US & World Daily Markets Financial Briefing 03-07-2007

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Stocks rose in early trading Tuesday ahead of a shortened holiday schedule for U.S. markets, with investors betting that a report on pending home sales will show some recovery for the beleaguered sector.

The market also drew confidence from new merger and acquisition activity:
Kraft Foods Inc. said it offered $7.2 billion in cash to acquire the biscuit division of French food company Groupe Danone SA. The U.S. food company said it made an offer Monday to buy such European brands as LU, Petit Dejeuner, Tuc, and Mikado. Danone said its board is considering the bid on an exclusive basis.

Trading was fairly subdued, as stock markets are set to close early at 1 p.m. EDT ahead of the July 4th holiday.

The National Association of Realtors' report on pending home sales, to be released at 10 a.m. EDT, should suggest whether the real estate market's slowdown is dragging on into the summer. The Commerce Department will also release its May report on factory orders for both big-ticket and less-expensive items at 10 a.m. EDT.

In the first hour of trading, the Dow Jones industrial average rose 28.29, or 0.21 percent, to 13,563.72.

Broader stock indicators were also higher. The Standard & Poor's 500 index was up 4.55, or 0.30 percent, at 1,523.98, and the Nasdaq composite index was up 6.31, or 0.24 percent, at 2,638.61.

Bonds fell slightly, with the yield on the benchmark 10-year Treasury note edging higher to 5.00 percent from 4.99 percent late Monday. The dollar was mixed against other major currencies, while gold prices slipped.

Meanwhile, Ford Motor Co. said late Monday it may take a third-quarter pretax charge of $1.47 billion linked to an offer for some of its debt. The company will also be in focus, along with General Motors Corp., as automakers report June sales. Ford dropped 24 cents, or 2.5 percent, to $9.42.

Caterpillar, one of the 30 Dow components, weighed on the blue-chip index after being downgraded by a UBS analyst. The heavy machinery maker, which had been the biggest gainer in the Dow Monday, fell $2.42, or 3 percent, to $77.98 in early Tuesday trading.

Though the average U.S. retail price of a gallon of gasoline has fallen below $3, investors are keeping an eye on crude oil prices. A barrel of light sweet crude fell 27 cents to $70.82 on the New York Mercantile Exchange, after closing at a 10-month high Monday.

Overseas, Japan's Nikkei stock average rose 0.02 percent. Britain's FTSE 100 rose 0.72 percent, Germany's DAX index added 1.06 percent, and France's CAC-40 rose 0.78.

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Pound near 26-year high against dollar as yields favour UK

The pound remained near 26-year highs against he dollar amid expectations of further monetary tightening in the UK at the same time as housing concerns continue to dog thinking about the US economic outlook.

While the Bank of England's rate-setting Monetary Policy Committee is expected to raise its key repo rate another quarter point to 5.75 pct on Thursday, a raft of softer than anticipated US economic news has reinforced predictions that the US Federal Reserve will be keeping its Fed funds rate on hold at 5.25 pct in the months to come.

"If the market's perception of the MPC is that they are leaning towards a more hawkish stance then the opposite is true for their view of the FOMC," said Simon Derrick, currency strategist at the Bank of New York.

"As would be expected, these changing perceptions of the likely path for monetary policy in the US and UK are making their impact felt across most terms for yield spreads," he added.

This combination has pushed the pound up to 2.0195 usd, breaking the 26-year high of 2.0174 usd recorded yesterday.

It's not just the pound that's been prospering though, as the euro is edging up to breaking its own lifetime high against the dollar of 1.3683 usd achieved in April.

Though the European Central Bank is set to keep its key refi rate on hold at 4.00 pct this Thursday, it is thought to be odds-on to raise rates again in September and more likely than not to do it again by the end of the year.

However, analysts cautioned that technical positions in the market make it very difficult for the dollar to suffer renewed losses, especially as US jobs data for June on Friday are beginning to dominate thinking.

"From a technical perspective, the dollar is looking very over-sold," said Neil Mackinnon, chief economist at ECU Group.

Meanwhile the Swiss franc faltered after tame inflation data diminished any expectations that the Swiss National Bank will be raising interest rates aggressively anytime soon. The Swiss franc has enjoyed some support in recent days on those mounting expectations.

Official figures showed that consumer prices in Switzerland increased by 0.6 pct in June on a year-on-year basis. Though that was up on the 0.5 pct recorded in May, it wasn't as high as many had anticipated.

"In the wake of the latest Swiss consumer price inflation the market looks to have returned to the gradual 25 basis point approach from (SNB chief) Roth and company," said Matthew Foster-Smith at Thomson IFR Markets.

Expectations had been running high that the central bank could be tempted to undertake an extraordinary rate hike by 25 basis points over the coming weeks -- well in advance of its next regular meeting in September -- or wait until September and then hike rates by 50 basis points.

The SNB had raised its three-month Libor rate range by a quarter point to 2.00-3.00 pct at its last meeting in mid-June, its seventh consecutive hike.

Foster-Smith noted that the Swiss annual inflation rate is below expectations and well within the Swiss National Bank's comfort zone for price stability.

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Europe's leading exchanges traded higher on M&A news and with Wall St seen higher ahead of tomorrow's Independence Day holiday in the US, dealers said.

At 12.52 am, the Dow Jones STOXX 50 Index was up 33.95 points, or 0.86 pct, at 3,963.74 while the DJ STOXX 600 gained 3.19 points, or 0.81 pct, at 395.42.

Spread bettors, IG index, said the Dow looks set to rise 29 points at the open in a shortened trading session with a slew of economic data taking centre tage.

In Europe, Danone added 1.99 pct after it confirmed recent reports Kraft Foods has offered to buy the majority of its biscuit and cereal division.

Investors cheered the much higher than expected price-tag of 5.3 bln eur, as most had been expecting the US group to offer closer to 4 bln eur.

Shares in French group were further boosted by hopes the group could return some of the money to share-holders or could be a more attractive acquisition target after the sale.

Credit Suisse said today that a deal would leave Danone smaller with more focus and faster growth and "therefore more attractive ..to any would-be acquirer".

Analysts were also speculating on what else Danone could do with its cash pile after CEO Frank Riboud said the group has identified "acquisition targets," ith Russia's Wimm Bill Dann, China's Wahaha and Japan's Yakult all mentioned as likely candidates.

Numico shares rallied for a second day, up 2.58 pct, as the market viewed the Dutch company as a likely Danone target, although some suggested the group's stated focus on its Dairy and Water businesses means a bid for Numico is unlikely.

UK group Premier Foods, which has been on a recent acquisition spree, was also up 2.6 pct as some suggested the high price paid for Danone's biscuit business lifts the valuation for the UK group's biscuits unit.

Staying in the food sector, Parmalat rebounded from a sharp fall yesterday after the company said it has filed an appeal against a decision by a US federal court judge rejecting a Parmalat demand that an investor class action lawsuit brought against it be dismissed.

The judge ruled that Parmalat SpA, relisted on the bourse in Oct 2005 after a financial restructuring, inherited liabilities of its predecessor firm, Parmalat Finanziaria SpA, which failed in December 2003. Parmalat was last up 0.88 pct after sliding 4.4 pct on Monday.

Cadbury Schweppes slipped 0.37 pct as some suggested today's deal means Kraft will be unlikely to bid for the UK group.

And the tech sector was also in focus with SAP was weaker -- down 1.63 pct -- leading the STOXX 50 fallers -- after the business software company's chief executive Henning Kagermann admitted that a unit of his company made some 'inappropriate downloads' of materials from competitor Oracle Corp.

Kagerman also said that his company will turn over unspecified material over to the US justice department on its request.

But Getronics led midcap gainers in Amsterdam -- up 21.14 pct -- after the company announced that it had received an expression of takeover interest from a US-based firm. SNS Securities lifted the shares to 'buy' from 'reduce'.

A number of US companies are in the frame -- including HP and IBM -- but with no obvious frontrunner, sector watchers said.

Siemens -- up 2.8 pct -- led the STOXX 50 risers after Lehman Brothers upgraded the shares to 'overweight' from 'equal-weight' and lifted its price target to 150 eur per share from 93.

The car sector was also higher, with MAN shares were up 3.78 pct after Goldman Sachs added the heavy truck manufacturer to its 'conviction buy list'. The broker lifted its price target to 125 eur per share from 113.

And shares in Volkswagen rose 2.6 pct as speculation resurfaced of a full takeover bid from Porsche.

Porsche currently has around a 30 pct stake in Volkswagen. Porsche shares were up 1.9 pct.

And Renault was up 2.15 pct as investors shrugged off weak French car data ahead of US car sales data due later and as traders noted ongoing faith in the group's recovering outlook thanks to bullish comments from CEO Carlos Ghosn late yesterday.

Elsewhere, shares in TNT gained 2.44 pct amid market speculation that the package delivery group is being eyed by its much larger US peer FedEx Corp. Dealers said a takeover offer of 50 eur a share is circulating around trading room floors, which would value TNT at around 21.14 bln eur.

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Shares close higher on bullish regional sentiment; index hits 10-yr highs

Thai share prices closed sharply higher Tuesday, breaking the 800-point barrier to reach their highest level since the 1997 financial crisis, as bullish sentiment spread across the region.

Local volumes were huge on increased confidence in Thailand's political and economic outlook, sending stocks to their highest level since July 2, 1997, when the Bank of Thailand floated the baht currency and sparked a regional meltdown.

The Stock Exchange of Thailand (SET) composite index jumped 20.81 points or 2.63 percent higher to 813.52, while the blue-chip SET 50 index gained 17.95 points to 580.94.

Kuala Lumpur

Shares close higher led by property, construction stocks

Malaysian shares closed higher Tuesday as the overnight rally on Wall Street gave investors a reason to extend their support for the market, with heavy buying interest seen in property, onstruction and select blue-chip stocks.

The Kuala Lumpur Composite Index (KLCI) gained 8.77 points or 0.64 percent to 1,373.14, just off the session's high of 1,373.25.

The FTSE Bursa Malaysia 30-large cap index was up 45.15 points at 8,733.15, while the second board index increased 1.46 points to 112.04.

Gainers led losers 642 to 273, with 261 stocks unchanged and 175 counters untraded.

Volume traded reached 1.23 billion shares, valued at 2.29 billion ringgit.

Mumbai

Shares close higher on positive outlook, key indices scale new peaks

Indian shares closed sharply higher and the benchmark BSE-30 Sensex rose to a record 14,828 points Tuesday on strong-buying by foreign and domestic funds on positive economic outlook and firm trend in global markets, dealers said.

The market got a fillip after Reserve Bank of India Governor Y V Reddy reiterated that the central bank expects economic growth of 8.5 pct in the current financial year in a speech delivered at Russia's central bank Monday. The speech was released by the Indian central bank in Mumbai Tuesday.

The BSE's 30-share Sensex closed at 14,806.51, up 142.25 points or 0.97 pct from yesterday's close. The NSE's 50-share S&P CNX Nifty rose 1.02 pct to 4,357.55 points, also an all-time high.

Bharti Airtel was the top gainer amongst BSE-30 stocks on news of company's expansion plans after it signed a 900 mln usd deal with Nokia Siemens Networks to expand Airtel's mobile, fixed and intelligent network platforms. The company's shares closed 3.49 pct higher at 866.60 rupees.

Banking shares were also in limelight. State Bank of India clocked the highest turnover of 1.57 bln rupees on the BSE after it rose 3.37 pct to 1,582.45 rupees. ICICI Bank rose 1.63 pct to 966.20 rupees.

Shares of real estate companies were in demand, with expectations of higher DLF listing price on July 5. Shares of Akruti Nirman Ltd rose 19.99 pct to 402.20 rupees hitting the circuit breaker. Parsvnath Developers Ltd also rose 8.54 pct to 377.45 rupees.

Engineering major Larsen & Toubro gained 1.08 pct to 2,258.95 rupees, as it declared a 100 pct special dividend.

Shares of cement companies extended its recent rally on strong-buying interest by foreign funds, dealers said.

Grasim Industries and Gujarat Ambuja Cements gained 3.21 pct and 1.59 pct to close at 2,702.55 rupees and 124.40 rupees respectively.

Hindustan Unilever Ltd, formerly Hindustan Lever, also rose 2.96 pct to 194.65 rupees.

Amongst losers, Reliance Energy shed 1.60 pct at 614.30 rupees and Bajaj Auto fell 1.60 pct to 2,098.25 rupees.

Singapore

Shares close higher on Wall St gains; property-related stocks in favor

Singapore share prices closed higher Tuesday on selective buying in blue chips following Wall Street's strong gains overnight, with property-related counters, especially in construction, seeing active play on the back of positive newsflow.

The Straits Times Index closed up 19.09 points or 0.54 percent higher at 3,569.43, after trading between 3,557.36 and 3,574.58.

Volume was 3.98 billion shares valued at 2.65 billion Singapore dollars

Gainers led losers 532 to 311, with 718 shares unchanged.

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Copper rallies on weak dollar, concerns over strike threats

Copper hit a one and a half month high earlier as a weak dollar made the metal cheaper for holders of other currencies and as ongoing concerns over possible supply disruptions in South America lent support.

BNP Paribas analyst David Thurtell said while there are no significant new developments in the various labour disputes at key mines in South America, copper remains underpinned by these supply threats.

At 11.22 am, LME copper for three-month delivery stood at 7,740 usd a tonne against 7,730 usd at the close yesterday. Earlier, the metal hit 7,805 usd a tonne, its highest point in a month and a half.

JP Morgan analyst Michael Jansen said while he does not believe copper will surpass last year's record high of 8,800 usd a tonne, he thinks it is set to break the 8,000 usd a tonne level.

He added the market "has a sense of inevitability about it", with LME stocks dwindling, the dollar under pressure, supply side disruptions at key mines continuing and economic momentum improving.

The LME said in a daily report today copper stocks held in its warehouses fell by another 575 tonnes to total 112,025 tonnes. The falls came after yesterday's large 2,100 tonne drop to an 8 month low.

Declining LME stocks have exacerbated concerns over ongoing labour unrest in South America. Staff at Chile's state-owned Codelco continue to protest for higher wages and better working conditions.

Meanwhile at the Collahusi mine in Chile, one of the world's largest copper mines, workers are still planning to go on strike from July 9, although management has reportedly requested mediation to avoid a strike.

In Peru, the situation is slightly less worrying as labour talks with management are continuing at three Southern Copper Corp operations. This is after workers there suspended a planned June 28 strike.

Elsewhere, analysts said falls in the dollar were underpinning all metal prices. The dollar fell to a 26-year low against the pound earlier while the euro crept near its all time high against the US currency.

Lead for three month delivery hit another all time high today of 2,790 usd a tonne before retreating down to 2,775 usd against 2,770 usd at the close yesterday.

The metal, used in the manufacture of car batteries, has surged in recent weeks, hitting a series of record highs on worries that China's tax on lead exports will crimp global supply.

Also, shipments from Invernia's Magellan mine in Australia remain suspended while demand from car battery manufacturers is predicted to rise this summer and ahead of the winter months.

Tin edged up to 13,925 usd a tonne against 13,900 usd yesterday, nickel was up at 36,650 usd against 35,900 usd, zinc dipped to 3,458 usd against 3,460 usd while aluminium climbed to 2,765 usd against 2,758 usd.

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