US & World Daily Markets Financial Briefing 19-06-2007

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Stocks Fall Moderately On Home Data

NEW YORK - Wall Street pulled back moderately in early trading Tuesday following word that new home construction fell in May.
   
Although investors were expecting a decline, they nonetheless appeared concerned about the Commerce Department report showing construction of new homes and apartments dropped by 2.1 percent last month. The drop followed small gains in April and March and marked the steepest drop since January, when construction plunged 13.9 percent.
   
Economic data has at turns upended and supported the market in recent weeks as investors try to feel their way forward while juggling concerns about inflation, interest rates, the housing sector and the overall economy. The move lower in stock futures follows a modest pullback Monday amid a dearth of economic and earnings data. The three prior sessions had seen the Dow Jones industrials post their broadest gains since November 2004, so a pullback was perhaps to be expected.
   
In early trading, the Dow Jones industrial average fell 11.86, or 0.09 percent, to 13,601.12. Broader stock indicators showed little movement. The Standard & Poor's 500 index fell 2.62, or 0.17 percent, to 1,528.43, and the Nasdaq composite index fell 7.81, or 0.30 percent to 2,618.79.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note slipping to 5.13 percent from 5.15 percent late Monday. The dollar, which has strengthened in recent weeks a bond yields rose, was mixed against other major currencies.
   
While Wall Street has largely tried to look past weakness in the housing market as old news, any sign that the fallout isn't contained and could taint other areas of the economy could alarm investors.
   
A recent spike in interest rates, which in recent weeks pummeled stocks, could also add to the unease of those concerned about the housing market. The 10-year Treasury note's yield last week hit five-year highs.

Light, sweet crude fell 28 cents to $68.81 per barrel in premarket electronic trading on the New York Mercantile Exchange.
   
In afternoon trading, Britain's FTSE 100 fell 0.31 percent, Germany's DAX index fell 0.06 percent, and France's CAC-40 slipped 0.18 percent.
   
Stocks in focus

In corporate news, Yahoo Inc. rose 10 cents to $28.22 after Chairman Terry Semel said late Monday he stepped aside as chief executive. Investors have criticized the companies performance against rival Google Inc.
   
While Wall Street is still awaiting the quarterly flood of earnings reports that will begin to arrive in earnest next month, some retailers and other companies report this week. Electronics chain Best Buy Co. fell $2.40, or 5 percent, to $45.61 after warning of an uncertain consumer spending environment and lowering its fiscal 2008 profit forecast.

The company also said its fiscal first-quarter earnings fell 18 percent amid weak profits in China and increased sales of lower-margin products such as notebook computers.

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Dollar steady after in-line US housing news

LONDON - The dollar was little changed after US housing data came in more or less in line with expectations, further easing fears that the sector will cause a sharp retrenchment in the world's largest economy.
   
The Commerce Department said housing starts in May fell 2.1 pct to a 1.474 mln unit annual rate, while permits during the month rose 3.0 pct to 1.486 mln. Analysts said the data has helped ease concerns that the US housing market will drag the wider economy into reverse, if not into recession.  
   
"The gains in housing starts thus far in the quarter point to a significant diminishment of the drag from residential investment in the second, and possibly third, quarter," said John Ryding, analyst at Bear Stearns.
   
The stream of bad news coming from the housing market earlier this year triggered expectations that the US Federal Reserve will start cutting its benchmark rate from the current 5.25 pct this year. However, a succession of solid activity data recently has put paid to those predictions.
   
Earlier in the session, the euro slipped slightly after a weaker than expected survey into German business confidence provided some evidence that the hawkish language from the European Central Bank is beginning to hit sentiment.
   
The ZEW research institute said today that its main indicator of economic sentiment for the euro zone's largest single economy dropped by 3.7 points in June 2007 to 20.3 points. The fall was unexpected. Analysts polled by Thomson Financial News were expecting a sharp increase to 29.0 from May's 24.0. 
   
"The ZEW was a little bit disappointing but there was not much impact on the currency markets, which remain obsessed by carry trades," said Neil Mackinnon, chief economist at ECU Group.
   
One of the biggest beneficiaries from these so-called carry trades, where investors borrow in low yielding currencies to invest in high yielding ones elsewhere, has been the euro, which remains near all-time highs against the yen.
   
Neil Mellor, currency strategist at the Bank of New York, even raised the spectre of some modest verbal intervention by Japan's Ministry of Finance in order to pre-empt fresh criticism from overseas during the coming months.
   
"With euro/yen on the march once more today -- even a worse than forecast ZEW survey from Germany did relatively little to dent the pair's resilience -- it seems likely that we will find out whether this is true or not relatively quickly," he said.
   
Meanwhile, the euro's value against the pound in the near-term at least is likely to be dominated by tomorrow's publication of the minutes to the last meeting of the Bank of England's Monetary Policy Committee.   

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Euroshares flat following ZEW data with Wall Street looking at a lower open

LONDON - Leading European shares were flat midday, rebounding from earlier losses which followed disappointing economic data in Germany and ahead of a lower opening on Wall Street.
    
At 12.19 pm, the Dow Jones STOXX 50 Index was unchanged at 3,976.81 while the DJ STOXX 600 fell 0.47 points, or 0.12 pct to 397.40. The DJ Euro STOXX, which tracks the performance of blue-chip companies in 12 countries using the euro, was up 0.48 points, or 0.01 pct at 4,530.70.
   
KarstadtQuelle and its UK unit Thomas Cook were in the limelight today after the tour operator's market debut following its merger with MyTravel, and as UBS initiated the new company with a 'buy' stance.
   
According to market sources, UBS initiated coverage on Thomas Cook with a  400 pence target, noting that the combined group will have market-leading positions in Scandinavia, Belgium and Austria. UBS added that the increased size, together with a move to niche operations and different destinations, should help boost profit and margin growth in the medium term.
     
Shares in Bayer AG rose 1.1 pct after the health care, chemicals and crop science company lifted its profit margin outlook for 2007-09 on improved earnings for its health care operations, which is responsible for famous brand-name products such Aleve, Alka-Seltzer and Levitra.
   
Insurers put in a solid performance, helped by positive broker comment from HSBC on Allianz and CNP Assurances. HSBC raised the target for Allianz to 209 eur and reiterated its 'overweight' rating. In a note to clients, it said that anticipated profits have thus far not been fully priced in which presented a buying opportunity. Meanwhile, the broker lifted the target for CNP to 115 eur. Allianz gained 0.64 pct as CNP added 0.61 pct.  
   
ICI shares continued to flirt with their best level in nearly eight years on speculation other bidders for the maker of Dulux paints are likely to emerge after the company rejected a 7.2 bln stg bid from Akzo Nobel. Some analysts said Akzo may come back to the table with a higher offer. The stock was last up 1.1 pct. ICI gained 0.63 pct as Akzo fell 1.35 pct. 
   
EADS unit Airbus on Tuesday said it is back in business as it announced both of its flagship aircraft programmes were on track. President and chief executive Louis Gallois said: "I can tell you with full confidence that Airbus is back." Gallois told a press conference at the show that Airbus is on track to deliver its first A380 to Singapore Airlines in October. Shares gained more than 1 pct earlier in the morning, but are now flat at 24.12.
   
ADP (Aeroports de Paris)' stock fell 1.27 pct midday after the company revealed that passenger numbers dropped at Orly airport last month compared with a year earlier.
    
Staying in France, STMicroelectronics fell 1.03 pct after US peer Microchip Technology cut its sales outlook for the quarter ended June 30, citing weaker-than-expected demand in Europe.
   
Renault was a solid gainer, rising 1.20 pct after broker Merrill Lynch added the car maker to its Europe 1 list and reiterated its target of 130 eur, saying strong second quarter figures are set to provide a positive surprise to investors. Since the beginning of the year, Renault shares have risen around 25 pct.
   
Shares in Vodafone fell 1.67 pct after AT&T's new chief executive Randall Stephenson said the US telecom firm is not considering an offer for the telecom operator, according to the Financial Times.
       
Elsewhere, shares in Tesco dropped 3.8 pct after the UK's biggest supermarket chain reported an expected slight slowdown in underlying UK sales growth for its first quarter.

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Asian shares close higher, rebounding from early Wall St-induced losses

HONG KONG - Shares across the Asia-Pacific region closed higher, recovering in afternoon trade from losses caused by a fall on Wall Street overnight.
   
Tokyo shares closed mixed after Wall Street's slide overnight, but the key Nikkei index managed to finish in positive territory, ending near four-month highs led by exporters. Exporters extended their gains on the back of a weaker yen, but this failed to trigger further buying across the board given the lack of stronger leads.
       
The Nikkei 225 Stock Average ended up 14.09 points or 0.08 pct at 18,163.61, its high for the day. It was also the index's best finish in nearly four months. The TOPIX index of all first-section issues slipped 7.90 points or 0.44 pct to finish at 1,780.49, off the day's low of 1,778.17.
      
Australian shares ended higher after an early afternoon rally reversed earlier losses, with buying in particular stocks supporting the market into positive territory rather than across-the board-support.
   
The fall in US stock markets overnight initiated the early selling when a US housing indicator slipped to its lowest level in 16 years, while sideways trading in Asia today provided little regional buying impetus.
   
Rio Tinto was again the highlight, ending above the 100 aud per share level after breaching this level yesterday before slipping back. BHP Billiton also finished at a new record.
   
The S&P/ASX 200 closed up 28.6 points or 0.45 pct at 6,372.0, off the day's high of 6,381.6 and above the low of 6,316.0 set in morning trade. The key index is just over 20 points shy of its record close of 6,392.9 set on June 4.
   
The Hong Kong market was closed for a holiday and will reopen tomorrow.     

In mainland China, A-shares in Shanghai and Shenzhen shrugged off early weakness and closed higher on follow-through interest and upbeat hopes for interim results, with telecom and property stocks in favor. The Shanghai A-share Index was up 17.08 points or 0.38 pct to 4,478.70 and the Shenzhen A-share Index was up 18.08 points or 1.37 pct at 1,335.05.
       
Bank shares fell after the China Banking Regulatory Commission reprimanded eight banks over the improper channeling of bank credit into the stock and property markets.
   
Seoul shares edged up, after early Wall Street-driven weakness, with the main index nudging to another record high amid strong market liquidity.  Builders led the way with support from overseas orders, attracted by upbeat views on the outlook for the domestic construction industry.
   
The KOSPI index closed up 0.97 points or 0.05 pct at a new finishing high of 1,807.85. It was the fourth straight record closing finish. The low for the day was 1,797.18 and the high was 1,813.84.

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Gold steady, supported by dollar easing against the euro

LONDON - Gold was steady in early trade with prices taking support from the dollar's  continued slide against the euro.
   
"The dollar is driving the gold market," said Suki Cooper an analyst at Barclays.  Gold often moves counter to the dollar as it is seen as an alternative asset to the US currency.
   
At 9.31 am, spot gold was trading at 654.45 usd per ounce against 656.30 usd in late New York trades yesterday.
   
The dollar was down against the euro, extending losses posted yesterday after US housing statistics showed sales and prospective buyer rates were down, weakening the chances of the Federal Reserve raising interest rates.
   
A higher interest rate tends to boost a currency's value, as traders look to earn greater returns.
   
Prices were underpinned by rising energy costs, as oil rose to a year high yesterday. "The strong oil price means gold becomes an inflationary hedge," said Cooper.
   
Analysts believe gold is likely to remain relatively steady this week. "For the moment, gold would seem to be content to hold in its current range beneath key resistance of 661 usd as this week features a relatively light economic data calendar," said analysts at Standard Bank.
   
Gold is trading in a range between 643 usd and 661 usd, with analysts looking to the upside in the following weeks."In the medium term, we see gold continuing its upwards trend," said Cooper at Barclays.
   
Further US housing data released at 1.30 pm London time today may test that theory, as a nervous market looks for any indication of possible moves from the Federal Reserve that could lift the dollar, indirectly impacting gold prices.
   
"Principally it's the US housing data that stands to provide the bulk of the direction," said David Jones, an analyst at CMC Markets.
   
"With some commentators under the impression that there's still more downside to be seen here, any bounce back could offer the dollar some support after its recent run of losses," he added.   
    
Silver was down at 13.13 usd from 13.21 usd, while palladium edged down to 368 usd per ounce from 369 usd. Platinum was down at 1285 usd from 1291 usd in late New York trade.

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