US & World Daily Markets Financial Briefing 07-12-2007

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Stock futures rise after payroll data

Wall Street was narrowly mixed in early trading Friday after investors interpreted fairly tame employment data as giving the Federal Reserve more room to cut interest rates next week.

Investors were encouraged after the Labor Department reported 94,000 jobs were added to payrolls in November and that the unemployment rate held steady at 4.7 percent. These were signs the nation's employment was holding up amid a housing slump and rising energy prices.

But the numbers didn't indicate that the economy might be growing faster than anticipated, which gives Fed policymakers leeway to cut rates when they meet on Tuesday. Economists are still debating whether the Fed will drop rates by a quarter percentage point or finish the year with a half-point cut.

In the opening minutes of trading, the Dow Jones industrials rose 14.15, or 0.10 percent, to 13,634.04. The Standard & Poor's 500 index rose 1.31, or 0.09 percent, to 1,508.65, while the Nasdaq composite index dipped 0.54, or 0.02 percent, to 2,708.49.

Stocks began to rally last week, and the gains continued Thursday with a 174-point jump in the Dow Jones industrials; investors got some relief from concerns about the housing slump and credit crisis when the White House offered a plan to prevent home foreclosures.

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Forex - Euro edges up on German data, but trade cautious ahead of US jobs report

The euro firmed slightly against the dollar after encouraging German industrial output data, though gains were limited as the market remained on edge ahead of key US jobs data this afternoon. Figures released today showed industrial output in Europe's largest economy fell by 0.3 pct in October from September. Although it declined, many in the market had anticipated a slightly bigger fall.

"October's fall in German industrial production suggests that the industrial recovery might be starting to lose some steam, but the sector remains a strong support to the economy for now," said Jennifer McKeown at Capital Economics. She also noted that on an annual basis, industrial output was up an adjusted 6.0 pct, a "strong rate" despite being "some way off of the highs of around 8 pct reached earlier this year," she said.

Although analysts expect the industrial sector will contribute to a slowdown in overall GDP growth, the better-than-expected outcome was sufficient to give the euro a small boost.

Gains were limited, however, as trade remains subdued ahead of this afternoon's key US jobs data.

The median expectation of analysts polled by Thomson IFR Markets is for a gain of around 100,000 in non-farm payrolls over November. But there is a growing feeling in the market jobs growth could be much higher after yesterday's private sector report by the ADP estimated a massive 189,000 jobs were created last month.

"The stronger-than-expected 189,000 increase in the November ADP employment report raised upside risks to the consensus nonfarm payroll estimate," said Mike Carey at Calyon. The ADP report is notoriously volatile, however, and the outcome of the data is far from certain.

HBOS currency analyst Steve Pearson noted everything apart from the ADP report "suggests considerable downside risk to the headline payroll change number". He pointed to the weak trend in US jobless claims, several jobs surveys and the employment components of the ISM indices.

Elsewhere, the pound continued to recover from its recent sharp falls on speculation that yesterday's Bank of England interest rate cut would mark the start of a string of rate cuts next year.

The euro, however, was still trading above the 0.72 level against the pound, not far below its all-time record high of 0.7254 stg. In contrast to the BoE, the European Central Bank left interest rates on hold yesterday and looks unlikely to cut them any time soon, given its overriding concerns over sharply higher inflation.

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Euroshares higher midday; insurers outperform, US jobs data in focus

At 12.19 pm, the STOXX 50 was 42.77 points or 1.14 pct higher at 3,797.91, while the STOXX 600 gained 4.05 points or 1.09 pct to 373.92. Looking ahead, US markets are set for a slightly lower open with IG Index expecting the DJIA to fall some 20 points to 13,600 upon opening.

The focus today for Wall Street as well as European investors is the release of monthly non-farm payrolls data in the US, with economists forecasting that around 100,000 jobs were created in November, down from 166,000 in the previous month.

And in the mining sector, consolidation hopes remain even after Rio Tinto's chief executive Tom Albanese labelled BHP Billiton's 140 bln usd takeover proposal as "dead in the water". Traders noted that BHP Billiton has secured most of the funding and should a takeover bid for Rio fail, is likely to cast an eye towards other sector peers.

Shares in Xstrata soared 6.91 pct, while Anglo American gained 5.81 pct. Rio Tinto was up 2.19 pct, while BHP Billtion added 2.41 pct.

The construction sector also put in a solid performance, helped by measures announced by the Bush administration to stabilise the US housing market. Under the terms of the plan, some homeowners facing foreclosure will be allowed not only to freeze their interest rates for up to five years but also refinance their mortgages.

Lafarge rose 2 pct, Saint-Gobain gained 1.15 pct and Balfour Beatty climbed 4.87 pct higher.

Elsewhere, StatoilHydro slumped 9.68 pct after the oil giant warned it will miss its 2007 production forecasts and following 2008 guidance that missed expectations. Earlier this morning, the group said that problems at a string of of fields on the Norwegian continental shelf mean it will miss its own 2007 guidance.

In the UK, EMAP tumbled 9 pct after the group sold its consumer and radio businesses for 1.14 bln stg, but surprised the market by pulling the sale of its business-to-business division.

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Asian rally fizzles as investors lock in gains; Hong Kong tumbles

Hong Kong's Hang Seng Index gave up morning gains to close down 2.4 pct at 28,842.47 as investors locked in gains after the market's seven-day advance.

The Nikkei 225 Stock Average finished up 0.5 pct at 15,956.37 as investors shrugged off weak economic data. The Cabinet Office cut its third-quarter growth estimate for gross domestic product to 0.4 pct from 0.6 pct on smaller-than-expected investments in fixed assets by Japanese companies.

Australia's S&P/ASX 200 gained 0.8 pct at 6,654.7, while the benchmark Shanghai Composite Index closed up 1.1 pct at 5,091.76.

The shares rose nearly 30 pct to 7.50 Hong Kong dollars against the offer price of 5.78 dollars, before closing at 7.36 dollars, up 27 pct. The stock surged nearly 70 pct on its debut in Shanghai on Monday.

Rio Tinto, another takeover target, jumped 74 cents or 0.5 pct to 145.48 dollars after its chief executive Tom Albanese described BHP Billiton's three-for-one share offer as being "dead in the water". Rio has already rejected the merger proposal from BHP on the grounds it under-values the miner's assets and growth potential.

BHP's proposal is also facing increasing resistance from China's largest steel maker, Baosteel, which publicly called on the Australian government to stop the deal. Senior manager of strategy and planning at Baosteel, Fang Xiaodong, told the Australian Broadcasting Corp that he wants the newly elected Rudd government to intervene to prevent the merger. BHP closed 12 cents or 0.3 pct higher at 43.50 dollars.

Elsewhere in Asia, Singapore's Straits Times rose 0.2 pct to 3,557.95 and Malaysia's KLCI was down 0.4 pct at 1,434.91 after hitting a new intraday record of 1,449.70.

South Korea's KOSPI index closed down 1 pct at 1,934.32 while the Philippine composite finished up 0.3 pct at 3,745.39. Jakarta's composite was down 0.6 pct to 2,778.95, after setting a new record of 2,818.54. Taipei's weighted index closed up 0.32 pct at the day's low of 8,722.38.

Indian shares close higher helped by benign inflation data

The Bombay Stock Exchange's benchmark Sensex closed 170.13 points, or 0.86 pct higher at 19966 points, while the National Stock Exchange's  closed 0.33 pct higher at 5974.30 points.

Meanwhile for the week, India's Sensex is up more than 600 points, while the Nifty gained 211 points.

Stocks of companies with lesser capitalisation, however, ended in the red today after rallying over the past few sessions. The BSE's midcap index lost 11.80 points or 0.13 pct to 9021.96, while the smallcap index closed 18.46 points or 0.16 pct lower at 11342.27.

ICICI Bank extended gains to close 4 pct higher at 1247.50 rupees after reports quoted its joint managing director as saying the company is aiming for 30-35 pct growth over the next three years.

CDMA player Reliance Communications rose 2.17 pct to 734.30 rupees after the Department of Telecom gave it an all-India GSM licence, while Bharti Airtel rose 2 pct to 959.65 rupees amid reports it will launch services in other South Asian countries such as Bhutan, Nepal, Bangladesh and Maldives.

On the flipside, Hindalco Industries extended losses as investors took profits from the scrip's good run over past few sessions. It closed 2.51 pct lower at 188.15 rupees.

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Metals - Copper rises ahead of US payrolls data as Shanghai stocks slide

Copper prices rose after the Shanghai Futures Exchange reported a 20 pct week-on-week dip in its stockpiles, but remained relatively rangebound ahead of key US payrolls data due later today. Copper inventories monitored by the Shanghai Futures Exchange fell 6,836 tonnes to 27,602 last week, and have now dropped around 50 pct in the last three weeks, analysts said.

"Things are looking slightly improved (for copper) in the short-term, particularly on the back of a third successive weekly fall in Shanghai copper stocks," said UBS analyst Robin Bhar. However, a 1,000-tonne rise in stocks of the metal monitored by the LME and fears over a slowdown in the global economy after a raft of generally weak economic data from the US in the last quarter are likely to limit gains, he added.

"The upside will be capped as stocks elsewhere rise, and demand is still weak. There is some scope for prices to move back down again," Bhar noted. At 10.37 am, LME copper for three-month delivery was trading at 6,762 usd against 6,730 usd at the close yesterday.

Meanwhile lead posted further declines after its 5 pct price fall yesterday, with an improving supply outlook and technical factors continuing to pressure the metal. Lead came under heavy selling pressure yesterday amid hopes that Canadian miner Ivernia Inc may be resuming shipments from its Magellan mine in Australia, the source of around 3 pct of global lead supply.

LME lead for three-month delivery was trading at 2,660 usd per tonne against 2,695 usd yesterday. The other metals were trading mixed ahead of US non-farm payrolls data due out later today. The numbers will be another key indicator of the overall health of the US economy, a key market for copper and other metals.

Economic weakness has proved a significant drag on metals prices in recent months, amid fears a softening of US growth could cut demand for raw materials both in the domestic US market and further afield. Among other metals, nickel and aluminium rose, climbing to 26,250 usd per tonne from 26,005 usd and 2,455 usd per tonne from 2,449 usd respectively, basis three months.

Zinc however dipped to 2,382 usd per tonne from 2,395 usd and three-month tin was relatively steady at 16,600 usd from 16,605 usd per tonne.

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