US & World Daily Markets Financial Briefing 21-02-2008

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Stocks cling to gains after data

In the first hour of trading, the Dow Jones industrial average rose 34.92, or 0.28 percent, to 12,462.18. Broader indexes also edged higher. The Standard & Poor's 500 index added 3.62, or 0.27 percent, to 1,363.65, while the Nasdaq composite rose 21.79, or 0.94 percent, 2,348.89.

Bond prices moved sharply higher on expectations of a cut in interest rates. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.83 percent from 3.89 percent late Wednesday.

Investors retreated from oil after it reached a record $101 a barrel in overnight trading. Light, sweet crude for April delivery fell 97 cents to $98.73 a barrel on the New York Mercantile Exchange.

Gold and platinum also jumped to record highs overnight. The dollar dipped slightly against the euro and yen.

The markets had little reaction to a Labor Department report that showed the number of U.S. workers filing new claims for unemployment benefits fell last week. However, claims lasting more than one week rose, suggesting idled workers are staying unemployed longer.

In corporate news, there was further evidence that the global credit crisis is not near an end. French bank Societe Generale SA said a trading scandal and write-downs linked to the crisis led to a loss in the fourth quarter. The bank lost $4.91 billion, compared with a $1.73 billion profit during the same period of 2006.

MBIA Inc. fell 2 cents to $12.15 after activist shareholder William Ackman's late Wednesday opposed a plan that struggling bond insurers be split into two companies. The company said Ackman, a hedge fund manager, stood to benefit from negative bets on the stock.

Technology stocks might get a boost after Citigroup upgraded Cisco Systems Inc. The biggest U.S. maker of computer-networking equipment was upgraded to "buy" from "hold" because of attractive valuations and hopes that a slowdown this year won't be as steep as first expected.

Shares rose 62 cents, or 2.7 percent, to $23.82.

Also, Blackberry maker Research In Motion Ltd. raised its outlook for fourth-quarter subscriber additions by about 15 percent to 20 percent, citing the popularity of smartphones in the holiday selling season. The stock surged $9.20, or 9.4 percent, to $107.11.

The Russell 2000 index of smaller companies rose 5.57, or 0.78 percent, to 715.59. Advancing issues led decliners by a 4 to 3 basis on the New York Stock Exchange, where volume came to 221 million.

Overseas, Japan's Nikkei stock average closed up 2.84 percent. In afternoon trading, Britain's FTSE 100 added 1.50 percent, Germany's DAX index rose 1.40 percent, and France's CAC-40 rose 1.40 percent.

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Forex - Pound strengthens after strong UK retail sales

LONDON - The pound strengthened after very strong UK retail sales data suggested UK high street activity is much more buoyant than previously thought. The Office for National Statistics revealed that retail sales in January were up 0.8 pct higher on a seasonally-adjusted basis from February, when retail sales fell by 0.2 pct.

January's performance beat expectations for a 0.2 pct monthly rise, and helped the annual rate double in January to 5.6 pct, again beating analysts' forecasts of a 4.8 pct increase. "The pound continues to benefit from January's forecast-busting UK retail sales figures," said Robert Howard at Thomson IFR Markets.

The news will allay fears of an imminent slowdown in the UK economy, and keep in place expectations that though there appears to be room for the Bank of England's Monetary Policy Committee to cut interest rates further, it will do so gradually rather than aggressively. "Today's release perhaps reinforces why the BoE envisages a more gradual easing in monetary policy than markets," said David Page, UK economist at Investec.

The euro had earlier traded close to its all time high against the pound following yesterday's dovish minutes from the MPC's Feb 7 meeting, which had revealed the committee voted 8-1 for a quarter point cut, with one dissenting vote from arch-dove David Blanchflower for a bolder half point reduction.

However, the single currency quickly lost its footing following today's UK data, and weakened further after the European Commission slashed its growth forecast for the euro zone, although it hiked its inflation outlook from its previous estimates published in November. It also said that the risks it warned of in November have materialised resulting in an "unusually uncertain" global economic situation.

Elsewhere, the dollar recovered slightly, but remained on the backfoot as market players continued to digest yesterday's minutes to the Federal Reserve's Jan 30 rate setting meeting, which saw interest rates cut by a half point to 3.00 pct.

Fears had arisen yesterday that the Fed would be constrained from cutting interest rates aggressively to support growth, after US CPI data released yesterday showed a faster-than-expected rise in inflation for January. Those concerns were dispelled when the Fed released its minutes, which seemed to suggest there is still room for more rate cuts despite rising inflationary pressures.

"Having now absorbed the FOMC's deliberations, the Fed funds futures market remains firmly of the view that interest rates could well be cut by 50 basis point next month and by a further 25 basis points in the months thereafter," said Simon Derrick, currency strategist at Bank of New York.

Looking ahead, the Philadelphia Fed survey of manufacturers will be of interest. The index is expected to increase in February to a level of -12.0 from -20.9 in the previous month. "If this survey stays as weak - or falls further - it will raise fears that the other surveys will follow the Philly Fed survey down and, of course, raise concerns that the US is in recession," said Steve Barrow, chief currency strategist at Bear Stearns.

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Euroshares open up after Wall St gains, Nestle climbs after FY results 

At 8.53 am, the DJ STOXX 50 added 20.83 points or 0.65 pct at 3,218.54, while the DJ STOXX 600 was up 1.84 points or 0.57 pct at 322.16.

World oil prices hit a new record of 101.32 usd a barrel on renewed concerns over global crude supplies. New York's main oil futures contract, light sweet crude for delivery in March, touched the all-time peak in electronic trading before it lapsed.

Back in Europe, earnings seasons continues in full swing. Shares in Nestle led the STOXX 200, rising 5.15 pct after the group beat consensus with its full year earnings results. A Zurich-based trader noted that shareholders welcome the group's dividend hike and should also be impressed with its ability to pass on sharp rises in raw material costs to consumers.

Technip climbed 3.31 pct as the oil services group reported a smaller than forecast fourth quarter pretax loss. But BASF pulled back opening losses to turn 0.74 pct higher as investors said the group's outlook was rather bullish -- aiming for higher sales and a slight improvement in the income before special items.

But Allianz gave up opening gains as investors said today's numbers failed to inspire. The initial enthusiasm after the group announced a higher than expected dividend gave way to concern about the quality of earnings.

And TomTom tumbled 8.28 pct as a less bullish than hoped for outlook cast a pall over the group's fourth quarter results. One London-based trader said the group missed consensus by 4 pct and expressed concern about the average selling prices (ASP) in the quarter. These fell to 141 eur for the quarter, compared with 184.36 seen in the third quarter.

In M&A, shares in Deutsche Postbank AG were 2.63 pct higher after a report in the Financial Times Deutschland said Allianz SE is mulling a bid for its Deutsche Post AG unit once it is put up for sale. A bid would pit the German insurance giant against Deutsche Bank AG and Commerzbank AG, which have already indicated their interest, investors said.

Shares in Continental AG were 1.26 pct higher in early morning deals after the tyre group raised its synergy targets for its recently acquired VDO unit as it presented its fourth-quarter and full-year earnings report this morning.

Traders also said the stock was correcting after the widely feared earnings disappointment failed to materialize. Alitalia shares added 1.44 pct after the Lazio region administrative court rejected the challenge presented by AP Holding's Air One against the exclusive talks between the Italian ailing airline and Air France-KLM.

In other news, Arcelor Mittal added 2.35 pct as it has raised base prices for flat carbon steel products in Europe by another 40 eur per ton, taking the minimum base prices to 600 eur per ton for hot rolled coil and 680 eur per tonne for cold rolled/coated products.

In broker changes of note, Saint-gobain shares added 2.04 pct and Italcementi shares rose 2.67 pct as JPMorgan upped its stance on the pair to 'overweight' from 'neutral'. And EDF shares fell back 1.36 pct as JP Morgan cut its recommendation to 'underweight' from 'neutral' and lowered its target to 69 eur from 83, to reflect what it sees as disappointing guidance given by the French utility yesterday.

Allliance & Leicester shares slumped another 3.76 pct as Morgan Stanley cut its rating to 'underweight' from 'equal-weight' with a price target of 370 pence and HSBC downgraded the UK mortgage bank to 'underweight' from 'neutral' and slashed its target to 400 pence.

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Asian markets climb after Fed minutes offer promise of more rate cuts

The Nikkei closed up 2.8 percent to 13,668.28 and the Topix was up 2.5 percent at 1,334.72. Resource stocks, including Inpex and Nippon Steel rallied with commodity prices, while exporters, including construction machinery-maker Komatsu and office equipment and digital camera maker Canon gained on a slightly weaker yen.

The S&P/ASX 200 closed up 1.6 percent to 5,583.4 and the All Ordinaries was up 1.5 percent at 5,663 as a slew of mainly positive earnings reports offset continued weakness in the financial sector. Shares of telecommunications giant Telstra and Qantas Airways rose after their profit beat expectations.

The Hang Seng was last up 1.4 percent to 23,931.05,  the Kospi closed up 1 percent at 1,704.36 and the Taiwanese Taiex was up 2.4 percent to 8,085.93.

But the Shanghai Composite stumbled on concerns about fresh supply after Shanghai Pudong Development Bank said it plans to offer new shares. The bank's shares slumped 10 percent on Wednesday amid talk in the market that it could issue 1 billion shares, raising about 40 billion yuan.

The index was last down 0.5 percent at 4,542.39.

In corporate news, networker 3Com shares fell 20 percent after it revealed that national security concerns could scupper its agreed sale to Bain Capital Partners and Huawei Technologies. The latter company, the largest networker in China, has links to the mainland's Communist government.

In Tokyo, Inpex ended up 2.7 percent at 1.14 million yen and Nippon Oil was up 4 percent at 730 yen. Nippon Mining added 5.7 percent to 663 yen, while Sumitomo Metal Mining rose 15.3 percent to 2,106 yen. In Hong Kong, Cnooc was up 1.9 percent at 13.02 dollars and Petrochina rose 2.9 percent to 12.04.

In Australia, Telstra finished up 2.1 percent to 4.79 Australian dollars after it reported a 13 percent rise in first-half net profit to 1.9 billion dollars, beating market expectations for a profit of 1.7 billion dollars.

Qantas Airways rose 2.3 percent to 4.45 dollars after beating expectations by more than doubling first-half net profit to 617.6 million dollars.

Investment group Babcock & Brown gained 9.3 percent to 16.76 dollars after beating expectations with a 70 percent rise in annual net profit to 525.1 million dollars and expressing confidence about further growth. The company said turmoil in credit markets had presented opportunities which could be exploited because of a strong balance sheet.

Australia's third-largest oil firm Santos fell 9 percent to 13.05 dollars after it said 2007 net profit fell 31.5 percent due to falling production from mature fields.

Elsewhere,  SK Telecom, South Korea's largest mobile operator, rose 3.9 percent to 210,500 won as investors cheered expected synergies from its successful acquisition of fixed-line operator Hanaro Telecom Inc.

The Bombay Stock Exchange's 30-share benchmark Sensex closed up 117.08 points or 0.66 pct at 17,734.68 and the National Stock Exchange's 50-share S&P CNX Nifty closed 37.35 points or 0.72 pct higher, at 5,191.80.

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Metals - Copper hits 4 1/2 mth peak as commodities surge, stocks tighten

LONDON - Copper rose to its highest level since October 2007 as surging commodity prices fuelled investment, on supply tightness and as a pick-up in equity markets boosted sentiment.

Elsewhere, oil prices were close to a record near 100 usd hit yesterday, gold hit a historic peak at almost 950 usd per ounce this morning, while platinum was near its record 2,190 usd per ounce, also seen this morning.

"With oil over 100 usd/barrel and with two of the precious metals powering into new high ground, it does look as though funds are still pouring money into the commodities and judging by the charts there seems potential for more (investment)," said William Adams, BaseMetals.Com analyst.

At 9.58 am, LME copper for three-month delivery was up at 8,270 usd per tonne against 8,150 usd at the close yesterday. Earlier this morning, it hit 8,280 usd, its best level since early October. Analysts said the rally was well supported as inventories are getting tighter.

LME warehouse stocks across the globe fell 2,725 tonnes yesterday to 137,625 tonnes, their lowest level since October last year. Earlier today, the World Bureau of Base Metal Statistics said the copper market saw a record deficit in 2007 of 161,000 tonnes compared with a 278,000-tonne surplus in 2006.

Fairfax analyst John Meyer said although Bloomsbury Minerals Economics have previously forecast a copper surplus during the next two years as mine supply rises "disruptions, strong demand and delays could lead to an ongoing deficit that is likely to support prices".

Meanwhile, last night's rally in Wall Street shares and higher London equities this morning boosted sentiment towards metals. In recent months commodities, and in particular metals, have become linked to global equity markets. When economic turmoil roils the markets, copper tends to lead the base metals lower as players fear weakness could end up meaning less money being invested in commodities.

An ailing dollar, which has fallen as players were reassured yesterday by the US Federal Reserve minutes which suggested the central bank still has room for more interest rate cuts, despite the current high inflation environment, also helped the commodity-wide rally. A weaker greenback made metals priced in dollars cheaper for those trading with other currencies.

Elsewhere, aluminium rose to 2,920 usd against 2,882 usd a tonne. In other metals, zinc rose to 2,497 usd a tonne against 2,410 usd, nickel was higher at 28,800 usd against 28,100 usd while tin was also up at 17,450 usd against 17,125 usd per tonne.

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