Investors take break from credit worries

Financial markets took a breather from worries about a credit crunch on Monday with European equities rising and currency markets stabilizing.
Signs of the recent bout of risk aversion, however, were not far away. MSCI's main world stock index was 6 percent off its all-time high just 10 days ago and Wall Street volatility was at highs not seen since April 2003."Clearly credit worries are still very much at the fore of investors' minds," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
Markets have been shaken over the past two weeks as concerns about trouble with riskier -- subprime -- U.S. mortgages have spilled over into credit markets generally, forcing a rethink on some corporate borrowing and raising credit costs.
For example, the iTraxx Crossover index, the most widely watched indicator of European credit markets, is more than 250 basis points wider since mid-June.
But Monday was proving a calmer day than recently.
European stocks rose in early trade on Monday as gains in miners and chemicals group ICI offset fears over the impact of a credit crunch on liquidity and mergers and acquisitions.
The pan-European FTSEurofirst 300 index was up 0.4 percent at 1,523.53.
ICI jumped more than 7 percent after it rejected an improved 7.8 billion-pound ($15.9 billion) takeover proposal from Dutch rival Akzo Nobel ,saying the sweetened bid was not enough. Earlier, Japan's Nikkei average finished almost flat after hitting its lowest in nearly four months, largely brushing aside the defeat of Prime Minister Shinzo Abe's ruling camp in Sunday's upper house elections.
The Nikkei ended up 0.03 percent, or 5.49 points, at 17,289.30. The broader TOPIX index added 0.35 percent or 6 points to end at 1,705.71.
CURRENCIES, BONDS
The dollar slipped modestly against a basket of major currencies, giving back some of last week's gains.
"All eyes are on credit and equity markets today to see whether or not the risk-reduction moves will continue this week," said Niels From, currency strategist at Dresdner Kleinwort in Frankfurt.
"From an FX perspective, we'll be looking at how the risk perception develops and how the carry trade develops."
Under the carry trade, investors borrow in low-yielding currencies such as the Japanese yen to buy higher-yielding assets. When risk aversion hits, such trades can unwind.
The dollar was down 0.2 percent on the day against a basket of six major currencies at 80.990, having gained around 1 percent last week, its biggest weekly gain in six months.
The dollar was up 0.3 percent against the yen at 119.02 yen. The euro was up 0.2 percent against the dollar at $1.3660.Yields on euro zone government bonds were flat. Such bonds have been a safe-haven play for investors.
Ten-year cash yields were 4.332 percent while the interest rate-sensitive two-year Schatz yield was at 4.268 percent.

Energizer profit rises, surprising Wall Street

Energizer Holdings Inc. posted a surprising increase in quarterly profit on Tuesday as a favorable tax adjustment offset increased costs.
The company, known for its namesake batteries and Schick razors, is working on broadening its consumer products lineup with the planned $1.16 billion purchase of Playtex Products Inc. announced earlier this month.
Earnings rose to $62.5 million, or $1.06 per share, in the fiscal third quarter ended June 30, from $51.3 million, or 83 cents per share, a year earlier.
Energizer said in April that earnings should fall as it spent more to advertise and promote its products. Analysts on average expected a profit of just 81 cents per share, according to Reuters Estimates.
The company benefited from a favorable adjustment of $7.8 million, or 13 cents per share, related to previously unrecognized tax benefits. Higher battery prices, put in place in January, also helped to offset significant increases in costs for materials such as zinc.
Sales rose 8.9 percent to $800 million.
Sales of men's razors and blades slowed down compared to recent quarters, when Energizer launched more new products, Chief Executive Ward Klein said in a statement.
The company is also feeling pressure from larger rival Procter & Gamble Co.'s Fusion razor brand.
Still, Klein said disposable products, such as the Quattro razor that debuted in the second quarter, led to razor and blade sales growth. He expects the shaving business to show a strong end to the fiscal year.
Energizer said it expects $20 million to $22 million in additional product costs in the fourth quarter versus a year earlier but said price increases in place in most markets should offset most of those higher costs. Shares of Energizer trade at nearly 18.7 times next year's expected earnings, while P&G trades at a multiple of 18.2, according to Reuters data.
Energizer and P&G currently compete in razors and batteries. If Energizer buys Playtex, they will also compete in the feminine care category, where Playtex tampons go against P&G's Tampax brand.

Robust earnings to keep stocks charged

Stock market bulls are betting strong second-quarter profits will send equities even higher with the earnings reporting season in full swing next week.
Rising energy and food prices coupled with uneven retail sales are not likely to slow down investors as they test the market's limits. At the same time, the financial sector is expected to avoid major losses from the subprime sector.
After a week where the Dow Jones industrial average and Standard & Poor's 500 index reached record highs on mergers and acquisitions activity and multibillion-dollar blue-chip buyback plans, investors will eye profits, inflation data and the Federal Reserve for signs of further good news.
Earnings will be headlined by Microsoft Corp. , Intel Corp., Citigroup Inc. and Bank of America Corp. among an exhaustive list of major companies.
Amid the flood of results, Federal Reserve Chairman Ben Bernanke will give two days of semiannual testimony on U.S. monetary policy before Congress.
"Earnings are not going to be a problem," said Michael Metz, chief investment strategist at Oppenheimer & Co., in New York. "The speculators are very excited. Unless it is a major surprise, the external (factors) won't matter. The markets are feeding on themselves.
"I don't think Ben Bernanke has anything new to say at the moment about inflation, and the Federal Reserve does not think the subprime problem will derail growth," Metz added.
On Friday, the Dow Jones industrial average ended at a record 13,907.25, while the Standard & Poor's 500 index set a new lifetime high at 1,555.10 and ended at 1,552.50, also a record. For the week, the blue-chip Dow average rose 2.2 percent, the S&P 500 added 1.4 percent and the Nasdaq Composite Index gained 1.5 percent.
CPI AND HOUSING STARTS AHEAD
In what will be one of the busiest weeks for corporate earnings, Wall Street also will get some fresh economic numbers to crunch.
The Bureau of Labor Statistics will release the U.S. Producer Price Index for June on Tuesday and the Consumer Price Index for June on Wednesday.
Economists surveyed by Reuters forecast that overall PPI, a measure of wholesale prices at the farm and factory gate, will rise 0.2 percent in June. They also see core PPI, excluding volatile food and energy prices, up 0.2 percent.
CPI is expected to rise 0.1 percent in June, while core CPI is seen up 0.2 percent, the Reuters poll showed.
The Census Bureau's housing starts and building permits report for June is likely to show continued slowdowns, keeping the chance of a hike in the fed funds rate unlikely.
On Thursday, investors will scrutinize the minutes from the Federal Open Markets Committee's most recent meeting in late June for any further hints about monetary policy.
EVERYONE LOVES TECH
But most of the buzz next week will come from the torrent of profit reports. Among the quarterly results ahead, particular confidence is expected to come from the technology sector.
"People are just in love with technology right now," said Rick Meckler, president of LibertyView Capital Management, in Jersey City, New Jersey. "We are in the midst of a replacement cycle, plus a new technology cycle, which the iPhone represents."
Intel Corp. and Yahoo! Inc. will release earnings on Tuesday. Intel forecast a strong second-quarter profit last week, and Yahoo is expected to show a slim profit. Google Inc. , which has been beating Yahoo in the Internet search business, is expected to post double-digit profit growth over the year-ago period.
Motorola Inc. and Microsoft may dampen the excitement on Thursday with the second-quarter losses seen for Motorola, and Microsoft, the world's biggest software company, likely to finish the quarter flat on flaws in the Xbox video console.
BANKS, BROKERS AND SUBPRIME
Investors may be holding their breath, however, when it comes to the financial sector to see if it regained its footing in the wake of the subprime credit markets' turmoil. This week, Standard & Poor's and rival ratings agency Moody's Investors Service downgraded billions of dollars of bonds in the increasingly unsteady subprime sector.
Merrill Lynch & Co Inc. is expected to bring solid double-digit earnings growth with expanding fees from wealth-management and banking services after its acquisition of First Republic Bank. JPMorgan Chase & Co. , a Dow component, will follow on Wednesday, with Bank of America Corp., an S&P 500 stalwart, rounding out the week with its quarterly report card on Thursday.
SMOKESTACKS, BAND-AIDS AND COKE
Industrial sector stocks are also likely to show profits, as United Technologies Corp., industrial supplies manufacturer Honeywell International Inc. and toolmaker Danaher Corp., could also deliver some happy tidings to Wall Street with earnings reports on Thursday.
"In my own investments, I am overweighted in industrials, like Honeywell," said Al Kugel, chief investment strategist at Atlantic Trust in Chicago. "This is a global cyclical play and a continued defense play."
Retail sales fell unexpectedly for June on the heels of a housing sector slump and due to rising food and energy prices, the Commerce Department reported on Friday.
But Kugel said blue-chip consumer staples like Coca-Cola Co. and Johnson & Johnson may have avoided the overall sluggishness.
However, the likes of $3-a-gallon gasoline and $4-a-gallon milk as well as other constraints on disposable income appear to be pushing consumers to discount stores like Target Corp. and Wal-Mart Stores Inc. . This trend looks like it may hurt iconic motorcycle manufacturer Harley Davidson Inc. , which releases results on Thursday.

FOREX-Dollar slides on subprime worries, yen down

The dollar sank to a record low against the euro and a 26-year trough versus sterling on Wednesday for the second consecutive day, undermined by problems in the U.S. subprime mortgage market.
The yen, on the other hand, fell against most currencies except the New Zealand dollar, as risk appetite recovered after U.S. equities rebounded on Wednesday.
"Essentially, the equity market has been dictating what's happening with the dollar. U.S. stocks got a little bit of a boost even though the subprime news is all bad," said John McCarthy, director of foreign exchange at ING Bank in New York.
U.S. stocks rallied on Wednesday, which one analyst attributed to news from the U.S. Treasury urging caution about raising taxes on hedge funds and private equity.
"The recovery in stocks drove people into selling yen again, unwinding what we did yesterday. But in the broadest terms, the mindset is still to sell the dollar, because of the subprime issue, and the yen because of low interest rates," he added.
Midday in New York, the euro was up 0.1 percent on the day at $1.3764 , having earlier set a record high of around $1.3787, according to electronic trading platform EBS.
Against the yen, the euro rose 0.5 percent to 168.08 .
The euro also drew support from comments by European Central Bank President Jean-Claude Trichet, who signaled more interest rates hikes. He said the ECB's monetary policy remained on the accommodative side and the bank will monitor developments closely. For details, see
Sterling was up 0.3 percent at $2.0323, after hitting a 26-year peak of $2.0363 .The dollar recovered from a one-month low of 120.99 yen to trade up 0.3 percent at 122.09 yen.
While the greenback recovered from its lowest levels, it failed to gather enough momentum to reverse its losses.
Shaun Osborne, chief currency strategist at TD Securities in Toronto believes there was more two-way action in the dollar on Wednesday after the currency took a pounding the previous day. He cited the slight widening in the interest rate spread between U.S. and euro zone two-year bonds in the dollar's favor.
The dollar's sell-off on Tuesday was exacerbated by reports from Standard & Poor's and Moody's Investors Service that warned of ratings cuts on $17 billion of debt related to risky mortgages, much of it subprime. Subprime loans are extended to borrowers with poor credit.
U.S. subprime worries prompted markets to price in a greater risk of a Federal Reserve interest rate cut this year or next.
In contrast, other central banks around the globe are expected to continue tightening monetary policy, with yield differentials thus set to move to the detriment of the dollar.
The Bank of Japan is widely expected to hold interest rates steady on Thursday, although some of the more hawkish members of the board may vote for a hike to 0.75 percent.

Dow Jones meets investors on alternate bid:source

Dow Jones & Co. , in talks for a takeover by News Corp. , met with supermarket magnate Ron Burkle and Internet entrepreneur Brad Greenspan on Tuesday in an effort to find an alternative offer, a source familiar with the situation said.
Burkle and Greenspan met with members of an ad hoc committee of Dow Jones' board members in New York in the late afternoon on Tuesday to jointly discuss ideas for a rival bid.
"They came and presented at least one idea for a possible transaction," the source said.
Further details of what occurred during the meeting were not immediately available, nor was it clear how Dow Jones board members responded to the ideas. Dow Jones declined comment. Burkle and Greenspan could not immediately be reached.
News Corp. chief Rupert Murdoch has offered $5 billion, or $60 a share, for Dow Jones, the publisher of the Wall Street Journal, as he plans to build a new business cable television channel.
The two sides had reached a basic agreement over protecting editorial independence at the Journal and other news operations in the event they are controlled by News Corp., but were still discussing several issues including price.
But while a deal with Murdoch appeared close, Dow Jones has still pushed to find other potential buyers to appease some members of its controlling Bancroft family, which owns 64 percent of the company's voting shares.
Media and investment executives have said a rival bid that could really challenge Murdoch was unlikely, particularly as the media tycoon was willing to pay a 65 percent premium to Dow Jones shares at their level before the bid was made public.
Burkle had been exploring a structure for Dow Jones that would incorporate an employee stock ownership plan, sources previously told Reuters.
Greenspan had separately made an offer to buy a 25 percent stake in Dow Jones at $60 per share in what he described as a partial buyout. Greenspan founded Intermix, home to the MySpace social network that was bought by News Corp. in 2005.
According to a report in the Journal, Greenspan sought to purchase up to half the stock in Dow Jones with the help of satellite provider EchoStar Communications and Intel Corp.'s investment arm.