US Market limps back to end higher

Negative news from mortgage sector once again weigh on financials

Once again Financials were back in action and it was Freddie Mac (the biggest mortgage finance firm in USA) that played the role of culprit today, Tuesday, 20 November, 2007. Market opened on a strong note after Hewlett Packard came out with strong earning report yesterday. But indices lingered in the red during mid day but again reversed their course while going into close. Nine of the ten economic sectors finished in the day in positive territory, Financials being the sole laggard. Crude oil closed above $98/barrel for the first time.

After swinging within 250 point range during the day, The Dow Jones industrial Average ended the day with a gain of 51 points at 13,010. The Nasdaq Composite Index, finished lower by 3 points at 2,596. S&P 500 finished lower by 6 points at 1,439. Twenty out of thirty Dow stocks ended in green, with Exxon Mobil leading the team of winners.

Freddie Mac shares dropped by almost 30% today after the U.S. mortgage lender reported a $2 billion quarterly loss and said it might slash its fourth-quarter dividend. Fellow mortgage investor Fannie Mae also came under selling pressure and the news weighed on the overall financials sector.

The minutes from the 31 October meeting were released today. The same prompted some mixed interpretations. It included the downgrade of the Fed's GDP forecast for 2008 to 1.8% -2.5% from 2.5%-2.75%. The minutes noted that the risks to inflation balance the risks to the economy and discussed the possibility of leaving rates unchanged.

Dollar strikes a new low against the euro

Market kicked off on a strong note today after H-P came out with its quarterly result beating market expectations after yesterday’s close. The company’s fiscal-fourth-quarter profit rose 28% from a year ago. The company also raised guidance for the current quarter.

Target reported earnings that missed expectations also led to some negative sentiments among traders.

Indian ADRs ended mixed today. VSNL was the main winner gaining 3.5%. Rediff was the main loser losing 4.5%.

On the economic front, October housing starts were slightly better-than-expected, while building permits were slightly worse-than-expected. The Commerce Department estimated a 3% rise in U.S. housing starts for October, but building permits fell for the fifth consecutive month, down 6.6% to their slowest pace in 14 years.

Crude oil prices rose today above $98 a barrel in New York to a record close after the U.S. dollar declined to a new low against the euro. Crude-oil futures for light sweet crude for January delivery closed at $98.03/barrel (higher by $3.39/barrel or 3.6%) on the New York Mercantile Exchange. Prices are up 76% from a year ago.

In the currency market today, the dollar was lower across the board, hitting a new low against the euro and reversing earlier gains on the yen as stocks slumped after the Federal Reserve predicted slower economic growth next year. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, fell 0.7% at 75.22. The dollar dropped on speculation that the Federal Reserve will lower interest rates a third time this year.

Tomorrow, investors will have several important economic reports. The Mortgage Bankers' Association releasing its mortgage applications index, the Jobless Claims report offering the latest look at the national employment picture and the weekly petroleum inventory data are a few of them.