US & World Daily Markets Financial Briefing 21-03-2007

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Stocks fluctuate ahead of Fed decision

NEW YORK - Stocks fluctuated in tepid trading Wednesday as investors awaited the Federal Reserve's latest take on the economy, which could signal where interest rates are headed.
   
While Wall Street largely expects the Fed will leave short-term interest rates unchanged at 5.25 percent, investors are eager to learn whether the central bank will reveal a shift in its assessment of the economy. The Fed has remained vigilant about the threat of inflation, which it has said remains stubbornly high. However, a softening economy could quell the threat of inflation and, some investors are hoping, open the way for a rate cut.
   
The Fed left interest rates unchanged at its last five meetings after a string of 17 straight increases that began in 2004.
   
In midmorning trading, the Dow Jones industrial average fell 20.75, or 0.17 percent, to 12,267.35, after two sessions of gains.
   
Broader stock indicators showed modest gain. The Standard & Poor's 500 index rose 0.31, or 0.02 percent, to 1,411.25, and the Nasdaq composite index advanced 0.05, or less than 0.01 percent, to 2,408.26. The Russell 2000 index of smaller companies fell 0.86, or 0.11 percent, to 792.74.
   
Bonds fell ahead of the Fed decision. The yield on the benchmark 10-year Treasury note rose to 4.58 percent from 4.55 percent late Tuesday.

In afternoon trading, Britain's FTSE 100 rose 0.64 percent, Germany's DAX index rose 0.08 percent, and France's CAC-40 slipped 0.04 percent.
   
Stocks in focus

While most of Wall Street's attention will remain squarely on the Fed, a few key earnings reports should also draw interest. Morgan Stanley's fiscal first-quarter earnings and revenue blew past Wall Street's estimates and FedEx Corp.'s fiscal third quarter earnings came in stronger than expected but the shipping company warned profits in the coming fiscal year could fall below its expectations.
   
Morgan Stanley rose $2.47 ,or 3.2 percent, to $78.58, while FedEx fell $2.58, or 2.3 percent, to $109.71.
   
Software companies showed gains. An acquisitive Oracle Corp. indicated its expansion plans might be reaping dividends as its fiscal third-quarter earnings and new software sales topped Wall Street's expectations. Oracle advanced 57 cents, or 3.3 percent, to $18.12.
   
Adobe Systems Inc. rose $1.63, or 4 percent, to $42.37 after the company reported its first-quarter results topped Wall Street's expectations and the company increased its profit forecast.
   
Advancing issues outnumbered decliners by about 7 to 6 on the New York Stock Exchange, where volume came to 164.5 mln shares.

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Pound recovers from earlier sharp falls on dovish BoE minutes

LONDON - The pound recovered slightly from earlier sharp falls as the market reassessed this morning's minutes to the Bank of England's rate-setting meeting earlier this month.   
   
The minutes unexpectedly showed one vote by David Blanchflower in favour of cutting interest rates. The market had expected a 7-2 vote, with the two newest members, Tim Besley and Andrew Sentance, again voting for a rate hike.
   
The news caused the pound to slump to a low of 0.9556 against the dollar, while the euro rose above 0.68 stg. Short sterling futures also fell as the market moved to slash the chances of another BoE rate hike as early as next month. Talk even went round that rates may already have peaked at 5.25 pct.
   
Robert Howard at Thomson IFR Markets said the pound has subsequently rebounded, however, as the market consider the minutes to be "old news", given that the Monetary Policy Committee would not have had access at the meeting to yesterday's inflation figures.
   
The numbers showed the key annual CPI inflation unexpectedly rose to 2.8 pct in February from 2.7 pct in January, keeping the rate way above the Bank of England's 2.0 pct target rate.
   
Meanwhile, the euro was steady against the dollar as the market awaited tonight's interest rate decision in the US.
   
The Federal Open Market Committee is fully expected to leave interest rates unchanged at tonight's meeting and all attention will be on the accompanying statement. Most expect concerns over inflation to ensure that rate-setters maintain their bias to tighten monetary policy, though they may express greater concerns about growth.
   
"The Fed seems likely to maintain its inflation risk-predicated 'tightening bias' but could well acknowledge greater uncertainty on economic growth," said Steve Pearson at HBOS.
   
Elsewhere, the theme of the day continues to be a return of risk appetite and gains on equity markets, Pearson added. This has allowed a resumption of the carry trade, where money is borrowed in low-yielding currencies in order to invest in higher yielding assets elsewhere.
   
Consequently the yen is weaker across the board, with the Australian dollar the major beneficiary among high-yielding currencies given the additional boost from rising interest rate expectations.
   
Analysts now expect the Reserve Bank of Australia could well raise interest rates next month and the Australian currency has now made a sustained break above 0.80 against the US dollar to reach its highest level in a decade.

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London - A merger between Barclays PLC and ABN-Amro Holdings NV could be sweetened by a 10 bln stg sale of the Dutch bank's US business LaSalle, the Times said citing sources.
 
The paper said that Barclays executives are understood to be open-minded about asset sales and regard LaSalle as both non-core and capable of generating a big merger dividend to appease shareholders on both sides.

Chicago-based retail bank LaSalle could be worth up to 23 bln usd, according to analysts, with Bank of America Corporation mooted as a serious prospective buyer. Given the relative sizes of Barclays and ABN, that could generate cash of about 5.5 bln stg or more for Barclays shareholders and 4.5 bln stg for ABN shareholders.

Virgin Media and BT have emerged as surprise frontrunners for broadband provider Pipex Communications PLC, which put itself up for sale last week, reports the Telegraph, without citing sources. Both companies are believed to have made significant approaches for the group, the paper says.

Frankfurt - Metro AG said full-year net profit rose to 913 mln eur from 501 mln, helped by the acquisition of Wal-Mart Stores Inc's German stores and Geant hypermarkets in Poland and beating an average analyst forecast of 895.4 mln. Including these acquisitions, the company expects sales this year to rise 8-9 pct from 59.88 bln eur in 2006, with EBIT gaining 6-8 pct, excluding one-time effects.

Custodia Holding AG said it sold its entire 25.08 pct stake in German construction company Hochtief AG yesterday to Actividades de Construcciones y Servicios for 72 eur a share. It added that the sale is subject to the approval of the cartel office.

Lanxess AG said it has not made a takeover bid for Degussa AG, and does not plan to. "There was no bid and there will be no bid for Degussa," a spokesman said, who was reacting to a Rheinische Post newspaper report.

Paris - Alcatel-Lucent has signed an agreement with Nortel that gives it first option to buy the Canadian group's GSM activities if it decides to put them up for sale, French daily Les Echos reported, citing a financial document obtained by the paper.
 
According to the document, if Nortel were to sell its GSM business, Alcatel-Lucent would have 30 days to make an offer before Nortel opened it up to other potential bidders.

Milan - Pirelli & C SpA is ready to sack Telecom Italia SpA's board after failing to sell all or part of its stake in the telecommunications company, daily Finanza & Mercati said without giving a source. Pirelli controls 80 pct of Olimpia SpA, a holding company that owns 18 pct of Telecom Italia.

Italian unemployment fell to an adjusted 6.5 pct in the fourth-quarter from 6.7 pct in the third, according to the statistics office ISTAT. On a gross basis, unemployment fell to 6.9 pct in the last quarter from 8.0 pct a year earlier, as employment rose by 61,000 jobs to 24.727 mln.

Brussels - European Central Bank president Jean-Claude Trichet warned that euro zone inflation risks remain on the upside despite the bank's recent interest rate rises. Recent confidence surveys and indicators suggest that euro zone activity is robust and that the economy looks set "to grow solidly", Trichet told the European Parliament's economic and monetary affairs committee.

Madrid - Industria de Diseno Textil SA said it will invest 850-950 mln eur and open between 440 and 520 new stores in 2007, compared to the 439 stores opened in 2006. The clothing retailer said in a statement the spring-summer 2007 collection has been "well received" by clients in the first quarter.

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Asian shares close mixed, awaiting FOMC decision

HONG KONG - Shares across the Asia-Pacific region closed mixed, with markets cautious ahead of the US FOMC meeting and lacking a lead from Tokyo, where the market was closed for a holiday today.
   
Australian shares ended slightly down as investors took a cautious trading approach ahead of the US Federal Reserve meeting.
   
Analysts expect that US interest rates will be held at 5.25 pct but said global markets will closely peruse the Fed's outlook statement on growth, inflation and possible concerns regarding the recent instability within the US housing market.
   
The S&P/ASX 200 ended down 14.7 points or 0.25 pct at 5,861.9 after trading between a low of 5,860.3 and a high of 5,906.7.
   
Bell Potter Securities private investment advisor Stuart Smith said caution head of tonight's Federal Reserve meeting slowed the market, and the meeting's outcome should dictate trading over the remainder of the week.
   
"I think it's a nice healthy market with a bit of profit taking. The markets are trying to decide whether we're in an uptrend or not. Technically I think we are," Smith said.
   
Hong Kong shares rebounded in afternoon trade, reversing morning weakness, although dealers said many investors were sidelined ahead of the US Federal Reserve's meeting.
   
At 3.25 pm the Hang Seng Index was up 166.31 points or 0.86 pct at 19,523.21.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on follow-through buying and fresh inflows of funds, with financial and property stocks in demand. The Shanghai A-share Index was up 26.38 points or 0.83 pct at 3,212.42 and the Shenzhen A-share Index was up 11.44 points or 1.38 pct at 840.96, a new
record high.
   
Seoul shares closed slightly lower, ending a four-day run-up, with investors mostly sidelined ahead of the US rate decision. The downside was limited as foreign investors picked up IT stocks and banks, helping the benchmark index end above 1,440 points, they noted.
   
The KOSPI index closed down 1.32 points or 0.09 pct at 1,442.85, off a low of 1,435.42 and a high of 1,452.05.

Taipei shares finished mixed in reduced trade as profit-taking pared down some of the gains driven by Wall Street's advance overnight.  Investors were unwilling to chase prices higher toward the 7,800 points technical resistance level, preferring to wait for the outcome of the US Federal Reserve's policy meeting before placing further orders, they said.
   
The weighted index closed up 20.83 points or 0.27 pct at 7,757.03, after moving between 7,746.35 and 7,784.19, on turnover of 85.07 bln twd.

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Base metals lower, dragged down by nickel

LONDON - Base metals were lower following a mixed session yesterday as heavy losses in nickel weighed on the complex.
   
Nickel, which posted new record highs in every trading day last week, has declined by some 4,000 usd a tonne this week alone and is some 10 pct off an all time high of 48,500 usd set last Friday.
   
At 11.28 am, LME nickel for 3 month delivery was down at 43,220 usd a tonne against 44,600 usd at the close yesterday.
   
"We have written in recent commentary that a big correction in nickel would be too hard to ignore, and we still maintain that view," said Man Financial analyst Ed Meir. He added he expects more nervous trading in the days ahead, "with a likely
downward bias until the nickel correction plays itself out".
   
While a nickel correction has been long overdue, prices are not expected to plunge as stocks remain critically low and as demand from the stainless steel industry -- which accounts for 70 pct of nickel consumption -- is still strong.
   
Copper was down at 6,585 usd a tonne against 6,645 usd after having its intra-day gains pared yesterday when the International Copper Study Group released data showing a production surplus of over 350,000 tonnes in 2006.
   
This compares with a production deficit of 100,000 metric tonnes in 2005 and a cumulative deficit of 1.45 mln tonne from 2003-2005.
   
Nevertheless, analysts remain upbeat on the metal's prospects as LME stocks continue to fall and as demand from China, the world's largest copper consumer, remains strong.
   
The LME said in a daily report today copper stocks held in its warehouses fell further, this time declining by 950 tonnes on the day to total 189,300 tonnes. Stocks are down over 9 pct from a month ago.
   
"The outlook for copper prices remains solid, and we expect that 3 months will trade towards the 7000 usd a tonne level in the 1-3 month timeframe," said Jansen.
   
Aluminium was down at 2,778 usd a tonne against 2,794 usd, under pressure from rising stocks.
   
The International Aluminium Institute reported yesterday world aluminium production in the first two months of 2007 shot up to a total of 5.8 mln tonnes against 5.2 mln tonnes in the same period last year.
  
Tin was down at 13,825 usd a tonne against 14,00 usd at the close yesterday. The metal set a new contract high of 14,150 usd a tonne yesterday amid continued concerns over supply disruptions in Indonesia, the world's second largest tin producer.
   
The Indonesian government, which is still engaged in a crackdown on illegal tin mining, has said PT Koba Tin will be allowed to export the metal, although the company has still not been issued with export permits.
   
Zinc was down at 3,164 usd a tonne against 3,220 usd while lead was down at 1,908 usd against 1,938 usd.

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