US & World Daily Markets Financial Briefing 02-03-2007

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Dow, Nasdaq slide in early trading

NEW YORK - Stocks opened the final session of a tumultuous week falling modestly as the yen rallied against the dollar Friday and a weaker-than-expected profit report from Dell Inc. weighed on technology stocks.
   
Larger economic concerns such as the ascendent yen have dominated Wall Street for much of the week after Tuesday's worldwide selloff that sent the Dow industrials down 416 points and rattled investor confidence about the state of the U.S. economy.
   
With little of the economic data that has at turns helped and deflated investor sentiment this week, investors again looked abroad for direction. Performance of markets abroad has taken on renewed importance this week after a nearly 9 percent drop Tuesday in the Shanghai Composite Index helped set off worldwide selling and sent U.S. stocks reeling.

The major U.S. indexes each lost more than 3 percent. On Thursday, the major indexes ended lower though they pared sharp losses from early in the session.
   
In the first hour of trading Friday, the Dow Jones industrial average was down 19.62, or 0.16 percent, to 12,214.72.
   
Broader stock indicators also fell. The Standard & Poor's 500 index was down 3.72, or 0.27 percent, at 1,399.45 and the Nasdaq composite index was off 6.80, or 0.28 percent, at 2,398.41.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.54 percent from 4.55 percent late Thursday. The dollar is mixed against other major currencies, while gold prices down.
   
The schedule for economic data was light; the final Reuters/University of Michigan consumer sentiment reading for February is due later Friday.
   
St. Louis Federal Reserve President William Poole said in remarks prepared for a speech Friday in Santiago, Chile, that rising energy prices wouldn't necessarily lead to an economic slowdown if monetary policy were laid out carefully.

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Yen firms slightly but remains off yesterday's highs

LONDON - The yen was firmer across the board as carry trades continued to unwind, though remained below yesterday's highs on a quiet day for data.
   
The unwinding of carry trades -- when investors borrow in low-yielding currencies to invest in higher yielding assets elsewhere -- had by yesterday propelled the yen to two and a half month highs against the dollar and seven-week highs against the euro.
   
The market calmed, however, after yesterday's stronger-than-expected ISM survey on US manufacturing allowed the dollar to recover.
   
HBOS currency analyst Steve Pearson said the strong ISM figure has tempered some of the market's recent worries over the outlook for global growth, noting that major US stock markets closed only marginally lower and Asian markets have been steady overnight.
   
"Some stability and calm has crept into markets. The stronger than expected US ISM manufacturing report appears to have allayed market nervousness over the outlook for global growth," he said.
   
A light event and data calendar until the second half of next week makes it likely that risk appetite will recover for the time being, although underlying global economic worries remain, he said.
   
"It now seems likely that investor risk appetite rebuilds a little near-term, pressuring both the yen and the dollar," Pearson said.
   
Against the euro meanwhile the dollar continued to benefit from yesterday's solid US data, rising to week-highs against the European currency as markets awaited today's University of Michigan consumer sentiment data and a speech later today by Federal Reserve chairman Ben Bernanke.
   
The pound was also trading at week lows against the dollar, as well as being slightly weaker against the euro, as it reversed some of its solid gains yesterday on the back of strong surveys on UK manufacturing and the retail sector.

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Top Stories in Europe at 11.05 GMT

London - United Business Media PLC, the UK publishing and exhibition group, posted a 5.5 pct rise in pretax pre-exceptional profit for 2006 and announced it will pay a special dividend of 72 pence a share this month.
 
Pretax profit before amortisation and exceptional items increased to 160.5 mln stg from 152.1 mln stg in 2005. Deutsche Bank had forecast pretax profit of 157 mln stg. Continuing revenue grew 16.6 pct to 739.1 mln stg.

Gallaher Group PLC, Britain's third-biggest tobacco group, posted a 4.9 pct rise in full-year pretax profit before charges, beating market expectations, on the back of a strong performance from the Commonwealth of Independent States (CIS) region. The makers of Benson & Hedges and Silk Cut cigarettes also said its overall current trading is in line with its expectations.

Frankfurt - BAYER AG said its Bayer HealthCare AG business is to cut 6,100 jobs worldwide, including 1,500 in Germany, as part of a plan to generate synergies from the integration of Schering AG. The company said 3,150 jobs are to be shed in Europe; 1,000 in the US; 750 in the Asia, Pacific and Japan region; and 1,200 in Latin America and Canada.

Linde AG said its full-year net profit after minorities, including special items, rose to 1.838 bln eur from 514 mln. The company said its EBITDA more than doubled to 3.830 bln eur from 1.705 bln.

New orders for machinery and plants in January rose 12 pct from a year earlier, Germany's VDMA industry association said. The VDMA said domestic orders rose 25 pct, while foreign orders were 6 pct higher compared to the same month last year.

Paris - The presidents of eight French socialist regional councils yesterday signalled their intention of investing in Airbus' parent company EADS following the announcement of the Power8 restructuring plan for the ailing aircraft unit.
 
In a letter addressed to French prime minister Dominique de Villepin, the presidents of eight councils including Midi-Pyrenees, Ile-de-France, and Provence-Cote d'Azur, all of which have a socialist majority, criticised the planned 4,300 French job cuts, and asked for details on how they could take a stake in EADS' capital.

Vivendi's Maroc Telecom reported a 16 pct rise in 2006 net profit to a total of 607 mln eur, compared to 523 mln eur a year earlier, with the improvement primarily attributable to robust operating profitability in the mobile business. Operating profit for the full year came out at 904 mln eur, up 15.5 pct from 793 mln eur in 2005.

Oslo - Aker Kvaerner ASA said it is to restructure its business by transforming its existing six divisions into "five global business areas", in a bid to both increase transparency and optimise the efficiency of its overall operations. The Norwegian engineering firm said that by combining specialised units which work within the same market segments, the company will be able to increase overall capacity and improve its product.

Zurich - Temporary employment group Adecco SA said it has a war chest of 1.5 bln eur for potential acquisitions for the coming years, CFO Dominik de Daniel said at the company's presentation of fourth-quarter and full-year results. De Daniel emphatically ruled out the possibility of a capital increase to finance acquisitions.

Brussels - Belgian telecommunications group Belgacom SA posted a forecast-beating full-year net profit of 973 mln eur compared with 959 mln a year earlier as sales climbed to 6.1 bln eur from 5.7 bln. EBITDA was in line with market expectations, easing to 2.149 bln eur from 2.214 bln.

Milan - Mediaset SpA said its full-year net profit fell to a preliminary 505.0 mln eur from 603.4 mln a year earlier due to weak advertising revenues in Italy. Nevertheless, the company said it will maintain its dividend at 0.43 eur per share.

Budapest - Hungary slashed its trade deficit last year to 1.96 bln eur from 2.9 bln eur in 2005, the central statistics bureau KSH reported. The trade deficit was 82.1 mln eur in December, reduced from 130.4 mln in the same month in 2005.

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Asian shares close mostly lower on investor caution; China shares rise
 
HONG KONG - Shares across the Asia-Pacific region closed mostly lower as investors remained cautious after the turmoil on markets this week. China shares, which prompted this week's slide in global markets, ended higher on bargain hunting.
   
Tokyo shares finished sharply lower on the uncertain outlook for stock markets worldwide and with the yen's sharp rise also hurting sentiment, particularly towards export-oriented stocks. The blue-chip Nikkei index dropped for the fourth straight session and was down 5.3 pct this week, with dealers saying it may retreat closer to the 17,000 mark next week.
      
But many local investors remain relatively optimistic about the Japanese market's upside potential, believing the recent turmoil does not necessarily signal that the global economy is about to take a sharp downturn.
   
The Nikkei 225 Stock Average closed down 235.58 points or 1.35 pct at 17,217.93, off a low of 17,160.43. The TOPIX index of all first-section issues lost 18.52 points or 1.06 pct to close at 1,721.59, off a low of 1,715.43. The index shed 5.1 pct over the week.   

"It now seems that a correction phase may take longer than the market had previously expected. Hedge funds have begun unwinding part of their sizeable yen carry trades and the related equity positions they have in emerging markets, and this is not going to be completed soon," said a trader at a European institution.
   
Australian shares closed lower with investor sentiment remaining negative following the global equity rout earlier in the week which continued to weigh on the Dow Jones Industrials index, which fell a further 0.3 pct overnight.
  
Leading resource stocks saw further profit taking, while the major banks were mixed.
   
The S&P/ASX 200 closed down 24.2 points or 0.42 pct at 5,786.0 but managed to end above the day's low of 5,780.9. The key index briefly flirted with positive territory, setting an intra-day high of 5,825.8 before ending lower. Over the trading week the key index dropped 250.1 points or 4.14 pct.
   
Hong Kong shares were steady in afternoon trade on bargain-hunting in blue chips after steep falls over past five trading days. H-shares were also supported after China's markets posted gains, though many investors still remain cautious. At 3.25 pm the Hang Seng Index was up 25.5 points or 0.13 pct at 19,372.10.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on bargain-hunting interest after yesterday's falls, with financial and property stocks in demand. The Shanghai A-share Index was up 36.20 points or 1.23 pct to 2,973.96 and the Shenzhen A-share Index was up 11.32 points or 1.51 pct at 760.65.
   
Seoul shares ended slightly lower as foreign sell offs and futures-linked program selling in late trade offset bargain-hunting interest by retail investors.
   
Despite some lingering concerns over the Chinese market's performance and a possible spillover to global markets, the mainboad KOSPI recovered 1,420 points at one stage but lost steam toward the close as investors played it safe ahead of the weekend, they noted.
   
Sustained losses in Tokyo shares also weighed on sentiment. The KOSPI index closed down 2.87 points or 0.20 pct at 1,414.47, after moving between 1,406.63 and 1,423.58. It ended the week with a loss of 55.41 points or 3.8 pct.

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Base metals under pressure as stocks rise, gold market falls weigh

LONDON - At 12.54 pm, LME nickel for three month delivery was down at 41,440 usd a tonne against 41,500 usd at yesterday's close, while tin was flat at 13,350 usd a tonne.
   
Lead was down at 1,875 usd a tonne against 1,920 usd, zinc fell to 3,375 usd against 3,475 usd, aluminium was down at 2,760 usd against 2,795 usd while copper fell to 6,070 usd against 6,110 usd.
   
"An increase in warehouse inventories and a nervous gold market have put a cloud over the LME this morning," said Alex Heath, analyst at RBC Capital Markets. "Dealers are happy to just catch their breath and catch up on more mundane stuff after three manic and breathless days," he added.
     
Copper prices were under pressure as stocks stored in LME warehouses came in 1,900 tonnes higher to 207,300 tonnes, said a daily report.
   
Nickel stayed close to its fresh all-time high of 42,200 usd set yesterday, as the metal continued to benefit from critically low stocks and expectations demand will stay solid going forward.
   
Looking ahead to the second quarter for nickel, Vanessa Davidson of CRU Analysis said the "health of demand" is widely expected to slow. "If deceleration in the second quarter happens more quickly, things could ease," she said.

Gold fell to a more than one-week low earlier as sentiment took a turn for the worse after the metal failed to hold its own amid this week's China-led global equities sell off.
   
At 12.05 pm, spot gold was quoted at 660.49 usd an ounce, up slightly from the 662.20 usd level seen in late New York trades yesterday. Earlier, the precious metal fell to 657.90 usd, its lowest level in more than a week.
   
"Nothing has changed fundamentally although much has changed psychologically," said Dennis Gartman, editor of the Gartman Letter, a daily trading note.
   
He explained with stocks in China under pressure, "it does not take a great deal of wisdom to discern that liquidation of profitable gold positions would be undertaken by those suffering material losses in their equity trades".
    
Also weighing on gold is the firmer tone of the Japanese yen, which is discouraging yen-funded investment in gold - whereby traders take advantage of the low interest costs associated with yen funds to buy non-yen traded assets.
   
"The appreciation of the yen in recent days (if sustained) would add to the effective cost of" yen-funded investment in gold, said Tobin Gorey, analyst at Commonwealth Bank of Australia.
       
Silver edged down to 13.49 usd an ounce against 13.52 usd at the close yesterday. The metal lost 4 pct of its value yesterday after having posted much stronger gains than gold over the past few months.
   
Platinum edged down to 1,222 usd an ounce against 1,234 usd in late New York trades yesterday. Earlier, the metal hit a one week low of 1,220 usd.
   
Palladium was slightly lower at 344 usd an ounce against 346 usd.

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