US & World Daily Markets Financial Briefing 23-06-2008

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US STOCKS-Wall St opens up on deals, bargain hunting

NEW YORK - U.S. stocks opened higher on Monday as deal news in the agricultural and waste management sectors buoyed sentiment after Friday's sell-off.
   
The Dow Jones industrial average DJI rose 24.67 points, or 0.21 percent, to 11,867.36. The Standard & Poor's 500 Index SP gained 2.79m points, or 0.21 percent, to 1,320.72. The Nasdaq Composite Index advanced 8.40 points, or 0.35 percent, to 2,414.49.

Shares of Xyratex Ltd. tumbled for a fourth consecutive session Monday after the United Kingdom-based data storage provider was downgraded at both Robert W. Baird and Wachovia Securities.
   
The stock plunged 12% to $19.32 on volume of 362,000 shares, surpassing the issue's 30-day average volume of 204,000 shares. Xyratex shares have climbed 23% year-to-date.
   
Robert W. Baird downgraded the security to neutral from outperform but raised its price target to $24 from $22.  "Although we are likely leaving some upside on the table, we view the risk and reward as appropriately balanced with expectations for considerable earnings acceleration in the second half of fiscal 2008," Baird said in a note to clients.
   
However, the firm didn't make a call on the quarter, but said it expects management's tone to be positive and for the storage infrastructure segment to provide revenue upside in the August and November quarters.   
   
Wachovia downgraded the stock to market perform from outperform on the issue's recent 30% run-up in the past several quarters and what it called an "ongoing tumultuous market."
   
The broker said Xyratex's long-term fundamental story is positive, but the upside drivers are now fully understood and there is potential for new storage infrastructure competition.

"We believe that Xyratex is well positioned within both storage subsystems and storage infrastructure and we would be focused on the potential for upside drivers to our expectations looking into 2008 -- most notably driven by a resurgence in capex spending at Seagate, Western Digital, and the long-awaited surfacing of incremental revenue from Hitachi," Wachovia said.

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Forex - Euro remains weak as economic data shows slowdown gathering pace

LONDON - The euro remained weak after European data today showed that the economic slowdown is accelerating just as the European Central Bank is planning to raise interest rates.

The German Ifo business climate index fell to 101.3 in June from 103.5 in May, worse than analysts' expectations of a more moderate decline to 102.5. The expectations component was also weak, falling to 94.7 from 97.2, again disappointing forecasts for a 96.3 reading.

Meanwhile, the PMI indicator for the services sector dropped to 49.5 from 50.6 May, and to 49.1 from 50.6 in the manufacturing sector. Being below the 50 mark, the figures mean the sectors contracted in June. The figures point to a rapid slowdown in growth -- particularly in Southern Europe -- just days before the ECB is widely expected to raise interest rates due to inflation concerns.

"Only an outright disaster in today's numbers would have kept the ECB from hiking rates next month, and although part of today's data cocktail does not look good at all we think it is not spectacular enough to keep the ECB from hiking on July 3," said Martin Lueck at UBS.

The data does suggest that growth will undershoot the ECB's forecasts, but analysts still believe the central bank has become so focused on inflation, that a hike is a certainty. "The ECB's dramatic change of view has highlighted that worries over dis-anchoring inflation expectations and higher wage growth are their focus," said Jacques Cailloux at RBS.

The pound, meanwhile, was also weaker after another report of falling house prices. Property website Rightmove said prices fell 1.2 percent in June from May, the first monthly fall in June since the survey began. Rightmove said the lack of buyers on the market means the stock of unsold properties on estate agents' books is now at a record level.

"This highlights the fact that house sellers' bargaining power is currently becoming ever more limited and that buyers now very much have the upper hand," said Howard Archer at Global Insight.

Elsewhere, the dollar's performance will likely follow the lead of other currencies due to a lack of economic indicators or speeches today and in advance of the Federal Reserve's policy meeting later this week. The Fed is expected to keep rates on hold, but will probably sound worried about inflation as oil prices remain near record levels.

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Euroshares flat to higher at open, rallying from last week's losses

At 8:49 a.m., the DJ STOXX 50 was up 12.89 points, or 0.44 percent, at 2936.51 and the DJ STOXX 600 was up 0.89 points, or 0.3 percent, at 295.97.

In M&A news, reports continue to suggest that LLoyds-TSB is looking at bidding for Allianz's Dresdner banking business.   Weekend press in the UK suggests the group will swap its Scottish Widows business for the German group with some newspapers suggesting the group might use a rights issue to pay for the deal.

Allianz shares added 1.16 percent. Merrill Lynch said the sale of the bank, to Lloyds or to Commerzbank, would lead to a re-rating of Allianz's shares. The broker repeated its 'buy' stance.

Commerzbank, up 2.9 percent, got a lift as Merrill Lynch upgraded the shares to 'buy', saying buying Dresdner Bank could lead to seven percent accretion at 1.0 times book value in 2010, or 13 percent accretion at a 20 percent discount to book, assuming 33 percent higher cost synergies and 11 percent through increased revenues.

Deutsche Boerse added 1.98 percent after Deutsche Bank lifted its rating on the German exchanges group to 'buy' from 'hold'. Shares in Aker Yards ASA jumped 15.93 percent in opening trade after South Korea's STX Corporation announced that it is to launch a bid for the firm.

Oil shares were mostly higher as world oil prices rose in Asia on Monday after militants blew up a Nigerian oil pipeline, intensifying concerns about tight global crude supplies despite Saudi Arabia's output hike.

New York's main oil futures contract, light sweet crude for August delivery, was 27 cents higher at $135.63 per barrel. The July contract had leapt $2.69 to close at $134.62 before expiring on Friday.

Brent North Sea crude for August was 41 cents higher at $135.27 per barrel after rising $2.86 to settle at $134.86 on Friday in London. Shares in MAN AG. were 0.22 percent higher after a report in the Frankfurter Allgemeine Zeitung, which said that the heavy truck manufacturer is considering selling its Ferrostaal engineering and industrial solutions unit.

Elsewhere in the auto sector, Credit Suisse cut its price targets across the board saying the market has still not understood the downside risk from high oil prices.

The broker cut its target on Daimler AG, down 0.95 percent to 70 euros from 80 euros, on Renault SA, down 0.6 percent to 75 euros from 90 and on Peugeot SA, down 1.5 percent, to 32 euros from 46. And Enel, down 4.77 percent, trades ex its dividend of 0.29 euros.

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Asian stock markets slip on high oil prices, credit woes

In Sydney, the S&P/ASX 200 slipped 0.1 percent to 5,283.7, and the All Ordinaries finished 0.1 percent lower at 5,408.9. The Australian stock market is facing what might be its worst financial year in more than 25 years, unless it stages a spectacular recovery by the end of the week.

The S&P/ASX 200, which is left with just one week before the end of the fiscal year, is down nearly 16 percent for the year to date, its worst performance since the index was launched in 1992, and is poised to close in the red for the first financial year in five.

The All Ordinaries index is down more than 14 percent and is on track for its worst performance since 1981 to 1982, when it plunged 32 percent. In Tokyo, the Nikkei 225 index declined 0.6 percent to 13,857.47, and the Topix index lost 0.7 percent at 1,347.93. The South Korean index was down 0.9 percent at 1,715.59.

Hong Kong's Hang Seng index shed 0.1 percent to close at 22,714.96 points, while the Shanghai composite index finished down 2.5 percent at 2,760.42. Inflation concerns

Oil prices rose more than $2 a barrel to $134.62 on Friday on Middle East tensions and a weak dollar, compounding fears about inflation and consumer spending.

In Tokyo, Nomura Holdings was down 2.2 percent at 1,638 yen, and Mitsubishi UFJ Financial down 1.7 percent at 988 yen. In Hong Kong, Hang Seng Bank was up 2.1 percent at HK$158.50.

Australia's major banks recouped early losses, with National Australia Bank ending up 3.1 percent at A$26.55, Commonwealth Bank adding 0.9 percent to A$39.70, Westpac rising 0.2 percent to A$20.67 and its takeover target St. George up 0.5 percent at A$28.12. ANZ ended down 1.0 percent at A$18.60.

Elsewhere in the region, Malaysia's KLCI closed down 0.9 percent at 1,195.41, the Jakarta index slipped 0.4 percent to settle at 2,362.74, and the Singapore Straits index finished down 0.8 percent at 2,979.15.

The Philippine composite index closed down 3.1 percent at 2,499.38. Worries about the economic impact of devastation after          Typhoon Fengshen ravaged the central and southern Philippines over the weekend dragged down the market.

Singapore's benchmark Straits Times Index lost 0.8 percent at 2,979.15, and Taiwan's weighted index closed down 0.33 percent at 7,876.49.

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Metals - Copper slips on Chinese demand concerns, lower stocks, dollar supports

LONDON - Copper reversed earlier gains on Monday, which saw the red metal touch a five-week high, as concerns over the strength of Chinese demand weighed on sentiment in midday trade.

At 11:51 a.m., London Metal Exchange (LME) copper for three-month delivery was at $8,395 a tonne, up from $8,435 at the close on Friday. Earlier, the metal touched an intraday peak of $8,490 a tonne, its highest level since May 19.

While prices where higher earlier in the session, getting to within 5 percent of all-time highs due to lower inventories, a weaker dollar, and quarter-end buying, mounting evidence of faltering Chinese demand has seen prices slip again.

Chinese copper imports have fallen by 22.3 percent in the first five months of the year to 611,306 tonnes, according to customs data released Monday. "The demand side of the equation looks very soft at the moment and for more than just seasonal reasons," said UBS analyst John Reade.

The traditional summer slowdown in copper demand from the world's number one consumer has been exacerbated by factory closures ahead of the Beijing Olympics, analysts said.

However, prices have found good support from the dollar's weakness on Monday and a further decline in LME inventories, keeping concerns over tight global supplies to the forefront. Inventories of the red metal monitored by the LME fell by 875 tonnes to 123,125 tonnes in today's report from the exchange.

Dollar weakness has spurred buying of dollar-priced commodities like base metals and oil as they become more attractive as a financial hedge against the greenback's recent decline. Weakness in the U.S. dollar also fuels buying as commodities become relatively cheaper for holders of other currencies.

Coming into the quarter-end, traders said some investors were also buying into the red metal to help keep long positions profitable.

Copper prices remain within touching distance of $8,800 a tonne, the all-time high set back in mid-April. "Considering the equity market is in doom mode, this is a noteworthy performance and looks as though new highs may be set before too long in the leading metals," said metals analyst William Adams at Basemetals.com.

In other metals traded on the LME, tin was up at $23,215 a tonne against $22,750. Lead slipped to trade at $1,838 from $1,880, while aluminium was down slightly at $3,135 from $3,140. Nickel eased to $22,350 from $22,400, while zinc fell to $1,930 from $1,952.

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