US & World Daily Markets Financial Briefing 01-02-2008

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Stocks rise on Microsoft bid for Yahoo

NEW YORK  - Stocks moved moderately higher Friday after Wall Street set aside some anxiety over news that the economy lost jobs last month and focused on Microsoft Corp.'s bid for Internet company Yahoo Inc. and a possible rescue plan for the troubled bond insurance sector.

After Wall Street's embrace of Microsoft's overture, investors were initially uneasy after the Labor Department issued a worrisome employment report for January. The economy lost 17,000 jobs, marking the first contraction of the labor market in more than four years. The news confounded economists, who were expecting 70,000 new jobs, according to Thomson/IFR.

Some investors may have been braced for the disappointing result. It was foreshadowed earlier in the week when the Federal Reserve noted labor market weakness in the policy statement that accompanied its latest rate cut.

The news was somewhat mitigated by an upward revision to November payrolls and news that the unemployment rate ticked lower to 4.9 percent last month from 5.0 percent in December.

But investors were pleased by Microsoft's bid of $31 per share for Yahoo, for a total of $44.6 billion. The offer represents a 62 percent premium to Yahoo's closing stock price Thursday. Merger news, which has been in short supply for months, tends to energize the stock market. Yahoo said it will study the offer.

In midmorning trading, the Dow Jones industrial average rose 53.49, or 0.43 percent, to 12,703.85. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 7.38, or 0.54 percent, to 1,385.93, and the Nasdaq composite index rose 13.82, or 0.59 percent, to 2,403.68.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 183.7 million shares.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.58 percent from 3.59 percent late Thursday.

On Thursday, Wall Street ended its worst January since 1990 with a huge advance, after investors set aside worries about bond insurers and grew more optimistic that the Federal Reserve's interest rate cuts will indeed help lift the economy.

Hopes that the struggling bond insurance industry will get some relief were stoked after CNBC reported that Citigroup Inc., Wachovia Corp. and six top European banks have banded together to work with New York State Insurance Superintendent Eric Dinallo to bail out struggling bond insurers.

The report should be encouraging to investors who had feared that such major insurers as Ambac Financial Group Inc. and MBIA Inc. would not be able to attract enough capital to avoid downgrades from ratings agencies.

Other technology stocks also should be in view. Google Inc. failed to meet analysts' expectations for its earnings and Motorola Inc. said it is mulling a sale of its handset division.

Yahoo surged $9.43, or 49.2 percent, to $28.61, while Microsoft, one of the 30 stocks that make up the Dow industrials, fell $1.67, or 5.1 percent, to $30.93. Google also fell $37.81, or 6.7 percent, to $526.49.

The Russell 2000 index of smaller companies rose 3.49, or 0.49 percent, to 716.79. In overseas trade, Japan's Nikkei closed down 0.70 percent. In Europe, London's FTSE rose 1.76 percent, Frankfurt's DAX gained 1.47 percent and Paris' CAC 40 rallied 1.70 percent.

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Forex - Dollar steady ahead of US jobs news

LONDON - The dollar remained steady ahead of this afternoon's closely-watched US jobs report for January. The January non-farm payrolls report at 1.30 pm will be followed later by the Institute of Supply Management's monthly survey into the country's manufacturing sector will be closely monitored too.

"Market participants' reluctance to increase risk exposure ahead of the reports reflects uncertainty over whether the reports will confirm current market expectations that the US economy is heading into recession," said Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ.

Today's data comes just days after the US Federal Reserve cut its benchmark Fed funds rate another 50 basis points to 3.00 pct following last week's shock 75 basis point reduction.

Following the forecast from the ADP payrolls firm earlier this week, the improvement in payrolls is expected to be better than initially thought. ADP estimated that 130,000 private sector jobs were added in January.

As a result, expectations have swelled that today's official report from the Labor Department will show 100,000 new jobs added in January and the unemployment rate possibly falling 0.1 percentage point to 4.9 pct.

After the payrolls data, attention will shift to the ISM survey. Analysts expect the ISM to confirm that the US's manufacturing sector continued to contract in January.

The main index is expected to fall to 47.0 in January from 47.7 the previous month. December was the first time since January 2007 that the ISM fell below the 50 threshold, which generally suggests contraction in the economy.

The dollar is near historic lows against the euro, partly as a result of yield differentials between the US and the euro zone.

That yield differential is expected to keep the euro supported for now, especially as the European Central Bank is not expected to reduce its benchmark refi rate from the current 4.00 pct soon.

"The market is already aware that current yield differentials will not hold as the ECB will be forced into a more dovish stance due to weakening regional fundamentals," said Geoffrey Yu, currency strategist at UBS.

"However, inflation pressures in the euro zone continue to delay ECB monetary stimulus, while the central bank itself remains relatively bullish on growth potential in 2008," he added. Today's data out of the euro zone further cemented the view that the ECB has some time before cutting rates.

The purchasing managers index for the euro zone manufacturing sector was revised up to a final 52.8 from the 52.6 provisional reading, suggesting that activity is continuing to grow but at only a moderate pace. But the prices components of the data will worry the ECB, which has repeatedly voiced concern over inflation pressures.

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Euroshares trade sharply higher midday; miners, Wall St drive gains

At 9.06 am, the Dow Jones STOXX 50 Index was up 43.12 points, or 1.3 pct at 3,283.87 while the DJ STOXX 600 Index rose 4.30 points, or 1.3 pct to 326.46.

On Wall Street, stock futures are pointing to solid gains ahead of key employment data, with Microsoft's 44.6 bln usd takeover bid for Yahoo doing much to boost sentiment.

According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open up 109 points at 12,759. Separately, S&P 500 futures were up 15 points at 1,394.60 while Nasdaq 100 futures climbed 25.25 points to 1,873.

Rio Tinto grabbed the early spotlight as the miner's shares shot up 14.3 pct after aluminium groups Chinalco and Alcoa paid between 14 bln usd and 15 bln usd to acquire a 12 pct stake in the company through Singapore-based Shining Prospect Pte Ltd, a wholly-owned entity of Chinalco. Alcoa is contributing 1.2 bln usd via a convertible instrument to finance the joint acquisition.

Both Chinalco and Alcoa confirmed that they do not currently intend to make an offer for Rio Tinto, but reserve the right to announce an offer or possible offer for the company.

The news lifted the entire mining sector, with Antofagasta up 10 pct, Anglo American climbing 7.2 pct while Kazakhmys added 6.9 pct.

BHP Billiton, which had made an unsolicited 3-for-1 shares offer approach in November for Rio Tinto, saw its shares climb 12.1 pct. Investors appeared to be taking the view that the Chinalco-Alcoa move would make it less likely that its bid for Rio would succeed.

In other merger and acquisition news, shares in InBev were up 1 pct. A Wall Street Journal report said the Belgian brewer has held talks with Anheuser Busch over a possible merger, citing people familiar with the matter.

And Societe Generale was up 4.9 pct after French business daily Les Echos said Credit Agricole has asked its Calyon unit and Lazard to advise it on a potential bid for the embattled French bank. Credit Agricole shares were up 1 pct.

BNP Paribas, which is viewed by many analysts as the most likely suitor, could offer 90 eur a share for SocGen, or 100 eur if it sells the corporate and investment banking business to another player, most likely Credit Agricole, Deutsche Bank said in a note to clients.

BNP Paribas shares were flat in midday trading. Societe Generale, meanwhile, has hired Rothschild to advise it on defence strategies in the face of possible takeover bids, the Financial Times reported, without indicating its sources. Also in France, Legrand shares climbed 4.6 pct on renewed market rumours US conglomerate General Electric was mulling a bid for the group.

In other news, Ericsson traded down 1.3 pct in choppy trade as investors weighed plans to cut 4 bln skr from its annual cost base against disappointment over weaker-than-expected fourth quarter results and a tepid 2008 outlook. Staying in the sector, Nokia was up 3 pct as it continued to benefit from ongoing problems at Motorola, its US competitor.

Late yesterday, Motorola said it is considering separating its handset unit from its other businesses in an effort to snap a deep slump that has followed its meteoric success with the Razr phone.

Vinci climbed 4.9 pct pushing the rest of the construction sector higher, as above-forecast sales figures and above all a strong order backlog for 2008 reassured market concerns about an industry slowdown. Among leading sector gainers, Saint Gobain was up 4.4 pct while Lafarge rose 5.3 pct.

Shares in Grupo Ferrovial SA fell 2.4 pct after news that BAA, its UK airports subsidiary could lose tax relief on some 5 bln stg in infrastructure investment if the government carries out a new accounting plan. Such a move would have a negative impact on the builder's net profit of 1.23 bln eur in 2008.

British Airways was down 4.5 pct. The airline posted a 35 pct increase in pretax profit for the nine months to Dec 31, 2007 led by longhaul premium traffic and a strong cost performance.

But it also warned that it expects fuel costs to rise by more than 100 mln on last year for the year ahead. Fuel was up 2.4 pct due to the higher oil prices, which was only partially offset by hedging and the weak US dollar, BA said.

Later in the session, investors will turn their attention to Wall Street, with the release of key non-farm payrolls data. The US economy is forecast to have created 58,000 jobs in January after an increase of just 18,000 in the prior month, according to the median estimate of economists polled by Thomson's IFR Markets.

The unemployment rate is expected to dip to 4.9 pct from 5 pct. The Institute for Supply Management's manufacturing index for January is expected to come in with a reading of 47 unchanged for the prior month. Any reading under 50 indicates that a sector is in a period of contraction. US construction spending and consumer data are also on tap.

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Asian stocks mixed as investors weigh Wall Street's gains, China storms

The Nikkei closed down 0.7 pct at 13,497.16 and the Topix closed down 0.7 pct at 1,336.86. The Singapore Straits Times closed up 0.9 pct at 3,007.80. The Hang Seng closed up 2.9 pct at 24,123.58 after a skittish session.

The Australian benchmarks also outperformed with the S&P/ASX 200 closing up 3.4 pct at 5,842.9 and and the All Ordinaries ending up 3.3 pct at 5,882.3.

The Philippines Composite closed up 0.9 pct at 3,294.08 as investors cheered a 25 basis point interest rate cut from Thursday. The Kospi closed marginally up 0.6 pct at 1,634.53.  The Taiwan weighted index closed up 2 pct at 7,673.99.

The Bombay Stock Exchange's benchmark Sensex closed up 3.3 pct at 18,233.4 and the Jakarta composite index closed up 0.7 pct at 2,646.82.

MBIA shares closed up 11 pct after the call, even as Standard & Poor's placed its ratings on negative watch. S&P said the magnitude of the company's projected losses underscores its view that time is of the essence in the completion of capital-raising efforts. MBIA said Thursday it has garnered 1.5 bln usd in capital from Warburg Pincus. S&P also cut Financial Guaranty Insurance Co's financial strength rating.

"The problem of bond insurers, since they underwrite policy for a variety of products not only for subprime loans but also for straight bonds and municipal bonds, may pose risks if the downgrades of their ratings continue," said Mitsuru Saito, chief economist at Tokai Tokyo Securities.

Investors are now awaiting the release of the January jobs report with IFR economists expecting the economy added 58,000 jobs, up from just 18,000 in December. The unemployment rate is expected to ease to 4.9 pct from 5 pct, while average hourly earnings are expected to slow to 0.3 pct from 0.4 pct.

In Tokyo, shares of Mizuho Financial Group were down 5 pct at 473,000 yen after the bank said net profit fell 32.2 pct in the nine months to December due to losses arising from the subprime crisis.

The megabank now expects losses from subprime loans and other securitized investments to reach 395 bln yen for the year to March, more than double the estimate it gave in November.

Japan's largest banking group, Mitsubishi UFJ Financial, closed down 3.7 pct at 995 yen after it announced a 54.4 pct decline in net profit for the nine months to December, reflecting writedowns for its struggling credit card business and losses related to its subprime loan exposure.

Consumer electronics giant Matsushita Electric Industrial closed up 4.9 pct at 2,360 yen. Sony Corp closed down 8.2 pct to 4,790 yen, after it missed third-quarter earnings estimates and lowered its outlook for the year.

Top car electronics and electrical parts maker Denso Corp closed up 1.3 pct at 3,890 yen after reporting its net profit rose 19.5 pct in the third quarter to December due to increased sales.

In Seoul, Hyundai Heavy Industries rose 4.3 pct to 325,500 won, extending yesterday's 9 pct rally. Investors were encouraged by the world's largest shipbuilder's fourth-quarter results and its plan to buy back 2.2 mln shares.

Hynix Semiconductor Inc fell 2.7 pct to 25,300 won after South Korea's second-largest chip maker reported a bigger-than-expected loss for the fourth quarter, prompting some analysts to downgrade the stock to "sell".

In Australia, banks rebounded from recent lows. Australia & New Zealand Banking Group added 3.4 pct to 26.9 aud and National Australia Bank finished 2.3 pct higher at 35.4 aud.

Travel agency Flight Centre surged 6.3 pct to 24.67 aud after announcing it is on track to exceed its first-half profit guidance. Flight Centre now expects a profit of 92-93 mln aud, compared to its previous forecast of 85-90 mln aud.

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Metals - Gold, silver and platinum hit fresh record highs

LONDON - Gold and platinum hit fresh record highs today, while silver and palladium were at multi-year peaks, as a soft dollar, South African mining disruptions and ongoing economic fears saw money pour into the complex.

Precious metals have been boosted of late by safe haven buying, as jittery investors are attracted to what are seen as solid stores of wealth in times of economic turmoil.

A tumbling dollar and rising inflation have also lent support, especially to gold, which acts as an alternative investment to the most common form of currency reserves and as a hedge against inflationary pressures.

At 10.59 am, spot gold was trading at 933.10 usd per ounce, against 923.50 usd in late New York trades yesterday. Earlier the metal hit its all-time record of 934.80 usd per ounce.

Gold has rallied by almost 300 usd since the sub-prime crisis heralded the opening salvo of the current economic turmoil last summer.

Platinum hit an all-time record of 1,750.50 usd per ounce, before easing to 1,741 usd, against 1,738 usd. Ongoing mining disruptions created by power shortages in South Africa, where 75 pct of global platinum supplies are mined has propelled platinum to a series of record highs in recent weeks.

"We expect acute South African power problems to cost the platinum industry about 200,000 ounces of platinum production in Q1 2008," UBS analyst John Reade said.

"Chronic production issues make this a long term problem." South Africa accounts for around 75 pct of global platinum production. Silver remained higher at 17.17 usd an ounce against 16.94 usd, having earlier touched 17.20 usd, its highest level in 27 years.

Platinum's sister metal, palladium, hit a 20-month peak of 403 usd, dragged higher by the rest of the complex before easing back to 398 usd, against 393.25 usd in late New York trades yesterday.

Later today, market players will be watching for the release of the US January non-farm payrolls report at 1.30 pm, and the Institute of Supply Management's monthly survey into the country's manufacturing sector at 3 pm.

Both have the potential to move the dollar, and in turn gold. Investors will also be watching for clues as to the ongoing state of the US economy, with fears of a recession still rife, which could attract more safe haven buying interest into gold and other precious metals.

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