US & World Daily Markets Financial Briefing 22-08-2007

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NEW YORK - Staples Inc. shares rose slightly in early trading Wednesday after the office supplies retailer met second-quarter expectations, but analysts said they expect broader economic stresses to continue to weigh on performance. Shares rose 42 cents to $23.72.
   
The company late Tuesday met analyst estimates with second-quarter profit and sales, but trimmed its full-year earnings estimate. The company also said same-store sales, or sales at stores open at least a year, fell 2 percent in the recent quarter.
   
Goldman Sachs analyst Matthew J. Fassler, in a client note, kept a "Neutral" rating and a $27 target on the stock. "Staples delivered its first North American same-store sales decline since 2001," wrote Fassler. "Also, any sense of Staples as a foolproof bastion against rough sector trends has faded, and illusions of the sector's problems as being isolated to Office Depot Inc. have been shattered."
   
Rival Office Depot has said it's been hurt by a slump in furniture industry, which is linked to an ongoing lag in home sales. In addition, broader economic concerns have weighed on consumer spending.
   
Shares of TD Ameritrade Holding Corp. and E-Trade Financial Corp. each rose Wednesday after a published report said the online brokers have been discussing a possible combination.
   
The talks have been going on for weeks and currently are focused on making sure both companies agree on strategy, but the companies aren't yet close to a deal, The Wall Street Journal reported in Wednesday's edition. The newspaper cited unnamed people familiar with the matter.
   
TD Ameritrade shares rose 81 cents, or nearly 5 percent, to $17.16 in morning trading Wednesday while E-Trade shares rose 45 cents, or 2.8 percent, to $16.02.
   
A spokeswoman for E-Trade told the newspaper the firm's management team believes there is "tremendous value in consolidation that aligns business strategy and operational synergies and will do what is in the best interest of its customers." An Ameritrade spokeswoman told the paper, "We have talked and continue to talk to peers in the industry."
   
Jana Partners LLC and S.A.C. Capital Advisors, which claim to collectively own 8.4 percent of Ameritrade shares, have been urging Ameritrade to join forces with a major competitor such as E-Trade or Charles Schwab Corp. in the interests of the majority of shareholders.
   
Shares of VMware Inc. continued their meteoric ascent on Wednesday after an analyst said she expects the software maker's revenue to grow about 49 percent over the next three years. VMware shares jumped $5.51, or 8.4 percent, to $71.52 in morning trading. After VMware's IPO priced at $29 on Aug. 13, the company's stock spiked more than 75 percent in its first day of trading.
   
Jefferies & Co. analyst Katherine Egbert, who has assigned VMware a "Buy" rating, raised her price target for the company to $74 from $42. She also boosted her earnings estimates to 73 cents per share for fiscal year 2007, $1.05 per share for 2008 and $1.43 per share for 2009.
   
VMware became the hottest technology stock offering since Google Inc. went public three years ago based on its "virtualization" software, which helps data centers get more processing capacity from server computers. VMware's products allow a single machine to run multiple programs and operating systems. The company is estimated to hold more than 80 percent of the virtualization market.
   
Egbert said VMware "has the brightest prospects of any software company in the last 10 years" and its VMworld user conference in September could create a "perceptual frenzy." Her call comes one day after Robert W. Baird & Co. analyst Daniel Renouard started coverage with a $60 price target, saying the
virtualization market should expand quickly.
   
Despite the positive outlook, however, Egbert expressed caution about building in estimates for additional revenue and earnings growth. In particular, she noted that Citrix Systems Inc., which acquired VMware rival XenSource Inc. this month, might pose a challenge.

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Pound boosted by buoyant UK manufacturing survey

LONDON - The pound climbed after a much stronger than expected survey on the UK manufacturing sector.
   
The Confederation of British Industry revealed that a balance of +9 pct of firms polled reported that their order books were above normal in August - the highest level for more than 12 years.
   
This more-than reversed the dip to -6 pct seen in July and suggests the underlying UK economy is yet to feel any impact from the credit crunch in global markets.
    
"The very strong number gives heart to the recently shrinking band of hawks predicting another 25 basis point UK base rate hike to 6.0 pct, whose cause was badly damaged by last weeks UK CPI inflation downside shock," said Robert Howard at Thomson IFR Markets.
   
Last week figures revealed the CPI measure of annual UK inflation dropped below the Bank of England's 2.0 pct target to 1.9 pct in June from 2.4 pct in May, causing markets players to quickly scale back their expectations that UK rates will move any higher.
   
Meanwhile, the euro was unable to garner much support from strong industrial orders figures for the 13-nation currency zone, with risk sentiment remaining the primary driver of the currency.
   
Euro zone industrial orders rose 4.4 pct in June from May, beating expectations for a more modest 2.1 pct rise. Analysts said many market players are likely to have seen the figures as old news since they came before the turbulence seen on global markets in recent weeks.
    
Meanwhile, the yen and dollar weakened slightly as some semblance of stability returned to financial markets following reassuring talk yesterday from US Federal Reserve chairman Ben Bernanke.
   
Bernanke said that he was "absolutely" prepared to use all the tools at his disposal to address the credit crisis in the US financial system, according to Senator Chris Dodd, chairman of the Senate banking committee. Dodd reported Bernanke's comments to the press after a closed-door meeting with Bernanke and Treasury Secretary Henry Paulson.
   
The comments appear to have gone some way towards calming investors' nerves, with Asian markets relatively stable overnight and major European markets all higher at midday. 
   
This has weighed on the yen as the slight dip in risk aversion sees some investors selling low-yielding safe-haven currencies such as the yen and the Swiss franc.
     
For the yen the main focus now will be on the Bank of Japan's press conference tomorrow following its rate-setting meeting, which it starts today.  The BoJ is widely expected to leave rates on hold, but analysts will be listening for any comments when the next rise will come.

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Euroshares higher midday, blue-chips push forward amid quiet trading

LONDON - Europe's leading indices continued on a higher note midday with blue-chips charging ahead amid generally low volumes. At 12.21 am, the Dow Jones STOXX 50 was up 27.67 points, or 0.76 pct, at 3,687.33 as the STOXX 600 4.13 points, or 1.14 pct, higher at 366.52.
    
Back in Europe, DaimlerChrysler was in focus -- up 3.70 pct -- after Handelsblatt said the automaker intends to make an announcement on Aug 29 about what it plans to do with the extra cash it will have as a result of the sale of its 80 pct stake in Chrysler.
   
The overall auto sector extended yesterday's gains, as the oil price remains under 70 usd a barrel, albeit recouping some of yesterday's losses. Volkswagen added 1.53 pct, and Peugeot gained 2.43 pct as Fiat was 2.47 pct higher.
   
Meanwhile, Renault was 3.71 pct higher as it announced the new launch date for its Laguna model on Oct 12. In addition, it announced a 3-year warranty on new Lagunas to highlight a shift toward higher quality cars.
   
Also in France, Air Liquide stormed 3.39 pct ahead after Eurazeo -- up 3.71 pct -- said it has upped its stake in the company to 5.5 pct from 2.1 pct as "part of its regular portfolio management," and that it may also sell its 2.1 pct stake in Veolia in the next 12-18 months. Veolia shares underperformed the market - gaining 0.64 pct.
   
Further on the M&A front, Infineon added 0.83 pct after the chipmaker's chief executive Wolfgang Ziebart told Frankfurter Allgemeine Zeitung that the company is planning further acquisitions subsequent to its takeover of LSI Corp's mobility products.
      
M-DAX listed Pfleiderer AG soared 7.88 pct higher after the construction products specialist announced plans to buy back up to 4.87 mln of its own shares, or up to 9 pct of its equity.
   
voestalpine AG charged 5.5 pct ahead with observers attributing the steel conglomerate's sharp gains to a broader, sentiment-based upswing among steel and mining stocks. Peer Kloeckner & Co also soared, up 4.67 pct, as JP Morgan said late last night that it now holds a 5 pct stake in the steel and metal distributor.
       
In earnings results, Telekom Austria climbed 2.77 pct as the group EBITDA for the second quarter fell 2.7 pct year-on-year to 464.7 mln eur due to high costs from the launch of its operations in Serbia. Albeit a decline, it still beat expectations as analysts polled by Thomson Financial News had seen EBITDA falling by over 4 pct to 458 mln eur for the period.
       
Meanwhile, Belgian copper group Cumerio only managed a 0.27 pct advance as it lifted its full-year recurring EBIT guidance to 75-80 mln eur from its previous target of 70-75 mln eur. First-half recurring EBIT fell to 39.6 mln eur, down from 40.1 mln eur, hit by lower treatment and refining charges (TCRCs) and a weak dollar versus the euro. The result was however better than 29.5-35.9 mln forecasts.
   
Analysts were cautious, however, about the group's outlook and analyst Marc Debrouwer at Petercam said the results were solid, while the broker believes "next year will be more difficult despite a higher output at the smelter and the ramp-up of the new refinery."
   
ProSiebenSat.1 added 5.48 pct as it posted a 6 pct improvement in second-quarter operating profit to 140.4 mln eur and said it expects sales to increase by 3.5 to 4.5 pct in the full year.
   
Shares in DNO ASA jumped 11.25 pct ahead after the Norwegian oil firm posted significantly better-than-expected second-quarter results and announced it had found more oil at its Tawke field in Northern Iraq.
   
Also in the oil sector, Tullow Oil was 4.70 pct higher as the group said the Hyedua-1 well drilled on the Deepwater Tano licence offshore the Republic of Ghana has discovered a "significant" light oil accumulation, prompting KBC to upgrade its rating to 'buy' from 'hold'.

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Asia ends mostly higher as traders mull chances for fed funds cut

SINGAPORE - Most stock markets across Asia ended higher Wednesday, with Singapore and South Korea rebounding from recent lows on hopes the Federal Reserve will cut interest rates in a further effort to restore calm to troubled credit markets, while Chinese shares hit a record high for the third straight day.
   
Singapore's Straits Times Index closed up 92.84 points or 2.9 pct at 3,321.5, while South Korea's KOSPI index closed up 23.32 points or 1.3 pct at 1,759.50.
   
Meanwhile, Tokyo shares closed flat as investors stayed on the sidelines and waited for the outcome of the Bank of Japan's policy meeting due on Thursday.  The Nikkei 225 Stock Average slipped 0.7 point to 15,900.64, while the broader TOPIX index was down 4.99 points or 0.3 pct at 1,544.89.
   
In Australia, the S&P/ASX 200 index ended up 15.6 points or 0.3 pct at 6,005.0, while the All Ordinaries index rose 18.8 points or 0.3 pct to 5,997.4.

The Reserve Bank of Australia is continuing to inject more cash than normal into the banking system, stating Wednesday that it had injected 4.678 bln aud, more than double the system's estimated deficit of 1.93 bln aud for the day. The central bank injected 3.45 bln aud on Tuesday and 3.34 bln aud on Monday, up from a daily average of 2.55 bln aud last week.
   
In China, A-shares closed at a record high for the third straight day led by select banks and metal companies, as investors shrugged off early losses due to the interest rate hike announced yesterday and refocused on corporate earnings. The benchmark Shanghai Composite Index closed up 24.87 points or 0.5 pct at a record 4,980.08. It also hit a new all-time intraday high of 4,999.20, surpassing the previous record of 4,961.94 set yesterday.
   
Hong Kong share prices closed sharply higher as well. The Hang Seng Index closed up 617.53 points or 2.8 pct at 22,346.88. The index has risen 1,960 points in the last three days, after losing 1,405 points last week.
   
Taiwan shares closed up 14.38 points or 0.2 pct at 8,493.46, while Jakarta's composite index closed 69.98 points or 3.5 pct higher at 2,062.99
   
Meanwhile, Philippine stocks closed lower as the market took a breather following hefty gains in the previous session. The composite index lost 28.06 points or 0.8 pct to settle at 3,139.46. The broader all-share index shed 6.76 points or 0.3 pct to 2,009.40.

Indian shares closed higher tracking global markets that rose in anticipation of another US Fed rate cut, despite volatility caused by political uncertainty over the Indo-US nuclear deal.
   
The Bombay Stock Exchange's benchmark Sensex closed up 1.86 pct, or 259.55 points, at 14,248.66 after touching a low of 13,870.70, down 118.41 points in early trade. The National Stock Exchange's S&P CNX Nifty closed 1.92 pct higher at 4153.15 points.

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Gold prices move higher as wider market sentiment improves

LONDON - Gold prices moved higher as mildly improved sentiment across wider markets boosted buying.
   
While fears of a global credit crunch lingered, higher equity markets today lifted sentiment across the board. Oil and base metals were also higher.
   
In recent weeks, concerns that problems in the US subprime mortgage sector will spill over to the wider economy and trigger a global credit crunch sent waves of risk aversion through the commodity complex.
   
At 1.03 pm, spot gold was trading at 658.20 usd an ounce against 656.45 usd in late New York trade yesterday.
   
"Investor sentiment is recovering this morning, with European equities higher, the USD weaker and credit spreads narrower," said JP Morgan analyst Michael Jansen. He also noted interest in gold exchange traded funds, physical buying on recent price falls kept demand strong and helped protect the metal from wider economic concerns.
   
Looking ahead, a lack of US economic data today is likely to keep the dollar in a confined range, which will fail to impact gold. The yellow metal tends to move in the opposite direction to the US currency as it's seen as an alternative asset.
   
The market will keep a check on weekly US oil inventory figures later today, but oil prices are likely to be overshadowed as gold's driving force amid current turmoil. Gold tends to benefit from high energy prices as investors buy the metal as an inflation-hedge.
    
Elsewhere palladium was slightly lower but has lost some 12 pct since the start of the month. JP Morgan's Jansen said the metal looks vulnerable to technical selling which could see prices fall to 300 usd.
   
Palladium was down at 319.50 usd from 320 usd. Meanwhile, silver was higher at 11.70 usd from 11.57 usd while platinum was lower at 1,238 usd from 1,243 usd.

Copper held steady above 7,000 usd per tonne in afternoon trade, supported by an improvement in sentiment as European share prices continued their recovery for a second day, and on a higher opening on
Wall Street.
   
The red metal remains underpinned by the threat of strike action among producers in Latin America, with industrial unrest continuing to rumble in Mexico and Peru, analysts said.

At 2.41 pm, copper for three-month delivery was trading at 7,145 usd against 6,975 usd at the close yesterday. The market largely shrugged off news of an interest rate hike in China, the world's biggest consumer of copper. China's central bank raised interest rates for the fourth time this year yesterday to fight mounting inflation and cool surging growth.

Among other metals, tin, yesterday's biggest faller, rose to 14,350 usd versus 14,085 usd, lead climbed to 3,010 usd from 2,885 usd yesterday, and nickel edged up to 28,050 usd from 27,200 usd. The metals could be heading for further rises, analysts said, as supply and demand fundamentals governing all three remain tight.

Elsewhere aluminium prices rose to 2,516 usd from 2,478 usd at the close yesterday, while zinc inched up to 3,075 usd from 3,000 usd.

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