9/11/07

Stocks slogged through most of the session as investors were troubled by remarks by Federal Reserve Chairman Ben Bernanke about economic growth and inflation. But the late session rally by the financial stocks helped major indexes pare some of their early losses. The Fed chief downplayed recession fears, telling lawmakers that the economy should continue to grow in 2008, but at a much slower pace than in the recent quarter. At the same time, he warned that the Fed remained concerned about the subprime mortgage crisis and sky-high oil prices, which pose a risk of sparking higher inflation.

Before the bell, Ford Motor Co reported it narrowed its losses more than expected. Ford shares finished 3 percent on NYSE.

Wal-Mart reported an increase in sales at the lower end of its strong sales outside the US.

Limited Brands reported a 6 percent drop in sales at its stores open at least a year, which sent its shares more than 8 percent lower on the NYSE.

Morgan Stanley gained 4.8 percent one day after the company said it would take a $3.7bn writedown because of bad debts on subprime mortgages. Lehman Brothers and JPMorgan Chase which had fallen more than 5 percent of bad debts on subprime mortgages.

Cisco Systems lost 9.5 percent. A day earlier, the company reported better than expected quarterly earnings but prompted concerns that corporations will scale back on technology spending in the months ahead.

Oil prices retreated but continued to remain near record levels as light, sweet crude for December fell 91 cents to settle at $95.46 a barrel on NYMEX. Just a day earlier it reached a new trading high of $98.62 a barrel.

Gold prices continued to remain at record levels as COMEX gold rose $4 to $837.50 an ounce.

Treasury prices soared as a result, lowering the yield on the 10 year note to 4.28 percent from 4.33 percent.

In currency trading, the dollar eased against the euro after the ECB voted to keep interest rates unchanged. The dollar was lower against the yen.

Japanese stocks ended at a near three month losing low today after a wave of selling on a report that Mizuho Securities, the unlisted brokerage arm of Mizuho Financial Group may post a subprime loss of over Y100bn and delay a merger. The report in the Nikkei business daily raised fears that more such losses may lie ahead and dragged financial stocks, such as Mizuho Financial, sharply lower. A strong yen also contributed to sales by hitting exporters after Wall Street fell on Thursday. The Nikkei closed 188.2 points lower at 15583.4 its lowest close since August 17. The news spooked investors, sending Mizuho Financial down 5.7 percent to 531,000 yen. Sumitomo Mitsui Financial Group suffered even more, tumbling 5.9 percent to Y750,000.

The FTSE100 ended flat on Thursday as gloom in banks on worries over possible write downs and tough market conditions offset lustre in mining stocks after BHP Billiton approached Rio Tinto. The FTSE100 closed 3.2 points lower at 6381.9 to hit its lowest closing level in eight weeks. Earlier the index fell as much as 1.5 percent as part of a global decline on intensified credit worries. But the announcements that BHP had made an approach to Rio in a bid to create a global mining giant rescued the sector from earlier steep losses and lent support to the FTSE. Rio rejected the offer. Rio leapt nearly 22 percent, but BHP fell 5.7 percent. All other miners rose.

The banking sector was the main weight on the index, with Barclays and RBS falling more than 5 percent to hit new multi year lows as investors fretted about possible write downs and the impact on revenues from tough financial market conditions. Lloyds TSB, Standard Chartered and HSBC fell between 2.6 and 3.7 percent.

On the economic front, the Bank of England held interest rates at a six year high of 5.75 percent for the fourth month running, but expectations of a cut soon are growing as trouble in the financial sector drags on. US Federal Reserve Chairman Ben Bernanke said in testimony before Congress that the economy faced risks on both the growth and inflation fronts.

BG Group jumped nearly 10 percent after it partner in a Brazilian oil field said the field had recoverable reserves of up to 8m barrels, making it the biggest find in Brazil.

Mitchells and Butlers rose 3.3 percent as traders speculated that former Manchester United investors John Magnier and JP McManus were looking to raise the 3.36 percent stake in the firm held by their Elpida vehicle. The speculation helped lift the pub sector with Punch Taverns up 2.8 percent. Punch also said it remained confident about hitting 2008 profit forecasts despite the smoking ban and waning consumer confidence, which are prompting drinkers to stay at home.

BT Group slipped 4.2 percent with the market disappointed at the lower than expected earnings and margins.

Invesco fell 4.9 percent after the fund management firm said its third quarter pretax profit rose 75 percent on a year ago but revenue from performance fees fell.

Economics
UK Trade Balance (Sep) 0930 GMT

Analysts expect the trade balance to remain stable in September as both export and import growth remained relatively robust, according to the survey evidence and retail numbers.

US Trade Balance (Sep) 1330 GMT/0830 EST

Analysts expect the September trade deficit to widen to -USD58.5bn. Analysts think total imports rose by 1.2%, or about USD1.8bn. This mostly reflects the impact of higher oil prices (+5.4% petroleum import price), as overall import prices rose 1%. Export momentum should remain solid and an increase of 0.9%, or about USD900m, is expected. Export prices rose 0.3%, while analysts expect an increase in real exports for both capital goods and consumer goods.

US University of Michigan Confidence (Nov, prelim) 1500 GMT/1000 EST

The ABC/Washington Post consumer survey weakened a bit in the latter part of October. Meanwhile, gasoline prices have been creeping higher, which could offset any good news from the latest rebound in stocks. Analysts expect November Michigan sentiment to slip 80. Inflation expectations have remained contained, with the five year median at 2.8% in October, while the one year median was 3.1%

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