US & World Daily Markets Financial Briefing 03-12-2007

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Citigroup Stocks open modestly lower after run-up

Stocks fell modestly in the opening minutes of trading Monday as Wall Street awaited important economic readings to determine whether last week's rebound will continue.
   
Financial shares fell amid renewed concerns about how widespread the fallout from soured mortgage loans will spread, with Moody's Investor Service considering lowering ratings on debt from big names like Citigroup Inc.
   
The relatively quiet start to the week comes after the Dow Jones industrial average showed its biggest weekly point gain in more than four years last week, rising nearly 391 points, or 3.01 percent. Still, the index was down 4 percent for November. Investors moved back into stocks last week after comments from Federal Reserve officials stirred hopes the central bank would lower short-term interest rates when it meets next week.
   
Investors on Monday are due to receive a reading on manufacturing after the opening bell. Economists expect the November report on the manufacturing sector will show growth has slowed amid further difficulty in the housing sector.
   
The Institute for Supply Management -- a trade group of purchasing executives -- is expected to report that its index of manufacturing business activity fell to 50.4 in November from 50.9 in October, according to a poll of Wall Street analysts by Thomson Financial/IFR. A reading above 50 signals expansion in the sector, while a number below 50 indicates contraction.
   
Investors are also awaiting the important November employment report, which is due Friday. Wall Street regards consumer spending as crucial to maintaining economic growth, particularly during what is for many retailers the busiest time of the year.
   
In the first minutes of trading, the Dow Jones industrial average fell 19.10, or 0.14 percent, to 13,352.62. Broader stock indicators fell. The Standard & Poor's 500 index fell 3.68, or 0.25 percent, to 1,477.46, and the Nasdaq composite index 4.99, or 0.19 percent, to 2,655.97.

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Forex - Dollar steady ahead of ISM

The dollar remains steady against the euro ahead of a busy week on the US economic front, which kicks off with a closely-watched survey into the country's manufacturing sector. Currency markets will be looking to see if the Institute of Supply Management indicates that the manufacturing sector is displaying recessionary conditions.
   
Its main manufacturing index is projected to drop to 50.4 in November from a level of 50.9 in October. Readings over 50 indicate growth in the sector. The ISM measures the breadth of economic activity across the manufacturing sector, rather than the depth or intensity of growth.
   
As well as the ISM's manufacturing survey, investors will be monitoring Wednesday's equivalent survey into the services sector as well as Friday's crucial US non-farm payrolls report for November. There are also speeches today from Federal Reserve officials Eric Rosengren and Janet Yellen, which may help frame the debate about the possibility of an aggressive half point cut from the Fed.
       
At present, markets are assigning a near 35 pct probability of a half point reduction in the Fed funds rate from the current 4.50 pct. Attention this week won't just be in the US though.  As well as tomorrow's Bank of Canada rate decision, the European Central Bank and the Bank of England will announce their verdicts on Thursday.
   
Steve Barrow, currency strategist at Bear Stearns, said this week could see the start of the "monetary catch-up" as other central banks start to mimic the Fed's monetary easing. Though the BoC and the BoE may cut borrowing costs, there's little, if no chance, that the ECB will join in the monetary easing, given that inflation in the euro zone is running at 3.0 pct, above the 2 pct high it is enacted to target.
   
Bear Stearn's Barrow doubts that this "catch-up" will help lift the dollar as rate differentials are of "little importance" at a time when global markets remain nervous about asset prices, especially in the structured credit derivatives arena.
   
The pound has enjoyed a good day today after a survey into the UK's manufacturing sector diminished market expectations of a rate cut this week from the Bank of England. The Chartered Institute of Purchasing and Supply's November purchasing managers index for the sector rose to 54.4 from 52.8 in October. The bounceback was unexpected. Analysts polled by Thomson Financial News were expecting the PMI to fall to 52.5.
   
Alongside the pick-up in the rate of growth, pricing pressures continued to mount in the wake of sky-high energy and commodity costs. The output prices sub-index rose to 57.5 from 57.0, while the input prices
component swelled to 64.4, its highest since July, from 60.4. "With Thursday's MPC decision finely balanced, robust data such as this may well provide the marginal justification for rates on hold," said George Buckley, chief UK economist at Deutsche Bank.

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Euroshares lower midday, M&A news in staffing and financial sectors in focus

At 12.11 pm, the Dow Jones STOXX 50 was down 8.45 points or 0.23 pct at 3,744.22, while the STOXX 600 shed 0.17 points or 0.05 pct to 370.19. Looking ahead, Wall Street is headed for a flat to slightly higher open, helped by a fresh drop in the price of oil which eased inflation fears.
   
According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open up 17 points at 13,389. Separately, S&P 500 futures ticked up 0.30 point to 1,484, while Nasdaq 100 futures gained 0.75 point to 2,095.25.
   
In Europe, M&A news was in focus throughout the day, continuing the trend that started last month in the mining sector.  According to research by Thomson Financial, European target M&A activity soared in November to reach the highest monthly level of 2007.
   
The Dutch staffing sector remained in the spotlight today as the financial details regarding the takeover bid from Randstad for Vedior were announced, sending Vedior on an 8.82 pct rally. Randstad, down 9.74 pct, will offer Vedior shareholders 9.50 eur in cash and 32.759 pct of a share per Vedior share. The group also said it will issue 57 mln new shares to help finance the deal.
   
Over in France, Vivendi was trading 2.55 pct higher, after the group said Sunday that it agreed to acquire a 52 pct majority stake in Activision in exchange for its Vivendi Games games unit and 1.7 bln usd in cash, in a deal valued at a total of 18.9 bln usd.
   
In the German market, TUI is in focus after stating that it is examining several options including possible mergers for its Tuifly unit. Shares were 0.63 pct higher at last check. Adidas -- up 1.45 pct -- entered the stage earlier when rumours circulated that Asics and Nike are mulling a joint bid at 65 eur a share. Traders were dismissive, pointing to Asics' small market cap.
   
Meanwhile, the announcement by Swiss Life that it will make a 30 eur per share agreed takeover offer for German independent financial advisor AWD led to a 30 pct surge in the latter. Swiss Life lost 5.66 pct.  Dealers noted that a takeover battle is unlikely, but highlighted the effect on other stocks in the sector, such as MLP AG or OVB Holding, which are currently rallying 14.37 pct and 5.41 pct respectively.
   
Staying among financials, Northern Rock shed 4.66 pct, with investors mulling over reports that both JC Flowers and Deutsche Bank have threatened to walk away from the negotiations. Deutsche Bank later denied a report in the Sunday Telegraph and said it "is continuing to talk to Virgin and the tripartite
authorities".
   
According to the Daily Telegraph today, the Virgin consortium has not yet agreed on the funding for the Northern Rock mortgage bank. Elsewhere, Norske Skog, the number two newsprint producer in the world, rose 2.89 pct as investors welcomed a decision by the group to writedown fixed assets and goodwill, resulting in a net reduction in equity of about 800 mln nkr, in a move towards making long-anticipated cutbacks in its capacity.
   
In earnings news, Belgian discount supermarket group Colruyt SA advanced 5.60 pct after its first half earnings results, released after the bell on Friday, exceeded analysts' expectations. "Colruyt's results showed again its incredible strength in the Belgium market and its resilience to tougher market conditions," Petercam analyst Fernand de Boer said.
   
In terms of economic news, the euro zone manufacturing purchasing managers index shows a continuously weakening trend despite the November rebound, according to economists. The euro zone manufacturing PMI rose to a final 52.8 in November from 51.5 in October. The final reading was revised up from a provisional estimate of 52.6.

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Asian stocks mixed as US rate cut hopes grow; China Railway shines

Stock markets across Asia were mixed Monday with Hong Kong and Singapore stretching last week's rally as investors clung to hopes of another cut in US interest rates this month while Tokyo and Seoul surrendered some of the hefty gains from last week.

The benchmark Shanghai Composite Index closed down 0.07 pct at 4,868.61, but most stocks were higher led by China Railway Group on its first day of trading on the Shanghai Stock Exchange.
       
At close, the Hang Seng Index was up 0.1 pct at 28,658.42. Singapore's Straits Times Index was up 0.01 pct at 3,521.56. Australia's S&P ASX 200 finished up 0.4 points at 6,533.5 after an erratic session. "The moves aren't really big enough to give you any real hint of what the market is saying," said Andrew Sekely, head of Australian equities at Intersuisse.
   
"It's a stock-pickers market. People are picking individual stocks rather than going helter skelter into the market." In Tokyo, the Nikkei 225 Stock Average closed down 0.3 pct at 15,628.97 as investors cashed in on the blue-chip index's gain of more than 520 points in the past two sessions. South Korea's KOSPI dipped 0.2 pct to 1,902.43 after a nearly 4 pct jump on Thursday and Friday.
   
Elsewhere in Asia, the Kuala Lumpur Composite was up 1.6 pct at 1,419.34 and Jakarta's benchmark advanced 1.4 pct to 2,726.93 as the Indonesia Stock Exchange, formed by a merger of the Jakarta and Surabaya bourses, officially began its first day of trading Monday.
   
The Philippine Composite closed up 1.4 pct at 3,626.88. Taiwan's weighted index ended down 0.03 pct at 8,583.84.

China Railway was easily among the best stock performers in the region. China Railway Group Ltd surged 68.54 pct to 8.09, compared with its initial public offering price of 4.80 yuan. The IPO attracted a record 3.3 trln yuan from investors last week, allowing it to raise 21.93 bln yuan.
   
"China Railway's strong debut in Shanghai should renew investor interest in IPOs (in Hong Kong) after the weak debut of Sinotruk," said Castor Pang, investment strategist at Sun Hung Kai Financial.
   
The stock will start trading in Hong Kong on Friday. Another debutant was Crown Ltd in Sydney which rose 3 pct to 14.27 aud. The company was created through the spin-off of Publishing & Broadcasting's media and gaming assets into Consolidated Media Holdings Ltd and Crown Ltd.
   
In Tokyo, the rebound in the yen trimmed or wiped out early gains in shares of some exporters on concerns overseas earnings will be hit. Komatsu Ltd was up 0.3 pct at 3,360 yen, Nintendo Co edged up 0.3 pct to 67,700 yen, while Canon Inc was down 0.9 pct at 5,760 yen.

Indian shares close higher led by Reliance Energy, IT stocks

The Bombay Stock Exchange's benchmark Sensex closed up 240.22 points, or 1.24 pct, at 19,603.41, while the National Stock Exchange's S&P CNX Nifty closed up 1.77 pct at 5,865 points.

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Metals - Copper edges down as inventories rise, equities open weaker

Copper dipped in early trade as LME-monitored inventories of the red metal edged higher, with a weaker opening on the main European stock markets also weighing on sentiment slightly.  Stockpiles of the red metal rose by 300 tonnes to 189,500 tonnes, the LME said this morning, while nickel strengthened a little as inventories dipped.
   
"Copper was unsettled by a 300-tonne stock rise, which took the total to another eight-month high of 189,500 tonnes, while cancelled warrants also eased as well -- down to 5,400 tonnes from 5,625 tonnes," said BaseMetals.com analysts. "Nickel prices moved up to intra-day highs on the LME on Monday, reacting to a second successive daily warehouse stock decline, with the almost constant inventory build-up temporarily pausing," they added.
   
At 10.24 am, LME copper for three-month delivery was trading at 6,945 usd per tonne against 7,000 usd at the close on Friday. The red metal traded higher for much of last week as the equity markets firmed and as expectations of a US rate cut grew, and received a further boost on Friday from a decline in Shanghai inventories.
  
The dip translated into a 40 pct fall in Shanghai Futures Exchange stocks over the previous fortnight. But prices have since fallen back, with some analysts speculating the fall in Chinese inventories may not be an accurate reflection of the market. "Many market participants (believe) that the falling stockpiles may not be a result of tight supply but instead is a ploy to boost prices," noted RBC CapitalMarkets analysts.
   
The market could be poised for another move higher as shorts move to cover,analysts said, especially if economic data due out this week prove firm. All the base metals have come under pressure from recent signs of a slowdownin the US economy, which would probably have a knock-on effect on other major
metals consumer, especially China.
   
Nickel rose to 27,400 usd per tonne, basis three months, from 27,095 usd,buoyed by a 528-tonne drop in LME-monitored stocks to 44,334 tonnes, its secondsuccessive daily fall.  Among other metals, aluminium for delivery in three months inched up to 2,506 usd per tonne from 2,500 usd, zinc dipped to 2,570 usd per tonne from 2,595 usd and lead dropped to 3,000 usd per tonne from 3,060 usd. Three-month tin was flat at 17,100 usd per tonne.

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