US & World Daily Markets Financial Briefing 09-10-2007

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Stocks open higher ahead of earnings

NEW YORK - Stocks rose moderately in early trading Tuesday as Wall Street awaited the earnings season's unofficial kickoff with Alcoa Inc.'s report and minutes from the Federal Reserve's last meeting.
   
An upbeat profit report from Yum Brands Inc., the parent of KFC, Taco Bell and Pizza Hut, also lifted the market's mood.
   
The report from aluminum producer Alcoa, the first of the 30 constituent stocks of the Dow Jones industrial average to report results, could provide investors further insight into how well corporate profits held up during the third quarter. Wall Street expects the company to report a modest rise in profits after the closing bell Tuesday.
   
As the flow of earnings reports begins in earnest, Wall Street will also devote attention to minutes from the Fed's Sept. 18 meeting, when the central bank lowered the target federal funds rate by a larger-than-expected half percentage point.
   
The Fed's decision to make access to cash cheaper helped dismantle some of the intransigence in the credit markets that developed amid concerns about souring mortgage debt. Wall Street will no doubt be looking for any insights into whether the Fed is likely to cut again when it meets Oct. 30-31 or hold the
target rate at 4.75 percent.
   
Wall Street's attention to the Fed will also likely extend to comments expected from two of the bank's officials. St. Louis Fed President William Poole and San Francisco Fed President Janet Yellen are slated to deliver speeches Tuesday.
   
In the first hour of trading, the Dow rose 34.71, or 0.25 percent, to 14,078.44. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 4.87, or 0.31 percent, to 1,557.45, and the Nasdaq composite index rose 8.81, or 0.32 percent, 2,796.18.
   
Bonds rose as investors appeared to consider whether Friday's sell-off was overdone. The 10-year Treasury note yield, which moves inversely to its price, fell to 4.62 percent from 4.64 percent late Friday. The Treasury bond market was closed Monday for the Columbus Day holiday.
   
Light, sweet crude rose 28 cents to $79.30 in premarket electronic trading on the New York Mercantile Exchange.
   
In corporate news, Yum Brands rose $1.91, or 5.2 percent, to $38.19 after the company on Monday reported stronger-than-epxected third-quarter profits. While revenue in the U.S. declined, strong international sales boosted results.
   
Sprint Nextel Corp. fell 52 cents, or 2.8 percent, to $17.98 after the phone company said after the bell Monday its Chairman, President and Chief Executive Gary Forsee would step down. The company also warned it expects full-year operating revenue to come in slightly below its targeted range.
   
Google Inc. rose again Tuesday after closing above $600 for the first time Monday. The stock rose $8.43 to $618.05.
   
Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange, where volume came to 57.7 million shares. The Russell 2000 index of smaller companies rose 1.51, or 0.18 percent, to 841.65.
   
Overseas, Britain's FTSE 100 rose 0.99 percent, Germany's DAX index rose 0.34 percent, and France's CAC-40 advanced 0.37 percent.

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Dollar steady as Trichet insists US still has 'strong dollar' policy

LONDON - The euro remained relatively steady against the dollar after the European Central Bank's president insisted that the US remains committed to a strong dollar policy despite the recent sharp slide in the value of the currency.
   
Jean-Claude Trichet told the European Parliament's economic and monetary affairs committee that he noted "with great attention" that the US authorities have reaffirmed that they see a strong dollar as being in the interest of the US economy.
   
Neil Mackinnon, chief economist at ECU Group, said the upcoming G7 meeting of finance ministers and central bankers will be important to see whether US Treasury Secretary Hank Paulson firms up his comments on the extreme positions and prices in the currency markets.
   
"A falling dollar is not a free lunch," he said. "The US is dependent on foreigners' finance to buy US debt and if they sense a potential dollar crisis it could lead to fresh global market turbulence," Mackinnon added.
   
One of Paulson's most persistent concern about the currency markets has been China's exchange rate policy.
   
Trichet added his voice to calls for China to allow its currency, the yuan, to float more freely in the currency markets. In effect, he is looking for Asian currencies to take some of the strain of a falling dollar from the euro.
   
"In emerging countries with large and growing current account surpluses, and this is the case with China, it is desirable that their effective exchange rates move so that necessary adjustments will occur," Trichet said.
   
"We will engage in dialogue with China," added Trichet, who is due to visit China in the months to come along with Eurogroup president Jean-Claude Juncker and EU Economic Affairs Commissioner Joaquin Almunia to discuss the exchange rate problem.
   
Simon Derrick, currency strategist at Bank of New York Mellon thinks there are two reasons why the trip should not be dismissed out of hand, the first being the People's Bank of China's recent comment about the need for greater co-ordination between currency and monetary policy.
   
"The second reason for keeping a careful eye on this trip is the simple fact that the visitors come from Europe rather than the US," said Derrick. "Simply put, If China is looking to alter its currency policy slightly without wishing to be seen to bow to US pressure then a visit from the Europeans might provide the ideal opportunity to announce it," he added.
   
The main piece of economic news today will be the minutes to the last rate-setting meeting of the US Federal Reserve, when the FOMC surprised the markets by voting for a half point interest rate reduction to offset the effects from the summer's liquidity crisis.

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Euroshares higher midday, M&A in the spotlight, Hagemeyer, Alitalia surge

LONDON - Leading European exchanges continued to climb at midday, with M&A talk boosting shares in Hagemeyer, Alitalia and Northern Rock, while a profit warning from Germany's Kloeckner placed pressure on the steel sector.
   
At 11.57 am, the Dow Jones STOXX 50 was 8.77 points or 0.23 pct higher at 3,893.49, with the STOXX 600 gaining 1.08 points or 0.28 pct to 386.94.
   
In Europe, Alitalia was 3.21 pct higher. Its board decided yesterday to pursue contacts with six groups to ascertain their interest in buying a stake. The six groups: are Aeroflot, Air France-KLM, Air One owner Carlo Toto's AP Holding, a consortium headed by Antonio Baldassarre, Lufthansa and TPG.
   
There were also unsourced reports that the Italian government could cash in some 5-7 pct of the Air-France KLM holding company in exchange for the sale of a stake of less than 30 pct in the Italian airline.
   
Northern Rock charged 22.32 pct ahead after the UK government has agreed to extend its guarantee on customer deposits, in a move aimed at granting the stricken mortgage lender extra breathing space while it holds talks with potential buyers.
   
Also in M&A talk, industrial supplier Hagemeyer NV surged 9.62 pct after France's Sonepar announced a bid of 4.25 eur per share for the Dutch company, that SNS Securities said is likely to succeed, according to market sources.
   
One Amsterdam-based trader said the share is trading at a premium because "people expect Rexel to bid."
   
Sanofi-Aventis rose to a four-month high, up 2.99 pct, as market speculation persisted that Pfizer may be interested in acquiring nearly a quarter of the French drugs group by purchasing Total and L'Oreal's stakes. But analysts remained sceptical that such a deal could go through.
   
"A non-French company taking a strategic stake in a strategic industry in France is difficult, especially when I don't see a blockbuster in the pipeline that would be driving that," Michael Leacock, analyst at ABN Amro, said.
   
Kloeckner grabbed the steel sector spotlight, after the group released a profit warning last night which sent its shares tumbling more than 25 pct in early trading, weighing down on the steel sector in general.
   
"They can be classified as a smaller player and what we're seeing now really underlies the fact that the steel industry is far too atomized," Cantor Fitzgerald's Pope said.
   
"Typically what we will see of a fringe player is that they will gradually correlate. Now, the top 10 companies in the sector have something like 30 pct of the steel market ...  . we will have to see further consolidation and I think gradually we will move to maybe five companies controlling that 30 pct in some
three years," he said.
   
With Kloeckner down 17.93 pct at last check, Acerinox was down 1.59 and Salzgitter had shed 2.05 pct, with ThyssenKrupp 1.15 pct lower.
   
And in France, media stocks surged following news that the government  planned a major shake-up of the broadcasting sector to promote consolidation and increase the amount of advertising. M6 gained 9.93 pct with TF1 surging 10.23 pct.

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Asian stocks mixed after recent rally; Japan enjoys boost from weak yen

SINGAPORE - Stock markets across Asia ended mixed Tuesday with Japan gaining as a softer yen boosted big export stocks, while Taiwan and the Philippines were stuck in the red as investors locked in gains on the recent rally.
       
In Japan, the Nikkei 225 closed up 0.6 pct at 17,159, while the broader Topix added 0.2 pct to 1,660. The Japanese market was closed Monday for a public holiday, so investors responded to the better-than-expected US September jobs report today.
   
"Investors sense that the worst period of the credit squeeze is over after the US jobs data last week," said Hideo Mizutani, chief strategist at Sieg Securities. With those worries set aside, "the tolerance for risk toward Japanese shares has increased."
   
In Taiwan, the weighted index closed down 0.80 pct at 9,639.83 as technical resistance led the market to consolidate previous gains in the absence of strong positive leads, with Wall Street's weak performance overnight providing no support. Investors pulled back from driving the market closer to its year-to-date high of 9,807 points, recorded on July 26, while recent front runners led by TFT-LCD panels makers fell under profit-taking pressure.
   
Hong Kong shares closed higher after a skittish trading session which saw the main index swing more than 730 points to end near the day's high as the Shanghai market moved to another record close. The Hang Seng closed up 457.75 points or 1.7 pct at 28,228.04.
   
Wall Street's lacklustre performance overnight and speculation that the Federal Reserve may not reduce interest rates this month kept cautious investors away from the market in the morning session. But buying was boosted after the Shanghai Composite Index rose 23.14 points or 0.4 pct to close at a record 5,715.89.
   
The Shanghai A-share Index rose 0.4 pct to 6,000.46 while the Shenzhen A-share Index was up 0.7 pct at 1,629.75. The Shanghai B-share Index fell 0.14 points to 368.34 and the Shenzhen B-share Index slid 0.04 points to 780.10.
      
In Sydney, the S&P/ASX 200 closed up 0.4 pct at 6,677, while the All Ordinaries rose 0.3 pct to 6,687, as gains in the banking sector offset weakness in commodity stocks.
   
In Seoul, liquid crystal display maker LG Philips LCD launched the Korean third-quarter season after the market close. The company reported operating profit of 693 bln won, topping analyst forecasts for 550 bln won and marking its best quarterly result since the second quarter of 2004. Its shares closed down 1,000 won, or 2.2 pct, to 44,950, ahead of the report.
   
The KOSPI index closed up 1.31 points at a record 2,014.13 driven by solid gains by steelmakers and shipbuilders. Earlier, it posted a new all-time high of 2,022.87 but profit-taking trimmed gains. Some investors were also cautious ahead of the start of the corporate earnings season and the expiry of options contracts on Thursday but last-minute buying in steelmakers and shipbuilders helped nudge the main index to a new closing high.
   
Singapore shares were higher with the benchmark index climbing to another record close, lifted by gains in select blue chips led by banking stocks. The broader market came under pressure as investors locked in gains following the Straits Times Index (STI) recent meteoric rise and after Wall Street's lacklustre performance overnight.
   
Indian shares closed at record highs as chances of immediate elections eased after the Indian government and its Left allies agreed to tone down their conflict over a key Indo-US nuclear energy deal and meet again on Oct 22.
   
Reports also said that Railway Minister Lalu Prasad Yadav, who heads a key constituent of the coalition government, is opposed to the idea of snap polls.  "Government will not fall and there is no possibility of mid-term polls," he told the media after today's meeting.
   
The Bombay Stock Exchange's benchmark Sensex closed 4.51 pct or 788.85 points higher at 18,280.24. It hit a low of 17,287.19, in early trade when reconciliation between the government and its allies had appeared impossible.
   
The National Stock Exchange's S&P CNX Nifty gained 4.76 pct to end at 5,327.25 points.

The Kuala Lumpur Composite closed up 0.1 pct at 1,366. The Philippines Composite closed down 2.5 pct to 3,777, led by index leader Philippine Long Distance Telephone Co, as the market took a breather after a
six-day rally that brought the main index to a new record on Monday.

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Gold down near 730 usd on dollar strength, Fed minutes in focus

LONDON - Gold fell to around 730 usd as the dollar's rise made bullion more expensive for those trading in other currencies. 
       
"Gold prices are being held in check by the suddenly stronger dollar, but also by slack Indian demand during a period of honouring the departed, and by a rising tide of scrap bullion that is making its way into shopkeepers' and refiners' furnaces -- and not only in India," said Kitco analyst Jon Nadler, who added higher prices have tempted sellers to cash in.
   
At 1.44 pm, gold was down at 729.65 usd per ounce against 733 usd in late New York trade yesterday. Last Monday, the metal touched 747.75 usd, its highest point in almost 28 years.
   
Traders are awaiting the release today of the minutes to the Federal Reserve's Sept 18 meeting. The minutes could give further clues on the likelihood of further interest rate cuts.
   
If the Fed decides in the future to cut interest rates, the dollar would most likely fall and gold would rise as the traditional inverse relationship plays out.
   
"The currency trade generally thinks that the USD is set to be lifted even further," said an analyst.
   
Elsewhere, silver dipped to 13.25 usd an ounce from 13.27 usd.   

Platinum was down at 1,356 usd against 1,361 usd, while its sister metal palladium dropped to 356 usd against 361.25 usd.
   
"Selling in both the spot and OTC market has led platinum to touch 1,350 usd this morning and the metal may drift lower should the dollar extend higher," said James Moore, an analyst at TheBullionDesk.com. "However, the tight market fundamentals will limit further significant weakness in the coming sessions, with substantial chart support expected at 1,340 usd," he added.

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