US & World Daily Markets Financial Briefing 26-11-2007

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Stocks move higher amid retail reports

Wall Street managed a modest advance in early trading Monday as Citigroup's weak outlook for homebuilders put a damper on investor cheer over the strong start to the holiday shopping season.
   
Retail sales on Friday and Saturday combined rose 7.2 percent to $16.4 billion from the same two-day period a year ago, according to ShopperTrak, which tracks total sales at more than 50,000 U.S. retail outlets. That's helped ease investor concerns about consumer spending, which accounts for two-thirds of all economic activity.
   
With energy prices at the highest in decades, and economic uncertainty looming over the market, investors have been nervous that consumers could cut back during the holidays.
   
That optimism sagged somewhat after Citigroup reduced its outlook on several major homebuilders on Monday, saying a glut of inventory and coming resets of subprime mortgages will continue to weigh on the sector at least through the second quarter of 2008.
   
In economic news, the New York Federal Reserve said because of "heightened pressures" in money markets for funding through the year-end the bank plans to conduct a series of term repurchase agreements aimed at boosting liquidity in the credit markets.
   
In the first hour of trading, the Dow Jones industrial average rose 16.83, or 0.13 percent, to 12,997.71. Broader stock indicators rose. The Standard & Poor's 500 index advanced 0.67, or 0.05 percent, to 1,441.37, and the Nasdaq composite index rose 8.21, or 0.32 percent, to 2,604.81.
   
Last week, the Dow lost 1.49 percent, the S&P slid 1.24 percent and the Nasdaq gave up 1.54 percent.
Government bond prices rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.99 percent from 4.00 percent late Friday.
   
Energy prices fluctuated in early trading. A barrel of light, sweet crude fell 75 cents to $97.43 on the New York Mercantile Exchange, after briefly crossing $99 overnight. Heating oil futures climbed, while gasoline futures fell.
   
Advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange, where volume came to 69.7 million shares.

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Forex - Euro range bound as concerns about area-wide growth emerge

The euro moved into a tight range against the dollar after failing to rise past the 1.50 usd level and amid emerging concerns about growth in the 13-nation single currency area. After hitting an all-time high of 1.4968 usd, there was not enough momentum to keep the euro flying. Additionally, the test of the key level came amid thin conditions with some US traders still out after the Thanksgiving holiday on Thursday.
    
As trading resumed in earnest today, the euro has found it harder going and the single currency appears stuck at levels just above 1.48 usd. "Since last week, European policymakers have more intensely started to highlight downside risks to European growth," analysts at UBS said. They cited comments from Miguel Ordonez, a member of the ECB's Governing Council, on Friday evaluating growth in the euro zone as having probably peaked for now, with financial market turmoil likely to result in an economic slowdown.
   
"For now, a downward revision of European growth will likely dampen investors' expectations for the euro zone managing to strongly outperform the US," the analysts added. This may in turn slow the dollar's losses against the euro. In addition, global policymakers continued to see dollar weakness as a key risk to economic growth in Europe, they added.
   
"As such, it remains important to closely follow policymakers, as official commentary in the euro zone will likely prove critical to the euro's value against the dollar, and in turn, broader dollar movements," they said.
Meanwhile, analysts at BNP Paribas pointed out the euro's rally over the past three months has left the market long and has made a near-term shake-out likely.
   
They believe the euro's fortunes could turn if Tuesday's key German Ifo business sentiment indicator comes in weak. "What has remained unnoticed so far is that German residential building permits have declined at a faster pace than in the US and are now down by 35 pct," they said.
   
Additionally, they cited the German export association's warning export growth will halve in 2008 and the German Economic Ministry is considering reducing its GDP growth projections. But stalling at around 1.48 usd appears so far to be a mere hiccup in the euro's ascent, since there may be more bad news out of the US as well.
   
"This week, the dollar should remain on the back foot," said Gavin Friend at Commerzbank. "Fresh housing data is likely to confirm market concerns on possible billions of writedowns in the US financial sector." US existing home sales data are due out tomorrow and new home sales on Wednesday.
   
Against this backdrop, Friend does not see the euro slipping under 1.4750 usd. But the dollar found some support today from solid retail spending during the Thanksgiving holiday.
   
ShopperTrak RCT Corp, which tracks sales at more than 50,000 US retail outlets, reported late on Sunday combined sales on Friday and Saturday rose 7.2 pct to 16.4 bln dollars from the same two-day period a year ago. Total sales on Friday, the day after Thanksgiving, rose 8.3 pct to 10.3 bln usd.
   
Shopping during Black Friday, the day after Thanksgiving, accounts for up to 5 pct of holiday sales, the research group said. Over in the UK, the pound was a touch lower after a weak housing market survey.
   
House prices in the UK fell for a second month running in November, taking the annual rate of growth to its lowest since July 2006, according to a leading property website. In its latest monthly survey, Hometrack said house prices fell by 0.2 pct in November, following a 0.1 pct decline in October the first fall in two years. This has brought the annual rate of growth down to 3.6 pct from 4.4 pct in October.   

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Euroshares higher midday as Wall St set for more gains; on M&A hopes

At 12.25 am, the STOXX 50 was up 11.6 points, or 0.32 pct, at 3,643.13 and the STOXX 600 was 2.19 points, or 0.61 pct, higher at 359.93. Spread bettors, IG Index, said the Dow looks set to add another 39 points after posting gains of more than 180 points in Friday's short trading day.
   
Fortis added 2.46 pct after reports it is to get a bigger share of the ABN Amro pie than previously expected, thanks to terms of the deal with Royal Bank of Scotland and Banco Santander which stipulate that in the event of ABN Amro assets not being divided among the members, they will automatically go to
Fortis.
   
Paragon added 15 pct after reports it will sell some loans as part of its attempt to avert an emergency rights issue. Northern Rock stormed 19.79 pct higher to 103 pence as dealers noted a short squeeze on the stock which had fallen as low as 70.3 pence after reports the Virgin-led consortium bidding for it is planning a heavily discounted rights issue of 20-40 pence.
   
Fellow mortgage lender Alliance & Leicester fell 3.95 pct after the Observer said it is expected to make significant writedowns on the value of its holdings of so-called 'toxic loans' in a forthcoming trading update.

Natixis fell back 3.82 pct after the French banking group announced a fall in third-quarter sales and operating profit as the summer's credit crisis affected its credit enhancement and corporate and investment activities.
  
The utilities sector is also in focus with Biffa down 9.31 pct after the UK waste group confirmed it has rejected an indicative preliminary proposal from a consortium comprising Montagu Private Equity LLP and Hg Pooled Management Ltd.
   
Elsewhere in the sector, Kelda added 0.28 pct as Lehman brothers upgraded the shares to 'equal-weight' from 'underweight', saying it expects last week's bid for the water group to succeed.  And United Utilities was up 0.7 pct as analysts said the group had got a good price for its electricity distribution business. Lehman also upgraded the UK group to 'equal-weight' from 'underweight'.
   
Vedanta added another 3.68 pct amid ongoing hopes a Chinese group might also be interested in picking up some -- or all -- of the UK group's assets. Among the many other M&A stories today, Philips added 1.44 pct after it said it will buy US lighting company Genlyte Group for 95.50 usd per Genlyte share,
or 2.7 bln usd, in cash.
   
Merrill Lynch said the bid price represents a 50 pct premium and investor reaction will depend on the extent of synergies Philips thinks it can achieve. Shares found support, though, as Deutsche Bank upgraded the shares to 'buy' from 'hold' ahead of the announcement.
   
And Clarins added 4.24 pct after an article in French weekly newsletter La Lettre de l'Expansion claimed PPR, down 1.4 pct, is to start exclusive talks with the beauty group with a view to taking control of it.
   
And Areva added 4.01 pct after it announced an 8 bln eur order for two European pressurised water reactors from China Guangdong Nuclear Power Corp. Chinese orders also boosted Alstom, up 0.61 pct, and Alcatel-Lucent, up 2.16 pct.
   
Shares in the three companies had already come under the spotlight towards the end of last week in anticipation of major contract wins, with one French newspaper estimating that French companies could net 10 bln eur in orders.
   
However, breaking news of contract signatures this morning and confirmation the actual amount of orders was twice the initial estimates, helped to lift the mood. Infineon rose 2.21 pct as traders said the chipmaker was helped by a hefty draw on semiconductor inventory in the third quarter.
   
"Total semiconductor inventory in the third quarter fell sequentially from 74.3 to 67.8 days as strong end demand soaked up excess inventory created from the late-2006 industry down-cycle," analyst at Bernstein research said.
   
Semiconductor manufactures should outperform the market if economic worries prove to be overblown, the brokerage added. Other chips stocks also gained with ASMI up 2.9 pct and STMicroelectronics up 0.72 pct. Other technology plays were also continuing to rally after the recent sectorrout.
   
Nokia added 2.46 pct. SAP moved up 1.01 pct. Clariant was also in demand, climbing 3.4 pct after announcing that it will impose price hikes of 5-12 pct to offset rising raw material costs.

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Hong Kong and South Korea led the advance, gaining more than 4 pct as many of the stocks that were sold off in the last month rebounded.  The Hang Seng closed up 4.1 pct at 27,626.7 while the KOSPI closed up 4.7 pct at 1,855.3, ending a seven-day losing streak.
   
The S&P's climb during Friday's shortened session put the index back into positive territory for the year. Still, investors are likely to continue to worry about the US economy and markets given the problems in the US housing sector and crunch in credit markets.

The Australian benchmarks rallied more than 2 pct as traders endorsed the Australian Labor Party's decisive federal election victory on Saturday, making gains as investors decided that the change in government will not have an adverse impact on markets.
   
The S&P/ASX 200 closed up 2.2 pct at 6,471.4 and the All Ordinaries was up 2.2 pct at 6,533.2 as investors put uncertainty surrounding the election's outcome behind them and concentrated on market fundamentals.
   
Rio Tinto shares closed up 7.5 pct to 138 aud while BHP Billiton was up 4.6 pct at 42.11 aud. Investors also snapped up shares that are expected to be major beneficiaries of the Labor Party win.
   
Elsewhere, the Nikkei closed up 1.7 pct to 15,135.2 and the Topix was up 2.0 pct at 1,467.0, finding some support in a slightly weaker yen. Mitsubishi UFJ Financial Group rose 6.8 pct to 991 yen, Sumitomo Mitsui Financial Group was up 6.9 pct at 869,000 yen and Mizuho Financial Group was up 5.4 pct at 551,000 yen.
   
Automobile shares were also firmer. Toyota Motor Corp was up 2 pct at 5,990 yen and Nissan Motor added 5.4 pct to 1,170 yen. Video game maker Nintendo Co was up 4.2 pct at 62,500 yen. Toshiba Corp was up 1.7 pct at 856 yen.
   
Shipbuilder STX rose 14.8 pct to 51,900 won. Hyundai Heavy Industries rose 10.1 pct to 430,000 won. The Singapore Straits Times was up 2.8 pct at 3,418.58. The Kuala Lumpur Composite added 0.8 pct to 1,364.37.
   
The Shanghai Composite fell 1.46 pct to 4,958.85. Taiwan's weighted index closed up 2.23 pct at 8,528.33 and Jakarta's shares closed sharply higher on a technical rebound after last week's sell-off. The composite index closed up 2.5 pct at 2,648.04 The Philippines Composite was up 1.2 pct at 3,537.3.

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Metals - Copper up on bargain hunting, strong equity mkts boost sentiment

Copper rose as higher equity markets boosted sentiment, bargain hunting picked the price up from last week's eight-month low and as general dollar weakness lent some support. The red-metal has risen for two days running having fallen to an eight month low of 6,430 usd per tonne on Nov 22.
   
While some more recent buying has picked copper up, analysts said copper remained vulnerable to a sell-off. Base metals and copper especially have tracked global equity values in recent months as markets fearful of a credit crunch reckon demand for industrial commodities will soften if the crisis continues.
   
Because current financial woes stem from the US subprime sector, a slowdown in the housing industry will soften metals demand, especially for copper, which is used mostly in pipes and wires. "We are getting reports that the lower prices have begun to attract consumer pricing and thus we are now seeing some bargain hunting and short covering," said Alex Heath, head of base metals trading at RBC Capital Markets.
   
Meanwhile, general dollar weakness, with the greenback close to a record low against the euro, spurred buying as commodities denominated in the US currency became cheaper for those trading in other currencies.
   
Elsewhere, gold, oil and platinum were all up too, which boosted general sentiment towards commodities.
At 1.12 pm, LME copper for three-month delivery was up at 6,750 usd per tonne against 6,710 usd per tonne at the close Friday. Copper has lost some 15 pct since mid-August, however, as a US-led credit crunch forced players to sell off in a bid to raise cash.
   
"Sentiment remains fragile, and the complex is susceptible to further risk aversion sales and technical liquidation," warned an analyst at BaseMetals.Com. "But there are some tentative signs that shattered confidence is beginning to pick up, although solid advances will be difficult to sustain."
   
Rising copper stocks, as seen by a daily LME report, have also hammered down the red metal's value as not only is the data a sign of ample inventory, it is evidence that demand is weaker than expected. Today's LME report showed copper stocks rose for the 15th day in a row by 975 and now stand at 187,400 tonnes. While copper's near-term outlook is clouded by wider economic stress, most analysts agree the metal's longer-term demand prospects will be underpinned by India, China and other fast-industrialising nations.
   
"It is important to recognise that the US is now significantly less important in world commodity demand than it was just five years ago," said Rio Tinto chief economist Vivek Tulpule. "Even a sharp slowing in the US economy would have only a small impact on Chinese and Indian economic growth and consequent demand for commodities," he said.
   
Earlier today, UBS said copper often seen as a barometer of economic strength is likely rise to 7,200 usd a tonne by the end of this year. Copper remains strong fundamentally, with secular demand trends from emerging markets like India and China, said UBS.
   
"On the supply side, we expect that the market will continue to overestimate supply growth as mines experience labour disruption, falling grades, cost inflation pressures and face political risks."  Elsewhere, zinc was up at 2,315 usd a tonne against 2,275 usd. Lead was higher at 3,030 usd against 2,925 usd.
   
Nickel was up at 29,375 usd a tonne against 29,100 usd, aluminium was largely flat at 2,494 from 2,495 usd while tin rose to 16,750 usd from 16,650 usd.

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