US & World Daily Markets Financial Briefing 31-05-2007

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Stocks slightly higher after mixed data

NEW YORK  -  Stocks opened slightly higher Thursday as Wall Street received another batch of acquisitions but mixed news on the economy.
   
U.S. growth appears to be weaker than investors anticipated. The Commerce Department estimated Thursday that first-quarter GDP clocked in at 0.6 percent, down from the 1.3 percent projected in April and lower than analysts' recent prediction of 0.8 percent. But Wall Street was assuaged a bit when the Labor Department said the number of U.S. workers filing jobless claims dropped last week for the sixth time in seven weeks.
   
Investors hope the economy will keep expanding, but not so fast that it prevents the Federal Reserve from lowering interest rates later this year. Stocks soared Wednesday when minutes from the Fed's latest meeting indicated the central bank is not inclined to make a rate hike.
   
While Wall Street is unsure about the economic outlook, it remains buoyed by the unrelenting surge of takeover activity. On Thursday, banking company Wachovia Corp. said it would acquire A.G. Edwards Inc. for $6.8 billion in cash and stock to form one of the largest retail stock brokerages in the country. And payroll processor Ceridian Corp. said late Wednesday it will be bought out by investment firm Thomas H. Lee Partners LP and insurance provider Fidelity National Financial Inc. for about $5.3 billion.
   
In the first hour of trading, the Dow Jones industrial average rose 13.98, or 0.10 percent, to 13,647.06.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index was up 2.32, or 0.15 percent, at 1,532.55, and the Nasdaq composite index was up 8.08, or 0.31 percent, at 2,600.67.
   
Later Thursday morning, the Commerce Department will report on construction spending, which is expected to have slipped 0.1 percent in April after rising 0.2 percent in March. The Chicago Purchasing Managers will also release its manufacturing index. Economists predict the Chicago PMI to have risen to 54.0 in May from 52.9 in April.

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Dollar supported by continued US inflationary concerns

LONDON - The dollar garnered some support against the euro as investors reined in expectations of an imminent rate cut from the US Federal Reserve after government figures showed inflation in the US still above the Fed's comfort zone.
   
The Commerce Department reported that the Fed's preferred measure of inflation, the core PCE price index -- which excludes volatile food and energy prices -- rose 2.2 pct in the quarter, up from the 1.8 pct increase in the fourth quarter and the fastest pace since the third quarter.
   
Fed officials have said that they are comfortable when the core rate is between 1-2 pct.
   
In the wake of the data, the euro fell from 1.3477 usd to around the 1.3465 mark as the prospect of an imminent cut in interest rates diminished.
   
The inflation data more than offset news that the US economy slowed down more dramatically than expected in the first three years of the year despite a sharp pick-up in consumption.
   
The Commerce Department said the US economy grew at a 0.6 pct annualised rate between January and March, down from the 1.3 pct gain estimated a month ago.
   
Economists had expected a downward revision, but the figure was lower than the 0.8 pct predicted. Economic growth is now at its slowest annualized pace since the fourth quarter of 2002.
   
Hans Redeker, head of forex strategy at BNP Paribas, said the market's reaction to the GDP slowdown had already been diminished by yesterday's publication of the minutes to the Fed's last rate-setting meeting.
   
In the minutes, Fed members still thought risks to growth were "weighted to the downside," but had "diminished slightly."
   
In addition, Redeker noted that the deflator news is "coming in at levels consistent with inflationary pressures".

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Euroshares up on utility sector consolidation talk; Wall Street set for gains

LONDON - Europe's leading exchanges rose in morning trading as takeover talk in the utility sector buoyed sentiment, with Nokia another significant gainer on the back of an upbeat forecast for handset growth in 2007.
   
European gains were being further underpinned by overnight strength on US markets, which saw the S&P 500 Index log a record high close. At 11.09 am, the STOXX 50 was up 18.33 points at 3,931.83, while the STOXX 600 rose 2.56 points to 396.21.
   
The utility sector underpinned early gains as EON AG shares soared 5.51 pct after the company approved a larger-than-expected 7 bln eur buyback programme and a 60 bln eur re-investment package.
   
Broker SG Securities upgraded the German utility to 'buy' from 'hold', saying the company's 2010 targets were more ambitious than expected. The stock was last up 5.9 pct.
   
Shares in Iberdrola climbed 3.38 pct after Belgian investor Albert Frere's holding companies Groupe Bruxelles Lambert SA (GBL) and Compagnie Nationale a Portefeuille (CNP) said in a joint statement they now own more than 5 pct of the capital of the Spanish energy group. The news fuelled a flurry of speculation that the utility sector is about to see a wave of consolidation.
   
Analysts highlighted the fact that Frere is Suez's leading single shareholder with 8 pct, and that the French utility giant earlier this month agreed to increase its stake in Gas Natural SDG -- a move seen by many industry experts as a step towards a future merger.
       
And in a fresh take on potential merger partners, shares in Union Fenosa  rose 2.64 pct on market speculation that its major shareholder ACS will sell the Spanish utility to EON in order to free up cash to buy Iberdrola.
   
RWE shares also gained 2.79 pct as the market viewed the German utility as a likely major player in any future sector consolidation.
   
Meanwhile, shares in Scottish & Southern Energy added 1.66 pct after posting full-year results which came in at the top end of consensus estimates and prompted Credit Suisse to upgrade its stance in the energy provider to 'outperform' from 'neutral'.
   
And EDF was upgraded to 'buy' from 'hold' at ABN Amro with a new 82 eur target. Shares rose 2.15 pct.
   
Elsewhere, Nokia shares tacked on 1.44 pct after reports that independent research firm Gartner is forecasting handset growth in 2007 of 16 pct year over year, compared to the mobile firm's more conservative forecast of 10 pct growth.
   
Shares in ASML Holding surged 5.34 pct after the company said it will return 960 mln eur to shareholders through a combination of capital repayment and a reverse stock split.
   
Alcatel-Lucent shares climbed 2.26 pct after Credit Suisse lifted its price target on the telecom equipment maker to 13.5 eur from 12 eur, citing improving visibility and catalysts ahead that should boost the stock.
   
Elsewhere in the technology sector, Philips added 3.16 pct ahead of today's analysts meeting about the performance of its medical division. The company said it expects further improvement in its Medical Systems EBITA margin in 2008-09 and reiterated its 2007 full-year guidance for the unit, dealers said.
 

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Asian shares close mostly higher, boosted by Wall St record finish
 
HONG KONG - Shares across the Asia-Pacific region closed mostly higher after Wall Street rose to a record high overnight, countering fears of a slump after China stocks plunged yesterday.
   
Tokyo shares ended sharply higher after Wall Street's gains eased concern that the falls on Chinese markets yesterday would spark a global rout like that in February. The Nikkei 225 Stock Average closed 287.49 points or 1.63 pct higher at the day's peak of 17,875.75, its highest closing level since Feb 27, when it settled at 18,119.92.  The TOPIX index of all first-section issues advanced 21.93 points or 1.26 pct to 1,755.68, off a high of 1,757.09.
   
Mitsushige Akino, chief fund manager at Ichiyoshi Management, said: "The market welcomed the US stock markets' gains overnight, easing worries that sharp losses in Chinese markets yesterday might lead a global sell-off."
   
Akino said markets could avoid another global meltdown in stocks because they had learned from what had happened in February.
   
"As Chinese stock markets are booming, it is no surprise if China's share prices show a certain level of volatility. And the volatility does not necessarily reflect China's real economy," he said.
   
Australian shares closed higher after investors took encouragement from the strong gains in US markets overnight and snapped up stocks hit by yesterday's sell-off. Dealers said gains by index leader BHP Billiton and major banks had led the advances as confidence returned to the market.
   
The S&P/ASX 200 ended 70.1 points or 1.12 pct higher at 6,313.5, off a high of 6,342.5 and a low of 6,260.9. Dealers said the advances were broad.
   
Hong Kong shares were sharply higher in afternoon trade, reversing yesterday's strong fall, as robust gains on Wall Street overnight and Japan today helped investors put aside worries over the slump in China markets and buy blue chips and select H-shares. At 3.35 pm the Hang Seng Index was up 370.33 points or 1.82 pct at 20,664.09.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed, with Shanghai shares rebounding in the afternoon from sharp losses yesterday and from today's morning session.
   
The Shanghai A-share Index was up 59.97 points or 1.41 pct at 4,309.97 and the Shenzhen A-share Index was down 13.37 points or 1.06 pct at 1,242.99.  The indices yesterday fell 6.48 pct and 7.15 pct respectively.
   
Seoul shares ended sharply higher, with the main index at a new high above 1,700 points, after investors were encouraged by Wall Street and the outlook for the local economy.
   
The news that the current account deficit widened last month to a size not seen in 10 years was offset by data showing strong output by the industrial and service sectors last month. The KOSPI index closed 38.19 points or 2.3 pct higher at a record 1,700.91, off a low of 1,677.78 and a high of 1,701.91.

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Copper extends gains on dwindling global stockpiles

LONDON - Copper extended gains made earlier in the session, supported by dwindling global stockpiles. Stocks stored in LME-bonded warehouses worldwide fell 1,325 tonnes to 130,250 tonnes, the LME said in a daily report.
   
At 2.22 pm, LME copper for three-month delivery was up at 7,430 usd per tonne against yesterday's close of 7,206 usd. Inventories of the metal have dropped 40 pct since early February and stand at less than four days of global consumption.
   
Dresdner Kleinwort analyst Peter Fertig said falling global inventories, with both LME and Shanghai data showing losses, were supportive of the copper market.
   
Attention is now starting to shift towards Chinese inventory figures, with the Shanghai exchange to release its weekly report tomorrow. Last week, stocks of the red metal fell modestly, reversing an earlier pattern of large increases that had fuelled fears China -- the world's top copper consumer -- was oversupplied.
   
"The stocks data released by the Shanghai Futures Exchange tomorrow will be keenly watched following last weeks draw-down - the first in weeks," said analysts at Barclays Capital.
   
Elsewhere, sentiment recovered after being hit yesterday when the Shanghai Composite Index fell by more than 6 pct. "Today's partial recovery in the Chinese equity markets has changed the metals' market tone to one that is much less concerned by exogenous risk," said UBS analyst Robin Bhar.
   
The Chinese Ministry of Finance's decision late on Tuesday to triple stamp duty on equity market transactions weakened most equity markets worldwide and dented sentiment for industrial metals in the short-term.
   
While sentiment was more upbeat, RBC Capital Markets head of base metals Alex Heath said technically led systems fund selling was likely to continue for a day or two. "This being month-end we would not be surprised to see attempts later today to shove prices lower to achieve the best month-end returns as possible," he said.
   
Elsewhere, lead was up at 2,345 usd per tonne, just 3 usd off an all time high struck earlier in the session, having closed at 2,285 usd yesterday. The metal was propelled by supply fears from Australia, where exports will be delayed for another month.
   
The Magellan mine, which is responsible for lead out of Australia, is owned by Ivernia. According to media reports, it mines 3 pct of the world's lead.
   
In other metals, nickel was also up at 47,550 usd per tonne against 46,655 usd, zinc rose to 3,694 usd per tonne against 3,595, aluminium was higher at 2,778 usd per tonne from 2,758, while tin edged up to 14,090 per tonne usd against 14,050.

At 2.41 pm, spot gold was quoted at 660.85 usd an ounce, above the 653.40 usd level seen in late New York trades yesterday.
   
Gold fell yesterday as the dollar rose against the euro, and as a decision by the Chinese authorities to triple the stamp duty or trading charge on equity market transactions, sparked an emerging markets rout.
   
However, the metal recovered today, ahead of the US data releases, amid a rebound in commodities, specifically base metals, as fears over the latest Chinese moves eased.
   
In other precious metals, silver was up at 13.47 usd against 13.16 usd, platinum rose to 1,277 usd against 1,261 usd, while palladium was flat at 365 usd.

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