US & World Daily Markets Financial Briefing 25-06-2007

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WALL STREET OUTLOOK Muted open on subprime concerns

Wall Street is looking at a flat to higher open amid ongoing concern over bank and hedge fund exposure to risky mortgage loans, with investors also bracing for a raft of economic reports, kicking off with today's existing home sales data.

General Motors and Chevron are looking at gains, buoyed by broker upgrades.

Dow futures rose 4 points to 13,510, S&P 500 futures were off 0.50 point at1,520 while Nasdaq 100 futures rose 2.75 points to 1,950.75.

"Last week the primary driver was the issue that Bear Stearns was having with two of its hedge funds and the ripples from that went through the credit markets. I think that's also going to be a focal point for investors this week as they see how this issue settles," said Michael Malone, trading analyst at SG Cowen. " But I don't think we're at the beginning of some sort of credit crunch.

Last week, Bear Stearns said it would provide up to 3.2 bln usd of secured financing to the Bear Stearns High-Grade Structured Credit Fund to stabilize the fund. 

The High-Grade fund is one of two Bear Stearns in-house hedge funds that have faced investor outflows and margin calls from financing providers as losses at the funds increased, attributable primarily to leveraged investments in mortgage related collateralized debt obligations (CDOs) and other structured products.

Last Friday, stocks ended sharply lower as investors again succumbed to nervousness about souring subprime loans and rising interest rates. 

A Federal Reserve meeting on interest rates looms large on the economic calendar. 

The Federal Open Market Committee, the Fed's monetary policy body, is widely expected to leave its key interest rate unchanged at 5.25 pct when it announces its decision on Thursday. 

But investors will comb through the statement accompanying the FOMC decision for clues on the future course of interest rates.

Ahead of the Fed, existing and new home sales data will provide the early
focus for investors.

Sales of existing homes are expected to have fallen to a seasonally adjusted rate of 5.85 mln in May from 5.99 mln in the prior market, according to the average estimate of economists polled by Thomson's IFR Markets.

It would mark the third monthly drop in a row. The report is due out at 3pm BST, with new home sales out tomorrow. 

Consumer confidence data, durable goods orders, first-quarter GDP figures and a report on personal income and consumption are other reports set to be released this week.

The price of oil fell after labour unions in Nigeria ended a four-day general strike on Saturday, which had threatened to disrupt exports from Africa's largest crude producer.

New York light sweet crude for August delivery was last down 70 cents at 60.44 usd per barrel.

The US dollar traded little changed against the euro and the British pound while losing ground against the Japanese yen. 

Sterling did briefly trade above the two-dollar mark on expectations the Bank of England may raise UK interest rates more aggressively than previously thought. 

The euro was last down just under 1 pct at 1.3457 usd while the pound traded flat at 1.9991 usd, off a high of 2.0005. Against the yen, the greenback was off 0.4 pct at 123.33.

On the bond market, the yield on the 10-year Treasury note, a benchmark for setting mortgage rates, was at 5.11 pct from 5.14 pct on Friday. 

In corporate news, General Motors Corp rose 2.6 pct to 36.38 usd in pre-market dealings after Goldman Sachs upgraded the car maker to 'buy' from 'neutral' and lifted its price target to 42 usd from 29 usd. 

The broker said the market is correctly pricing in the likelihood GM will win sizable concessions from the United Auto Workers union in order to put it back on a profitable footing. 

"We think GM can make a compelling case to UAW members that material wage and/or benefit cuts are needed," the broker said in a note to clients.

In other broker action of note, Chevron Corp is likely to see gains after Banc of America Securities upgraded the oil group to 'buy' from 'neutral' and lifted its price target to 95 usd from 83 usd.

The broker said the company should be the main beneficiary of firm crude prices supported by robust demand for oil due to a rise in refinery utilization in the second half of 2007.

Dow Jones & Co shares are likely to see activity on a New York Times report that Rupert Murdoch's News Corp is close to agreeing terms with the company and the controlling Bancroft family on safeguarding the editorial ndependence of the Wall Street Journal. 

Concern that Rupert Murdoch would interfere in editorial decisions has been a major stumbling block in his bid to persuade the family to accept his 5 bln usd offer for the company. 

Shares in Eli Lilly and Co and Amylin Pharmaceuticals Inc may move higher after the two companies said a study has shown their Byetta diabetes drug showed better results when compared with insulin glargine.

The companies said the findings of the study, which assessed patients with type 2 diabetes, showed comparable improvements in blood sugar control, with weight loss and lower incidence of hypoglycemia.

Yahoo Inc was up 1.4 pct at 27.76 usd in pre-market trading after it said Sunday its chief domestic sales officer has resigned and the company will merge its search and display advertising departments in the U.S. as part of the
internet powerhouse's fight to catch up with online search leader Google Inc.

The reshuffling follows a major executive overhaul announced last week, with co-founder Jerry Yang replacing Terry Semel as chief executive.

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Forex - Yen continues to recover from recent sharp losses after BIS warning

The yen continued to edge higher, recovering after Friday's sharp losses as broad dollar weakness and warnings on the carry trade contained in a Bank for International Settlements report over the weekend helped the currency higher.

The carry trade is where investors borrow in low-yielding currencies -- most often the yen -- in order to invest in currencies whose countries have higher interest rates. Its recent popularity has caused the Japanese unit to slump to four-and-a-half year lows against the dollar and record lows against the euro.

But the BIS issued a warning in its annual report, describing the yen's recent sharp decline as "anomalous" and warning investors that the currency could rise sharply once market sentiment shifts.

Analysts also cited reported comments from a Japanese Ministry of Finance official saying that the yen's level should reflect economic fundamentals.

Most remain unconvinced that the yen's brief rally will last, however, with no sign of Japanese interest rates rising above their current very low level any time soon.

Meanwhile, the pound earlier scaled the 2 dollar mark again for the first time since May 1, though it failed to make a sustained break above that key level.

The pound has been on the rise since Wednesday's minutes to the June meeting of the Monetary Policy Committee -- when rates were left on hold at 5.50 pct -- revealed that four of the nine members of the rate-setting body voted for a quarter point hike, including Bank of England governor Mervyn King.

This leaves a strong likelihood of a rate hike to 5.75 pct at next month's meeting, with the market increasingly mulling the prospect of further rises to 6 pct or even beyond before the end of the year.

Following last week's MPC minutes and a hawkish speech from King, markets are now pricing in an 84 pct probability of a rate hike next month, he added.

Also supported by rising interest rate expectations meanwhile, the Swiss franc rose to a 17-day high against the dollar and a 12-day high against the euro.

Hawkish comments from the central bank, as well as rises in the one-week repo rate, have sparked demand for the currency as the market contemplates the risk that interest rates will rise by 50 basis points rather than 25 at the next rate-setting meeting in September.

Elsewhere, the dollar remained under broad pressure, with the euro trading close to Friday's two-week high of 1.3380 usd as market players awaited the release of US existing home sales data later today.

Renewed concern that problems in the US sub-prime mortgage market will spill over into the broader housing market put the dollar under further pressure on Friday and as such close attention will be paid to today's data.
   
Beyond that, however, the main focus for this week will be on the Federal Reserve rate-setting meeting on Thursday. Although rates are fully expected to be left on hold, the market will be looking closely at the extent of US rate-setters' concerns over rising inflationary pressures.

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Euroshares down tracing Wall St lofsses and cautious trading on hedge fund woes

Leading European exchanges lost ground during today's morning fsession factoring in heavy losses on Wall Street last Friday and with investors in cautious trading on the back of concerns over two Bear Stearns
hedge funds and the US subprime mortgage market. 

At 12.22 pm, the STOXX 50 fell 0.51 pct or 19.91 points to 3,902.93 as the STOXX 200 retreated 0.57 pct or 2.23 points to 390.20.

Looking ahead, Wall Street is set to kick off the week with gains, helped by stabilizing bond yields and a fall in oil prices, with General Motors set to move higher on a Goldman Sachs upgrade to 'buy'. 

According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open up 55 points at 13,415. Separately, S&P 500 futures rose 0.80 point to 1,521.30 while Nasdaq 100 futures were off 4 points at 1,952.

Back in Europe, traders were talking about a standard corrective move by the market in a week loaded with economic data and following heavfy losses on Wall Street last Friday. 

"Of course we are looking at rather weak guiding from the US and that is now traced here," one trader said. 

He also said there was a thin newsflow this morning adding to investors' cautious trading pattern.    

Another Frankfurt-based trader noted that European equities were driven lower by the large financial stocks, while adding that he believes the general sentiment to simply present a standard correction. 

"There are concerns about a possible tilt in hedge funds," he said, adding the US subprime mortgage sector was still a major concern. 

"As long as the situation hasn't been resolved, it will remain a major topic. We still don't know what dimension this could take". 

The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High Grade Structured Credit Strategies Fund have slumped this year because some of their assets were pegged to the mortgage market. Borrowers with weaker credit have been defaulting on subprime loans, and that has caused instability throughout the market.

Financial stocks are also under pressure from persistent interest rate fears ahead of Thursday's announcement of the Federal Reserve, while economists polled by Thomson Financial News expect the US Fed to leave rates unchanged at 5.25 pct. 

Deutsche Bank lost 2.34 pct, while UBS fell 1.46 pct and Italy's Unicredito dropped 0.86 pct, Commerzbank retreated by 1.71 pct. 

Also in the banking sector, Banco Santander Central Hispano was off earlier losses --down 0.59 pct--- after it said it will call an extraordinary general meeting to seek shareholders' approval for a 4 bln eur capital hike and 5 bln
eur convertible bond issue to finance its part of the proposed acquisition of ABN Amro Holdings NV.    

The Spanish bank is part of Royal Bank of Scotland-led consortium locked in a takeover battle with Barclays for the Dutch bank. BNP Paribas chief executive Baudouin Prot has reiterated his opposition to a merger with French peer Societe Generale, stressing their activities are too similar.   

"In the past 10 years, the two companies have continuously developed in overlapping areas," he said in an interview with the weekend edition of Le Figaro, citing derivatives in particular.

BNP Paribas shares fell 1.19 pct while shares in Societe Generale dropped 1.20 pct and Barclays retreated 0.41 pct.

Meanwhile, on the merger and acquisitions front, Gas Natural added 2.69 pct midday, on the back of report on the El Confidencial website that Suez --which fell 0.93 pct-- could raise its stake to 24.9 pct from currently 10 pct.

A dealer at a leading international investment bank said: "Suez' interest is supporting Gas Natural's share price, with people continuing to speculate over a three-way tie-up between Suez, Gas Natural and Iberdrola."

A spokeswoman for Thomson Financial News said the company has no short-term plan to raise its Gas Natural stake (beyond the 11.3 pct target announced last month), but does not rule out an increase in the future "if the opportunity arises".

French Groupe Danone -- up 2.14 pct -- was also subject to renewed takeover talk with dealers pointing towards articles in weekly Le Journal des Finances and Investir.

In its analysis of the stock, Le Journal des Finances (JDF) said some investors continue to speculate about a takeover move from the likes of PepsiCo, Coca-Cola or Kraft Foods -- now that it has been spun off by Altria -- with the financial weekly estimating a bid for Danone would be worth 75-80 eur per share.

However, JDF cautioned that the recent drop in Danone's share price is not enough to give weight to such speculation. 

Over in Belgium, shares in Cumerio NV surged after Norddeutsche Affinerie AG said it will offer 30 eur a share cash for the copper manufacturer as part of their planned merger to form Europe's leading copper maker and processing group.

Cumerio gained 18.80 pct at last check, while Norddeutsche Affinerie lost 4.67 pct.

Copper market peer Hagemeyer also benefitted from the news, adding 1.63 pct. 

Telecommunications giant France Telecom saw its stock take a 2.62 pct dip after the French government said it will sell a 5-7 pct stake and use the money to reduce the state debt, Economy Minister Christine Lagarde said in a statement late yesterday.

The sale of 5 pct of the company's capital would bring in some 2.7 bln eur, based on Friday's closing price of around 21 eur per share.

Staying in M&A, shares in the London Stock Exchange Group was off earlier lows, down 0.44 pct, with investors digesting Saturday's confirmation that LSE is buying Milan's Borsa Italiana for 1.6 bln eur in shares.

Many market observers have viewed the tie-up as an attempt by the LSE to fend off any thoughts the Nasdaq Stock Market may have of making a fresh bid for the London Stock Exchange.    

Credit Suisse reiterated its 'underweight' stance for the stock with a target of 1,200 pence.    

The broker said it believed the cost synergy target should be comfortably achieved but that revenue synergies are less tangible.

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A summary of Asian economic and corporate news

JAPAN:
May supermarket sales down 0.6 pct yr-on-yr, 17th straight monthly fall
Upper house elections set for July 29 
Power outage traps nearly 20,000 in Tokyo trains for more than 4 hours

Japan Airlines to accelerate job cuts, trim workforce by 4,300 by end-March 2009
Mitsubishi Motors to start sales of flex-fuel vehicle in Brazil
Toyota Motor shareholders approve American as first non-Japanese director

SOUTH KOREA:
Govt proposes 6-nation disarmament bloc become a regional security body
US envoy says had 'very good' discussion with NKorea on nuclear issue
A3 govt bond ratings reaffirmed on contained NKorea risks - Moody's

Lone Star confirms sale of 13.6 pct of KEB; to sell remaining  to strategic investor
Daewoo Shipbuilding wins 393.1 bln won order from Europe
NACF, Hana Financial buy KEB stakes from Lone Star
UK's Newton Investment boosts LG Telecom stake to 7.83 pct
Woongjin to take over Kukdong Engg & Const for 660 bln won

HONG KONG:
May CPI up 1.2 pct yr-on-yr vs up 1.3 pct in April

Yue Yuen H1 to March net profit 169.59 mln usd vs 168.25 mln
Yue Yuen H1 to March underlying profit up 9.6 pct
Sincere Co yr to Feb net profit 41.19 mln hkd vs 4.13 mln
China Mining to raise 2.46 bln hkd from sale of 1.3 bln new shares
Paladin Ltd sets up 390 mln hkd optical products plant in Wuhan
China Glass in 120 mln usd note issue to refinance debt
Chaoda Modern confirms shareholder's sale of 120 mln shrs
Mirabell shareholders to get Belle shares on 71:50 basis
Cheung Kong Infrastructure 'A-' rating affirmed - Fitch

CHINA:
Q1 online B2B trade value 888 mln yuan, up 41.18 pct q-on-q -Analysys Intl
Q2 survey supports case for imminent monetary tightening - Morgan Stanley
Central bank adjusts bond yield calculation method
Govt to offer subsidies, set up insurance system to curb surging pork prices
Shanghai Futures Exchange copper, aluminum stockpiles down, zinc up in past wk
Impact of China QDII expansion to be insignificant in near-term - Morgan Stanley

Shenzhen Commercial Bank FY net profit falls to 165.47 mln yuan as CAR declines
China Minsheng Banking issues 12 bln yuan worth of bonds
China Exim Bank to auction 12 bln yuan of 3-yr floating-rate bonds on June 29
Beijing Capital Intl Airport May passenger traffic up 13.8 pct yr-on-yr
Telestone wins bid for TD-SCDMA wireless equipment from China Mobile
PetroChina to build 1 mln ton-capacity crude oil depot in Xinjiang
Iceland's Glitnir in China real estate JV with Sinopec's CGCOC
US-based AMDL sells 1.3 mln usd of pharmaceuticals in China
China Glass corporate family rating '(p)B1', outlook stable - Moody's

TAIWAN:
May unemployment 3.87 pct vs 3.83 pct in April

Chinatrust Commercial to auction 800 mln twd of NPLs
Chinatrust Commercial confirms completed sale of 3.9 pct of Mega Financial
Cathay Life acquires Taichung property for 1.39 bln twd
Cathay United Bank targets 100,000 'business platinum' cards by yr-end
Evergreen Marine takes 17.48 pct stake in China software venture
Fubon Life to sell stake in Hong Kong unit to MetLife for 56 mln usd
Far Eastern Textile sets up holding co in China, plans IPO
Far Eastern Textile confirms it will build China beer bottle plant

SINGAPORE:
Wheelock buys a 10 pct stake in SC Global for 112.09 mln sgd
Shell China to build new lubricants blending plant to meet growing demand
Yanlord Land buys China residential site for 2.16 bln yuan
OUE to buy The Grangeford residential condominium for 592 mln sgd

MALAYSIA:
Mid-June forex reserves 98.4 bln usd, unchanged from end-May
SC blocks two more illegal investment websites

Maybank sells bad loans for 424.8 mln rgt
Wah Seong to build 80-mln-rgt deepwater pipe coating plant
Ahmad Zaki bidding for Saudi projects worth more than 1 bln rgt
CIMB-Aviva Malaysian jv targets top five position in sector

INDONESIA:
Bank Indonesia sees June consumer price rise below 0.2 pct m/m;components stable

MediaCorp buys 6.5 pct of Indonesia's MNC from IPO
Singapore's MediaCorp buys 6.5 pct of Indonesia's MNC from IPO
Astra Agro Jan-May CPO sales down 11.7 pct, price up 50.3 pct
UOB Buana shareholders approve 18.46 rupiah/share dividend
Mitra Adiperkasa shareholders approve 12 rupiah/share dividend

PHILIPPINES:
BPI sells 3.6 bln pesos in bad loans to Bank of America
First Metro to sell 2 bln pesos worth of 4-yr bonds
Chinabank to pursue merger with Manila Bank
Phoenix Petroleum final IPO price set at 9.80 pesos/share

AUSTRALIA & NEW ZEALAND:
Caltex Australia sees H1 net profit rising to 355-375 mln aud from 267.7 mln
NAB sees thermal coal prices rising 10 pct in 2008
Mexico's Cemex gains 73.96 pct of Australia's Rinker, extends offer period
Smorgon/OneSteel merger found fair by independent expert
Sims creates US West Coast joint venture with Adams Steel

INDIA:
Main business lobby supports WTO talks walk-out

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Gold eases on equity weakness, stronger dollar

Gold eased a touch as weakness in global equities caused investors to liquidate precious metals positions to cover losses elsewhere and as the dollar rebounded from Friday's lows, which had supported the precious metal late last week.

At 11.03 am in London, spot gold was trading at 650.78 usd per ounce against 654.10 usd in late New York trade Friday.    

"We have seen some equity-related selling in the market... as people liquidate their commodities positions to cover margin requirements elsewhere," said James Moore, an analyst at TheBullionDesk.com.   

Equity weakness in Europe, Asia and the US in recent sessions is also blunting investors' appetite for risk, analysts said. 

European stocks were lower across the board this morning following a weak session on Wall Street on Friday and amid uncertainty ahead of a raft of US data this week.

Concerns over rising interest rates are weighing on both equities and commodities. A future hike in rates would boost the attractiveness of the dollar in relation to other assets.

Prices are seen remaining relatively steady this week ahead of an announcement on interest rates from the Federal Open Market's Committee on Thursday, which is likely to shift the dollar and with it, gold.

"Very few people are taking long positions ahead of the Fed statement," said analyst Michael Widmer at Calyon. "Against that background, some investors have moved out of the market, which has also taken prices down a bit."

Platinum weakened in sympathy to 1,291 usd against 1,299 usd Friday, but remained supported by fears over possible production disruptions in South Africa related to wage-related strikes.

"The outlook for the 2007 wage negotiations is grim," noted John Reade, an analyst at UBS.

"Some disputes have been declared and each major platinum miner has seen at least one strike so far this year and in light of acute skill shortages, labour is probably more willing to chance its arm than normal."

He added, however, that strike action would have to be relatively protracted to justify current prices, and that buying into the precious metal in anticipation of supply disruptions based on this was inadvisable.

Among other precious metals, palladium slipped to 372 usd against 375 usd, while silver eased to 12.95 usd from 13.01 usd.

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