US & World Daily Markets Financial Briefing 18-04-2007

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Stocks down on mixed earnings reports

NEW YORK - Stocks edged lower in early trading Wednesday, as a mixed batch of earnings reports led some traders to take profits after two weeks of gains in the Dow Jones industrials.
   
Investors pulled back after Yahoo Inc. posted a surprising 11 percent drop in its first-quarter profit. Also making investors shudder were disappointing results from International Business Machines Corp. and Motorola Inc.
   
JPMorgan Chase & Co. gave some support to the Dow after the bank reported a 55 percent jump in profits that far surpassed Wall Street's expectations. The 30 companies that make up the index -- nearly half of which report earnings this week -- have been mostly beating the Street's predictions.
   
Wall Street also paid close attention to a sharp drop in the dollar, which is now at 26-year lows against the British pound. The U.S. currency has been weakening because interest rates have remained steady since the summer, and because the U.S. economy is slowing.
   
In the first hour of trading, the Dow Jones industrial average fell 23.73, or 0.19 percent, to 12,749.31. Broader stock indicators also fell. The Standard & Poor's 500 index was down 2.89, or 0.20 percent, at 1,468.59, and the Nasdaq composite index shed 11.25, or 0.45 percent, to 2,505.70.

The Russell 2000 index of smaller companies was down 2.36, or 0.28 percent, at 826.60. In afternoon trading, Britain's FTSE 100 was down 0.56 percent, Germany's DAX index fell 0.98 percent, and France's CAC-40 dropped 0.38 percent.
   
On Tuesday, the Dow briefly surpassed its record close, reached Feb. 20, of 12,786.64, and the S&P closed at a new six-and-a-half-year high. The Nasdaq fell, though, as did the Russell 2000 index of smaller companies -- however, the Russell briefly hit a record in earlier trading.
   
Bonds rose for the third straight session, with the yield on the benchmark 10-year Treasury note falling to 4.66 percent from 4.69 percent late Tuesday.    

Investors are expecting the cooling economy to be reflected in this week's earnings reports; the S&P has predicted that earnings for companies in the S&P 500 index grew less than 4 percent in the first quarter, much less than in previous quarters.
   
The only economic news expected during the session is the government's weekly oil inventory report, another piece of data that will be scrutinized by the Federal Reserve to determine which way interest rates should go. Ahead of the report, a barrel of light sweet crude was up 33 cents to $63.33 a barrel in premarket trading on the New York Mercantile Exchange.
   
Stocks in focus

Yahoo plunged $3.69, or 11.5 percent, to $28.40 after the Internet portal reported disappointing results late Tuesday. The results left Wall Street wondering how much longer it will take the company to regain its financial footing after stumbling through most of 2006.
   
Pressure was felt elsewhere in the tech sector. International Business Machines Corp. posted disappointing results late Tuesday, and its shares dropped $2.28, or 2.4 percent, to $94.84. Hard driver maker Seagate Technology LLC fell $1.26, or 5.7 percent, to $20.89 after it reported profit fell 22 percent in the first quarter, and lowered its outlook.
   
JPMorgan Chase rose $1.60, or 3.2 percent, to $51.78 after the nation's third-largest bank reported a 55 percent increase in profit. The New York-based bank said first-quarter results were boosted by strength across its primary business lines, though it did increase reserves to offset subprime mortgage losses.

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Pound drifts off 26-year high against dollar but stays well-bid

LONDON - The pound came off 26-year highs but stayed well bid above the 2 dollar level as the flow of strong UK data proved relentless.
   
Coming on the heels of a record surge in inflation, wage growth hit a high not seen in nearly three years, suggesting that the outlook for inflation may worsen over the coming months.
   
Average earnings growth including bonuses jumped to 4.6 pct in the three-month period from the year earlier, after a 4.2 pct rise in January. The figure is cause for concern at the Bank of England as it has vaulted above the 4.5 pct level thought to stoke inflationary pressures.
   
After the news, the pound jumped to 2.013 usd, a new multi-year high, before slipping back. The data coincided with the release of the minutes to the Monetary Policy Committee's April meeting, where the MPC opted to leave interest rates on hold at 5.25 pct.
   
The minutes showed a 7-2 vote to hold in April but essentially confirmed market expectations that the Bank of England will hike rates in May.
   
In any event, the minutes have been overtaken by events, with yesterday's surprise jump in key CPI inflation to 3.1 pct already making a May hike all but certain.
   
The spate of strong data has even led to talk of a hefty half-point rate hike, to 5.75 pct in May, BNP Paribas analysts said.
   
Fuelled by such speculation, the pound was well underpinned, with BNP Paribas analysts suggesting that sterling's rise above 2.011 usd may open the way for further gains up to 2.037 usd.
   
But some analysts believe markets may be a running ahead too quickly.
   
Daniel Katzive at UBS noted that UK data may slow sufficiently to avoid a second tightening later in the year.
   
The pound was broadly flat against other major currencies, demonstrating that at least part of its strength is coming from the dollar's overall weakness.
   
The US currency remained weak across the board after soft inflation data yesterday. The dollar sank to a new two-year low against the euro of 1.3614 usd.
    
Elsewhere, the Kiwi dollar was a major winner, after a sharp rise in domestically generated inflation in New Zealand.
   
In the final quarter of 2006, CPI rose by 0.5 pct from the previous quarter, a little less than predicted. Focus was on domestically generated inflation which surged by 1.2 pct during the same period.
   
Interest rates in New Zealand are predicted to rise as a result, to 7.75 pct from 7.50 pct at present when the Reserve Bank of New Zealand meets on April 26.
   
If rates do rise, the Kiwi dollar will become even more attractive as the destination for carry trades funded in low yielding places like Japan.
   
The yen, meanwhile, stayed on the back foot although off recent lows.

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Top Stories in Europe at 12.05 GMT

Frankfurt - EON AG chief executive Wulf Bernotat told Manager Magazine his company plans to invest 8 bln eur in renewable energy infrastructure in the next five years. In an interview scheduled to appear in this week's edition, the chief executive also reiterated that EON plans to participate in the upcoming privatisation of the Russian power market and that it will make a decision on which assets it wants to acquire at the end of the month.
 
Milan - Valery Okulov, head of the Russian airline Aeroflot, rejected speculation that the company plans to join forces with investors other than Unicredito Italiano SpA to bid for the Italian airline Alitalia SpA.
 
"Today we are in a consortium with Unicredito. In this phase, the conditions do not herald the participation of other players," he said in an interview with the daily Il Corriere della Sera, adding it is premature to discuss the details of its bid for Alitalia.

Amsterdam - ABN Amro Holding NV shareholder The Children's Investment Fund (TCI) has attacked the Dutch bank's decision to wait until next week before talking to a consortium thought to be planning a break-up bid for the group. In a statement, TCI said holding the talks after Friday's 5 pm deadline for ABN shareholders to register to vote at the bank's April 26 Annual General Meeting is "disingenuous and disadvantageous for shareholders".

Brussels - Belgian bank KBC Group NV said it has acquired 92.5 pct of Russian bank Absolut for 761 mln eur, subject to regulatory approval by the Central Bank of Russia. KBC's chief executive Andre Bergen said this is "a very reasonable price" given the bank's growth potential, speaking at a news conference following the announcement.

Zurich - Roche Holding AG reported first-quarter group sales at the high-end of expectations of 11.4 bln sfr, up 16 pct year-on-year in Swiss franc terms, and confirmed its full-year guidance for double-digit sales growth at both group level and in the pharma division. Roche also upgraded its target for EPS growth to "above group sales", from its previous guidance of "in line with sales growth".

London - Bodycote International PLC said it has rejected a revised 332 pence per share cash offer for the company from Swiss engineering group Sulzer AG. The company said the revised offer is an increase of 2 pct over the previous rejected approach, but that the new proposal "continues to significantly under-value" the group.

UK music company EMI Group said it will pay no more dividends until 2009, as it unveiled long-awaited plans to borrow against its back catalogue of hit songs. The group, which has issued two profit warnings since the start of 2007, said it hopes to issue debt secured against revenues from its music publishing arm before the end of the current fiscal year, ending in March 2008.

The Bank of England's Monetary Policy Committe voted by a 7-to-2 margin to keep the benchmark repo rate unchanged at 5.25 pct earlier this month, the minutes of April's meeting revealed.
 
The rate-setters appeared to be split into three broad camps. A first more dovish group felt that inflation will fall back, a middle group reckoned there was a need to wait-and-see delaying as hike until May, while the last was more hawkish, preferring an immediate rate increase.

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Asian shares close higher on US data, rise on Wall St

HONG KONG - Shares across the Asia-Pacific region closed higher on better-than-expected inflation and housing data from the US, which helped push the Dow Jones industrials into record territory overnight.
   
Tokyo shares ended higher in response to the US data and rise on Wall Street but a stronger yen limited the advance, and investors were awaiting earnings announcements by major exporters next week.
   
The Nikkei 225 Stock Average closed 139.88 points or 0.8 pct higher at 17,667.33, off the day's high of 17,706.85. The TOPIX index of all first-section issues was up 14.60 points or 0.85 pct at 1,730.71, off a high of 1,732.48.
   
Dealers said the US data and firmer Wall Street overnight had been enough only to encourage bargain-hunting, and had fallen short of creating optimism about rallies in the broader market in the near future.
   
"Given the absence of a major shift in market outlooks, players expected trading to remain range bound and bought, basically, in hopes of quick gains after falls yesterday," said a trader at a European asset management firm.
   
Australian shares closed at fresh records, tracking the rise on US shares overnight. Major banking stocks led the local wider market higher, along with gains in the leading resource stocks on firmer industrial metal prices.
   
The S&P/ASX 200 closed up 50.4 points or 0.81 pct at a record 6,236.9, beating Monday's record close of 6,197.7 and posting a new intra-day record of 6,265.2.
   
The All Ordinaries index advanced 46.1 points to a record close of 6,215.0, also surpassing Monday's record finish of 6,183.6 while the broader index set a fresh intra-day high of 6,240.8.
   
Hong Kong shares were flat in afternoon trade as the market went into consolidation mode after gains of nearly 450 points in the last two sessions. At 3.15 pm the Hang Seng Index was down 2.34 points at 20,786.27.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on sustained fund inflows, with power and steel stocks gaining ground, dealers said. About 60 companies rose by their daily limits of 10 pct.
   
The Shanghai A-share Index was up 0.32 points or 0.01 pct at 3,796.69 and the Shenzhen A-share Index was up 21.19 points or 2.04 pct at a record 1,058.17.
   
Seoul shares closed at a new high as foreign investors shifted their focus towards second-liners which have lagged the blue chips' recent strong run-ups and amid hopes of a continuing rally across global stock markets, dealers said.
   
Wall Street's overnight modest gains and Intel's solid quarterly results provided enough support to outpace profit-taking by institutions and retail investors, although concerns remain about a tightening in China ahead of the release of its GDP data this week, they added.
   
The KOSPI index closed up 5.92 points at 1,534.58, off a low of 1,530.02 and a high of 1,538.29.

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Gold recovers as US dollar hits fresh two year lows against euro

LONDON - Gold recovered from a bout of profit taking yesterday as the US dollar hit a fresh two year low against the euro, with players saying the metal might dip further before mounting its assault on the 700 usd mark.
   
"Everyone's looking for a pullback ... because we've gained so much recently, but overall the trend is still up. The belief is that the dollar has a long way to go yet so that's only going to support gold," said a trader.
   
At 10.22 am, spot gold was at 689.90 usd an ounce, up from 687.40 usd in late New York trades yesterday.  The metal hit an 11 month high of 691.60 usd on Monday but retreated yesterday despite a weak US dollar, as players cashed in on the metal's near 2 pct gains in just under a week.
   
"The weaker US dollar is clearly underpinning the gold price. We continue to look for a move towards 700-715 usd in the next 1-3 months," said JP Morgan analyst Michael Jansen.
   
A weaker dollar boosts gold's appeal as an alternative asset to the US currency. Also, as gold is traded in dollars, a weak dollar makes the metal cheaper for holders of other currencies.
     
Elsewhere, platinum edged up to 1,277 usd an ounce against 1,276 usd in late New York trades yesterday, while palladium was up at 370 usd an ounce against 373 usd yesterday.
   
Both metals are still benefiting from news a Swiss bank is planning to launch exchange traded funds in the two metals, even though key platinum producer Angloplat has said it won't supply physical metal to the platinum ETF.
   
ETFs trade commodity futures and back up every ounce of stock bought on paper with actual physical stock. As a result, the launch of an ETF often squeezes the market as it eats up the amount of physical stock available.
   
Silver was up at 13.97 usd an ounce against 13.91 usd in late New York trades.

Zinc market in surplus in first two months of 2007

LONDON - World demand for zinc grew in the first two months of the year, but so did global production of the metal, leaving the market in a surplus of 84,000 tonnes, said the World Bureau of Metal Statistics.
   
The independent research body said demand grew by an annual 23,000 tonnes in January through to February to 1.748 mln tonnes, while production increased by 171,000 tonnes to 1.832 mln tonnes.
   
Turning to stocks, the WBMS said while reported stocks were some 27,000 tonnes higher at the end of February, the proportion of total stocks held in LME warehouses has declined steadily since end 2005.
   
At 2.29 pm, LME zinc for three-month delivery was down at 3,720 usd a tonne against 3,720 usd at the close yesterday.

Global tin demand fell in Jan, Feb 2007

LONDON - Global tin demand fell 2.5 pct in the first two months of the year, compared with the same period a year ago, said the World Bureau of Metals Statistics (WBMS).
   
In January and February of this year, demand dropped to 58,100 tonnes, down from 59,600 year-on-year, noted the independent research body.
   
The WBMS added tin mine production rose 3 pct to 51,800 tonnes, with "all of the increase recorded in China", said the WBMS.
   
Refined tin production was down by 7,000 tonnes or 13 pct from the volume produced in the same two months last year.
   
"Production falls in Indonesia, particularly after the government clampdown on illegal tin mining at the end of the year, reduced the amount of tin available," noted the body.
   
The government in Indonesia, the world's second-largest producer trailing China, is cracking down on illegal tin mining.
   
Tin hit a 25-year high earlier today of 15,100 usd amid low stocks, but eased from its peak as traders digested news Indonesia has approved export permits to two smelters, including PT Koba Tin, the country's second-largest producer.
   
At 2.35 pm, tin for three-month delivery rose to 13,950 usd, against 14,800 usd at the close yesterday.

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