US & World Daily Markets Financial Briefing 14-08-2007

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Stocks edge higher after economic data

NEW YORK  - Wall Street edged higher in early trading Tuesday after a drop in the trade deficit and a tame core inflation report helped investors absorb weaker-than-expected quarterly results from Wal-Mart Stores Inc.
   
Investors appeared buoyed following economic readings that came amid a drop in volatility compared to recent weeks. The Federal Reserve, which has injected some $64 billion of liquidity into the U.S. banking system since Thursday, also said it stood ready to act again on Tuesday should market conditions warrant.
   
The pair of government reports released before the open indicated the economy continues to grow while inflation excluding energy costs remains in check. The Labor Department said wholesale prices rose in July for the fifth time in six months, while the Commerce Department said the U.S. trade deficit fell to a four-month low in June.
   
The Wal-Mart report stirred concerns about whether consumers will cut back their spending. That report and stronger-than-expected results from Home Depot Inc. returned some of investors' attention to the fate of the consumer. While the market's recent upheaval has been about whether borrowers with weak credit will be able to make mortgage payments, some of the concern has been about whether ideal conditions for corporate dealmaking have evaporated.
   
In the first hour of trading, the Dow Jones industrial average rose 10.57, or 0.08 percent, to 13,247.10. Broader stock indicators were also up. The Standard & Poor's 500 index was up 1.26, or 0.09 percent, at 1,454.18, and the Nasdaq composite index added 9.30, or 0.37 percent, at 2,551.54. The Russell 2000 index of smaller companies rose 2.82, or 0.36 percent, to 782.63.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.81 percent from 4.78 percent late Monday. Investors were unsettled by the overall wholesale inflation reading in the Labor Department's Produce Price Index. Rising prices could make it more difficult for the Fed to cut interest rates.
   
The Labor Department reported the PPI advanced 0.6 percent amid higher energy costs. Excluding often volatile food and energy costs, however, what's known as core PPI rose a modest 0.1 percent.
   
Meanwhile, the Commerce Department said the trade defecit fell because of highest-ever exports of farm goods and automobiles offset a jump in energy prices. The trade deficit dropped to $58.1 billion in June, a 1.7 percent decrease from May and the lowest imbalance since February.
   
Wal-Mart, one of the 30 stocks included in the Dow, fell $2.32, or 5 percent, to $43.85. The world's largest retailer lowered its profit forecast amid weak economic conditions that it blames for hurting consumer spending globally. Major retailers have been reporting largely lackluster sales results for months.
   
The retailer's second-quarter profit rose 49 percent but results excluding one-time items fell short of Wall Street's expectations. Wal-Mart said some of its customers were straining under economic pressures such as higher oil prices.
   
Home Depot, the world's largest home improvement store chain, reported a 14.8 percent decline in its second-quarter earnings as sales slipped, particularly among stores open at least a year. Quarterly figures topped Wall Street's forecasts and the company reiterated that it expects its earnings per share from continuing operations to decline for fiscal 2007. The company said, however, that a sluggish housing sector could make conditions difficult. Shares fell 34 cents to $34.90.
   
Light, sweet crude rose 58 cents to $72.20 in premarket electronic trading on the New York Mercantile Exchange. In afternoon trading, Britain's FTSE 100 rose 0.40 percent, Germany's DAX index slipped 0.16 percent, and France's CAC-40 fell 0.22 percent.

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Euro, pound lower as dovish data diminish rate hike expectations

LONDON - The euro and the pound both fell after weak economic data called into question the likelihood of higher borrowing costs.
   
The pound fell briefly below the 2 usd level, and was markedly weaker against other currencies, after annual CPI inflation came in at 1.9 pct in July, far below analyst expectations for 2.2 pct and the lowest reading since March 2006. It is also the first time inflation has come in below the Bank of England's target rate of 2.0 pct since that month, serving to diminish expectations the central bank will raise interest rates again this year.
   
David Brown at Bear Stearns said the weak inflation reading means the BoE "will have a hard time justifying a further hike in rates, especially set against the current troubled financial market backdrop."   
   
He believes the view that UK rates have peaked at the current level of 5.75 pct will keep the pound under the psychologically important 2 usd figure.
   
The inflation news added to pressure on the pound, which was already weakened by a soft housing survey. The Royal Institution of Chartered Surveyors said UK house prices grew below their long-run average in July, as new buyer enquiries fell at their fastest rate in nearly three years in the wake of higher borrowing costs.
   
Elsewhere, the euro fell below 1.36 usd for the first time in over a month as weaker-than-expected growth figures diminished prospects for another hike in euro zone interest rates.
   
Both German and French GDP growth eased in the second quarter to a quarterly 0.3 pct, against expectations of 0.3 pct increases in both countries.
   
Euro zone GDP, which came out an hour later, confirmed the sluggish indications with a rise of 0.3 pct on the first quarter and 2.5 pct year on year, missing expectations for rises of 0.6 pct and 2.8 pct respectively.
   
The disappointing growth figures may raise doubts at the European Central Bank about the need for another increase in the key refi rate from the current 4.00 pct.

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Euroshares off lows as TMTs gain, turn lower again as Wal-Mart cuts guidance

LONDON - Europe's leading exchanges were trading off opening lows midday as selected technology/media/telecoms (TMTs) and utilities gained ground. At 13.26, the Dow Jones STOXX 50 fell 30.32 points or 0.81 pct to 3,691.78 as the STOXX 600 was 3 points or 0.81 pct lower at 367.89.
   
ASML and ASM International were up 1.52 pct and 0.36 pct respectively as numbers from Applied Materials due later today brought further focus onto the sector.
   
Philips was also 0.7 pct higher after the tech recovery in the US overnight. The Dutch tech group also said this morning Medquist, in which it holds a roughly 70 pct stake, has become aware of an unsolicited mini-tender offer from Costa Brava Partnership. The offer, directed at the company's shareholders, is for the purchase of up to 1.39 mln shares or roughly 3.7 pct of Medquist's outstanding shares at a price of 12.25 usd per share.
   
Lehman Brothers upped its stance on shares in France Telecom to 'overweight' from 'equal-weight' and raised the target for the French telecommunications giant to 25 eur from 21.50. The shares added 1.8 pct
   
Credit Suisse has upgraded shares in BT -- up 1.79 pct -- to 'neutral' from 'underperform', according to traders, as the broker highlighted its cost-cutting efforts and a slow take-up of full local loop unbundling in the UK.
   
And KPN climbed 4.9 pct as it said it will accelerate its plans to buy back shares worth 1 bln eur. The shares were further supported as the group refuted recent speculation it is planning a bid for French mobile phone operator Bouygues Telecom.
       
Among utilities, RWE added 1.04 pct. UBS said the recent setback among UK utilities provides a buying opportunity. Scottish & Southern was down only 0.48 pct and Drax -- also rated 'buy' at UBS -- was down 0.69 pct.
   
Elsewhere, shares in Swatch added 3.92 pct after the luxury watches group released better-than-expected first-half results. And Premiere added 3.49 pct on rumours Vivendi is in talks with Unity Media about buying its stake and will make a 24.50 eur per share bid for the company. Unity Media's stake is understood to be around 16.7 pct.
   
DaimlerChrysler rose 1.17 pct amid talk the car group may be planning to pay out a special dividend following the sale of US unit Chrysler to private equity company Cerberus.
   
Unsubstantiated stakebuilding rumours also lifted TUI, up 1.51 pct, and Scottish & Newcastle, up 2.79 pct. The German travel group was lifted by talk Fipar could double its take to 10 pct and the UK brewing group rose on renewed talk of a Carlsberg bid. Carlsberg shares were up 1.59 pct.
   
But the financial sector fared less well. UBS slumped 3.56 pct as the Swiss banking group's interims beat market expectations but it issued a downbeat outlook statement. Aegon -- down 0.75 pct -- agreed to buy two life insurance units from Merrill Lynch for 1.3 bln usd to increase its US sales of variable annuities by two thirds. And Credit Suisse has cut Bradford & Bingley -- down 2.38 pct -- to 'underperform'.
   
Fortis was down 1.5 pct after the Royal Bank of Scotland-led consortium vying to buy ABN Amro said it now holds a combined 3.25 pct stake in the Dutch bank. In a statement, the consortium, which also includes Spain's Banco Santander Central Hispano, said it had bought a total of 40.76 mln ABN Amro shares at an average price of 33.8 eur per share.
   
ABN Amro, though, added 1.25 pct on the news and was further supported by news Barclays has won Dutch government approval to buy the banking group.

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Asia ends mixed as credit fears continue; BoJ move fails to soothe nerves

HONG KONG - Stock markets across Asia traded mixed on Tuesday as investors continued to worry that the crisis in the US subprime market is far from over with Goldman Sachs the latest firm to acknowledge steep losses at one of its hedge funds.
   
Hong Kong, however, saw share prices closing higher, reversing early session losses as investors' focus switched from lingering concerns over the US subprime mortgage crisis to prospects of improved first-half corporate results due for release this week.
       
The Hang Seng Index regained ground at the 22,000-point level, closed up 116.22 points or 0.53 pct at 22,007.32.
     
The blue-chip Nikkei 225 Stock Average closed 44.56 points or 0.3 pct higher at 16,844.61, off early gains made after the Bank of Japan said it would drain a combined 1.6 trln yen from the banking system by selling Treasury bills. The broader TOPIX index gained 4.82 points or 0.3 pct at 1,637.46, off a high of 1,638.58.

Meanwhile, China A-shares closed higher today led by textile and electric home appliance stocks on expectations of upbeat interim earnings and more fund inflows. Youngor Group, the largest textile company by market value, forecast its interim net profit will be up more than 220 pct.
   
The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, closed up 52.72 points or 1.1 pct at a record 4,872.79, just off a fresh intraday high of 4,876.85.  The Shanghai A-share Index was up 54.15 points or 1.07 pct at 5,114.34 and the Shenzhen A-share Index was up 24.80 points or 1.81 pct at 1,393.10.
       
The Korean KOSPI closed down 1.7 pct as nervous investors cut their holdings ahead of Wednesday's national holiday. Financial institutions led the decline with Daewoo Securities down 3.7 pct and Samsung Securities off 6 pct.
   
In Taiwan, the Taiex closed down 0.3 pct, off early lows as lingering concerns over global market uncertainty outweighed news that Ma Ying-jeou, the presidential candidate the main opposition party Kuomintang (KMT), has been cleared of corruption charges.

In Sydney, the S&P/ASX 200 closed down 0.8 pct, also led by financial stocks after second-tier property loan provider Rams Home  Loans Group announced its earnings will be materially affected by volatility on global credit markets.  

Elsewhere, in Singapore share prices closed firmer on late buying in defensive stocks with strong growth prospects and high dividend payouts because they are seen as a hedge against prevailing market volatility. The Straits Times Index closed 5.98 points or 0.2 pct higher at 3,386.59.
  
Malaysian shares closed little changed. The Kuala Lumpur Composite Index (KLCI) was up 0.75 points or 0.06 pct at 1,288.34.
   
Indonesian shares closed sharply lower as investors scaled back their holdings of shares ahead of the long holiday weekend. The local market will be closed on Friday for the Indonesian Independence Day holiday. The composite index closed down 42.82 points or 2 pct at 2,168.64.
   
Philippine share prices ended slightly lower, giving up modest gains earlier in the session as investors remained worried about the US subprime mortgage problem. The all-share index fell 9.2 points or 0.4 pct to 2,088.15.

Indian shares closed nearly steady Tuesday in a cautious trade ahead of the Independence Day holiday tomorrow, and against the backdrop of similar wariness in the broader Asian market. The Bombay Stock Exchange's benchmark Sensex closed 0.11 pct or 16.30 points down at 15,000.91, while the National Stock Exchange's S&P CNX Nifty closed 0.08 pct lower at 4370.20.

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Copper steady as subprime woes continue to weigh on confidence

LONDON - Copper was steady in light trade after a further fall in LME monitored stockpiles helped offset market sentiment that yesterday's recovery had been overdone.
   
Copper prices had risen yesterday in line with a recovery in global equities, following a decline of around 3 pct last week on subprime jitters in the wider financial markets.
   
However, the market remains nervous about the possible fallout from the subprime crisis, reducing enthusiasm from investors.
   
"The stock numbers have encouraged some buying," said BNP Paribas analyst David Thurtell. "However, the subprime issues are still definitely weighing on things and people are very, very cautious in case there's any impact on the real economy."
   
At 11.52 am, LME copper for three-month delivery was at 7,565 usd against 7,555 usd at the close yesterday. Stockpiles of the red metal at LME monitored warehouses fell for the third day in a row, declining by 225 tonnes to 114,075 tonnes, prompting a degree of support from investors.
   
Copper prices are also receiving a support from reports that a ship carrying around 40,000 tonnes of copper concentrate from Chile to India ran aground off the South American coast on August 9.
   
Elsewhere, nickel was up slightly, but remains at lower levels. The grey metal has lost almost 50 pct since striking an all time record of around 52,000 usd earlier this year, on a combination of demand destruction at higher prices and falling usage.
   
By 11.52 am nickel was trading at 28,000 versus 27,500 at the close yesterday.
   
In other base metals, lead was higher at 3,095 usd from 3,005 usd following another large fall in LME monitored inventories. LME stockpiles fell by 700 tonnes to 30,850, following a decline of 1,025 tonnes yesterday.
   
Meanwhile, aluminium edged up at 2,597 usd from 2,593 usd, zinc was up slightly at 3,388 usd from 3,360 usd, while tin was flat at 15,300 usd.

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