US & World Daily Markets Financial Briefing 12-07-2007

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Stocks surge on retail sales reports

Wall Street surged higher Thursday, carrying the Dow Jones industrials into record territory as investors gleaned positive consumer spending trends from retailers' June sales reports. A new bid for aluminum maker Alcan Inc. added to the market's upbeat mood.

The Dow rose more than 100 points and reached a new intraday high.

Though retail sales on the whole appeared to be crimped last month by higher gasoline prices and a tepid housing market, a few reports beat Street expectations -- notably that of Wal-Mart Stores Inc., the world's largest retailer, which posted a better-than-expected 2.4 percent jump in sales at stores open at least a year.

Wal-Mart, one of the 30 companies that make up the Dow Jones industrial average, helped ease some investors' worries about the health of the consumer ahead of the Commerce Department's Friday report on U.S. retail sales.

Meanwhile, the stock market got an additional boost after mining company Rio Tinto offered to buy Canadian aluminum company Alcan for $38.1 billion. The offer topped a bid from Alcoa Inc. that Alcan's board rejected in May, and Alcoa is considering whether to make another bid.

In early trading, the Dow Jones industrial average rose 114.94, or 0.85 percent, to 13,692.81 after climbing to 13,697.77, an intraday record. The Dow's record close is 13,676.32, set June 4.

Broader stock indicators also surged higher. The Standard & Poor's 500 index rose 11.48, or 0.76 percent, to 1,530.24, and the Nasdaq composite index rose 10.14, or 0.72 percent, to 2,670.93.

The 10-year Treasury note's yield fell to 5.08 percent, down from 5.09 percent late Wednesday, adding to stock investors' glee. The dollar was generally lower against other major currencies, dropping to a fresh record low versus the euro and a new 26-year low against the British pound. Gold prices rose.

Light, sweet crude rose 90 cents to $73.46 per barrel on the New York Mercantile Exchange.

In economic data, the Commerce Department reported Thursday that the international trade balance widened to $60.04 billion in May, as expected, from $58.5 billion in April.

Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where volume came to 124.4 million shares.

The Russell 2000 index of smaller companies rose 8.56, or 1.02 percent, to 848.53.

Overseas, Japan's Nikkei stock average fell 0.36 percent. In afternoon trading, Britain's FTSE 100 rose 0.44 percent, Germany's DAX index advanced 0.62 percent, and France's CAC-40 rose 0.88 percent.

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Euro at all-time high against dollar following strong GDP data

The euro continued to post fresh all-time highs against the dollar, supported by an unexpected upward revision to first quarter DP growth and robust industrial production figures.

First quarter euro zone GDP was revised up to show a 0.7 pct quarter-on-quarter increase from the previous estimate of 0.6 pct, while industrial output in May posted a 0.9 pct monthly rise, reversing's April's 0.9 pct decline.

Much of the euro's gains in recent days have been interpreted as dollar weakness due to concern about the troubled US sub-prime credit market. However Stuart Bennett at Calyon said a key driver has also been the continued strength of the euro zone economy and rising expectations as to where interest rates for the 13-nation currency zone will peak.

Meanwhile attention this afternoon is likely to return to the other side of the Atlantic, with the release of the US May trade balance figures.

The trade deficit is expected to have widened slightly, mainly due to a rise in oil import prices, and could place further pressure on the US currency.

Meanwhile the yen was weaker following the Bank of Japan's decision by 8 votes to 1 to keep interest rates on hold at 0.5 pct. In the accompanying press conference, BoJ governor Toshihiko Fukui gave no new hints about when rates might begin to rise.

Fukui reiterated that the bank will gradually adjust rates, taking into account downside risks and the upside potential for the economy, but said most BoJ board members want to see more economic data before making a decision.

Finally the pound was steady, though off an earlier fresh 26-year high against the dollar, supported by a strong survey on UK manufacturing.

The British Chamber of Commerce said the sector saw a "major improvement" in activity during the second quarter, with home-sales and orders at a 12-year high.

Earlier sterling shrugged off a the findings of a survey suggesting the UK housing market is coming off the boil.

The Royal Institution of Chartered Surveyors said only a net balance of 10.6 pct of surveyors reported price gains in June, well down on the 22.5 pct seen in May and the long run average of 21.6 pct. The latest figure is the lowest since Jan 2006.

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Leading European exchanges turned higher midday as Wall Street looks set to add to yesterday's gains and bolstered by strength in heavyweight Nokia after US peer Motorola's third consecutive profit warning.

At 9.24 am, the Dow Jones STOXX 50 was up 9.71 points at 3934.09 as the STOXX 600 was up 0.84 at 393.56.

In the telecoms sector, US mobile phone giant Motorola was in focus after it issued its third consecutive profit warning and a mixed update from Sony Ericsson.

Nokia added 2.67 pct amid hopes it has won market share from its US rival.

Ericsson added 0.36 pct after the numbers from its joint venture with Sony.

SAP added 1.58 pct as talk circulated that the German Software would lift its guidance at its upcoming second quarter update.

Philips was also higher up 1.57 pct.

The oil sector was on the back foot after UBS and Goldman Sachs issued bearish notes on Royal Dutch Shell and ENI respectively.

Royal Dutch Shell was down 0.98 pct as UBS cut Shell to 'neutral' from 'buy', and raised its price target to 2,300 pence from 2,100, according to market sources.

Meanwhile, Goldman Sachs cut its forecasts on ENI by 11 pct for the second quarter and 5 pct for the full year. The broker reiterated its 'neutral' stance. Shares declined by 0.75 pct.

Repsol was down 0.64 pct.

Total turned higher mid-morning with traders saying a strong outlook statement from Norway's Acergy -- up 0.5 pct -- was lifting the stock.

The shares were also supported by surprise news that Russian oil giant Gazprom has chosen France's Total as its development partner for the mammoth Shtokman gas field.

Both Statoil -- up 1.88 pct -- and Norsk Hydro are believed to have been keen to participate in the field's development, but analysts said it was too early to say the Norwegian firms had failed in their bids.

Norsk Hydro -- up 2.24 pct -- is also being supported by news Rio Tinto -- down 1.23 pct -- has made a 38.1 bln usd bid for Canadian aluminium group Alcan Inc.

Rio Tinto, the world's second-largest mining group after BHP Billiton, said its offer was recommended by Alcan's board.

Other miners were higher as sector consolidation hopes persists and thanks to the high price offered for Alcan.

For the first time in 15 years Swiss-Swedish engineering giant ABB is flush with cash and preparing to make a major acquisition, sources told Dagens Industri.

In the frame were France's Legrand -- up 1.31 pct -- or the US's Rockwell Automation Inc as possible targets.

The news also pushed Hagemeyer up 7.47 pct although some failed to see why the Dutch group would be attractive the the Swiss group. Others suggested Rexel -- up 0.25 pct -- is a more likely bidder for the group.

Over in France, Alstom -- also often cited as a target for ABB -- was one of the top gainers, up 4.41 pct, further boosted by its much better than expected first quarter sales and orders.

Essilor, the French eyeglass producer, added 2.91 pct after the company presented second-quarter results which came in above expectations.

Shares gained 2.34 pct and also pulled peer Luxottica -- up 0.21 pct --higher.

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Asian late money market rates (vs previous close):

Hong Kong: 3-month HIBOR rate 4.38 pct (4.42 ) overnight rate 3.8 pct (3.8)

Jakarta: overnight rate 4.01301 (6.08649)

Kuala Lumpur: 3-mth KLIBOR bid/ask 3.56/58 pct (3.55/58) overnight rate 3.48/51 pct (3.48/51 )

Manila: overnight rate 8 pct (8.000)

Seoul: 3-yr corporate bond yield 5.71 pct (5.66) 3-yr state bond yield 5.37 pct (5.32 )

Singapore: avg overnight rate 2.0625 pct (1.680) 3-month SIBOR 2.1875 pct (2.2500)

Sydney: 90-day bank bill rate 6.442 pct (6.450)

Taipei: overnight rate 2.011 pct ( 2.003 )

Tokyo: unsecured overnight rate 0.509 pct (0.499) n3-month TIBOR 0.75000 pct (0.74833)

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Copper rose towards a recent two month high, well-supported by continued strikes across the world and as signs of tight global inventory emerged.

All base metals also benefited from a weak dollar which made the commodities cheaper for those trading in other currencies. Further, signs of an ailing US economy, which in part has battered the dollar, prompted investment into metals as a hedge.

Failed pay talks at Chile's Collahuasi mine, which accounts for 3 pct of global supply, helped lift copper's price. Union president Hernan Farias said production was 85 pct lower, according to a report by the FT.

At 1.59 pm, LME copper for three-month delivery stood at 7,946 usd a tonne from 7,941 usd at the close yesterday, having earlier reached as high as 7,990 usd -- less than 1 pct off a two month high of 8,015 usd struck Monday.

The LME confirmed tight global supplies. The exchange earlier reported stocks stood at their lowest level since July last year in a daily report.

Attention is starting to switch to tomorrow's Shanghai stock exchange inventory figures, which are expected to show a 10,000-tonne increase, said Man Financial analyst Edward Meir.

"Short-term, we expect the metals advance to continue, led mainly by copper. We could see a brief setback tomorrow if Shanghai stocks come in slightly higher than forecast," he said.

Elsewhere, zinc rose to its highest level since the end of June.

"There is potential for a short covering rally in zinc because of its tight fundamentals LME stocks at a cycle low and increased nearby tightness suggest the potential for such a rally," noted UBS analyst Robin Bhar.

Stocks stored in LME-certified warehouses fell 475 tonnes to 69,350 tonnes.

Of all of the metals, zinc has the lowest level of inventory after tin, according to the LME.

Zinc was up at 3,541.75 usd from 3,480 usd at the close yesterday.

In other metals, lead was up at 3,005 usd from 2,975 usd, having struck an all-time high of 3,030 usd earlier. Nickel was up at 33,350 usd from 33,000 usd, aluminium was down at 2,829 usd from 2,834 usd and tin edged lower at 14,145 against 14,160 usd.

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