US & World Daily Markets Financial Briefing 03-04-2007

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Stocks rise in early trading

NEW YORK - Wall Street advanced in early trading Tuesday, as investors drew support from falling oil prices and showed optimism that reports on auto sales and pending home sales will not signal an abrupt halt in economic growth.
   
Ford Motor Co., General Motors Corp., DaimlerChrysler AG and others are preparing to release March sales figures that could help give investors clues about consumer spending. GM, the nation's largest automaker, on Tuesday said its sales in China jumped 25 percent in the first quarter.

With U.S. sales sluggish, looking overseas is seen as a key driver to sales. GM became China's biggest automaker in 2005 when it overtook Germany's Volkswagen AG.
   
Wall Street was also relieved that oil prices -- which contribute to inflation -- started to fall as tensions between Britain and Iran eased. Prices have risen steadily since 15 British sailors and marines were detained March 23 by Iran, and the two nations are in discussions that appear to be bringing the sailors closer to being released. A barrel of light sweet crude fell 97 cents to $64.98 in electronic pre-opening trading on the New York Mercantile Exchange.
   
Investors are also awaiting data on pending home sales, which could give them a better sense of whether the housing market is holding up despite the struggling subprime mortgage sector. On Monday, New Century Financial Corp. filed for insolvency protection -- the biggest mortgage lender to collapse in the slumping U.S. housing market.
   
In the first hour of trading, the Dow Jones industrial average rose 66.07, or 0.53 percent, to 12,448.37.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 6.47, or 0.45 percent, at 1,431.02, and the Nasdaq composite index rose 15.47, or 0.64 percent, to 2,437.73.

The Russell 2000 index of smaller companies was up 4.20, or 0.52 percent, at 807.42.
   
Bonds were slightly lower ahead of the data, with the yield on the benchmark 10 year Treasury note at 4.65 percent, up from 4.64 percent late Monday. The dollar rose against other major currencies, while gold prices rose.
   
In afternoon trading, Britain's FTSE 100 was up 0.38 percent, and France's CAC 40 was up 0.46 percent. In Frankfurt the DAX was up 63.03 points or 0.91 pct to 7,000.20.
   
Ahead of the auto sales data, GM rose 26 cents to $31.09; Ford rose 5 cents to $8.14; and Daimler Chrysler fell $1.19 to $82.83.

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Australian dollar remains near ten-year dollar highs ahead of rate news

LONDON - The Australian dollar remained near ten-year highs against the dollar ahead of tonight's interest rate decision from the Reserve Bank of Australia.
   
A raft of strong economic news, particularly on the consumption front, has raised expectations that the RBA may lift interest rates again, which would take its key cash rate up to 6.50 pct.
   
Ian Stannard, currency strategist at BNP Paribas, said the market is now pricing in a 60 pct probability of a rate hike from the RBA but warned that the market may be getting a little over-optimistic.
   
This has helped the Australian dollar climbed to 0.8182 usd overnight, its highest level since December 1996.
   
However, Stannard warned about the impact of unchanged Australian rates. "If the RBA leaves rates unchanged, we could see the Aussie reverse and that could have a knock-on impact elsewhere, particularly on the yen," he said.
   
The yen has been particularly badly hit by mounting expectations of higher borrowing costs in Australia, because it has reinforced carry trades, where money is borrowed in countries with low interest rates like Japan to be invested in higher-yielding economies.
   
As a result, the Australian dollar has climbed to 96.73 yen, its highest level since May 1997.
   
Elsewhere, the pound remained well-supported ahead of the Bank of England's interest rate decision on Thursday, though some profit-taking pushed it towards the bottom end of its trading range against the dollar.
   
Though the AFX poll of economists found only a quarter anticipating a quarter point rate increase in the key repo rate to 5.50 pct, the market is attaching a 50 pct probability. 
   
This shift in expectations has helped the pound move up to a high of 1.9822 usd, its highest level for a month. As a result talk of another attempt to break the psychologically important 2 usd level has resurfaced.
    
Meanwhile, analysts said much of the US dollar's fortunes in the medium-term will depend on this Friday's crucial US jobs report for March.
   
In the meantime, the main focus today will be US pending home sales data. 

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Top Stories in Europe at 12.05 GMT

Amsterdam - TNT NV said it expects to cut between 6,500 - 7,000 jobs in a reorganisation of its Dutch mail operations. The job cuts are to take place from now until 2010 and are part of a drive to achieve 300 mln eur in cost cuts, announced last December.

Milan - AT&T Inc is seeking "a strong relationship" with Telecom Italia SpA via its plan to take a one third stake in Olimpia SpA, the Pirelli & C SpA unit which owns 18 pct of Telecom Italia, according to AT&T spokesman Michael Coe, cited in the Il Messaggero newspaper.
 
AT&T's plan to take one third of Olimpia, alongside a similar America Movil's plan, is aimed at sharing technology and best practice with Telecom Italia to create new products together, he said.

Intesa Sanpaolo SpA and Mediobanca SpA have resumed talks to study possible countermoves to keep Telecom Italia SpA in Italian hands after AT&T and Mexican mobile operator America Movil made offers to purchase 67 pct of Pirelli & C SpA's controlling shareholding in Telecom Italia, daily Il Sole 24 Ore said.
 
The banks have resumed a plan to spin off and buy the telecommunications operations of Pirelli, but no concrete proposal has been thrashed out yet, while a possible counteroffer appears unlikely, the newspaper added without citing sources.

Enel SpA is expected to launch its bid with Acciona SA on Endesa SA mid-May and conclude it at the end of the month, a source close to the deal said. "April 11 was the date on which the outcome of the EON bid on Endesa was expected to be announced and so it's logical to conclude that Enel will lodge the prospectus for its bid with the Spanish market regulator on April 12," the source said.

Zurich - The consumer price index reached 100.2 points in March, up 0.1 pct from February, and was up 0.2 pct from last year, the Swiss Statistics Office said. Economists' forecasts were calling for a flat to 0.2 pct higher CPI on a monthly basis, while in annual terms, forecasts were between a rise of 0.1-0.3 pct.

Swiss Re said its total embedded value increased by 13 pct last year to 22.6 bln sfr, up from 20.1 bln in 2005, boosted by the acquisition of GE's Insurance Solutions (GEIS) business in June 2006.
 
In parallel, the embedded value of its life & health operations rose 38 pct to 2.4 bln sfr, from 1.7 bln, the Swiss reinsurance group said.  Embedded value is an indicator of the value of the existing insurance portfolio.

Frankfurt - The city state of Berlin is delaying due diligence in the sale of a majority stake of Landesbank Berlin until April 16, from a reported plan for April 10, Die Welt reports, citing sources in the financial sector. A spokesperson for Berlin's financial administration said bidders were receiving access in April and the process is running according to plan.

Deutsche Boerse AG said turnover on both its Xetra trading platform and on its trading floor in March was 253.7 bln eur, representing a 57 pct increase versus the same period last year. Of this turnover, 239 bln eur were traded on Xetra, an increase of 61 pct year-on-year, and 14.6 bln on the trade floor, an increase of 10 pct.

Lisbon - Sonaecom SGPS has already defined the markets where it wants to grow, with broadband and pay TV as priorities, Jornal de Negocios reported citing Sonaecom's chief operating officer Luis Reis. Reis said that potential targets are Bragatel, TvTel, Oni and the Portuguese unit of Tele2, although he did not confirm that Tele2 has demonstrated any interest in being acquired by Sonaecom, the paper added.

Paris - French retirement home operator Korian said it has agreed to acquire Segesta, Italy's second largest privately owned specialist in care of the elderly. The purchase price was not disclosed.

London - Resolution PLC, the specialist UK life insurer, reported full year operating profit on an European Embedded Value (EEV) basis of 390.9 mln stg, and said it may return capital to shareholders if it cannot find further suitable acquisitions. The 2006 profit figure was ahead of the 305-380 mln stg range of analysts' forecasts.

Utility Severn Trent PLC said it expects to cut about 600 jobs in its water operations over the next five years, and that its trading performance in the year is in line with its expectations. The company added that its plans to reduce overheads by 6-10 mln stg over the next 18 months are well advanced.

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Asian shares close higher on corporate activity; Tokyo up on weaker yen

HONG KONG - Shares across the Asia-Pacific region closed higher as corporate activity fuelled interest, with Tokyo rising on a weaker yen and a technical bounce.
   
Tokyo shares finished up, recovering on technical factors after yesterday's fall, with the softer yen further boosting buying interest, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed up 215.64 points or 1.27 pct at 17,244.05, off a high of 17,279.73. The TOPIX index of all first-section issues closed 21.83 points or 1.3 pct higher at 1,704.32, off a high of 1,707.10.
   
"The market rebounded from yesterday's dip and the softer yen, which hovered at the 118 yen level against the dollar, also supported market sentiment," said Fumiyuki Nakanishi, chief strategist at SMBC Friend Securities. He added that gains were also supported by foreign investors' participation.
   
But Nakanishi said the rebound looks weak considering that the Nikkei-225 was trading between 17,500 and 18,000 points before the end-February global market sell-off. "The market has not found its direction yet," he said.
       
Australian shares finished sharply higher as investors sought bargains following yesterday's sell-off, which arose from raised inflationary concerns. Buying action was prominent in the major banks and miners, while merger and acquisition activity continues to support media and retail stocks.
   
Dealers said tomorrow's Reserve Bank of Australia's interest rate announcement at 9:30 am Sydney time should determine trading into the shortened week, with a 25 basis point interest rate hike an each-way bet. The S&P/ASX 200 closed up 97.6 points or 1.65 pct at the day's high of 6,013.4.
   
Hong Kong shares were higher in afternoon trade, buoyed by the rise in Tokyo shares and with blue chips attracting interest. At 3.30 pm the Hang Seng Index was up 152.03 points or 0.77 pct at 19,961.73.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on strong fund inflows with property and machinery stocks gaining ground. The Shanghai A share Index was up 40.73 points or 1.19 pct at 3,459.46 and the Shenzhen A-share Index was up 11.69 points or 1.33 pct at 893.57, a fresh record high.
   
Seoul shares ended slightly higher with foreign investors focusing on Samsung Electronics and Hynix ahead of the corporate earnings season starting next week. Although chipmakers are expected to report weak numbers for the first quarter, investors are betting on a recovery in global IT demand in the second half.
   
Initial sentiment was buoyed by Wall Street's overnight advance but the market failed to move closer to its historic high of 1,471 points. The KOSPI index closed up 4.22 points or 0.29 pct at 1,463.75, off a low of 1,452.56 and a high of 1,464.48.

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Lead strikes new high on supply woes from Australia

LONDON - Lead hit a new contract high on supply concerns from Australia. Prices surged as Ivernia Inc said it is shutting down operations at its Magellan mine for a maximum of four months, after a lead poisoning scare escalated. The company said today that it has decided to "temporarily place the mine on care and maintenance," and also declared force majeure on deliveries from the mine.
   
Shipments from the mine via the port of Esperance were suspended in mid-March after thousands of birds in the region died from lead poisoning and some people were affected.
   
At 1.31 pm, LME lead for three-month delivery rose to 1,960 usd a tonne against 6,860 usd at the close yesterday. It had struck 1,975 usd earlier in the session.
   
Edward Meir, an analyst at Man Financial, said that, in light of higher prices, two consecutive closes above 1,950 usd were needed to justify yet another move higher.
   
Other base metals were also firm, with copper near its intra-day high of  7,188 usd. LME copper for three-month delivery rose to 7,150 usd a tonne against 6,980 usd at the close yesterday.
   
Prices were up amid falling stocks stored in LME certified warehouses. The LME reported inventories fell 1,225 tonnes at 179,850 tonnes on the day since yesterday.
   
Cancelled warrants, which represent metal booked and due to leave LME warehouses, also increased by 1,700 tonnes.
     
In other metals, tin was up at 13,975 usd against 13,740 usd, zinc rose to 3,190 usd from 3,179 usd, nickel rose to 47,650 usd from 45,600 usd at yesterday's close. Aluminium was also up at 2,807 usd from 2,757 usd.

Gold steady on tensions with Iran, strong oil prices

LONDON - Gold held steady near 663 usd, supported by continued tensions between Iran and the West and strong oil prices. The precious metal was also underpinned by increased buying from India in preparation for the wedding season.
   
At 11.55 am, spot gold was quoted at 662.90 usd an ounce, from the 665.60 usd level seen in late New York trades yesterday.
   
With high levels of volatility recently some traders have taken to the sidelines which has impeded the journey towards the 700 usd the market had called for by the end of this year.
   
"Overall, we believe that a number of players that have the ability to push the market through the 665 to 670 usd region are on the sidelines currently looking for some spark in the market to encourage them to join," said metals analysts at JP Morgan.
   
Further, some analysts are predicting a sharp downward correction in the short-term. TheBullionDesk.Com analyst James Moore said that while there appears to be technical support around the 656 usd level, the extent of long trades means that there is a risk of a deeper correction over the short-term.
   
While oil is lending some support to bullion, analysts were surprised the metal had not pushed higher with crude prices hovering near six-month highs.
   
Looking ahead, market players might push the market either way before the Easter holidays. "Holidays tend to move markets. If they (traders) are long they might square trades ahead of the holiday. It could go either way."
   
In other metals, silver was at 13.26 usd an ounce against 13,30 usd, platinum was at 1,239 usd against 1,236 usd, while palladium was up at 351 usd against 348 usd.

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