US & World Daily Markets Financial Briefing 30-05-2007

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Wall Street falls on China market drop

NEW YORK - Wall Street retreated Wednesday as investors around the world reacted to a plunge in China's stock market, and awaited the release of minutes from the last Federal Reserve meeting.
   
The pullback in the U.S. wasn't seen as a surprise as stocks were perhaps overdue for a consolidation after a strong run since the second half of 2006. And the declines in Asian and European markets did not appear as dramatic as on Feb. 27, when investors around the world recoiled at a 9 percent slide in the Shanghai index.
   
The tumble in Chinese stocks rippled through the global markets. When Beijing tripled a tax on shares trading to cool the country's market boom, the main Shanghai Composite Index dropped 6.5 percent and the Shenzhen Composite Index for China's smaller second market slid 7.2 percent.
   
Investors also retrenched ahead of the Fed minutes, which Wall Street hopes will indicate that policy makers are leaning more toward a rate cut by the end of the year than a rate hike. The minutes will be released at 2 p.m. EDT.
   
In the first hour of trading, the Dow Jones industrial average fell 38.93, or 0.29 percent, to 13,482.41.
   
Broader stock indicators were also lower. The Standard & Poor's 500 index was down 4.06, or 0.27 percent, at 1,514.05, and the Nasdaq composite index dropped 12.30, or 0.48 percent, to 2,559.76. Britain's FTSE 100 fell 0.90 percent; Germany's DAX index dropped 1.13 percent, and France's CAC-40 declined 0.96 percent.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.85 percent from 4.88 percent late Tuesday. Fixed-income investors bought into the market hoping central bankers will indicate they are not ruling out a rate cut this year to stimulate the economy's growth.
   
Crude oil rose 29 cents to $63.44 per barrel in premarket trading on the New York Mercantile Exchange.
  
Stocks in focus
   
In corporate news, Pulte Homes Inc. said late Tuesday it will slash about 16 percent of its work force, or about 1,900 jobs, to save the homebuilder an estimated $200 million a year before taxes. Shares of the company fell 31 cents to $27.14.
   
Bookseller Borders Group Inc. fell $1, or 4.3 percent, to $22.32 after it reported late Tuesday a wider loss in the first quarter than in the year-ago period, citing a difficult sales climate.
   
And the takeover trend continued. Late Tuesday, hardware, software and technology accessory distributor CDW Corp. confirmed that it will be bought by a private equity company for $7.3 billion. Shares of the company rose $2.55, or 3.1 percent, to $85.66.
   
ESpeed Inc., a publicly owned electronic trading house controlled by Cantor Fitzgerald, said it is buying BGC Partners, the New York bond-trading firm's privately held brokerage unit, in a $1.3 billion deal down 4.56, or 0.54 percent, at 832.97.

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Dollar steady after ADP suggests May payrolls will meet expectations

LONDON - The dollar was little changed by a private sector employment report which suggested that Friday's crucial non-farm payrolls data for May will come in much in line with expectations.
   
Payrolls services firm ADP reported that the US economy added 97,000 private sector jobs in May.
   
After adding in the 24,000 or so government jobs created in a typical month, the ADP report suggests non-farm payrolls grew by about 121,000 in May, just shy of market expectations for a 138,000 increase. The ADP report has been largely spot on regarding payrolls over the last couple of months.
   
It's a crucial few days for perceptions of the US economy and for the dollar in particular. The key later today will be the minutes to the last rate-setting meeting at the US Federal Reserve.
   
The statement accompanying the decision by the FOMC to keep its key Fed funds rate unchanged at 5.25 pct was seen as relatively hawkish at the time since there was no reference to the sharp drop in core inflation in the US.
   
In recent days, some solid US economic data, coupled with continued hawkish noises from officials at the Fed, have combined to diminish market expectations the Fed will cut borrowing costs any time soon.
   
Earlier, the market's attention was focused on China's decision to triple stamp duty on equity market transactions.
   
Overall, it failed to have much of an impact on the currency markets, apart from a brief knee-jerk appreciation in the value of the yen.
    
The yen, in particular, has suffered on the foreign exchanges over the last few months on the expectation the Bank of Japan will not aggressively raise interest rates any time soon, thus allowing investors to borrow at the super-low Japanese rates in the pursuit of higher-yielding rewards elsewhere.
   
Meanwhile, the pound continued to drift lower after a survey found inflation expectations remaining steady despite the rise in CPI inflation.
   
The survey from pollsters YouGov and investment bank Citigroup showed that the median expectation of inflation over the next 12 months remained at 2.5 pct in May, where it has been since March. This is down from a peak of 2.7 pct in January and was only marginally above the 2006 average of 2.4 pct.

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Euroshares lower midday, Wall St seen down as China triples duty on stk trades

LONDON - Europe's leading exchanges were trading close to intra-day lows midday, following the sharp pullback in Asian markets after Chinese authorities tripled duties on trades, a move that is also set to weigh on US stocks today.  At 12.01 am, the STOXX 50 was down 34.02 points at 3,881.25 while the STOXX 600 fell 3.53 points to 390.86.
       
M&A was yet again dominating trading floors today and Alitalia shares retreating by 3.72 pct after the Texas Pacific/Matlin Patterson/Mediobanca consortium dropped out of the final phase of bidding in the Italian government's sale of a 39.9 pct stake in Alitalia SpA.
   
Meanwhile, rival Air France-KLM gained 1.29 pct following the announcement by NYSE Euronext that the flagship carrier will join the CAC-400 as of June 18.
   
Property group Unibail will tag along with an excess of 9 bln eur in market capitalisation. The shares gained 1.70 pct following the announcement.
   
Air France and Unibail will replace Thomson and AGF, with Thomson moving to the CAC Next20, and AGF having been de-listed on April 10 following the buyout offer by German insurer Allianz SE.
       
Shares in Barclays fell 1.30 pct on a Times report that shareholders may block efforts by the UK group to raise extra cash through a rights offer to top the bid led by Royal Bank of Scotland for ABN Amro Holdings NV.
   
Germany's Hypo Real Estate outperformed its index, adding 0.50 pct, after Fitch Ratings assigned it 'A' issuer default and 'F1' short-term ratings, citing the company's Streamlined operational set-up, good asset quality and adequate capitalisation, reliance on wholesale markets for funding, concentration on commercial real estate and further improved profitability.
   
Also on the DAX, Metro stock fell 0.43 pct after it edged higher in morning trade on rumours that it is considering selling its real estate portfolio. Midday, the retailer denied the rumours.
   
When contacted by Thomson Financial News, a spokesman for Metro pointed to chief executive Hans-Joachim Koerber's previous statements that the company plans to sell the 19 properties it acquired along with Wal-Mart's German stores last year.
   
In Healthcare, shares in GlaxoSmithkline dropped 2.22 pct after Merrill Lynch downgraded the pharmaceutical giant to 'sell' from 'neutral,' saying it only sees downside as a result of concerns over its diabetes treatment Avandia.
   
Austria's Roche lost ground, dropping 1.20 pct, after Japanese unit Chugai Pharmaceuticals Co fell overnight on news that Japan's health authorities had fixed the price of cancer drug Avastin at 40 pct below its US retail price. The news prompted Citigroup to cut their rating on Chugai to 'hold' from 'buy', one trader said.
   
Shares in Grupo Ferrovial SA were sharply lower on fears of a negative performance from its BAA unit and reports that it could be interested in acquiring stakes in airports outside the UK.
   
"They've said they're interested in acquiring a stake in Aeroports de Paris and are eyeing a Chicago airport... this would mark a break from BAA's declared strategy to focus on its UK airports business," he noted. Ferrovial fell 2.85 pct, as ADP added 2.01 pct.
   
The end of speculation surrounding BMW and Volvo also ended extraordinary gains of the stock of the German luxury car maker. At last check, its shares fell 1.88 pct, while Fiat shares were off 1.29 pct, Peugeot gained 0.10 pct, DaimlerChrysler fell 0.6 pct while shares in Renault were off 1.5 pct.
   
Staying in the car sector, Michelin shares outperformed the CAC-40, adding a meek 0.05 pct, after Morgan Stanley reiterated its 'overweight' stance on the tyre maker and lifted its price target to 108 eur from 94 eur. Michelin is in a better position than other tire companies to benefit from the booming industrial end markets, Morgan Stanley said in a note to clients.
   
Shares in Suez and Gaz de France were trading ahead of the market late morning as investors digested Le Figaro's claims Suez is now considering the option of a takeover deal rather than a merger with GDF, with the report rekindling speculation about possible scenarios for the energy groups' planned tie-up, dealers said.
  
Shares in French utility Suez were more impressive, gaining 0.29 pct in a declining sector, after Natexis reiterated its 'buy' rating, stating the company presents solid fundamentals and that the stock's speculative aspect is anticipated to remain. Les Echos said the company may be preparing a bid for Gaz de France. Gaz de France stock added 2.43 pct at last check.

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Asian shares close mostly lower on China market plunge

HONG KONG - Shares across the Asia-Pacific region closed mostly lower in response to a plunge on the China markets after China's Ministry of Finance announced it would triple the stamp duty on share trades effective from today, in a bid to cool the country's booming share markets.
   
Tokyo shares closed lower after sharp losses in Chinese markets coupled with a surprise drop in Japan's industrial output in April dampened investor sentiment. The Nikkei 225 Stock Average closed down 84.30 points or 0.48 pct at 17,588.26, off a low of 17,484.30. The TOPIX index of all first-section issues dropped 4.15 points or 0.24 pct to 1,733.75, off the day's low of 1,723.93.
   
Government data released before the opening bell showed that Japan's industrial output fell by a seasonally-adjusted 0.1 pct to 107.5 points in April from March, marking the second straight monthly fall, as auto makers slashed production in response to slower demand at home and in the US. Economists had forecast a 0.5 pct month-on-month increase in April.
   
Investor reaction to the data was muted, however, as players turned their attention to the prospects for the Chinese markets. Others opted to wait for further economic data, dealers said.
       
Australian shares ended sharply lower with investor sentiment hit by the plunge in Chinese equity markets. Australian investors are concerned with the possibility of a wider pullback.
   
Few mining stocks avoided the sell-off given their direct link with China's demand for commodities, while falls in the banking and financial sectors also weighed on the wider market. The S&P/ASX 200 closed down 74.2 points or 1.17 pct at 6,243.4.
   
Hong Kong shares were sharply lower in afternoon trade, tracking falls on the mainland bourses. Beijing's move to cool frenzied activity in its markets had a psychological impact on local investors, who sold down China-related stocks.
   
Dealers cited caution ahead of the settlement later today of May futures contracts and the release in the US of the minutes of the last Federal Reserve meeting.At 3.25 pm the Hang Seng Index was down 206.43 points or 1.01 pct at 20,263.16.
   
In mainland China, A- share prices in Shanghai and Shenzhen closed sharply lower after the government took further measures to cool the market by raising the stamp duty on shares trading. The Shanghai A-share Index was down 294.48 points or 6.48 pct at 4,250.00 and the Shenzhen A-share Index was down 96.74 points or 7.15 pct at 1,256.35.
   
Seoul shares closed slightly higher at a fresh record, with investors cheered by strong output data, helping the market offset early heavy losses arising from the sharp decline in China.
   
The market was down more than 20 points in early trade but investors quickly regained their bearings, deciding that the Chinese government's measures will do little to stop liquidity from flowing into the market.
   
South Korea's upbeat industrial output data for April -- released one and a half hours before the market closed -- helped the local bourse resume its record-breaking run, assuring investors that the economy is bottoming out.
   
The KOSPI index closed up 0.92 points or 0.06 pct at the day's high of 1,662.72 after falling to as low as 1,638.02.

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Copper continues lower after equity dip dampens sentiment; Gold turns lower

LONDON - Copper continued lower as a fall in Chinese equities triggered losses across the board. Sentiment was dampened after China's decision to triple stamp duty on equity market transactions weakened most equity markets worldwide, but metals analysts say the complex will not suffer a great deal.
      
Prices were underpinned, however, by a raft of supportive news including a potential strike at Codelco's second biggest mine in Chile. Codelco is the world's largest copper producer.
   
Further, LME copper stockpiles helped provide a floor for prices. Inventories fell a hefty 1,675 tonnes to 130,250 tonnes, said the LME in a daily report.
   
At 1.23 pm, LME copper for three-month delivery was down at 7,183 usd a tonne against yesterday's close of 7,300 usd. Refined copper demand is forecast to rise 6.5 pct to 4.1 mln tonnes, versus 7 pct growth last year, said Chinese consultancy firm Antaike.
   
Elsewhere, nickel reversed minor gains made earlier as market players expect supply pressures to ease. LME stocks fell by just 24 tonnes to 7,698 tonnes on the day after rising for six consecutive days. Nickel was down at 46,600 usd a tonne against 46,750 usd.
   
In other metals, zinc fell to 3,595 usd against 3,702, aluminium was down at 2,765 usd against 2,799 usd, while tin edged up to 14,000 usd against 13,930. Lead was up at 2,765 against 2,210 usd yesterday. Earlier in the session lead struck a record high of 2,275 usd.

At 1.20 pm, spot gold was quoted at 654.40 usd per ounce, below the 657.40 usd level seen in late New York trades yesterday.
   
The dollar extended its gains against the euro today, further reducing the appeal of gold as an alternative asset to the US currency. Also with oil prices turning lower, the metal's appeal as an inflation hedge was reduced.
       
However the metal still managed to close up on the day and analysts at Standard Bank said the fact it has continually etched modest gains in recent days is encouraging.
   
They warned, however, that gold "is not yet out of the woods" and that it needs to break above the key 655 usd resistance level and the 100-day moving average in order to maintain its "mildly bullish outlook".
   
In other precious metals, silver was down at 13.08 usd against 13.16 usd, platinum was up at 1,256 usd against 1,257 usd and palladium edged down to 361 usd against 366 usd.

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