US & World Daily Markets Financial Briefing 04-01-2007

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Federated Department Stores Dow down, Nasdaq up in morning trading
 
NEW YORK - Stocks pulled back Thursday after retailers released holiday sales reports that were worse than expected, raising concerns on Wall Street that the economy might be slowing more than thought.
   
Retail chains like Federated Department Stores Inc., Gap Inc., Limited Brands Inc., and Target Corp. all posted lackluster same-store sales during the key month of December. There were also scattered warnings in the sector that fourth-quarter profit will miss analysts' projections.
   
The sales reports came one day after investors fretted about minutes from the last Federal Reserve meeting that showed policymakers were in no hurry to cut rates, despite signs of flagging economic growth. This puts even more weight on pending economic data as a gauge of the central bank's next move.
   
Wall Street is expected to scrutinize a number of reports due out during the session, including the Institute of Supply Management's services sector index for December and energy supplies data. The Labor Department already reported the number of laid-off workers filing unemployment claims reached its highest level since late November.
   
In the first hour of trading, the Dow Jones industrial average fell 19.71, or 0.16 percent, to 12,454.81.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index was down 2.76, or 0.19 percent, at 1,413.87, and the Nasdaq composite index added 0.66, or 0.03 percent, to 2,423.82. The Russell 2000 index of smaller companies was down 5.72 percent, or 0.73 percent, at 781.70.
   
Bonds edged higher, with the yield on the benchmark 10-year Treasury note falling to 4.64 percent from 4.66 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices were higher.
   
The retail same-store sales reports, a key measure that analyzes the pace of sales at stores open at least a year, clearly weighed on the market. After a strong start to the holiday season, many stores struggled with disappointing business in December -- and tepid post-Christmas sales weren't enough to make up for it.
   
Gap warned that fourth-quarter results will come in below expectations, sending shares fell 31 cents to $19. Limited Brands reported lower traffic during December caused its sales to miss expectations, and sent shares down $1.64, or 5.5 percent, to $27.94.
   
Despite missing Wall Street sales projections, Federated rose 52 cents to $38.03.

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Euro steady against dollar after US jobless claims

LONDON - The euro was steady against the dollar, after US initial jobless claims for December came in slightly above expectations.

The figures showed 329,000 initial jobless claims, higher than expectations for 320,000. The data, however, failed to weigh on the dollar against the euro.

The euro slid early this morning and remained lower after the euro zone services PMI came in weaker-than-expected but remained at strong levels, and after benign euro zone inflation figures.

The euro fell from 1.380 to the dollar this morning to about 1.310, where it found support and remained rangebound.

The next key driver for the euro/usd pair will be the US nonfarm payrolls due tomorrow, particularly after the ADP forecasts estimated a 40,000 fall against economists' expectations for a rise of 120,000.

Elsewhere, the UK pound has been steadily recovering against losses incurred against the usd earlier this morning.

Stronger-than-expected UK services PMI, mortgage approvals, and consumer credit data all initially failed to boost the pound when they were published this morning, but steadily managed to muster support to bring the pound back off the 1.940 level towards 1.944.

The data supports views that the Bank of England may raise rates again this year from the current five-year high of 5.0 pct.

Paul Dales, UK economist at Capital Economics, said today's UK indicators suggest that recent interest rate hikes have yet to have a discernible impact on the economy. "Overall, these data support our view that interest rates look likely to rise once more, probably in February," he said.

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The European markets at 13.00 GMT

London - Leading shares continued lower at midday as heavy losses in the mining sector dragged on the market, offsetting positive sentiment among retailers, with Wall Street predicted to open lower amid inflation concerns. At midday, the FTSE 100 index was down 38.7 points at 6,280.3, mirroring the negative wider market. Volume was average with 1.1 bln shares changing hands in 182,900 deals.

Frankfurt - German shares were lower midday, pulled down by interest rate worries on both sides of the Atlantic and a forecast lower opening on Wall Street, with M&A speculation in the pharma sector providing most of the morning's excitement.
   
At 12.24 pm, the DAX 30 index was down 43.96 points or 0.66 pct at 6,647.36, after moving between 6,634.74 and 6,663.29 this session. The MDAX fell 64.12 points or 0.67 pct to 9,476.27, while the TecDAX dropped 11.48 points or 1.48 pct to 765.92.

Paris - Share prices remained broadly lower at midday as the market shrugged off French President Chirac's call for lower corporate taxes and focused on concerns about the US economy. At 12.42 pm, the CAC-40 index was down 46.95 points or 0.84 pct at 5,563.97. Volume was 1.9 bln eur.

Amsterdam - Shares in Amsterdam were broadly lower at midday as investors took their cue from an expected lower opening of Wall Street, while Akzo Nobel rose amid reports that it may sell its Organon division to private equity. At 12.04 pm, the AEX was down 2.33 points or 0.46 pct at 499.02, after opening at 498.20.

Milan - Share prices were lower in midday trade, with heavyweight oil stocks depressed by declining crude oil prices, and with Autogrill outperforming the market after US contract news. At 12.41 pm, the Mibtel index fell 0.80 pct to 32,000 points and the S&P/Mib was down 0.70 pct at 41,769, while volumes were at 2 bln eur.

Madrid - Share prices were lower in midday trade on extended profit-taking in line with European markets, with light newsflow failing to turn investors' heads. At 12.10 pm, the IBEX-35 index had dropped 109.4 points to 14,266.9, after trading in a range of 14,231-14,300, on turnover of 1.8 bln eur.

Stockholm - Shares were sharply lower in midday trade, led by a sell-off in the mining sector on falling commodity prices and profit-taking among engineers, but with the rest of the market also pressured by last night's US FOMC minutes. At 12 pm, the OMX Stockholm index was down 1.15 pct at 372.20 and the OMX Stockholm 30 was down 1.07 pct at 1,145.99. Turnover was 9.183 bln skr.

Zurich - Share prices were slightly lower in late morning trade on profit-taking after the SMI reached a new all-time high yesterday on its first day of trade in 2007. At 11.40 am, the Swiss Market Index was 19.25 points lower at 8,900.92, and the Swiss Performance Index was down 15.13 points at 7,017.61.

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Asian shares close mixed; Japan, China up but profit-taking hits other markets

HONG KONG - Asian share prices closed mixed with the Tokyo and Chinese markets up on their first day of trade in the new year, but most other bourses ended lower under pressure from profit-taking after recent advances, dealers said.
   
Tokyo, in a shortened half-day session, was aided by a softer yen which boosted exporters, and some further strength on the Dow Jones Industrials index overnight, even as Wall Street's overall performance was mixed.
   
The Nikkei 225 Stock Average closed up 127.84 points or 0.74 pct at 17,353.67 while the broader-based TOPIX index of all First Section shares gained 17.88 points or 1.06 pct to 1,698.95.
     
In China, the key Shanghai composite index surged to a fresh all time closing peak as investors continued to snap up mainland stocks, especially properties and airlines, amid strength in the yuan and optimism about corporate earnings prospects this year.
   
The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed up 40.25 points, or 1.50 pct, at 2,715.72, a fresh all-time finishing high. Turnover hit a new record as well, reaching 83.95 bln yuan, from 59.09 bln in the previous session ahead of the New Year break.
   
The Shanghai A-share Index jumped 42.45 points or 1.51 pct to 2,857.58 and the Shenzhen A-share Index was up 2.91 points or 0.51 pct at 572.48. In the B market, the Shanghai B-share Index added 1.27 points to 131.38, while the Shenzhen B-share Index ended up 7.29 points at 440.61.
   
Taipei also managed some modest gains, as selected technology firms attracted laggard interest, offsetting profit-taking in so-called old economy stocks. The weighted index closed up 17.21 points or 0.22 pct at 7,934.51.
   
But other markets, many of which have traded at record or multi-year highs recently, succumbed to profit-taking.
    
Australian prices were punished by a slump in resource stocks, especially large caps BHP Billiton and Rio Tinto, following a slide in metals prices overnight. Energy stocks Woodside, Santos and Oil Search were also hit after oil prices dipped below 58.00 usd a barrel overnight.
   
The S&P/ASX 200 fell 64.5 points or 1.14 pct to close at 5,584.8, while the broader All Ordinaries index lost 62.9 points or 1.12 pct to close at 5,626.8.    

In Hong Kong, prices were hit by profit-taking as the market gave up most of the 400 points gained in the first two trading days of the year. The Hang Seng Index ended the day down sharply but still holding above the 20,000 level. It lost 387.81 points to 20,025.58.
   
Seoul stocks also slumped for a second day, with the main index falling through 1,400 points, as foreign investors cut their positions amid heavy program selling ahead of next week's options expiry, dealers said. Weaker than expected South Korean consumer confidence data also fuelled the sell-off.
   
The KOSPI index closed down 12.06 points at 1,397.29 although the KOSDAQ index edged up 1.25 points or 0.21 pct to 603.94.
   
In Manila, share prices eased as profit-takers pocketed gains after the benchmark index had breached the 3,000 points level for the first time in nearly a decade yesterday. The composite index ended down 7.96 points or 0.26 pct at 3,012.74.
   
In New Zealand, the market slipped back, pressured by weakness in large cap Telecom NZ, with the benchmark NZX-50 gross index closing down 20.54 points, or 0.5 pct, to 4,028.96.

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Oil prices fell ahead of the weekly inventories report, which could show stockpiles have increased after five weeks of drops. A barrel of light sweet crude fell $1.07 to $57.25 in morning trading on the New York Mercantile Exchange.
   
The US Energy Information Administration will release its weekly inventory data later today, at 3.30 pm. The data is being released a day later than usual on account of the New Year's holiday Monday.
   
Analysts expect the figures will show a drop of 800,000 barrels in crude oil stocks, although this fall should be countered by a gain of 900,000 barrels in distillate stocks and a rise of 1.5 mln barrels in gasoline supplies.
    
Oil prices came under pressure yesterday as market participants bet temperatures in the US would remain above average for the near future, reducing demand for heating fuels.
   
Oil prices closed out last year with little to no gains. NYMEX crude futures closed only 1 cent above the year earlier closing levels while Brent futures closed only 3 pct above 2005's closing levels.
   
Although prices had rocketed to all time peaks above 78 usd in July and August last year, they soon began tumbling towards 60 usd owing to high levels of US inventories and mild winter temperatures.

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