US & World Daily Markets Financial Briefing 06-12-2007

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Stocks edge up on retail sales

Wall Street, concerned about the housing slump's impact on consumers, looked toward same-store sales reports from the nation's retailers to get a better idea of the economy's health. The holiday shopping season got off to a mixed start: Wal-Mart Stores Inc.'s results beat expectations but Target Corp. offered a disappointing December outlook.

Investors also waited for President Bush to announce details of a plan to freeze interest rates for up to five years for some subprime borrowers. The plan was worked out between the Treasury Department, mortgage lenders and banks.

The fallout from the subprime crisis has weighed on the financial services sector this year, with banks and brokerages writing down some $80 billion worth of securities tied to mortgages. Royal Bank of Scotland Group PLC, the U.K.'s second-biggest bank, on Thursday reported it suffered $3 billion in writedowns caused by slumping credit markets.

The Dow Jones industrial average rose 16.42, or 0.12 percent, to 13,461.38.

Broader stock indicators also rose. The Standard & Poor's 500 index increased 0.92, or 0.06 percent, to 1,485.93, and the Nasdaq composite index rose 9.05, or 0.34 percent, to 2,675.41.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, rose to 3.98 percent from 3.95 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices slipped.

Investors will also be looking for further signs that the Federal Reserve will cut rates when policymakers meet on Tuesday. The Labor Department reported the number of U.S. workers filing new claims for unemployment benefits fell as expected last week but the four-week average hit a two-year high, suggesting the job market might be softening.

Overseas, Japan's Nikkei stock average closed up 1.70 percent, while Hong Kong's Hang Seng index rose 0.73 percent. Britain's FTSE 100 added 0.63 percent, Germany's DAX index rose 0.46 percent, and France's CAC-40 increased 0.63 percent.

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Forex - Pound stabilises at lower levels after BoE rate cut; Trichet in view

The central bank cut its benchmark rate to 5.50 pct from 5.75 pct, noting that UK economic growth has begun to slow and that flagging demand growth will help keep inflation in check. After the news, the pound dropped to a low of 2.0167 against the dollar, before stabilising at slightly higher levels. The euro hit a high of 0.7208 against the pound, before setting back to around 0.7190.

A number of analysts said the BoE will likely continue to cut rates in the months to come, although John Ratcliffe at IFR Markets said a back-to-back cut is unlikely. Noting hawkish elements in the BoE statement about continued "upside risks to inflation", Ratcliffe said: "This does not sound like a suggestion that this rate cut will be immediately followed by another one."

Elsewhere, the euro was little changed after the European Central Bank opted to keep rates on hold at 4.00 pct, a decision fully expected by markets. "The ECB is trapped in a policy void right now. It is hemmed in by rising inflation risks in the short-term and mounting downside risks to growth in the long term," said David Brown at Bear Stearns.

"This means that rates should stay stuck at 4.0 pct until the stronger euro and weaker growth begin to bite next year," he said. The imminent press conference from the ECB's president Jean-Claude Trichet could well shed light on where the central bank will go next year in light of fresh ECB projections on GDP and CPI.

Trichet's press briefing could well be an important staging post for the euro, which has begun to shed gains against the dollar in recent days as investors square positions ahead of the year-end and mounting expectations that the US Federal Reserve will be cutting rates this month and help prevent the US economy sliding into recession.

Any comments Trichet makes on the strength of the euro will be closely monitored too, especially if he echoes the view of Germany's finance minister Peer Steinbrueck that the euro's movements against the dollar represent a "disorderly unwinding".

"Any hint of agreement where will hit the euro further," said Gavin Friend, currency strategist at Commerzbank Corporates & Markets. "But with growth still reasonable, hawkish rhetoric could stabilise the euro," he added.

After that, markets will turn their attention to tomorrow's US non-farm payrolls report for November.

Yesterday's estimate from the ADP payrolls firm was for a rise of 189,000 in the November payrolls. Although the data is notoriously volatile, the rise is more than twice the 65,000 increase expected by analysts when the official payrolls number is released on Friday.

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Euroshares ease slightly after BoE rate cut, ECB in focus, banks rally

At 12.06 pm, the STOXX 50 was 36.75 points or 0.98 pct higher at 3,792.20, while the STOXX 600 was up 3.71 points or 1.00 pct to 373.32.

Looking ahead, Wall Street is tipped to extend yesterday's gains and according to IG Index the Dow Jones Industrial Average is expected to add some 48 points to 13,493 upon opening. Separately, S&P 500 futures climbed 6.10 points to 1,493 while Nasdaq 100 futures rose 14.75 points to 2,116.

Back in Europe, all eyes are on today's rate-setting decisions by the European Central Bank and the Bank of England.

As the Bank of England decided to cut its benchmark interest rate by 25 basis points to 5.50 pct, disappointing those who had hoped for a 50 basis point cut, mainland Europe is still awaiting the decision by the ECB, due out at 12.45 London time.

In corporate news, banks significantly outperformed the market, with the sector adding an aggregate of 2.57 pct, led higher by Royal Bank of Scotland, up 7.57 pct, after the UK bank revealed a smaller-than-expected write-down related to its sub-prime exposure and said it was on track to to beat analysts' full-year profit forecasts.

"It ticks all the boxes," said a trader at a large investment bank said. He said the gross writedowns of 1.2 bln stg are less than the 1.5-2 bln stg expected by the market.

Shares in Fortis NV were up 3.38 pct as analysts welcomed RBS's revised figures in its trading update which are expected to lead to greater-than-anticipated benefits from its ABN Amro deal.

RBS acquired Dutch rival ABN Amro earlier this year as part of a consortium which also included Spain's Banco Santander and Belgo-Dutch bancassurer Fortis. But it was not all plain sailing in the banking sector.

Shares in Deutsche Postbank AG dropped 1.19 pct after Germany's largest pure retail bank announced new mid-term targets which some had hoped might have been more ambitious.

And M&A news boosted the airline sector, with Air France-KLM gaining 4.73 pct after Lufthansa said it will not enter a bid for Alitalia. Earlier today, Air France said it has sent a non-binding letter of interest to the Italian carrier, which rose 4.44 pct at last check.

"Lufthansa's withdrawal from the Alitalia privatisation is good news for Air France as it means there'll be no bidding war," said Stephane Radiguet from Raymond James Asset Management.

In other corporate news, Roche shares fell 4.9 pct after a US Food and Drug Administration panel snubbed Genentech's Avastin for new breast cancer indication.

Staying in Switzerland, Swatch Group gained 4.65 pct after the group's chairman said he expects sales in the United States to grow in the coming two months. A Zurich-based trader said the stock is also benefiting from the positive reception of its partnership with luxury label Tiffany.

Over in Norway, shares in Telenor jumped more than 4 pct in afternoon trade, hitting a new all-time high of 137 nkr, after the Norwegian telecoms firm released better-than-expected earnings for its 56.5 pct-owned Ukrainian unit, Kyivstar.

However, Subsea 7 fell 2.07 pct on a growing expectation that the firm is likely to report weakening earnings going forward as a result of the tight oil services market.

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Asian stocks gain with Wall Street; China bucks trend on tightening fears 

The Nikkei closed up 1.7 pct at 15,874.08 and the broader Topix was up 1.7 pct at 1,552.27. Financials rebounded from recent lows with Mitsubishi UFJ gaining 6.6 pct and Mizuho Financial adding 5.5 pct.

Hong Kong's Hang Seng was up 0.7 pct to 29,558.92, buoyed by optimism that central banks in the UK and Europe will cut interest rates in line with an anticipated US cut next week.

In Australia, the S&P/ASX 200 closed up 1.4 pct at 6,600.9 and the All Ordinaries ended up 1.4 pct at 6,660.5.

Base metals miner Zinifex added 3.6 pct to 15.65 dollars on talk that it might become the next target as the mining industry consolidates.

Manganese miner Consolidated Minerals added 1.0 cent to 5.01 dollars after its board recommended an increased offer of 5.00 dollars a share from Palmary Enterprises Ltd, controlled by Ukrainian billionaire Gennadiy Bogolyubov.

Midwest Corp surged 12.6 pct to 4.75 dollars after the company, which hopes to mine iron ore in the midwest region of Western Australia, said it was in talks with parties over possible transactions, triggering rumours Chinese state-owned steel maker Sinosteel is preparing to launch a takeover bid for the iron ore miner.

The Shanghai Composite bucked the positive trend after China's central bank said it will adopt a 'tight' policy stance next year to slow its overheating economy and control inflation. The move is a shift away from the 'prudent' stance the bank has employed for the past decade.

In Seoul, Korea Electric Power Corp (KEPCO) rose 3.0 pct to 40,150 won after it said it has launched a 1.34 bln usd joint venture with China's Shanxi International Electricity Group (SIEG) and Deutsche Bank AG to develop coal mines and operate power plants in China.

The KOSPI closed up 0.8 pct at 1,953.17 and the Singapore Straits Times lost 0.2 pct to close at 3,552.55.

The Malaysian KLCI rose 0.8 pct to 1,441 after earlier setting a fresh record of 1,440.39. Sime Darby, the world's largest listed palm oil company by planted area, advanced 1.8 pct to 11.50 ringgit.

IOI Corp, Malaysia's second-largest palm oil producer by market value, added 3.7 pct to 7.10 ringgit and Kuala Lumpur Kepong, which owns sizeable oil palm estates in Indonesia and Malaysia, gained 20 sen or 1.2 pct to 16.40 ringgit.

The Philippines Composite was up 2.3 pct at 3,733.96.

Indian shares close higher in choppy trade

The S&P CNX Nifty index of the National Stock Exchange hit an all-time high of 6,022 points within minutes of opening, while the Bombay Stock Exchange's benchmark Sensex rose above the 20,000 mark, which it first crossed on Oct 29.

The indexes, however, pared much of the gains in afternoon trade, with the Nifty even slipping into red, as investors began locking in profits.

The BSE's bluechip index closed just 78.17 points, or 0.40 pct higher, at 19816.24, while the Nifty closed up 0.25 pct at 5954.70.

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Metals - Copper stays firm as falling stockpiles counteract demand worries

Copper stayed firm after LME-monitored stockpiles of the red metal posted only their third decline in as many weeks, though most of the other base metals moved lower amid fears that a global economic slowdown could hit demand.

Lead fell to its lowest level since late July, also pressured by expectations that supply from Ivernia Inc's Magellan mine in Australia could resume and technical factors.

At 12.05 pm, LME copper for three-month delivery was trading at 6,711 usd per tonne against 6,695 usd at the close yesterday. Copper inventories dipped by 1,025 tonnes to 187,750 tonnes, the LME said in its daily report this morning.

"Inventory is down and that will help prices a bit," said Martin Hayes, an analyst at BaseMetals.com. "The trend over the last three weeks has predominantly been for stocks to rise."

Copper prices had eased in earlier trading in line with other commodities, amid fears that demand may slow after China's central bank announced a tightening of monetary policy yesterday.

It had been hoped that buoyant Chinese consumption would offset an expected weakening in demand from the US next year amid fears that the superpower may slide into recession.

Economic fears are continuing to prove a drag on the base metals, analysts said. "The wider macro environment continues to be mildly bearish for the base metals," said JP Morgan analyst Michael Jansen. "The equity markets have recovered in recent sessions due to further expectations of rate cuts and this ought to underpin the complex via sentiment factors."

"However wider macro growth concerns are the more relevant factor, especially as they are currently coupled with generally bearish trends in terms of rising LME inventory levels," he added.

The market is now turning its attention to US economic data due out tomorrow, including non-farm payrolls numbers, and next week's interest rate decision from the Federal Reserve for signs as to the future direction of trade.

Lead meanwhile fell more than 6 pct to 2,650 usd per tonne from 2,835 usd. The heavy metal has come under selling pressure amid hopes that Ivernia Inc may be resuming shipments of lead from its Magellan mine in Australia. The mine is the source of around 3 pct of global lead supply.

Among other metals, aluminium edged down to 2,451 usd per tonne from 2,465 usd, while zinc dipped to 2,390 usd per tonne from 2,406 usd and three-month tin weakened to 16,400 usd from 16,475 usd per tonne.

Nickel was the only other riser, climbing to 26,125 usd per tonne from 25,850 usd, basis three months.

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