US & World Daily Markets Financial Briefing 07-03-2007

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Stocks little changed in early trading

NEW YORK -  Stocks were little changed in early trading Wednesday as investors tried to determine whether the previous session's rally had legs and would continue or whether the pessimism that pressed investors into selling for much of the past week would win out.
   
While Tuesday's advance was impressive -- the Dow Jones industrials made up about 26 percent of the losses they suffered in the previous week -- investors were left trying to determine whether recent volatility that had been absent the markets in recent months would subside long enough to allow Wall Street to build some consensus about where stocks were headed.
   
Overseas markets, which have influenced U.S. trading over the past week, were mixed, which contributed to Wall Street's uncertain start. Investors were also awaiting economic data due later in the day, including the Federal Reserve's assessment of regional economic conditions.
   
Investors in the past week have harbored concerns about a global economic slowdown and have looked to economic data as they try to determine whether the economy is still capable of pulling off a soft landing and showing slower yet sustainable growth.
   
In the first hour of trading, the Dow Jones industrial average rose 10.41, 0.09 percent, to 12,218.00.
   
Broader stock indicators were narrowly mixed. The Standard & Poor's 500 index fell 0.12, or 0.01 percent, to 1,395.29, and the Nasdaq composite index rose 0.79, or 0.03 percent, to 2,385.93.
   
Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.53 percent from late Tuesday. The dollar mixed against other major currencies, while gold prices rose.
   
Light, sweet crude rose 24 cents to $60.93 per barrel in premarket electronic trading on the New York Mercantile Exchange.
   
The Russell 2000 index of smaller companies was up 0.14, or 0.02 percent, at 779.02.
   
In afternoon trading, Britain's FTSE 100 was down 0.07 percent, Germany's DAX index was up 0.17 percent, and France's CAC-40 was up 0.10 percent.

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Yen steady as equities stabilise

LONDON - The yen remained steady as the world's equity markets stabilised following the recent swings up and down.   
   
Yesterday's hefty rise in stock markets around the world raised risk appetite and prompted a sizeable sell-off of the Japanese currency, which had benefited from last week's equities rout. Today's relatively flat performance on Europe's bourses has helped the yen consolidate.
   
"Each bout of yen weakness will provide those investors unable to liquidate their positions in last weeks carnage with the opportunity to salvage some profit, or possibly, the opportunity to minimise the latent losses on their outstanding positions," said Neil Mellor, currency strategist at the Bank of New York.
   
Last week's slide in stocks prompted a hefty unwinding of the so-called carry trades, where investors borrow in countries like Japan with low interest rates to invest in higher-yielding currencies.
   
Currency investors, like those in other asset classes, have based their decisions over the last week on the developments in the equity markets, which have suffered one of their worst weeks in years.   
   
Aside from developments in equity markets, investors will be looking for direction from tomorrow's interest rate decisions from the European Central Bank and the Bank of England as well as Friday's closely-watched US jobs report for February and US trade deficit for January.
   
Because a quarter point increase in the ECB's key refi rate to 3.75 pct is thought to be a done deal, there will be more interest in the ensuing press conference from the central bank's president Jean-Claude Trichet. 
   
Today's news that German factory orders fell 1.0 pct in January posed questions about the economic outlook in the euro zone's largest economy but did little to alter expectations that the ECB will raise rates tomorrow, especially as December's original 0.2 pct decline was revised up to an increase of 0.7 pct.
   
Meanwhile, the BoE is expected to keep its key repo rate unchanged at the near six-year high of 5.25 pct but traders are conscious that they got stung in January when the central bank surprised most people by lifting rates.
   
The focus in the US today could well be the monthly ADP employment report for a guide into Friday's payrolls number, and the Fed's beige book, which may well provide an indication as to when the US Federal Reserve will look to soften its monetary policy.

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Top Stories in Europe at 11.05 GMT

Paris - Vivendi said full-year adjusted net profit was 2.614 bln eur, up 17.9 pct from a year earlier, exceeding guidance and a consensus forecast of 2.584 bln, amid strong gains in its main business areas. The company predicted a further improvement in 2007, despite anticipated exceptional charges, with an adjusted net profit of at least 2.7 bln eur.

Credit Agricole reported a 2006 net profit of 4.920 bln eur, up 26.4 pct on 2005 and driven by faster international expansion, although profit growth slowed in the fourth quarter as expected by analysts. Fourth-quarter net profit was 1.105 bln eur, up 9.8 pct.

Areva is in talks with the French economy ministry on whether the state-controlled nuclear energy group will increase its takeover offer for Repower Systems AG after its bid was topped by a joint proposal from India's Suzlon Energy Ltd and Portugal's Martifer, Le Figaro reported, without naming its sources. A decision is expected in coming days, the newspaper said.

Germany - EON AG said it will press on with its bid for Spanish rival Endesa SA as it unveiled a 12 pct rise in full year adjusted EBIT to 8.150 bln eur from 7.293 bln eur a year earlier due to strong performances across the company's Central Europe and Pan-European Gas operations.   The figure was above the 8.127 bln eur consensus of analysts estimates.

Volkswagen AG said it has increased its voting rights in Scania AB to 35.31 pct from 34 pct and received approval from Swedish bourse authority to boost its shareholding up to 49.99 pct without the need to make a mandatory bid for all of Scania's shares.
 
A VW statement to the Swedish bourse authority said that yesterday, it had acquired 400,000 shares of class A in Scania, thereby raising its voting rights and its share capital to 20.03 pct from 18.7 pct.

Brussels - French utility Suez's electricity unit Electrabel is to buy energy consultancy Tractebel for 15-20 bln eur, reports daily Le Soir, without citing sources. The newspaper said Suez would make the move to better distribute its electricity and gas operations.

French utility Suez's electricity unit Electrabel is to buy energy consultancy Tractebel for 15-20 bln eur, reports daily Le Soir, without citing sources. The newspaper said Suez would make the move to better distribute its electricity and gas operations.

Milan - Fiat SpA CEO Sergio Marchionne said he sees the company's planned bond issue being "resolved" within the next 30 days, adding he sees market conditions improving for the bond.
 
Marchionne's comments in Il Giornale newspaper follow yesterday's suspension by Fiat of marketing for the 750-1.0 bln eur bond because of higher yields, making an issue more expensive.

Vienna - Austrian Airlines (AUA) said today that high kerosene prices over 2006 added 75.7 mln eur in additional costs and resulted in a slight widening of its overall annual loss to 129.9 mln eur versus 129.1 mln.
 
Full-year unadjusted operating loss narrowed by 11 pct to 89 mln eur versus 100 mln eur the year before thanks to gains resulting from a value adjustment for Slovak Airlines, the Austrian national carrier said.

Madrid - Telefonica SA has abandoned plans to buy a minority stake in Telecom Italia and form a strategic alliance, the Financial Times reported citing sources familiar with the group. The sources said Telefonica has hardened its position since revealing last week that talks with its Italian peer were "on hold," because the potential financial benefits of the alliance were not strong enough, the FT said.

London - British Airways PLC said it expects revenues to rise 5-6 pct in the year to March 2008, leaving it on track to achieve a 10 pct operating margin. BA also said in a statement accompanying its annual investor day that fuel costs should rise by some 100 mln stg in 2007/8, while total costs excluding fuel should increase by 50 mln.

UK life insurer Resolution PLC announced the departure of its chief executive, Paul Thompson, as part of a management reshuffle that took analysts and investors by surprise. "Resolution and Paul Thompson have jointly agreed that Paul will today step down as group chief executive and will leave the group with immediate effect," the company said in a brief statement.

Construction group Balfour Beatty PLC has seen pretax profit before exceptionals grow 13 pct to 152 mln stg, the company said as it unveiled results for the year to Dec 31 2006. The company grew revenues to 5.9 bln stg from 4.9 bln following the acquisition of US firm Centex and adjusted EPS was also up 13 pct to 27.3 pence.

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Asian shares close mostly higher on global rebound, but Tokyo lower

HONG KONG - Shares across the Asia-Pacific region closed mostly higher on a global rebound, except for the Tokyo market which fell as investors remained unconvinced the recovery to last week's sell off will last.
   
Tokyo shares closed weaker after an erratic session during which investors remained jittery despite Wall Street's rebound overnight, many unsure whether the global equity slump that began last week has run its course.
   
Most investors also refrained from buying aggressively as they expect shares to fall again on technical pressure as the fixing on Friday of the special quotations for settling the March futures and options contracts approaches.
   
Declines in the March Nikkei futures triggered selling of core stocks, while many other shares remained well supported by hope of economic recovery here and in Asia as a whole.
   
The Nikkei 225 Stock Average finished down 79.88 points or 0.47 pct at 16,764.62, after moving between 16,731.77 and 16,988.01. The TOPIX index of all first-section issues ended down 2.94 points or 0.17 pct at 1,689.60.
   
An equities manager at a Japanese brokerage said: "There is good chance of the market resuming its climb once the technical pressure runs out Friday, given the underlying upbeat sentiment."
   
Australian shares closed higher as investor sentiment continued to improve with global share markets regaining some lost territory from the sell-off.
   
Economic fundamentals also boosted buying volumes after data showed Australia's economy grew at a stronger-than-expected 1.0 pct during the December quarter, or 2.8 pct annually. Market economist forecasts were centered on a 0.5 pct quarterly rise.
   
The Reserve Bank of Australia kept official cash rates at 6.25 pct as widely expected but was overlooked by investors awaiting the key GDP data. The S&P/ASX 200 closed up 53.5 points or 0.93 pct at 5,825.3, with the key index closing off the day's high of 5,830.1.
   
Hong Kong shares were weaker in afternoon trade as caution overtook early bargain hunting in response to the rise on Wall Street overnight. At 3.25 pm the Hang Seng Index was down 118.77 points or 0.62 pct at 18,939.79.
   
In mainland China, A-shares in Shanghai and Shenzhen closed broadly higher on recovering overseas markets and continued bargain hunting with financial, machinery and metal stocks favored.
   
The Shanghai A-share Index was up 58.73 points or 1.97 pct to 3,043.17 and the Shenzhen A-share Index was up 19.83 points or 2.60 pct at 782.74.
   
Seoul shares finished higher, extending their rebound for a second day, with sentiment supported by Wall Street's gains, although the upside was capped by caution over triple witching and the Bank of Korea's rate decision tomorrow.
   
POSCO and other steel makers led the advance on growing optimism over the industry's outlook, helping the main board index rise through 1,410 points. The KOSPI index closed up 8.02 points or 0.57 pct at 1,410.95, off a low of 1,397.83 and a high of 1,415.50.

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Copper up as global stock markets stage recovery; gold edges up

LONDON - Copper prices rose for a second day as traders took comfort from a tentative recovery in global equity markets as LME inventories fell yet again.
   
Worries over supply disruption were also supporting the metal. Codelco said late last night a fire at its Radomiro Tomic mine had halted production. At 12.52 pm, LME copper for three-month delivery was up at 6,080 usd a tonne against 5,890 usd at yesterday's close.
   
"The Codelco news is supportive, but the market does not seem to think that much production will be lost," said Man Financial analyst Ed Meir. He added however that traders are waiting to see if a recovery in global equity markets that began yesterday will be sustained.
     
Separately, copper was underpinned by declining LME inventories. The exchange said in a daily report today copper stocks in its warehouses fell by 2,400 tonnes to 203,650.
   
LME copper inventories are down some 5 pct since the end of January. RBC Capital Market analyst Alex Heath said while it would be foolish to dismiss the recent falls in global equities as "just another hiccup", it seems the storm has passed for now and traders are looking at the fundamentals again.
   
Tin surged to 13,750 usd a tonne against 13,300 usd at the close yesterday as the metal continued to benefit from reduced exports out of Indonesia, where authorities are still clamping down on illegal tin mining.
  
Nickel was up at 42,200 usd a tonne against 40,400 usd at the close yesterday amid yet another fall in critically low LME inventories.
      
Aluminium was up at 2,708 usd a tonne against 2,694 usd at the close yesterday, zinc was up at 3,359 usd against 3,310 usd and lead was up at 1,850 usd against 1,820 usd.

At 10.16 am, spot gold was quoted at 645.70 usd an ounce, up slightly from the 644.20 usd level seen in late New York trades yesterday.
   
"Ultimately the jitters in the equity markets will be favourable for gold long-term, with the current correction offering investors a good opportunity to enter the market before the bull-run resumes to target 700 usd," said TheBullionDesk.com analyst James Moore.
   
He warned, however, there is a risk of further weakness near term given the recent volatility and nervousness across the various markets. Gold came under pressure in Asia earlier as Japanese stocks turned lower again. It recovered in London, however, as leading shares turned higher, extending yesterday's recovery.
   
Prior to yesterday, gold price had fallen for 6 straight days as equities markets across the globe were battered following last Tuesday's 9 pct plunge in the Chinese stock market.
   
The weakness in gold had taken market participants by surprise as the metal, seen as a safe haven asset in times of economic or political uncertainty, was expected to benefit from a global stock market rout.
   
But analysts said gold had only taken a hit from the equities rout as market participants, plagued by margin calls in falling equity markets, sold the metal to raise cash.
   
"The past week was an anomaly... (but) if anything, it has reinforced how important it is for investors to have a diversified portfolio" that includes gold, said Neal Ryan, director of economic research at Blanchard.
   
Silver was up at 12.89 usd an ounce against 12.86 usd in late New York trades yesterday, platinum was down at 1,180 usd an ounce against 1,190 usd while palladium was down at 345 usd against at 346 usd.

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