US & World Daily Markets Financial Briefing 13-06-2007

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Stocks open higher as retail sales rise

NEW YORK - Stocks opened higher Wednesday after retail sales showed the largest increase in 16 months, signaling higher gas prices might not be hitting consumers as hard as some on Wall Street had feared.
   
The rise stocks follows a drop in stocks Tuesday and a decline in bond yields from five-year highs. Rising bond yields amid inflation concerns have pummeled stocks since last week.
   
The increase in retail sales could indicate consumers plan to keep spending and pushing the economy along even as gas prices increase. The economic findings arriving Wednesday come after a relative lull in data that left Wall Street wanting for fresh indicators about the strength of the economy.
   
The Commerce Department found that retail sales jumped 1.4 percent in May, double the increase analysts expected. Retail sales fell by 0.1 percent in April.
   
The Labor Department said U.S. import prices rose a higher-than-expected 0.09 percent in May, the third consecutive monthly increase, as costs rose for food, energy and automobiles.
  
In the first minutes of trading, the Dow Jones industrial average rose 46.63, or 0.35 percent, to 13,341.64.

US Treasury stops short of blaming China for currency manipulation

WASHINGTON - China is not intentionally manipulating its currency to gain an unfair trade advantage, but its massive buildup of foreign reserves raises risks for the global economy, the US Treasury's semi-annual report said today.
   
In the much anticipated report, the Treasury stopped short of labelling Beijing a currency manipulator, which could trigger sanctions under US law. It did call for the Asian nation to speed up its currency appreciation to avoid what it called real "risks" for the global economy. The yuan has appreciated by a bit more than 8 pct since July 2005, a pace that the US has said is not fast enough.
   
"Allowing the currency to adjust is a matter of international interest and responsibility, with critical implications for the smooth functioning of the world's largest trading system and the adjustment of global imbalances," the report said.
   
"China should not hesitate any longer to take far more vigorous action to rebalance its economy, promote immediate (yuan) movement to tackle the currency's undervaluation, and achieve far greater flexibility in the exchange rate regime."
   
The Treasury report was released on the same day key senators are expected to introduce legislation aimed at forcing the US to put more pressure on China, possibly by bringing a World Trade Organization dispute settlement case against China's currency regime.
   
Many members of Congress are upset that the administration has failed to cite China as a manipulator, even while it agrees that the yuan is under-valued.

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Dollar reverses short-lived gains after US retail sales jump

LONDON - The dollar erased its short-lived gains on the back of a jump in US retail sales, as the currency struggled to find room for further upside following recent strength.
   
The dollar had initially risen after the retail sales data came in well above forecasts, adding weight to the market's growing expectation the Federal Reserve is unlikely to cut interest rates.
   
US retail sales jumped by 1.4 pct in May from April, the biggest monthly increase since January 2006 and well above forecasts for a much more modest 0.7 pct rise, official figures showed.
   
Excluding autos, retail sales were also well above expectations, rising by 1.3 pct against a forecast for 0.8 pct.
   
However, the gains in the dollar were short-lived as analysts pointed out the dollar had already risen significantly in the run up to the data, suggesting the good news contained in the data may already have been priced in.
   
The dollar has had a "good rally" over the last few days, and the data has not had the impact it might have had on the currency due to its recent strength, said Calyon currency strategist Daragh Maher.
   
At 2.38 pm BST, the euro was trading at 1.3290 usd, roughly where it was just before the US data were released. Immediately after the data the euro dropped to a low of 1.3268 usd.

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Euroshares lower ahead of US data; bond yields weigh on banks, utilities

LONDON - Leading European shares were edging lower in midday trade ahead of an expected slightly higher Wall Street opening amid cautious trade due to soaring bond yields and ahead of the release of US retail sales. 
   
At 12.12 pm, the STOXX 50 fell 0.27 pct or 10.40 points to 3,855.80 as the STOXX 600 dropped 0.30 pct or 1.16 points to 385.64.
       
The information technology sector, which according to JP Morgan has historically been moving in line with bond yields, received an upgrade to 'overweight' from 'neutral' by the US broker.
   
Within the sector rating, the rating on the Semiconductors and Software sub-sectors has been lifted to 'overweight' from 'underweight', and the technology hardware 'overweight' rating has been reiterated.
   
In a note to clients, the broker said demand in the sector is likely to rise in line with an increase in consumer income as well as higher corporate profitability.
   
ASML added 0.74 pct, while STMicro gained 0.21 pct, with Dassault Systemes up 0.16 pct and Capgemini off 0.48 pct.
   
Infineon, meanwhile, was reiterated with a 'buy' rating at Goldman Sachs which said that investors will likely benefit from the chipmaker's probable reduction of its 86 pct ownership in its US unit Qimonda. The shares gained 0.53 pct.
       
Barclays PLC declined to comment on a report in the Financial Times that the bank has drawn up contingency plans to restructure its all share offer for Dutch Bank ABN Amro Holdings NV with a "significant" cash sweetener.
   
Citing people familiar with the situation, the FT said Barclays is looking at reducing the number of shares it would issue for ABN Amro and replacing them with cash.
       
Dexia shares, meanwhile, gained 1.22 pct on market speculation the bank may be the subject of a takeover bid by Societe Generale. SocGen shares were last down 0.22 pct.
   
In the telecom sector, shares in Telecom Italia rose 0.42 pct after Sanford Bernstein upgraded the company to 'outperform' from 'market perform' on valuation grounds and on the likely benefits from a change in ownership of the operator. The broker also lifted its price target on the stock to 2.50 eur from 2.35 eur.
   
Il Corriere della Sera reported that EU competition commissioner Neelie Kroes is believed to have approved yesterday the change of ownership at Telecom Italia, which will give the Spanish group Telefonica SA a significant stake in its Italian peer. However, the commission said that since it has not yet received notification of the deal, "by definition the commission has not approved it." Telefonica shares were flat. 
   
Elsewhere, shares in Inditex, the owner of the Zara chain of clothing stores, after its first-quarter profits came in at the top end of expectations, adding 1.21 pct.
   
Heidelberger Druckmaschinen AG lost 2.09 pct after the maker of offset printing machines gave a cautious outlook for the current year to March.

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Asian shares close mostly lower after Wall St falls on rate concerns

HONG KONG - Asian shares closed mostly lower after Wall Street plunged overnight on concerns that rising inflation in the US could prompt the Federal Reserve to tighten credit. Tokyo shares finished slightly lower on late bargain-hunting which offset most of the losses in early trade.
   
The key Nikkei index had fallen by as much as 168.98 points or 1.0 pct this morning amid fresh rate hike worries after another spike in US Treasury bond yields sent the Dow Jones Industrial Average down 129.95 points or 0.97 pct to close at 13,295.01.
   
But sentiment received a lift after Chinese shares rose and as the yen further weakened, prompting investors to actively hunt for bargains in the afternoon.
   
The blue-chip Nikkei 225 Stock Average closed down 28.14 points or 0.16 pct at 17,732.77, off a low of 17,591.93. The TOPIX index of all first-section issues dropped 5.70 points or 0.33 pct to finish at 1,745.92, off a low of 1,731.41.
       
Australian shares finished down as local investors followed the sell-off in global equity markets overnight in reaction to the jump in bond yields.
   
Bond markets are reacting to heightened concerns that stronger global economic growth ahead could fuel inflation and prompt central banks to tighten monetary policy further. Banks and other financial stocks led the market lower, with additional selling seen in the resources sector after metal prices fell in overnight
trading.
   
The S&P/ASX 200 closed down 59.4 points or 0.95 pct at 6,180.7, ending above the day's low of 6,170.2 but well below the high of 6,225.4.
   
Hong Kong shares were weaker in afternoon trade following steep fall on Wall Street overnight. At 3.25 pm the Hang Seng Index was down 47.99 points or 0.23 pct at 20,588.40.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on renewed investor confidence as interest rate hike fears eased and the yuan continued to firm. The central bank set a record high central parity rate for the yuan of 7.6282 to the dollar today.
   
Banks and property stocks were among the top gainers, with investors undeterred by yesterday's unexpectedly high inflation figure.
   
The Shanghai A-share Index was up 108.60 points or 2.54 pct to 4,379.76 and the Shenzhen A-share Index was up 31.06 points or 2.46 pct at 1,291.64.
   
Seoul shares closed lower, losing half of the gains made in the previous session, with foreign investors reducing their positions following the sharply weaker close on Wall Street.
   
The market made a brief attempt in late trade to reach positive territory, with institutions taking the lead, but lost momentum toward the close. The KOSPI index closed down 7.89 points or 0.46 pct at 1,721.99, after moving between 1,714.76 and 1,732.57.
   
Brokerages remained in favor on consolidation hopes and bright earnings prospects due to the expansion in stock market trading volume during recent rallies.

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Nickel comes back as stocks rally; other base metals continue lower

LONDON - Nickel came back from the sharp losses of recent days, albeit in modest fashion, as wider sentiment staged a tentative recovery ahead of an expected higher opening on Wall Street.
   
Weakness in equity markets on both sides of the Atlantic and macroeconomic concerns have fuelled risk aversion among investors in recent days, dampening sentiment towards the commodities complex.
   
Prices fell across the board this morning as the markets reacted to fresh highs in US Treasury yields which supported the dollar. Nickel extended its recent losses after breaching key support levels before bouncing back.
   
The metal hit a low of 38,900 usd per tonne before rallying in later trade. At 12.57 pm, LME nickel for three-month delivery was up at 40,350 usd per tonne against 40,100 usd at the close yesterday.
   
"The base metals are taking their cue from other financial markets," said John Kemp, an analyst at Sempra Metals. "We are not seeing huge sell-offs and yields seem to be stabilising so that is providing some respite for the base metals markets. At the moment, the markets are trying to find a floor," he said, adding he expects the metal to renew falls.
   
With both fundamentals and technical factors pushing prices down, the market is eyeing fresh lows in the metal before prices recover.
   
"A close on nickel below 40,000 usd per tonne would see the market target the next major support level at 35,000 usd," said UBS analyst Robin Bhar.
   
The grey metal has dipped in recent days on higher than expected upcoming supply from China and Brazil, growing stockpiles and expectations of falling demand as substitution continues apace.
     
Meanwhile LME-monitored stockpiles of the metal are continuing to build, up a further 126 tonnes this morning. Stocks of the metal rose 34 pct from the end of 2006 to 8,922 tonnes yesterday.
   
Copper declined in sympathy, though prices remained above the psychologically important 7,000 usd level, supported by the threat of strike action at a copper refinery in Canada and continued industrial unrest in Mexico and Chile.
   
Strike action at the CCR copper refinery in Montreal began on Monday, and involves some 430 workers -- well over half the workforce. The plant is continuing to run at a reduced capacity, a company spokesman said. Copper prices slipped to 7,155 against 7,180 usd at yesterday's close.
   
Among other metals, zinc slipped to 3,613 usd from 3,710 usd last night, lead eased to 2,290 from 2,320, and tin dipped to 13,925 usd from 13,975 usd. Aluminium fell to 2,681 usd from 2,700 usd.

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