US & World Daily Markets Financial Briefing 14-06-2007

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Stocks rise modestly on inflation data

NEW YORK - Wall Street extended its advance into a second day Thursday after bond yields eased despite a larger than expected jump in inflation.
   
Investors seemed unfazed by the Labor Department's report that its producer price index rose 0.9 percent in May -- above April's reading and higher than economists predicted, reflecting the impact of rising gasoline prices on the cost of other goods and services. The market was optimistic that the core PPI, which excludes volatile food and energy costs, posted a small 0.2 percent rise after a flat reading in April.
   
If core inflation is under control, the Federal Reserve is less likely to raise interest rates -- a worry that has been dogging the market since last week, when the yield on the benchmark 10-year Treasury note passed 5 percent for the first time since last summer.
   
The 10-year Treasury note's yield initially jumped to 5.24 percent after the producer price data, but then pulled back to 5.20 percent, below 5.21 percent late Wednesday.
   
In the first hour of trading, the Dow Jones industrial average rose 50.89, or 0.38 percent, to 13,533.24. The blue chip index had surged more than 180 points on Wednesday, the biggest one-day point gain since last July.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index advanced 5.71, or 0.38 percent, to 1,521.38, and the Nasdaq composite index climbed 12.67, or 0.49 percent, to 2,594.98.
   
Crude oil prices rose 70 cents to $66.95 a barrel on the New York Mercantile Exchange. The Russell 2000 index of smaller companies was up 3.49, or 0.42 percent, at 836.03.
   
Overseas, Britain's FTSE 100 was up 0.82 percent, Germany's DAX index was up 1.52 percent, and France's CAC-40 was up 0.96 percent.
   
Investment bank Goldman Sachs Group Inc. said its fiscal second-quarter profit edged higher as investment banking revenue rose 13 percent. Results topped results, though such outperformance is often expected of investment banks.
   
Bear Stearns Cos., however, reported weaker-than-expected second-quarter earnings. The profit reports come a day after rival Lehman Brothers Holdings Inc. made clear expectations for its quarterly earnings were far too modest.
   
Freddie Mac, the government-sponsored mortgage lender, which is trying to move past an accounting scandal, reported a first-quarter loss of $211 million. Freddie cited an erosion in the value of financial instruments it uses to hedge against interest rate swings.
   
In other corporate news, Furniture Brands International Inc. predicted a narrower loss and a smaller decline in sales than it had previously predicted.
   
Bedding maker Select Comfort Corp. late Wednesday reduced its second-quarter and full-year sales forecasts, noting that marketing initiatives hadn't boosted results as hoped.
   

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Dollar rises above 123 yen for first time since Dec 2002

LONDON - The dollar rose above 123 yen for the first time since December 2002 following strong US PPI figures and as popularity for the carry trade rebounded.
   
US inflation at the wholesale level rose almost twice as fast as expected in May, posting a 0.9 pct rise while core inflation rose 0.2 pct after remaining unchanged in the prior two months.
   
"The higher than expected rise in US May PPI stokes up fears that US inflation has not moderated, thereby fuelling fresh a retreat in US equities and currencies against the US dollar," said Ashraf Laidi at CMC Markets.
   
Meanwhile investors' appetite for the carry trade - where investors borrow in low yielding currencies such as the yen to invest in high yielding ones elsewhere - has rebounded following a rise in Japanese and US stocks overnight.
  
"The funding currencies appear to be under renewed pressure as a result of some stabilisation and consolidation in asset markets following the sharp declines seen in recent days, providing the carry trade with renewed breathing space," said analysts at BNP Paribas.
  
At 2.16 pm the dollar was trading at 123.04 yen. having been at 122.95 shortly before the PPI figures were released.

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Euroshares continue to rebound as interest rate fears subside

LONDON - European exchanges continued on the rebound from yesterday's losses with investors' anxiety over future interest rate hikes subsiding and ahead of an expected slightly higher opening on Wall Street after last night's rally.
   
At 12.30 pm, the STOXX 50 was up 0.98 pct or 38.01 points to 3,917.39, while the STOXX 600 added 0.97 pct or 3.78 points to 392.00.
   
The euro zone's final harmonised index of consumer prices (HICP) was released today and rose 1.9 pct year-on-year in May, unchanged from an earlier, provisional, estimate, EU statistics office Eurostat said.
   
"Going forward, inflation will likely hover around 1.9 pct or slightly lower, before heading higher by the end of the year," said Elga Bartsch and Thomas Gade of Morgan Stanley.
   
On the companies front, Sanofi-Aventis dropped 7.80 pct after the European Medicines Agency said it expects the terms of the EU authorisation for Sanofi-Aventis' obesity drug Acomplia to be reviewed by its drug safety committee next week, after the refusal of the US FDA's panel of experts to recommend the drug for marketing approval.
   
Earlier, HSBC, JP Morgan, Merrill Lynch and Exane BNP Paribas all cut their recommendation on Sanofi to 'neutral' and SG Securities moved to 'hold' from 'buy' in light of the threat to Sanofi's prospective earnings.
   
Most other stocks were higher, with BBVA gaining, up 3.33 pct, amid rumours that a Mexican consortium led by tycoon Carlos Slim is considering a takeover bid. The bank further confirmed it is considering putting selected real estate assets in Madrid up for sale and acquiring land in the capital to build a new
financial district.
   
Staying in the Spanish market, Prisa and Sogecable were suspended earlier today and resumed trading at 11.30 am BST after Prisa denied plans for any asset sales involving the broadcaster or its Union Radio arm. At last check, shares in Prisa were up 2.49 pct as Sogecable added 4.36 pct. Traders expect the shares to give up some of the gains later today.
       
Other M&A rumours circulated in the sector with peer Premiere gaining 2.3 pct on the MDAX after rumours re-emerged that rival Arena is mulling a takeover bid. Traders said a takeover was unlikely as a merged Arena-Premiere company would likely be scrutinized by the German Federal Cartel Office.
       
Actual M&A news came from HeidelbergCement, which sold its 35.03 pct stake in French cement maker Vicat for 86 eur per share, raising a total of 1.4 bln eur, the companies said in a joint statement. Vicat shares were still higher in early afternoon trade, adding 4.62 pct, as HeidelbergCement was flat, down 0.08 pct.
   
German mail company Deutsche Post was driven 2.62 pct higher by vague rumours the activist UK-based Children's Investment Fund Management (TCI) has bought a 3 pct stake in the telecom giant on the open market.
   
Danone rose 2.55 pct as the stock continued to rebound from recent losses, with several analyst notes saying concerns over litigation with Chinese partner Wahaha have been overdone.
       
Elsewhere, Goldman Sachs upgraded shares in Wolters Kluwer to 'buy' from 'neutral', and Reed Elsevier to 'neutral' from 'sell', as part of a review of the European business publishing sector.
   
In a note to clients, the broker said business publishers have re-rated in the year to date, driven by asset disposals and related cash returns, leveraged buyout speculation and proposed industry consolidation after the Thomson/Reuters news last month.
       
Wolters Kluwer gained 3.05 pct, Reed Elsevier climbed 1.20 pct, while United Business Media added 2.14 pct.

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Asian shares close mostly higher on Wall St rebound

HONG KONG - Shares across the Asia-Pacific region closed mostly higher following a strong rise on Wall Street overnight, with some sharp rises as regional markets bounced back from falls yesterday, dealers said.
   
Tokyo shares ended firmer after investors snapped up stocks following Wall Street's recovery overnight, which was due to a drop in US bond yields and robust retail sales data. A weaker yen buoyed shares of exporters.
   
But the market's advance was limited as some investors opted to wait for the outcome tomorrow of the meeting of the Bank of Japan's policy board and for the release of more US economic data.
   
The Nikkei 225 Stock Average closed 109.52 points or 0.62 pct higher at 17,842.29, off its intra-day peak of 17,875.02. The TOPIX index of all first-section issues rose 10.72 points or 0.61 pct to finish at 1,756.64, off a high of 1,762.15.
   
Hideo Mizutani, chief strategist at Sieg Securities, said: "Investors were heartened after US bond yields eased, as the rising yields had become a main concern of the market." Mizutani said the sustained weakness of the yen had boosted stocks of exporters.
   
Many players were cautious while they awaited the outcome tomorrow of the two-day meeting of the Bank of Japan's policy board.
   
"If the Bank of Japan raises the key interest rate this month, its impact on the equity market would be limited -- although there is little possibility of the central bank doing this at this time," said Mizutani.
   
Australian shares closed sharply higher after US markets surged on a strong May US retail sales report, as well as a Federal Reserve Beige Book survey showing economic expansion accompanied by low inflation. The S&P/ASX 200 closed up 80.5 points or 1.30 pct at 6,261.2, just below the day's high of 6,263.1 and well above the low of 6,212.3. Resource stocks rose despite a mixed performance on metal markets overnight.
   
Hong Kong shares were much stronger in afternoon trade on the Wall Street rebound and positive US economic data. At 3.25 pm the Hang Seng Index was up 277.60 points or 1.35 pct at 20,856.35.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on credit-tightening fears after Premier Wen Jiabao urged the government to make "appropriate" moves to keep the economy from overheating.
   
The Shanghai A-share Index was down 64.05 points or 1.46 pct to 4,315.71 and the Shenzhen A-share Index was down 12.88 points or 1.00 pct at 1,278.76.
   
Seoul shares closed at a record high, advancing nearly three pct, with sentiment bolstered by Wall Street's overnight rally amid falling bond yields and stronger-than-expected retail sales data in the US.
   
The expiry of stock index futures, stock index options and stock options, or the so-called triple witching, in South Korea today hardly dented the upward momentum, with many investors betting on further gains, they added.
   
The KOSPI index closed up 47.19 points or 2.74 pct at 1,769.18, the day's high. The index was off a low of 1,740.70.

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Gold steadies after dipping briefly following US PPI numbers

LONDON - Gold dipped briefly as the dollar enjoyed a short-lived knee-jerk rise following stronger than expected US producer inflation figures (PPI), but the metal soon recovered to trade near yesterday's
closing levels.
   
The PPI rose 0.9 pct in May, above the 0.5 pct forecast by analysts, due to higher energy costs. The figure raised the prospect of a US interest rate rise at some point in future and boosted the dollar.
   
But, the core PPI figure helped to reduce the risk of action from the Federal Reserve, coming in just as expected at a 0.2 pct monthly increase.
   
"Traders think that the Federal Reserve will fret over 0.9 pct at the producer level, and at the very least will confirm views of the 'Fed on hold'," said Peter Wadkins at IFR Markets.
   
Gold usually moves counter to the dollar as it is seen as an alternative asset to the US currency. Also, a stronger dollar makes gold, which is traded in dollars, more expensive for holders of other currencies.
   
At 2.37 pm, spot gold was trading up at 650.35 usd an ounce against 648.60 usd in late New York trades yesterday.
   
Prior to the release of US data, gold had slipped on news that the Swiss National Bank aims to sell 250 tonnes of gold before the end of 2009, in line with the second central bank gold agreement (CBGA) reached in 2004.
   
Under the agreement - signed by the ECB, the central banks of the euro zone and those of Switzerland and Sweden - the combined gold sales of central banks must not exceed 500 tonnes per year over a five-year period.
   
"The announcement from the SNB dovetails with recent increased CBGA activity and may be signalling to the market that collectively central banks are less bullish on the gold price," said JP Morgan analyst Michael Jansen.
   
In other precious metals, silver was little changed at 13.06 usd per ounce from 13.03 usd yesterday, while platinum was flat at 1,278 usd. Palladium was up to 365 usd per ounce from 364 usd.

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