US & World Daily Markets Financial Briefing 13-02-2008

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Stocks higher on upbeat retail sales

NEW YORK - Wall Street moved higher Wednesday after the Commerce Department reported an unexpected increase in retail sales last month and eased some concerns about consumers' willingness to spend despite economic uncertainty.
   
The 0.3 percent rise in January retail sales, which followed a drop during December, alleviated some of Wall Street's worries that consumers were retrenching because of rising fuel prices, a faltering real estate sector and a choppy stock market. Analysts had expected a 0.3 percent decline in January sales.
   
However, another report from the department showed that U.S. business inventories grew a little more than expected in December. The data was a sign of an involuntary buildup of unsold goods on store shelves amid the economic slowdown.
   
The report was not enough to offset optimism during the session. Stocks have mostly risen in recent sessions as investors tried to determine whether Wall Street has reached a bottom or whether further sluggishness in the economy will send stocks lower.
   
In midmorning trading, the Dow Jones industrial average rose 82.26, or 0.66 percent, to 12,455.67.
   
Broader indexes also moved higher. The Standard & Poor's 500 index added 7.39, or 0.55 percent, to 1,356.25; and the Nasdaq composite rose 25.68, or 1.11 percent, 2,345.72.
   
Bond prices fell following the retail sales report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.69 percent from 3.67 percent late Tuesday. The dollar was mixed against other major currencies.
   
Light, sweet crude oil fell 43 cents to $92.35 per barrel on the New York Mercantile Exchange.
   
In corporate news, Coca-Cola Co. said its fourth-quarter earnings jumped 79 percent amid a 24 percent increase in revenue. The world's biggest beverage producer cited growth in its key soft-drink brands as well as in its water, sports drink and orange juice businesses. Coke fell 66 cents to $59.26.
   
Deere & Co. said fiscal first-quarter profit increased 54 percent amid strong international sales. However, shares fell $1.11 cents to $85.37.
   
Waste Management Inc. rose 49 cents to $33.64 after reporting its fourth-quarter earnings increased 26 percent. The nation's largest garbage hauler got a bounce from tax benefits and the sale of some operations. However, fuel prices ate into profits.
   
Also, the state oil company of Venezuela said it has halted sales of crude to Exxon Mobil Corp. in response to the U.S. company's drive to use the courts to seize billions of dollars in Venezuelan assets. The oil company rose 53 cents to $84.91.
   
The Russell 200 index of smaller companies rose 8.16, or 1.16 percent, to 713.64. Advancing issues led decliners by a 2 to 1 margin on the New York Stock Exchange, where volume came to 199.4 million shares.
   
Overseas, in afternoon trading Britain's FTSE 100 fell 0.15 percent, Germany's DAX index rose 0.40 percent, and France's CAC-40 rose 0.76 percent.

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Pound strengthens after hawkish BoE Inflation Report

The pound strengthened after the Bank of England released a relatively hawkish quarterly Inflation Report, which suggested that interest rates will not be cut by as much as markets have been pricing in.
   
The central bank raised its projection for inflation to close to 3 pct in the coming months, well above its 2 pct target. BoE governor Mervyn King also said it is "odds-on" that he will have to write a letter to the Chancellor of the Exchequer Alistair Darling, something he is obliged to do if inflation rises above 3 pct.
   
"The Bank of England's February Inflation Report has given a pretty strong signal that, for now at least, the Monetary Policy Committee does not expect to cut interest rates as far and as fast as the markets currently anticipate," said Jonathon Loynes, chief UK economist at Capital Economics.
   
Financial markets have been pricing in a rapid fall in the benchmark Bank rate to around 4.50 pct this year, from the current 5.25 pct.
   
Loynes said that for now, the report "should at least temporarily reverse some of the recent falls in rate expectations and lend the pound some support."
   
The more hawkish-than-expected tone in the Inflation Report helped add to gains that the pound had already enjoyed following robust labour market data, bringing it to a two-week high against the euro.
   
The Office of National Statistics said the claimant count, which measures the number of Britons claiming jobseeker's allowance, fell by 10,800 in January after dropping by an upwardly revised 8,700 in December.
   
This easily beats forecasts for a much more moderate 5,000 fall and marks the sixteenth consecutive decrease, the longest sequence of falls since June 2003 to January 2005's 20-month run.
   
The euro itself was also under pressure against the pound due to a surprise monthly fall in industrial production data from the single currency zone.
   
Eurostat said industrial output fell 0.2 pct in December from November's 0.4 pct fall, and was up 1.3 pct year-on-year from a 3.1 pct rise. This missed expectations for a 0.6 pct monthly rise and a 2.3 pct yearly increase.
   
"This should add pressure on the European Central Bank to cut rates sooner rather than later, and the focus will increasingly shift from April's ECB meeting to March if the data continues to come through as weak as this in the coming weeks," said David Brown, chief European economist at Bear Stearns.
   
Attention will turn later to the dollar with the release of US retail sales data for January. Retail sales are expected to have fallen 0.3 pct following a 0.4 pct drop in December.
   
"The data will remind us of the underlying weakness of the US consumer and the fact that a recession in the US will originate from the consumer rather than the corporate sector, unlike in the past," said Mitul Kotecha, head of global FX research at Calyon.

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Euroshares open lower, taking breather after yesterday's rally

At 9.01 am, the STOXX 50 was 40.31 points or 1.24 pct lower at 3,206.62, while the STOXX 600 fell 4.18 points or 1.29 pct to 318.85.

In Europe, investors were mulling over earnings results from the likes of ArcelorMittal, Total, Peugeot and Storebrand out this morning. 

France's ArcelorMittal fell 2.69 pct in early deals, despite releasing a solid set of earnings with traders pointing to yesterday's strong gains of 6.36 pct by the stock in anticipation of the results.

Peugeot SA rallied 4.47 pct after the car maker presented solid full year earnings and an encouraging outlook.

Norwegian insurance group Storebrand was also in high demand, up 8.85 pct, after it reported fourth quarter earnings of 675.8 mln nkr, up from 443 mln a year earlier, and better than the market had expected.

Sweden's Nordea AB shed 0.86 pct, mainly on profit-taking after strong gains yesterday. The group outperformed the wider market, however, after it released broadly in-line fourth quarter results.

Meanwhile, French oil and gas giant Total SA also managed to stay ahead of the market, down 0.57 pct as the CAC fell 1.07 pct, after the group released results which were largely positive, according to traders.

One London-based trader highlighted the group's fourth quarter adjusted net income of 3.1 bln eur -- ahead of the 3.0 bln seen by the market.

And in Germany, steel maker ThyssenKrupp lost 2.89 pct as its first-quarter numbers came in lower than expected, and with news of a probable strike putting pressure on steel manufacturers.

ABB, the Swedish-Swiss engineering group, shot 7.36 pct lower on the surprise exit of the group's chief executive Fred Kindle. Earlier this morning, ABB said full-year 2007 net income reached 3.8 bln usd compared with 1.390 bln in 2006, and beat market forecasts.

Turning to M&A chatter, Deutsche Postbank and Commerzbank are in the limelight with traders pointing to rumours that the latter might be mulling launching a 75 eur per share bid for Germany's largest purely retail bank.

Die Welt reported this morning that Commerzbank's chief executive Klaus-Peter Mueller will likely affirm the group's interest in Deutsche Postbank when he presents the company's full-year results tomorrow.

In other news, Roche added 0.98 pct as a Phase III study evaluating its cancer drug Avastin in combination with docetaxel chemotherapy, met its primary endpoint of prolonging progression-free survival in patients with advanced breast cancer.

And on the economic front, the Bank of England's quarterly inflation report is likely to acknowledge risks to economic growth while also suggesting that any further rate cuts this year will only come gradually, as long as price pressures linger in the economy.

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Asian markets mostly higher after Dow gains on Buffett offer

The Nikkei 225 index was up 0.4 percent at 13,068.30, but off its high of 13,240.26.

In Australia, the Commonwealth Bank of Australia Ltd (CBA) reported lower than expected first-half net profit due to higher funding costs and provisions for potential bad debts. CBA reported its net cash profit increased 4 percent to 2.385 billion Australian dollars, below the market's consensus forecast of 2.47 billion dollars.

The news, along with data showing a decline in consumer sentiment, dragged the Australian market lower, with the S&P/ASX 200 closing down 1.2 percent at 5,542.1, and the All Ordinaries ending 1.0 percent lower at 5,615.3.

CBA fell 6.5 percent to 46.20 Australian dollars, while the rest of the banking sector was also hit by concerns about rising funding costs caused by the credit crunch and fears that defaults might rise due to higher interest costs.

Australia & New Zealand Banking Group slumped 5.9 percent to 23.80 dollars, National Australia Bank dropped 5.6 percent to 30.40 dollars and Westpac slipped 4.1 percent to 23.25 dollars.

South Korea's KOSPI reversed early gains after the Bank of Korea decided to leave interest rates unchanged. The index closed down 0.7 pct at 1, 631.78, just off its worst level for the day of 1,629.57, after rising to 1, 663.95 at the opening.

Mainland China's stock market reopened lower following a week-long holiday, catching up with losses posted by the Hong Kong bourse during the period. The benchmark Shanghai Composite Index closed down 2.4 percent at 4,490.72, pulled down by banks and other large-caps.

In Hong Kong, the Hang Seng index closed up 1.1 percent at 23,169.55. Elsewhere, Singapore's Straits Times index ended up 0.8 percent at 2,949.54, while Malaysia's Kuala Lumpur Composite Index closed up 0.4 percent at 1,423.15.

The Philippine composite index gained 0.7 percent to close at 3,223.35, while the Jakarta composite index closed up 0.7 percent at 2,610.78. Taiwan's weighted index closed down 0.04 percent at 7,550.55.

Shipping stocks rallied across Asia on bargain hunting as freight rates continued to recover following recent falls.

The Baltic Dry Index, a benchmark for the cost of shipping various commodities like iron ore and coal, rose 192 points to 6,712 in London overnight.

In Korea, STX Pan Ocean was up 0.3 percent at 1,850 won, while Korea Line Corp was up 2.1 percent at 167,500 won.

Japan's Nippon Yusen rose 2.1 percent to 968 yen, its rival Mitsui OSK Lines climbed 4.9 percent to 1,403 yen. Kawasaki Kisen Kaisha was up 4.4 percent at 1,038 yen.

The Bombay Stock Exchange's benchmark Sensex climbed 341.13 points or 2.05 pct to close at 16,949.14 while the National Stock Exchange's 50-share S&P CNX Nifty gained 1.88 pct to 4,929.45 points amid low volumes.

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Copper continues lower on muted Chinese buying

LONDON - Copper continued lower as muted Chinese buying knocked the top off recent price gains.
   
Copper had risen strongly on the London Metals Exchange in the absence of Chinese markets, closed for the week-long Lunar New Year holiday until today.
   
But with Chinese traders returning from holiday, buying interest has been limited, with prices pushed lower as some investors chose to lock in profits.
   
"Price moves on the Shanghai Futures Exchange (SHFE) suggest that Chinese buyers on their return from holiday are reluctant to chase copper higher and so in the short-term copper's recent gains may prove difficult to sustain," said analysts at Barclays Capital.
   
At 2.01 pm, LME copper for three-month delivery was down slightly at 7,739 usd a tonne, against 7,765 usd at the close yesterday.
   
Prices in the red metal remain well supported by declining inventories at LME monitored warehouses. Copper stockpiles have been dropping by around 2,000 tonnes a day over the last two weeks, with a similar draw down today putting stocks of the red metal at 157,600 tonnes.
   
Robust expectations for long-term Chinese demand for copper and other industrial metals is also lending a solid floor to prices. Rio Tinto, the world's third largest mining company, today argued demand could well hold up despite the current economic turmoil, which has pressured prices in recent months.
   
Vivek Tulpule, chief economist at Rio Tinto, said: "Virtually all minerals and metals prices remain significantly above historical trend and many prices have now increased well above start-of-year levels.
   
"Indeed, it is arguable that even as negative sentiment in relation to the US economy and credit markets has continued to increase over 2008, the market's perceptions about fundamentals in most resource markets do not appear to have been much affected."
   
Among other metals traded on the LME, tin remains supported around the 17,000 usd a tonne mark, with concerns over tightening supply helping to underpin prices.
   
The metal, which is widely used in electroplating and in alloys, was pushed to a record high of 17,550 usd a tonne late last year by a spate of supply disruptions from major producers China and Indonesia. The market is expected to remain tight this year.
   
Tin was down slightly at 17,075 usd a tonne against 17,100 usd.
   
Among other base metals, nickel eased to 28,050 usd a tonne from 28,100 usd, zinc fell to 2,420 usd a tonne against 2,485 usd, while lead dropped to 3,021 a tonne against 3,065 usd. Aluminium bucked the trend to trade up slightly at 2,659 usd a tonne from 2,654 usd.

At 2.02 pm, gold was down at 902.25 usd an ounce against 908.50 usd in late New York trade yesterday.
 
In other precious metals, platinum rose to 1,927 usd against 1,925 usd on profit-taking. Platinum's sister metal palladium was down at 419 usd an ounce against 430 usd in late New York trades, while silver eased to 17.08 usd an ounce against 17.21 usd. Silver touched a multi-decade high of 17.59 usd yesterday before being dragged lower with the rest of the precious metals complex.

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