US & World Daily Markets Financial Briefing 14-05-2007

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Stocks mostly higher on Chrysler news

NEW YORK - Wall Street traded mostly higher Monday, with investors welcoming news that a private equity group will buy more than 80 percent of Chrysler Group.
   
Automotive stocks led the market higher after DaimlerChrysler AG said it will sell 80.1 percent of money-losing Chrysler to Cerberus Capital Management LP for $7.4 billion. The deal undoes a 1998 merger aimed at creating a global auto giant.
   
Though blue-chip stocks were decidedly higher, the overall market was mixed as some investors exhibited caution ahead of key economic data later in the week. Wall Street on Tuesday will get its best reading yet of inflation when the Labor Department releases its Consumer Price Index for April. Economists are
expecting a smaller increase compared to March. Investors are also waiting for data Tuesday from the National Association of Home Builders that could shed more light on the housing sector.
   
In morning trading, the Dow Jones industrial average rose 41.77, or 0.31 percent, to 13,367.99. Broader stock indicators were mixed. The Standard & Poor's 500 index was up 2.24, or 0.15 percent, at 1,508.09, and the Nasdaq composite index lost 1.60, or 0.06 percent, to 2,560.62.
   
Bonds were little changed, as many investors stayed on the sidelines ahead of Tuesday's heavy schedule of economic data. The yield on the benchmark 10-year Treasury note was at 4.68 percent, unchanged from late Friday.
   
After announcing the deal with Cerberus, DaimlerChrysler shares rose $3.04, or 3.7 percent, to $85.04. Other automakers advanced as well: General Motors rose $1.69, or 5.7 percent, to $31.15, while Ford Motor Co. rose 37 cents, or 4.4 percent, to $8.73.
   
Corporate deals have played a big role in the stock market's surge of the past several months, as investors consider them a strong sign that U.S. companies are faring well amid the nation's economic slowdown. In addition to the Chrysler deal, Monday brought news of Cardinal Health's agreement to buy Viasys Healthcare Inc. for $1 billion. And on Saturday, Mylan Laboratories Inc. said it was buying Merck KGaA's generic drug business for $6.6 billion.
   
Viasys rose $11.23, or 36 percent, to $42.78, and Cardinal Health rose 9 cents to $69.16. Mylan fell $2.90, or 13 percent, to $19.50, after analysts questioned the generic drug maker's purchase.
   
Many on Wall Street, however, reined in their buying; Tuesday will not only feature some important economic data, but also several key earnings reports, particularly Dow components Wal-Mart Stores Inc. and Home Depot Inc.
   
Last week's same-store sales figures raised concerns on Wall Street about the strength of consumer spending, which accounts for two-thirds of total economic activity. Wal-Mart, the world's largest retailer, on Thursday reported its worst monthly slide in sales at its U.S. stores in April since it began reporting same-store sales results in 1980.
   
Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume came to 100.9 million shares.
   
The Russell 2000 index of smaller companies slipped 1.71, or 0.21 percent, at 827.83. Crude oil rose 37 cents to $62.74 a barrel on the New York Mercantile Exchange.
   
In afternoon trading, Britain's FTSE 100 was down 0.1 percent, Germany's DAX index was up 0.19 percent, and France's CAC-40 was down 0.18 percent.
 

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Pound falls on weak UK core output prices while solid data boost euro

LONDON  - The pound continued to fall after this morning's weaker-than-expected UK core output price data, while buoyant euro zone industrial production figures helped boost the euro.
   
Figures this morning showed core annual UK output price inflation, which excludes food, beverages, tobacco and petroleum, fell to its lowest level in seven months in April.
   
Though higher crude oil prices kept headline output prices at relatively high levels, the lower core rate will ease concerns at the Bank of England that firms are pushing through higher costs into their prices.
   
"The producer price data for April are relatively reassuring overall for the Bank of England and marginally dilute pressure for another hike in interest rates in the near term at least," said Howard Archer at Global Insight.
   
Rate-setters will also be relieved that UK input prices came in well below forecasts, although they still showed the third consecutive month-on-month rise. After the data the pound fell close to several-week lows against the euro of 0.6844 stg per euro and dipped just below the 1.98 level against the dollar.
   
Meanwhile, the euro moved higher against the dollar, moving above 1.3550 usd, helped by further data pointing to robust economic activity in the euro zone, adding to the argument for further interest rate increases from the European Central Bank.
   
Figures released this morning showed euro zone industrial production rose by 0.4 pct in March from February for a 3.7 pct year-on-year gain, against forecasts for rises of 0.3 and 3.7 pct respectively, though data for February were revised down.
   
"The strong pattern of industrial orders growth in recent months suggests that the positive trend should extend for euro zone industrial output for some time to come," said David Brown at Bear Stearns. "It is another piece that fits into the ECB's jigsaw for higher rates ahead," he said.
   
Trade remains cautious, however, ahead of a string of key US data releases this week, with CPI figures tomorrow and housing starts figures on Wednesday.
  
Markets are also likely to react to speeches by Fed chairman Ben Bernanke on Tuesday and Thursday, with the central banker expected to comment on the state of the US sub-prime lending market.
   
Elsewhere, the yen continued to weaken, with the euro rising back above the 163 yen mark, as risk appetite returned to the market, sparking demand for the carry trade -- where money is invested in low-yielding currencies such as the yen in order to invest in higher yielding assets elsewhere.

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FTSE 100 risers

Hanson 1,065 up 28-1/2   Private equity linked to bid for Co's UK aggregates business

Centrica 394 up 9   Sees group operating profit above current consensus estimates

Pearson 906 up 15-1/2   UBS 'buy' from 'neutral' with target upped to 1,050 from 875

Home Retail Group 492-1/2 up 7-1/4    Ongoing bid speculation

Reed Elsevier 669-1/2 up 6-1/2    Brokers upbeat on read-across from Thomson's educational division sale

DSG International 175.6 up 1.6   Set to launch a 1 bln stg bid for Russian partner El Dorado

FTSE 100 fallers

Lonmin 3,786 down 139  UBS 'neutral' from 'buy' with estimates reduced

Rio Tinto 3,540 down 112   HSBC 'neutral' from 'overweight'

Standard Chartered 1,591 down 14   Profit-taking after gains Friday on bid speculation

British Airways 485-1/2 down 5-1/2   In talks over potential consortium bid for Iberia; FY results due Friday

Prudential 773-1/2 down 8   Chairman David Clementi under pressure to resign - The Guardian

BAE Systems 438-1/2 down 3-1/2   Switzerland investigating Co over money laundering - press report

Reuters 608-1/4 down 4-3/4   Awaiting bid developments

Frankfurt - At 3.27 pm, the DAX added 16.16 points, or 0.22 pct, to 7,495.50, after trading between 7,4781.09 and 7.527.96. The MDAX advanced 36.21 points, or 0.34 pct, to 10,811.04.  Meanwhile, the TecDAX was 4.92 points, or 0.57 pct, to 862.36. DAX futures were down 50 points, or 0.01 pct, to 7,524.50 and bund futures were 0.2 points, or 0.18 pct, lower at 113.33.
   
DaimlerChrysler led blue chips higher after the auto giant said it is selling a 80.1 pct stake in its Chrysler unit to Cerberus in a deal which will mean a capital injection of 5.5 bln eur for the new group and allow DaimlerChrysler to offload its expensive pension and healthcare costs on Cerberus. DaimlerChrysler gained 2.02 eur, or 3.33 pct, at 63.63, down from intraday highs of 65.34 earlier.
  
Peer Volkswagen was 0.61 eur, or 0.58 pct, higher at 106.00. SAP added 0.42 eur, or 1.22 pct, higher at 34.95, driving higher by vague rumours that unnamed private equity groups might be interested in the company. SAP denied that it had bee aaporached recently by companies interested in taking over the world's second-largest business software company. Adidas gained 0.57 eur, or 1.28 pct, at 45.27.
   
BASF added 0.37 eur, or 0.42 pct, at 88.05. Siemens added 0.57 eur, or 0.65 pct, at 87.67 after UBS AG raised its price target on shares of Europe's largest engineering company to 107 euros from 101 euros.
   
Bucking today's trend, Deutsche Postbank lost 2.06 eur, or 3.02 pct, at 66.06 after Germany's largest retail bank released first-quarter numbers that came in largely below consensus estimates and disappointed investors, dealers said.

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Asian shares close higher boosted by Wall St; Hong Kong up on China move

HONG KONG - Shares across the Asia-Pacific region closed higher following a positive lead from Wall Street on Friday, with Hong Kong shares jumping after China's banking regulator relaxed restrictions on investment abroad.
   
Tokyo shares ended higher after a weaker yen and Friday's advance on Wall Street encouraged investors to buy a broad variety of stocks.
   
However, the Nikkei 225 index lacked the momentum to break through the resistance level at 17,800 points, in particular because recent earnings projections by major companies have failed to impress investors, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed 124.22 points or 0.71 pct higher at 17,677.94, off a high of 17,786.65. The TOPIX index of all first-section issues was up 7.90 points or 0.46 pct at 1,730.99, off a high of 1,743.12.
   
A trader at a European asset management firm said: "The market simply reacted to gains on Wall Street and the weaker yen. Fundamentally, the recent earnings projections, even the forecasts of higher dividend payments, have not made Japanese shares more attractive compared with their offshore market counterparts."
   
The gains in prices were trimmed towards the close as earnings guidance provided earlier in the day by major companies such as Isuzu Motors and IHI disappointed investors, dealers said.
   
Australian shares closed higher with investor sentiment supported by the rally in US stocks on Friday driven by a softer US producer price inflation report for April. Local investors bought the major bank and resource stocks, with caution seen in the smaller caps until further gains are seen in the US markets
over this week.
   
The S&P/ASX 200 closed up 47.7 points or 0.76 pct at 6,345.1, gaining on Thursday's record finish of 6,355.5.
   
Hong Kong shares had soared over 2 pct in afternoon trade on China's move to allow mainland banks and funds to buy overseas stocks under its revised Qualified Domestic Institutional Investor (QDII) scheme.
   
Hong Kong shares, particularly blue chips and China-related stocks, are expected to be the main beneficiaries when mainland investors are allowed to buy stocks in Hong Kong. At 3.20 pm the Hang Seng Index was up 532.96 points or 2.6 pct at 21,001.17.
   
The China Banking Regulatory Commission Friday said it would allow banks to invest in overseas equity markets for the first time under the revised QDII scheme. Banks may use up to 50 pct of their existing QDII quotas to invest in overseas equity markets.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on sustained buying interest and decreasing expectations for interest rate hikes in the short run, with property and bank stocks in favor.
   
The Shanghai A-share Index was up 22.71 points or 0.54 pct at 4,241.44 and the Shenzhen A-share Index was up 11.64 points or 1.0 pct at 1,174.20.
   
Seoul shares closed at a record high, extending a record-breaking rally for a fourth day, but well off their intraday peak as institutions rushed to lock in recent heavy gains.
   
The market ran through 1,620 points soon after opening on Wall Street's Friday advance amid hopes for a rate cut sparked by tame inflation data, but local shares failed to sustain their strength on fears that a major correction is near. The KOSPI index closed up 2.21 points or 0.14 pct at 1,605.77, off a high of 1,622.16 and a low of 1,599.87.

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Palladium could hit 420 usd over next 6 mths on fund interest

LONDON - Palladium prices could rise as high as 420 usd an ounce over the next six month as investor interest in the market is solid despite weak supply demand fundamentals, Johnson Matthey, the world's biggest
distributor of platinum group metals, said at the launch of its Platinum 2007 survey.
   
The group said that while exchange traded funds in platinum could help sustain the platinum price, they are unlikely to absorb a significant proportion of the excess metal available.
   
"However, if investors continue to build long trades in palladium, the palladium prices could rises as high as 420 usd an ounce over the next six months," the group said. It added, however, that softening commodity prices could push prices as low as 320 usd an ounce, although it does not believe palladium could trade much lower than this.
   
This is because investor interest in the metal is so strong it continues to over-ride a market whose supply demand fundamentals are weak and set to remain so this year.
   
Johnson Matthey believes the palladium market, which recorded a large 1.425 mln ounce surplus last year, is heading towards another such surplus this year as primary production is set to rise.
   
Further, the supply side is set to benefit from the large amount of Russian state stocks shipped to Switzerland at the end 2006. Together, these two factors will likely more than offset an expected increase in demand this year.
   
This is especially the case as it is only demand from the autocatalyst industry that is definitely set to rise. In the jewellery industry, "prospects are less certain" and there is only "some potential for growth".
   
Last year, demand for palladium from the jewellery sector fell 435,000 ounces to 995,000 ounces, while auto-catalyst demand was up by 150,000 ounces to 4.015 mln ounces.

Copper continued to fall as market players expected demand from China to trail off after the world's largest consumer stocked up earlier this year. Further, prices were pressured after the LME reported inventories of the red metal rose 200 tonnes at 142,475 tonnes on the day.
   
At 12.56 pm, LME copper for three-month delivery fell to 7,840 usd per tonne against 7,895 usd at the close yesterday.

In other metals, aluminium was lower at 2,849 usd from 2,877 usd, zinc dropped to 4,015 usd against 4,050 usd, lead tumbled to 2,070 usd against 2,090 usd, while tin was edged up to 14,100 usd against 14,050 usd at Friday's close.

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