US & World Daily Markets Financial Briefing 10-07-2007

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Stocks decline after retailer outlooks

NEW YORK - Stocks fell in early trading Tuesday as Wall Street, nervously awaiting a speech from Federal Reserve Chairman Ben Bernanke, reacted to troubling forecasts from the retailers Home Depot and Sears.
   
Bernanke is expected to speak on inflation at 1 p.m. EDT in Cambridge, Mass., and any indication that the Fed chairman believes price pressures are rising could heighten worries about a possible interest rate hike and give the stock market a jolt.
   
Meanwhile, the second-quarter earnings season appeared to be getting off to a rocky start. Early Tuesday, Home Depot Inc. and Sears Holdings Corp. offered disappointing financial outlooks that raised concerns about whether corporate America's future performance will give stocks the boost investors have been hoping for.
   
Home improvement retailer Home Depot said this year's earnings will slip more than expected due in part to the sluggish housing market, while Sears issued second-quarter guidance that fell below forecasts because of weak sales of appliances and other products.
   
The warnings followed second-quarter earnings late Monday from aluminum producer Alcoa Inc., which showed a 4 percent drop in second-quarter profit that met analysts' expectations, but revenue that missed the average forecast.
   
Home Depot and Alcoa are both Dow Jones industrials. In the first hour of trading, the Dow fell 64.54, or 0.47 percent, to 13,585.43.
   
Broader stock indicators also dropped. The Standard & Poor's 500 index was down 11.44, or 0.75 percent, at 1,520.41, while the Nasdaq composite index was off 18.30, or 0.69 percent, at 2,651.72.
   
Bond prices soared, pushing down the 10-year Treasury note's yield to 5.07 percent from 5.16 percent late Monday. But the decline in yields failed to boost stocks, because the decrease was caused by worries about the housing market rather than confidence that inflation is easing. In recent weeks, falling yields have buoyed the stock market; high yields can slow down dealmaking and make stocks look like a less attractive investment.
   
At 10 a.m., the Commerce Department will report on May wholesale inventories. Economists predict a rise of 0.4 percent after April's 0.3 percent uptick.
       
The Russell 2000 index of smaller companies fell 8.11, or 0.95 percent, to 845.13.
   
In European trading, Britain's FTSE 100 was down 0.96 percent, Germany's DAX index was down 1.29 percent, and France's CAC-40 was down 1.58 percent.

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Dollar slumps to all-time low against the euro on US sub-prime mkt woes

LONDON - The euro has jumped to a fresh all-time high against the dollar, following reports that ratings agency Standard and Poors has cut the ratings of 12 bln usd worth of US sub-prime bonds.
   
Following the news the dollar fell to a new all-time low of 1.3696 usd, compared to the previous low of 1.3682, which it hit in April this year.
   
"That's (the ratings cut) behind this bout of dollar weakness," said Neil MacKinnon, chief economist at ECU Group.

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Euroshares turn lower midday, lack of guidance, food sector M&A talk continues

LONDON - At 11.53 am, the Dow Jones STOXX 50 Index was down 16.64 points or 0.42 pct to 3,976.97 while the DJ STOXX 600 Index fell 1.64 points, or 0.41 pct to 396.88.
   
Danone and the consolidation in the food industry was in the spotlight. Shares fell 3.9 pct as broadly positive analyst sentiment over the long-term benefits of its acquisition of Numico was offset by concern over the 55 eur a share, or 12.3 bln eur price tag for the Dutch food group.
   
Numico surged close to the bid price, up 22.20 pct, which represents a 44 pct premium to Numico's share price over the last three months.
   
"We estimate the premium that Danone has paid is shareholder value destructive to the tune of 5 eur a share, or 7 eur a share based on cost synergies alone," said broker Lehman Bros, which cut its price target on the stock by 4 usd to 58.50 eur.
   
Merrill Lynch downgraded Danone to 'neutral' from 'buy,' echoing similar concerns over price expressed by its US peer.
   
Groupe Danone said it expects the Numico acquisition to boost its earnings per share by 3-4 pct in the first year, based on consensus estimates for Numico's 2008 net profit, and by 6-8 pct in the subsequent year, chief financial officer Antoine Giscard d'Estaing said.
   
The high price paid for Numico boosted other companies with food divisions. Unilever, which owns brands such as Knorr, Lipton, Amora and Slim-Fast, rallied 3.99 pct.
   
Nestle moved also higher, up 1.53 pct, amid rumours the Swiss food giant may sell its 75 pct stake in eye care company Alcon Inc.
   
"Nestle is moving up amid speculation that the group is planing to sell its Alcon stake, which could be worth some 30 bln usd and allow the group to return cash to shareholders," a London-based trader said. Nestle declined to comment on the rumours.
   
The stock is also being supported by Danone's 12.3 bln eur takeover offer for Numico NV, which highlights the sound strategy and good price of Nestle's acquisition of Gerber, a Zurich-based food analyst said.
   
Staying in M&A, shares in Air Liquide surged 3.47 pct to all-time high levels as rumours resurfaced in the market that private equity firm KKR is mulling a bid for the French company.
    
Telefonica ticked up 0.12 pct after the Financial Times said it has made a 3 bln eur-plus offer to Portugal Telecom to secure exclusive control of their jointly-owned Brazilian mobile operator Vivo.
   
Telefonica has told Portugal Telecom to respond to the offer by August, it said, without specifying sources.
   
And in a related development, Telecom Italia shares climbed 0.41 pct, off earlier highs, after Telefonica chairman Cesar Alierta told the Financial Times that the Spanish group could eventually secure control of the company.
   
Telefonica is part of a holding company that is close to securing a 23.6 pct stake in the Italian telecom operator.
   
Meanwhile, in utilities, shares in ENI rose 1.41 pct in morning trade on the back of rumours that Gazprom is considering placing a bid for the Italian company.

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Tokyo - Shares traded within a tight range as most players stayed on the sidelines, awaiting the outcome Thursday of the two-day meeting of the Bank of Japan's policy board and the start of the earnings reporting seasons here and in the US.
   
The blue-chip Nikkei 225 Stock Average closed 9.31 points or 0.05 percent lower at 18,252.67, off a high of 18,259.81 and a low of 18,204.04. The TOPIX index of all first-section issues finished 3.03 points or 0.17 percent lower at 1,789.20, off a high of 1,790.42 and a low of 1,783.68.
   
Decliners beat gainers 928 to 627, with 172 issues flat. The volume traded increased to an estimated 1.84 billion shares from 1.7 billion Monday.
   
In the insurance sector, Mitsui Sumitomo Insurance was 28 yen or 1.8 percent higher at 1,591, Nipponkoa Insurance rose 26 yen or 2.3 percent to 1,148 and Millea Holdings advanced 180 yen or 3.5 percent to 5,300.
   
Kawasaki Heavy Industries Ltd climbed 12 yen or 2.3 percent to 525 after a newspaper reported that the engineering company would spend about 2 billion yen on doubling the capacity of its motorcycle plant in Thailand to 200,000 bikes a year.
   
Shares in auto makers were mixed. Hino Motors jumped 40 yen or 5.4 percent to 784 and Isuzu Motors rose 21 yen or 3.1 percent to 698, but Toyota Motor slipped 40 yen or 0.5 percent to 7,790 and Honda Motor was down 30 yen or 0.7 percent at 4,530.

Seoul - South Korean share prices closed higher Tuesday, extending gains for a seventh straight day, with the main index hitting fresh record highs following an upbeat assessment of the economy by the Bank of Korea.
   
The central bank upgraded its GDP projection for this year to 4.5 percent from 4.4, citing robust export growth and and a modest uptick in domestic demand.
      
The KOSPI index closed up 10.94 points or 0.58 percent at a new record finishing high of 1,894.53. The closing level was only slightly below the new all-time intraday high of 1,895.98 touched during the day. The intraday low was 1,881.36. Volume was 399.3 million shares worth 6.4 trillion won, with gainers outpacing losers 416 to 327.
   
Telecoms and lenders, which have lagged other stocks in the current rally, registered the strongest gains.
      
SK Telecom gained 8,500 won or 4.22 percent to 210,000 won on a report that it is seeking to take control of US mobile phone service provider Sprinter Nextel. The report was later denied by the company.
   
Sydney - Australian shares closed weaker on Tuesday as investors took profits after the key indexes hit fresh record highs on Monday. The S&P/ASX 200 ended down 39.1 points or 0.61 percent at 6,361.5, retreating from Monday's record close of 6,400.6. The All Ordinaries Index lost 31.7 points or 0.49 percent to settle at 6,397.8, after hitting a record 6,429.5 yesterday.
   
Volume traded reached 1.77 billion shares worth 5.99 billion Australian dollars. Falls slightly outnumbered rises 649 to 609, and 341 stocks were unchanged. The S&P/ASX200 September futures contract was down 35.0 points at 6,371.0. The yield on the 10-year bonds fell 0.023 percentage point to 6.2725 percent, while the yield on the 90-day bills shed 0.012 percentage point to 6.438 percent.
      
BHP Billiton shares ended down 37 cents at 38.46 dollars but Rio Tinto added nine cents to close at a record 103.49 dollars.
       
Woolworths shares dropped 86 cents or 2.96 percent to finish at 28.19 dollars. Rival Coles gained eight cents to 15.21 dollars but its suitor Wesfarmers fell 17 cents to 41.18 dollars.
   
Westfield shares shed eight cents to 19.82 dollars and CSL lost 2.13 dollars or 2.4 percent to 86.50 dollars. But Alumina gained after partner Alcoa's strong second-quarter profits released on Monday, ending up 19 cents or 2.4 percent at 8.25 dollars.
   
Jackson Gold rose 1.5 cents or 8.6 percent to 19 cents after the exploration company signed an option agreement to earn a 92.5 percent stake in the Rio Colorado uranium project in Argentina.

Bangkok - Thai share prices closed sharply higher Tuesday, hitting levels not seen since before the 1997 financial crisis, despite worries over the central bank's intervention to slow the baht's rise.
        
The Stock Exchange of Thailand (SET) composite index jumped 14.26 points or 1.69 percent to 858.45 points and the blue chip SET 50 rose 12.01 points to 616.83. Gainers topped losers 230 to 131 with 112 stocks unchanged on volume of 7.7 billion shares worth 39.9 billion baht.
   
The Thai baht reached a new 10-year high against the dollar, closing at 33.48-50 to the US dollar  from Monday's close of 33.82-84. Against the euro, the Thai unit was at 45.58-80 from 46.10-30.
       
Thailand's top energy firm PTT jumped 12.00 baht to 308.00 and its unit PTT Exploration and Production added 2.00 to 127.00.
   
The top lender Bangkok Bank rose 3.00 to 133.00. Thai Airways International edged down 0.50 to 43.50. The largest mobile phone operator Advanced Info Service was up 2.50 to 93.50.

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Nickel sinks to 7-mth low as stocks increase, copper down, gold up

LONDON - Nickel prices sunk to a seven month low after the LME reported stocks rose again, adding fuel to the idea that supply is nowhere near as tight as it has been in the past few months.
   
The grey metal soared to a record high of 51,800 usd in May when global inventory stood at less than a day's worth of consumption. However, with prices so high, demand took a hit and the metal's value has lost nearly 40 pct since hitting the all-time high.
       
The LME said stocks rose 72 tonnes to 9,954 tonnes earlier, in a daily report. Inventory tracked by the LME has risen 224 pct since hitting a low of 2,982 in February.
   
UBS analyst John Reade said 10,000 tonnes is a psychologically important volume of stocks for market players. Prices also slumped as stainless steel producers, which had heavily relied on the metal for output, are using less of the grey metal.
   
At 2.21 pm LME nickel for three-month delivery was down at 32,200 usd, its lowest level since January, from 34,400 usd yesterday.
   
Elsewhere, copper continued lower on profit taking but stayed close to a two-month high hit yesterday because supply threats from strikes across the globe limited losses.
       
Copper was down at 7,870 usd from 7,990 usd at the close yesterday.
   
Codelco, the world's biggest copper producer, has stopped operations at its Andina plant in Chile, because of labour protests. A protest announced yesterday at Collahuasi, Chile's third biggest mine, also continued to stoke jitters. Collahuasi's output accounts for nearly 3 pct of total global supply.
   
In other base metals, lead eased slightly, having hit yet another all-time high yesterday of 2,949 usd per tonne. Lead was down at 2,920 usd from 2,946 usd at the close yesterday. Aluminium was down at 2,799 usd from 2,813 usd, and zinc eased to 3,375 usd against 3,450 usd. Tin was flat at 14,150 usd.

Gold extended yesterday's one-month high as the dollar stayed weak ahead of a widely anticipated speech from Federal Reserve governor Ben Bernanke this evening.
   
The precious metal was also benefiting from technical factors, with some market players predicting the recovery in gold prices this week could mark a break from the recent two-month downtrend.
   
At 1.36 pm, spot gold was quoted at 661.40 usd per ounce, up slightly from 660.60 usd in late New York trades yesterday. Earlier, the metal hit 663.23 usd per ounce, extending yesterday's one-month high of 662.95 usd.
   
While gold should climb higher if the dollar weakens further through the day, not all market participants are ready to put their money behind bullion considering its weak overall performance in the year to date.
    
In other precious metals, silver was up at 12.82 usd per ounce against 12.72 usd, platinum was down at 1,297 usd per ounce against 1,301 usd while palladium dipped to 365.50 usd per ounce against 366 usd.

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