US & World Daily Markets Financial Briefing 09-02-2007

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Stocks Rise Moderately After Pullback

NEW YORK - Stocks rose moderately in early trading Friday after Thursday's pullback left fertile ground for bargain hunters. The rise follows a week of mostly directionless trading in which Wall Street has searched for a catalyst to resume its advance of the past few months.
   
Investors were keeping an eye on a handful of earnings reports as well as crude oil, which crossed the $60 per barrel mark for the first time this year early Friday. Crude prices flirted with that psychological barrier for three straight days this week only to retreat.
   
Wall Street appeared to welcome comments from St. Louis Federal Reserve President William Poole, who offered a bright assessment of the U.S. economy and said the housing sector was by some measures showing signs of stabilizing. Concerns about housing contributed to Thursday's drop.
   
Earnings reports continued, with reports from Gateway Inc., MasterCard International Inc. and Weyerhaeuser Co. Earnings results have in recent weeks drawn mixed reviews from Wall Street, which is concerned about how well profits will hold up in the first quarter. Strong showings, such as that from Cisco Systems Inc. earlier this week, have temporarily leavened stocks, but failed to add to momentum.
   
In the first hour of trading, the Dow Jones industrial average was up 24.19, or 0.19 percent, at 12,661.82. A jump in General Motors Corp. following positive comments from an analyst helped prop up the Dow; GM was up $1.99, or 5.9 percent, at $35.79.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 2.13, or 0.15 percent, at 1,450.44, and the Nasdaq composite index was up 1.76, or 0.07 percent, at 2,490.43. The Russell 2000 index of smaller companies was down 0.35, or 0.04 percent, at 816.04.

Bonds fell following Poole's comments; the yield on the benchmark 10-year  Treasury note rose to 4.76 percent from 4.73 percent late Thursday.    

Stocks in focus

In corporate news, Gateway Inc. fell 17 cents, or 7.9 percent, to $1.98 after turning a fourth-quarter profit with the help of a tax benefit. The computer maker said it planned to cut $20 million to $25 million in expenses and lay off more workers.
   
MasterCard Inc., one of the world's largest credit card brands, fell after hitting a new 52-week high of $118.07 Friday, eclipsing the previous high of $115.43. The company's fourth-quarter profit topped Wall Street expectations as strong consumer spending boosted transactions. The stock was down $4.98, or 4.3 percent, at $109.76 amid likely profit taking.
   
Weyerhaeuser Co., the paper company, swung to a profit from a loss in the fourth quarter despite lower domestic log prices. The stock slipped 35 cents to $78.64.

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Major currencies stall as G7 meeting approaches

LONDON - The major currencies were little changed ahead of the impending G7 meeting at the weekend, with yen remaining under pressure as the markets grow increasingly confident the G7 will take no action on the weak Japanese currency.
   
Markets believe the Europeans' resolve to tackle the yen issue will be met with resistance from their Japanese counterparts, which will result in the G7 formulating a bland statement.
    
HSBC currency strategist David Bloom said he is certain no action on the yen would come out of this weekend. "Under no circumstances will the G7 mention the yen," he said. "The Japanese are trying everything they can to grow the economy and a Japanese recovery is more important to the US than the weak yen."
   
This has seen the dollar stuck at around 121 yen. Bloom expects the dollar to gain on the yen after the weekend.
   
The carry trade, where investors sell low-yielding assets to invest in higher-yielding ones, is the main reason for the yen's weakness. It is thought that up to 1 trln usd could be staked on the yen carry trade.
   
Still, G7 finance ministers could get around any international disagreement on the yen by discussing the carry trade in general, Ian Stannard, currency strategist at BNP Paribas, warned.
   
"If we do see the G7 mention the carry trade in its official communiqu� then we could see some of the higher-yielding currencies come back under pressure," Stannard added.
   
The euro remained steady at higher levels after the European Central Bank signalled it is ready to deliver future rate rises.
   
Additionally, talk the Bank of Russia will shift more of its forex reserves into euros also helped the single currency.
   
Sterling stayed on the back foot as markets reevaluated rate expectations following the Bank of England's decision earlier this week to hold rates at 5.25 pct.
   
Indeed, there has been some scaling back in UK rate hike predictions. While one more quarter-point rate increase to 5.50 pct is still predicted, expectations for further increases have diminished slightly.

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At 3.31 pm, the DAX was up 34.33 points or 0.50 pct at 6,911.06, after trading between 6,890.64 and 6,928.98. The MDAX added 42.06 points or 0.44 pct to 10,000.05 and the TecDax lifted 2.72 points or 0.32 pct to 844.79. DAX futures gained 11.00 points or 0.16 pct to 6,934.00, with Bund futures down 0.30 points or 0.26 pct to 115.10.

DaimlerChrylser led the DAX higher, gaining 1.41 eur or 2.94 pct to 49.41, after it announced it was reducing its 22.5 pct stake in EADS to 15 pct and will receive 1.5 bln eur from the sale.
   
DaimlerChrysler has placed its entire 22.5 pct equity interest in EADS into a new company. A consortium of investors will then acquire a one-third interest in this new company in the first quarter of 2007 through another entity, which would be specifically created for this transaction.

Shares in BMW and Volkswagen were up 0.49 eur or 1.10 pct to 45.13 and 1.61 eur or 1.91 pct to 85.83, respectively.
   
Also helping autostocks, Brilliance China Automotive Holdings, the Chinese partner of BMW said its 2006 sales revenue was up 47 pct from a year earlier at 31.9 bln yuan.
   
SAP rose 0.69 eur or 1.94 pct to 36.27, as Merrill Lynch added the software maker to its most-preferred stock list for February.

Infineon gained 0.04 eur or 0.33 pct to 12.20. The chipmaker said that Mastercard will use its chip in a new generation of credit cards, which do not have to come into contact with the machine that reads them.
   
Deutsche Post was up 0.06 eur or 0.25 pct at 24.47, but underperforming the market, after HSBC reduced its stance on the logistics and postal company to 'neutral' from 'overweight' pegging its price target at 26.00 per share, dealers said.
   
Munich RE was underperforming the market, up 0.15 eur or 0.12 pct at 122.15, after ING Bank reduced its stance on shares in the insurance giant to 'hold' from 'buy' and lowered its target to 135 eur per share from 149, dealers said.
   
ING said that Munich Re is likely to be hit by declining premium rates and lower premium volumes as the insurance company is also simultaneously seeing 600 mln eur in claims due to the windstorm Kryll in January.
   
Bucking today's trend, EON was down 1.87 eur or 1.69 pct to 108.78, as the sharpest decliner on the DAX. An article in the Handelsblatt said Acciona SA could pocket 1.3 bln eur from relinquishing its stake in Endesa SA if EON AG's planned acquisition of the utility goes ahead.

London

FTSE 100 risers

BG Group 739 up 14 JP Morgan 'overweight' from 'neutral'; Cazenove 'outperform'; oil spike

GlaxoSmithKline 1,450 up 28 WestLB 'add' from 'hold' & tgt upped to 1,600p from 1,500; results yesterday

Rolls-Royce 499-3/4 up 12-1/4 Deutsche Bank ups target to 460 pence from 430; results yesterday

Reckitt Benckiser 2,621 up 26 Collins Stewart 'buy' & 2,950p tgt; JP Morgan 'overweight'; ING 'buy'

Prudential 719-1/2 up 4-1/2  Sanford Bernstein targets 790 pence

ICI 467-1/4 up 1-1/4 Collins Stewart repeats 'buy'; results yesterday

Reed Elsevier 600 up 4-1/2  Seymour Pierce 'outperform'

Tesco 431-1/2 up 2 Morgan Stanley 'overweight' with 380 pence target

FTSE 100 fallers

Cable & Wireless 176 down 1-3/4  Profit-taking

Smith & Nephew 607-3/4 down 5-1/4  UBS 'neutral' from 'buy'; results yesterday

Intercontinental 1285 down 15  US hotels results disappointment yesterday

Vodafone 149 down 1 Credit Suisse 'neutral' from 'outperform'

J Sainsbury 511-3/4 down 3-3/4  Seymour Pierce 'sell'; offloads bank stake to

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Asian shares close mostly higher on positive corporate news

HONG KONG - Shares across the Asia-Pacific region closed mostly higher on positive corporate news, with the Australian market continuing to hit new record highs, dealers said.
   
Tokyo shares closed higher ahead of a long weekend as investors cheered data showing that corporate capital spending in Japan remained strong, with a softer yen also supporting sentiment.
   
Financial markets will be closed on Monday for a public holiday.
   
Market watchers expect shares to stay firm next week with the benchmark Nikkei 225 likely to top 17,600 points on hopes of upbeat GDP data for the three months to December, which will be announced next Thursday, and with more companies seen revising their earnings forecasts upward.
   
The Nikkei 225 Stock Average closed up 211.85 points or 1.23 pct at 17,504.33, off a high of 17,545.71. For the week, the index lost 0.24 pct. The TOPIX index of all first-section issues rose 24.91 points or 1.45 pct to 1,745.09, off a peak of 1,748.71. The index gained 0.15 pct for the week.
   
The government earlier today said Japan's core private sector machinery orders in December fell a seasonally adjusted 0.7 pct from November, after having risen 3.8 pct in the previous month, with the December drop deeper than the market was expecting.
   
Australian shares closed at fresh record highs as investors remained bullish following strong earnings reports released this week and in anticipation of further positive numbers over the rest of the current reporting season.
   
Early on, the market dipped on some follow-through selling of banks but then it turned back up on bargain hunting.
   
The S&P/ASX 200 ended up 27.7 points or 0.47 pct at a record close of 5,927.2, closing at its high for the day and beating the previous record close of 5,899.8 last Wednesday.
  
Over the trading weak the benchmark index gained 95.7 points or 1.64 pct. The broader All Ordinaries index rose 26.4 points to a fresh record close of 5,899.3, surpassing the previous record yesterday of 5,872.9.
   
Hong Kong shares were weaker in afternoon trade as banking giant HSBC extended its fall after warning of higher provisions for 2006. At 3.30 pm the Hang Seng Index was down 51.33 points or 0.25 pct at 20,683.72.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on short-term liquidity pressure with banks and steel makers losing ground. The Shanghai A-share Index was down 7.76 points or 0.27 pct at 2,866.65 and the Shenzhen A-share Index was down 0.62 points or 0.09 pct at 703.55.
   
Seoul shares closed slightly higher after two sessions of modest decline as futures-linked program buying helped absorb shares unloaded by foreign and retail investors ahead of the weekend.
   
The market remained firm for most of the session, with investors relieved that it had dealt with major events such as the expiry of options contracts and the Bank of Korea's rate decision yesterday. 
   
The KOSPI index closed up 4.10 points or 0.29 pct at 1,427.68, after moving between 1,422.97 and 1,432.29. It ended the week with a gain of 14.54 points or 1.03 pct.

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Oil slips after topping 60 usd; traders eye OPEC, US-Iran tensions    

LONDON - Oil slipped after rallying to a one-month high above 60 usd on NYMEX, as traders fretted over renewed US-Iran tensions and declining OPEC output.
   
At 11.53 am, front-month Brent North Sea crude contracts for March delivery were down 30 cents at 58.73 usd a barrel, after hitting 59.54 usd earlier -- their highest since Jan 3.
   
Light, sweet crude was up 41 cents at $60.12 per barrel on the New York Mercantile Exchange. Oil closed at its highs of the year Thursday amid cold weather and a production outage in California.
   
Prices rallied earlier on continued worries over a report out yesterday from Lloyd's Marine Intelligence Unit saying OPEC output fell 200,000 bpd in January.
   
Although the cartel still has a way to go to meet its 1.7 mln bpd output cut pledges, news of declining OPEC output reduced scepticism in the market about OPEC compliance.
   
Also benefiting prices earlier were renewed fears over the security of oil supplies from Iran, the world's fourth largest oil exporter. Supreme leader Ayatollah Khameini warned yesterday Iran would strike US interests around the world if his country is attacked.
   
The Islamic republic is embroiled in a dispute with western nations over its nuclear programme, which the US believes is a front for an atomic weapons drive.
   
"With US petroleum demand showing stronger growth in recent weeks and with ongoing geopolitical threats to supply from Nigeria, Iraq and Iran, we think there is enough fundamental support already in evidence to spark a run to 65 usd or even 70 usd," said Citigroup analyst Tim Evans.
   
After diving to a low of 49.90 usd in mid-Jan, oil prices have recovered nearly all of this year's losses and are now close to levels seen in early January.
   
The price recovery had been driven in large part by the late arrival of freezing temperatures in the US Northeast, the world's largest heating oil consumer.   
    
   
Metals

Change in London Metal Exchange inventory as of Friday, Feb 9:

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