US & World Daily Markets Financial Briefing 21-02-2007

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Stocks open lower on inflation data

NEW YORK - Stocks fell Wednesday after consumer prices showed a larger-than-expected increase in January, touching off concerns that inflation might not dissipate as Wall Street has hoped.
   
Only last week Wall Street cheered and logged sharp advances after Federal Reserve Chairman Ben Bernanke offered his assessment during Capitol Hill testimony that inflation appeared to be moderating as the economy was showing sustainable growth.
   
The Labor Department report that the consumer price index rose 0.2 percent in January came as a surprise to Wall Street, which had expected an 0.1 percent increase. Declines in energy prices couldn't fully offset a rise in costs of medical care, food and airline tickets. The core figure, which excludes often volatile food and energy prices, rose a greater-than-expected 0.3 percent.
   
The inflation news followed a profit report from Hewlett-Packard Co. that dented sentiment on Wall Street.
   
In the morning trading, the Dow Jones industrial average fell 59.36, or 0.46 percent, to 12,727.28.
   
Broader stock indicators were lower. The Standard & Poor's 500 index was down 5.01, or 0.34 percent, at 1,454.67, and the Nasdaq composite index fell 7.52, or 0.30 percent, to 2,505.52. The Russell 2000 index of smaller companies was down 2.16, or 0.26 percent, at 823.95.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.70 percent from 4.68 percent late Tuesday.
   
Light, sweet crude rose 20 cents to $59.05 per barrel in premarket electronic trading on the New York Mercantile Exchange.
   
Stocks in focus

In corporate news, Hewlett-Packard fell $1.35, or 3.1 percent, to $41.78 after the printer and computer maker saw inventories increase during its fiscal first quarter. Sales and profits topped Wall Street's forecasts for the quarter.
   
Pharmacyclics Inc. plunged $2.27, or 45 percent, to $2.77 after the pharmaceutical company said the Food and Drug Administration refused to review clinical studies of Xcytrin, an injection for treating lung cancer that has spread to the brain. The agency cited an improperly filed application, the company said.
   
FuelCell Energy Inc. jumped 42 cents, or 5.6 percent, to $7.95 after the maker of fuel cell power equipment expanded a manufacturing agreement with Posco Power, the largest privately controlled power producer in South Korea.
   
Novastar Financial Inc. fell $5.93, or 33.8 percent, to $11.63 after the mortgage lender swung to a fourth-quarter loss from a profit as it booked charges for loans it expects borrowers with bad credit won't be able to repay. The company also said it might have to revoke its status as a real-estate investment trust, a vehicle that pays most of its taxable income to shareholders via a dividend.

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Dollar spikes upside US inflation surprise

LONDON - The dollar enjoyed a small bounce after US inflation data for January came in higher than anticipated, further solidifying expectations that the US Federal Reserve will not be cutting borrowing costs any time soon.
   
Figures from the Labor Department showed that overall prices rose 0.2 pct, twice as fast as the 0.1 pct increase economists had expected. Core prices, which exclude volatile food and energy prices, increased by 0.3 pct, higher than the expected gain of 0.2 pct and the largest gain since June.
  
"These numbers suggest that inflationary pressures wont evaporate quickly and that the Fed will retain a tightening bias," said Neil Mackinnon, chief economist at ECU Group.
   
The Fed has kept its benchmark rate unchanged at 5.25 pct for four consecutive meetings after previously raising it 17 times in a row. Towards the end of last year, the dollar slumped on mounting talk of an easing in policy following a raft of disappointing activity news.
   
Further insights about the US interest rate outlook will emerge later today when Fed officials Donald Kohn and Janet Yellen give speeches, and the minutes to the recent rate-setting meeting at the Fed are released.
   
Elsewhere, the Bank of Japan's second interest rate hike in eight months had very little impact on the yen as the central indicated that any further hikes will be gradual.
   
The Japanese currency fell after the central bank sought to downplay the implications of the quarter-point increase in its overnight lending rate to 0.5 pct. It argued that the monetary environment in Japan remains "very accommodative", conducive to growth and inflation is likely to remain near zero.
   
Today's rate rise was the first since last July when the central bank ended its highly unorthodox policy of virtually free credit as the world's number two economy recovers from its long deflationary slump. 
   
At their recent meeting in Germany, G7 finance ministers and central bankers sought to create a floor for the yen by issuing a subtle warning about the risks in the international financial system.
   
The yen has slid down to multi-year lows against both the dollar and the euro, largely because of the so-called carry trades, where investors borrow from lower-yielding currencies like the yen to invest in places with higher interest rates, has been an important feature of the currency markets of late. 
   
Elsewhere, the pound was solid against all currencies, apart from the dollar, after the Bank of England effectively retained its tightening bias and the Confederation of British Industry reported that factory orders are running at a 12-year high.
   
The minutes to the Feb 8 meeting, when the key repo rate was left unchanged at 5.25 pct, showed that two of the nine members of the Monetary Policy Committee voted for a hike.

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Top Stories in Europe at 11.05 GMT

Amsterdam - ABN Amro Holding NV confirmed that it has received a letter from private equity fund The Children's Investment Fund Management (TCI), which talks of splitting up the banking group. A spokesman for ABN Amro said the letter -- addressed to supervisory board chairman Arthur Martinez -- was received yesterday evening through "informal channels".

Paris - Arcelor Mittal announced a full-year EBITDA of 12.161 bln eur, up from a pro forma 12.022 bln eur in 2005 and within its own guidance range, and forecast that its first-quarter performance will be "in-line" with the fourth quarter. The steel group said that 2006 net profit was 6.349 bln eur, down from a pro forma 6.641 bln eur in 2005, on sales of 70.534 bln eur, up from a proforma 64.431 bln eur the year before.

Electricite de France (EDF) said net profit climbed to 5.605 bln eur last year, a sharp increase from a pro forma 3.23 bln earned in the previous year, and far ahead of analyst forecasts.
 
Surging energy prices gave a boost to the bottom line, and more than offset the limited growth for its core French business, seen after the French government, also the controlling shareholder of EDF, authorised only a small increase in household electricity prices last year.

Schneider Electric said it expects a solid increase in profitability over the next two years, after the company unveiled a 32 pct jump in 2006 net profit to 1.309 bln eur, surpassing analyst expectations. Operating profit rose 28 pct to 2.001 bln eur, on sales that increased by 18 pct to 13.73 bln. Organic sales growth hit 10.7 pct, a company record.

Frankfurt - The New York Stock Exchange (NYSE) is interested in holding talks with Deutsche Boerse AG regarding the latter's cash market operations, NYSE Chief Financial Officer Nelson Chai said in an interview with Boerse Online.
 
Asked whether NYSE would be interested in acquiring Deutsche Boerse at some point in the future, he replied his company would be interested in talking with the German stock exchange operator regarding the latter's cash market operations.

Juergen Grossmann is to succeed Harry Roels as RWE AG chief executive, Financial Times Deutschland reported in its online edition citing sources close to the utility's supervisory board. The RWE stakeholders have agreed on Grossmann as Roels's successor and the supervisory board is to make a decision at its extraordinary meeting today, the report said.

Heidelberg - HeidelbergCement AG said full year 2006 sales rose to 9.234 bln eur from 7.803 bln in 2005 and forecast a "noticeable" increase in 2007 full year earnings and sales. It said net profit in 2006 has "exceeded" 1 bln eur. On Jan 9, the company said net profit would reach about 1.0 bln eur, up from 471 mln in 2005.

Vienna - Steel company Boehler-Uddeholm said today that sales had increased 19 pct year-on-year in 2006 to 3.09 bln eur, beating analyst expectations of 3.056 bln eur, thanks to strong sales and increase in orders, especially in the fourth quarter.
 
In its preliminary 2006 results reported today, Boehler-Uddeholm said EBIT grew 20 pct to 376 mln from 314 mln eur, broadly in line with the consensus 367.81 mln eur.

Lisbon - Portugal Telecom SGPS's board urged shareholders to reject Sonaecom SGPS's 10.50 eur per share bid and pledged to return 6.2 bln eur to them in 2006-2009 if the bid fails, up from the previously proposed payout of 3.5 bln in 2006-2008.
 
PT said its revised remuneration package includes a proposed buy back of 16.5 pct of the company's shares at up to 11.50 eur per share or a total return of up to 2.1 bln eur.

Inflation picked up in September in Europe as both areas show fragile economic growth. Just as in the U.S., rising energy prices are to blame. Read free, daily market reports available only at CMS Forex and open your free demo trading account today. Click here

Asian shares close mixed; Wall St supports, BoJ decision ends uncertainty

MANILA - Shares across the Asia-Pacific region closed mixed with Wall Street's overnight rise providing support for some bourses, while the Bank of Japan's (BoJ's) decision to hike its overnight call rate target by 25 basis points ended days of speculation and uncertainty over the matter.
   
In Tokyo there was a mixed reaction to the BoJ decision with investors waiting to see how offshore investors will react to the rate hike, dealers said. The BoJ's policy board, in approving a rate increase to 0.50 pct from 0.25, said it was confident the move would not stymie the economy's recovery.
   
The blue-chip Nikkei 225 Stock Average closed down 25.91 points or 0.14 pct at 17,913.21, after moving in a tight range of 17,850.09 and 17,968.26 while the TOPIX index of all issues listed on the Tokyo Stock Exchange's first section rose 4.50 points or 0.25 pct to 1,787.23, after trading between 1,779.47 and 1,790.21.
   
In Australia shares closed lower as some weaker-than-expected earnings reports prompted profit taking. Resources stocks came under pressure after some metals prices fell in overnight London trade. The S&P/ASX 200 closed down 37.9 points or 0.63 pct at 5,951.8, while the broader All Ordinaries index lost 36.3 points to 5,933.1.
   
In Seoul shares fell, but were off their lows for the day with continued support seen from some foreign investors and pension funds. The BoJ's decision to hike its overnight call rate after days of speculation also took some of the uncertainty out of the market and reduced losses. The KOSPI index closed down 1.58 points or 0.11 pct at 1,451.38, after moving between 1,444.84 and 1,457.37.
   
On the KOSDAQ board the index closed closed up 0.68 points or 0.11 pct at 608.16, after moving between 606.04 and 609.09.
   
In Hong Kong shares ended higher supported by Wall Street's gains and some robust January subscriber numbers announced by China Mobile. The Hang Seng Index closed up 83.51 points or 0.41 pct at 20,651.42, off a low of 20,540.32 and high of 20,677.29.
   
In Manila shares also finished up, though off their highs, as investors continued to take an upbeat view of the country's economy supported by an improving fiscal picture and strengthening peso. The composite index ended up 3.61 points or 0.10 pct at 3,378.92, after touching a high of 3,417.08, not far from its record of 3,447.60 set on Feb 3, 1997.
   
The broader all-share index rose 8.57 points to 2,151.66.
   
In late trade shares in Singapore were also firmer, with Wall Street's rise helping provide upward impetus. At 4.20 pm, the index was up 36.02 points or 1.11 pct at 3,272.95.
   
Shares in New Zealand finished lower as investors used recent corporate results that failed to impress on the upside as an excuse to take profits.
   
The benchmark NZX-50 index ended down 14.70 points, or 0.36 pct, at 4,095.78 on turnover worth 162.93 mln nzd.
   
Both the China and Taiwan stock markets remained closed for Lunar New Year holidays.

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Gold slightly higher on renewed physical demand

LONDON - Gold edged slightly higher on renewed physical demand after a volatile week so far. At the same time, gains were capped by weak oil prices which dampened gold's status as a hedge against inflation.
   
At 12.21 pm, spot gold was quoted at 658.35 usd an ounce, up from the 657.50 usd level seen at yesterday's close.
   
"Bargain hunting" after a significant dip yesterday was the main reason for today's slight rise, said UBS analyst, Robin Bhar."This is just a healthy correction. It's not the end of a bull run. Buying will continue," added Bhar.
   
He believes gold has good support at 640-650 usd and will not collapse to levels around 600 usd. Additionally, if gold does not fall to 640 usd, investors will feel compelled to buy. Gold's gains were also capped by a marginally stronger dollar.
   
Separately, news that two European central banks sold around 5.8 tonnes of gold last week also kept the metal's gains in check.
   
The sale was "the largest single weekly sale of gold on the part of the legacy banks thus far this year," said Dennis Gartmann, editor of The Gartman Letter -- a daily trading commentary. The banks sold some 4.5 tonnes last week.
   
In other precious metals, silver was down at 13.71 usd an ounce against 13.80 usd in late New York trades yesterday, platinum was down at 1,203 usd against 1,208 usd while palladium was down at 332 usd against 335 usd.

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