US & World Daily Markets Financial Briefing 13-11-2007

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Wall Street rebounded in early trading Tuesday after Wal-Mart Stores Inc. posted better-than-expected earnings and hinted that consumer spending might be stronger than anticipated this holiday shopping
season.
   
The world's largest retailer reported third-quarter profit surpassed Wall Street projections. The results also showed that heavy discounting during the period did not hurt margins, which the company said bodes well for the fourth quarter.
   
The report gave investors a reason to buy a day after a turbulent session pushed the Dow Jones industrial average below 13,000 for the first time since August. The advance snapped a four-day losing streak for the blue chip index.
   
Investors were also expected to position their portfolios ahead of key economic data out during the week. Two key barometers of inflation and the economy will be released, with the Labor Department's Producer Price Index on Wednesday and the Consumer Price Index on Thursday.
   
Wall Street will also receive new data on the slumping housing sector. The National Association of Realtors will issue its September reading of an index that tracks pending U.S. home sales, and release an update on the housing market forecast for 2007 and 2008. The reports, due out at 3 p.m. EST, are expected to show housing hit another record low during the month.
   
In early trading, the Dow Jones industrial average rose 108.03, or 0.83 percent, to 13,095.58. Broader indexes were also higher. The Standard & Poor's 500 index jumped 16.31, or 1.13 percent, to 1,455.49, and the Nasdaq composite index was up 33.85, or 1.31 percent, at 2,617.98.
   
Bonds fell as investors moved back into stocks. The yield on the benchmark 10-year Treasury note rose to 4.24 percent from 4.22 percent late Friday. The market was closed Monday in observance of Veterans Day. Gold prices moved higher.
   
Wal-Mart spiked $1.68, or 3.9 percent, to $43.32 after the retailer said quarterly profit rose 8 percent as it heads into the holiday shopping season. Chief Executive Officer Lee Scott said it has been a tough year for consumers, but that the company's new focus on pricing is paying off.
   
TJX Cos. the operator of T.J. Maxx and Marshalls -- reported third-quarter profit rose 13 percent. Results, which missed Wall Street expectations, were hurt by unseasonably warm early fall weather. Shares added 10 cents to $29.42.
   
Home Depot Inc., the world's largest home improvement chain, reported third-quarter results fell 26.8 percent because of the continuing slump in the housing sector. Shares fell 61 cents, or 2.2 percent, to $27.85.

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Forex - Euro brushes off soft German business survey

The ZEW research institute's expectations index fell to a 15-year low of  32.5 in November from -18.1 in October, largely because of the strong euro, sky-high oil prices and worries over the US economy. The fall was much greater than anticipated. Markets were looking for a more limited decline to -20.0.
   
Analysts said the survey's pessimism may be overdone but noted that it does point to weaker economic growth in the fourth quarter in the euro zone's single largest economy.
      
The Fed has reduced its key interest rates by 75 basis points in the last two months, plunging the dollar to record lows against major currencies. The dollar fell to an all-time low of 1.4738 against the euro on November 9.
   
Elsewhere, the yen dipped slightly on speculation that Japan will not allow its currency to appreciate much more in the near term, remaining at near 18-month highs against the dollar. The intervention talk was stoked by a report in today's Financial Times that Japan's Prime Minister Yasuo Fukuda thinks the yen is rising "too fast" and would "certainly be a problem" over the short-term.
   
Though the comments have helped stem the yen's rise, there are real doubts that Japan might opt for intervention, especially as the release of stronger than expected Japanese GDP data points to appreciation of the currency.
   
Japan's GDP expanded 0.6 pct in real terms in the third quarter from the previous three months, ahead of market expectations for a 0.5 pct increase. "We think intervention by Japan at these levels is unlikely, but perhaps if the dollar were to fall more decisively towards 108  yen, then such concerns
would intensify," said Geoffrey Yu, currency analyst at UBS.
   
Japan remains a low yield country, confirmed earlier by the news that the country's central bank voted to keep its rate unchanged at 0.5 pct, the lowest among developed countries.

Elsewhere, the pound was buoyed by above-forecast UK inflation data. The Office for National Statistics said the annual CPI inflation rate  rose to 2.1 pct in October from 1.8 pct in September.
   
Analysts had expected a much smaller rise in the annual rate to 1.9 pct. The increase is likely to cement views that that the Bank of England will not be cutting interest rates next month.

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At 12.17 pm, the STOXX 50 was 1.20 points or 0.03 pct off to 3,686.22, while the STOXX 600 was 1.32 points or 0.36 pct lower at 366.37.
   
Looking ahead, Wall Street headed for a higher open - rebounding from a four-session decline - helped by a fresh drop in oil prices and a better-than-expected quarterly profit at Wal-Mart Stores, but disappointing
results at Home Depot served to highlight the ongoing negative impact of a flagging US housing market.
   
According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open up 71 points at 13,059. Separately, S&P 500 futures were up 12.20 points at 1,452.40, while Nasdaq 100 futures rose 12.50 points to 2,002.
   
Back in Europe, blue chips pulled their indices higher but remained in the red during morning trading. "We are firmer than expected today," one Frankfurt-based trader said.  "Notably, cyclical stocks are lower and stocks that have underperformed lately are gaining strength," he added.
   
He further noted that volumes were rather low throughout the morning session, with the rumour mill spinning in the financial sector.
   
While the banking sector as a whole added 1.08 pct, Deutsche Postbank charged 5.56 pct ahead as speculation persists that holding company Deutsche Post will sell its stake. An upgrade by Merrill Lynch to 'buy' from 'neutral' further supported the stock.
   
Shares in Hypo Real Estate gained 2.89 pct as dealers pointed to vague rumours Dexia might be mulling a bid for the the commercial property lender.
   
"Before Hypo's capital increase, a takeover was possible and the current share price is cheap after recent losses," a Frankfurt-based trader noted, but added that a takeover is unlikely before banks report their full-year earnings, giving the market a better sense of the fallout from this summer's subprime-related credit crisis.
   
In the UK, Royal Bank of Scotland added 2.33 pct amid talk that an influential investor has built a 1 pct stake in the bank.
   
Elsewhere, the consumer products industry took off following upgrades form Goldman Sachs, which raised its stance on shares in Unilever and Danisco to 'neutral' from 'sell' and added Nestle to its 'Conviction Buy List' as part of a sector review.
   
Unilever gained 2.46 pct while Nestle added 1.88 pct and Danisco was 0.39 pct higher. In the European airline sector, Air France charged 5.61 pct ahead on technical grounds, as well as a lower oil price while the group announced that it has increased its fuel surcharge on long-haul flights by 10 eur per segment.
   
Over in Austria, Vueling Airlines SA rose 7.11 pct as news late yesterday of chairwoman Barbara Cassani's resignation triggered hopes of a more unified management strategy. Cassani will be replaced by Josep Pique, a member of previous prime minister Jose Maria Aznar's cabinet.
   
The telecoms sector also held its ground, with shares in Vodafone rising 3.41 pct after the world's largest telecom operator raised its full year revenue and profit guidance following strong first-half results boosted by growth in emerging markets.
   
Cable & Wireless, meanwhile, gained 1.12 pct following better-than-expected first half results and an upbeat outlook. Broker Cazenove said the headline numbers, with the exception of revenue, look very strong and the results suggest an upside to its sum-of-the-parts value of 220p.
   
Seymour Pierce, however, cautioned that the solid performance came against a background of falling customer numbers and aggressive cost reduction. Over in Italy, Tiscali shares climbed 2.43 pct after releasing nine-month results that came in at the top of a range of analysts' estimates
  
 Meanwhile shares in Telefonica gained 1.37 pct after Standard & Poor's Ratings Services revised its outlook to positive from stable on the Spanish telecommunications operator following the group's recent update of its business and financial plans.

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Asian markets mostly lower as credit woes persist; Australia outperforms
 
SINGAPORE - Stock markets across Asia ended mixed on Tuesday, with benchmarks in Shanghai and Japan shedding around 0.5 pct as concerns that more banks around the world will reveal credit-related writedowns dented sentiment.
   
Chinese consumer price data, showing inflation at more than 6 pct in October for a third consecutive month, raised expectations that China may hike rates again after five such moves this year, adding to the downdraft.
      
The Hang Seng Index closed 0.5 pct higher at 27,803.35.  The Shanghai Composite surrendered early gains to close down 0.6 pct at 5,158.12. The Nikkei closed down 0.5 pct at 15,126.63 while the broader Topix lost 0.1 pct to 1,454.73 as traders weighed the yen's strength against better-than-expected third-quarter GDP data.
   
Japan's big exporters were expecting the dollar to trade somewhere close to 115 yen in the second half of their fiscal year ending March. The dollar on Monday fell through 110 yen for the first time since May 2006 and was last quoted at 110.12 yen.
   
The Singapore Straits Times Index was down 1 pct at 3,475.47 and the Kuala Lumpur Composite Index fell 0.1 pct to 1,383.43. Taiwan's weighted index closed up 0.7 pct at 8,727.21 and the Jakarta index closed down 0.7 pct at 2,654.21.
   
The Philippine Composite closed down 0.5 pct at 3,599.49. In Seoul, the KOSPI clawed its way into positive territory in the final hour of trade and ended up 0.5 pct at 1,932.89.
   
Australia also outperformed as banking shares rebounded from recent lows. The S&P/ASX 200 closed up 0.9 pct at 6,515.2 and the All Ordinaries added 0.7 pct to 6,570.9.
   
The Shanghai Composite, which combines yuan-denominated A-shares and foreign currency B-shares, has gained about 141 pct in the year so far. The Hang Seng has gained about 39 pct and the Korean KOSPI is up about 35 pct.
   
Shipping stocks were mostly higher on expectations the sector will weather any slowdown in the US. STX Pan Ocean closed up 15 pct at 3,750 won and Hanjin Shipping advanced 1.6 pct to 45,000 won.
   
In Tokyo, Isuzu Motors fell 5.9 pct to 507 yen after the Japanese truck maker on Monday reported a 33 pct decline in first-half net profit, hit by declines in domestic and North American truck sales as well as higher costs from expansion.
   
Shares in major banks finished mixed after attracting buyers earlier in the day because of the GDP figures and a moderate rebound in some US financial stocks. The GDP was 0.6 pct bigger in real terms in the third quarter than in the second, growing at an annualized rate of 2.6 pct.
   
Mitsubishi UFJ Financial Group rose 0.8 pct to 910 yen, Resona Holdings gained 3.3 pcnt at 186,000 yen and Shinsei Bank was up 0.6 pct at 325 yen. But Mizuho Financial Group lost 0.2 pct at 517,000 yen and Sumitomo Mitsui Financial Group dipped 0.5 pct to 730,000 yen.
   
Investors are waiting to see the earnings of major Japanese banks after the recent news of massive write-downs for exposure to subprime lending by major US financial institutions. Mizuho Financial Group will report on Wednesday and Resona Holdings on Friday.
   
In Australia, ANZ rose 3.6 pct to 28.38 aud, Westpac increased 1.3 pct to 28.35 aud and Commonwealth Bank advanced 1.8 pct to 60.38 aud.
   
National Australia Bank was 1.6 pct higher at 43.88 aud. Australia's leading investment bank, Macquarie Group, fell 3.7 pct to 79 aud even after reporting a 45 pct increase in first-half net profit to 1.06 bln aud.

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Oil prices dropped about $1 per barrel Tuesday after a key OPEC member left open the possibility that the oil cartel will increase output and one energy agency lowered its demand forecast.
   
Light, sweet crude for December delivery fell $1.15 to $93.47 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. In London, December Brent crude fell 82 cents to $91.16 a barrel on the ICE Futures exchange.
   
Saudi Arabia's Oil Minister Ali Naimi said Tuesday that the Organization of Petroleum Exporting Countries will not discuss output levels at the group's upcoming summit in Riyadh, Saudi Arabia, but he left open the possibility that production could be discussed at a meeting next month.
   
The long-term impact of another increase in oil production by OPEC isn't clear. A previous 500,000 barrel a day increase in production, which went into effect Nov. 1, was widely viewed as too little, too late to stop crude's run-up to near $100 a barrel. Crude prices rose 42 percent between late August and last week, when they reached a record of $98.62 a barrel.
   
Oil prices were dampened as well by worries over the U.S. economy after Wall Street fell again Monday on expectations of further fallout from the ongoing credit crisis. The Dow Jones industrials ended below 13,000 for the first time since August.
   
Oil prices could be volatile this week due the expiration of crude options on Tuesday and the expiration of the December crude contract Friday. The International Energy Agency on Tuesday issued its monthly report on crude supplies and demand, revising downward its expectations about oil demand. For the fourth quarter of this year, refinery crude throughput is expected to average 73.5 million barrels a day, Dow Jones Newswires reported.
   
This was a downward revision of 700,000 barrels a month on October's report, which the IEA attributed to "expectations for weaker fourth-quarter demand from countries within the Organization for Economic Cooperation and Development, heavier-than-expected refinery maintenance and higher unplanned refinery
downtime."
   
Analyst Olivier Jakob at Switzerland's Petromatrix said the IEA data could add uncertainty to any hoped-for OPEC output increases.The market is also awaiting the U.S. Energy Department's weekly inventory
report on Thursday.
   
The report is expected to show that U.S. crude oil inventories fell 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9 percent of capacity.
   
Heating oil futures fell 2.01 cents to $2.5620 a gallon (3.8 liters) while gasoline prices fell 2.36 cents to $2.3929 a gallon. Natural gas futures rose 1.1 cents to $7.972 per 1,000 cubic feet.
   

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