US & World Daily Markets Financial Briefing 28-02-2007

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Stocks fluctuate in early trading

NEW YORK - Stocks fluctuated in a narrow range Wednesday, showing some signs of stability on a satisfactory gross domestic product report and a recovery on some markets in other countries.
   
The major indexes opened higher and showed tepid resolve as the market sought to regain its footing a day after the Dow Jones industrials plunged 416 points amid growing concerns about slowing economies in the U.S. and China.
   
The Shanghai stock market, whose nearly 9 percent skid Tuesday started a global selloff, rose nearly 4 percent, helping to steady trading in the U.S. And the Commerce Department's report that the GDP rose at an annual rate of 2.2 percent in the fourth quarter was slightly below market expectations, but not enough to puncture Wednesday's nascent recovery.
   
A report from the National Association of Purchasing Management-Chicago index of business conditions in the Midwest showed a weaker-than-expected reading. The February figure fell to 47.9 from 48.8 in January. The report is often viewed as a bellwether for the Institute for Supply Management's index of manufacturing activity for February, which is due Thursday.
   
The report sent stocks falling briefly, but they were soon moving higher, another sign that investors were trying to bring the market back.
   
The Dow was up 30.04, or 0.25 percent, at 12,246.28. Broader stock indicators were mixed. The Standard & Poor's 500 index was up 2.76, or 0.20 percent, at 1,401.80, and the Nasdaq composite index was off 5.60 percent, or 0.23 percent, at 2,402.26.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.55 percent from its low for the year of 4.47 percent late Tuesday.

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Dollar steady ahead of New York opening, US GDP data

LONDON - The dollar rebounded as the sell-off on the world's stock markets eased, but currency watchers said this rally may proved short-lived if the Dow Jones index underperforms this afternoon and US GDP data comes in lower than anticipated.
          
Up to now, the rise in global market volatility has spilled over into the demand for carry trades, where investors borrow from lower-yielding currencies like the yen to invest in places with higher interest rates.
   
This has been reflected in the sharp appreciation of funding currencies such as the Swiss franc and the yen and a fall in the Australian dollar.
   
"Although some further scaling back of carry trades is likely over the near term, we do not expect nervousness to persist," said Mitul Kotecha, head of global foreign exchange research at Calyon.
   
"Current concerns are likely to blow over just as they did following the last Japanese rate hike and G8 meeting, with both events having little more than a short-lived effect," he added.
   
While yesterday's shockwaves in the equity markets were rooted in the earlier sell-off in Shanghai, there are other concerns that may stoke a further re-evaluation of the level of risk, analysts said.
   
Most notably, there is speculation that the rest of this week's US economic data will paint a relatively downbeat picture of the world's largest economy, even though yesterday's US consumer confidence and existing home sales surprised on the upside.
   
A lot of the worries over the US economy centre around the subprime mortgage market.
   
Subprime loans are loans made to borrowers who do not qualify for conventional loans. As the economy slows, these will tend to default at a much higher rate than ordinary loans. Talk of trouble in this section of the market is particularly worrying amid ongoing talk of a US housing market slowdown.
   
The market's focus this afternoon will centre on the second estimate for US GDP growth in the fourth quarter of 2006. Analysts polled by AFX News expect economic growth to be downgraded to a 2.3 pct annual rate from the earlier 3.5 pct estimate.

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Top Stories in Europe at 11.05 GMT

Frankfurt - European Central Bank board member Juergen Stark told Die Welt although Euro zone inflation will probably slow this year, medium-term price developments remain a concern. "There is a good chance that the annual average rate of inflation this year will be below that seen in previous years," Stark told the newspaper.

Muenchener Rueckversicherungs AG said full year net profit rose to a record 3.536 bln eur from 2.751 bln a year earlier, exceeding the 3.400 bln forecast by analysts, as the insurance industry was largely spared major losses from natural catastrophes. The company said it will propose a dividend of 4.50 eur per share for 2006, up from 3.10 in 2005.

Brussels - Belgian imaging technology company Agfa-Gevaert NV posted full-year net profit of 15.0 mln eur, well above analysts' expectations who had predicted a net loss of 47.6-99.0 mln eur, against a loss of 19.3 mln eur in 2005. Sales for the full year came in at 3.401 bln eur against 3.308 bln eur in 2005, also outstripping analysts' expectations at 3.249-3.391 bln eur.

Belgian pharmaceuticals group UCB SA posted a 50 pct drop in full year net profit, due to divestments and increased costs. It said it expects profit to grow significantly in 2007 when Schwarz Pharma becomes fully integrated into the company.

Paris - Publicis Group SA said net profit for 2006 rose 15 pct to 443 mln eur, from 386 mln eur in 2005 and ahead of consensus estimates thanks to record operating profitability and a sharp reduction in net interest and related expenses. Operating profit for the full year was 713 mln eur, up 10 pct from 649 mln eur a year earlier, and again exceeding consensus estimates.

Bouygues SA unveiled a 50 pct leap in net profit in full year 2006, ahead of analyst consensus, thanks in part to disposals, and said robust construction activities mean sales are expected to rise 8 pct in 2007. Net profit was 1.246 bln eur, up from 832 mln a year earlier, with all units contributing to the rise, which was ahead of the 1.102 bln eur consensus of analyst forecasts prepared by Thomson Financial.

Zurich - Swiss cement maker Holcim Ltd announced a better-than-forecast full year net profit of 2.104 bln sfr, up from 1.511 bln a year earlier, citing strong demand for products and services due to a dynamic construction sector and exceptionally favourable weather conditions. Analysts had forecast net profit to reach 1.804-1.973 bln sfr, or 1.905 bln on average.

Converium Holdings full year net profit dropped to 57.1 mln usd in 2006, from 68.7 mln usd last year hit by a 157 mln usd charge from its divestment from US operations, but exceeded analysts expectations. Looking ahead, the Swiss reinsurer said it targets a return on equity of 14 pct and gross premiums of 3 bln usd by 2009, while aiming to achieve a combined ration of 96 pct.

Amsterdam - Wolters Kluwer NV reported full-year earnings of which sales and operating profit bested analyst expectations while net profit missed forecasts, and reiterated its 2007 outlook while raising its final dividend by 5 pct, dealers said. The company did not say what it may do with the proceeds from the sale of the Education division, as some analysts had hoped.

Getronics NV released its 2006 full-year earnings in an unscheduled pre-release and reported a net loss, while it cancelled its 2008 sales outlook and also announced that it will not pay a dividend this year. Sales in 2006 were 2.627 bln eur, up from 2.525 bln, while operating profit fell to 23 mln eur from 99 mln in 2005.

Stockholm - The Swedish Debt Office said it expects a budget suplus (ie negative borrowing requirement) of 112 bln skr in 2007, and 82 bln skr in 2008. In its November forecast, the Debt Office expected a 2007 budget surplus of 82 bln skr.

London - UK bank HBOS PLC unveiled a better-than-expected 19 pct increase in full-year profit, helped by strong sales of savings and investment products, and a robust performance from its international division.
 
HBOS, the UK's fourth-biggest bank, said pretax profit for the year to Dec 31 2006 came in at 5.706 bln stg, up from 4.8 bln stg last year. Analysts had expected profit fo 5.430 bln stg, according to a consensus forecast supplied by the company.

Michael Page International PLC, the UK's second largest recruitment firm, met expectations with a 47 pct jump in full-year pretax profits boosted by record revenues, and said it is confident of further progress in 2007. The company also said it is well-positioned in all its markets and is particularly excited about the opportunities in North America.

Housebuilder Barratt Developments PLC has seen pretax profits grow 10 pct to 180.2 mln stg in the half year to Dec 31. The company, which has recently bought Wilson Bowden PLC, grew turnover marginally by 2 pct to 1.19 bln stg, and will give an interim dividend of 11.4 pence, up 10 pct from last year.

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Asian shares close mostly lower on Chinese fall yesterday; Shanghai rebounds

HONG KONG - Shares across the Asia-Pacific region closed mostly lower after the steep drop on Chinese markets yesterday followed by the fall on Wall St overnight -- although the Shanghai markets bounced back today on bargain hunting.
   
Tokyo shares ended sharply lower. Dealers said some investors showed an appetite for buying, so reducing the losses, while others stayed on the sidelines, waiting to see how the markets in Europe and the US perform tonight.
   
The blue chip Nikkei 225 Stock Average finished 515.80 points or 2.85 pct lower at 17,604.12, off a low of 17,382.79 and a high of 17,843.61. The TOPIX index of all first-section issues dropped 58.59 points or 3.23 pct to settle at 1,752.74, off a low of 1,719.15 and a high of 1,785.05.
   
Hiroichi Nishi, equity chief general manager at Nikko Cordial Securities, said investors had been "waiting for some trigger for adjustment." A sharp rise in the yen also weighed on the market, he said.
       
Australian shares closed sharply lower following an 8.8 pct slump on the Shanghai market yesterday and the fall on Wall St. Few Australian companies avoided the negative sentiment today, including the index leading resource stocks BHP Billiton and Rio Tinto which have large exposures to the Chinese resource-led boom.
   
The S&P/ASX 200 closed down 161.3 points or 2.69 pct at 5,832.5 - now well below Monday's record close of 6,044.0. The index managed to end above the day's low of 5,786.8. Over February, the key index remained up 59.1 points or 1.00 pct despite today's sell-off and continued to hold a 162.7 point or 2.9 pct gain for investors so far in 2007.
   
Hong Kong shares were sharply lower in afternoon trade in response to the falls in mainland China and Wall St. At 3.45 pm the Hang Seng Index was down 460.82 points or 2.29 pct at 19,687.05.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on the back of bargain-hunting after yesterday's slump, with property, telecom and power stocks leading the gainers, dealers said. Nearly 200 companies closed up by their daily limits of 10 pct.
   
"The market was boosted by bargain-hunting interest after yesterday's plunge, as investors were reassured by the government's denial of a rumored tax on stock investment gains," said Wang Mingzhi, an analyst at GF Securities.
   
According to the rumors, the government was to impose taxes on capital gains from stock investment income. The Ministry of Finance and the State Administration of Taxation announced today that there are no plans to levy such a tax. Analysts said the slump yesterday is temporary and it will be a matter of time before the market picks up again.
      
The Shanghai A-share Index was up 114.99 points or 3.95 pct to 3,025.75 and the Shenzhen A-share Index was up 29.06 points or 3.94 pct at 767.35.
   
Seoul shares closed sharply lower on broad sell offs, with sentiment undermined by the sharp corrections seen across global stock markets.
   
The market tumbled by nearly four pct to fall through the 1,400 point level at one stage, with downbeat current account and industrial output data fuelling the decline. The KOSPI index closed down 37.26 points or 2.56 pct, at the day's best level of 1,417.34. The low was 1,393.96.

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Base metals lower across the board on Chinese stock mkt jitters

LONDON - Base metals markets were lower across the board on continued worries yesterday's plunge in the Chinese stock market, which sparked a global market sell off, will lead to reduced demand for metals.
   
However, analysts said yesterday's sell off was overdone as the Chinese economy can probably sustain the shock falls, which were sparked by fears China plans to take firmer steps to cool the booming economy.
   
"The Chinese equity sell-off was not unexpected given that it comes after a 14 pct year-to-date gain and a more spectacular 130 pct advance in 2006," said Man Financial analyst Ed Meir. He added, however, that the market could see further modest downside turbulence at least through today, even though he suspects the worst is probably over.
   
Chinese share prices opened 1.35 pct lower today -- before heading back into positive territory -- after crashing 8.84 pct yesterday in their biggest one-day fall in 10 years.
   
At 1.08 pm, LME copper for three month delivery was down at 6,175 usd a tonne against 6,230 usd at yesterday's close.
   
Data out earlier in Asia showed China's imports of refined copper jumped an annual 86.3 pct in January to 131,851 tonnes. Import levels were also 38 pct above the December levels.
   
Chinese copper demand was weak last year as China's State Reserve Bureau sold about 300 tonnes of its own copper stocks. Copper prices have been driven higher this year partly on expectations Chinese de-stocking has ended.
   
However, according to BNP Paribas analyst David Thurtell, the Chinese are still not prepared to buy copper at high price levels. "They're not stupid, they don't come back to the market and pay whatever, if they think hedge funds are trying take a piece of them they'll likely stay out," he said.
   
He added it is possible the central authorities are themselves playing a game of brinkmanship, attempting to cool commodity markets by fuelling speculation about "slowdown measures" in China.
   
Aluminium was down at 2,838 usd a tonne against 2,881 usd, under pressure from the macro-economic concerns and from a gain of 5,950 tonnes in inventories held in LME warehouses.
   
LME aluminium inventories have risen for eight consecutive days and at 802,750 tonnes, stockpiles are now nearly 20 pct above than last November's levels.
   
In other metals, tin was down at 13,400 usd a tonne against 13,550 usd, lead was down at 1,868 usd against 1,910 usd, nickel was down at 41,200 usd against 41,650 usd while zinc was down at 3,500 usd against 3,580 usd.

At 10.35 am, spot gold was quoted at 675.75 usd an ounce, up from the 658 usd level seen in late New York trades yesterday.

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