US & World Daily Markets Financial Briefing 23-10-2007

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Wall Street up on strong profit reports

NEW YORK - Wall Street advanced Tuesday, with Wall Street growing more upbeat about corporate profits after solid results from blue chip names including Apple Inc., American Express Co. and DuPont Co.
   
Apple surpassed analysts' expectations with a 67 percent jump in fiscal fourth-quarter profit on strong sales of Macintosh computers, iPods and iPhones. The report renewed confidence in the technology sector, which has outpaced the stock market this year but which also has tended to fall the hardest when investors sell off.
   
Two components of the Dow Jones industrial average -- American Express, one of the largest credit card companies, and chemicals maker DuPont -- posted better-than-expected profit gains as well.
   
These results reinvigorated investors after companies posted a string of downbeat results last week, a disappointment that contributed to a 366-point slide in the Dow on Friday. So far, 41 percent of the Standard & Poor's 500 index have reported results -- with 51 percent beating expectations, according to the rating agency.
   
Meanwhile, energy prices remain high and the dollar continues to weaken against other world currencies. Treasury Secretary Henry Paulson said in a speech Tuesday China must allow its currency, the yuan, to gain in value more quickly, to counter imbalances in the economy and make monetary policy more
effective in responding to inflation.
   
In midmorning trading, the Dow rose 68.04, or 0.50 percent, to 13,635.01. Broader stock indicators were also higher. The S&P 500 rose 8.72, or 0.58 percent, to 1,515.05; the Nasdaq composite index rose 22.32, or 0.81 percent, to 2,776.25.
   
The stock market had a fitful recovery Monday after plunging Friday. Wall Street had sold off as worries about the credit market's effect on the economy escalated, when several blue-chip companies offered dimmer-than-anticipated outlooks and S&P downgraded more mortgage-backed securities.
   
Treasury bonds fell as investors moved back into the stock market. The yield on the 10-year note, which moves inversely to its price, rose to 4.43 percent from 4.40 percent on Monday.
   
Oil prices rose despite expectations of rising U.S. crude inventories, bolstered by concerns over a continuing buildup of Turkish military forces along the northern Iraqi border. A barrel of light, sweet crude rose 41 cents to $86.43 on the New York Mercantile Exchange.
   
Shares of Apple rose $11.37, or 6.5 percent, $185.73 after the company reported it shipped a record 2.16 million Macs in the quarter, an increase of 34 percent from the same period a year ago. That generated $3.1 billion, or about half of the company's revenues for the quarter.
   
American Express, one of the nation's biggest credit-card issuers, said late Monday that higher spending by cardholders pushed third-quarter profit up 10 percent. Shares rose $1.53, or 2.7 percent, $58.40.
   
Chemical maker DuPont posted a larger profit for the third quarter on agricultural and nutritional products in Latin America and the company boosted its full-year outlook. The stock rose $1.03 to $47.60.
   
AT&T Inc., the nation's largest telecommunications company, reported profit rose 42 percent after its acquisition of BellSouth Corp. Shares rose 21 cents to $41.38.
   
The Russell 2000 index of smaller companies rose 4.38, or 0.54 percent, at 814.46. Advancing issues led decliners by a 3-to-1 basis on the New York Stock Exchange, where volume came to 99.3 million shares.   

In European trading, Britain's FTSE 100 rose 1.50 percent, Germany's DAX index rose 0.95 percent, and France's CAC-40 rose 1.11 percent.

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Pound up as BoE's Barker speech helps offset weak manufacturing survey

LONDON - The pound firmed as an upbeat speech from Bank of England rate setter Kate Barker and a recovery in global equity markets offset a weak UK manufacturing survey.
   
Barker stressed that although the risks to the UK economy are tilted to the downside, there is little evidence that the credit crunch will have a major impact on household consumption.
   
"Even if there were a major weakening in the housing market, the response of household consumption may be muted, since it is not expected to be linked either to rising unemployment or deterioration in households' income expectations," she said. Barker also said that the deterioration in sterling's overall exchange rate and rising commodity prices means that there are still lingering inflationary pressures.
   
This helped a gloomy manufacturing survey from the Confederation of British Industry, which reported the balance of manufacturers who are optimistic about the year ahead fell to -13 pct, the lowest reading since January 2006, sparked by fears over the potential fall-out from the credit squeeze.
   
Sterling dipped following the report, but has since clawed back earlier gains as the recovery in risk appetite boosts investor's enthusiasm for currencies with relatively high yields such as the pound.
     
Meanwhile, the euro was trading in a narrow range against the dollar, failing to build on earlier gains following weaker-than-expected euro zone industrial order figures.
   
Orders rose by 0.3 pct in August from July, below expectations for a 0.9 pct monthly rise, supporting some analyst expectations that interest rates in the 13-nation single currency zone have peaked.
       
These figures helped temper the euro's overnight gains driven by the recovery in global equity markets.
   
The big falls recorded in US stock markets last Friday stoked a flight to quality such as bonds, and to some extent the dollar, as investors concluded that no part of the world would be unscathed by any slowdown, or even recession, in the US.
   
However, the Dow Jones' recovery yesterday has helped ease some of those concerns and led to an unwind of the safe haven flows.
   
This could continue this afternoon with Wall Street forecast to open higher, especially as Apple Inc posted forecast-busting results after the market's close.
   
As a result, the euro has oscillated quite wildly this week, sliding yesterday from 1.4348 usd to a low of 1.4124 usd, before recovering to trade around 1.42 usd.
   
The recovery in risk appetite has also put a halt to the the yen's recent gains as investors make a tentative return to the carry trade - a risky strategy where they sell the low-yielding yen to buy higher yielding currencies elsewhere.
   
However Sophia Hardy, currency strategist at UBS said the yen could well firm over the long-term.
   
"The yen's rally higher on Monday ran out of steam as markets do not appear to be amenable at present to another serious bout of risk-aversion," she said. "But in the broader context of greater concern of a US led global slowdown ahead, further unwinding of yen-funded growth trades can be expected, though the yen's rise should be orderly barring a significant risk event," she added.

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Euroshares up midday, Wall St headed for higher open, earnings, Porsche in focus

LONDON - Leading European shares moved higher in midday trading as Wall Street looks set to add to last night's rebound and with earnings news in focus, while Porsche edged higher after the EU's highest court of justice ruled against the disputed "VW law", paving the way for a full takeover.
   
At 12.06 am, the Dow Jones STOXX 50 Index was up 39.34 points, or 1.04 pct, at 3,816.58 while the DJ STOXX 600 Index rose 4.88 points, or 1.30 pct, to 380.70. "We have seen some very good earnings results today, and Porsche and Volkswagen was one of the highlights today," a trader in Frankfurt said.
   
A negative report on Merrill Lynch in the New York Post was largely ignored by the market this morning and the trader noted that he too expects Merrill to report additional write-down in conjunction with the subprime crisis, but said it will be more important how other banks react.
       
Volkswagen and Porsche were in the spotlight, after the highest EU court banned a law that had effectively protected Volkswagen from takeover. The German government said it will take the necessary regulatory steps to scrap the Volkswagen Law after today's ruling from the EU Court of Justice, which may take around 6 months.
   
Porsche gained 4.17 pct, but Volkswagen fell 2.82 pct as the speculative aspect, that has driven its share price in the past month, subsides. Traders also noted that Porsche does probably own all the necessary call options already to complete the takeover and therefore will not need to buy on the market any further.
   
Staying with M&A chatter, Hays PLC shares surged 3.24 pct as speculation resurfaced that Swiss staffing company Adecco SA might bid for the UK's largest recruiter. But an analyst said "these stories emerge every two weeks" adding "I don't think there is a story there."
   
Over in Italy, Tiscali added 3.68 pct on reports that Deutsche Telekom is interested in Hutchison Whampoa's 3Italia, with traders noting Tiscali would probably be the next takeover target of the German telecommunications giant.
   
"If Deutsche Telekom really plans to compete with the big players in the Italian market, then Tiscali should be its next play," a Milan-based analyst said.
   
And Norwegian shipbuilder Aker Yards ASA soared 20.21 pct, after South Korean investment group STX bought a 39.2 pct stake in the company for 800 mln usd, a 38 pct premium to last night's closing price.
   
A flood of earnings news across Europe also caused some moment. Schneider Electric rose 3.19 pct, as the French maker of electrical equipment posted better-than-expected third-quarter sales and said it is seeing little negative impact from the slowdown in the US housing market.
   
Staying in the industrial sector, shares in Alfa Laval rallied 12.06 pct to an all-time high after the engineering group announced much better-than-expected third-quarter results across the board and lifted its operating margin target.
   
The results also had strong read across Gea Group, which rose 6.62 pct, also spurred on by a bullish note from Credit Suisse, which said it expects Gea Group to raise its guidance for the full year 2007.
   
On a less upbeat note, Akzo Nobel slipped 1.12 pct amid some analyst disappointment over the performance of its coatings division in the third quarter. Akzo Nobel is in the process of completing its acquisition of UK group Imperial Chemical Industries. Shares came off lows however after US chemicals maker DuPont posted a larger profit for the third quarter, as strength in agricultural and nutritional products in Latin America boosted results.
   
Shares in Oerlikon fell 2.2 pct after the Swiss high-tech equipment and coating company's nine-month earnings fell far short of analyst expectations.
   
In the oil and gas sector, BP shares ticked up 2.07 pct after the company reported a better than expected set of third-quarter earnings, with investors cheered by the performance of its refining and marketing operations.
   
But it was Subsea 7 which grabbed the sector spotlight, as the oil services company's stock shot up 7.91 pct after forecast-beating third-quarter earnings, boosted by a good overall operational performance and a high activity level, particularly in the North Sea and Africa.
   
Norwegian engineer and oil services group Aker Kvaerner rose 6.57 pct after its third-quarter profit beat expectations. Analysts said Aker Kvaerner results benefited from a significant reduction in expenses and a 70 mln accounting gain on hedging transactions.

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Asian markets higher on Wall Street rebound but caution caps gains

SINGAPORE - Asian markets ended firm Tuesday, tracking overnight gains on Wall Street, but investors stayed cautious over the US subprime mortgage crisis which has already dragged down the earnings of major US financial institutions.
           
The Nikkei 225 index closed up 0.1 pct at 16,450.58, off the day's high of 16,554.91 as investors exercised caution ahead of quarterly earnings by major companies this week. The broader TOPIX index rose 0.5 pct to 1,570.55, off a high of 1,582.96.
   
But while the market is hoping for further rate cuts in the US, there is also the risk that some central banks in the region may raise rates to contain inflationary pressure.
   
In Australia, there is some concern over the interest rate climate as the release of third-quarter consumer price data on Wednesday could prompt a rate hike in the near term.
   
"That could be the spooky bit. It could be bad for media and retail stocks if there is an interest rate rise," said Bell Potter Securities private client advisor Stuart Smith. The S&P/ASX 200 closed up 1.3 pct at 6,660.9, while the All Ordinaries index closed up 1.3 pct at 6,677.5.
   
Hong Kong's Hang Seng index closed up 3.5 pct at 29,376.86.
   
China's benchmark Shanghai Composite Index closed up 1.9 pct at 5,773.39 on a technical rebound, and banks led the gains after China Merchants Bank Co Ltd and Shenzhen Development Bank announced strong results for the third quarter.
   
China Merchants Bank Co Ltd said Monday net profit in the nine months to September surged 128.1 pct from the year before to 9.97 bln yuan, mainly boosted by higher net interest income and robust loan growth.
      
The Shanghai and Shenzhen A-share indices rose 1.9 pct and 0.6 pct respectively. The Shanghai B-share index rose 0.7 pct, while the Shenzhen B-share Index lost 0.4 pct.
 
Indian shares advanced over 4.5 pct today, with market sentiment buoyed by the Indian market regulator's assurance yesterday that it will expedite the registration process for foreign investors keen to participate in the India growth story.      
   
The Bombay Stock Exchange's benchmark Sensex gained 4.99 pct, or 878.85 points, to 18,492.84, while the National Stock Exchange's S&P CNX Nifty closed 5.59 pct higher at 5,473.70 points. Among the BSE 30, 25 shares gained and 5 lost. In the broader market, 2,087 shares advanced, 660 declined and 51 were unchanged. 
  
Singapore's Straits Times Index rose 1.4 pct to 3,695.30. South Korea's KOSPI closed up 2.3 pct at 1,947.98, rebounding slightly from Monday's sharp losses.
   
The Philippine composite index closed up 0.8 pct at 3,697.17, barely recovering from the 4 pct plunged seen on Monday when investors sold shares on heightened security concerns after an explosion at a shopping mall in the capital's financial district Friday which killed 11 people and injured more than 100.
   
The Jakarta composite index closed up 4.1 pct at 2,553.80. Malaysia's Kuala Lumpur Composite Index rose 0.5 pct at 1,357.33. The Taiwanese Taiex index closed up 1.5 pct at 9,502.39.

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Coffee prices seen consolidating at higher levels, Brazil rain in focus

LONDON - Coffee prices are expected to continue consolidating at higher levels this week, underpinned by low rainfall in Brazil, strong fund interest and some crop damage in Vietnam.
   
Although prices took a hit last week from expectations of improved rainfall in Brazil, traders noted that the expected rainfall, which materialised over the weekend, has since stopped.
   
"People are now waiting for the next rains to come, if they don't come we could be back up," said a trader at Bache Commodities.
   
Brazil is the world's biggest coffee producer. Although it primarily produces the higher quality Arabica coffee bean traded in the US, 31 pct of its output is comprised of the Robusta coffee bean traded in London.
   
Vietnam is the world's largest producer of Robusta coffee beans.
   
Earlier, Robusta coffee for November delivery hit a day high of 2,2150 usd a tonne on the Euronext Liffe amid worries that heavy rains and flooding in Vietnam will delay the country's harvest. However, by 2.07 pm, the contract had dipped to 2,109 usd a tonne, down 8 usd on yesterday's close.
   
Traders said worries over low rainfall in Brazil are a more dominant price driver than the fears over a late harvest from Vietnam. They added the market will also continue to draw support from fund interest.
   
Coffee hit a new 9 year high of 2,234 usd a tonne on Oct 12 on worries over dry weather in Brazil, although the metal gave back some of those gains last week on expectations the dry spell would end soon.
   
Elsewhere, wheat prices were expected to remain underpinned at slightly higher levels this week, as the past month's correction from recent record levels might have run its course.
   
Analyst Mehdi Chaouky at Diapason said market players are expecting Australia's Agricultural ministry to announce in due course that the upcoming harvest will be even lower than the current one.
   
Wheat prices reached a record levels last month as bad weather damaged crops if key producers Australia and Canada.
   
At 2.07 pm, milling wheat for November delivery was up 3 eur per at 245 eur a tonne on the Euronext Liffe in Paris, while feed wheat for November delivery was up 2 stg at 158 stg a tonne on the Euronext Liffe in London.
      
Elsewhere on the Euronext Liffe in London, cocoa for December delivery was down 1 stg at 938 usd a tonne, while No. 5 white sugar for December delivery was up 2.70 usd at 278.70 usd a tonne.

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