US & World Daily Markets Financial Briefing 06-08-2008

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Cisco Systems advances following 4Q results, outlook; Lehman downgrades stock

NEW YORK - Shares of Cisco Systems Inc. rallied Wednesday after the company reported fourth-quarter results that topped Wall Street's expectation and affirmed its long-term growth objective.
   
The shares rose 5.4% to $23.87, moving on a volume of 13.6 million shares. After the closing bell Tuesday, the company reported adjusted income of $2.4 billion, or 40 cents a share, with sales rising 10% to $10.36 billion. The mean estimate of analysts polled by Thomson Reuters was for earnings of 39 cents a
share and revenue of $10.31 billion.
   
In the year-ago period, the company reported adjusted income of $2.3 billion, or 36 cents a share, on sales of $9.4 billion. Cisco forecast first-quarter revenue growth of 8%, with growth of 8.5% expected for the second quarter. The company reiterated its long-term growth objective of 12% to 17%.

 In the United States, stocks opened lower after home finance company Freddie Mac posted its fourth straight quarterly loss.
   
Early on, the DJIA was down 55.0 points at 11,560.8, while the broader S&P 500 index fell 6.3 points at 1,278.6, and the Nasdaq composite index lost 6.1 points at 2,342.73.

The Labor Department is expected to release its weekly jobless claims numbers. For the week ending Aug. 2, the number of individuals filing first-time claims for unemployment is expected to total 430,000, down from 448,000 in the previous week.
   
The number of individuals filing continuing claims for unemployment in the week ending July 26 is expected to total 3.225 million claims, down from 3.282 million in the previous week. Claims data has been very erratic in July because of seasonal adjustments related to annual retooling primarily in the auto industry. Last week, claims rose to their highest level in over five years.
   
Also on Thursday is the release of pending home sales, which are expected to decline to 84.3 from 84.7. "The sharp decline in the housing sector has modestly eased and purchasing activity during the month did appear to have firmed somewhat," said Joseph Brusuelas of Merk Investments. "However, tight lending standards and climbing interest rates make any rebound in the sector difficult at best."
   
Consumer credit in June is expected to have dipped to $6.4 billion from $7.8 billion in the previous month.

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Forex - Euro extends falls on weak German data ahead of ECB meeting Thursday

LONDON - The euro extended falls as weak German data sparked speculation that the European Central Bank could tone down its hawkish rhetoric.
   
The ECB is fully expected to keep interest rates on hold at 4.25 percent when it meets Thursday, but all eyes will be on president Jean-Claude Trichet's accompanying press conference for hints of whether concerns over the growth outlook are starting to outweigh inflation fears.
   
Earlier Wednesday, data gave a further suggestion that Europe's largest economy is taking a turn for the worse as German manufacturing orders fell a seasonally adjusted 2.9 percent in June from May, well below the 0.5 percent increase forecast by analysts polled by Thomson Financial News.
   
"The recent batch of bad news on the German economy should weaken the position of the hawks within the ECB Governing Council," said Gilles Moec at Bank of America. "For all its structural strength, based on an impressive recovery in competitiveness, the German economy cannot forever resist a global slowdown in demand," he said.
   
The euro was further pressured as an unsourced report in the Sueddeutsche Zeitung said German second quarter GDP has reportedly shrunk by 1 percent. "The dollar gathers strength across the board following the leak of a contraction in German Q2 GDP ahead of tomorrow's ECB press conference, leading to speculation that ECB president Jean-Claude Trichet will stress the downside risks to the euro zone economy," said Ashraf Laidi at CMC Markets.
   
At 1417 GMT, the euro was trading at $1.5429 against the dollar, down from $1.5466 at 1120 GMT and having earlier hit a seven-week low of $1.5406. Meanwhile, the dollar remained firm across the board as it continued to gain on the back of the recent falls in the oil price.
   
The gains come despite the Federal Reserve leaving interest rates on hold at 2.00 percent on Tuesday while delivering a slightly more dovish tone in the accompanying statement.
   
Elsewhere, the pound dropped against the dollar but gained against the euro, with attention turning to the Bank of England's interest rate decision on Thursday.
  
The BoE is widely expected to leave interest rates on hold at 5.00 percent, though there is a small chance of a quarter point move in either direction amid growing evidence of surging inflationary pressures on the one hand and a sharply slowing economy on the other.
   
Earlier Wednesday, the British Retal Consortium reported a sharp 3.2 percent jump in retail inflation during July compared with a year earlier, way above the 2.5 percent reported in June. Overnight, however, there was more bad news on the UK economy, with Nationwide building society reporting that consumer confidence during July was 46 percent lower than a year earlier.
   
At 1417 GMT, the pound was trading at $1.9507 against the dollar, down from $1.9537 at 1119 GMT, while the euro dropped to 0.9707 pounds from 0.7917 at 1119 GMT.

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Euroshares off highs midday as profit-taking seen on Dow; M&A gives some support

LONDON - Europe's largest bourses were trading well below intraday highs midday as profit-taking looks set to drag the Dow lower in opening deals, although some M&A activity in Europe offered some support.

At 11:37 a.m., the DJ STOXX 50 was down 1.19 points, or 0.04 percent, at 2897.67, having been as high as 2896.53 and the DJ STOXX 600 was up 0.18 points, or 0.06 percent, at 285.19, well below an earlier high of 287.53.

In Europe, Lonmin shares stormed 47.05 percent higher to 3,412 as Xstrata said it is considering a proposed cash offer for the platinum producer at 3,300 pence per share.

Shares traded above the proposed offer price as Lonmin rejected the offer saying it under-valued the platinum group's prospects, with investors hoping for a bid battle or a higher offer from Xstrata. Evolution upped its price target to 4,000 pence offering a further 20 percent upside over and above Xstrata's bid.

Analysts said Russia's Norilsk or Mexico's Vale may be lured into the battle for Lonmin's hand. Aquarius Platinum climbed 17.4 percent to 451-3/4 as analysts said the multiples in Xstrata's bid suggest a valuation north of 700 pence for the smaller platinum play.

Exane BNP Paribas upgraded Aquarius to 'outperform' from 'neutral'. Xstrata unveiled margin expansion and improved profitability from the second half of 2008 and into 2009 and the miner said first-half attributable profit was up 2 percent to $2.83 billion, against a consensus of $2.65 billion. Shares added 1.97 percent.

TNT added 3.55 percent but was trading well below earlier highs as speculation that it will receive a bid approach as soon as today waned. Jefferies downgraded TNT shares to 'hold' saying the earnings risk is to the downside and the current valuation is buoyed by bid hopes alone.

Technology stocks were boosted by better than expected numbers from U.S. giant Cisco and ON Semiconductor overnight. ASML added 2.29 percent, STMicroelectronics was 1.75 percent higher but Infineon slipped back 0.09 percent having risen nearly 7 percent after a bullish Deutsche bank note on Tuesday.

In the financial sector, France's BNP Paribas reported a 34 percent fall in second quarter net profit to 1.505 billion euros as a sharp fall in profits at its corporate and investment banking arm weighed, but still managed to beat market expectations. Shares added 4.76 percent.

Deutsche Boerse added 3.91 percent as the recovery in the stock markets and an upbeat note from Goldman Sachs sparked renewed interest in the exchanges group.

However, Commerzbank shares slumped 2.71 percent after its second-quarter update failed to impress. Credit Suisse downgraded the banking group's shares to 'neutral' form 'outperform', saying there has been a significant pick up in loan loss provisions in commercial real estate banking.

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Asian stock market summary

JAPAN
   
The Nikkei 225 Stock Average finished the session up 2.6 percent at 13,254.89, following an overnight rally on Wall Street, with gains led by major exporters such as Sony and Canon on a softer yen. The broader Topix rose 2.4 percent to close at 1,277.27.

SOUTH KOREA
  
The Korea Composite Stock Price Index ended up 2.81 percent at 1,578.71 points, with falling oil prices lifting exporters and airlines such as Hynix Semiconductor and Korean Air Line, and the U.S. Fed's interest rate hold boosting sentiment.

AUSTRALIA

The benchmark S&P/ASX 200 index rose 3 percent to end at 4,969.1, as oil prices fell to three-month lows and investors bet on near-term interest rate cuts in Australia, spurring buying in recently plummeted bank stocks. All Ordinaries closed up 2.8 percent at 5,018.1.

CHINA

The benchmark Shanghai Composite Index closed up 1.06 percent at 2,719.37 as a strong rally on Wall Street overnight provided support and the continuing slide in oil prices gave a boost to oil refiners and airlines.
   
The Shanghai A-share Index rose 1.07 percent to 2,852.95, while the Shenzhen A-share Index was up 0.04 points at 829.30. The Shanghai B-share Index rose 0.23 percent to 199.66, while the Shenzhen
B-share Index fell 0.62 percent to 431.12.

TAIWAN
 
The weighted index closed up 3.12 percent at the day's high of 7,026.24, in increased turnover as exporters benefited from the Federal Reserve's reassuring comments about the US economy overnight.
Investors also welcomed the continued decline in the price of crude oil.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed 112.47 points or 0.75 percent up at 15,073.54, while the broader 50-share S&P CNX Nifty of the National Stock Exchange ended 14.70 points or 0.33 percent higher at 4,517.55.

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Metals - Copper rises on bargain hunting but rising stocks cap gains

LONDON - Copper rose on Wednesday, after sinking to a six-month low the previous day, boosted by a strong rally on Tuesday in the U.S. stock market.
   
Several other commodities were higher on Wednesday, after a major sell off yesterday, which boosted sentiment in the base metals market.
   
Rising copper inventories amid the slow demand summer months are capping gains. Stocks of the red metal stored in LME stamped warehouses across the globe rose 1,575 tonnes to 150,325 tonnes, said the exchange in a daily report.
  
"Given the ravaging the metals have had in recent days, the brighter mood may well prompt some bargain hunting, although the recent trends in LME stocks may act as a dampener.

However, if equities put in a stronger performance again today, then a relief rally may spread throughout the system," said William Adams, BaseMetals.Com analyst.
   
At 10.52 a.m., three-month copper on the LME was trading at $7,675 per tonne from $7,625 at the close Tuesday. Yesterday in the session copper hit $7,530 per tonne, its lowest value since Feb. 2.
  
Elsewhere on the LME, aluminium was at $2,911 per tonne from $2,900, nickel dropped to $17,575 per tonne from $17,600, zinc was at $1,750 per tonne from $1,746, tin jumped to $20,500 per tonne from $20,100 and lead ticked up to $2,052.25 per tonne from $2,015 at the close Tuesday.

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