US & World Daily Markets Financial Briefing 07-04-2008

Stocks advance as deal talk increases

NEW YORK  - Stocks rose Monday following reports of potential corporate deals, including news that Washington Mutual Inc. might get a $5 billion investment from private equity firms.

Washington Mutual, the nation's largest thrift, is in talks with buyout shop TPG Inc. about a possible capital injection, according to The Wall Street Journal. The company, which has suffered big losses tied to subprime mortgages, would become the latest U.S. financial institution to reach such a deal.

Dealmaking is often regarded as a bullish sign and could signal that stocks are starting to recover from a long slump due to tight credit and a slowing economy.

In addition, Microsoft Corp. gave Yahoo Inc. a three-week deadline to agree to a takeover, or Microsoft would launch a proxy fight for control of the company. Yahoo said Monday the deal isn't in the best interests of its shareholders, and called the proxy threat counterproductive.

And Swiss pharmaceutical maker Novartis AG said it will spend about $38 billion in a two-step bid for a majority stake in U.S. eye-care company Alcon Inc.

In mid-morning trading, the Dow Jones industrial average rose 45.92, or 0.36 percent, to 12,655.34. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 7.18, or 0.52 percent, to 1,377.58, and the Nasdaq composite index rose 9.34, or 0.39 percent, to 2,380.32.

Washington Mutual shot up $1.74, or 17 percent, to $11.91. Yahoo fell 48 cents to $27.88, while Microsoft rose 27 cents to $29.43 after giving the Internet company the three-week deadline.

Alcon rose $4.61, or 3.1 percent, to $153.06, and Novartis fell $1.67, or 3.2 percent, to $50.45 on word of how much the Swiss company would pay for a stake in Alcon.

Last week, stocks advanced as investors found relief in reports that Lehman Brothers Holdings Inc. and Switzerland's UBS AG are selling stock to raise cash and that other banks such as Merrill Lynch & Co. believe they have sufficient cash. Despite a report Friday showing the third straight month of job losses in March, the Dow finished last week up 3.22 percent, the S&P 500 index rose 4.86 percent, and the Nasdaq rose 4.20 percent.

On Monday, government bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.53 percent from 3.47 percent late Wednesday.

Light, sweet crude rose $2.53 to $108.76 on the New York Mercantile Exchange. Gold prices rose, and the dollar was mixed against other major currencies.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 208.64 million shares.

The Russell 2000 index of smaller companies rose 2.85, or 0.40 percent, to 716.58. In afternoon trading, Britain's FTSE 100 added 0.92 percent, Germany's DAX index rose 0.84 percent, and France's CAC-40 rose 0.80 percent.

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Yen, Swiss franc weak as risk appetite returns to the market

LONDON - The yen and the Swiss franc were weak across the board as risk appetite returned to the market.

Although Friday's U.S. jobs data pointed to recessionary conditions, there is a growing sense in the market that the bad news may already be priced in, with the safe haven currencies suffering the most. "With the new fiscal year under way and investor sentiment globally showing tangible signs of improvement, the yen is once again starting to come under pressure," said Simon Derrick at the Bank of New York Mellon.

At the same time, riskier, high-yielding currencies such as the Australian and New Zealand dollars enjoyed significant gains.

Elsewhere, the euro edged higher against the U.S. dollar, trading around the $1.57 mark, with market players nervous before a busy event week.

First up on Tuesday will be the release of the minutes to the Federal Open Market Committee's last meeting, which will be scrutinised for any dovish slant, particularly because the decision to cut interest rates by 75 basis points was less than the 100 basis points many had predicted.

"The dollar may have recovered some ground early in the new week, but any support could prove difficult to sustain in the coming days as traders await the release of the latest FOMC meeting minutes," said James Hughes at CMC Markets.

"The 75 basis points that came off rates last time around was far more conservative than many had been expecting and with Friday's non-farm payroll figures sitting fresh in many people's minds, the scope for the Fed to cull rates further at this month's meeting cannot be ignored," he added.

Further out, attention will focus on the interest rate decisions in the euro zone and the UK, followed by the G7 meeting at the weekend.

The European Central Bank is still not expected to cut interest rates this week or any time soon given very high inflation levels. The matter is different in the UK, however, with an increasing majority in the market now forecasting that the BoE will opt for a cut as early as this month to help alleviate ever tighter conditions in credit markets.

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Euroshares up midday as Dow seen higher, on hopes of new rate cuts

Europe's largest exchanges added to gains midday as the Dow Jones Industrial Average looks set to follow global bourses higher in opening deals, as speculation most of the bad news on the U.S. economy is drawing to a close boosted confidence ahead of this week's European Central Bank and Bank of England rate decisions.

At 12.16 p.m., the DJ STOXX 50 was up 25.31 points, or 0.8 percent, at 3205.64, while the DJ STOXX 600 was up 2.49 points, or 0.79 percent, at 321.66.

In Europe, the healthcare sector put in one of the weakest performances of the day, after recent sector strength, as analysts said Novartis AG has paid over the odds for a 25 percent stake in eye-care group Alcon.

The move was welcomed, with analysts saying the deal makes strategic sense although Merrill Lynch and WestLB both said the price of the transaction was a bit steep. WestLB cut its rating on the Swiss group to 'hold' from 'add'.

The news weighed on other healthcare groups on fears other players may seek out equally expensive solutions to the current pipeline issues in the sector.

Dresdner Kleinwort downgraded GlaxoSmithKline to 'sell' from 'reduce' after downgrading its 2011 total sales forecast by 1.3 billion pounds, its EPS by 10 percent and cutting its five-year sales compound annual growth rate (CAGR) estimate to 2.4 percent to reflect weakness in its respiratory drugs franchise. Sanofi-Aventis was 0.87 percent lower. Astrazeneca fell back 1.66 percent.

Nobel Biocare was up 4.11 percent following positive comments in influential weekly Barron's.

Nestle surged 2.05 percent as it said it would use the proceeds from the Alcon stake sale to reduce its debt.

L'Oreal added 2.12 percent as investors said Nestle could also be tempted to use the money to buy up shares in the French hair and beauty group, but the shares soon came off lows as Nestle denied any plans regarding its L'Oreal stake until 2009.

The shares were also bolstered by upbeat comment from Cosmetics group Oriflame. The Swedish group hiked its full-year sales outlook, saying it now expects sales growth for 2008 to be "well" above 10 percent in local currency, after a strong start to the year. Oriflame shares climbed 6.75 percent.

In other corporate news, Nokia moved up 1.9 percent after the group unveiled its N-Gage gaming service.

Easyjet added 3.8 percent after the budget airline said it carried 20.5 percent more passengers in March than in the same month a year ago. The news prompted Numis to lift its rating to 'hold' from 'reduce.'

Shares in Air France-KLM added 2.2 percent after the Franco-Dutch group's traffic data. Collins Stewart said the shares are trading at an unwarranted 30 percent discount.

Lottomatica shares climbed 3.75 percent after the Italian lottery operator unveiled its new strategy, which Cheuvreux analysts said was more aggressive than the broker and the wider market had been looking for.

Shares in Seche Environnement rose 4.45 percent after the French waste disposal group announced the establishment of a renewable energy unit, Senergies.

Natixis Securities analysts reiterated an 'Add' recommendation, noting the new business will start with a pilot project to produce electricity from biogas and will study the possibility of developing production in the longer term from other forms of renewable energy.

Shares in Allianz SE were among the few shares to go lower, falling 0.29 percent, after a report in online stock tip magazine Platow-Brief said the insurance giant's banking unit, Dresdner Bank, may face writedowns of up to 1 billion euros in the first quarter.

Elsewhere, Fortis added 2.9 percent as Keefe, Bruyette & Woods upgraded the shares to 'outperform' and Merrill Lynch added shares in the Belgo-Dutch banking group to its Europe 1 list.

UBS, which Merrill also added to its Europe 1 list, was up 6.46 percent after recent weakness as the president of Switzerland's banking commission said he hopes that UBS AG. may now be stabilising after the bank's recent substantial writedowns.

And Friends Provident jumped 3.88 following reports J.C. Flowers is working on a higher bid for the U.K. life insurance group.

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Asian stocks manage gains in subdued response to weak US jobs report

Asian stocks managed modest gains Monday in a subdued response to a far weaker-than-expected U.S. jobs report for March, the latest sign that the world's biggest economy and a major market for Asian goods is in recession.
   
Hong Kong, Australia and Japan were all higher, tracking Wall Street's muted reaction to the data released Friday, with the Dow Jones Industrial Average closing down just 0.1 percent.
   
The Labor Department said U.S. employers cut 80,000 jobs in March, the biggest decline in five years. The unemployment rate increased to 5.1 percent, the highest since September 2005.
   
"Local investors found relief after the U.S. market somehow passed the weak jobs report without a big fall," said Yumi Nishimura, manager for equity markets at Daiwa Securities SMBC. "They think while the U.S. economy is now at its worst, it will recover in the latter half of the year."
   
The Nikkei reversed early losses to finish 1.2 percent higher at 13,450.23.
   
The S&P/ASX 200 closed up 0.1 percent at 5,625 and the All Ordinaries was up 0.4 percent at 5,684.1 as gains among resource stocks offset weakness in the banking sector.
   
The Kospi held up, adding 0.4 percent at 1,773.56.
   
"It seems Wall Street has become more and more resistant to negative leads," said Won Jong-Hyuck, an analyst at SK Securities in Seoul. The job report "could have sent stocks into a tailspin in the past".
   
Elsewhere, the Singapore Straits Times Index closed up 0.8 percent at 3,181.92 and the Hang Seng closed 1.3 percent higher at 24,578.76.
   
The Shanghai Composite outperformed, closing 4.45 percent higher at 3,599.6 as steelmakers rallied on stronger-than-expected earnings from Liuzhou Iron & Steel. There was further support from news that the Chinese Insurance Regulatory Commission has given approval to three more insurance companies to invest in local stock markets.
   
The Malaysian market fell as political uncertainty continued to weigh. The Kuala Lumpur Composite closed down 0.1 percent at 1,221.07. The Philippine market was closed for a public holiday.
   
Jakarta's composite index ended 0.4 percent higher at 2,286.80. Taiwan's weighted index also closed up 1.55 percent at the day's high of 8,729.79.

In Australia BHP Billiton led the advance, rising 5.1 percent to A$40.55. Rio Tinto gained 4.6 percent at A$136.91. An Australian Financial Review article saying BHP wants a threefold increase of $300 a tonne for coking coal further boosted sentiment toward these shares, said Eric Betts, Nomura Australia's head of investment strategy. Leading gold play Newcrest Mining was 5.3 percent higher at A$35.38.

The 30-share benchmark Sensex of the Bombay Stock Exchange (BSE) closed up 413.96 points, or 2.70 percent, to 15,757.08, after a 489-fall on Friday. The National Stock Exchange's (NSE) 50-share S&P CNX Nifty closed up 114.20 points, or 2.46 percent, at 4,761.20.
   
Among the 30 Sensex stocks, 27 advanced, led by ICICI Bank Ltd. (ICICI), India's largest private lender, which surged 5.97 percent to 809.30 rupees. State Bank of India, India's largest bank by assets, also gained 4.24 percent to 1,673.35 rupees.

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Gold rallies to trade around $925 mark on weak dollar, steep oil prices

Gold rallied to trade around the $925 mark as investors focused on the weaker dollar and higher oil prices. The precious metal acts as an alternative investment to the U.S. currency, rising when the greenback falls, and as a hedge against inflation created by higher fuel costs.

With the dollar under pressure since Friday when the U.S. labour department reported non-farm employment fell by 80,000 jobs in March, and oil prices rising above $109 today, gold has attracted firm buying interest.

"Friday's poor jobs data and the continuing poor economic data out of the U.S. suggests the economy is worsening and this will put pressure on the dollar in the coming weeks," said analysts at Gold Investments. "Oil's rally back above $107 will also lead to inflation hedging by investors as will the surge in soft commodity prices and particularly rice in recent days."

At 3:52 p.m., spot gold was trading at $924.68 an ounce against $909.80 in late New York trades on Friday. Earlier, the precious metal hit an intraday high of $927.50.

Gold has been clawing back ground since falling to a two-month low of

$872.40 an ounce last week, but investors remain wary of backing the precious metal to again rally above the $1,000 level, which was seen for the first time ever in March.

Bargain hunting from jewellers has played a role in moving the metal back above $900, but physical buying interest has thus far been limited at higher levels.

James Moore at TheBullionDesk.com said gold prices would probably remain volatile as the metal builds a more stable base, adding the recent financial turmoil could force some investors to close out profitable positions in precious metals.

"We anticipate (precious metals) will remain vulnerable to bouts of selling pressure as ongoing credit issues and large margin requirements force investors to cash in their most liquid assets."

In other precious metals, silver tracked gold higher to trade at $18.10 an ounce against $17.76 in late New York trade on Friday.

Platinum was up at $2,027 an ounce against $2,009, while its sister metal palladium was at $452.50 an ounce against $439.75.

Continuing power shortages in key platinum producer South Africa are providing good support for prices, with the market for the white metal expected to be in deficit this year as miners struggle to maintain production levels.

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