US & World Daily Markets Financial Briefing 07-02-2007

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Dow, Nasdaq climb on productivity gains

NEW YORK  - Stocks rose moderately Wednesday after Wall Street digested a robust sales forecast from Cisco Systems Inc. and a stronger-than-expected productivity reading gave investors fresh signs that the economy is holding up and keeping inflation largely in check.
   
The Cisco forecast gave a boost to technology stocks, while the productivity figures were stronger than expected for the fourth quarter but showed a slowdown for the year. If productivity falls and wages increase too quickly, the Federal Reserve could be forced to raise interest rates.
   
The data seemed to overshadow comments from Philadelphia Fed President Charles Plosser that an improving economy might force the central bank to raise short-term interest rates. Last week, the Fed left rates unchanged for the fifth straight time, interrupting a string of 17 straight increases than began in 2004. Plosser said the productivity gains were helping consumers but that it was too soon to declare the threat of inflation neutralized.
   
Figures Wednesday showed productivity grew at a 3 percent annual rate in the fourth quarter, nearly double what Wall Street had been expecting.
   
In the first hour of trading, the Dow Jones industrial average rose 2.24, or 0.02 percent, to 12,668.55. Broader stock indicators also moved higher. The Standard & Poor's 500 index was up 1.17, or 0.08 percent, at 1,449.17, and the Nasdaq composite index rose 6.29, or 0.25 percent, to 2,477.78.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.76 percent from 4.77 percent late Tuesday. Light, sweet crude rose 44 cents to 59.32 per barrel in premarket electronic trading on the New York Mercantile Exchange.
   
In corporate news, Cisco rose $1.10, or 4.1 percent, to $28.38 after the networking equipment maker predicted its third-quarter revenue would rise 19 to 20 percent.
   
Multi-Fineline Electronix Inc. rose $2.85, or 16.2 percent to $20.43 even though its fiscal first-quarter profit came in below Wall Street's expectation. Some analysts suggested the company's revenue had hit a low point.

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Major currencies remain steady; eye on central bank rate decisions, G7

LONDON - Major currencies remained steady, with investors looking ahead to central bank rate decisions in Europe tomorrow and the G7 meeting in Germany this weekend.
   
The euro kept near the 1.30 level against the dollar as investors avoided large movements before the European Central Bank's rate announcement tomorrow.
   
"While the dollar's deteriorating technical picture leaves some upside risks in eur/usd, we doubt that a lasting break above 1.30 is likely ahead of tomorrow's ECB meeting," said Michael Ramon Klawitter at Dresdner Kleinwort.
   
While analysts expect the bank to keep rates unchanged at 3.50 pct, many warn that the rhetoric may be hawkish and signal a rate increase in March.
     
The euro is expected to benefit only if the market renews its expectations for a hike in the second quarter, which markets have not yet priced in.
   
Also in focus this week is the Japanese yen, particularly ahead of the upcoming G7 meeting this weekend, which is expected to discuss the issue of a weak yen.
   
However, whether the G7 will propose any policy solutions or even mention the need for a stronger yen, is far from certain.
    
Elsewhere, the pound remained steady ahead of the Bank of England's rate decision. The Bank of England is also expected to keep interest rates unchanged, although some analysts do not rule out a surprise hike, as delivered in January. Most expect at least some hawkish rhetoric to signal that a hike is due in coming months.
   
"With the market only pricing in a 25 pct risk of a February move, the (BoE) will probably be unwilling to shock the markets over two consecutive months," said Matthew Sharratt at Bank of America.

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At 3.00 pm, the FTSE 100 index was 5.8 points firmer at 6,352.1, having swung in and out of losses through out the session, with the wider market all positive. Volume was moderate with 1.8 bln shares changing hands in 292,692 deals.
   
Mining stocks led blue chips higher after BHP Billiton surprised the market by announcing an extra 10 bln usd share buyback programme, which shifted attention from its indifferent first-half results.
   
BHP rose 44-1/2 pence to 1,030  with Vedanta up 24 at 1,218, Anglo American was 36 to 2,441, and Antofagasta gained 7 to 468.
   
Elsewhere, British Airways rose a further 19-1/4 to 567-3/4 after Merrill Lynch upped its stance on the national carrier to 'buy', from 'neutral', with a 700 pence price target.
   
The broker argued the group's share price discounts the potential benefits from its move to Heathrow's Terminal Five, which could result in a growth in connecting traffic, improved load factors and increased pricing.
   
Sentiment in the stock was boosted further by vague talk rival Emirates was mulling a stake in the airline -- a claim later dismissed by the Arab company.
   
Also on the up was Standard Life, 5-3/4 better at 310-1/4 after the life insurer released strong full-year sales figures this morning. The group said full-year worldwide sales on an annual premium equivalent basis rose 39 pct to 1.734 bln stg, beating a forecast of 1.57 bln stg by broker Evolution Securities.
   
And J Sainsbury continued to benefit from ongoing M&A hopes with reports suggesting Texas Pacific or Goldman Sachs have joined a group being led by CVC working on an 11 bln stg buyout of the UK grocer.
   
In contrast, MAN Group continued to be the top faller, down 13 at 566, hit by a downgrade to 'add' from 'buy' at Dresdner Kleinwort on valuation.

Paris

At 1.12 pm, the CAC- 40 was up 7.37 points or 0.13 pct at 5,684.15 on volume of 2.0 bln eur. On the Matif, February CAC- 40 futures were trading up 7.5 or 0.13 pct at 5,688.0.
   
Alstom, up 2.90 eur or 3.03 pct at 98.65, rose sharply late morning after a note from HSBC analysts fuelled ongoing speculation about a possible takeover by Bouygues. HSBC raised its target to 74 eur from 63 eur, while retaining its 'underweight' rating.
   
The broker did not offer a view on the speculation, but advised investors against selling the stock because "this speculation seems likely to persist in the short to medium term."
   
Another big climber was Publicis, which was 1.34 or 4.04 pct higher at 34.50. The advertising group reported better-than-expected fourth-quarter sales numbers last night, which prompted Credit Suisse to upgrade its recommendation to 'outperform' from 'neutral'.
   
Publicis posted 6.3 pct organic growth for the fourth quarter, well above the 4-5 pct range of analysts polled by AFX News.
   
Another focus of attention was Peugeot after its full-year results and a press conference featuring new CEO Christian Streiff. The stock was down 0.20 or 0.38 pct at 51.95, falling back from an opening spike that had followed positive reaction to its smaller-than-expected drop in operating profit and the appointment of Streiff and other new executives.
   
In this morning's conference, the company said it plans to cut production costs by 600 mln eur in 2007, while it also expects raw material costs to cut earnings by 300 mln eur this year.
   
Peugeot subsidiary Faurecia, meanwhile, was down 0.10 or 0.19 pct at 53.50, after two days of contrasting movements following its full-year results on Monday. The auto parts maker was upgraded to 'hold' from 'sell' by Citigroup, with an increased target of 52 eur versus 38 eur previously.

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Asian shares close mostly lower on profit taking, yen strength

HONG KONG - Shares across the Asia-Pacific region closed mostly lower on profit taking, with Tokyo weakened by a stronger yen but Australian shares hitting a new record high, dealers said.
   
Tokyo shares finished the day lower on broad-based selling as the yen's appreciation overnight hurt investor sentiment, reducing the positive influence of the latest corporate earnings reports.
   
The blue-chip Nikkei 225 Stock Average closed 114.54 points or 0.66 pct lower at 17,292.32, off a low of 17,199.66. The TOPIX index of all first-section issues dropped 4.06 points or 0.23 pct to 1,728.36, off a low of 1,722.95.
   
Selling was especially active in Nikkei futures, which fueled selling of cash stocks that comprise the Nikkei index and so caused its relatively large percentage decline.
   
A trader at a European financial institution said: "There was talk that hedge funds moved to unload futures positions in anticipation of tighter control by the financial authorities after the G7 meeting."
   
Australian shares closed up with the key indices at new record highs, supported by gains in miner BHP Billiton, which announced a record net profit for the six months to December.
   
Comments from BHP Billiton chief executive Chip Goodyear that demand for commodities will remain strong for years to come also provided support. Elsewhere, dealers noted the widely expected decision by the Reserve Bank of Australia to keep its cash rate steady at 6.25 pct also underpinned gains.
   
The S&P/ASX 200 ended up 29.3 points or 0.50 pct at a new record close of 5,899.8, surpassing yesterday's record of 5,870.5. The key index also hit a fresh intra-day record of 5,909.9.
   
The broader All Ordinaries index climbed 22.4 points to a fresh record closing high of 5,870.9, beating yesterday's previous record of 5,848.5. The index also set a new intra-day record of 5,880.1.
   
Hong Kong shares were steady in afternoon trade despite profit-taking in the property sector. At 3.50 pm the Hang Seng Index had lost 1.74 points to 20,653.46.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on hopes for new capital inflows with banks and property developers boosted. The Shanghai A-share Index was up 42.74 points or 1.52 pct at 2,851.99 and the Shenzhen A-share Index was up 13.0 points or 1.92 pct at 691.61.
   
Seoul shares closed slightly lower, ending a four-session winning streak, with investment trust firms and retail investors taking profits as the index neared its previous high of 1,435 points.
   
Investors also turned wary ahead of major events tomorrow, including expiry of options contracts and the Bank of Korea's rate decision. A downturn in major Asian markets further dampened sentiment. Utilities, retailers and lenders posted losses.
   
The KOSPI index closed down 2.29 points or 0.16 pct at 1,426.29, after moving between 1,419.48 and 1,431.25.

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Gold tops 655 usd as soft dollar; Copper falls

LONDON - Gold extended yesterday's gains to climb above 655 usd as the precious metal found continued support from firmer crude oil prices and a modestly softer dollar.
   
At 10.59 am, spot gold, which earlier hit an intra-day high of 656.00 usd an ounce, was quoted at 654.65 usd, up from the 653.00 usd level seen in late New York trades yesterday.
   
Schubert noted gold has been holding its own this week irrespective of factors like the dollar. "The market looks pretty stable ... buying overnight from TOCOM has continued. Its still relatively quiet today but the market has strong sentiment, I'm looking for gold to regain the 660-664 usd level this week," he said.
   
Gold hit a six-month high around 661 usd last week.
   
"While gold is struggling to conquer resistance above 656 usd, expectations of more favourable dollar/oil movements, coupled with ongoing unrest in Iraq and continued defiance by Iran and North Korea to halt their nuclear programmes, will draw investors towards gold," said TheBullionDesk.com analyst James Moore.
       
Regarding trading in other precious metals, silver was edged up to 13.67 usd an ounce against 13.63 usd yesterday, platinum rose to 1,190 usd against 1,181 usd and palladium dipped to 343 usd against 338 usd.

Copper fell in London after LME inventories reversed a three-day downward trend to turn sharply higher, increasing traders concerns about possible surpluses in the market this year.
   
At 1.13 pm, LME copper for three-month delivery was down at 5,366 usd a tonne against yesterday's close of 5,470 usd.
   
Man Financial analyst Ed Meir said today's hefty 3,175 tonne rise in LME copper stocks was weighing on the metal. LME data put total copper stocks at a total of 215,750 tonnes -- more than double levels seen at the start of last year.
   
"Prices seem to be heading towards the lower part of the trading range after failing to take out 5,500 usd resistance on a closing basis" yesterday, said Meir.
   
He added that while the mood in the metals over the past few days has been one of "guarded bullishness", there is not the same "broad-based buying conviction" that was seen last year.
   
"Instead participants are casting a weary eye on a number of issues on the horizon, namely, prospects for US economic growth, the strength (or weakness) in Chinese metals demand and the easing in tight supply/demand balances in a number of complexes," said Meir.
   
Nickel was down at 35,450 usd a tonne from 35,800 usd at close yesterday, after LME inventories, which are at critically low levels, rose for the first time in two weeks.
   
According to LME data, stocks rose by 138 tonnes to total 3,120 tonnes. This rise still leaves available nickel stocks equivalent at less than half a day of global consumption.
   
Meanwhile, aluminium was lower at 2,658 usd a tonne, against 2,705 usd a tonne, after the February options expiry, when holders of options can buy or sell the underlying metals future at a specified price at a fixed time.
   
Analysts said there was not the same volatility ahead of today's options expiry as there was over the last couple of months and noted aluminium prices are starting to pull away from the 2,700 usd level.
   
Tin was down at 11,800 usd a tonne against 11,925 usd after news reports from Asia said Indonesian officials had allowed five small tin smelters to resume operations. Elsewhere, lead was down at 1,551 usd, against 1,571 usd, and zinc was off at 3,135 usd, against 3,220 usd.

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