US & World Daily Markets Financial Briefing 19-12-2007

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Stocks lift after mixed Morgan news

The Dow Jones industrial average rose 38.53, or 0.29 percent, to 13,271.00. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 3.75, or 0.26 percent, to 1,458.73, and the Nasdaq composite index rose 8.36, or 0.32 percent, to 2,604.39. Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite the price, fell to 4.10 percent from 4.12 percent late Tuesday.

On Tuesday, stocks finished higher on relief that the European Central Bank was willing to issue $500 billion in 16-day loans to banks, but it was a volatile, back-and-forth session due to concerns about the prospect of a U.S. recession next year.

The earnings data that Wall Street digested Wednesday was, for the most part, disappointing. Morgan Stanley rose 49 cents to $48.56 after releasing its earnings report. Palm Inc., the maker of the Treo and Centro smart phones, said late Tuesday it swung to a loss in the most recent quarter. Its shares dropped 52 cents, or 8.5 percent, to $5.41.

Hovnanian Enterprises Inc. also posted a quarterly loss after facing a difficult housing market in the fourth quarter. The homebuilder's shares fell 70 cents, or 8.3 percent, to $7.71. General Mills Inc. said profit in the most recent quarter edged higher, but the cereal and packaged food maker's results were dampened by soaring ingredient costs and other expenses. General Mills fell 29 cents to $58.78.

The dollar rose against other most major currencies, except the yen. Gold prices fell. Light, sweet crude rose 71 cents to $90.79 a barrel in premarket trading on the New York Mercantile Exchange.

There was little in the way of economic data due Wednesday, but Wall Street will be paying attention when Treasury Secretary Henry Paulson speaks in Los Angeles about trade, and when Richmond Fed President Jeffrey Lacker speaks in Charlotte, N.C., on the outlook for the U.S. economy.

Overseas, Japan's Nikkei stock average fell 1.17 percent, and Hong Kong's Hang Seng index rose 1.11 percent. Britain's FTSE 100 rose 0.25 percent, Germany's DAX index rose 0.23 percent and France's CAC-40 rose 0.27 percent.

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Forex - Pound continues to drop after dovish BoE minutes, softer retail sales

The pound weakened steadily after the publication of dovish Bank of England (BoE) minutes and a fall in the retail sales survey by the Confederation of British Industry (CBI).

The BoE minutes showed its decision to cut interest rates this month was unanimous, and meant to be pre-emptive as concerns over UK economic growth trumped inflation worries in the final analysis. Signs of weakening in the industrial world "suggested a substantial loosening in policy might be needed", the minutes said.

"The use of such language (and the Monetary Policy Committee's understanding of how it would be interpreted by the market) should not be underestimated, and this serves to illustrate the downside risks to our view of 50 basis points of rate cuts next year," said George Buckley, chief UK economist at Deutsche Bank.

Meanwhile, the CBI's survey showed the balance of respondents on the high street who saw sales volumes grow in the first half of December fell to +8 pct from +13 pct a month ago. Also, expectations for sales in January dropped to -5 pct, the first negative since April 2006.

Analysts warn the survey may be overly pessimistic as shoppers may have waited until the last week before Christmas to do the bulk of their shopping, although the outlook for January remains bleak, suggesting more pressure on the pound.

Elsewhere, the euro was also weaker after the German Ifo business survey continued its decline. The Ifo climate index fell to 103.0 in December from 104.2 in November, below forecasts for a smaller fall to 103.5. However, the the component measuring future expectations dipped only very slightly to 98.2 from 98.3, beating forecasts for a much larger drop to 97.6.

The euro's losses were limited, as markets expect the European Central Bank to remain concerned enough about high inflation to leave interest rates unchanged in the near future. "A temporary dip in growth below trend seems to be part of the ECB's central scenario anyway," said Holger Schmieding at Bank of America.

"Following a major drop in unemployment and a surge in headline inflation, many at the ECB may even -- privately -- welcome a spell of below-trend growth as a means to prevent a major uptick in wage inflation," he said.

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Euroshares lose ground midday, but M&A news, Philips buyback offer support

At 11.55 am, the Dow Jones STOXX 50 Index was down 16.43 points, or 0.5 pct at 3,635.43 while the DJ STOXX 600 Index was off 1.51 points, or 0.4 pct at 358.92

In corporate news, Philips shares were up 1.6 pct on its new 5 bln eur share buyback programme which takes effect Jan 2. Brokerage Cheuvreux immediately upgraded the stock to its 'selected list', up from 'outperform' following the news.

It was a busy morning on the merger and acquisition front as shares in Biffa shot up 6.2 pct after the UK waste disposal group said it had received a revised takeover proposal from Montagu Private Equity and Hg Pooled Management on Dec 7, offering 350 pence per share in cash and that it would be ready to recommend an offer at this level.

Northern Rock, meanwhile, climbed 5.3 pct after the BBC reported Bradford & Bingley, the UK mortgage lender, has approached its stricken rival about buying some of its assets. Bradford & Bingley shares were off 0.4 pct.

Sogecable was up 1 pct on a news report that Promotora de Informaciones SA is preparing to buy the remaining shares in its affiliate which it does not already own at 27.9 eur per share.

SEZ Holdings AG shares were up 1.6 pct after its chief executive Kurt Lackenbucher said in an interview with Swiss business weekly Handelszeitung that it is possible the Swiss semiconductor maker may receive other takeover bids for the company.

In particular, he noted that Applied Materials could still make a bid for the company as "they have known our business for a very long time", he said.

On Dec 11, SEZ received a 38 sfr per share takeover offer from Lam Research Corp. Staying in the chip sector, shares in Infineon Technologies rose 1.3 pct after broker Sanford Bernstein said the recent underperformance of semiconductor manufacturer stocks versus hardware manufacturers will correct in the coming year.

"We believe the hardware/semis stock gap will close in 2008, as semis margins recover due to price increases as a result of the current tightening utilization," the broker said in a note to clients. At the same time, hardware prices will be kept in check by this same price stabilization, the broker said.

In the airline sector, Alitalia shares were up 2.5 pct. The company's board board has concluded its appraisal of non-binding offers received to buy a controlling stake in the ailing airline and is awaiting the final recommendations of its advisors, postponing a decision to Friday.

The two main bidders are Air France-KLM and AP Holding which is backed by Intesa Sanpaolo SpA.
In a related development, Italian daily La Stampa said the Italian government has asked Air France-KLM to offer the Alitalia SpA assets it does not want to rival bidder AP Holding.

The paper says Air France-KLM is close to clinching the deal to take over the ailing airline. Norddeutsche Affinerie AG fell 2.3 pct amid soem disappointment over its outlook. The copper smelter posted a sharp rise in full-year profit on a 12.5 pct rise in sales but but dampened earnings expectations.

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Asian markets end mixed as credit fears persist; Hong Kong gains

The S&P/ASX 200 closed down 0.3 pct at 6,216.4 and the All Ordinaries dropped 0.2 pct to 6,280.8. In Tokyo, the Nikkei closed down 1.2 pct at 15,030.51 and the broader Topix was down 0.9 pct at 1,456.79.

The Singapore Straits Times Index was down 0.4 pct at the day's low of 3,357.34. The Shanghai Composite closed up 2.2 pct at 4,941.78. The Hang Seng closed up 1.11 pct at 27,029.26. The Korean market was closed for the presidential election.

Among individual stocks, Centro Properties Group, the second-largest shopping center owner in Australia, closed up 49.7 pct at 1.20 aud after it said it is comfortable about the viability of its business. Higher metal prices supported resource stocks early in the session before they lost steam. BHP Billiton closed down 0.1 pct at 40.05 aud and Rio Tinto was up 0.7 pct at 130.34 aud.

In Hong Kong, China Life added 0.3 pct to 39.80 hkd. The mainland's biggest insurer said its premium income reached 183.8 bln yuan in the first 11 months of 2007. It did not provide a year-earlier figure. In Tokyo, NTT DoCoMo was up 1.7 pct at 179,000 after the Nikkei said Japan's largest cell phone operator has started negotiations with Apple for the rights to market the iPhone in Japan.

Elsewhere, the Philippine Composite index was down 0.1 pct at 3,466.28 and the Malaysian KLCI was up 0.1 pct at 1,387.21. Taiwanese Taiex rose 2.7 pct to 8,014.31 and Jakarta's composite index closed up 0.4 pct at 2,657.98.

Indian shares close flat in volatile trade

Shares rose in early trade to touch an intra-day high of 19397.76 points before it plunged to 18886.40 points in mid-day trade. A late 196 point rally pulled the markets up again.

The Bombay Stock Exchange's benchmark Sensex edged 12.32 points higher over yesterday's level to close at 19,091.96 points while the National Stock Exchange's 50-share S&P CNX Nifty closed at 5,751.15 points, up 0.15 pct.

Shares of telecom company Videsh Sanchar Nigam Ltd (VSNL), which is planning a telecommunications cable connecting India and Europe for 250 mln usd, rose 17.17 pct on the BSE to close as the top gainer at 714.25 rupees. VSNL was also one of the top gainers on the NSE to close the day at 716.25 rupees a share, up 18.38 pct.

Jyothy Laboratories Ltd, which listed today on the NSE, closed at a premium of 13.04 pct at 780 rupees a share. Jyothy Labs was listed at 690 rupees. HCL Infosystems Ltd was the biggest loser on the Sensex falling 18.85 pct to 246 rupees a share. GAIL India Ltd was the top Nifty loser at 486.55 rupees a share, down 4.93 pct.

Among the Sensex blue-chips, Reliance Energy Ltd, which is planning to set up power projects in Africa, closed up 4.12 pct at 1,882.60 rupees a share. Shares of small car maker Maruti Udyog Ltd fell 2.39 pct to close at 995.30 rupees.

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Platinum hits record high on auto demand

Platinum rose to record levels Tuesday on expectations that demand for the metal used as a catalyst in automobiles will stay strong in 2008, with more people behind the wheel in developing countries like China. Other precious metals rose as well, while energy prices fluctuated on mixed expectations for Wednesday's inventories report. Agricultural futures fell.

Global inventories of platinum have grown increasingly tight as automakers try to meet demand, particularly in Asia and Eastern Europe. Demand for the metal, used in catalytic converters in automotive exhaust systems, has also surged due to tighter emissions standards.

"Much will depend on how robust automobile production will be next year," said Jon Nadler, a senior analyst at Kitco Bullion Dealers. "That's really becoming the component of demand in this marketplace, almost exclusively." Investor demand for the metal has also been strong in recent months, analysts said.

Platinum prices have climbed 31 percent this year and have roughly doubled in four years. January platinum gained $8.40 to $1,512 an ounce on the New York Mercantile Exchange, after reaching a peak $1,526.40 an ounce in early morning electronic trading.

February gold futures added $6.90 to $806.20 an ounce, while March silver futures picked up 14 cents to $14.12 an ounce. Efforts by the European Central Bank and Bank of England to pump more than 348.6 billion euro, or more than $500 billion, into money markets to keep banks flush with cash also boosted precious metals, said James Steel, an analyst at HSBC.

Massive cash injections can raise investor concerns about inflation. "I think it helped gold more than platinum," he said. Industrial metals traded mixed, meanwhile. Nickel, zinc and lead prices rose on the London Metal Exchange, while tin prices fell.

Nymex copper for March delivery fell 0.45 cent to $2.8845 a pound. Energy prices fluctuated. Analysts polled by Dow Jones Newswires expect the Energy Information Administration will report falling stockpiles of crude and distillates, including diesel fuel and heating oil, and rising inventories of gasoline, in its weekly report Wednesday.

Analysts expect U.S. inventories of crude oil dropped by 1.5 million barrels last week -- which would be a fifth straight week of decline. On average, analysts expect distillate fuel inventories to shrink by 400,000 barrels and gasoline stockpiles to rise by 700,000 barrels.

Light, sweet crude for January delivery declined 95 cents to $89.68 a barrel on the Nymex. Gasoline futures traded down 2.71 cents to $2.3083 a gallon, while heating oil futures fell 4.59 cents to $2.552 a gallon on the Nymex.

Elsewhere, agricultural futures moved lower on the Chicago Board of Trade. March corn slipped 4.75 cents to $4.34 a bushel, and January soybeans lost 5.75 cents to $11.51 a bushel. Wheat for March delivery shed 11.25 cents to $9.5475 a bushel, after hitting an all-time high above $10 a bushel a day ago.

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