US & World Daily Markets Financial Briefing 26-09-2007

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Stocks open higher as GM strike ends

NEW YORK - Stocks opened higher Wednesday after General Motors Corp. reached a tentative contract agreement with the United Auto Workers and as another lackluster economic report stirred hopes that the Federal Reserve will cut interest rates again.
   
GM shares rose after the UAW announced an agreement to halt a two-day strike while the union considers a contract offer. Production at GM facilities is expected to resume on Wednesday. The deal could help GM pass some of its health care costs to the union.
   
Beyond the GM news, the Commerce Department said demand for durable goods fell in August, indicating that the recent credit crisis might have hurt U.S. companies. Orders for durable goods dropped 4.9 percent last month to a seasonally adjusted $219.53 billion.
   
The report follows data released Tuesday that showed existing home sales stalled in August, and consumer confidence in September remains a worry. Investors are hoping the data will persuade the Fed to drop rates again.
   
Policymakers decided last week to lower rates by a half-point, the first cut in four years. It triggered a rally on Wall Street as stocks bounced from their lows of the year.
   
In early trading, the Dow Jones industrial average rose 59.02, or 0.43 percent, to 13,837.67.
   
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 5.38, or 0.35 percent, to 1,522.59, and the Nasdaq composite index increased 11.20, or 0.42 percent, to 2,694.65. Bonds fell, with the yield on the benchmark 10-year Treasury note jumping to 4.66 percent from 4.64 percent late Tuesday.

Oil prices strengthened for the first time this week, with a barrel of light, sweet crude rising $1.04 to $80.57 on the New York Mercantile Exchange. Traders are betting that U.S. inventory data will show further falls in crude oil stockpiles. Oil has pulled back from last week when it logged a string of record closes and traded near $84.
   
In corporate news, GM jumped $1.55, or 4.5 percent, to $35.98 on news that workers would return to their jobs. GM was by far the biggest advancer among the 30 stocks that make up the Dow industrials.
   
Nasdaq Stock Market Inc. and Borse Dubai upped their offer to acquire Nordic exchange operator OMX to 265 kronor a share from 230 kronor. The two acquiring stock exchanges also said they secured 47.6 percent stake in OMX, which the latest offer values at $4.9 billion. Nasdaq Stock Market shares rose 74 cents, or 2 percent, to $37.
   
Red Hat Inc. shares advanced 79 cents, or 4.3 percent, to $19.68 after the maker of open-source software reported second-quarter profit rose 59 percent and revenue came in ahead of Wall Street projections.
   
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 102.1 million shares.
   
The Russell 2000 index of smaller companies rose 4.67, or 0.58 percent, to 807.67. Overseas, Britain's FTSE 100 rose 1.22 percent, Germany's DAX index rose 0.55 percent, and France's CAC-40 rose 1.09 percent.

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Dollar muted after weak orders data; pound gains as BoE auction ignored

LONDON - The dollar showed muted reaction to poor durable goods orders, and the pound gained on news that no UK banks made use of emergency funds from the Bank of England.
   
In the US, new orders for durable goods in the US dropped 4.9 pct in August, reflecting a broad retreat across industries and missing forecasts for a smaller 3.1 pct drop.
   
The data are known to be volatile, precluding a major dollar reaction. However, the weak data kept the US currency near its all-time lows against the euro.
   
"The 4.9 pct drop in US durable goods data is keeping (euro/dollar) supported," said Matthew Foster-Smith at Thomson IFR Markets, noting that the all-time low of 1.4163 usd to the euro is again in view.
       
Elsewhere, the pound was markedly stronger after it emerged that the Bank of England's auction of 10 bln stg worth of emergency funds, at an interest rate of 6.75 pct, was completely ignored by commercial banks.
   
"Good news at last for sterling as the BoE announces the news that they received NO bids for their latest 3-month offering," said IFR Markets' Foster-Smith.
   
He noted that the Libor 3-month interbank borrowing rate was fixed at 6.32 pct today, far below the 6.75 pct offered by the BoE -- although some banks are still borrowing at a touch above the Libor rate in order to ensure they have funds.
   
Analysts had expected scant take-up of the auction because the Libor rate has been falling sharply in recent days, as banks become more willing to lend to each other again.
       
The euro, meanwhile, showed little lasting reaction to a weak confidence reading. The GfK market research institute said its consumer climate index for Germany is forecast to fall to 6.8 points in October from 7.4 points in September, which was revised down from 7.6 points. The October reading missed economists' expectations for a smaller decline to 7.0.
   
"The muted euro response to the weak IFO data yesterday and weak GfK consumer confidence suggests that the path of least resistance for the euro is to the upside," said BNP Paribas analysts.
   
Earlier, the European Central Bank injected 50 bln eur into money markets via a longer-term refinancing operation. This compares with 75 bln eur leaving the market on the expiry of a previous longer-term refi.

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Euroshares higher midday, OMX & Northern Rock in focus

LONDON - Europe's leading exchanges was trading up midday with Wall Street expected to open higher and with Northern Rock and OMX dominating today's newsflow.
   
At 12.10 pm, the Dow Jones STOXX 50 added 0.41 pct or 15.62 points to 3,795.55, while the STOXX 600 was up 0.55 pct or 2.05 points to 374.45.
    
Back in Europe, Northern Rock and OMX were in focus throughout the morning.
   
"One of the big questions today is of course still who is going to get involved with Northern Rock," Stephen Pope, Head of Equity Research at Cantor Fitzgerald Europe, said."If it is going to be a private takeover it would have to be at a discounted price and I would imagine 150 pence is more realistic than the 170 pence it shot to today," he added.
   
Shares in Northern Rock were up 9.32 pct to 178 pence when last checked.
   
Nasdaq and Borse Dubai said they have secured 47.6 pct of shares in Nordic bourse owner OMX AB after Investor AB, Nordea AB and other major owners agreed to sell their stakes for 265 skr a share.
   
Investor and Nordea later confirmed their agreement to sell their respective 10.7 pct and 5.4 pct stakes in OMX AB to Borse Dubai is irrevocable unless they receive a rival offer of at least 303 skr a share prior to the offer being declared unconditional.
   
Ownership of their stakes is crucial to the outcome of the battle for control of OMX currently being waged between Nasdaq-Borse Dubai and the Qatar Investment Authority, which reportedly holds about a 10 pct stake in the company.
   
In the airline sector, shares in Iberia climbed 4.62 pct on a Spanish news report that Air-France-KLM is teaming up with investment firm Torreal to present a bid for the company. Air France-KLM shares were up 0.9 pct.
   
British Airways in partnership with private equity has also been touted as a potential acquirer.
   
BMW gained 1.66 pct with dealers pointing to an article in Capital magazine that said the auto-maker wants to significantly raise its margin targets and will be discussing a vigorous cost-cutting programme at a supervisory board meeting this Thursday.
       
On the earnings front, shares in Hennes & Mauritz turned earlier in the morning and were 1.41 pct higher at last check as disappointing third-quarter profits were offset by an upbeat outlook and stronger-than-expected gross margins.
   
Citigroup, in a first reaction, noted the 200 basis points improvement in gross margin announced today was better than the broker's forecasts of a 100 basis point rise.
   
Elsewhere, Telenor shares were under pressure -- down 0.93 pct -- with local reports pointing to a big sale of the stock.
   
Nordic investment bank Carnegie, which has an 'Outperform' rating on the stock, said there was brisk trade taking place on Oslo Bors. Turnover by 12.29 pm was 615.6 mln nkr, or 111.4 mln usd.
   
In broker action, shares in Actividades de Construccion y Servicios SA were 2.86 pct higher after Banco Santander had upgraded the stock to 'buy' from 'underweight', citing significant upside potential after the recent market sell-off.
   
EDF rose 2.12 pct after Lehman Brothers raised its target for the French power group to 90 eur from 68 and reiterated its 'overweight' recommendation, saying it is in the best long-term value play in the sector.
   
Staying in France, Danone dipped 1.02 pct after Citigroup downgraded the company to 'hold' and reduced its target to 60 eur from 72, citing rising dairy costs.

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Asian markets mixed as Japan mulls new govt; Australian miners dip

SINGAPORE - Stock markets across Asia ended mixed Wednesday with Japan up modestly after the naming of a new government cabinet while Australian benchmarks were flat as a pullback in metal prices took  some of the shine off mining shares.
   
Taiwan outperformed as traders returned from a two-day national holiday in buying form. The Taiex ended up 1.7 pct at 9,257, led by cement, food and transport stocks.
   
In Japan, the Nikkei closed up 0.2 pct at 16,435, while the broader Topix added 0.6 pct to 1,576. Newly-elected prime minister Yasuo Fukuda unveiled his 17-member cabinet late Tuesday. The line-up offered few surprises -- 13 of Fukuda's ministers also served under his predecessor Shinzo Abe.
   
In Sydney, the S&P/ASX 200 closed down fractionally at 6,481, and the All Ordinaries rose half a point to 6,491. Gains in the banking and retail sectors offset weakness in mining stocks.
   
"The banks are holding up well while there's also some quite good gains in the retail sector after David Jones released its results," said Juliette Saly, an equities analyst at ComSec.
   
In China, the benchmark Shanghai Composite Index ended the day down 1.61 pct at 5,338.52, coming under pressure from the continued flow of initial public offerings (IPOs). Investors are also winding down for the week-long holiday that follows the Oct 1 National Day.
      
The Shanghai and Shenzhen A-share indices dropped 92.48 points and 24.88 points respectively. The Shanghai and Shenzhen B-share indices gained 1.33 points and 3.14 points respectively.
   
The Hong Kong and South Korean markets were closed for public holidays.
   
The Singapore Straits Times index closed up 0.7 pct at 3,650, the Malaysian Kuala Lumpur Composite rose 0.3 pct to 1,320.
   
The Philippines Composite closed up 1 pct at 3,475 after index leader Philippine Long Distance Telephone Co surged to an all-time high.
   
The Thai SET index ended down 0.16 pct at 835.18. The Jakarta Composite rose 1 pct to 2,353.

Indian shares ended slightly higher Wednesday after a volatile session that saw the Sensex surge to 17,047 before paring gains as profit-booking set in.
   
Investors, however, showed renewed faith in information technology stocks, which have been much-battered by the rupee's recent appreciation against the US dollar, with the sector clocking the most gains.
   
The Bombay Stock Exchange's Sensex closed up 21 points or 0.13 pct at 16,921. The index, which had crossed the 16,000 level just last week, hit the 17,000 mark within minutes of opening today. The National Stock Exchange's S&P CNX Nifty ended up 0.03 pct at 4,940 points.

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Gold bolstered by more poor US data, remains near record high

LONDON - Gold got a boost today from the release of worse-than-expected US economic data and a still-weak US dollar.
   
The US currency is gold's main driver, at least for now, as the greenback keeps hitting a series of record lows against the euro. Poor US August durable goods data, released earlier this afternoon, has failed to improve the US economy's health, which will likely keep the dollar at low levels.
       
"The market continues to run on the juice provided by last week's Fed action and by the regular (and by now predictable) bad news from the US economy," said Kitco analyst Jon Nadler.
   
At 1.48 pm, gold was trading at 730.35 usd per ounce against 731.60 usd in late New York trade yesterday. Immediately after the data gold rose to 732.50 usd.
   
Last Tuesday, the US Federal Reserve decision to cut interest rates by 50 basis points to 4.75 pct sparked buying because it weakened the dollar. Yesterday, Federal Reserve Bank of Philadelphia president Charles Plosser said the recent decision to ease monetary policy does indeed have "the potential
for aggravating inflation... there's no question about that".

   
The editor of daily trading note The Gartman Letter said gold players bidding for the metal to hedge against inflation will see Plosser's comments as a reason to buy, and new highs could be tested "sooner rather than later".
   
Elsewhere, near record-high oil prices helped gold's rise from yesterday's lows, which saw the metal drop to 722 usd in intraday trades, as the metal is seen as an energy-led inflation-hedge.
   
Unprecedented high oil prices in recent weeks as the dollar has been sinking have helped gold's recent rally. The metal's traditional quality as a safe haven asset has also been re-established as wider financial stress, stemming from US housing market woes, has seen traders flee towards safer bets.
   
In other precious metals, platinum was lower at 1,343 usd per ounce against 1,346 usd, having hit its highest price all year of 1,348 usd. The metal hit the same high yesterday. Silver was down slightly at 13.44 usd per ounce from 13.46 usd, while palladium was lower at 334 usd per ounce from 338.50 usd.

Copper edged higher in midafternoon trade, supported by fears further strike action in South America could disrupt supply, with dollar weakness and improving investor sentiment underpinning gains across the base metals complex.
  
Fears of economic weakness in the US, where data showed yesterday that housing sales declined once more in August, is capping gains, however. Housing is a major consumer of copper, which is used in pipes and wiring.
   
"Copper's momentum remains impressive and the market looks to be comfortable above the magic 8,000 number, and in the short-term is targeting 8,300 (usd a tonne)," said analysts at RBC Capital Markets. "The ever weakening value of the dollar continues to support, as does the upcoming strike at Southern (Copper in) Peru," they added.
   
At 2.38 pm, LME copper for 3-month delivery was trading at 8,040 usd a tonne against 8,000 usd at the close yesterday.
   
Lead meanwhile also gained, closing in on its all-time high, on news that shipments from the Esperence port in Western Australia may face further delays. The metal was trading at 3,460 usd against 3,406 usd.
   
"Prices are likely to find support from news today that the clean-up of lead contamination at the Australian port of Esperance has not been successful," said analysts at Barclays Capital. "This could mean the resumption of shipments through the port from Ivernia's Magellan mine may take longer than expected."
   
The Magellan mine is the source of around 3 pct of global supply of the heavy metal.
   
Nickel, yesterday's biggest faller, was also stronger at 32,900 usd a tonne against 32,550 usd. Among other base metals, aluminium climbed to 2,500 usd from 2,456 usd, while zinc firmed to 3,000 usd from 2,925. Tin was steady at 15,300 usd against 15,310 usd.

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