US & World Daily Markets Financial Briefing 24-05-2007

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Stocks flat ahead of home sales data

NEW YORK - Wall Street traded flat Thursday as investors braced for data on new home sales after the government's durable goods report suggested the economy is growing a bit above expectations.
   
With first-quarter earnings reports mostly over, Wall Street now hangs on economic data to give direction on both the economy and stocks. Investors also will use data to gauge whether the Federal Reserve may cut interest rates in 2007.
   
Orders to U.S. factories for big-ticket manufactured goods posted a modest increase in April, and indicated a continued rebound in business spending. The Commerce Department reported demand for durable goods rose 0.6 percent, and sharply revised the March performance to show a 5 percent surge from 3.7 percent.
   
The report gave strength to the notion that U.S. factories -- hurt by weakness in the slumping housing and auto industries -- are staging a moderate rebound as businesses expand and spend more money. It also comes amid a series of takeover deals announced this week, including Thursday's move by Advanced
Medical Optics Inc. to buy rival Bausch & Lomb Inc.
   
The Commerce Department is due to release its report on new home sales. The data should give traders a better sense of if the housing market is starting to rebound from its slump.
   
In the first hour of trading, the Dow Jones industrial average rose 25.52, or 0.19 percent, to 13,551.17.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index was up 1.49, or 0.10 percent, at 1,523.77, and the Nasdaq composite index fell 1.14, or 0.04 percent, to 2,575.91. The Russell 2000 index of smaller companies was down 1.60, or 0.19 percent, 834.94.
   
Fixed-income investors placed bets that the Fed might not cut rates this year because the economy continues to show better-than-expected growth. Bonds were unchanged, with the yield on the benchmark 10-year Treasury note at 4.86 percent.
       
Enthusiasm about stocks also waned as oil prices jumped to a nine-month peak, despite a rebound in U.S. crude and inventories last week. A barrel of light sweet crude dipped 4 cents to $65.73 on the New York Mercantile Exchange.
   
Wall Street was under pressure amid a global drop in stocks, particularly in Asia, after former Federal Reserve Chairman Alan Greenspan said he expects a contraction in China's markets. His comments Wednesday caused the three major U.S. stock indexes to reverse gains and close lower.
   
In afternoon trading, Britain's FTSE 100 was down 0.23 percent, Germany's DAX index was down 0.20 percent, and France's CAC-40 fell 0.65 percent.
   
Stocks in focus

In corporate news, Bausch & Lomb shares surged $3.15, 4.7 percent, at $69.60 after Advanced Medical Optics confirmed it has launched a takeover bid. Last week, Bausch & Lomb agreed to be acquired by Warburg Pincus for about $3.67 billion.
   
Advanced Medical shares tumbled $1.55, or 3.7 percent, to $40.89
   
Toll Brothers Inc. also contributed to the market's gloom Thursday after the luxury home builder reported second-quarter profit fell sharply. The company did not provide an earnings outlook for the year, and shares fell 7 cents at $29.70.
   
Network Appliance Inc. fell $4.70, or 12.4 percent, $33.36 after the storage-technology company reported a slowdown in March will cause it to report weaker-than-expected results for the second quarter.
   
Mylan Laboratories Inc. posted a fiscal fourth-quarter loss after it was hurt by items related to its takeover of Matrix Laboratories Ltd. Shares fell 64 cents, or 3.2 percent, at $19.60.

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Pound higher after strong UK CBI survey; markets await US data

LONDON - The pound was firmer after a survey from a key UK business lobby revealed that the proportion of UK manufacturers expecting to raise prices over the coming quarter is the highest for 12 years.
   
The survey suggests the Bank of England's worries about firms becoming increasingly confident about raising prices in order to offset rising costs may well be justified.
   
"The Bank of England will focus on the price balances contained in the survey, and it will be dismayed by what it sees," said Howard Archer at Global Insight.
   
The news offset earlier weak business investment figures for the first quarter, which showed a fall of 1.3 pct from the fourth quarter, well below forecasts for a quarterly rise of 2.0 pct.
   
After the CBI data, the euro fell to its lowest level against the pound since mid-April of 0.6760 stg.
   
The survey comes on the back of yesterday's hawkish minutes to the meeting  of the BoE's Monetary Policy Committee held earlier this month. These not only revealed a unanimous vote to raise rates by a quarter point to 5.50 pct, but also that rate-setters debated the possibility of a half-point rise.
   
Meanwhile, the euro inched up against the dollar but remained within a very tight range as market players turned their attention to US data releases this afternoon, including weekly jobless claims, new home sales and durable goods.
  
Earlier today, the euro had dropped slightly after figures showed the key German Ifo business climate index remained flat at 108.6 in May from April.
   
The reading came as a slight disappointment to some given the stronger-than-expected ZEW survey on Tuesday, although it is still only just below the all-time high of 108.7 hit in December last year.
   
With the market already fully expecting the European Central Bank to raise euro zone interest rates to 4.00 pct next month, with a probable further quarter point rise later in the year pencilled in, analysts said the euro had little room to gain.

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Euroshares fall in afternoon trade as Wall Street seen opening lower

LONDON - Europe's leading exchanges were trading on a bearish note midday after Wall Street was off last night and following comments by former Federal Reserve Chairman Alan Greenspan that a correction in the Chinese stock market may be in the offing, dealers said.
   
At 12.16 pm, the STOXX 50 was down 15.04 points to 3,914.55, while the STOXX 600 retreated 1.51 to 394.88.
   
Some of Europe's major airlines were however bucking the downward trend of the market, with Air France leading the pack higher, following solid full-year results.
   
The good results prompted Societe Generale, Deutsche Bank and Merrill Lynch to reiterate their 'buy' stance on the stock, with Citigroup and UBS sticking to their 'neutral' recommendation. The company further denied market rumours it is in talks with Spanish Iberia.
   
"We are not holding any talks with Iberia at the moment," chief executive Jean-Cyril Spinetta said at a news conference on Air France-KLM's full-year results. As the stock gained 2.20 pct, Iberia stock was 0.03 pct off.
   
The news wasn't quite so upbeat over at Alitalia. Shares in the Italian carrier fell 3.30 pct after the ailing airline said its full-year net loss widened to 625.6 mln eur from 167.7 mln eur, partly due to a 197 mln write down on the value of its fleet. The Italian government has set a deadline on July 2 to present binding offers to buy a 39.9 pct stake in the ailing airline. Peer British Airways fell 0.11 pct, with Lufthansa gaining 0.7 pct.
   
Meanwhile, the telecommunications sector continued to rally on the back of M&A talk. Another report stated that France Telecom and Deutsche Telekom are expected to conclude within the next few days an agreement to exchange their respective Orange Nederland and Ya.com units.
   
Cable & Wireless, meanwhile, emphatically dismissed talk of a takeover bid or early de-merger of its international arm from its and European, Asian and US business, but said it would push ahead with its turnaround plan and deliver on its key financial targets by 2010.
   
The shares gained 5.09 pct, as France Telecom outperformed the market by trading flat at 22.57 and with Deutsche Telekom adding 0.9 pct.
   
Over on the utility front, a bearish note by Credit Suisse on RWE weighted on the stock, which fell 1.11 pct at last check. Credit Suisse downgraded its stance on the German utility to 'neutral' from 'outperform', saying the company is too exposed to rising costs on carbon emissions.
       
German rival EON looks like a better investment to the broker, with its acquisitions of around 10 bln eur in assets of Endesa/Enel set to provide further positive newsflow. EON advanced 0.21 pct as a result.
   
Staying on the German market, TUI led blue ships lower after the tourism giant announced the issuance of a convertible bond with a volume of at least 550 mln eur.
   
On the German automotive sector, Continental AG dropped 1.6 pct after a report in Manager Magazin suggested the automotive supplier has bid 11 bln eur for Siemens' VDO unit. One Frankfurt-based trader said analysts had expected an IPO to raise 7-8 bln eur, with a direct sale seen fetching up to 10 bln eur.
   
According to the report, Siemens has received several highly priced offers for a complete takeover of its VDO automotive unit. The shares advanced 1.13 pct higher.
   
In France, shares in luxury good maker Richemont were in focus, falling 2.89 pct as strong full-year results were offset by company comments that it faces uncertainties such as the continuing weakness of the yen and the dollar, as well as capacity problems going forward.
   
Saint Gobain declined after Exane BNP Paribas analysts increased their provision to 500 mln eur from 300 mln for a possible fine resulting from an EU inquiry into an alleged cartel in the flat-glass market, dealers said.
   
Exane based its new estimate on the 350 mln stg provision made by Nippon Sheet Glass Co Ltd as part of the goodwill incurred from the acquisition of Pilkington, another of the companies involved in the EU's cartel investigation.

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Asian shares close lower on China market warnings, Greenspan comments

HONG KONG - Shares across the Asia-Pacific region closed lower, with China shares falling on a warning by the securities regulator about market risk and other markets reacting negatively to comments by former US Federal Reserve chairman Alan Greenspan about a possible sharp correction in Chinese share markets.
   
The China Securities Regulatory Commission issued its second warning in a month on stock market risk, urging securities houses to step up their investor education programs in order to ensure that retail investors act prudently.
   
The South Korean and Hong Kong markets were closed for a holiday today and will resume trade tomorrow.
   
Tokyo shares closed little changed after a largely lackluster session as investors took to the sidelines in the absence of fresh trading leads, with the key Nikkei 225 edging down after a three-day advance.
   
The Nikkei 225 Stock Average closed down 8.15 points or 0.05 pct at 17,696.97 after moving between 17,606.56 and 17,760.57. The TOPIX index of all first-section issues eased 1.97 points or 0.11 pct to 1,738.11, off a low of 1,728.18 and a high of 1,742.91.
   
Shares were weaker in morning trade on concerns that former Federal Reserve chairman Alan Greenspan's bearish remarks about China's stock markets could prompt heavy sell-offs in Shanghai, which could precipitate another global market meltdown. But the relatively firm showing of Shanghai stocks helped dispel such worries, allowing the Nikkei index to trim earlier losses and finish almost
flat.
   
Investors generally kept to the sidelines on a lack of convincing leads to push the Nikkei towards the 18,000 mark near term or drag it down towards the 17,000 level.
   
Australian shares ended sharply lower on negative investor sentiment following the comments from Alan Greenspan that a "dramatic correction" is a possibility for Chinese equities. This outlook weighed directly on Australian resource stocks given their direct tie-in with the Chinese economy and commodities demand, while lower metal prices overnight also added to the selling within the sector.
   
The S&P/ASX 200 closed down 76.0 points or 1.20 pct at 6,279.1, retreating again from Monday's record finish of 6,369.0.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower after the securities regulator issued another warning about market risks, with auto and power stocks losing ground. The Shanghai A-share Index ended down 20.74 points or 0.47 pct at 4,354.44 and the Shenzhen A-share Index was down 7.66 points or 0.60 pct at 1,271.60.
   
Taipei shares closed lower as the early-session rise driven by a rebound in the Taiwan dollar gave way to profit-taking, ending a three-day runup. A recovery in the local currency in the morning session spurred expectations of capital inflows and pushed stocks higher. But technical pressure built up after the index hit another high and convinced investors it was time to take profits after seeing the market had accumulated gains of around 200 points over the past three sessions.
   
The weighted index closed down 5.38 points or 0.07 pct at 8,216.41, off a high of 8,249.48 and a low of 8,207.96, on turnover of 103.78 bln twd.

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Copper rises after LME reports tighter supplies, nickel down

LONDON - Copper rose after the LME reported a hefty fall in stocks but sentiment across the base metals complex remained shaky following a two-day sell-off.
   
Copper stocks stamped in LME warehouses across the globe fell 1,475 tonnes to 136,100 tonnes, said the LME in a daily report earlier. The red metal was "supported by a favourable stock outturn this morning," said JP Morgan's Michael Jansen.
   
At 12.11 pm, LME copper for three-month delivery was trading up at 7,290 usd a tonne against 7,201 usd at the close yesterday. "We see this 7000-7200 usd range as a consolidation area that precedes another run higher in prices," Jansen said.
   
Copper has lost nearly 9 pct since the start of the month, mainly on speculation high Chinese imports might result in lower demand in the longer term.
   
Elsewhere, nickel was trading at lower levels after the LME reported another rise in stocks, adding to speculation that current supply tightness is easing. Stocks rose 366 tonnes to 7,200 tonnes, on the day said the LME. Yesterday inventories posted their strongest rise of 1,446 tonnes -- the largest daily net inflow since end December 2005.
   
The increase in nickel stocks "represents a slight easing in the market conditions that have squeezed nickel prices to extraordinary levels," said analysts at the Commonwealth Bank of Australia.
   
Nickel was flat at 46,500 usd against 46,200 usd yesterday having dipped to as low as 45,100 usd earlier. Prices of the grey metal have wiped around 12 pct since the start of this month.
   
"It is a matter of time as to when the 3 month price will break through key support between 43,500 and 45,000 usd," Jansen said.
   
Nickel supply is still very tight, however. Prices touched an all time high of around 52,000 usd last month -- when stocks worldwide stood at less than a day's worth of global consumption.
   
Metals traders will be keeping an eye on today's US April Durable Goods orders at 2.30 pm (BST) which are expected to show further growth in the US manufacturing base. New home sales in April out at 3.00 pm (BST) will also be closely watched.
   
In other base metals, aluminium was largely flat at 2,825 usd against 2,821 usd while tin was up at 13,950 usd against 13,825 usd. Lead was up at 2,165 usd against 2,130 usd and zinc was slightly lower at 3,646 against 3,650 usd.

Gold was steady at lower levels as high oil prices supported, but a rebounding US dollar capped small gains. The precious metal was benefiting from high oil prices which increase the risk of inflation.
   
Investment flows were weak, however, as a slightly stronger greenback made gold more expensive for those trading in currencies other than the US dollar. BNP Paribas analyst David Thurtell noted gold's link to oil prices -- which are at year high levels currently -- was supportive for bullion.
   
At 10.05 am, spot gold was largely flat at 661.20 usd per ounce against 661.35 usd in late New York trades yesterday.    
       
In other precious metals, silver was up at 13.04 usd per ounce from 12.93 usd and platinum was up at 1,288 usd from 1,291 usd.

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