US & World Daily Markets Financial Briefing 08-03-2007

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Stocks Rise at Opening on Gains Abroad

NEW YORK - Wall Street extended its recovery from last week's big plunge, rising sharply Thursday as investors responded to stabilizing markets abroad and looked past disappointing retail sales reports for February.
   
Lackluster retail sales figures, including lower-than-expected results from Wal-Mart Stores Inc., didn't shake the market's reviving confidence; investors seemed reassured by gains of more than 1 percent in Europe's major market indicators and a nearly 2 percent rise in Japan's Nikkei stock index. The dollar also fought its way higher against the yen, giving a boost to sentiment on Wall Street.
   
The rise in overseas markets appeared to overshadow word from the Labor Department that the number of newly laid-off workers seeking unemployment benefits fell last week to the lowest level in a month. The figures arrived a day ahead of the Labor Department's much-anticipated February employment report.
   
Investors are eager for signals about the health of the economy, and consumers collecting a paycheck are much more likely to continue the robust spending that has helped keep the economy charging ahead in recent years.
   
In the first hour of trading, the Dow Jones industrial average rose 72.98, or 0.60 percent, to 12,265.43.
   
Broader stock indicators also moved higher. The Standard & Poor's 500 index climbed 10.73, or 0.77 percent, to 1,402.70, and the Nasdaq composite index advanced 17.46, or 0.74 percent, to 2,392.10. The Russell 2000 index of smaller companies rose 5.77, or 0.74 percent, to 781.67.
   
Bonds fell as stocks rose; the yield on the benchmark 10-year Treasury note rose to 4.52 percent from 4.50 percent late Wednesday. Gold prices rose.
   
Light, sweet crude fell 2 cents to $61.80 on the New York Mercantile Exchange.
   
Investors not only looked to Asia for news on stocks but also to comments from U.S. Treasury Secretary Henry Paulson who, in a speech in Shanghai, called on China to more rapidly adopt the type of financial practices seen on Wall Street.
   
Europe also stole some of Wall Street's attention as the European Central Bank raised interest rates by a quarter point, as expected. The Bank of England left rates unchanged. In afternoon trading, Britain's FTSE 100 rose 0.88 percent, Germany's DAX index added 0.84 percent, and France's CAC-40 advanced 0.89 percent.
   
Stocks in focus

In corporate news, Wal-Mart's same-store sales, or sales at stores open at least a year, rose a lower-than-expected 0.9 percent in February. Wall Street had been looking for the world's largest retailer, which has lately shown some difficulty boosting its monthly numbers, would increase 1.5 percent. Wal-Mart was one of only a handful of the 30 stocks that comprise the Dow industrials to fall Thursday. The stock fell 40 cents to $47.52.
   
Nordstrom rose $2.44, or 4.8 percent, to $52.86 after its February same-store sales jumped 9.1 percent -- well above the 5.7 percent increase predicted by a Thomson Financial poll of analysts.
   
Same-store sales are a key measure of a retailer's performance and a strong report Wednesday luxury department store chain Saks Inc. fanned Wall Street's high expectations for similar retailers. Saks, after rising Wednesday, rose 28 cents to $20.10.
   
Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume came to 197.2 million shares. A less frenetic pace on Wall Street in recent days has lent support to the notion that perhaps stocks are again finding their stride.

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Euro stable after expected ECB rate hike; eyes turn to statement

LONDON - The euro remained steady after the European Central Bank increased its key interest rate to 3.75 pct, as widely expected. Investors will now look to the press conference and statement at 1330 GMT for signals as to the direction of future policy.
   
After recent jitters in equity and commodity markets and mixed economic data, investors have scaled back their interest rate expectations.
   
In light of this Jacques Cailloux at Royal Bank of Scotland said he "cannot imagine a scenario where the ECB would be dovish relative to expectations."
   
He expects ECB president Trichet to reiterate the phrase that "monetary policy remains accommodative", that "rates are still at low levels" and that the bank will "monitor closely".
   
Either way, Trichet's rhetoric is likely to have a sizeable impact upon markets and the euro.
   
"Trichet will need to choose his words very carefully as he could whip-saw the markets very aggressively," said David Brown at Bear Stearns.
   
Any omission of the key phrases would open the door to expectations that the tightening cycle has peaked, which would weigh on the euro.
   
Meanwhile, the pound has weakened, mostly against the dollar and euro, after the Bank of England left interest rates unchanged.
   
Although the outcome was widely expected, a minority of analysts were forecasting a hike, reflecting investors' jitters that the BoE might surprise markets as it did when it hiked in January.
   
"Softer retail sales and relatively contained wages growth may have provided sufficient comfort for the pause (in rate hikes) to be extended at least another month," said Daragh Maher at Calyon.
   
However, the case for another hike remains strong, and "the market may be underplaying the risk that the BoE could move at the next meeting in April," according to Maher.
   
In the wider scheme of things, currencies are still seen to be sensitive to developments in the equity and commodities markets. Any further sell-off would see the yen rallying and the euro and pound weakening, as happened last week, as investors adjust their risk assumptions.

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Top Stories in Europe at 11.05 GMT

Duesseldorf - EON AG said in its annual 20-F report filed to the US Securities and Exchange Commission (SEC) that it is under investigation by the body for matters relating to its accounting practices in the period from 2000-2003.
 
Frankfurt - Deutsche Lufthansa AG's chief financial officer Stephan Gemkow said he expects the company to "surpass (its) group target of 1 bln eur in operating result" in 2008 "at the latest". He also said at an annual press conference that he sees the aviation giant's operating result improving this year from 845 mln eur in the full year 2006.

Merck KGaA chief financial officer Michael Becker expects the sale of the company's generics operations to realise 5 bln eur, Financial Times Deutschland reported citing a source. Potential buyers are to submit non-binding offers to Merck by Monday, the newspaper said citing other sources close to the transaction.

Paris - Carrefour said it expects sales to be flat or higher in 2007 on a constant exchange rate basis and sees operating profit growth slower than that of revenues, due to its strategy of low prices and expansion. It said it still expects to generate 10 pct growth in sales in 2008, adding that the guidance for both 2007 and 2008 requires it to make "tactical acquisitions."

Suez unveiled a 43.5 pct surge in net profit for 2006, ahead of its own recent guidance and consesnsus, and set targets for strong growth in both gross and current operating profit in 2007. Net profit was 3.606 bln eur, up from 2.513 bln and current operating profit was 4.497 bln eur, up 15.9 pct from 3.902 bln on an organic basis.

Retailer PPR said full year net profit was 685 mln eur, up 28.0 pct from a year earlier, citing strong operating results in both retail and luxury goods. Recurring operating profit was 1.275 bln eur, up 19.9 pct from a year earlier.

Veolia Environnement said full-year recurring operating profit was 2.222 bln eur, up 16.7 pct from a year earlier and just shy of the consensus of 2.229 bln, as margins rose amid further growth in all business areas. Net profit was 758.7 mln eur, up 21.9 pct from a year earlier.

Milan - Italcementi SpA booked a full-year profit of 449.5 mln eur, up 14.9 pct from a year earlier and beating market consensus, but it warned higher operating costs will limit earnings growth in 2007. In the full year, Italcementi posted a 17.1 pct increase in sales to 5.854 bln eur, operating profit of 1.012 bln eur and net profit of 449.5 mln eur.

London - UK insurer Royal & Sun Alliance PLC turned in a better-than-expected 5 pct increase in full-year profit, helped by cost controls and lower storm damage claims, and unveiled a more generous dividend policy to mark the sale of its troubled US unit earlier this week.
 
RSA said its operating result for the year to Dec 31 2006 came in at 780 mln stg, up from 743 mln stg the previous year. Analysts had expected an operating result of 764 mln stg, according to a consensus forecast supplied by the company.

Bus and rail operator Arriva PLC said it plans further acquisitions and returns to shareholders as it reported an 8 pct rise in operating profit before goodwill, intangible asset amortisation and exceptional items to 126.7 mln stg. Arriva said it has strong cash flow and a strong balance sheet. "Acquisitions, investment and returns to shareholders all have a call on our available financial resources," it said in its full year results statement.

Amsterdam - Dutch insurer Aegon NV reported a strong rise in fourth-quarter pretax operating results, beating forecasts, amid a better-than-expected rise in the value of new business.
 
Pretax operating profit, which excludes gains on investments and impairment charges, jumped to 735 mln eur in the fourth quarter from 643 mln a year ago. Analysts expected on average a result of 605 mln eur.

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Asian shares close mostly higher; Tokyo recovers on yen fall

HONG KONG - Shares across the Asia-Pacific region closed mostly higher, with Tokyo rising on the yen's decline and China's markets benefiting from fund inflows.
   
Tokyo shares recovered from early losses to close broadly higher as the yen's steep decline encouraged conjecture in the market that the unwinding of yen carry trades may have run out of steam.
  
Relieved that the unwinding of carry trades -- in which money is borrowed here at low interest rates and invested in higher-yielding assets abroad -- may no longer drive up the yen, investors snapped up shares, sending the Nikkei 225 Stock Average above 17,000 points for the first time in four sessions.
   
The Nikkei closed 325.69 points or 1.94 pct higher at 17,090.31, its high for the day. The TOPIX index of all first-section issues gained 31.36 points or 1.86 pct to settle at its own high for the day of 1,720.96.
   
Tatsuo Kurokawa, a strategist at Japan Asia Securities, said: "Aggressive short-covering on the Nikkei futures emerged on the back of the yen's fall, and this prompted a greater variety of investors to rush to buy, across all sectors."
   
Australian shares closed relatively unchanged as investors adopted a cautious approach after two days of solid gains. Investors began the trading session weighing on the major bank and resource stocks before resilience in the wider market reversed most of these earlier losses.
   
Dealers said investors are likely to maintain their wariness until the sell-off in global equity markets is seen as coming to an end and unlikely to trap over-enthusiastic buying. The market is expected to remain flat tomorrow ahead of the key US non-farm payrolls report.
   
The S&P/ASX 200 slipped 3.0 points or just 0.05 pct at 5,822.3, with the key index closing off the day's low of 5,774.6.
   
Hong Kong shares had posted a strong recovery in afternoon trade as investors picked up stocks such as Swire Pacific and Bank of Communications ahead of results announcements.
   
The market also took a lead from China's A-share bourses which gained after the government's draft corporate income tax law set a unified tax rate of 25 pct for foreign and domestic firms, resulting in a tax cut for Chinese firms. At 3.30 pm the Hang Seng Index was up 205.89 points or 1.09 pct at 19,124.53.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on fresh fund inflows and a stronger yuan, with metals and property stocks in demand. The Shanghai A-share Index was up 33.07 points or 1.09 pct at 3,076.24 and the Shenzhen A-share Index was up 13.80 points or 1.76 pct at 796.54.
   
Seoul shares finished higher for a third day, with triple witching resulting in only limited program selling as the Bank of Korea's decision to keep rates steady provided further clarity on the outlook, dealers said.
   
Initial sentiment was cautious following Wall Street's weaker close but the market turned around in tandem with the rally in Tokyo, with investors cheering the BoK's continuing optimism on the economic outlook and improved consumer confidence data for February.
   
The KOSPI index closed up 12.94 points or 0.92 pct at 1,423.89, off a low of 1,408.34 and a high of 1,433.15.

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Gold rises for 3rd day as equity markets continue to recover

LONDON - Gold rose for a third day as investors took comfort from a continued recovery in global equity markets and as a fall in the yen against the dollar lent support.
   
At 12.36 pm, spot gold was quoted at 653.40 usd an ounce, up from the 650.75 usd level seen in late New York trades yesterday.
   
"As asset markets have recovered further over the past 24 hours so gold has traded steadily higher," said UBS Investment Bank analyst John Reade, adding the recent bout of risk aversion appears to have slipped from memory.
   
Silver was up at 13.11 usd an ounce against 13.01 usd in late New York trade yesterday, platinum was up at 1,194 usd an ounce against 1,184 usd while palladium was flat at 346 usd an ounce.

Nickel hits new record high for second day running; oil steady

LONDON - Nickel surged to a new record high for a second day running, as the metal remained supported by critically low stocks and strong demand from the stainless steel sector.
   
Also, a tentative recovery in global equity markets was underpinning prices in all metals, analysts said. London shares opened firmer this morning while over in Asia, the Nikkei and the Hang Seng index both closed higher.
      
At 10.43 am, LME nickel for 3 month delivery was at 42,700 usd a tonne, hitting a new all time high of 43,150 usd earlier. Yesterday, the metal hit what was then an all time high of 42,350 usd.
   
"Nickel is continuing where it left off yesterday and the day before based on strong fundamentals, (LME) stocks are down again today ... stainless steel sector demand is strong," said BaseMetals.com analyst Martin Hayes.
   
Stainless steel demand accounts for about 70 pct of total nickel consumption, and Hayes said there is very little evidence this demand is abating or that manufacturers are looking to substitute.
      
The LME said in a daily report that its nickel stocks fell 222 to total 3,426 tonnes. This leaves less than 3,000 tonnes available to the market - equivalent to less than a day's worth of global consumption.
   
Tin was up at 13,700 usd a tonne against 13,600 usd at the close yesterday, still benefiting from news out yesterday Indonesia is considering export quotas to put a floor of 12,000 usd a tonne under prices.
   
Lead was up at 1,880 usd a tonne against 1,850 usd at the close yesterday, underpinned by news of a blast at a Zinifex lead smelter at Port Pirie in Australia.   

Copper was up at 6,305 usd a tonne against 6,140 usd at the close yesterday, aluminium was up at 2,745 usd against 2,730 usd while zinc was up at 3,400 usd against 3,360 usd.

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