US & World Daily Markets Financial Briefing 15-06-2007

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Stocks Rise Following Inflation Data

NEW YORK - Wall Street barreled higher Friday after the week's most anticipated economic reading indicated that inflation excluding the price of gas remained tepid last month, easing some concerns that have jolted stock and bond markets in recent sessions. The Dow Jones industrials at times advanced more than 100 points.
   
The consumer price index showed prices rose at the fastest pace in 20 months last month as the cost of gas jumped. However, the so-called core personal consumption price index, which excludes often volatile food and energy prices, rose a lower-than-expected 0.1 percent. The figure, which the inflation-wary Federal Reserve watches closely, was below the 0.2 percent increase Wall Street expected.
   
The yield on the benchmark 10-year Treasury note fell to 5.20 percent Friday from 5.23 percent late Thursday after release of the CPI report helped ease emergent concerns that the Fed might raise rather than lower interest rates this year.
   
The notion of a rate hike gained traction last week when inflation concerns sent the yield on the 10-year note above 5 percent for the first time since last summer. Subsequent spikes in bond yields, which move in the opposite direction as prices, roiled stock markets last week and early this week.
   
Friday's session follows a two-day surge in stocks that arrived as inflation worries eased. Friday could see added volatility because of the expiration of four types of options contracts -- an occurrence known as quadruple witching.
   
In early trading, the Dow jumped 98.12, or 0.72 percent, to 13,651.84. The climb puts the Dow back near its trading high of 13,692.00, reached June 1. The move higher follows sharp gains Wednesday and Thursday that marked the Dow's best two-day advance since last July after figures on wholesale prices excluding food and energy costs showed inflation rose at a modest pace.
   
Broader stock indicators also rose Friday. The Standard & Poor's 500 index rose 11.74, or 0.77 percent, to 1,534.71. The index approached its trading high of the year of 1,540.56 and advanced toward its record trading high of 1,552.87 set in March 2000. The Nasdaq composite index rose 24.88, or 0.96 percent, to 2,624.29.
   
Among other economic news, a reading on the current account deficit, which reflects not only trade in goods and services but also investment flows between countries, showed an increase as oil prices climbed. The Commerce Department said the imbalance in the current account increased 2.5 percent to $192.6 billion in the January-to-March period, compared to $187.9 billion in the fourth quarter. The increase was slightly below what analysts had been expecting.
   
Light, sweet crude rose 24 cents to $67.89 per barrel on the New York Mercantile Exchange.
   
In corporate news, Goldman Sachs raised its rating on chip maker Intel Corp. to "buy" from "neutral," sending the stock up 74 cents, or 3.2 percent, to $23.97.
   
Monsanto Co. jumped $3.63, or 5.8 percent, to $66.94 after the world's largest seed company raised its full-year earnings forecast based on a preliminary review of third-quarter performance.
   
Gun maker Smith & Wesson Holding Corp. rose 87 cents, or 5.8 percent to $15.78 after reporting stronger-than-expected fiscal fourth-quarter profit and sales. The company also raised its full-year profit and sales forecasts.
   
Advancing issues outnumbered decliners by about 6 to 1 on the New York Stock Exchange, where volume came to 501 million shares.
   
The Russell 2000 index of smaller companies rose 12.19, or 1.46, or 849.31. In Europe, stocks extended gains after the U.S. market opened higher. In morning trading, Britain's FTSE 100 rose 1.15 percent, Germany's DAX index rose 2.07 percent, and France's CAC-40 rose 0.82 percent.

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Dollar falls slightly on weaker core US CPI data

LONDON - The dollar fell slightly after US core CPI inflation came in below expectations, but losses were limited by strong headline CPI and Empire data.     

Official figures showed headline US CPI rose by 0.7 pct in May, a bigger rise than the 0.6 pct expected and the largest rise since September 2005. The more closely watched core CPI rate rose by just 0.1 pct, however, below forecasts for a slightly bigger 0.2 pct rise.
   
"Core CPI has fallen to the lowest year-on-year level in 12 months, lending further support to the Fed's case that slower growth will bring elevated core inflation back in line with price stability without resorting to higher rates," said Michael Woolfolk at Bank of New York.
    
The data argues for a convergence of positive economic fundamentals for the US - rebounding growth amid easing inflationary pressures, he added.
    
At the same time, while energy prices are expected to continue rising, the dynamics of core inflation suggest further drift back below the 2.0 pct threshold in the headline annual rate later this summer, Woolfolk said.  
   
Meanwhile, in other data today, the Empire index on manufacturing activity jumped way above expectations, with the June reading at 25.75 compared with 8.03 in May and forecasts for a figure of just 10.5.
   
At 2.02 pm BST, the euro was trading at 1.3344 against the dollar, up from 1.3321 just before the figures were released. The pound was trading at 1.9736 usd, up from 1.9695 previously.

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Euroshares gain ahead of US inflation data with Wall Street set to open higher

LONDON - At 11.57 pm, the Dow Jones STOXX 50 Index was up 0.39 pct or 15.52 points at 3,957.91 while the DJ STOXX 600 climbed 0.43 pct or 1.68 points to 395.97. The DJ Euro STOXX 50, which tracks the performance of some of the largest companies in 12 countries using the euro, was up 16.78 points, or 0.37 pct at 4,501.82. 
   
J Sainsbury topped the gainers on the STOXX 50 Index, up 5.13 pct to hit a more than eight-and-a-half year high, after Delta (Two) Ltd, the Qatari-backed investment vehicle, today acquired a further 123 mln shares in J Sainsbury, equivalent to a 7.07 pct stake in the company.
   
Citibank upgraded the stock to 'hold' from 'sell' stating that the move may well be a "precursor to a full bid". The broker lifted the target to 600 pence from 450 pence.
   
The move raised speculation of fresh merger and acquisition activity in the sector. Other UK supermarkets traded higher with Morrison Supermarkets, up 2.6 pct while Tesco climbed 1.38 pct.
   
Broker Panmure Gordon also upgraded Morrison to 'hold' from 'sell' and lifted its price target on the stock, saying Delta's stake building in Sainsbury will refocus investors on the value to be extracted from the property assets of supermarket groups.
   
Utilities were in focus as broker Goldman Sachs reshuffled its ratings on the sector, and as Italian Prime Minister Romano Prodi's cabinet prepared to discuss plans to liberalise the Italian utility market later this afternoon.
   
Goldman Sachs upgraded AEM to 'buy' from 'neutral' but cut its rating on Drax and Ces Energeticke (Cez) to 'neutral' from 'buy, citing higher medium-to-long-term forecasts for commodity prices.
   
The broker also lifted its price targets on EDF, Union Fenosa, Iberdrola and AEM on higher earnings estimates due to higher power prices. It cut its price targets on Drax and Verbund as the broker's forecasts already reflect higher future power prices as well as higher carbon emission costs in the future.
   
At last check, AEM shares were up 0.03 pct, Union Fenosa climbed 0.42 pct, Iberdrola was up 0.31 pct while shares in Drax fell 2.25 pct. The Czech Republic's Cez was last down 0.65 pct.
  
Staying in the sector, shares in EON added 1.35 pct after JP Morgan added it to its analyst focus list. The broker reiterated its 'overweight' recommendation, saying the market is underestimating the German utility's prospects.
      
Elsewhere shares in Television Francaise (TF1) dropped 2.61 pct after Goldman Sachs downgraded to 'sell' from 'neutral', according to dealers, with a reduced price target of 24.60 eur from 25.
   
In a review of the French TV sector published today, the broker pointed out that French television industry sources are suggesting "much lower advertising growth" as a result of lower year-on-year advertising spending by non-retail advertising sectors, and a lower audience share for the main commercial TV channels. The broker cut its forecast for TF1's 2007 advertising sales growth to 4.3 pct from 5.8 pct.
   
Shares in rival M6 also slipped 0.55 pct as the broker cut its advertising sales growth forecasts for the French television station to 5.3 pct from 7.4 pct.
   
Exane also came out with a note saying the market consensus for advertising growth is too high. The broker reiterated its 'neutral' stance on the stock.

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Asian shares close higher on Wall St gains; Tokyo up on weaker yen

HONG KONG - Shares across the Asia-Pacific region closed stronger, led upwards by Wall Street which closed higher overnight on optimism over the US economy.
   
Tokyo shares ended higher following Wall Street's extended gains and as a weaker yen fanned hopes of stronger earnings ahead for Japanese exporters. However, investors remained cautious as they waited for Bank of Japan governor Toshihiko Fukui's remarks at a news conference later today, dealers said.
   
Earlier, the Bank of Japan announced it had decided to keep its key interest rate unchanged following a two-day policy board meeting. The key Nikkei index is expected to solidify support at the 18,000-point level next week if US stock markets maintain their firm trend.
   
The Nikkei 225 Stock Average closed 129.20 points or 0.72 pct higher at 17,971.49, off its intra-day peak of 18,007.99. The index advanced 1.08 pct for the week. The TOPIX index of all first-section issues rose 16.30 points or 0.93 pct to finish at 1,772.94, off a high of 1,773.35. The index rose 0.96 pct for the week.
   
Australian shares closed higher led by major resources stocks following gains in commodity prices and a two-day rebound by US markets, with interest rate concerns fading and investors becoming more optimistic about the US economy.
   
Diminishing concerns about a near-term rate hike in Australia, following remarks by Reserve Bank of Australia governor Glenn Stevens yesterday, supported the banks and retailers.
   
The S&P/ASX 200 closed up 32.6 points or 0.52 pct at 6,293.8, below the day's high of 6,298.5 and above a low of 6,268.0. For the week the benchmark index added 62.1 points or 1.0 pct.
   
Hong Kong shares were stronger in afternoon trade as China stocks benefited from continued shift of funds from the mainland by some investors, with sentiment overall also supported by Wall Street's extended gains overnight after tame US core wholesale inflation data.
   
At 3.25 pm the Hang Seng Index was up 148.45 points or 0.71 pct at 21,015.41.
   
In mainland China, A-shares in Shanghai and Shenzhen rose, supported by gains in large cap banks with the sector drawing interest after China Construction Bank announced it planned to issue up to 9 bln A-shares in its Shanghai IPO.
   
Price gains were curbed, however, by declines in other counters, such as steel makers, on expectations for a further hike in interest rates in the near term.
   
The Shanghai A-share Index ended up 18.88 points or 0.44 pct at 4,334.59 and the Shenzhen A-share Index was up 1.93 points or 0.15 pct at 1,280.69.
   
Seoul shares closed at another record high, with investors encouraged by Wall Street's extended rally and easing tensions between the US and North Korea following settlement of a stand-off over frozen North Korean assets.
   
After several months of haggling, the dispute over frozen North Korean funds in Macau -- which has held up a nuclear disarmament deal -- has ended with the funds being released for Pyongyang, according to a report.
   
The KOSPI index closed up 3.08 points or 0.17 pct at 1,772.26, off a low of 1,764.52 and a high of 1,776.80. The benchmark index gained 44.98 points for this week, rising for a fifteenth straight week, its longest run.

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Base metals come off day lows as US inflation concerns ease slightly

LONDON - Base metals came off day lows as US inflation concerns eased slightly after core prices in the world's biggest economy rose at the slowest annualised pace in five months in May.
   
At 2.09 pm, LME copper for three-month delivery was down at 7,445 usd a tonne against 7,456 usd at the close yesterday. Earlier, the metal touched a day low of 7,335 usd.
   
The metal was under pressure in early trades, partly on news unions in Mexico had called off planned strikes at nine Grupo Mexico facilities, including the giant Cananea mine, after the government ruled their strike plans illegal.
   
"In industry news, the main talking point is the avoidance of strike action at Grupo's mines in Mexico, but strike action remains probable for next week at Codelco's Collahuasi mine," noted JP Morgan analyst Michael Jansen.
   
Codelco aside, the market has had to contend with ongoing labour unrest in Peru as well as news Xstrata has declared force majeure on copper deliveries from its CCR refinery in Canada as workers there continue their strike.
   
Overnight in Asia, traders were digesting news out earlier that Shanghai copper stocks rose 6.4 pct last week while imports of refined copper and copper alloy fell 32 pct in May from April.
   
The news weighed on copper slightly, although in early European trades, markets were for the most part focused on the US CPI data amid growing worries over possible rising interest rates.
   
Nickel was down at 41,250 usd a tonne against 41,900 usd at the close yesterday, when the metal put in a strong performance after shedding about 10 pct of its value in a week. The metal came off a day low of 40,700 usd a tonne.
   
Spain's Acerinox said today that stainless steel demand, which accounts for about 70 pct of nickel consumption, has shown little sign of slackening despite record prices. The news helped underpin nickel.
  
In other metals, zinc fell to 3,704 usd against 3,720 usd, off a day low 3,650 usd, while lead was flat at 2,345 usd, off a day low of 2,300 usd. Aluminium dipped to 2,725 usd against 2,731 usd, off a day low of 2,711 usd, while while tin was up at 14,075 usd against 14,050 usd.
 
Gold inches higher as dollar wilts on mixed May CPI data

LONDON - Gold edged higher in afternoon trade after the core May US consumer price index came in below expectations, triggering a dip in the US dollar against the major currencies.
   
But the precious metal remained range-bound, with headline CPI and the Empire index on manufacturing activity both coming in stronger than expected, limiting losses in the dollar, analysts said.
   
At 2.18 pm, spot gold was trading at 653.70 usd an ounce against 652.00 usd in late New York trade yesterday.
   
Among other metals, platinum was steady at 1,276 usd per ounce against 1,279 usd in late New York trade yesterday. The white metal remains supported by ongoing industrial action in South Africa, where Anglo Platinum's pay dispute with unions continues.
   
"The platinum industry negotiations in South Africa seem to be sputtering into a stalemate and should force the mine production offline in two weeks," said Neal Ryan, an analyst at Blanchard.
   
Its sister metal palladium edged lower to 363 usd against 366 usd. Silver meanwhile inched up to 13.19 usd per ounce from 13.13 usd yesterday.

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