US & World Daily Markets Financial Briefing 26-06-2006

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Stocks are higher on M&A activity

NEW YORK - Stocks are higher in early trading, with mergers-and-acquisition activity giving a bump to a market nervously awaiting interest-rate direction.
   
In the opening minutes, the Dow Jones industrials were up 9.21 points at 10,998.30, the Nasdaq Composite climbed 4.99 points at 2,126.46, and the S&P 500 gained .38 of a point at 1,244.88.
   
U.S. stocks closed lower on the day and week Friday, with the broad-based S&P 500 logging a third straight week of declines, after a wary session spent marking time ahead of the Federal Reserve rates decision due Thursday.
   
Dow industrials finished Friday 30 points lower, the Nasdaq Composite lost 1.5 points and the S&P 500 closed the day down 1.1 points.
   
Stocks in focus

Mittal Steel and Arcelor ended a five-month takeover battle, with Mittal on Sunday agreeing to pay $34 billion to combine the world's top two steelmakers.
   
Phelps Dodge agreed to buy both Inco and Falconbridge in a three-way merger valued at $56 billion.
   
And Johnson & Johnson won the bidding for Pfizer Inc. consumer-health division, agreeing to pay $16.6 billion.
   
The deals follow Anadarko Petroleum's move on Friday to buy two oil producers for $21.1 billion in cash.
   
Elsewhere, homebuilder Lennar cut its 2006 profit forecast to range of $8 to $8.25 a share from a previous forecast of $9.25 a share.
   
The profit warning comes ahead of new home sales figures that are due at 10 a.m. EDT, with sales seen slipping to 1.15 million in May from 1.198 million last month.
   
Private-equity firm Bain Capital is the leading contender to purchase Jones Apparel Group Inc., but its bid may not be enough to sway Jones's board to sell the company, The Wall Street Journal reported Monday, citing people familiar with the matter.
   
U.K. music publisher EMI Group is putting together a consortium to bid for BMG Music Publishing, according to a report in the Times newspaper. EMI, whose stable of artists includes Coldplay, Gorillaz and Robbie Williams, is hoping to raise the majority of the $1.5 billion to $2 billion it will need from venture capitalists, with EMI executives running the business.

The newspaper said the plan would allow EMI to continue its pursuit of Warner Music Group Corp., which turned down an EMI takeover approach in May.
    
The Securities and Exchange Commission has initiated an informal inquiry into Home Depot Inc. stock-option grant practices, the Atlanta-based retailer said in a filing with the agency late Friday.

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Dollar steady as market awaits US rate decision Thurs; Pound stays weak

LONDON - The dollar was steady against major currencies as investors awaited Thursday's interest rate decision by the US Federal Reserve Open Market Committee.
   
The rate-setting body is fully expected to raise interest rates by a further 25 basis points to 5.25 pct, though rumours are circulating in the market of a possible more aggressive 50 basis point move.
   
Mitul Kotecha at CALYON noted that following the higher-than-expected US core CPI figures released earlier this month have meant the Fed's inflation concerns now outweigh the risks that they will "overshoot" and tighten too much.
   
It is unclear as yet whether a hike this week will be the last in the cycle, with markets moving to price in the Fed Funds rate "rising to 5.50 pct and some speculating that rates will move higher still", Kotecha said.
   
Meanwhile, the euro remained well supported on M&A flows following yesterday's announcement that steel giant Arcelor has accepted a takeover bid from Mittal Steel.
   
Further support also came from comments made by European Central Bank board member Guy Quaden in the Financial Times that the central bank is not ruling out the possibility of an interest rate hike in early August, as well as stronger-than-expected German inflation data.
   
The news propelled the euro to 18-day highs against the pound, rising above the 0.69 stg mark for the first time since June 8.
   
The pound has been trading lower since last week's dovish set of minutes from the rate-setting Monetary Policy Committee and the shock death on Thursday of David Walton, the only member to have voted for a rate hike in the last two months.

Elsewhere, the yen remained under pressure on uncertainty over Bank of Japan governor Toshihiko Fukui's position. Fukui has come under pressure to resign after he admitted that he invested in a fund led by shareholder activist Yoshiaki Murakami, who was indicted on Friday on a charge of insider trading.
   
The matter is clearly "taking on a life of its own to the detriment of clarity on the issue of Japanese monetary policy", and the yen "will clearly be treading on thin ice" ahead of Thursday's FOMC meeting, the Bank of New York's Mellor said. 

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London

London shares lower midafternoon; weak utilities offset miners, M&S rallies
 
At 2.48 pm, the FTSE 100 index was 9.5 points lower at 5,681.8, well below an opening peak of 5,716.5. The broader indices remained mixed. Volume was low, with 1.2 mln shares changing hands in 191,279 deals.

Shares in Marks & Spencer were one of the top FTSE 100 risers in early afternoon trade ahead of the Q1 trading update on July 11, with SG Secs saying the retailer will exceed market expectations.
   
The French broker said recovery is gathering momentum and the shares remain materially under-valued given an adjusted retail Price/Earnings multiple of 10.9 times. M&S shares rose 10 pence to 576-1/4.

Elsewhere, miners provided the main support for the blue chip index, boosted by sector consolidation moves after US firm Phelps Dodge, and Canadian groups Inco and Falconbridge announced that they have agreed to combine in a 56 bln usd transaction to create a North American-based mining company.
   
Sentiment in the sector was further boosted by the on-going weakness in the South African rand and a spike in commodity prices.
   
According to Williams de Broe, the 20 pct slump in the rand, on the back of expectations that US interest rates will rise further, should boost mining companies with South African interests as it drives down operating costs.
   
The broker argued Lonmin, up 43 at 2,742, and Anglo American, up 49 at 2,157 were seen as the biggest beneficiaries of the weakening rand, and there is also a significant positive impact on Xstrata's earnings, 30 better at 1,968.

And sector consolidation hopes fuelled gains in Corus up 2-1/4 pence at 433 after European peer Arcelor finally accepted a 40.4 eur per share takeover offer from Mittal Steel.
   
Analysts now believe Corus might consider a merger with Russia's Severstal, which was pursued by Arcelor before Mittal came in with its knockout offer. The UK steel producer has also been linked with Everaz.

National Grid shed 6-1/2 pence to 593-1/2, Scottish & Southern was down 14 pence at 1,115, Scottish Power dropped 6 pence to 577-1/2, and International Power was 1-1/2 pence easier at 274-1/2.

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Asian shares close higher in cautious trade ahead of FOMC meeting

HONG KONG - Shares across the Asia Pacific region closed higher in cautious trade ahead of this week's FOMC meeting, dealers said.
   
Tokyo share prices finished higher, with the benchmark Nikkei 225 index moving back above the key 15,000 points mark as investors chased bargains following recent heavy selloffs.
   
However, the upside was capped by wariness ahead of the US FOMC meeting this Wednesday and Thursday.
   
The Nikkei 225 Stock Average ended up 28.36 points or 0.2 pct at 15,152.40 after moving between 14,987.77 and 15,216.78 points. The TOPIX index of all first-section issues gained 3.40 points or 0.2 pct to 1,548.97, after trading between 1,533.92 and 1,553.58 points.
   
Australian shares ended little changed with investors treading water ahead of the FOMC meeting.
   
Major banking stocks fell on persistent global inflation fears, but resource stocks rose after a government agency forecast Australia's metal and other mineral earnings are set to climb 22 pct over the year to June 2007.

The S&P/ASX 200 finished up just 0.1 points to close at 4,965.0.
   
Hong Kong shares were lower in afternoon trade with investors sidelined  ahead of the FOMC meeting. At 3.28 pm the Hang Seng Index was down 22.82 points, or 0.14 pct, at 15,785.99.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on market optimism ahead of the Bank of China's A-share debut next week, with heavyweight banks and oil refiners in favor.
   
The Shanghai A-share Index added 29.07 points or 1.72 pct to 1,717.09 and the Shenzhen A-share Index was up 8.68 points or 2.01 pct at 441.44 on turnover of 13.55 bln yuan.
   
Seoul share prices closed higher, recouping most of the losses from the previous session, with large cap IT and steel shares posting solid gains.
   
The market was trading sideways with investors reluctant to either build or cut positions ahead of the FOMC meeting, but futures activity by foreign investors triggered program buying late in the session, leading the index to close near its high for the day.
   
The KOSPI index closed up 9.43 points or 0.77 pct at 1,238.05, after moving between 1,239.54 and 1,221.65.

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Copper edged up but cautious mood remains ahead of FOMC meeting

LONDON - Copper prices were slightly higher, extending Friday's gains, on continued concern about tight supplies, but gains were limited by the prospect of yet another interest rate hike at the US FOMC meeting Thursday.
   
At 1.00 pm, LME copper for 3-month delivery was up at 6,840.00 usd a tonne against its close at 6,780.00 usd yesterday, while aluminium was up at 2,485.00 usd against 2,449.00 usd and zinc was up at 2,957.00 usd from 2,860.00 usd.
   
Copper closed higher on Friday as the market took support from a 2,325 tonne fall in LME copper stocks and supply disruptions at copper mines in Mexico and Chile.
   
But analysts say any gains in the red metal will remain limited ahead of the FOMC meeting, as many participants are choosing to remain on the sidelines until the decision.
   
Although a quarter point rate hike has been widely priced in, participants are looking to the meeting for hints as to the possibility of further increases in August.
   
They are concerned continued interest rate hikes in the US and tightening monetary policy in China will combine to slow global economic growth and thereby demand for commodities.
   
Copper prices have gained 57 pct since the end of last year, while stocks in LME warehouses fell 85 pct over the past 3 years, but prices have come sharply off their May 11 peak of 8,800 usd on inflation and demand worries.
   
Top consumer China reported this morning it imported 60.7 pct less refined copper in May than a year earlier, while for the first 5 months imports were down 41.6 pct as demand weakened because of high prices.

Gold trades flat; all eyes on FOMC rate setting meeting

LONDON - Gold prices were flat as the dollar lost some ground against the euro but remained supported by the prospect of an interest rate hike at this week's FOMC meeting Thursday.
   
At 11.56 am, spot gold was quoted at 584.45-585.45 usd an ounce, against 584.90 usd at the time of the COMEX market close Friday. Other precious metals were trading mixed.
   
Spot silver was flat at 10.30-10.40 usd per ounce against 10.31 usd, platinum edged up to 1,174.00-1,179.00 usd from 1,164.00 usd and palladium was down at 309.50-314.50 usd from 298.00 usd.
   
Gold traded higher in the Asian session earlier, supported by fears over inflation. The yellow metal is seen as a hedge against an inflation-wracked dollar.
   
Geopolitical tensions, high oil prices and uncertain prospects for the dollar lead gold up to 730 usd in mid-May, a 26-year-high, but a brutal sell-off soon followed as concerns over rising US interest rates took hold.

Crude-oil futures eased 5 cents to $70.82 a barrel.

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