US & World Daily Markets Financial Briefing 19-05-2008

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Wall Street up as Microsoft renews talks with Yahoo

NEW YORK - The stock market rose modestly Monday after Microsoft Corp. renewed talks with Yahoo Inc. but a new report showed the economy remains sluggish.

The Conference Board's leading economic indicators report showed a 0.1 percent rise for April, as expected. The index, aimed at predicting economic activity in the next three to six months, bolstered investors' belief that the overall U.S. economy, while weak, is not contracting rapidly.

Meanwhile, Microsoft Corp. has renewed talks with Yahoo Inc. about a possible deal to bolster the companies' position in the online search and advertising markets. The software maker did not say if the discussions included a takeover of Yahoo. Yahoo said its directors "remain open to pursuing any transaction which is in the best interest of our stockholders."

In midmorning trading, the Dow Jones industrial average rose 21.00, or 0.16 percent, to 12,993.47. Broader stock indicators were also higher. The Standard & Poor's 500 index rose 3.31, or 0.23 percent, to 1,428.66, and the Nasdaq composite index rose 8.08, or 0.32 percent, to 2,536.93.

Government bond prices edged up. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, slid to 3.84 percent from 3.85 percent late Friday.

The dollar rose against most other major currencies, while gold prices also climbed. Inflation jitters continue to plague Wall Street. Energy traders shrugged off news that Saudi Arabia pledged to produce an additional 300,000 barrels of crude a day, and sent a barrel of light sweet crude up 35 cents to $126.64 on the New York Mercantile Exchange.

Regular gasoline prices topped $4 a gallon for the first time in two U.S. metropolitan areas.

In corporate news, Lowe's Cos. reported first-quarter profit fell from the year-ago period amid a slumping U.S. housing market. The second-largest home improvement chain guided earnings below Wall Street's estimate for the year because of a pullback in consumer spending. Lowe's fell 96 cents, or 3.9 percent, to $23.94.

General Motors Corp. rose after one of its biggest suppliers reached a tentative labor deal with the United Auto Workers. The agreement with American Axle & Manufacturing Holdings Inc. may end a nearly three-month strike by 3,650 U.S. hourly workers. GM rose 25 cents to $20.93.

The Russell 200 index of smaller companies rose 0.60, or 0.08 percent, to 741.77. Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, where volume came to 153.8 million shares.

In overseas trade, Tokyo's Nikkei closed up 0.35 percent. In Europe, London's FTSE added 0.53 percent, Frankfurt's DAX rose 0.43 percent and Paris' CAC 40 was up 0.62 percent.

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Forex - U.S. dollar gains after leading indicators fail to signal recession

LONDON - The dollar gained slightly in lacklustre trade, firming after leading indicator figures suggested any slowdown in the U.S. economy could be limited.

The New York-based Conference Board said its forecast of future economic activity rose 0.1 percent in April, the same increase as in March and defying expectations for a small negative reading.

"These data certainly reflect a weak economy but not one in recession," said Ken Goldstein, labor economist at The Conference Board.

The dollar edged up on the news. "US leading indicator data showed signs of weakness but the lack of signals pointing to a US recession has boosted the buck," said Matthew Foster-Smith at IFR Markets.

Elsewhere on markets, major currencies were trading in narrow ranges due to an absence of data, with markets looking ahead to a batch of important releases later in the week. Tuesday brings Germany's key ZEW economic expectations index, which is expected to improve slightly to -38.0 in May, following a plunge of 8.7 points to -40.7 last month.

The following day brings the even more influential IFO business climate index, forecast to fall to 101.9 in May from 102.4 in April. Ashraf Laidi at CMC Markets underlined how closely currency markets watch the IFO report, noting the survey's track record of "triggering notable moves in the euro".

Wednesday also brings the highlight of the U.S. data calendar for the week, the minutes to the Federal Reserve's April 30 rate-setting meeting.

At that meeting, the Fed cut key interest rates by 25 basis points, its smallest reduction this year, and signalled the end of a rate-cutting cycle that has brought the benchmark Fed Funds Rate to 2.00 percent from 5.25 percent in the autumn.

Daragh Maher, senior FX strategist at Calyon, said the tone of the meetings is unlikely to be too hawkish, and that the Fed will probably adopt a 'wait and see' approach as opposed to signalling the end of the rate-cutting cycle.

"Whether this is enough to unnerve the market and get talk of a cut back on the agenda is questionable given recent Fed speakers have given greater emphasis on the need for a timely exit strategy, but with the numbers still soft, we are more reluctant than the market to claim we have seen the bottom for Fed funds," he said.

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Euroshares open higher as Asia gains offset flat Wall St; oil stocks up

At 9:09 a.m., the DJ STOXX 50 was up 3.84 points, or 0.12 percent, at 3284.33 as the losses in Italian heavyweights took their toll. The DJ STOXX 600 was up 0.78 points, or 0.24 percent, at 330.65. "The U.S. markets closed little changed but rallied over Friday from early lows and Asia generally made small gains," said one London-based trader. "Resource sectors remain in focus on commodity prices."

European oil stocks gained as world oil crept toward the $127 level in Asian trade Monday as traders predicted costlier crude despite Saudi Arabia's disclosure that it had boosted production. New York's main oil futures contract, light sweet crude for June delivery, rose 62 cents to $126.91 per barrel.

London's Brent crude contract for July rose 29 cents to $125.28 a barrel, after settling at $124.99 on Friday. It had earlier climbed to an all-time high of $126.34. with Repsol YPF up 0.93 percent, Total up 1.16 percent and BP 1.42 percent higher.

Exploration groups got a further boost as Wood Group, up 1.73 percent, said it expects to report a full-year result above current market forecasts.

Deutsche Bank upped its target on Royal Dutch Shell to 2,700 pence from 2,500 pence. Basic resources groups also got a boost as metals prices also continued to gain ground and amid bullish analyst comment. Citigroup upgraded Vedanta and Anglo American to 'buy' from 'hold'. The pair added 2.71 percent and 3.79 percent respectively.

Tech stocks were also at the head of the pack after Nasdaq posted small losses but still finished the week 3.41 percent higher, with SAP up 1.37 percent and Nokia up 0.97 percent. Philips added another 1.19 percent amid new bullish comment on the group's analyst day on Friday.

Soitec was up 1.13 percent ahead of its full-year update later in the day. Thomson stormed 7.31 percent higher on vague rumours of a bid from Siemens, but dealers were scathing. "We just heard it as well," said one London-based trader. "If they buy Thomson, god help them."

Schneider Electric climbed another 2.19 percent after last week's upbeat U.S. roadshow and ahead of the Electrical Products Group conference Monday in Florida.

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Asian stocks mostly higher led by commodity issues

Hong Kong's Hang Seng index added 0.5 percent to 25,742.23. Asia's largest oil sector, PetroChina Co. Ltd., gained 1 percent to HK$11.64 and the mainland's largest offshore oil and gas producer, CNOOC Ltd., jumped 3.4 percent to HK$15.40.

Jiangxi Copper surged 3.8 percent to HK$18.94. Australia's S&P/ASX 200 was up 0.3 percent at 5,949.4 and the All Ordinaries gained 0.5 percent to 6,035.

"The market still being positive is encouraging. We're almost near the 6,000 points (level) which is an absolutely astonishing recovery from where it was just two months ago," said Michael Heffernan, a private client advisor at Austock Securities.

Heffernan said the resources sector held the market up with index leader BHP Billiton together with gold and oil stocks making solid advances, as prices for the precious metal and crude oil held on to strong gains in Asian markets.

On Friday the gold price jumped $19.90 to $899.90 an ounce while oil hit a record above $127 a barrel after Goldman Sachs raised its oil forecast for the second half of this year to $141 from $107 a barrel.

BHP Billiton Ltd ended up 1.8 percent at a record close of A$49.55 and Rio Tinto gained 0.5 percent to A$156.10. Gold stocks were well supported with Newcrest Mining up 4.1 percent at A$32.82, Lihir Gold up 4.5 percent at A$3.24 and Oceanagold 6.8 percent higher at A$1.74.

Oil and gas sector leader Woodside Petroleum soared 10 percent to a record A$69.50, second-ranked Santos rose 6.8 percent to A$19.76 and Oil Search gained 3.3 percent to A$6.30.

In Tokyo, oil and gas field developer Inpex Holdings and oil refiner Nippon Oil helped lift the overall market. Inpex Holdings gained 5.3 percent to 1.4 million yen while Nippon Oil advanced 3.6 percent to 783 yen. The Nikkei closed up 0.4 percent at 14,269.61.

In South Korea, the KOSPI index ended down 0.2 percent at 1,885.37,after hitting 1,901.13.

The Shanghai composite index slipped 0.5 percent to 3,604.76 as investors continued to assess the economic damage caused by last week's earthquake in Sichuan province.

Elsewhere, the Philippine composite index slipped 0.1 percent to 2,877.46 but the Jakarta index managed a decent gain, ending up 1.7 percent at 2,510.96. Taiwan's weighted index closed up 1.06 percent at 9,295.20, off the day's low of 9,207.27.

Stock markets in Singapore, India, Malaysia and Thailand were closed for a public holiday.

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Metals - Copper falls following large rise in inventories

LONDON - Copper fell in early London trade on Monday as a large rise in inventories of the red metal weighed on investor sentiment.

At 10.32 a.m., London Metal Exchange copper for three-month delivery was trading at $8,400 per tonne against $8,439 per tonne at the close on Friday.

Stockpiles monitored by the LME rose by 1,500 tonnes to 122,725 tonnes in today's report from the exchange, with the majority going into warehouses in Gwangyang, South Korea.

However, prices have taken support due to concerns stemming from last week's devastating earthquake in China's Sichuan province, as short-term supply disruption fears and expectations for higher metals demand for reconstruction work have boosted buying.

"Speculation that the recent earthquake in China will raise demand due to rebuilding activities has pushed up prices in recent days," said Fairfax analyst John Meyer.

Some analysts have cautioned, however, that copper demand may not take too much of a boost from reconstruction work as the worst hit areas were largely suburban rather than industrial.

Softness in the U.S. dollar today has lent support across the base metals complex, as commodities priced in the greenback become cheaper for holders of alternative currencies.

The dollar has weakened after the Reuters/University of Michigan consumer confidence index fell to its lowest level since the recession of 1980. The report said: "Consumer confidence continued to slip in early May due to surging food and fuel prices as record numbers of consumers viewed the economy in recession and saw little hope of recovery any time soon."

Concerns base metals demand in the United States could fall due to the economic slowdown and decline in housebuilding in the world's biggest economy has also influenced sentiment in recent months.

In other metals traded on the LME, tin fell as investors chose to lock-in profits following recent gains. The grey metal has hit a series of record highs this year amid fears supply from major producers China and Indonesia is set to fall. Tin was trading at $24,500 against $24,650. Tin hit an all-time high of $25,550 on May 15, rising by almost 50 percent since the beginning of the year.

Elsewhere, lead slipped to $2,290 per tonne from $2,342 per tonne at the close on Friday, aluminium dropped to $3,027 per tonne against $3,040, while nickel eased to $26,100 from $26,400. Zinc was trading at $2,303 against $2,365.

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