US & World Daily Markets Financial Briefing 04-09-2007

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Economic Data

Overall construction spending in July unexpectedly posted the first decline in half a year, dragged down by the sharpest decline in home building since January, the Commerce Department said today.
 
The Institute for Supply Management said its index of manufacturing activity fell to 52.9 in August. Analysts were looking for a pullback to 53.0, from 53.8 in July.

Mortgage giant Freddie Mac said today it would issue 4 bln usd in new securities this week.

A report on national manufacturing trends due out Tuesday is forecast to show the industrial sector grew at a slightly slower pace in August amid turmoil in the housing market.

Economists expect Commerce Department data due Tuesday to show that construction activity was unchanged in July after dipping slightly a month earlier.

Stocks in Focus

PepsiAmericas Inc., the largest bottler of Pepsi beverages, said Tuesday it completed the purchase of Agrima JSC, which bottles PepsiCo Inc. drinks in Bulgaria.

Advertising and marketing company Omnicom Group Inc. said Tuesday it bought a majority ownership interest in China-based Consultech.

Photo company Eastman Kodak Co. and flash memory drive producer Lexar Media Inc. said Tuesday they have signed a five-year extension of a deal under which Lexar develops and markets Kodak-branded flash memory drives globally.

Home Depot Inc said it expects buy about 289.6 mln share at 37 usd each for a total cost of about 10.7 bln usd under a modified "Dutch Auction" tender offer.

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Dollar, yen higher as risk appetite wanes; US data to give direction

LONDON - The dollar and the yen strengthened as investors pared back their exposure to risk, amid growing fears of an economic slowdown sparked by recent financial market instability.
   
As risk aversion grows, the dollar strengthens thanks to its role as a safe haven, and the yen benefits from the unwinding of the risky 'carry trade' currency bet which has kept it persistently weak.
   
Signs of the first economic effects of the market turmoil will come this week as a wealth of data is released.
   
The key US economic indicator is Friday's payrolls report for August, but before then investors will be examine the latest ISM surveys into the manufacturing and services sectors, as well as the US Federal Reserve's Beige Book -- a compilation of anecdotal economic reports from its regional banks.
   
Interest rate decisions from central banks in the euro zone, the UK, Canada and Australia will also be in focus, and could have a marked impact on market sentiment.
       
None of the four central banks are predicted to hike rates, and much attention will be given to accompanying comments from the European Central Bank, which is now expected to keep its key refi rate on hold at 4.00 pct on Thursday in light of the tensions in the financial markets.
       
The Bank of England also delivers its latest interest rate decision on Thursday, and is tipped to keep its benchmark rate unchanged at 5.75 pct, especially as three-month interbank rates hit a near nine-year high today, for the second day in a row.
   
The London interbank offered rate (Libor) for three-month sterling reached 6.798 pct, its highest since the Long Term Capital Management hedge fund crash in December 1998.
   
The BoE, which has hardly said a word about the financial market instability, is coming under more and more criticism for its failure to provide liquidity in the market in the way the Fed and the ECB and its gagging of banks using its back-up lending facility.

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Euroshares off lows midday as Deutsche Bank, other financials gain

LONDON - Europe's leading exchanges were off earlier lows midday as strong gains by a handful of heavyweight banking stocks offset losses by oil and utility plays.
   
At 11.43 am, the Dow Jones STOXX 50 was down 1.28 points at 3770.04 and the STOXX 600 was down 0.46 points or 0.12 pct 376.52.
       
Deutsche Bank jumped 2.53 ahead after reassuring comments by its chief executive Josef Ackermann. He said the company is not exposed to further deterioration of the US sub-prime loan market, putting pay to recent rumours that the banking group would announce a higher exposure than previously stated.
   
Societe Generale added 2.24 pct after Merrill Lynch upped its stance to 'buy' from 'neutral'. KBC added 1.13 pct as it was also upgraded to 'buy' by the US broker. Merrill Lynch also downgraded Lloyds TSB, down 0.37 pct, to 'neutral' from 'buy'.
   
Elsewhere, among financials, Swiss Life added 0.69 pct after the group reported a stronger than expected set of interims and said it expects to achieve its 2008 profit target a year early.
   
Standard Life was also higher after its numbers beat expectations and after recent underperformance. Shares added 0.16 pct. Brit Insurance, though, fell 3.46 pct after the Lloyds insurer and re-insurer warned that second half profits may not be as good as those posted in the first half.
   
Elsewhere, Repsol moved 0.83 pct lower following news late yesterday that Algerian company Sonatrach dismissed Repsol and Gas Natural from a 5 bln eur project to develop natural gas in the country.
      
Gas Natural slipped 1.81 pct. "Gas Natural is getting punished, however, as we still don't have much information on the longer-term impact for them," one trader noted. Peers Suez and Gaz de France added to yesterday's losses amid ongoing investor concern about the likely timing and final pricing of their planned merger.
   
Analysts continue to welcome the deal and expressed some surprise at the selling pressure on the shares. "We maintain our view that this is a positive deal that is likely to close sooner rather than later," analysts at UBS said, in a note.
   
Dexia raised its stance on Suez to 'buy' from 'neutral' noting, that given the merger's parity, "Suez shares would deserve to trade at 40.88 eur versus yesterday's close of 40.36".
   
Natixis analysts on the other hand downgraded their recommendation to 'add' from 'buy', to reflect the evaporation of the speculative interest which had driven gains prior to the merger announcement.
   
PSA Peugeot Citroen shed 1.33 pct as investors suggested the group's targets -- announced this morning -- may be too ambitious.
       
In further M&A news, Valeo and Leoni were in focus after revealing that they were in talks about a potential sale of Valeo's wiring business Valeo Connective Systems to Leoni. Shares in Leoni were 3.85 pct higher while Valeo added 1.86 pct.
   
Nestle slipped 0.67 pct following news it plans to take over water bottling group, Henniez. Lindt & Spruengli was 0.55 pct lower after reports it is planning to bid for Godiva.
   
In the staffing sector, Hays down 3.6 pct amid reports Dresdner Kleinwort placed 17 mln shares in the UK group and as traders say the group's management issued cautious noised on its conference call. The news overshadowed better than expected numbers from the group this morning.
   
Randstad was 1.02 pct lower and USG People and Vedior fell 1.54 pct and 0.48 pct respectively after data showed a slowdown in Dutch staffing market sales.

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Asian markets tread water ahead of New York open; GDP boost for Australia

SINGAPORE - Stock markets across Asia were mostly treading water Tuesday as investors waited for Wall Street to resume trade  after the Labor Day holiday, with Australia outperforming after stronger-than-expected second-quarter GDP data.
   
In Sydney, the S&P/ASX 200 closed up 26 points, or 0.4 pct, at 6,293.3, while the All Ordinaries gained 24.6 points, or 0.4 pct to close at 6,297.1.
   
Data released by the government showed that second-quarter GDP rose a seasonally adjusted 0.9 pct from the previous quarter and 4.3 pct from a year earlier. Economists polled by Thomson IFR were forecasting a 0.9 pct rise from the first quarter and 4.1 pct growth from a year ago.
   
In Tokyo, the Nikkei 225 Stock Average closed down 104.46 points, or 0.6 pct, at 16,420.47, while the broader TOPIX index slipped 8.7 points, or 0.5 pct, to 1,596.74 as traders try to gauge how foreign investors will react to the resignation of Takehiko Endo as farm minister on Monday after just one week in office.
   
The South Korean Kospi was down 7.07 points or 0.4 pct at 1,874.74. Korea Exchange Bank was a standout after HSBC Holdings agreed to buy a 51.02 pct stake in the bank from US private equity fund Lone Star for about 6.3 bln usd in cash.
   
In Hong Kong, HSBC fell 40 cents or 0.3 pct to 139.50 hkd. The Hang Seng Index closed down 18 points, or 0.1 pct at 23,886.07, with investors holding back after news reports suggested China may delay a keenly-awaited pilot project allowing mainland citizens to invest in overseas stock markets, including the Hong Kong bourse.

In China, the Shanghai Composite closed down 27.01 points or 0.51 pct at 5,294.05.
   
Indian shares closed almost unchanged as investors were cautious ahead of Wall Street's return to work after a long weekend.
   
The Bombay Stock Exchange's benchmark Sensex rose 0.28 pct, or 43.35 points, to end at 15,465.40, while the National Stock Exchange's S&P CNX Nifty rose 0.10 pct to 4,479.25. Among the BSE 30, 14 shares advanced and 16 retreated. In the broader market, 1,739 shares gained, 995 lost and 53 were unchanged.

Among the smaller bourses, the Philippines Composite fell 1.7 pct, dragged down by losses in Manila Electric Co, the nation's biggest power retailer. The company extended losses after regulators yesterday announced the approval of a smaller-than-expected increase

Elsewhere, the Singapore Straits Times was down 0.3 pct. Shopping mall operator CapitaMall was the most actively traded stock, adding 4 cents to 3.40 dollars with 30.81 mln shares traded.
      
The Kuala Lumpur Composite was down 0.03 pct and the Taiwanese Taiex was down 0.63 pct. The Jakarta Composite was barely changed.

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Coffee prices up on increased demand, lower supply from Brazil

LONDON - Coffee prices rose in London on increased consumer demand and heightened concerns about declining supplies from South America.
   
While the crop from key Robusta producer Vietnam is expected to be good, supplies from the world's largest producer, Brazil - whose output is 31 pct Robusta beans - is expected to decline significantly in the year to July.
   
"The fundamental issue is strong demand for coffee," said Standard Chartered analyst, Abah Ofon. "Perhaps most importantly we've seen a rise in per capita consumption, and despite good supply from Vietnam, we're expecting to see output down by more than 30 pct in Brazil next year."
   
At 12.20 pm, coffee for November delivery was up at 1,786 usd on the Euronext Liffe from 1,775 usd at the previous close.
   
Meanwhile cocoa prices have declined recently and are expected to continue to be pressured due to expectations of increased supply out of key producers the Ivory Coast and Ghana. "We're moving into the harvest season and the crops are expected to be good, which is weighing on prices," Ofon at Standard Chartered said.
   
He added that predictions for further rainfall on the west coast of Africa were bolstering investors' view that cocoa prices were going to fall on rising exports from the key producing region.
   
Cocoa for December delivery was down at 957 stg from 958 stg on the Liffe exchange. Cocoa has declined from above 1,000 stg in the last two weeks.
   
Elsewhere, wheat prices have hit all-time record highs in London, New York and Paris in the last week due to fears of a supply crunch following poor weather conditions in several key producers.
   
On the Euronext Liffe in London, wheat contracts were trading at 184.00 stg a tonne, up from 178.00 stg. On the demand side, record prices are leading some countries to buy more of the grain now, in case prices rise even further.
   
Last week, South Korea and Taiwan issued new wheat tenders while Egypt, the world's second largest importer, continued to buy more US wheat. India on the other hand, said Friday it would not purchase more wheat than tendered.
   
Among other soft commodities traded on the Liffe exchange, No 5 sugar for October delivery was down at 273.80 usd, from 276.00 usd.

Nickel took a hammering as more signs emerged stainless steel producers are using less of the metal. At 2.16 pm, nickel for three-month delivery was trading at 28,400 usd against 29,850 usd at the close yesterday.
   
In other base metals copper was down at 7,240 from 7,390 usd at the close yesterday. Aluminium was down at 2,450 usd from 2,479 usd, lead fell to 2,955 usd from 3,021 usd, tin was down to 14,525 usd from 15,300 usd while zinc eased to 2,920 usd from 3,040 usd.

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