US & World Daily Markets Financial Briefing 08-10-2007

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Stocks slip as investors await earnings

NEW YORK - Stocks fell modestly Monday as investors, pausing after putting up substantial gains last week, readied for quarterly corporate earnings reports.
   
With the Treasury bond market closed for the Columbus Day holiday and barely any economic or corporate news to guide them, stock market investors remained cautious ahead of the flood of third-quarter earnings, which begins Tuesday with Dow component Alcoa Inc.'s results.
   
The third-quarter results being reported will reflect the difficult times some companies have faced -- particularly in the financial and housing sectors -- following upheaval in the credit markets and amid a souring of some home mortgages.
   
The Dow Jones industrial average fell 16.42, or 0.12 percent, to 14,049.59.
   
Broader stock indexes also dipped. The Standard & Poor's 500 index fell 4.00, or 0.26 percent, to 1,553.59, and the Nasdaq composite index fell 0.72, or 0.03 percent, to 2,779.60.
   
Last week, a sense that corporations are likely to bounce back from some of the concerns that upended credit markets last quarter drove stocks higher. The Dow rose 1.23 percent and set a new record, while the S&P 500 hit a record after gaining 2.02 percent and the Nasdaq composite index rose 2.92 percent. A
pullback isn't unexpected following such gains.
   
Light, sweet crude fell $1.26 to $79.26 per barrel on the New York Mercantile Exchange.
  
News from companies over the health of their profits and comments about their expectations for the fourth quarter are likely to draw attention on Wall Street this week. S&P expects tepid results, predicting a modest decline in total earnings per share for S&P 500 companies. However, it expects growth in the fourth quarter.
   
Ryder System Inc., which supplies trucks and logistics services to commercial customers, lowered its third-quarter and full-year forecasts on weakness in its fleet management business and poor demand in commercial rental products. Ryder fell $3.09, or 6.3 percent, to $46.16.
   
In takeover news, diversified conglomerate Textron Inc. said Monday it will buy United Industrial Corp. for about $1.1 billion to expand its aerospace and defense business. Textron fell 88 cents to $64.50, and United Industrial rose $4.64, or 6.1 percent, to $80.26.
   
In afternoon trading,Britain's FTSE 100 fell 0.52 percent, Germany's DAX index fell 0.42 percent, and France's CAC-40 declined 0.28 percent.

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Euro lower against dollar after weak German data

LONDON - The euro weakened against the dollar after softer-than-expected German manufacturing orders data and as the US currency continued to pick up after the release of strong US jobs data on Friday.
   
Figures released this morning showed German manufacturing orders rose by a modest 1.2 pct in August from July, below analysts' forecasts for a bigger 1.7 pct increase to correct July's very disappointing 6.1 pct decline.
   
The data confirm that the euro zone's largest economy is losing momentum and further suggest that the European Central Bank is unlikely to raise interest rates further.
   
"For the ECB, this should be a further reason to stay firmly on hold far into 2008 despite a likely temporary surge in inflation," said Holger Schmieding at the Bank of America.
   
Meanwhile, the dollar continues to gain after a strong US jobs report on Friday caused markets to reassess the extent to which the Federal Reserve is likely to cut interest rates.
   
The report showed a 110,000 rise in jobs in September, roughly in line with expectations, while August's 4,000 decline was revised up to a gain of 89,000.
   
The dollar has also been helped by comments to the Financial Times from outgoing head of the International Monetary Fund Rodrigo de Rato, who said the dollar was under-valued. As he will be leaving office in a few weeks, Rato spoke frankly on foreign exchange issues ahead of the G7 meeting later this month, and said policymakers "need to keep an eye on" the dollar's weakness.
   
Additionally, the US currency is set to benefit further from expected jawboning by European politicians on the strength of the euro at this evening's gathering of euro zone finance ministers in Luxembourg.
   
The scene was set when earlier today German economy minister Michael Glos commented on the sidelines of a steel industry conference that the euro is a matter of concern to Germany. "The weak dollar generally worries us, especially if it should weaken further," he said.
   
Elsewhere, the yen and the Swiss franc were weaker as renewed levels of risk appetite caused investors to move away from low-yielding assets.
   
The high-yielding Australian dollar was very strong, however, earlier hitting a 23-year high of 0.9031 against its US counterpart on speculation that the Reserve Bank of Australia will raise interest rates once more this year. These strong levels above 0.90 usd have sparked profit-taking, however, and the currency has edged off its highs.

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Euroshares slightly lower midday, SAP sheds 5 pct

LONDON - Leading European exchanges were trading lower midday with SAP shedding some 5 pct after it announced a 4.8 bln eur takeover of peer Business Objects.
   
At 11.52 am, the Dow Jones STOXX 50 Index was 10.79 points or 0.28 pct lower at 3,892.93 while the DJ STOXX 600 Index dipped 0.08 point, or 0.02 pct to 386.85.
   
Shares in the German software maker SAP fell 5.07 pct after it announced late on Sunday that it has agreed to acquire France's Business Objects SA for 4.8 bln eur.
   
Traders noted that the 42 eur a share cash offer may be too high a price to pay for the French group which issued a profit warning this morning on its third quarter. "It's a pretty hefty price," Aurel Leven analyst Brice Francois Thebaud said, noting that SAP's offer represents a premium of around 30 pct on Business Object's average price of the last 30 days.
   
Business Objects gained 17.29 pct to 41.04.
   
In other M&A news, shares in Northern Rock surged 9.59 pct after the Wall Street Journal said US investment funds Apollo Management and Blackstone have shown interest in buying out the embattled UK mortgage lender.
   
In a related development, British media on Sunday reported that US financial giant Citigroup Inc was set to lend Northern Rock up to 10 bln stg to help potential buyers finance the purchase.
   
Over in France, Alstom shares climbed 2.32 pct after Bouygues said late Friday it had lifted its stake in the power infrastructure group to 30.07 pct from 25.35 pct in the last few months. It told Agence France-Presse that it would not rule out further purchases as market opportunities arise.   
   
Inbev charged 4.12 pct ahead amid speculation that it is mulling a bid for peer SABMiller and further boosted by a bullish note from Merrill Lynch.
   
And Tiscali SpA was trading 4.51 pct higher on hopes that the company will be undertaking a lower-than-announced capital hike after it lost out to Vodafone in buying the Italian operations of Tele2, analysts said.
   
Elsewhere, Neste Oil fell 1.80 pct after it said the new diesel line at its Porvoo refinery will be out of production for several weeks, due to faults in some of the valves. The loss of output will affect its fourth-quarter figures, but will not have a fundamental impact on financial results for the full year.
   
Also with regards to earnings, German steel stocks ThyssenKrupp AG and Salzgitter AG gained 0.6 pct and 1.89 pct respectively as both reiterated their 2007 outlooks -- ahead of the the World Steel Conference in Berlin which begins today.
   
Akzo Nobel climbed 1.70 pct higher after the company said that it will increase its dividend pay-out to 45 pct of net income before incidentals from 35-40 pct, and upped the 2007 interim dividend to 0.40 eur per share from 0.30.
   
In broker action, shares in Thomson surged 6.20 pct after broker Cheuvreux upgraded the TV, video and DVD maker to 'outperform' from 'underperform,' saying its earnings visibility has improved following its restructuring plan.

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Asian stock markets mostly higher as US job report eases growth fears

SINGAPORE - Stock markets across Asia were mostly higher Monday, tracking gains on Wall Street after the September jobs report delivered what investors were hoping for -- evidence that the labour market is in decent shape, making it less likely the world's biggest economy is headed for a recession.
   
Benchmark indexes in South Korea, Australia, Singapore, Indonesia and the Philippines set records early in the day before falling back as investors consolidated gains.
   
Hong Kong and Chinese markets gained more than 2 pct at their peak levels, as investors on the mainland returned from a week-long holiday to catch up on a global rally.
   
Malaysia underperformed -- the Kuala Lumpur Composite Index fell 0.6 pct to 1,364.14 as investors braced against a general slowdown in activity heading toward the Muslim festival of Eid al-Fitr on Saturday.
   
The Japanese market was closed for a public holiday.
   
The Philippines Composite Index rallied 2.6 pct to 3,873.50, as telecommunications carrier Philippine Long Distance Telephone stretched to a fresh record on continued upbeat expectations for its earnings.

In South Korea, LG Philips LCD jumped 7.1 pct to 45,950 won on hopes that firm panel prices will boost its earnings. LG Electronics also advanced or 3.2 pct to 90,700 won. The KOSPI closed 0.8 pct higher at 2,012.82 after setting an all-time high of 2,022.01 in early trade.
   
In Hong Kong, MTR rose 1.6 pct to 25.6 hkd. Shareholders will meet tomorrow to discuss the planned merger with KCR Corp, another railway company. Some analysts are betting that the merger will be approved. The Hang Seng index closed down 0.2 pct at 27,770.29, below the day's high of 28,482. The Shanghai Composite closed 2.5 pct higher at a record 5,692.76. Taiwan's Taiex rose 1 pct to 9,717.17.

In Australia, the S&P/ASX 200 closed up 0.7 pct at 6,654.3 and the All Ordinaries was up 0.8 pct at 6,667.2. Mining heavyweights BHP Billiton Ltd and Rio Tinto Ltd once again led the way. BHP was up 1.3 pct to 44.69 aud and Rio rose 3.4 pct to 111.32 aud.

Indian shares gave up early gains to close lower as investors booked profits after ties between the Congress-led UPA coalition government and its Left allies hit a new low.
   
The Bombay Stock Exchange's benchmark Sensex closed down 1.59 pct or 281.97 points at 17,491.39 points, after rising to a record high of 17,982.59 points in early trade.  The National Stock Exchange's S&P CNX Nifty dipped 1.94 pct to close at 5,085.10 points.

The benchmark Sensex got off to a strong start on a firm trend across the globe, cheered by US non-farm jobs data that met expectations. However, the trend reversed on speculation that the country was headed for a midterm elections with Congress president Sonia Gandhi reportedly criticising those objecting a nuclear treaty between India and the US.
   
The Singapore Straits Times Index closed 0.1 pct lower at 3,820.31. The Jakarta Composite rose 0.9 pct to close at 2,523.70.

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Gold down on rising dollar but sentiment upbeat as banks lift price forecast

LONDON - Gold fell pressured by a stronger dollar against the euro after softer-than-expected German manufacturing orders data and as the US currency continued to pick up after the release of strong US jobs data on Friday.
   
The stronger greenback made the dollar-denominated metal more expensive for those trading in other currencies.
   
Sentiment towards the metal was still upbeat, however, with two major banks increasing their price forecasts today. "The key factor determining short-term fluctuations in gold prices remains the value of the dollar and the stabilisation of the dollar over the past weeks," said Barclays Capital analysts.
   
At 2.50 pm, gold was down at 734.70 usd per ounce against 741.10 usd in late New York trades Friday. Last Monday, the metal touched 747.75 usd, its highest point in almost 28 years.
   
On Friday, gold got a knock as US non-farm pay rolls data boosted the dollar. It showed the world's biggest economy gained 110,000 jobs in September, just short of the 115,000 increase expected by economists. That's the largest payroll increase since May. The Labor Department also revised August's surprise 4,000 drop in payrolls to a gain of 89,000.
   
However, in the longer term investor interest has surged recently amid dollar weakness and as global economic stress unnerved traders who then fled towards safe havens, like bullion. UBS increased its 2008 forecast today to 760 usd per ounce from 650 usd, and its price estimate for 2009 was raised to 700 usd per ounce from 550 usd.    

Meanwhile Citigroup thinks gold will average 750 usd in 2008, unchanged from a previous estimate, but the price will rise to 800 usd in 2009, up from a previous price forecast of 750 usd.
   
"Corrections, possibly in early 2008, should be treated as opportunities," said Citigroup analyst John Hill.
   
Looking ahead, traders are awaiting the release of the minutes to the Federal Reserve's Sept 18 meeting. The minutes, to be released tomorrow, could give further clues on the likelihood of further interest rate cuts.
   
If the Fed does decide, in the future, to cut interest rates, the dollar would most likely fall and gold would rise as the traditional inverse relationship plays out. Volumes traded were down today with the US and the Tokyo Commodity Exchange on holiday.
   
Elsewhere, silver dipped to 13.31 usd an ounce against 13.38 usd, platinum was down at 1,361 usd against 1,373 usd while its sister metal palladium dropped to 359 usd against 364 usd.

At 2.44 pm, LME copper for three-month delivery was down over 3 pct at 7,940 usd a tonne against 8,210 usd at the close on Friday. Copper prices rose almost 200 usd per tonne last week, bolstered by fund buying in the face of US dollar weakness and fears strike action at Southern Copper Corp's Peruvian operations could disrupt supply.
   
Prices hit resistance at around 8,200 usd and failed to maintain those levels this morning, as Chinese buyers returning to the market after the week-long holiday associated with National Day last week failed to keep buying in the face of the rise.
   
Elsewhere, aluminium was down at 2,395 usd a tonne against 2,430 usd, lead fell to 3,658 from 3,690 usd, tin dropped to 15,820 usd from 16,100 usd and zinc declined to 2,955 usd from 3,055 usd.

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