US & World Daily Markets Financial Briefing 24-09-2007

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Wall Street mostly higher

NEW YORK - Wall Street moved mostly higher on Monday, as investors remained upbeat about stocks in the wake of the Federal Reserve's half-point interest rate cut last week.
   
Investors will also be eyeing a number of economic reports this week that could solidify the advance. Many investors are hoping readings on durable goods, existing home sales and consumer spending will give the Fed room to cut rates further.
   
However, lower rates -- and the potential for more cuts -- continued to weigh against the U.S. dollar. The U.S. currency dropped to a 15-year low against six other major currencies.
   
There are no economic reports due during the session. However, speeches are expected from Fed Chairman Ben Bernanke, Dallas Fed president Richard Fisher, and Chicago Fed governor Charles Evans.
   
In the first half-hour of trading, the Dow Jones industrials rose 4.06, or 0.03 percent, to 13,824.25.
   
Broader indicators were mixed, with the Standard & Poor's 500 index dipping 1.36, or 0.09 percent, to 1524.39, while the Nasdaq composite index rose 5.46, or 0.20 percent, at 2,678.68.
   
Bonds edged lower, with the yield on the benchmark 10-year Treasury note rising to 4.64 percent from 4.63 percent late Friday. Treasuries have rallied since last week's rate cut, and investors are now holding positions ahead of the week's economic data.
   
Oil prices fell as a tropical depression in the Gulf of Mexico dissipated without causing damage to key oil and gas infrastructure. A barrel of light sweet crude dropped 80 cents to $80.82 on the New York Mercantile Exchange.
   
In corporate news, General Motors Corp. faced a morning deadline in contract talks as United Auto Workers have threatened to strike if a new contract isn't reached. The talks were proceeding as the union set a strike deadline for 11 a.m EDT. GM shares rose 99 cents, or 2.9 percent, to $35.93.
   
Ford Motor Co. shares rose 22 cents, or 2.7 percent, to $8.45 after Chief Executive Alan Mullaly said the auto maker is in talks with potential buyers of the company's Jaguar and Land Rover Brands. The company also began operations of its newest joint-venture factory in China, where it will produce both the Ford and Mazda brands.
   
Limits on Fannie Mae's and Freddie Mac's investment portfolios could be lifted in February if they begin filing timely and audited financial statements, a top regulator told The Wall Street Journal. Under the plan, the Office of Federal Housing Enterprise Oversight would allow the two government-backed mortgage providers to be given more flexibility and to expand. Fannie Mae shares fell 69 cents to $62.03.
   
Dell Inc. rose 24 cents to $28 as it said it will launch a retail presence in China by selling computers through the country's biggest chain of electronics stores. The deal extends Dell's strategy of expanding beyond its traditional Internet-and-phone sales model into retail to better compete with rivals.
   
Xerox Corp. fell 10 cents to $16.92 after it launched a system promising to slash the cost of color printing for high-volume users willing to pay more initially for machines. Five new printers were unveiled that would make printing color pages on par with black-and-white.
   
The Russell 2000 index of smaller companies rose 0.11, or 0.01 percent, 813.22. In European trading, Britain's FTSE 100 rose 0.42 percent, Germany's DAX index fell 0.12 percent, and France's CAC-40 rose 0.10 percent.

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Euro stays near all-time dollar high; Fed speeches in focus

LONDON - The euro remained near its all-time high against the dollar as the US currency floundered, prompting renewed speculation that European rate-setters may be forced to act to weaken the euro.
   
The euro's rise to over 1.40 usd -- it hit an all-time high of 1.4129 this morning -- is prompting cries of complaint from business and political leaders in Europe, who want some devaluation of the euro to help beleaguered exporters.
   
French President Nicolas Sarkozy is at the fore of this movement and recently described the euro at 1.40 usd as a "problem" for euro zone economies. He also applauded the US Federal Reserve's half-point cut in interest rates last week.
   
The European Central Bank, which has independence over monetary policy, has refused to heed political pressure to cut interest rates as it is determined to keep inflation under control. Its benchmark interest rate is currently 4.00 pct.
   
Simon Derrick at the Bank of New York Mellon said "the strength of the euro will (likely) be the subject of growing attention in the press," particularly considering that the euro/dollar exchange rate frequently jumps in the fourth quarter. This Q4 rise has averaged more than 5 pct over the past five years, he said. "Calls from different parts of Europe for the ECB to change its stance (are likely to) mount steadily. How the ECB reacts remains to be seen," he said.
   
Peter Stoneham at Thomson IFR Markets said these concerns could ultimately cause a fall in the euro. "With concerns for the euro zone economy beginning to creep into the equation, we may be seeing some top forming for euro/dollar," he said.
   
Euro zone data this week that could affect the monetary policy debate include the IFO survey of German business confidence on Tuesday, and headline HICP inflation figures for the euro zone.
   
Economists forecast the IFO to weaken to 105.0 in September from 105.8 in August as the recent financial market turmoil hits confidence, and expect euro zone inflation to jump to 2.1 pct in September from 1.7 pct in August. The ECB also expects an increase due to base effects from low energy prices a year ago.
   
Elsewhere, the dollar was weak across the board, continuing its trend lower after the Federal Reserve cut interest rates to 4.75 pct from 5.25 pct last week in a bid to shore up the US economy. Expectations for some weak economic data this week are keeping the dollar under pressure as the odds of further rate cuts
appear to grow.
       
Data on Tuesday are expected to show US consumer confidence falling to 104.5 in September from 105 in August, and existing home sales dropping to 5.445 mln in August from 5.75 mln the prior month, according to forecasts from Thomson IFR Markets.
   
Before that, indications on the Fed's thinking will come from speeches today by FOMC member Richard Fisher and chairman Ben Bernanke, and from Bernanke again on Thursday.

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Euroshares up midday, higher Wall St open seen, banks underperform

LONDON - Europe's leading exchanges climbed ahead by midday, with Wall Street looking at a higher open today.
   
The banking sector was one of few declining industries today as Deutsche Bank fuelled concerns over the impact of the subprime crisis again, following a media report that it may take a 1.7 bln eur hit due to its subprime exposure.
   
At 12.00 pm, the Dow Jones STOXX 60 Index was 6.80 points or 0.18 pct higher at 3,829.74 while the DJ STOXX 600 Index rose 0.94 point, or 0.25 pct to 377.68.
   
Back in Europe, exposure to the struggling US subprime mortgage market continued to take its toll in the banking sector with Northern Rock engaging in volatile trade and Deutsche Bank being the subject of a media report.
   
"We are still lacking any real direction," James Yates, a dealer at CMC Markets said. "Northern Rock's continued volatility keeps subprime concerns at the forefront, and it seems to me that a lot of money is staying out of the market until we have a better understanding of how this might impact," he added.
   
Shares fell 3.08 pct after seeing heavy losses in opening deals and swinging back to gains during the morning as speculation over a potential bidder emerged.
   
Deutsche Bank AG fell 1.86 pct after a media report said that Germany's largest bank might see losses of up to 1.7 bln eur resulting from underperforming loan packages. The company declined to comment on the report.
   
Fortis shares fell 3.19 pct after JP Morgan cut its price target on the bank to 30 eur from 37.80 eur. The broker, nevertheless, remains 'overweight' on the stock, saying the completion of its recently-announced rights issue should take some of the pressure on the bank's shares, which have been hurt by investor questions on how it would finance its share of the Royal Bank of Scotland-led consortium bid for ABN-Amro.
   
But the broker also lowered its earnings estimates on Fortis and on its takeover target ABN-Amro to reflect a decline in securitization and credit trading activities. ABN Amro shares were last down 0.05 pct.
    
In merger and acquisition news, shares in OMX gained 2.22 pct on a UK news report that Borse Dubai and the Qatari Investment Authority (QIA) have approached Investor and Nordea - which own roughly 10 pct each of the Nordic stock exchange operator - to buy their stakes, the Sunday Times reported.
   
According to the newspaper, both sides are prepared to pay as much as 300 skr per share for the stakes - compared with Nasdaq's original offer of 212 skr.
   
QIA has reportedly lifted its stake in OMX to around 13 pct to 14 pct from 10 pct. Borse Dubai, meanwhile, holds a 4.9 pct stake in the company, with options to buy a further 23.5 pct holding. It has made a 230 skr per share offer to buy OMX.
   
Shares in Deutsche Boerse rose 3.89 pct amid optimism over its upcoming trading numbers, a Citigroup price target upgrade and the current wave of consolidation in the sector. The stock also continued to benefit from a 300 mln eur share buyback programme announced last Monday.
   
In other news, BMW was in the spotlight -- up 2.66 pct -- with traders pointing to a report in Barron's which suggests the stock may rise as much as 20 pct in the second half of the year if the auto manufacturer cuts spending and thereby stimulates the expansion of its margins.
       
Danone shares were up 1.54 pct after Credit Suisse upgraded the French group to 'outperform' from 'neutral' and lifted its price target by 2 eur to 67 eur. The broker cited valuation grounds after a 10 pct fall in the share price over the last six months and expectations Danone will emerge as the fastest growth food company in the developed world.

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Asian stock markets advance led by Hong Kong, Sydney; Tokyo, Seoul closed

SINGAPORE - Stock markets across Asia rallied Monday, with the Hong Kong and Australian benchmarks setting records as reports of an air alliance in China and strong gains in the mining sector weighed against the dollar's fresh lows.
   
"It was one of those days when everyone had a smile but I don't think anyone would be brave enough to say the market volatility is over," said Andrew Sekley, head of Australian equities at Intersuisse.
   
In Australia, The S&P/ASX 200 closed up 93 points or 1.5 pct at a record 6,451, buoyed by mining stocks amid speculation of a major gold find by index leader BHP Billiton. The All Ordinaries added 90 points or 1.4 pct to 6,461.
   
The Hang Seng index broke through the 26,000 level for the first time and closed up 708.16 points or 2.7 pct at 26,551 on expectations that Chinese investors will start investing in Hong Kong as early as next week after the Beijing government relaxed investment rules.
   
The Japanese, Taiwanese and South Korean markets were closed for public holidays. Tokyo will resume trading tomorrow, while Taiwan will resume trading on Wednesday and South Korea on Thursday.
   
In Hong Kong, China Eastern Airlines rallied, then surrendered gains, after media reports that Cathay Pacific is planning to buy a stake in the company that could derail a bid from Singapore Airlines and parent Temasek Holdings Pte Ltd. Cathay declined to comment on the reports, although a spokeswoman said the airline would probably release a statement later today.Reports said Cathay is preparing a formal offer that could value China's third-biggest carrier at 4 bln usd.
   
Singapore Airlines earlier this month agreed to buy a 15.7 pct stake in Shanghai-based China Eastern. Singapore government investment arm, Temasek Holdings Pte Ltd, will buy an additional 8.3 pct of the Chinese carrier. The offer totalling 7.2 bln hkd has been approved by the carrier's board. Singapore Airlines was down 20 cents or 1.1 pct at 18.50 Singapore dollars.

Singapore Exchange soared to another record high of 13.60 Singapore dollars on continued hopes that Southeast Asia's biggest bourse will be involved in some sort of deal. "The M&A (prospect) gives SGX a different kind of valuation," OCBC Securities research head Carmen Lee said. Analysts said the Tokyo Stock Exchange could be a buyer of SGX after it bought a 4.99 pct stake in the exchange in June.

The TSE would need approval from the Monetary Authority of Singapore before it could raise its stake above 5 pct. The Straits Times Index closed up 96.80 points or 2.7 pct at 3,639.

Meanwhile, China A-shares closed higher led by energy and resources stocks, although the market's gains were capped by concern that large initial public offerings in the pipeline may put pressure on liquidity. Heavyweight Sinopec rallied as investors expect its valuation to benefit from an imminent PetroChina domestic listing, with its A-share IPO plan to be reviewed by the securities watchdog today.
   
The benchmark Shanghai Composite Index ended the day up 0.56 pct at a record 5,485.01.  The Shanghai and Shenzhen A-share indices rose 0.56 pct and 0.51 pct respectively. China B-shares closed mixed with gains in Shanghai driven by property developers due to the yuan's strength.  The Shanghai and Shenzhen B-share indices rose 0.09 pct and 0.59 pct respectively.

Indian shares closed on Monday at another record high powered by sustained demand in energy stocks and no sign of the much anticipated profit-booking. However, there was no respite for the IT shares that continued to be in red on concerns that a strengthening rupee will bite into the companies' profits.
   
The Bombay Stock Exchange's Sensex closed up 281.60 points, or 1.7 pct, at a record 16,845.83. Earlier, the index shot up 250 points just minutes after opening. The National Stock Exchange's S&P CNX Nifty ended up 2 pct at 4,932 points. 
   
The Philippines Composite closed up 0.6 pct, the Thai SET was up 1 pct and the Malaysian Kuala Lumpur composite closed up 11.30 points or 0.9 pct at 1,317.24. The Jakarta Composite closed up 18.14 points or 0.8 pct at 2,353.63, off an intraday low of 2,325.33.

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Gold continues higher midafternoon as dollar flounders

LONDON - Gold continued higher in early afternoon trade, supported by ongoing weakness in the US dollar, which dipped further against the euro this morning on expectations US data out this week will prove soft.
   
The currency has been hit hard in recent weeks by a cut in US interest rates and a spate of weaker-than-expected economic data, which has raised fears of a slowdown. Data on consumer confidence, home sales, unemployment and durable goods orders are all due out this week, and are expected to drive the currency lower.
   
At 1.54 pm, gold was trading at 732.40 usd per ounce against 731.50 usd in late New York trade yesterday.
   
Expectations of increasing demand in the run-up to the seasonally stronger fourth quarter and strength in oil, a precursor to rising inflation, against which gold is seen as a hedge, are also supporting gold prices.
   
Goldman Sachs earlier raised its price target for spot gold after the precious metal rallied to its highest level since January 1980 Friday on dollar weakness and expectations for rising demand.
   
The investment bank upped its three-month price outlook for the metal to 775 usd per ounce from 700 usd previously, and its six-month forecast to 800 usd from 715 usd previously, on expectations the dollar will weaken further.
   
However, analysts eyeing Friday's commitments of traders report from the Commodity Futures Trading Commission, which showed speculative net long positions in gold -- or commitments to buy -- increased by 11.8 pct in the week to Sept 18, voiced fears the precious metal may be overbought, limiting further
price gains.
   
"US futures market investors and speculators probably held in excess of 22 mln ounces of net long gold positions, a level not seen since the 22.76 mln ounces reported in Sept 2005, which was itself an all-time high," said John Reade, an analyst at UBS, in a note.
   
"Although not unexpected, this makes us increasingly wary about gold's near term upside potential. We believe that near-term US dollar weakness will see gold hit our three-month price target of 750 usd per ounce,... but further strong short-term gains from there are harder to see," he added.
   
Silver, meanwhile, rose in sympathy with gold to 13.60 usd from 13.52 usd.  Among other precious metals, platinum rose to 1,330 usd per ounce against 1,326 usd, while sister metal palladium eased a touch to 337 usd per ounce against 339 usd.

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