US & World Daily Markets Financial Briefing 04-06-2007

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Stocks open lower after China stock drop

NEW YORK - Wall Street retreated mildly Monday as U.S. investors assessed a sharp decline in Chinese stock prices, and a weaker-than-expected Commerce Department report on factory orders.
   
The benchmark Shanghai Composite Index plummeted 8.3 percent, its biggest one-day drop since the Feb. 27 plunge that set off a brief global market selloff. The Chinese government has been trying to cool the country's market boom, causing the stock index to fall 15 percent since a record high last Tuesday.
  
Stocks also fell on a Commerce Department report that orders to U.S. factories rose 0.3 percent in April, a weaker-than-expected gain reflecting declines in demand for cars, planes and boats. Economists expected a rise of 0.7 percent after a 3.1 percent jump in March.
   
In the first hour of trading, the Dow Jones industrial average fell 29.58, or 0.22 percent, to 13,638.58. Broader stock indicators also fell. The Standard & Poor's 500 index declined 2.14, or 0.14 percent, to 1,534.20, and the Nasdaq composite index lost 4.75, or 0.18 percent, to 2,609.17.
   
Bonds edged higher, with the yield on the benchmark 10-year Treasury note falling to 4.95 percent from 4.96 percent late Friday. The dollar slipped against other major currencies, while gold prices rose.
   
Crude oil futures for July delivery rose 18 cents to $65.26 a barrel on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold slipped.
   
The Russell 2000 index of smaller companies was down 0.06, or 0.01 percent, to 853.35. In European trading, Britain's FTSE 100 was down 0.30 percent, Germany's DAX index was down 0.51 percent, and France's CAC-40 was down 0.75 percent.
   
The pullback on Monday followed strong gains last week, when investors bought into the market after economic data suggested the economy was slowing, but not too quickly, and inflation remained in check. The Dow posted a 1.19 percent gain; the S&P 500 index rose 1.36 percent; and the Nasdaq composite index added 2.22 percent. Both the Dow and the S&P closed at record highs Friday.
   
In corporate news, the flurry of dealmaking activity continued this week. Smartphone maker Palm Inc. said Monday it got $325 million from private equity firm Elevation Partners and announced a shakeup on its board. Palm spiked $1.16, or 7.2 percent, to $17.25.
   
Oil and natural gas producer Anadarko Petroleum Corp. said late Sunday it is selling natural gas gathering systems and associated processing plants to Atlas Pipeline Partners LP for $1.85 billion. Anadarko rose 25 cents to $49.90, while Atlas shares were unchanged at $31.42.
   
Meanwhile, The Wall Street Journal reported that Avaya Inc. came a step closer to being acquired by private-equity firms TPG Capital LLP and Silver Lake Partners. Avaya rose 45 cents, or 2.8 percent, to $16.53.
   
Krispy Kreme Doughnuts Inc. rose 34 cents, or 3.9 percent, to $8.33 after it said its first-quarter loss widened on falling revenue.
   
And Wal-Mart Stores Inc. -- the Dow's biggest gainer Friday -- rose 89 cents to $50.36 after being upgraded by analysts at Wachovia Corp. and JPMorgan Chase & Co.

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Euro sharply higher against the dollar after strong inflation data

LONDON  - The euro rose sharply against the dollar after firm inflation data in the euro zone added to expectations of higher interest rates, and took the wind out of the US currency's recovery from last week,
dealers said.
   
Euro zone producer prices rose 0.4 pct in April from March, and were up 2.4 pct year-on-year, in line with expectations.
   
Howard Archer at Global Insight said the data are likely to strengthen the European Central Bank's view that manufacturers are pushing through price hikes to boost their margins.
   
"Consequently, we believe that the ECB is highly likely to follow a seemingly inevitable 25 basis-point interest rate hike to 4.00 pct on Wednesday with another hike to 4.25 pct in September," he said.
   
Ian Stannard at BNP Paribas said Wednesday's interest rate decision will be "extremely important", with investors looking for clues from the ECB as to further rate hikes.
      
The dollar's fall against the euro was matched by a similar decline against the pound.
   
"The dollar is under renewed pressure across the board after failing to sustain gains from positive data last week," BNP Paribas' Stannard said.  "The market has priced out a rate cut but the dollar has struggled to make up ground and this leaves it vulnerable ... any negative data surprises will put the dollar under renewed pressure, as will any positive data surprises in other areas."
     
Meanwhile, the pound was firm across the board, with little on the radar ahead of Thursday's interest rate decision by the Bank of England.
   
Most analysts expect the BoE to keep rates on hold at 5.50 pct, after raising rates in May for the fourth time since August last year, but further hikes look to be on the cards for the rest of this year.
   

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Euroshares fall on profit taking and ahead of lower Wall Street opening

LONDON  - Europe's leading exchanges were losing ground midday as investors took the opportunity for a profit taking spree, ahead of a lower opening on Wall Street.
  
At 12.33 am, the Dow Jones STOXX 50 was down 15.78 points at 3,956.67 but the DJ STOXX 600 tacked on 1.53 points to 398.78. The DJ Euro STOXX 50 Index, which tracks the performance of blue-chip companies in 12 countries using the euro, was down 21.43 points to 4,535.54.
       
The market was taking a breather after new highs were reached last weekend with a decline in the Chinese market also having an influence here.
   
"The market was going so well the last weeks, and after the DAX reached the 8,000 points benchmark on Friday, I think we are in for a break" one Frankfurt-based trader noted.
   
In addition, investors interest is all about interest rates this week, with European Central bank president Jean-Claude Trichet anticipated to announce another interest rate hike in the current tighening cycle.
   
On the companies front, Europe's retail sector was gaining ground midday, with Casino Guichard-Perrachon edging peers higher on rumours of a merger with parent company Rallye under a new holding company, and speculation that the supermarket group might seek to unlock value from its property assets.
        
The shares of Casino gained 5.25 pct, while peer Metro added 1.59 pct, with Ahold clocking up 1.96 pct and French rival Carrefour climbing 1.71 pct higher.
   
Over in the steel industry, ThyssenKrupp AG stock was in high demand, topping the DAX by adding some 2.6 ppct after Karl-Ulrich Koehler, the head of the company's steel unit, said in an interview with German media that demand for steel will remain strong, bolstered by growth in the US and Europe.
   
Koehler's remarks lifted other European steelmakers, with Arcelor Mittal rising 0.56 pct and Acerinox climbing 0.3 pct.
   
Shares in Volkswagen added 1.80 pct following a bullish comment by Morgan Stanley, which valued the stock at 185 eur. In addition, after Porsche announced this morning that its mandatory bid for Volkwagen was rejected by shareholders. This means that the luxury carmaker can now resume to purchase stock on the exchange again, one trader pointed out. Porsche stock was flat, adding only 0.03.
   
Banks garnered attention after JP Morgan downgraded the European investment banking sector to 'underweight' from 'overweight, citing valuation, tight credit spreads and a risk of a medium-term slowdown in asset-backed revenues.
   
As part of its review of European banks, JP Morgan cut Deutsche Bank to 'underweight' from 'neutral,' with 67 pct of the group's profits coming from investment banking. "We still prefer private banking exposure over investment banking exposure," the broker said.
   
JP Morgan also reduced its investment stance on French banks to 'neutral' from 'overweight' as part of its lowered view on investment banks. The broker also cut BNP Paribas to 'neutral' from 'overweight', saying the recent performance of the bank's shares leave just 3 pct upside to its price target of 93 eur. At last check, BNP Paribas was off 1.31 pct while shares in Deutsche Bank fell 1.39 pct.
      
In other news for the banking sector, shares in Belgo-Dutch bancassurance group Fortis NV fell 0.7 pct following reports Royal Bank of Scotland -- which heads a consortium including Fortis and Spain's SCH that is bidding for Dutch peer ABN Amro -- is expected to unveil a deal with Bank of America over ABN Amro's US assets, paving the way for the consortium's next move on ABN.
   
RBS shares were up 1.11 pct, with the bank also due to release a trading update tomorrow. Shares in Barclays, which has a rival bid for ABN-Amro already on the table, were up 0.34 pct.
   
Over on the insurance side, shares in SNS Reaal Group NV were flying high, after the company announced it had agreed to acquire AXA's Dutch insurance operations for 1.750 bln eur. SNS Reaal was surging 4.06 pct higher while the AXA was up 0.16 pct at 544.79.

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Asian shares close mixed; China shares slump on tightening fears

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Australia and South Korea reaching new highs but China shares slumping on continuing fears of government tightening measures.
   
Although China shares were in decline from the start of trade, so the trend was visible to regional markets which close earlier, other markets reacted calmly to the falls in China.
   
Tokyo shares closed marginally higher, with the benchmark index at its highest finishing level in three months, the market having tracked Wall Street's strong performance last Friday as the weaker yen helped export-oriented shares.
   
The blue-chip Nikkei 225 Stock Average closed 14.54 points or 0.08 pct higher at 17,973.42, its highest closing level since Feb 27, having touched an intra-day peak of 18,071.80. The TOPIX index of all first-section issues gained 4.96 points or 0.28 pct at 1,772.84, off a high of 1,784.83.
   
Dealers said investors had also been encouraged by the yen's further depreciation against the US dollar, because a weaker yen would help the earnings of exporters.
       
Australian shares closed at record levels, with investor sentiment buoyed by Friday's release of a stronger-than-expected 157,000 rise in US non-farm payrolls for May. The indicator shows the US economy is growing solidly and raised local sentiment further from the mid-week sell-off last Wednesday which resulted
from the tripling of Chinese stamp duty on share trading in order to cool China's overheating equity markets.
   
The S&P/ASX 200 closed up 59.4 points or 0.94 pct at a record 6,392.9, surpassing the previous record of 6,369.0 set on May 21, and off the new intraday high of 6,409.2.
   
The All Ordinaries index jumped 56.1 points to a record close of 6,419.6, also beating its previous record close of 6,372.4 set on May 21 and finishing below the all-time intraday high of 6,435.7.
   
Aequs Securities head of institutional trading Ric Klusman said the market benefited from a strong lead from the US, where positive data boosted confidence in the US economy and sent share prices to record levels on Friday.
   
"The market would have probably have been even stronger if China hadn't gone down seven pct at the opening, which scared our market a bit though Hong Kong and the Nikkei were up so that helped restore confidence," Klusman said.
   
Hong Kong shares were continuing to ignore the falls in China A-shares in afternoon trade, despite the Shanghai composite index dipping by 8 pct by early afternoon, as investors took their lead from another record close on Wall Street. At 3.25 pm the Hang Seng Index was up 151.49 points or 0.74 pct at 20,754.36.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on continuing fears the government will take more action to curb the speculative frenzy in share trading. Volatility has increased since last week when the markets fell sharply following a hike in the stamp duty on share transactions. Since then, rumors have emerged that the government may impose a capital gains tax.
      
The Shanghai A-share Index was down 346.70 points or 8.26 pct at 3,850.38 and the Shenzhen A-share Index was down 93.28 points or 7.90 pct at 1,088.16.

Seoul shares closed sharply higher, with the main index touching another record, as sentiment was bolstered by Wall Street and by heightened hopes for an economic recovery following recent solid data here. The KOSPI index closed up 21.35 points or 1.24 pct at a record 1,737.59, extending its gains into a sixth successive session. The low for the day was 1,713.50 and the high was 1,744.02.

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Copper up amid sharp falls in LME inventories, strike threat in Mexico

LONDON - Copper extended gains made Friday on news of a sharp fall in LME inventories, and as traders focused on possible strike action in Mexico.
   
The LME said in a daily report earlier copper stocks held in its warehouses fell further today, this time dropping by a sharp 3,550 tonnes to total 123,900 tonnes.
   
LME stocks have fallen from around 200,000 tonnes at the start of the year to under 130,000 tonnes, and are currently at their lowest levels since October last year.
   
Elsewhere, the metal was supported by news workers at Grupo Mexico have threatened to strike at nine mines and processing plants, including the key Cananea copper mine.
   
The workers plan to strike on June 10 in a bid to pressure Grupo Mexico to improve safety conditions at the mine.
   
At 1.45 pm, LME copper for three-month delivery was up at 7,498 usd a tonne against 7,450 usd at the close Friday.
      
Elsewhere, traders are also digesting news workers at a Chilean copper mine operated by state miner Codelco have voted to accept an early contract offer from the company.
   
The news helped ease concerns about possible strike action at Codelco, the world's largest copper producer, although analysts said most market participants were in any case betting on an early resolution.
   
Elsewhere, lead bucked the rising trend in metals, falling to 2,640 usd a tonne against 2,367 usd. The metal was hit by profit taking after last week's stellar gains.
   
Lead hit a series of contract highs last week on supply fears from the Magellan mine in Australia. Exports at the mine will be delayed for another month because of environmental concerns. According to media reports, Magellen mines 3 pct of the world's lead.
   
In other metals, nickel was up at 47,750 usd a tonne against 47,500 usd, zinc was flat at 3,770 usd, aluminium edged down to 2,786 usd a tonne against 2,788 usd, while tin rose to 13,975 usd against 13,905 usd.
   
JP Morgan analyst Michael Jansen said the 7 pct decline in Chinese equity markets overnight is "lending a mildly negative hue to base and precious metals this morning".
   
He added, however, that the effect is somewhat offset by the better than expected US data out on Friday, showing above expectation outcomes in non-farm payrolls and in manufacturing.

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