euro and also fell sharply against the yen.

Gold prices continued to rise, nearing an all time high of $850 an ounce last reached in January 1980. COMEX gold for December delivery gained $10.10 to $833.50 an ounce.

The Nikkei average fell 325.1 points to close at 15771.6 today, to a two month closing low after spreading credit fears sent Wall Street tumbling and exporters such as Honda Motor were battered by a strong yen. The widespread selling during the Nikkei's fifth consecutive losing session wiped out the average's gains since the 50 basis point US Federal Reserve interest rate cut on Sept 18.

In London, the FTSE100 was indicated 0.9 percent lower on Wednesday, as investors fretted over the outlook for corporate earnings with oil prices staying strong and the dollar sliding across the board. The LSE experienced problems with data distribution extending its closing auction to 1800 GMT. The FTSE100 was indicated to have fallen 54.8 points to close at 6420.1, ending lower for a fourth time in five consecutive sessions. Wall Street and European stocks also fell.

Banks bore the brunt of the decline, all ending lower. Alliance and Leicester fell 5.2 percent and Northern Rock shed 7.4 percent. Barclays fell 2 percent and RBS lost 3.9 percent after Bernstein cut its price targets on both banks. The sector was still heavily influenced by renewed concerns over the extent of the damage from the US subprime crisis after Citigroup said over the weekend it may write off a further $11bn of its subprime exposure. Also the Bank of England's MPC is due to issue its November interest rate verdict today, which was at the forefront of investors minds. The bank is widely expected to hold borrowing costs at 5.75 percent.

US crude oil held strong, but retreated from its earlier all time high above $98 a barrel after US data showed costly oil was taking a toll on demand in the worlds top consumer. Royal Dutch Shell gained 1 percent and BG Group added 0.5 percent. BP fell 1.5 percent after going ex-dividend. ITV, Old Mutual and Unilever also fell after going ex-dividend.

British Energy fell 7.2 percent after the company said it was still too early to say when four nuclear reactors at Hartlepool and Heysham might resume operations, following their closure for wiring problems last month.

Rolls Royce added 2.1 percent after the company said it had won an $800m order for Trent XWB engines from International Lease Finance Corp.

The minutes from the October meeting indicated that the BofE would seriously consider a pre-emptive cut at the November meeting to shore up confidence. But this reaction may have been because it was under intense pressure for its handling of Northern Rock. Since then, the Q3 GDP numbers have surprised to the upside and with commodity prices booming even Charlie Bean, a generally more dovish member of the Committee, argued they can't be complacent about inflation.

Given that the MPC has been looking for a relatively significant slowing in the pace of activity, analysts believe that it will wait for more evidence that the slowdown will be sharper than anticipated before lowering the bank rate. Analysts don't expect the first cut in interest rates to arrive before February 2008.

US Initial Jobless Claims(week 3 Nov) 1330 GMT/0830 EST

Initial jobless claims were 327,000 last week, matching the four week moving average. Continuing claims for the prior week rose to 2.59m, with the insured unemployment rate ticking higher to 2.0% from 1.9%. Analysts look for 330,000 this week.

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