US & World Daily Markets Financial Briefing 05-10-2007

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Stocks higher following jobs report

NEW YORK - Stocks rose sharply in early trading and bond prices tumbled Friday after the government reported strong September job growth and revised August's weak data upward.
   
The Labor Department's report that employers added 110,000 jobs in September -- near the 115,000 increase analysts had expected -- reassured Wall Street that the job market wasn't pulling back sharply but that an interest rate cut could still be a possibility when the Federal Reserve meets Oct. 30-31.
   
Crucially, August payrolls were changed to a gain of 89,000 versus the previous estimate of a 4,000 decline.
   
Strength this year in the job market amid a housing downturn and tighter credit conditions has been an important pillar for the economy.
   
The unemployment rate rose to 4.7 percent from 4.6 percent in August as hundreds of thousands of people came back into the labor market, looking for work.
   
In the first hour of trading, the Dow Jones industrial average rose 77.23, or 0.55 percent, to 14,051.54.
   
Broader stock indicators also rose. The Standard & Poor's 500 index rose 9.00, or 0.58 percent, to 1,551.84, and the Nasdaq composite index rose 24.28, or 0.89 percent, to 2,757.85.
   
Bond prices fell sharply as investors interpreted the jobs data as evidence against a rate cut. The yield on the 10-year Treasury note, which moves opposite its price, climbed to 4.61 percent from 4.53 percent late Thursday.
   
While employment appeared to be holding up, Wall Street was also forced to examine the ramifications of credit market tightness and a slumping housing market on the banking sector. Merrill Lynch & Co. warned of a loss in the third quarter, and Washington Mutual Inc. forecast sharply lower profit due to problems stemming from turmoil in the mortgage market.

The warnings follow similarly weak forecasts from Citigroup Inc. and UBS AG earlier this week.
   
Merrill rose $1.08 to $75.87, while Washington Mutual rose $1.12, or 3.2 percent, to $36.40. Many investors expect the financial institutions to return to more normal results in the current quarter.
   

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Dollar gains sharply on strong US non-farm payrolls data

LONDON - The dollar gained sharply as key figures showed a strong gain in US non-farm payrolls during September.
   
The data showed the US economy created 110,000 jobs in September, in line with expectations. The real surprise, however, came in the extremely sharp upward revision to August's data from a fall of 4,000 to a rise of 89,000.
   
"Payrolls come in at the top end of the market expectations, good in itself but it is the significant upward revision to the August number that has driven the dollar higher," said Peter Stoneham at Thomson IFR Markets.
   
At 12.56 pm GMT, the euro was trading at 1.4063 against the dollar, down from 1.4130 just before the data were released, though off an earlier two-week low of 1.4030 usd.
   
The pound was trading at 2.0326 usd from 2.0383 previously. The UK currency hit a low of 2.0300 usd immediately after the data.

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Euroshares edge up midday as Dow seen higher; Barclays gives up ABN Amro dream

LONDON - Europe's leading exchanges edged higher midday as the DJIA is expected to post modest gains, and as Barclays withdrew from the battle for ABN Amro, with all eyes on this afternoon's US employment data.
   
At 12.24 am, the Dow Jones STOXX 50 Index was up 10.82 points, or 0.28 pct, at 3,885.28 while the DJ STOXX 600 Index rose 0.56 points, or 0.15 pct to 384.73.
      
Turning back to Europe, the banking sector took centre stage as the battle for ABN Amro came to an end with a 70 bln eur takeover offer from a consortium of banks led by Royal Bank of Scotland the victor.
   
Barclays conceded defeat in the takeover battle at midday, saying that it has requested the payment of a 200 mln eur break fee for the deal. The banking group also said it will start a share buyback programme, with up to 1.55 bln stg still available to purchase a maximum of 196.0 mln shares for cancellation during the period from Oct 8 to Dec 31 of this year.
   
Barclays shares were up 0.15 pct, ABN Amro shares were down 0.03 pct, and shares in Royal Bank of Scotland slipped 0.53 pct.
   
Elsewhere in the sector, Northern Rock shares slumped 5.32 pct as the Financial Times said the company was forced to borrow a further 2.9 bln stg from the Bank of England last week to shore up its funding needs.
   
In broker action, ABN Amro has downgraded HBOS, down 2.19 pct, to 'hold' from 'buy'. Commerzbank fell back 1.17 pct after Cazenove cut its rating to 'underperform' from 'in-line'.
   
Mortgage bank Alliance & Leicester slumped 3.05 pct as Deutsche Bank downgraded the shares to 'sell' from 'hold' and reduced its target to 775 pence from 1,145.
   
Among insurers, Scor was down 1.86 pct after UBS downgraded the French re-insurer and Swiss Re to 'neutral' from 'buy'. Swiss Re, though, was up as JP Morgan upgraded the shares to 'overweight' from 'neutral'. In Germany, Hannover Re slipped 0.35 pct as it was cut to 'neutral' from 'overweight' by JP Morgan, but Munich Re added 0.64 pct as UBS upgraded the shares to 'buy' from 'neutral'.
   
Volkswagen added 2.88 pct amid Porsche stake-building talk. Porsche shares added 2.76 pct.
   
In other merger and acquisition talk, Hagemeyer shares rose sharply for a third day in a row to reach a two-month high, boosted by continued market speculation of a possible takeover approach.
   
Rexel, the French electrical components distributor, is rumoured to be the potential acquirer but a spokeswoman said the group is only targeting small or mid-sized acquisitions and has a war-chest of just 150-250 mln eur, compared with Hagemeyer's 2.2 bln eur market capitalisation.
     
In Germany, shares in Beiersdorf AG rose 1.9 pct as rumours emerged that Henkel KGaA may be interested in acquiring the company known for its Nivea brand. Henkel shares were up 0.4 pct.
   
British Land was down 4.38 pct after news late yesterday afternoon that it had stopped marketing its partial holding in Meadowhall Shopping Centre because of the current turmoil in the financial markets.
   
British Land said the decision was underpinned by positive trading at the centre in Sheffield, with footfall last month well up on 2006.
    
L'Oreal shares were off 1.26 pct after Credit Suisse downgraded the cosmetics giant to 'neutral' from 'outperform,' on valuation grounds.
   
Alcatel-Lucent shares fell 3.5 pct after the Financial Times said the company may lose part of a contract with AT&T Inc after delays in delivery of WCDMA third generation mobile telecoms equipment.
   
Under a 2 bln usd 3G infrastructure contract awarded by AT&T in 2004, LM Ericsson AB was to get about 900 mln usd, Lucent 700 mln and Siemens AG 400 mln, the report said, citing people familiar with the matter.
   
The company's contract difficulties only serve to reinforce market scepticism over its ability to reverse its fortunes after a third-quarter profit warning in early September. Ericsson added 0.92 pct as it will reportedly win the business.
   
Telefonica shares were up 1.2 pct after the Spanish telecom operator said it will raise its fixed-line tariffs in Spain by 2-2.7 pct from January 2008.
   
Easyjet added 3.93 pct after the group said it expects FY pretax profit growth to be at the top end of its previous forecasts.

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Asian markets flat ahead of US jobs report; Hong Kong outperforms

SINGAPORE - Stock markets across Asia were mostly flat Friday as investors marked time ahead of the release of the US September jobs report which they hope will show a recovery from August but still leave room for further interest rate cuts.
   
Hong Kong outperformed, bouncing back from a two-day sell-off on reports the government may lower corporate taxes. Australian benchmarks rose as higher oil and metals prices boosted resource stocks.

The Hang Seng climbed 857.54 points or 3.2 pct to 27,831.52 on a report that the government is planning to cut taxes on profit and salaries, a move that would boost company earnings and give consumers more spending power. Hong Kong Exchanges & Clearing rose 6.9 pct at 244.20 hkd.
   
Japan and South Korea put in lacklustre performances and finished almost flat.
   
The Nikkei 225 closed down 0.2 pct at 17,065.04 and the broader Topix was up 0.1 pct at 1,656.91. The KOSPI shed 0.4 pct to 1,996.03. "This lack of energy in trading is to be expected before the release of US employment data," said Tsuyoshi Segawa, a strategist at Shinko Securities in Tokyo.
   
In Sydney, the S&P/ASX 200 ended up 0.6 pct at 6,605.4, while the All Ordinaries rose 0.6 pct to 6,617.3. The indices added about the same amount on the week.
   
Indian shares ended slightly lower after a volatile session Friday, as the market absorbed higher-than-expected weekly inflation figures and welcomed the listing of state-run power transmission company Power Grid Corp of India Ltd.
   
The Bombay Stock Exchange's Sensex ended 3.78 points or 0.02 pct lower at 17,773.36, while the National Stock Exchange's S&P CNX Nifty closed down 0.44 pct to 5,185.85.
   
"There is nervousness among the traders (given the pace of recent gains)...," said Gul Tekchandani, an independent investment strategist. "Inevitably, though nobody knows when, there will be a correction," he added.
   
The Sensex took just 5 trading days to cross from the 16,000 to 17,000 mark.    

Elsewhere, the Singapore Straits Times Index rose 1 pct to 3,822.62, the Malaysian Kuala Lumpur Composite Index closed up 0.2 pct at 1,372.39 and the Philippines composite index was up a marginal 0.45 point at 3,775.91.
   
The Taiwanese Taiex closed down 0.1 pct at 9,617.26, and the Jakarta Composite rose 1.1 pct to a new all-time high of 2,500.58.
   
Chinese share markets were closed for a national holiday.

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Copper comes off day lows on better-than-expected US payroll numbers

LONDON - Copper came off day lows after a Labor Department report showed better-than-expected US job creation in September and August, helping to ease concerns over the US economic outlook.
   
The report showed the economy gained 110,000 jobs in September, roughly in line with expectations, however the August figure was revised up to a gain of 89,000 jobs from a previous drop of 4,000 jobs.
   
The news helped lift copper off its day lows, although gains were capped because the dollar rallied in response to the data, on reduced speculation the Fed will have to cut rates boost the ailing US economy.
   
At 1.56 pm, LME copper for 3-month delivery was up 37 usd at 8,237 usd a tonne. Before the data, it was trading at around 8,195 usd.
   
Lead also came off day lows following the data, trading up 80 usd at 3,690 usd a tonne, near an all-time record high of 3,720 usd set earlier this morning. Lead has hit a series of fresh record highs over the past two weeks, underpinned by fresh supply risks in Australia and very tight inventories. Stocks on the LME are at their lowest since 1990.
   
In addition, the market is entering its strongest period for demand from the battery industry, and exports from China remain constrained because of new tax restrictions introduced in June.
   
Aluminium was up 15 usd at 2,438 usd, tin was down 120 usd at 15,930 usd and zinc was up 45 usd at 3,070 usd. Nickel bucked the strong trend in metals, falling 95 usd at 30,705 usd a tonne amid a sharp 2,322 tonne rise in LME inventories.
    
At 1.53 pm, gold had recovered to trade at 731.30 usd per ounce against 737.60 usd in late New York trading hours having dropped to as low as 726.90 after the data-release. On Tuesday the precious metal rose to 747.05 per ounce, its highest value since January 1980 when bullion fetched 850 usd.
   
Kitco analyst Jon Nadler said: "A renewed push towards 722 usd appears in the cards."
   
Elsewhere, palladium was slightly lower at 361 usd from 366 usd, having earlier hit 367 usd per ounce - its highest price since Aug 25.
   
Palladium has put in two very strong performances over the past 48-hours, rising 6 pct since Tuesday's high close as fund buying returned in force, said TheBullionDesk.Com analyst James Moore. "Further gains could be seen in the coming sessions before running into more substantial resistance between 370 usd and 385 usd," he added.
   
Meanwhile, silver was largely down at 13.25 usd from 13.38 usd per ounce and platinum was also lower at 1,358 usd against 1,363 usd, retreating from Monday's near record high of around 1,390 usd. Its all-time high of 1,395 usd an ounce was struck in November last year.

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