US & World Daily Markets Financial Briefing 28-04-2008

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Stocks flat as investors weigh deals, earnings ahead of Fed

NEW YORK - Wall Street got off to a sluggish start Monday as investors appeared unenthusiastic about acquisition news and were cautious ahead of this week's earnings reports and Federal Reserve policy meeting.

Stocks were mostly flat in early trading as investors digested several deals, including an offer from Warren Buffett and candy maker Mars Inc. to buy Wm. Wrigley Jr. Co. for about $23 billion in cash. Meanwhile, billionaire Kirk Kerkorian plans to make an offer that would expand his stake in Ford Motor Co. to 5.6 percent, saying he sees signs the automaker's turnaround plan is working.

This helped to offset disappointment in the market that struggling Continental Airlines Inc. said it would not pursue a combination with another carrier right away. It was a surprising move after weeks of speculation it would join with United Airlines to create the world's biggest carrier.

Investors also positioned themselves ahead of the Fed's policy-setting meeting on Tuesday and Wednesday. The central bank is widely tipped to cut interest rates by a quarter point, then leave them steady for the balance of the year.

In midmorning trading, the Dow Jones industrial average rose 15.80, or 0.12 percent, to 12,907.66. Broader indexes were slightly higher. The Standard & Poor's 500 index rose 1.64, or 0.12 percent, to 1,399.48, and the Nasdaq composite index rose 5.35, or 0.22 percent, to 2,428.28.

Bond prices edged higher after suffering big losses last week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.86 percent from 3.87 percent late Friday.

A spike in oil prices was expected to pressure stocks. A barrel of light crude rose 16 cents to $118.68 in premarket trading on the New York Mercantile Exchange. The dollar was lower against other major currencies, while gold prices were higher.

In corporate news, Kerkorian's investment company, Tracinda Corp., said it plans to offer $8.50 per share in cash for up to 20 million additional shares of Ford. The offer boosted shares of Ford 67 cents, or 9 percent, to $8.17.

Continental Airlines shares fell 39 cents, or 3 percent, to $16.75 after the airline announced it wasn't interested in completing a deal. The decision stunned United's parent, UAL Corp., which had been in advanced talks with Continental and expected to complete a deal by early May.

United shares fell $1.01, or 6.7 percent, to $14.20. Investors also turned their attention to a handful of earnings reports released on Monday. The biggest will come after the closing bell when Visa Inc. posts its second-quarter results, which are expected to beat expectations due to faster growth overseas.

Health insurer Humana said Monday that increased Medicare Advantage membership helped drive first-quarter profit above Wall Street expectations, as it raised its outlook for the full year. Shares dipped 1 cent to $4.87. Others reporting results include Verizon Communications Inc., Sysco Corp., and Tyson Foods Inc. So far about half the Standard & Poor's 500 have reported results.

Overseas, Japan's Nikkei stock average rose 0.22 percent. In morning trading, Britain's FTSE 100 rose 0.22 percent, Germany's DAX index added 0.70 percent, and France's CAC-40 rose 0.92 percent.

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Forex - Dollar inches higher before Fed verdict

LONDON  - The dollar inched higher as players looked to Wednesday's U.S. rate decision which is expected to signal an end to the Fed's rate cuts. With oil prices staying close to the $120 a barrell barrier, inflation is a significant worry and now will be just the time for U.S. rate setters to communicate the fact, many belive.

"Traders are reluctant to be exposed to shorting the U.S. currency ahead of Wednesday's FOMC decision, which may signal the Fed's intention to pause its eight-month long easing campaign," said Ashraf Laidi at CMC Markets.

The Fed's two-day meeting starts on Tuesday and the rate verdict is due on Wednesday. The central bank is expected to cut its the key Fed funds rate by a quarter point to 2.00 percent but many analysts believe its accompanying statement could signal an end to the current cycle of aggressive rate cutting.

"Rather than stating its intention to bring an end to the rate cuts, the FOMC will likely communicate a change of tack by making a reference to stabilizing market conditions, leading market participants to expect a reduction in the easing momentum," said Laidi

While U.S. data still points to an economic slowdown, financial markets have been performing relatively well with the S&P 500 rallying by 11 percent since mid-March. The wider question now is whether this recovery can be sustained and in turn help the real economy to turn the corner.

"The issue will be whether the market, which appears increasingly confident that financial catastrophe will be averted, can retain its optimism in the face of continued weakness in the data," said Daragh Maher at Calyon.

Also on Monday, the euro came under pressure after four German states reported monthly falls in the rate of inflation, boosting expectations that pricing pressures in the euro zone's largest economy may be starting to subside.

Saxony, Brandeburg and Hesse reported their consumer price indexes (CPI) fell 0.2 percent between April and March, while Germany's largest state, North Rhine-Westphalia, saw a 0.3 percent drop. Analysts said the results indicate the annual rate of German inflation is now likely be below market expectations and be well below March's 3.3 percent.

Barclays Capital analyst Nick Matthews said he expects the annual rate to fall to 2.4 percent, with a risk that it could be even lower if Bavaria and Baden-Wuerttemberg publish particularly soft numbers.

If Germany's annual inflation rate does post a significant drop it will boost expectations the flash estimate for the whole euro zone, out Wednesday, will also be below the market consensus, heaping more pressure on the euro.

Recent data from the 15-nation single currency area, most notably Germany's Ifo survey and euro zone M3 growth, have both indicated the economy may be starting to slow. The European Central Bank has been reluctant to pay much credence to the prospect of slowing growth while annual inflation has been above 3 percent, but a drop in the rate will boost speculation interest rates could start to fall in the coming months.

"Any hint that euro zone CPI has peaked will add to a dovish case that has already been bolstered recently by the soft German Ifo and the slowdown in M3 growth," said Daragh Maher, currency strategist at Calyon.

The euro has fallen from an all-time high of $1.6018 last Tuesday to just above $1.56 in less than a week. While analysts said technical trading levels may prevent it from falling dramatically, this week's U.S. Federal Reserve rate decision could well put it under further pressure.

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Euroshares open higher after Asian, Wall Street gains; banks in favour

At 8:54 a.m., the STOXX 50 was up 17.27 points, or 0.54 percent, at 3,227.38 and the STOXX 600 was up 1.6 points, or 0.5 percent, at 323.3.

However, investors soon turned their attention to this week's FOMC meeting, which is widely expected to make another cut in its benchmark borrowing rate. In Europe, the banking sector remains in focus ahead of the U.S. interest rate decisions and amid a flurry of reports about rights issues in the sector.

HBOS Plc., the UK's largest mortgage lender, added 0.4 percent after weekend reports it is set to take a decision on Monday whether to launch a rights issue to raise up to 4 billion pounds as it braces itself for an ongoing downturn in the UK economy.

The owner of Halifax and Bank of Scotland will make a final decision at a board meeting, ahead of its annual shareholder meeting on Tuesday in Glasgow, according to The Daily Telegraph.

Meanwhile, Deutsche Bank is reportedly planning to ask its annual general meeting for authorizations that would allow it to raise up to 17 billion euros for acquisitions.

The company will ask for authorization to issue new shares worth 4 billion euros, in addition to a possible capital hike of 4 billion approved at its AGM two years ago, Der Spiegel reported, citing a copy of the AGM's agenda that it obtained ahead of time the magazine said in an excerpt of an article to be published on Tuesday. The shares added 0.67 per cent.

BBVA rose 1.11 percent after it reported a better than forecast quarterly net profit. However, Electrolux fell 0.53 per cent after the group's lacklustre outlook statement suggested to some that a downgrade in forecasts may be in the offing.

"It said that uncertainty in global economy makes it difficult to predict development of 2008, opening the way for lowering of guidance later in year," said one trader at a leading Scandinavian brokerage.

Corporate Express rose 1.94 per cent amid market chatter that Staples is preparing to lift its offer for the Dutch group to 8.5 euros per share. The group rejected an 7.25 euros per share offer from Staples at the beginning of the month.

ASM International added 2.27 percent after the group presented a better-than-expected strategic review and following news that private equity investor Centaurus Capital holds 7.22 percent of voting right in the group.

Straumann Holding climbed 3.69 percent after it said it aims to continue growing ahead of the market, chief executive Gilbert Achermann said in an interview with Thomson Financial News partner AWP. The group forecasts market growth of around 13-14 percent in 2008, but expects growth to return to 15 percent in the medium term. The news came as a relief after last week's profit warning from peer Nobel Biocare.

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Asian markets mostly higher on Dow's rise ahead of Fed meeting

The Shanghai composite index corrected from last week's gains, with the index falling 2.33 percent to 3,474.72. China's decision to cut stamp duty on stock transactions boosted share prices in the mainland last week. Stock markets in Seoul, Jakarta and Manila also bucked regional gains.

The Philippine composite index finished 1.1 percent lower at 1,711.36. "The market was spooked by crude oil prices hitting almost $120 a barrel. The ghost of inflation continues to haunt investors," said Astro del Castillo, managing director at fund manager First Grade Holdings in Manila.

South Korea's KOSPI finished down 0.1 percent at 1,823.17. The Nikkei 225 Stock Average ended up 0.2 percent at 13,894.37, off a high of 14,003.28. "The release on April 30 of U.S. GDP, which is likely to show some growth in the January-March quarter, could spread the view that a recession in the United States can be avoided," he said.

Among banking stocks, National Australia Bank rose 3.2 percent to 30.25 Australian dollars, Commonwealth Bank of Australia climbed 2.8 percent to 44.70 Australian dollars, ANZ Banking Group rallied 3.2 percent to 22.20 Australian dollars and Westpac advanced 1.2 percent to 25.18 Australian dollars. Leading investment bank Macquarie Group gained 4.7 percent to 62.20 Australian dollars.

Banking shares were also higher in Hong Kong where the Hang Seng index was up 0.59 percent at 25,666.29. China Construction Bank rose 2.22 percent to 6.91 Hong Kong dollars. The mainland's third largest lender said its first-quarter net profit came in at 32.1 billion yuan ($4.6 billion). The lender did not provide a comparative figure for the previous year.

China's largest bank, Industrial & Commercial Bank of China, advanced 0.81 pct at 6.20 Hong Kong dollars. HSBC Holdings gained 0.9 percent to 133.20 Hong Kong dollars.

Bucking the gains, China Life fell 1.63 percent to 33.25 Hong Kong dollars after the insurer reported a 60.9 percent decline in January-March earnings as it took a hit from the slide in domestic equity markets.

Smaller rival Ping An Insurance dropped 1.53 percent to 70.70 Hong Kong dollars as investors expected it to follow suit and report lower earnings for the first quarter. In Tokyo, the big banks gained, with Mizuho Financial up 9.5 percent to 529,000 yen, Mitsubishi UFJ Financial up 10 percent to 1,144 yen and Sumitomo Mitsui Financial climbing 9.1 percent to 896,000 yen.

Elsewhere, Singapore's Straits Times index rose 0.4 percent to close at 3,201.63, while Malaysia's KLCI ended 0.6 percent higher at 1,295.31. The Jakarta composite index closed up 0.6 percent at 2,254.31. Taiwan's weighted index closed up 1.47 percent at the day's high of 9,079.60.

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Oil stays higher on supply fears as market eyes stocks data, FOMC decision

LONDON - Oil remained higher at midday as supply fears from Nigeria and the North Sea continued to lend support to the market, after New York-traded crude futures earlier hit an all-time high. But prices are expected to remain relatively rangebound ahead of Wednesday's U.S inventory data and the interest rate meeting of the Federal Reserve, which could impact the dollar, analysts said.

A weaker greenback makes dollar-priced crude cheaper for holders of other currencies. The dollar hit a series of lows against the euro earlier this year, boosting interest in dollar-denominated commodities. "I don't think we will see a huge deal of activity ahead of the inventory data and the FOMC decision," said CMC Markets' Nas Nijjar.

At 12:14 p.m., New York-traded West Texas Intermediate crude oil for June delivery was trading up 56 cents at $119.08, having earlier touched an all-time high of $119.93 a barrel.

Meanwhile London Brent crude for June delivery was trading at $116.75 a barrel, up 41 cents. A strike at Scotland's biggest oil refinery, Grangemouth, entered a second day today. The strike has closed down the Forties pipeline operated by BP PLC, which carries more than 700,000 barrels of oil a day from the North Sea -- a third of the UK's daily oil output, according to analysts.

Several North Sea fields have begun to cut production in response to the outage, analysts said. Tensions also remain high in Nigeria, Africa's biggest oil producer, where gunmen killed at least five policemen in an attack on a police station at Bonny in the southern Nigerian state of Rivers yesterday. Bonny Island is home to one of Nigeria's largest oil and gas export terminals.

On Friday rebels connected to the Movement for the Emancipation of the Niger Delta said they had bombed another Shell pipeline, and released a statement saying they will continue to target oil installations.

Violence in the Niger Delta has reduced Nigeria's total oil production by a quarter in the past two years. "170,000 barrels belonging to Royal Dutch Shell still appear to be sidelined due to rebel strikes, and on top of that, a strike by Nigerian workers at Exxon Mobil has forced the company to shut down an additional 200,000 barrels per day of crude oil output," said MF Global analyst Ed Meir.

Analysts are concerned that supply disruptions will pressure stockpiles as the demand-intensive third quarter approaches. The U.S. summer driving season is a time of peak oil consumption, as holidaymakers take to the roads for annual vacations.

The market is still eyeing the $120 a barrel level for U.S.-traded crude futures, which prices have just failed to breach in the last two trading sessions.

WTI rallied to within 10 cents of that level on Friday, and came even closer today, but is struggling to break above that mark. "There are a lot of sell stops at that level," said Sucden analyst Andrey Kryuchenkov.

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