US & World Daily Markets Financial Briefing 11-04-2007

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Stocks dip ahead of Fed meeting minutes

NEW YORK - Stocks fell moderately Wednesday as investors awaited minutes from the Federal Reserve's last meeting to offer insight into where interest rates might be headed.
   
Investors seemed unimpressed by a plan from Citigroup Inc., the nation's largest financial institution, in which it would eliminate about 17,000 jobs to reduce costs and improve profits.
   
Also, Fed Chairman Ben Bernanke is scheduled to speak Wednesday afternoon on discipline and regulation. He is also expected to touch on the mortgage
industry, which is battling weakness in the subprime mortgage lending market.
   
In the first hour of trading, the Dow Jones industrials fell 20.64, or 0.16 percent, to 12,553.21.
   
Broader stock indicators also fell. The Standard & Poor's 500 index slipped 2.51, or 0.17 percent, to 1,445.88, and the Nasdaq composite index fell 6.35, or 0.26 percent, to 2,471.26.
   
Bonds showed little movement. The yield on the benchmark 10-year Treasury note remained flat at 4.72 percent from late Tuesday. The dollar was mixed against other major currencies, while gold prices fell.
   
In corporate news, Citigroup's plan to cut about 5 percent of its 327,000-member work force didn't seem to go far enough for some investors. Citigroup fell 40 cents to $52.
   
The Russell 2000 index of smaller companies fell 2.03, or 0.25 percent, to 812.48.
   
In afternoon trading, Britain's FTSE 100 rose 0.31 percent, Germany's DAX index rose 0.42 percent, and France's CAC-40 rose 0.29 percent.

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Dollar steady ahead of minutes to FOMC March meeting

LONDON - The dollar was steady after sharp falls yesterday, amid a lack of newsflow, with the market awaiting tonight's release of the minutes from the Federal Open Market Committee meeting in March.
   
Given that the Federal Reserve suggested it was removing its bias to tighten monetary policy in a statement accompanying its decision to leave interest rates unchanged, market players will be looking for further clues on the Fed's thinking, as well as the extent of concerns over inflation.
   
"Anything that reinforces the idea that the Fed is still on an implicitly tightening strategy would be positive for the dollar, as a knee-jerk reaction by investors," said Julian Jessop, chief international economist at Capital Economics.
   
But investors could have second thoughts about the dollar-positive impact of a tightening bent on reflection that higher rates could be harmful for the US economy and equities, he said.
   
In any event, the minutes may have been surpassed by Friday's stronger-than-expected US jobs data, which is likely to prevent the Federal Reserve cutting interest rates any time soon.
   
Elsewhere, the pound remained strong across the board, boosted by a report in the Financial Times that the UK Treasury is planning a tax exemption on dividends earned abroad.
   
Such an exemption, which the Treasury confirmed it is proposing after a year of talks with industry players, would bring the UK tax system in line with mainland Europe.
   
The news caused the pound to jump to week highs against the dollar and the euro as the market was reminded of the boost to the dollar gained from a similar act in the US in 2005.
   
Meanwhile, the yen remained weak as the carry trade -- where investors borrow in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere -- continued to show no sign of unwinding.
   
The market is wary, however, ahead of this weekend's meeting of G7 countries in Washington. Although analysts do not think the yen will be mentioned explicitly, they do expect a reiterated warning on "one-way bets" -- a comment made at February's meeting in Essen which was taken to refer to yen weakness.

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FTSE 100 risers

Prudential 755 up 6 Talk of HSBC bid re-emerges

Marks & Spencer 718 up 23  Private equity bid hopes; BRC survey particularly strong in food, clothing

Xstrata 2,796 up 39   Aluminium asset sale; Lehman/Credit Suisse positive; firm metal prices

Severn Trent 1,486 up 21   Morgan Stanley 'equal-weight' from 'underweight' with tgt upped to 1,570p

Alliance Boots 1,051 up 16  Agrees to open books for Terra Firma

Smiths Group 1,087 up 5  Hopes of private equity bid post GE deal

Royal Dutch Shell 1,700 up 15  Settles compensation claims

Reckitt Benckiser 2,663 up 2  One of Sanford Bernstein's top picks among European food producers & HPC

Sage Group 262 up 2-1/2  JP Morgan 'overweight'; Morgan Stanley ups tgt to 266p from 220

Scottish & Newcastle 602-1/2 up 7-1/2 SABMiller bid hopes; Easter weather benefits

Tesco 459-1/4 up 3-3/4  Consumer spending up 6 pct in Q1; food, clothing particularly strong

FTSE 100 fallers

Kazakhmys 1,192 XD down 28   Former CEO Cha sold remaining 4.5 pct stake

Sainsbury 531-1/2 down 7   Co formally to reject CVC offer within 24 hours - sources

Hammerson 1,680 XD down 32   Lehman 'equal-weight' from 'overweight'

Land Securities 2,177 down 21   Lehman 'equal-weight' from 'overweight'

British Land 1,573 down 9   Lehman 'equal-weight' from 'overweight'

Kelda 939 down 7  Morgan Stanley reiterates 'underweight'

United Utilities 766 down 4-1/2   Morgan Stanley 'underweight'

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Asian shares close mixed, with caution ahead of US data

HONG KONG  - Asian shares closed mixed, with some markets cautious ahead of the release of US data and earnings reports, while China shares continued to rise on firm buying interest.
   
Tokyo shares ended flat after directionless trading during which investors digested the weaker-than-expected core private-sector machinery orders for February and then began looking ahead to the corporate earnings season here and in the US.
   
The blue-chip Nikkei 225 Stock Average finished 5.38 points or 0.03 pct higher at 17,670.07, off a high of 17,723.39 and a low of 17,618.19. The TOPIX index of all first-section issues ended 3.32 points or 0.19 pct higher at 1,739.01, off a high of 1,743.50 and a low of 1,732.11.
   
The value of core private-sector machinery orders fell a seasonally adjusted 5.2 pct in February from January to 1.04 trln yen. The market had expected a fall of 0.2 pct. Core private-sector machinery orders, which exclude orders from electric utilities and for ships, are considered a leading indicator of corporate capital spending.
   
The machinery orders data, released before the market opened, prompted investors to sell, but some began picking up bargains among stocks sensitive to domestic demand, such as utility and property stocks.
       
Australian shares closed flat as late profit taking outweighed positive investor sentiment following recent merger and acquisition activity and the boost to the resources sector from ongoing rises in base metal markets.
       
The S&P/ASX 200 closed down 1.6 points or just 0.03 pct at 6,151.4, off yesterday's record close of 6,153.0. The key index closed off a fresh intra-day record of 6,176.9.
   
Hong Kong shares were stronger in afternoon trade, turning around mild profit-taking in the morning. Investors were cautious ahead of the release of US Federal Reserve minutes tonight and key US inflation data in the coming days. At 3.25 pm the Hang Seng Index was up 78.89 points or 0.39 pct at 20,426.76.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on continuing firm buying interest, with banking stocks and steelmakers gaining ground.
   
The Shanghai A-share Index was up 54.06 points or 1.49 pct to 3,674.37 and the Shenzhen A-share Index was up 10.62 points or 1.11 pct at 971.39, a new record.
   
Seoul shares closed higher, with foreign investors actively buying large cap IT stocks following overnight gains on Wall Street, catapulting the main index to a new record high.
   
The strong foreign interest effectively offset profit-taking following recent sustained gains and caution ahead of the Bank of Korea's rate decision and expiry of options tomorrow.
   
North Korea's reported plan to start shutting down its main nuclear reactor within 30 days also helped sentiment, although it misses Saturday's deadline. Gains were broad, with large cap IT stocks, builders and brokerages among the most sought.
   
The KOSPI index closed up 14.26 points or 0.95 pct at 1,513.42, after moving between 1,507.57 and 1,519.31.

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Copper strikes fresh seven-month high on strong Chinese demand

LONDON - Copper struck a fresh seven-month high and rose towards 8,000 usd as the market focused on strong demand from China, the world's biggest consumer of the metal.
   
Also fuelling prices, the LME reported another hefty fall in stocks stored in warehouses across the globe.
   
At 12.41 pm, copper for three-month delivery stood at 7,947 usd, against 7,710 usd at the close yesterday. Prices had struck an intra day high of 7,950 usd earlier in the session.
   
Prices continued to rise since surging yesterday on the news that demand from China rose 58 pct year-on-year in the first three-month period of 2007, as reported by the Chinese customs office. Imports in March alone were up 61 pct from the same month last year.
   
Falling inventories stored in LME-certified warehouses also lifted prices. Stocks were down 2,100 tonnes at 175,500 tonnes today, said the LME in a daily report. Other metals followed copper's lead but analysts warned a sharp correction may be due.
   
The market's current movement "has been exaggerated by the hedge funds," which encouraged extreme volatility "at a time when the copper market was shaky," said Alex Heath, at RBC Capital Market's base metals desk.
   
He explained strong Chinese import data encouraged speculative buying. The rally is "perhaps not entirely justified by fundamentals," he noted. Hefty imports of the metal into China are not being consumed, he said.
   
But, in the longer term, analysts still widely expect Chinese growth to underpin base metals, notably copper. "We are in a long-term bull market. However, we think markets are ahead of themselves at the moment," commented Heath.
   
Nickel also stayed close to its highs, supported by a fall in LME stocks amid critically low inventories. Stocks of the metal are so low that current volumes available to the market would not be enough to satisfy one day's worth of global consumption.
   
Nickel was slightly lower at 48,550 usd from 48,600 usd seen yesterday. In other metals, aluminum was higher at 2,894 usd from 2,870 usd at yesterday's close.
   
In the background, aluminium was supported by statements from Alcoa, the worlds second-largest producer of aluminium, behind Rusal, which said global aluminium consumption in 2007 is expected to remain robust despite a downturn in the North American truck market. Global consumption is expected to grow by 7.7 pct this year, with flat consumption growth in North America offset by stronger growth elsewhere particularly in China, it said.
   
Elsewhere, zinc was up at 3,612 usd against 3,540 usd, lead was up at 2,030 against 2,017 usd, zinc was up at 3,612 usd against 3,540, while tin was also up at 14,350 usd against 14,150 usd.

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