US & World Daily Markets Financial Briefing 15-05-2007

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Stocks mostly higher on tame inflation

NEW YORK - Wall Street was mostly higher in early trading Tuesday after mild inflation figures raised hopes the Federal Reserve might cut interest rates later this year, and helped to somewhat offset disappointing earnings results.
   
Investors were encouraged to continue buying after the Labor Department reported prices paid by consumers rose less than expected in April, and indicated that inflation may be easing as the economy continues to cool. The consumer price index rose 0.4 percent after rising 0.6 percent in March, while core prices -- which exclude food and energy -- rose 0.2 percent after a 0.1 percent gain.
   
Dow Jones industrials components Home Depot Inc. and Wal-Mart Stores Inc. handed Wall Street disappointing second-quarter results. Both companies are considered to be proxies for consumer spending, and weaker sales were translated as another sign the economy continues to moderate.
   
In the first hour of trading, the Dow rose 20.32, or 0.15 percent, to 13,367.10. It reached a fresh intraday high of 13,388.63.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index was up 2.50, or 0.17 percent, to 1,505.65, and the Nasdaq composite index fell 3.57, or 0.14 percent, to 2,542.87.

The Russell 2000 index of smaller companies was down 2.93, or 0.36 percent, at 819.40. In afternoon trading, Britain's FTSE 100 was down 0.04 percent, Germany's DAX index rose 0.17 percent, and France's CAC-40 added 0.05 percent.
   
Bonds rose as fixed-income investors reacted to the economic reports, with the yield on the benchmark 10-year Treasury note falling to 4.68 percent from 4.69 percent late Monday.
   
A barrel of light sweet crude declined 4 cents to $62.42 in premarket trading on the New York Mercantile Exchange. There remained looming concerns in the commodities market about refinery problems and uncertainties over whether U.S. gasoline inventories can meet summer driving demand.
   
Besides the Labor Department report, investors were also waiting for the National Association of Home Builders to release its housing market index during the session. It could show whether the housing sector is showing any signs of recovery.
   
The reports come after a government report last week that indicated moderating inflation at the wholesale level. That data also lifted hopes that the Federal Reserve might not need to raise rates, and might consider a cut later this year.
   
Stocks in focus

Home Depot, the nation's largest home improvement chain, posted lower quarterly profit as a sluggish U.S. housing market dented sales. Sales at stores open at least a year, an important measure of how retailers fared, slumped 7.6 percent.
   
Wal-Mart Stores, the world's largest retailer, missed Wall Street projections and warned second-quarter results might be disappointing. Last week, it reported the weakest same-store sales comparison in its history for April.
   
Sales figures reported by dozens of retailers last week raised concerns on Wall Street about consumer spending, which accounts for two-thirds of total economic activity.

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Euro jumps as US CPI comes in below expectations

LONDON - The euro climbed towards day highs against the dollar on the back of weaker-than-expected US inflation figures.
   
The US CPI for April rose 0.4 pct on a month-on-month basis, just below the 0.5 pct increase economists had expected. Core prices rose 0.2 pct in April, in line with expectations.
  
For the first quarter core inflation inflation came in at 1.9 pct on a seasonally adjusted annualised rate, down on 2.3 pct in the three months through March. The rise in the three months through April is the lowest since the three months through December, when core inflation was 1.6 pct.
   
At 1:47 pm the euro was trading at 1.3559 usd, just off a day high of 1.3563, having been at 1.3540 shortly before the data was released.

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Euroshares down mid-morning on late Dow selling; some support from M&A, earnings

LONDON - Europe's largest exchanges added to losses midday as Wall St is expected to move down in opening deals, although a number of solid earnings reports from European companies and ongoing M&A news limited the losses.
   
At 12.22, the STOXX 50 was down 16.53 points at 3856.09 and the STOXX 600 was down 1.21 points at 387.76.
   
Reuters -- up 3.14 pct -- is back in focus again after the group agreed an 8.7 bln stg takeover by Thomson Corp to form Thomson-Reuters Corp, with brokers staying positive on the group.
   
Based on yesterday's closing price, the deal values Reuters shares at 691 pence per share. Industry observers say the deal faces a detailed and lengthy review of the acquisition, because of the limited number of companies that supply the financial market the prices, data and news.
   
Hanson added 3.22 pct after it said it is recommending a 1,100 pence per share cash takeover by Germany's HeidelbergCement valuing the company at about 8.0 bln stg.
   
The acquisition, which will be made by HeidelbergCement's Lehigh unit, of 1,100 pence per Hanson share represents a 50 pct premium to the average closing mid-market price of 734 pence per Hanson share for the 12 months to May 2.
   
BBVA shares added 1.37 pct amid vague rumours that Societe Generale is eyeing the Spanish banking group.
   
Amid recent speculation of a merger between the French bank and Unicredito, some dealers played down the likelihood of a deal with BBVA, but a salesman at a leading international bank noted: "Stranger things have happened." "I've heard the rumour from various different sources, and it's certainly having an impact on the share price," he said.
   
In earnings news, shares in RWE added 0.06 pct after the German utility released first-quarter figures that largely beat analysts' expectations. "Sales were in line with consensus estimates, but operating profit and net profit were significantly better than expected," said a Frankfurt-based trader. But gains were limited as some said there had been hopes the group would lift its full-year forecasts.
   
Hochtief added 4.01 pct after the construction group's strong first-quarter order and backlog data, which prompted West LB to raise its stance for the German construction company to 'buy' from 'hold'.
   
Phonak shares added 2.16 pct as analysts welcomed the hearing aid maker's forecast-beating full-year results and confirmation that it expects its growth to continue outstripping the market in the current year.
   
DaimlerChrysler added 3.23 pct as UBS upgraded the shares to 'buy' from 'neutral' after news yesterday it has sold 80.1 pct of its stake in its US Chrysler unit to private equity group Cerberus. The broker lifted its price target to 75 eur from 63 eur    

ENI shares were up 0.32 pct after they were upgraded to 'overweight' from 'neutral' at JP Morgan, with a new 30 eur target.
   
And Danone, Nestle and Unilever fell as they were cut to 'hold' from 'buy' at Deutsche Bank in a sector review. The broker voiced concerns that record sales growth among food manufacturers may slow and said the impact of changing commodity markets has been underestimated by the market. Danone fell 0.72 pct, Nestle fell 1.35 pct and Unilever was 1.72 pct lower.
   
Valeo fell 2.64 pct after a report said a number of private equity firms had looked at buying the group but all three had decided it is too expensive.
   
Le Figaro said financial assumptions show a leveraged buyout for Valeo would be possible within a maximum range of 35-38 eur per share, well below Valeo's closing price of 40.90 eur on Monday.
     
Alitalia slumped 5.02 pct after a newspaper report said that companies bidding for the troubled airline value it less than 0.4 eur per share.
   
Daily MF said that Texas Pacific, Matlin Patterson and Mediobanca value Alitalia's shares close to zero, while AP Holding have an appraisal of 0.10 eur per share, and Aeroflot and Unicredito value the shares at less than 0.40 eur each.
   
Iberia was down 1.29 pct after the Times said Texas Pacific Group may abandon a proposed 3.4 bln eur bid for the Spanish flag carrier after partner British Airways demanded the involvement of a rival private equity firm, The Times reported, citing unnamed sources.

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Asian shares close lower ahead of US inflation data

HONG KONG - Shares across the Asia-Pacific region closed lower on a mixed performance by Wall Street overnight and with investors cautious ahead of the release tonight of US inflation data for April.
   
Tokyo shares ended lower following the release of Japanese data showing a fall in capital spending by companies due to weak demand overseas. Investors also sold shares in companies with conservative earnings forecasts.
   
The blue-chip Nikkei 225 Stock Average closed 164.96 points or 0.93 pct lower at 17,512.98, off the day's low of 17,491.59. The TOPIX index of all first-section issues fell 18.44 points or 1.07 pct to 1,712.55, off a low of 1,711.30.
   
Before the opening bell, the government said core private sector machinery orders had been a seasonally adjusted 4.5 pct lower in March than in February at 990.7 bln yen. The market had expected a rise of 0.2 pct. Core machinery orders are now forecast to be 11.8 pct lower in the second quarter of this year than in the first.
   
Hideo Mizutani, chief strategist at Sieg Securities, said: "But as machinery orders are data that can fluctuate widely, the market reaction to the data this morning was not too serious." Mizutani warned that if the first-quarter GDP figures, due out Thursday, are a disappointment, foreign investors may sell.
   
Australian shares closed lower as investor sentiment retreated in line with mixed US share markets and caution ahead of tonight's US inflation data for April. Profit-taking in metal prices overnight weighed on resource stocks, while only minor selling in the other sectors prevented a larger rout. The S&P/ASX 200 closed down 53.9 points or 0.85 pct at 6,291.2.
   
Hong Kong shares were weaker in afternoon trade on profit-taking following their jump yesterday and after the benchmark index briefly touched an all-time high in early trade today.
   
The market's fall was cushioned by continued interest in select China stocks and blue chips on expectations these counters will benefit from Beijing's relaxation of rules allowing mainland financial institutions to invest in overseas equity markets.
   
At 3.20 pm the Hang Seng Index was down 109.52 points or 0.52 pct at 20,869.72.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower, led by financial stocks on profit-taking, although Bank of Communications gained on its Shanghai debut. The Shanghai A-share Index was down 154.99 points or 3.65 pct to 4,086.45 and the Shenzhen A-share Index was down 30.75 points or 2.62 pct at 1,143.45.
   
Seoul shares finished sharply lower on profit-taking by retail investors, erasing gains over the past four trading days, with sentiment undercut by Wall Street's mixed close and weak regional markets across Asia.
   
Shipbuilders, machinery stocks and steelmakers were at the forefront of the correction while retailers, telecoms and other stocks driven by domestic demand enjoyed steady interest from foreign investors, offsetting the downside, they added.
   
The KOSPI index closed down 16.4 points or 1.02 pct at 1,589.37, off a low of 1,589.24 and a high of 1,611.93.

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Gold steadies on weaker dollar, expectations US might not raise rates

LONDON - Gold steadied as the US dollar weakened amid signs the US will not raise interest rates. Bullion usually moves in the opposite direction to the US currency as it is seen as an alternative investment.
   
Earlier, the euro climbed towards day highs against the dollar on the back of weaker-than-expected US inflation figures. The dollar dipped after the data was released, and in turn, gold rose to a day high of 671.50 usd.
   
"Milder-than-expected core inflation numbers offered some relief amid increasing perceptions that no imminent Fed rate hikes were in store for the US dollar," said Kitco analyst, Jon Nadler.
       
At 2.51 pm, spot gold was down slightly at 668.45 usd per ounce against 669 usd in late New York trades yesterday.
   
Market players who have been calling for a test of 700 usd for some time this year should take today's US data as a signal that in the longer term that milestone could be reached.
  
"It's good news for the longer term bull," said Adrian Ash, head of research at Bullionvault.Com, adding it was a sign of the "slow grinding destruction of monetary value".
   
Prices reached as high as 693 usd late last month but failed to reach the 700 usd, disappointing some traders and forcing them to liquidate positions.
   
In other precious metals, platinum eased to 1,319 usd from 1,318 usd, palladium was flat at 358 usd, while silver was down at 13.11 usd against 13.13 usd.

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