US & World Daily Markets Financial Briefing 02-07-2008

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U.S. crude oil stocks fall by 2 mln barrels, in week to June 27 - EIA

U.S. crude oil stocks fell by 2 million barrels last week, against analyst expectations for a drop of just 100,000 barrels. Gasoline stocks increased by 2.1 million barrels in the week to June 27, bucking expectations for a fall of 200,000 million barrels.
  
Meanwhile, distillates, including heating oil, increased by 1.3 million barrels, slightly less than the 1.9 million barrels rise predicted.

Shares of Yahoo Inc. surged in premarket trading following a report that Microsoft Corp. was preparing an attempt to acquire the Web portal's search business.

The stock ran up 8.2% to $21.85 ahead of the open. The shares had hit a low of $19.59 in intraday trading on Tuesday, the lowest price seen since Jan. 31.

The Wall Street Journal reported Wednesday, citing people familiar with the discussions, that Microsoft has recently approached other media companies, including Time Warner and News Corp., about joining together in a deal that would lead to Yahoo's break up.

The report said that in the past, Microsoft mulled a deal in which it would acquire Yahoo's search business and another partner would combine with what remained of Yahoo.

Standard & Poor's Analyst Scott Kessler said he thinks such a "complicated" deal is somewhat unlikely.

"Nonetheless, we view Yahoo as under-valued and think it is under substantial pressure to at least seem more shareholder focused," Kessler said.

He reiterated his buy rating on Yahoo's stock. Microsoft's stock, a component of the Dow industrials, tacked on 0.6% to $27.02 in premarket trading.

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Forex - Euro extends gains after weak U.S. ADP data, ahead of ECB rate decision

LONDON - The euro extended gains against the dollar, hitting a two-month high after weak U.S. ADP jobs data, with market players looking ahead to Thursday's interest rate decision by the European Central Bank.

The ADP data -- seen as an indicator of how the closely watched non-farm payrolls figures on Thursday might look -- showed U.S. companies shed 79,000 jobs in June, far more than had been forecast. The news provided further excuse to sell the U.S. dollar, with the euro bolstered ahead of what is widely expected to be a quarter point euro zone interest rate hike on Thursday.

"The prevailing short dollar bias heading into tomorrow's ECB decision helped to explain the sizable reaction to the ADP report this morning," said Michael Woolfolk at the Bank of New York Mellon.

The market will be keeping a close eye on ECB president Jean-Claude Trichet's accompanying press conference for clues as to whether the central bank will have room for further rate hikes later in the year. Although recent statistics have suggested that the euro zone economy is starting to falter, very strong producer price data earlier on Wednesday showed that inflationary pressures -- the ECB's main concern -- continue to mount.

The combination of a rate hike and weak non-farm payrolls data on Thursday could take the euro back up towards the key $1.60 mark, some believe.

"The 'trifecta' of an ECB rate hike, hawkish comments by Trichet and a negative non-farm payrolls report should provide sufficient ammunition for speculators to mount an attack on the 1.6000 level in the euro/dollar," Woolfolk said.

Elsewhere, the pound remained weak, hitting 23-day lows against the euro, which came close to the 0.80 pound mark, as UK data pointed to a very bleak outlook for the UK housing and construction sectors.

The latest UK construction PMI showed activity in the sector declining at the fastest pace since the series began in 1997. At the same time, housing equity withdrawal slumped to its lowest level since the first quarter of 2001, according to figures released by the Bank of England.

The news comes amid major concerns about the outlook for the housebuilding sector, as shares in Taylor Wimpey Plc lost more than half their value after the company announced it had failed to raise equity and will cut 900 jobs amid deteriorating conditions in the housebuilding market.

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Euroshares higher as Wall St recovery sparks rally; Deutsche Bank gains

At 8:20 a.m., the DJ STOXX 50 was up 10.73 points, or 0.38 percent, at 2861.15 and the DJ STOXX 600 was up 0.68 points, or 0.24 percent, at 283.69.

Deutsche Bank shares soared 4.04 percent after it said it sees no need for further capital raising in the second quarter. Shares climbed 2.1 percent as investors breathed a sigh of relief after vague talk yesterday the group was set to issue a profit warning.

AstraZeneca stormed 6.67 percent higher after a U.S. district court judge ruled in favour of the UK group overnight in a patent dispute over a generic version of AstraZeneca's bipolar disorder treatment Seroquel.
"The win on Seroquel is an unexpected and important near-term positive," said UBS, who had been expecting the trial to drag on until August.

Sodexo moved 0.97 percent higher as the food services group reported 8.4 percent organic sales growth in the first nine months, above its target of 7 percent growth for the full year. Investors cheered the group's comments that growth has been sustained despite a more challenging economic environment.

Elsewhere, broker changes dominated early trade. Renault climbed 2.7 percent after Citigroup upgraded the French car group to 'buy' from 'hold'. Shares in Galp stormed 6.71 percent higher as Lehman Brothers upgraded the oil exploration and production group to 'equal-weight' from 'underweight', Merrill Lynch added the Portuguese group to its Europe 1 list and Credit Suisse reiterated its 'outperform' stance saying the shares are under-valued.

But Danone slumped 4.68 percent as Cheuvreux downgraded the shares to 'underperform' from 'selected List' and Morgan Stanley cut its rating to 'equal-weight' from 'overweight'. UBS has downgraded its rating on Diageo, down 1.5 percent, to 'neutral' from 'buy'. Morgan Stanley downgraded Merck KGAA, down 2.79 percent, to 'underweight' from 'equal-weight'.

Fastweb fell as it was downgraded to 'neutral' from 'buy' at Goldman Sachs and to 'underperform' from 'neutral' at Exane BNP Paribas. Swisscom shares were 0.52 percent lower as they were also downgraded to 'underperform' from 'neutral' at Exane BNP Paribas.

Shares in Taylor Wimpey dropped 43.75 percent after the UK housebuilder said it had failed to raise equity and will cut 900 jobs, as conditions in the housing market continue to deteriorate, causing shares in rivals in the sector to suffer.

Peer Barratt Developments, which recently denied it needed to raise money, fell 18.5 percent.

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Asian shares fall on worries about high oil prices, U.S. economy

The Nikkei 225 index finished 1.3 percent lower at 13,286.37. In Hong Kong, the Hang Seng index widened its loss in late trade, falling 1.8 percent to close at 21,704.45.

The Shanghai Composite Index closed 0.12 points up at 2,651.73, following media reports quoting Bank of China Governor Zhou Xiaochuan as saying that he is not ruling out any rate hike to bring down inflation. "I would not be surprised if they increased interest rates. Inflation is still high and it's a way to calm down speculative activities in China," said Wong on Tanrich Securities.

Inflation fears continued to weigh on regional markets after Australia, Indonesia and South Korea reported in the past two days that inflation accelerated further in June. A similar trend is expected when the Philippines reports its inflation data on Friday.

"I can't imagine oil prices and other commodities going down soon, they're bound to keep going up and keep stoking inflation," said Jose Vistan Jr., research director at AB Capital Securities in Manila.

The Philippine Composite Index finished 0.9 percent lower at 2,393.90. World oil traded near record highs around $142 in Asia on Wednesday after OPEC president Chakib Khelil talked of uncertainty surrounding future investment in energy facilities that could boost crude output.

Global oil prices have doubled in the past year and have risen by more than 40 percent since the start of 2008, when they breached $100 for the first time, triggering fears over inflation and slower economic growth.

Australia's S&P/ASX 200 index lost 0.9 percent to finish at 5,094.8, and All Ordinaries index finished 0.9 percent lower at 5,211.6. While the South Korean KOSPI fell 2.6 percent to 1,623.60.

Elsewhere, the Singapore Straits Times Index slipped 0.56 point to 2,906.23, while the Kuala Lumpur Composite Index (KLCI) finished down 1.8 percent at 1,153.70.

The Jakarta Composite Index eased 0.33 points to 2,378.47 and Taiwan's weighted index closed down 0.73 percent at 7,353.86.

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Metals - Gold consolidates near $940/oz, strong oil, dollar weakness supports

LONDON - Gold consolidated near $940 per ounce on Wednesday, following strong gains in the previous session, with record oil prices and volatility in the dollar continuing to support precious metals during the ongoing economic turmoil.

At 9:53 a.m., spot gold was trading at $938.60 per ounce against $943.00 per ounce in late New York trade on Tuesday. Gold on Tuesday rose by more than $15, at one point touching $945.83, its highest price since mid-April.

Rising inflation fears stoked by record oil prices of more than $140 a barrel, U.S. dollar weakness and continuing economic instability stemming from the credit crunch has seen gold rise by almost 10 percent since June 24.

"With safe haven as well as inflation hedging likely to draw further demand towards the gold market the metal looks set to make further upside progress," said James Moore at TheBullionDesk.com. "Having cleared $935, gold should look to challenge the highs around $953 to $955 set in March and April, which if breached should clear the way to challenge resistance around $990," he said.

Heightened speculation that Israel could be planning a preemptive strike on Iran's nuclear facilities has also boosted the precious metal, due to its safe haven properties, analysts said.

With major equity markets in the United States and the United Kingdom down by as much as 15 percent so far this year, some analysts believe gold could see further buying as investors look to alternative investments. "This could garner more support for precious metals today as investors hedge portfolios against risky equity markets," said Manqoba Madinane at Standard Bank.

Gains were capped Wednesday morning by profit-taking, following gold's surge higher in recent days, with some investors waiting to see the European Central Bank's interest-rate decision, which will be released on Thursday at 12:45 p.m. BST.

The ECB is widely expected to hike interest rates by 25 basis points, which could weigh further on the U.S. dollar, currently at $1.58 against the euro. The near 30 cent decline in the dollar's value against the euro since the start of 2007 has been one of the major drivers of gold's move higher.

The precious metal has added over $300 per ounce in the last 18 months, with gold bought as an alternative to the most common form of global currency reserves. Rising prices have been slowed by falling physical demand, with jewellers keen to wait for price dips before entering the market.

Among other precious metals, platinum was flat at $2,078 per ounce, while sister metal palladium slipped to $462 per ounce from $469.25 per ounce. Silver dipped to $18.09 per ounce from $18.19 per ounce.

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