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

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Stocks start 2008 with flat open

Stocks were little changed in early trading Wednesday as investors awaited several economic readings and minutes from the Federal Reserve's last meeting. Investors wading into the first trading session of 2008 will be looking to economic data to help determine how long the concerns that weighed on stocks in the second half of 2007 might persist.

Wall Street remains uneasy over the state of the housing market and tightness in the credit markets brought on by fears of faltering mortgage debt. In addition, the health of the consumer will again be in focus as investor await the government's December employment report, due Friday.

But first, at 10 a.m. EST, the Institute for Supply Management is scheduled to release its manufacturing index and the Commerce Department is due to report on construction spending. Economists polled by Thomson/IFR anticipate that manufacturing expanded very modestly in December, and that construction spending dipped in November.

In the afternoon, investors are hoping to obtain some insights into the mood at the Fed. The minutes from the central bank's Dec. 11 meeting, when policy makers lowered key interest rates by a quarter point, could upset investors if they signal the Fed is struggling to balance concerns about inflation and slowing growth.

The arrival of the new year will be accompanied by a return of more of Wall Street's regular players. The recent weeks surrounding the holidays have seen light trading volume, making it hard to draw any meaningful reading on the market's mood. Moves higher or lower tend to be exaggerated amid light sessions.

In the first hour of trading, the Dow Jones industrial average rose 11.22, or 0.08 percent, to 13,276.04. Broader stock indicators also rose. The Standard & Poor's 500 index rose 3.19, or 0.22 percent, to 1,471.55, and the Nasdaq composite index rose 9.08, or 0.34 percent, to 2,661.36.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.02 percent from 4.03 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose $2.06 to $98.04 per barrel in premarket electronic trading on the New York Mercantile Exchange following violence in the oil-producing nation of Nigeria and speculation that inventory figures will show drops in levels of U.S. supplies. Overseas, Germany's DAX index fell 0.10 percent and France's CAC-40 rose 0.65 percent.

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Forex - Pound remains on defensive after disappointing UK manufacturing news

The pound remained on the defensive after another piece of disappointing UK economic news kept alive the possibility of a back-to-back interest rate reduction next week from the Bank of England.

Analysts said the monthly survey into the sector from the Chartered Institute of Purchasing and Supply was far worse than projected and likely to stoke fears on the rate-setting Monetary Policy Committee (MPC) of a much bigger than anticipated slowdown in the UK economy.

CIPS's purchasing managers index for December dropped to 52.9 from November's 54.3. The decline was steeper than anticipated. Analysts polled by Thomson Financial News expected the main measure to ease to 53.8.

Analysts said the MPC has room to respond to the weaker economic climate by cutting interest rates further in the months ahead. Last month, the nine-member MPC unanimously voted to cut the benchmark Bank rate a quarter point to 5.50 pct. Whether the MPC will ease policy further next Thursday could well hinge on Friday's equivalent survey into the services sector.

"The pound was already on the defensive ahead of this release, buffeted by gloomy 2008 prognostications for the UK economy," said Daragh Maher, senior FX strategist at Calyon. "This data will not temper the pessimism, and it is anything but a happy new year for the pound," he added.

This negative sentiment has pushed the euro up to an all-time high of 0.7400 stg and the pound consistently back below 2.00 usd after three months being above that psychological threshold.

Elsewhere, the dollar has started the new year on the back foot against the euro ahead of a raft of US economic data this week that is likely to reinforce concerns about the growth outlook for the world's largest economy. Analysts said the economic news out of the US is likely to keep the market's attention on the growth outlook, though inflationary concerns remain at a time of sky-high oil prices.

That split interest was particularly evident in the run-up to the new year, as poor US housing data pushed the downside risks to the fore of attention after firm inflation data ahead of Christmas had helped the dollar by diminishing expectations of the extent of monetary easing by the US Federal Reserve.

This week's US data will likely keep attention on the growth outlook. First up is today's ISM survey into the US manufacturing sector. Its main index is expected to be 0.1 higher than November's 50.8. Perhaps of more importance will be the employment component in the survey, ahead of Friday's US jobs report for December

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Euroshares flat in midday trade, A&L and ADP soar on M&A chatter

At 12.15 pm, the STOXX 50 was 2.27 points or 0.06 pct lower at 3,681.52, while the STOXX 600 edged up 0.03 points or 0.01 pct to 364.67. Following a cautious start to the day, shares quickly recovered and advanced into positive territory mid-morning, before paring back gains again in midday trading.

"The sentiment is generally rather cautious," a Frankfurt-based trader said. "But I think some are worried about being too cautious and missing out," he added. "We are also looking at a good start on Wall Street today and that is proving some support," he noted.

According to IG Index, the DJIA is expected to add some 26 points upon opening, with the release of key manufacturing data as well as the minutes from the US Federal Open Market Committee's Dec 11 meeting likely to set the direction for the rest of the trading day.

Back in Europe, M&A chatter added momentum, with Alliance & Leicester advancing 13.66 pct after Santander reportedly said it does not rule out resuming takeover negotiations with the UK mortgage bank, the Financial Times reported.

"There is definitely a strategic fit between Santander's Abbey and A&L's mortgage business", a London-based analyst said, adding the main question is really the price A&L management has in mind for the business.

At the end of last month, talks over a takeover of the UK mortgage lender by Santander reportedly stalled over price. Shares in Santander were 1.28 pct lower. Meanwhile, French construction firm Vinci confirmed earlier reports it acquired a 3.3 pct stake in Paris airports operator ADP on Friday.

According to La Tribune, the stake is worth 229 mln eur. Vinci said it does not intend to raise its stake any further unless the government changes its current stance. The French government owns 68.4 pct of ADP and has said it does not want to fully privatise the company, which runs Paris' Charles de Gaulle and Orly airports.

ADP rallied 10.44 pct higher, as Vinci lost 1.82 pct. Flagship carrier Lufthansa is showing ambition, as it told Bild Zeitung in an interview it is planning to hire some 4,300 additional staff during 2008. The stock traded up 0.88 pct.

Peer Alitalia fell 2.29 pct, following an over 8 pct gain on Friday when the Italian government said it is advising the airline to start exclusive merger talks with Air France-KLM. Over in Spain, healthcare services group Grifols added 1.43 pct on its first day in the IBEX-35, where it replaces NH Hoteles.

Austria's BWIN shed 2.48 pct as investors speculate on an online gaming ban by the German government.
Meanwhile, the automotive sector is outperforming today, following strong new car registration numbers in France and with further information for the Italian market awaited.

According to the French automobile builders' association CCFA, registrations of new cars in France surged 21.2 pct in December from a year earlier. Peugeot gained 1.64 pct, while Renault was 1.58 pct higher and Italian peer Fiat added 1.10 pct in anticipation.

Steel companies were also in focus after Credit Suisse, in a note to clients, said it is taking an 'overweight' stance on the sector for 2008, noting "key concerns appear overdone". Voestalpine added 1.84 pct and ThyssenKrupp gained 1.56 pct.

On the economic data front, the final estimate of the euro zone December purchasing managers' index for manufacturing confirmed that manufacturing activity slowed slightly in December, with the index dipping to 52.6 from 52.8 in November.

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Asian markets mostly lower as caution persists into the new year

The Hang Seng index closed down 0.9 pct at 27,560.52. Bucking the broader market's decline, China Eastern Airlines rose 4.4 pct at 8.05 hkd as the possibility of a bidding war between the Singapore Airlines-Temasek consortium and China National Aviation Holding Corp (CNAC) gathered strength.

CNAC said yesterday that the 3.80 Hong Kong dollar per share joint offer of SIA and Temasek for a 24 pct stake in China Eastern "does not reflect the fair value" of CEA, raising speculation that CNAC might make a competing offer.

The Shanghai Composite Index closed up 0.2 pct at 5,272.81. The Japanese market is still closed for a holiday. It will resume trading on Friday but only for a half day. Weak Singapore data Weaker-than-expected gross domestic product data in Singapore sent the Straits Times index down 0.6 pct at 3,461.22.

Growth in the city-state's GDP slowed to an annual pace of 6 pct in the fourth quarter from 9 pct in the third as manufacturing output decelerated, the Ministry of Trade and Industry said Wednesday.

For the whole of 2007, GDP grew 7.5 pct, slower than the 7.9 pct expansion seen in 2006. Economists polled by Thomson Financial had expected the economy to expand by 7.0-8.5 pct in the last quarter of 2007 and 7.9-8.2 pct for the full year.

The Singapore government expects GDP growth to slow to between 4.5 pct and 6.5 pct in 2008. Apart from weaker economic prospects, investors are also concerned about the political unrest in Pakistan, a possible spread of the US credit crisis, and quarterly results announcements by major US investment banks, said Shim Jae-Yeop, analyst at Meritz Securities in Seoul.

The benchmark KOSPI index closed down 2.3 pct at 1,853.45. The downside may be limited by a steady inflow of money from retail investors into equity investment funds, the possibility of another interest rate reduction in the US, and optimism for growth-oriented president-elect Lee Myung-Bak. Australia bucks trend In Australia, the S&P/ASX 200 closed up 0.2 pct at 6,353.3 and the All Ordinaries gained 0.2 pct at 6,434.2.

"I think people are just putting in a little bit of money for the start of the year just to see how it will go," said Ric Klusman, head of institutional trading at Aequs Securities in Sydney. Centro Properties boosted market sentiment after it announced it is putting itself up for sale as it tries to resolve a 3.9 bln aud financing shortfall.

Resource heavyweights BHP Billiton and Rio Tinto advanced as investors shrugged off the miners' weak performance in London on Monday and falls in prices of commodities and base metals. BHP was up 16 cents at 40.30 aud and Rio added 5 cents at 134 aud.

The Philippine composite gave up early gains, finishing down 0.1 pct at 3,617.29, while the Kuala Lumpur Composite was down 0.7 pct at 1,435.68. The Jakarta benchmark was down 0.5 pct at 2,731.51. Taipei's weighted index closed down 2.2 pct at 8,323.05.

Indian shares close higher led by banking stocks, UCO Bank, Canara Bank gain

The Bombay Stock Exchange's benchmark Sensex ended 164.59 points or 0.81 pct higher at 20,465.30 after touching an all-time high of 20,529.48 points, while the National Stock Exchange's 50-share S&P CNX Nifty gained 0.57 pct to end at 6,179.40 points.

State-owned lenders UCO Bank, which surged 15.11 pct to 81.50 rupees, and Canara Bank, which gained 14.66 pct to 394.20 rupees, led the rally in banking shares. Textile company Bombay Dyeing rose 19.11 pct to 900.85 rupees while Finolex Cables shed 5.53 pct to 119.65 rupees.

Housing Development Finance Corp led BSE-30 gainers, and ended 4.76 pct higher at 3,057.55 rupees while Satyam Computer Services lost the most, ending 1.59 pct down at 436.55 rupees. Among Nifty stocks, construction company Unitech Ltd rose 6.10 pct to 538.25 rupees while HCL Technologies Ltd dipped 2.39 pct to 314.35 rupees.

Power generation and distribution company PTC India Ltd rose 5.74 pct to 167.65 rupees after it divested a 40 pct stake in its non-banking financial subsidiary company PTC India Financial Services Ltd to Goldman Sachs and Macquarie India for about 40 mln usd.

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Metals - Copper edges up on bargain hunting but rising stocks cap gains

Copper settled lower on Monday amid weak sentiment, battered by worries the crisis in the US construction sector will dampen metals demand after the release of weak housing data in the run-up to the New Year.

Copper, used most in pipes and wires, is particularly vulnerable as it is used extensively in housebuilding. The red metal closed the last trading session of 2007 up around 5 pct year-on-year, analysts said, despite soaring above 8,000 usd a tonne earlier in the year before US economic worries raised fears over softening demand.

"(The) metals ended 2007 under pressure, with light liquidation selling dominating events with copper ending the year at 6,675 usd," noted BaseMetals.Com analyst William Adams. "But the weaker closes have encouraged further scale-down buying," he added.

At 9.58 am, LME copper for 3-month delivery was up at 6,760 usd a tonne against 6,675 usd at the close Monday. The LME was closed yesterday for the New Year Holiday. However, a daily inventory report from the exchange this morning capped gains.

The report showed global copper stocks stored in LME-certified warehouses rose 1,475 tonnes after a large delivery into New Orleans, and now stand at 198,925 tonnes -- above 2007's year-high of 198,325 tonnes, according to analysts.

LME-monitored copper stocks rose 8 pct year-on-year by the end of December, which has eased some fears that supply could tighten further. "This year has not seen the same level of supply interruptions that were witnessed in 2006, but the market has yet to swing into definite over-supply," said BaseMetals.com.

Among other metals, lead inched up to 2,590 usd a tonne against 2,550 usd. The heavy metal was the LME's biggest gainer of 2007 after a string of supply disruptions, closing the year up just under 53 pct year-on-year after touching an all-time high of 3,885 usd in October.

The suspension of lead shipments from Port Esperance in Western Australia, through which lead from Ivernia's Magellan mine was trafficked, and the imposition of an export tax on Chinese stocks of the metal both tightened supply.

Meanwhile zinc rose to 2,418 usd a tonne against 2,370 usd. The metal was the biggest loser of 2007, shedding some 44 pct of its value over the course of the year amid ample supply. Nickel edged higher to 26,650 usd a tonne against 26,200 usd, tin was up at 16,525 usd against 16,425 usd and aluminium was virtually unchanged at 2,410 usd against 2,409 usd.

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