US & World Daily Markets Financial Briefing 13-04-2007

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Wall Street mixed after economic data

NEW YORK - Wall Street was mixed in early trading Friday after a government report indicated inflation is not spreading through the broader economy, a trend that might put less pressure on the Federal Reserve to raise rates.
   
The market was pleased after the Labor Department reported its Producer Price Index was flat in March after stripping out the more volatile prices for energy and food. Evidence that inflation hasn't spread through a wider range of goods helped give investors confidence about the economy. Overall, wholesale prices shot up 1 percent in March due to more expensive gasoline and food.
   
Investors remain concerned about the economy, especially considering that the Federal Reserve's minutes from its March meeting showed central bankers remain preoccupied with inflation. Despite this, the Dow Jones industrials have mustered gains in nine of the past 10 sessions.
   
In other economic news Friday, the Commerce Department said the U.S. trade deficit improved for a second straight month, dropping to $58.4 billion in February.
   
Corporate earnings also remain in focus after General Electric Co. posted first-quarter results that matched Wall Street projections.
   
In the first hour of trading, the Dow rose 22.03, or 0.18 percent, to 12,574.99.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index was up 0.57, or 0.04 percent, at 1,448.37, and the Nasdaq composite index fell 5.30, or 0.21 percent, to 2,475.02.
   
Bonds rose slightly, with the yield on the benchmark 10-year Treasury note falling to 4.73 percent from 4.74 percent late Thursday. The dollar was mixed against other major currencies, while gold prices moved higher.
   
Oil prices fell slightly after gaining strength Thursday when the International Energy Agency reported that world oil output declined in March. A barrel of light sweet crude fell 5 cents to $63.80 in premarket trading on the New York Mercantile Exchange.
   
GE rose 23 cents to $35.18 after it reported profit of 44 cents per share, which matched Wall Street projections. The conglomerate said its profit was "tempered" by its U.S. mortgage business because of subprime loans.
   
Apple Inc. said it would delay the release of Leopard, the next upgrade of its Mac operating system, until October. Leopard was originally scheduled to be released in early June. Shares fell $1.26 to $90.93.
   
SLM Corp., the biggest U.S. provider of student loans that is better known as Sallie Mae, is in talks with buyout firms and may be bought for more than $20 billion, according to a report in The New York Times. Its stock soared $4.78, or 11.7 percent, at $45.51.
   
Dyax Corp. rose $2.31, or 57.5 percent, to $2.29 after the biopharmaceutical company said its genetic disease drug met its main goal in a late stage trial. Meanwhile, Merck & Co. rose $3.09, or 6.7 percent, to $49.45 after the drugmaker raised their profit outlook for 2007.
   
In other corporate news, Morgan Stanley bought 13 hotels from Japanese carrier All Nippon Airways Co. for about $2.4 billion. The deal roughly doubles the investment bank's portfolio of hotels in Japan. Morgan Stanley fell 8 cents to $79.99.
   
The Russell 2000 index of smaller companies was down 1.00, or 0.12 percent, at 814.05.
   
In afternoon trading, Britain's FTSE 100 was up 0.42 percent, Germany's DAX index added 0.67 percent, and France's CAC-40 was rose 0.58 percent.

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Dollar stays near 2-yr lows against euro, barely affected by trade data

LONDON - The dollar remained near two-year lows against the euro as investors showed continued concern about the prospects for the US economy, with better-than-expected US trade data only giving the currency a very minor and short-lived boost.
   
The US trade deficit improved to 58.4 bln usd in February, against analysts' expectations for a worsened figure of 60 bln usd. PPI data meanwhile was mixed, with headline PPI coming in above forecasts but the key core measure unchanged, the first time it has failed to show a rise since October.
   
The figures were overshadowed by continued negative sentiment towards the dollar, which reflects the limited prospects of the US Federal Reserve raising interest rates despite rising inflationary pressures, in contrast to central banks elsewhere, analysts said.
   
"The whole of the foreign exchange market thinks the dollar is going one way and that's down," said Tony Nyman at Informa Global Markets.
   
Nyman noted that the euro is barely more than a cent below its all-time high against the dollar (of 1.3666 usd, hit in December 2004) and that officials in the euro zone have effectively signalled that its strength is not an impediment for economic growth.
   
The euro today hit a high of 1.3548 usd, its strongest level since January 2005. The dollar, in contrast, is being weighed by fears over the US economy.
   
"Economic activity will weaken further, but high and rising inflation rates have put the (Federal Reserve) into a straight-jacket," said analysts at BNP Paribas.
   
"The market has come to the correct conclusion that (US) interest rates can only stay up for a limited period as rising inflation is not supported by economic growth rates."
   
The dollar slumped a new low since against the euro January 2005, of 1.3548 against the euro, before recovering slightly, and fell to a three-month low against the pound of 1.9886 usd.
   
High-yielding currencies continued to benefit, with the Australian dollar receding slightly after its multi-year highs of 0.8335 usd, and the New Zealand dollar rose to near two-year highs of 0.7374.
   
Meanwhile, the yen, which continues to suffer as a result of popularity for carry trades -- where investors borrow in low-yielding currencies in order to invest in higher-yielding assets elsewhere -- rose to its highest level against the dollar since April 3.
   
The yen also outperformed most other currencies, with fears beginning to grow over the carry trade unwinding if the G7 warns on yen weakness at its meeting in Washington, beginning today.

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Top Stories in Europe at 12.05 GMT

London - Property tycoon Robert Tchenguiz has confirmed in an interview with The Daily Telegraph he wants the board of J Sainsbury PLC to realise value from its portfolio of 750 supermarkets. Earlier this week, Tchenguiz upped his stake in the UK's third-biggest supermarket chain to 5.07 pct from 4.67 pct despite the collapse of CVC's 10.2 bln stg offer approach.

John Lewis Partnership, the employee-owned retailer, said week to April 7 sales at its 26 UK department stores increased 2.9 pct to 47.6 mln stg, while sales at its chain of 183 Waitrose supermarkets rose 27.8 pct to 84.4 mln stg. Total sales increased 17.4 pct to 132.2 mln stg.

Milan - France Telecom is studying the possibility of buying a controlling stake in Telecom Italia SpA while AT&T Inc's bid to take over the Italian operator faces difficulties, the daily Il Sole 24 Ore said without giving a source.
 
AT&T and America Movil are seeking to each buy a 33 pct stake in Olimpia, which owns 18 pct of Telecom Italia. The potential purchasers are scheduled to hold exclusive talks until April 30 to buy the stakes from Pirelli & Co SpA, which owns 80 pct of Olimpia.

Zurich - Converium Holding AG has urged its shareholders to reject Scor SA's takeover offer, saying the French group's hostile bid fundamentally under-values the company and could result in a loss of business of up to 800 mln usd.
 
Converium said it believes the offer impairs its growth prospects and it anticipates significant business, integration and execution risks "arising from the hostility of Scor's offer".

Zurich - In the lead-up to Siemens AG spinning off its automotive supplier division VDO, the company is mulling the sale of its VDO plant in Wuerzburg and the closure of two other plants, reported Financial Times Deutschland, citing sources. A report in Sueddeutsche Zeitung stated, citing sources, that the technology giant plans to sell its Wuerzburg ops to VDO rival Brose.

Frankfurt - Deutsche Telekom AG and trade union verdi failed in their third round of talks yesterday to reach an agreement on plans to outsource 50,000 jobs and lower entry-level pay, spokesmen for the telecommunications giant and the union said. Talks will resume on Monday, the spokesman said late last night, without disclosing details of the negotiations.

Paris - The French consumer prices index for March showed a rise of 0.4 pct compared with a 0.2 pct increase in February, according to figures from the Insee statistics office. Year-on-year CPI was up 1.2 pct against a 1.0 pct rise in February.

Madrid - La Caixa has no plans in the short-term to merge Gas Natural SDG SA and Repsol YPF in which it is a core shareholder, Spanish media reported citing the Catalan savings bank's managing director Isidre Faine. Expansion reported Faine said "there is nothing (planned) in the short-term."

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Asian shares close lower ahead of earnings releases, G7 meeting

HONG KONG - Shares across the Asia-Pacific region closed lower with markets waiting for corporate earnings releases and leads from the G7 finance ministers meeting this weekend, dealers said.
   
Tokyo shares closed lower after cautious trading during which investors refrained from buying as they awaited the earnings reports of leading companies here and in the US and the meeting at the weekend of the G7 finance ministers and central bankers.
   
Dealers said there was speculation in the market that the G7 finance ministers and central bankers would discuss the recent weakness of the yen. A firmer yen also dampened investors' buying appetite, they said.
   
The Nikkei 225 Stock Average finished 176.47 points or 1.01 pct lower at 17,363.95, off the day's low of 17,327.37. Over the week, the index lost 0.69 pct. The TOPIX index of all first-section issues declined 20.68 points or 1.2 pct to 1,705.50, off a low of 1,701.98. Over the week, the index fell 0.67 pct.
   
Hiroichi Nishi, equity chief at Nikko Cordial Securities, said: "Although it is said that there is little chance that the yen will be in focus at the G7 meeting, the yen actually firmed today. So investors leaned toward to adopting a wait-and-see position."
   
Investors are waiting for the corporate earnings reporting season here and in the US to get into full swing before they build up their positions, he said. The reporting of first-quarter earnings in the US will begin in earnest next week and the reporting of full-year earnings here begins the week after.
   
Australian shares closed lower as investors reversed earlier buying to book profits following record levels in the Australian indices.
   
Heightened concerns that the Reserve Bank of Australia will deliver a 25 basis point interest rate hike to 6.50 pct in May also weighed on investor sentiment, particularly with data released yesterday showing the jobless rate fell back to a 30-year low of 4.5 pct in March.
   
The rising Australian dollar - which hit its highest level of 0.8331 usd since October 1990 today - also weighed on sentiment and the impact on exporters.
   
The S&P/ASX 200 closed down 22.5 points or 0.37 pct at 6,135.7, falling from yesterday's record close of 6,158.2 but setting a new intra-day record of 6,195.8. Over the trading week, the key index rose 58.6 points or 0.96 pct.
   
Hong Kong shares were weaker in afternoon trade as property stocks succumbed to interest rate worries and investors awaited key inflation data in the US and the G7 meeting this weekend. At 3.20 pm the Hang Seng Index had lost 26.75 points or 0.13 pct at 20,353.46.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking after recent strong gains, with financial stocks and steelmakers losing ground. The Shanghai A-share Index ended down 13.77 points or 0.37 pct at 3,698.45 while the Shenzhen A-share Index finished down 0.32 points or 0.03 pct at 992.94.
   
Seoul shares closed lower but well off their lows as foreign investors continued to build positions in Samsung Electronics, which reported weaker-than-expected results for the first quarter. The KOSPI index closed down 4.83 points or 0.32 pct at 1,520.78, off a low of 1,512.36 and a high of 1,526.09. The main board index gained 36.63 points for the week.

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Gold edges higher as dollar hits 2-yr low vs euro, oil gains

LONDON  - Gold inched higher in early trade as the dollar reached a new two-year low against the euro, and as inflation concerns continued to mount amid strong gains in the price of crude oil.
   
At 10.34 am, spot gold was trading at 676.80 usd, up from 675.25 usd seen in late New York trade yesterday. "The fundamentals are positive and should support higher prices," said Peter Fertig, an analyst at Dresdner Kleinwort.
   
Gold, which is typically seen as an alternative investment to the dollar and often moves counter to the US currency, was buoyed by continuing weakness in the greenback against the other major currencies.
   
The dollar continued to weaken in Asian trade, depressed by a resurgent euro and amid concerns that G7 finance minister and central bankers will criticise the weakness of the yen when they meet this weekend.
   
The euro rose climbed to 1.3533 against the US currency this morning, its highest level since January 2005, with sentiment for the single European currency remaining strong.
   
Gold has also been underpinned by lingering inflation fears.
   
Oil prices, a key indicator of rising inflation, have remained elevated as refinery glitches raised concerns over gasoline supply in the run-up to the peak demand summer driving season, and on continuing geopolitical tensions.
   
Looking ahead, analysts remain bullish in the run-up to the Indian wedding season, a time of peak demand for physical gold. The precious metal is seen moving swiftly higher once key resistance levels have been breached.
   
Gains have so far been capped by strong resistance at the 680 usd level, with investors reluctant to add to outstanding long trades.
      
Among other precious metals, platinum was steady at 1,264 usd per ounce, having settled at 1,265 usd yesterday after earlier hitting a four-and-a-half month intraday high of 1,270 usd.
   
Palladium was trading at 370 usd per ounce, off yesterday's 11-month high of 373 usd, while silver rose to 13.84 usd per ounce against 13.82 usd.

Copper posts further gains as fresh supply fears loom, inventories fall

At 12.29 pm, copper for three-month delivery stood at 7,770 usd per tonne, against 7,690 usd at the close yesterday. The metal yesterday hit an intraday seven-month high, before falling victim to profit taking.
   
Copper was buoyed this morning by supply fears, after workers at the world's second largest copper mine, operated by US mining giant Freeport McMoRan Copper & Gold Inc, threatened to strike.
   
Workers at the Grasberg mine in Indonesia are planning to demonstrate next week over wages and employee benefits, possibly disrupting production.
   
Separately, the UK's Xstrata said its Xstrata Copper division has delayed two shipments from its Bajo de la Alumbrera mine in Argentina from April to May because of flood damage to the port.
   
The news outweighed reports from Chile, the world's largest producer of the
orange metal, that the state copper miner Codelco has reached agreement with workers who had blockaded its Chuquicamata mine.
   
Meanwhile, aluminium gained slightly to 2,851 usd, up from 2,835 at yesterday's close. UBS said in a report this morning it remains bullish for aluminium over the longer term, and that the metal is its "best medium and long-term buy".
  
Nickel meanwhile rose to 48,305 usd per tonne, after closing yesterday at 46,400 usd.
   
Among other metals, zinc edged up to 3,535 usd, having closed at 3,510 usd yesterday, lead rose to 2,005 usd from 1,980 usd, and tin reached 14,300 usd after closing at 14,250 usd.

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