US & World Daily Markets Financial Briefing 17-07-2007

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The Dow Jones industrials cross 14,000

NEW YORK - The Dow Jones industrial average swept past 14,000 for the first time Tuesday, rising on a relatively mild inflation report and better-than-expected profit reports from blue chip names including Coca-Cola Co. and Merrill Lynch & Co.
   
The stock market's best-known indicator crossed 14,000 in the first half-hour of trading, rising to 14,002.60, having taken just 57 trading days to make the trip from 13,000.
   
Stocks have risen fairly steadily since the spring amid a continuum of buyout news and evidence that despite higher fuel prices and the ongoing problems in the housing market and mortgage lending industry, consumers are spending and companies remain optimistic about the future. With the Federal Reserve ever vigilant about inflation, any news that prices are rising at a moderate pace has added to the market's momentum, as it did Tuesday.
   
The release of upbeat earnings reports also reassured a market that had worried that a slowing economy and rising energy prices would slash into corporate profits.
   
But the Dow's latest accomplishment does raise questions about whether they are buying more on speculation than fundamentals. A week ago, the average tumbled nearly 150 points after disappointing forecasts from Home Depot Inc., Sears Holdings Corp. and homebuilder D.R. Horton Inc., but only two days later, the Dow barreled 283 points higher as investors chose to put a positive spin on a generally lackluster series of retail sales reports.
   
In the first hour of trading, the Dow was up 30.73, or 0.22 percent, at 13,981.71, slipping back from 14,000 with the normal ebb and flow of trading.
   
Broader stock indicators also rose. The Standard & Poor's 500 index rose 3.14, or 0.20 percent, to 1,552.66, having set its own new record highs in recent sessions. The Nasdaq composite index rose 9.11, or 0.34 percent, to 2,706.44.
   
The short time that it took the Dow to pass this milestone recalls its ascent during the dot-com boom, especially since it took only 129 days to make the passage from 12,000 to 13,000. In the late 1990s, the Dow took just 24 days to go from 10,000 to 11,000, and 89 days to go from 6,000 to 7,000.
   
The end of the high-tech boom plus the recession and the aftermath of the Sept. 11, 2001, terror attacks helped send all the major market indexes into reverse. It took the Dow 7 1/2 years to trek from 11,000 to 12,000, and only last October began setting its first record highs since January 2000.
   
The S&P 500 has also surpassed its early 2000 highs, reaching a new closing high last month and last week surpassing its trading high. The Nasdaq, overinflated by the high-tech boom, is not expected to approach its closing high of 5,048.62 in the foreseeable future.
   
The move higher Tuesday came as Wall Street sorted through a mixed inflation reading and better-than-expected profit reports from blue chip names including Coca-Cola Co. and Merrill Lynch.
   
The gains also follow the Labor Department's report that inflation at the wholesale level fell in June but heated up more than expected when often volatile food and energy prices are excluded. The producer price index slipped 0.2 percent in June but the so-called core figure, which excludes food and energy, rose 0.3 percent. But without an increase in cars and light trucks, core inflation would have increased a more moderate 0.1 percent.
   
Rising food and energy costs have in recent months unnerved some investors who have worried that inflation will deplete the ability of many consumers to keep spending and help prop up the economy.

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Dollar gets mild support from mixed US PPI data

LONDON - The dollar received some mild support from US PPI data which showed a fall in the headline number but a rise in the core reading.
   
Headline PPI fell for the first time since January, by 0.2 pct in June against a 0.1 pct expected rise. Offsetting this, however, was a 0.3 pct rise in core PPI, which excludes the more volatile food and energy prices, on the back of higher passenger car prices. Analysts were expecting only a 0.2 pct gain.
   
The dollar rose to 122.10 yen from 121.98 yen before the news, and pushed the pound a bit lower, to 2.0453 usd from 2.0461 usd. Against the euro, the dollar first weakened and then strengthened, leaving the trading pair unchanged overall.

The pound continued to surge higher, hitting fresh 26-year highs after this morning's above-consensus UK inflation data increased expectations that the Bank of England will raise interest rates to at least 6.00 pct. 
   
Official figures released this morning showed the key annual CPI rate edged down to 2.4 pct in June from 2.5 pct in May, helped by further falls in gas and electricity bills, but above forecasts for a bigger drop to 2.3 pct.
   
"The modest upside surprise on CPI should ensure that sterling sentiment remains bullish and that the market remains fully priced for more action from the Bank of England in the coming months," said Daragh Maher at Calyon.
   
The news gave a sharp boost to the pound, propelling it to a fresh 26-year high of 2.0458 usd, well above the level of 2.0368 usd it was trading at just prior to the release.

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Euroshares down midday, ZEW disappoints, steel sector loses on SSAB Q2

LONDON - At 12.21 pm, the Dow Jones STOXX 50 dropped 23.69 points, or 0.59 pct, to 3,975.24, as the STOXX 600 fell 2.63 points, or 0.66 pct, to 397.08. The ZEW research institute said the index dropped to +10.4 points in July from +20.3 points in June, but economists polled by Thomson Financial News had anticipated an easing to +19.8 points only.
   
A sharper-than-expected fall in the ZEW research institute's German economic expectations index suggests that Germany's recovery may now be starting to lose momentum, economists said earlier today.
   
In addition, the steel sector was in for a fall after SSAB presented weak second-quarter results. Shares in the Swedish steel producer - which have risen 94 pct since the start of the year - dived after the company's second-quarter profit after financials came in well short of expectations hit by higher fixed costs and other negative effects.
   
SSAB said its profit after financials rose just 4.9 pct from a year earlier to 1.864 bln skr, versus market expectations for a 29 pct increase to 2.296 bln skr, as recorded by SME Direkt. The Dow Jones 600 index for the basic resources sector declined 1.70 pct, as SSAB retreated 9.39 pct.
   
In the aviation industry, British Airways today said its joint bid with TPG for Spanish flag carrier Iberia will benefit all three parties.
   
"We believe a joint approach with TPG is in both Iberia and BA's interests," BA chairman Martin Broughton told the group's annual meeting in London. TPG and BA have offered 3.60 eur a share for Iberia, valuing the Spanish company at around 3.4 bln eur.
   
The board of Iberia said on July 8 that it would not respond before September to a takeover approach. Shares in Iberia gained 1.08 pct, while British Airways declined 1.03 pct.
   
Meanwhile, the battle over ABN Amro continues, as Barclays is understood to be looking at ways to improve its offer for the Dutch bank, including issuing "quasi equity" such as convertible bonds, said the Financial Times, without naming sources.
   
Barclays, which yesterday faced investor calls to walk away from the bidding, is also reassessing cost and revenue synergies and considering using the 12 bln eur in cash from the sale of US bank LaSalle in an effort to sweeten its bid, it said.
   
The move comes after the RBS-led consortium upped the cash component of its 71.1 bln eur bid for ABN to 93 pct from 79 pct.
   
Shares in ABN Amro were outperforming the wider banking sector, down 0.08 pct. SG Secs upgraded the shares to 'buy' from 'hold' and also said it did not believe that the bid made by the RBS consortium could be matched.
   
The 'neutral' stance reflects the broker's estimate of limited upside to the stock given some timing and regulatory risks of the takeover. Barclays dropped 0.07 pct, as Fortis declined 1.18 pct. Royal Bank of Scotland lost 1.96 pct.
   
Staying in banking, Societe Generale rose 0.43 pct as talk resurfaced that the french banking group could be bought by Italian rival Unicredit but shares soon came off highs as dealers dismissed the talk.
       
Elsewhere in the chemicals sector, shares in BASF outperformed, down 0.77 pct as the DAX fell 1.23 pct, after the company said it is "evaluating strategic options" for parts of its styrenics activities and has received an offer for parts of the unit.
      
But Electrolux stormed 6.52 pct higher after the Swedish white goods giant reported better-than-expected second-quarter results, boosted primarily by a surprisingly strong performance in North America.
       
And Norwegian fertiliser group Yara International ASA was up 0.91 pct, off earlier highs, as news of better-than-expected second-quarter profits offset a warning about fourth-quarter energy costs.

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Asian money markets summary
 
BEIJING - Asian late money market rates (vs previous close):

Hong Kong: 3-month HIBOR rate 4.38 pct (4.37)
                                overnight rate 3.60 pct (3.7)
       
Jakarta: overnight rate  4.02489 pct  (3.83814)
       
Kuala Lumpur: 3-mth KLIBOR bid/ask 3.55/60 pct ( 3.55/60)
                                      overnight rate 3.49/51 pct (3.48/50 )
       
Manila: overnight rate 6.65625 pct (6.3125)
       
Seoul: 3-yr corporate bond yield 5.75 pct (5.75)
                      3-yr state bond yield 5.42 pct (5.42)
       
Singapore: avg overnight rate 2.0626 pct (2.0625)
                               3-month SIBOR 2.1875 pct (2.1875)
       
Sydney: 90-day bank bill rate 6.450 pct (6.433)
       
Taipei: overnight rate 2.001 pct ( 2.007 )
       
Tokyo: unsecured overnight rate 0.512 pct (closed)
                      3-month TIBOR 0.75333 pct (closed)

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Gold steady, retracing earlier losses, as June PPI comes in mixed

LONDON - Gold was steady, retracing earlier losses, as the dollar weakened a touch after June US inflation data came in mixed and as near-record oil prices continued to  buoy the precious metal.
   
The dollar had rallied earlier today in the wake of a softer-than-expected survey on German economic expectations from the ZEW research institute, pushing gold to an intra-day low of 662.53 usd.
   
But, the currency weakened a touch after the June US producer price index came in mixed, with headline PPI dipping by 0.2 pct, its first drop in five months, while core PPI rose by a higher-than-expected 0.3 pct month-on-month.
   
Gold is seen as an alternative investment to the US currency and typically trades in an inverse relationship to it.
   
"On the surface, the fall of 0.2 pct on the month will dent the US dollar, but with core (inflation) higher than expected at +0.3 pct, against the consensus for a +0.2 pct reading, this may keep the dollar from being heavily sold," said analyst Matthew Foster-Smith at the IFR.
   
At 2.06 pm, spot gold was trading at 665.10 usd an ounce, compared with 665.50 usd in late New York trade yesterday.
   
The market is awaiting further US data due out today, including June US industrial production and the National Association of Housebuilders' index for the same month, for clues as to future moves for the US currency.
   
Attention will chiefly be focused on Federal Reserve chairman Ben Bernanke's testimony to the US Congress tomorrow and Thursday and the release of the latest Fed meeting minutes for pointers as to the likely direction of interest rates.
   
"Concerns about the US sub-prime market are keeping (the dollar) under selling pressure as markets await comments from the Fed's Bernanke later in the week," said analysts at Gold Investments in Ireland.
   
"There are a number of key US data releases today, which should help provide some direction for markets." "Top of the list will be this afternoon's PPI report for June but markets will also be keeping a close eye on industrial production and capacity utilisation for June and very important are net capital inflows for May," they added.
   
Among other precious metals, platinum eased to 1,306 usd against 1,312 usd as investors took profits after yesterday's gains. Its sister metal palladium dipped to 363 usd against 367 usd. Silver was steady at 12.97 against 12.98 usd.

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