US & World Daily Markets Financial Briefing 08-02-2008

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Stocks mixed after uneven earnings

The Dow Jones industrial average fell 14.63, or 0.12 percent, to 12,232.37. Broader stock indicators rose. The Standard & Poor's 500 index rose 0.28, or 0.02 percent, to 1,337.19, while the Nasdaq composite index rose 15.66, or 0.68 percent, to 2,308.69.
   
Government bonds rose. The yield on the benchmark 10-year Treasury note fell to 3.70 percent from 3.73 percent late Thursday.
   
The technology-heavy Nasdaq got a boost from Amazon.com Inc., which authorized a $1 billion share buyback program. The online retailer rose $2.70, or 3.8 percent, to $73.61.
   
Cognizant Technology Solutions Corp. was also a big gainer in the Nasdaq, spiking after its fourth-quarter profit surpassed expectations and as it issued an upbeat outlook. The technology and business outsourcing company's stock rose $5.52, or 20.2 percent, to $32.80.
  
McAfee posted a better-than-expected fourth-quarter profit late Thursday and rose $2.70, or 8.5 percent, to $34.43. Tiffany rose $3.20, or 8.4 percent, to $41.38 after predicting fiscal 2008 earnings would beat its fiscal 2007 profit forecast, based on an expected 10 percent rise in worldwide sales.
   
But in a sign that other industries are having more trouble, Weyerhaeuser said it swung to a fourth-quarter loss as the housing market slowdown dampened demand for lumber, in a downturn the paper and wood products company expects will extend through the year. Weyerhaeuser fell $2.75, or 4.4 percent, to
$61.89.
   
And meanwhile, Alcatel-Lucent reported a $3.8 billion loss in the fourth quarter, eliminated its 2007 dividend, and predicted that 2008 would be a difficult year. Shares of the Franco-American company, which makes telecommunications equipment, fell 19 cents, or 3 percent, to $6.06.
   
The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude oil rose $1.14 to $89.25 a barrel on the New York Mercantile Exchange.
   
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 263.1 million shares.
   
The Russell 2000 index of smaller companies rose 0.14, or 0.02 percent, to 702.92. Overseas, Japan's Nikkei average closed down 1.44 percent. In Europe, Britain's FTSE 100 fell 0.16 percent, Germany's DAX index rose 0.04 percent, and France's CAC-40 fell 0.64 percent.

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Forex - Dollar steady ahead of Fed speakers

LONDON  - The dollar remained firm against the euro in quiet trade, with the market waiting to see whether speeches from Federal Reserve members give any further indications as to how much further US interest rates are set to fall.

The US currency posted strong gains against the euro yesterday as the European Central Bank indicated a deterioration in its 2008 growth outlook, saying growth concerns are "unusually strong". Vut today has seen a relatively quiet day's trade for equity markets with little major data, meaning movement in the currency markets has been limited.

Figures for US December household inventories due out at 3.00 pm GMT are expected to increase 0.3 pct in December following a 0.6 pct increase in November, though they are unlikely to have a major impact on the market. Instead, investors will be listening closely to speeches from Dennis Lockhart of the Atlanta Fed, and Sandra Pianalto of Cleveland.

Earlier today, San Fransisco Fed president Janet Yellen conceded she is "not confident" the US will avoid recession, with current indicators pointing to continued anaemic growth, although she also stressed the Fed must do all it can to avoid a repeat of the 1970s-style inflation spiral.

Mitul Kotecha, head of currency strategy at Calyon, said markets will be listening closely for any hints the Fed may be close to ending its current cycle of interest rate cuts.

"(One) theme that is beginning to emerge among some Fed speakers is that we need to take account of the stimulus already put in place, perhaps suggesting that an end to the easing cycle is approaching," he said.

Following the speeches, attention will turn to the G7 meeting of finance ministers in Tokyo over the weekend. Specific discussions on currencies are likely to be fairly low down the agenda due to the more pressing issues of financial market turmoil and economic uncertainty.

"As such we think the implications for the currency market will be very limited and we do not expect any deviation from the usual line on forex -- that 'excessive volatility' is undesirable," said analysts at Barclays Capital.

While several G7 officials have expressed concern about the weakness of the dollar, they added, there is unlikely to be a co-ordinated statement on the issue.

"The dollar's decline has been far from disorderly and US delegates are very unlikely to support a statement calling for dollar strength in the face of a severe US economic slowdown," the analysts added.

In the UK, the pound was steady after an early rally following a strong wages survey. Income Data Services reported pay rewards averaged 4 pct in the three months to January, up from 3.3 pct in the quarter to December.

"The IDS survey reinforces belief that the Bank of England will continue to trim interest rates only gradually in the near term at least, barring a sudden very sharp collapse in UK economic activity," said Howard Archer, chief UK economist at Global Insight.

This meant sterling recovered some of the heavy losses sustained yesterday following the Bank of England's decision to cut interest rates a quarter-point to 5.52 pct. The statement released by the central bank accompanying the decision was interpreted by some investors as signalling further cuts are on the way, noting weak consumer spending and tighter credit conditions.

More clarity on the UK interest rate outlook will come on Wednesday, when the Bank of England publishes its quarterly Inflation Report, giving forecasts for CPI inflation over the next two years.

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Euroshares off highs midday as Dow seen lower; Alcatel shines on strong 4Q sales

At 12.05 am, the Dow Jones STOXX 50 Index was up 6.25 points, or 0.22 pct, at 3,159.5 while the DJ STOXX 600 Index rose 0.77 points, or 0.25 pct, to 314.93.

Spread bettors, IG Index, said the Dow looks set to fall 45 points in opening deals, pulling back some of the gains made late yesterday as investors wait for speeches from Federal Reserve officials and wholesale inventory data.

Alcatel-Lucent put in a very volatile performance with analysts split over the telecoms group's full earnings update.

Shares had opened sharply lower amid concern about the group's gloomy outlook statement and plans to suspend dividend payments but soon rallied as a number of brokers said the strong growth in revenues in the fourth quarter was a good reason to be optimistic about the group's prospects further out.

Merrill Lynch repeated its 'neutral' stance, saying relief at the strong numbers should balance the weaker than consensus margin guidance for 2008 and the large goodwill writedowns.

But Teliasonera shares tumbled 8.85 pct to a six-month low after the Swedish telecoms group reported quarterly results that fell far short of analyst estimates, with dealers pointing to weak outlook and disappointing decision not to pull out of Spain as other reasons undermining the stock.

Eiffage rose 2.64 pct after the French construction group released solid fourth-quarter sales. The news prompted Fortis to upgrade its stance to 'hold' from 'reduce'.

Separately, Sacyr Vallehermoso is in talks to sell its 33.32 pct stake in Eiffage to institutions that include French state financial institution Caisse des Depots et Consignations and insurers Axa, CNP Assurances and Allianz unit AGF, the daily Les Echos said, without citing sources.

In other earnings news, Shares in Parmalat SpA were leading gainers on the blue-chip S&P/Mib index after reporting full year results that were broadly in line with market expectations and announcing that it will pay a dividend in April. Shares added 3.03 pct.

Julius Baer was up 0.83 pct after the Swiss private banking group posted strong full-year results and issued a positive outlook.

Among insurers, CNP Assurances plunged 11.96 pct after the company said its full-year premium income fell slightly as its fourth quarter was affected by a sharp slowdown at its savings business in France. The news prompted Cheuvreux, Societe Generale and Oddo Securities to downgrade the shares.

And shares in Credit Agricole and Societe Generale slupmped 2.52 pct and 1.48 pct respectively as SocGen confirmed an employee from Newedge -- a joint venture between SocGen and Credit Agricole unit Calyon -- was detained by police yesterday and is undergoing questioning over potential links with Jerome Kerviel, the trader alleged to have incurred massive losses at SocGen.

Shares in Hypo Real Estate Holdings AG were 3.11 pct lower in mid-morning trade as traders spoke of rumours that the bank may be considering launching a new capital increase.

Merrill Lynch has cut its stance on shares in Axa to 'neutral' from 'buy' pointing to challenges in the macroeconomic environment and noting that the US market accounts for 30 pct of Axa's earnings.

But exchange operators made good ground amid a number of upbeat notes on the sector as analysts hope for strong volume growth in the current market climate.

Deutsche Boerse AG rose 2.63 pct, topping the percentage gainers on the Euro STOXX Index, which tracks blue-chip performance across 12 countries using the euro.

West LB raised its stance on shares in the German exchange operator to 'hold' from 'reduce', saying he recent share slide has been overdone and added that the group should benefit from the current market volatility in the short-term.

UBS, meanwhile, started coverage on BME with a 'buy' rating with a 45 eur per share target, saying it should also benefit from current volatility. Shares added 0.25 pct. Shares in London Stock Exchange rallied in sympathy, up 3.69 pct.

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Asian shares end mixed, Japan falls on weak data

Japan's benchmark Nikkei index finished down 1.4 pct at 13,017.24, reflecting disappointment among investors after the government said core private-sector machinery orders fell 3.2 pct in December from the previous month. Economists were looking at a drop of only 0.8 pct.

Core private-sector machinery orders, which exclude orders from electric utilities and for ships, are considered as a leading indicator of corporate capital spending.

For the whole of 2007, machinery orders were down 4.0 pct from the previous year, falling for the first time in five years. Economy and fiscal policy minister Hiroko Ota said there was "no need to be so pessimistic with orders forecast to rise 3.5 pct in the January-March quarter."

"The Japanese economy is slowing down as the US economy has put one of its two legs into recession, noting that foreign orders from Japan fell 4.9 pct from November," said Toshio Sumitani, an economist at the Tokai Tokyo Research Center.

A technical glitch which prompted the Tokyo Stock Exchange to suspend futures trading on Topix, the broader index on Asia's largest bourse, also affected trading, while some investors stayed on the sidelines ahead of a long weekend in Japan.

Japanese financial markets will be closed on Monday for a public holiday. Australian shares rose on bargain hunting after a three-day slide although trading volumes were lean. "The market remained in positive territory despite the thin volume and we saw some trade flows on what were considered oversold stocks," said Matt Lewis, a senior dealer at CMC Markets.

The S&P/ASX 200 closed up 1.1 pct at 5,658 and the All Ordinaries rose 1.0 pct to 5,723.9. Banks led the market higher, rebounding after a recent selloff on concerns that rising interest rates would deter borrowers and see more defaults.

The Reserve Bank of Australia raised interest rates by 25 basis points to a 12-year high of 7.0 pct on Tuesday as concerns about rising inflation outweighed the threat of a global economic downturn. It was the third interest rate hike in six months and prompted several major banks to increase their home loan rates.

Commonwealth Bank jumped 2.7 pct to 50.14 aud ahead of its first-half result next week, which is expected to be another record.

Interest in mining giants Rio Tinto and BHP Billiton waned because it is expected to be a protracted takeover battle, after Rio Tinto rejected BHP's increased 3.4 shares for 1 Rio Tinto share offer this week.

"The top has come off the pressure cooker and they're letting a bit of steam off at the moment as this takeover is going to take a while. We'll probably see things just simmering for a while," said Michael Heffernan, a private client advisor at Austock Securities.

BHP ended 2.1 pct lower at 36.14 aud. Rio fell 1.6 pct to 125.00 aud. Trading in Manila was lethargic with the composite index closing up 0.6 pct at 3,241.13, helped by strong gains in Aboitiz Equity Ventures after the conglomerate announced dividends and a share buyback plan.

"There is nothing new in the market. Investors are focusing on individual issues that are doing well or are expected to turn in positive results," said Jomar Lacson, research director at Campos Lanuza and Co.

The Bombay Stock Exchange's 30-share Sensex fell 62.04 points or 0.35 pct to 17,464.89 and the National Stock Exchange's 50-share S&P CNX Nifty shed 0.25 pct to close at 5,120.35 points.

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Metals - Copper rises to 3 month high amid ongoing stock declines

The LME said in a daily report earlier that copper stocks in its warehouses fell 2,725 tonnes to total 166,750 tonnes. Cancelled warrants, which denote metal earmarked for removal, are also up strongly overall.

"The move (in copper) looks bullish, especially as it is supported by ongoing stock drawdowns and rising cancelled warrants which now account for 22 pct of total LME stock," said BaseMetals.com analyst William Adams.

He added that the overall nearby tightness in copper, which is coupled with supply disruptions in China due to severe winter weather, seem to be overshadowing concerns over the demand outlook.

These demand concerns are linked to fears that the US economy is heading into a recession which could impact growth in economies around the world, thus crimping copper demand.

At 10.49 am, copper for delivery in three months was trading up at 7,695 usd per tonne against 7,540 usd at the close yesterday, when it gained 3 pct. Earlier it touched a high of 7,719 usd, its strongest level since Nov 1.

Adams said the supply concerns in copper should see the metal continue to move higher in the near term, possibly into April/May, before the economic woes in the US start to impact global growth later in the year.

The economic woes are often reflected in stock market falls around the world, and as such, metals like copper have for much of this year taken direction from equities.

However, with equities higher in Europe today, following overnight strength on Wall Street, copper has gained strongly, with economic worries taking a backseat for now.

In addition, with players in most of Asia away for the Lunar New Year holiday this week, participants in the London market have refocused attention on fundamental factors like falling stocks.

Zinc was up at 2,378 usd against 2,350 usd per tonne, having sagged 1.5 pct yesterday. Analysts said while the metal remains pressured by expectations global supply will rise strongly this year, it is also garnering upside momentum from strength in copper, the bellwether metal.

Elsewhere, aluminium was up at 2,710 usd per tonne from 2,683 usd yesterday, approaching a recent 6-month high of 2,738 usd a tonne amid ongoing supply disruptions in China.

Aluminium, the most energy intensive of all the metals, has been hardest hit by supply outages in China, and by similar outages in South Africa, which is also in the grip of a power crisis that is curbing mine output.

In other metals traded, lead climbed to 2,880 usd from 2,780 usd, tin was up at 16,950 usd per tonne against 16,850 usd, while three-month nickel was up at 27,600 usd against 27,450 usd.

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