US & World Daily Markets Financial Briefing 08-02-2007

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Dow, Nasdaq backtrack in early trading

NEW YORK - Stocks fell in early trading Thursday as investors were largely unimpressed by upbeat retail sales reports and by strong profit reports from Walt Disney Co. and Electronic Data Systems Corp.
   
Investors appeared to be looking for a major catalyst to send stocks higher after days of largely meandering trading, but they didn't find it in generally good retail sales. Wal-Mart Stores Inc., the world's largest retailer, topped Wall Street's forecast though the month's increase was modest.
   
In economic news, the number of newly laid off workers seeking unemployment benefits rose slightly last week though the figures indicated the job market remains solid. The Labor Department said 311,000 newly laid off workers sought benefits last week, an increase of 3,000 from the prior week. A Commerce Department report on wholesale inventories is also due Thursday.
   
In Europe, the Bank of England and the European Central Bank left interest rates unchanged, mirroring a decision by the U.S. Federal Reserve last week to stand pat on rates. The European bank hinted, however, that a rate hike might be in the offing.
   
In the first hour of trading, the Dow industrials fell 33.49, or 0.26 percent, to 12,633.38.
   
Broader stock indicators also moved lower. The Standard & Poor's 500 index was down 4.74, or 0.33 percent, at 1,445.28, and the Nasdaq composite index was down 10.26, or 0.41 percent, at 2,480.24. The Russell 2000 index of smaller companies was down 3.12, or 0.39 percent, at 813.04.
   
Bonds fell following the comments from the European bank, which raised concerns of a rate hike in the United States. The yield on the benchmark 10-year Treasury note rose to 4.75 percent from 4.74 percent late Wednesday.    

Light, sweet crude rose 20 cents to $57.91 in premarket electronic trading on the New York Mercantile Exchange.

Stocks in focus
   
In corporate news, Disney, which owns the ESPN and ABC television networks and its namesake theme parks, reported better-than-expected fiscal first-quarter earnings amid strong DVD sales for its "Pirates of the Caribbean" films. Disney rose 50 cents to $35.98.
   
Electronic Data Systems' fourth-quarter profit nearly doubled and contract signings, which help indicate how strong revenue will be in the future, rose sharply. The computer services company rose 53 cents to $27.61 after issuing a 2007 forecast that topped Wall Street's expectations.
   
Wal-Mart's January same-store sales, or sales at stores open at least a year, rose 2.2 percent. As it had for January, the company is predicting same-store sales will rise 1 percent to 2 percent in February. Wal-Mart was off 13 cents at $48.45.
   
Sales at Federated Department Stores Inc., parent of Macy's and Bloomingdale's, handily beat Wall Street's forecasts. January same-store sales increased 8.6 percent; Wall Street had been looking for a 4.6 percent rise. Federated rose $1.70, or 4.1 percent, to $43.04.
   
Clothing chain Gap Inc. rose 56 cents, or 2.9 percent, to $19.81 after its flat same-store sales were better than the decline analysts expected. The company also raised its fiscal 2006 profit forecast.

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Euro steady, pound softer after ECB, BoE leave rates unchanged

LONDON - The euro remained steady while the pound was a touch softer after both the European Central Bank and the Bank of England left rates unchanged today.
   
The ECB left its key interest rate unchanged at 3.50 pct, as widely expected, keeping the euro at about 1.2980 usd and 0.6620 stg.
   
The rate decision was in line with market expectations, as ECB president Jean-Claude Trichet last month virtually ruled out a move at today's meeting, but indicated the central bank may raise rates again in March.
   
All eyes will now be on Trichet's news conference, to be held at 1.30 pm GMT, for any signals on future rate moves.
       
Meanwhile, the BoE left its benchmark rate unchanged at a five-and-a-half year high of 5.25 pct, as widely expected. Analysts note that the market had been pricing in a slim chance of a hike today, so the decision to leave rates on hold weakened the pound.
   
By 1.05 pm GMT, the pound was pulled back to 1.9595 against the dollar from 1.9680 usd before the announcement, while the euro rose to 0.6623 stg from around 0.6600.
   
The focus now will be on the Bank of England's quarterly Inflation Report next week.
   
"The (Inflation Report) is unlikely to have unearthed any hitherto undiscovered inflationary gremlins," said Philip Shaw at Investec. Even so, he expects there to be enough upside risks to inflation to trigger another rate rise at some point, most likely in the second quarter.
   
Elsewhere, the yen remained under pressure after one of its rate-setters, Hidehiko Haru, said inflation is still benign and that policy adjustment would remain gradual.
   
"It seems quite clear that on the basis of these comments, Mr Haru will not be amongst those voting for a rate hike at the BoJ's next meeting in just under a fortnight's time," said Neil Mellor at Bank of New York.
   
Because Japan has low interest rates, its currency is subject to the weakening effects of carry trades -- when investors borrow in a country with low interest rates to invest in a country with higher yields.

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German shares down midafternoon tracking Wall Street's lower opening

At 3.31 pm, the DAX was down 54.61 points or 0.79 pct at 6,860.95, after trading between 6849.85 and 6,918.04. The MDAX lost 38.67 points or 0.39 pct to 9,937.59 and the TecDax slid  19.68 points or 2.29 pct to 839.98.
   
DAX futures fell 55.50 points or 0.80 pct to 6,886.50, with Bund futures down 0.22 points or 0.19 pct to 115.38.

Metro lost 0.80 eur or 1.47 pct to 53.60, as the sharpest decliner on the DAX. Traders pointed to a downgrade from HVB to "hold" from "buy."
   
HVB said that it predicts a weak first quarter this year and that it expects the retailer's 2007 guidance, to be announced in March, will be in line with market expectations.

EON dropped 2.05 or 1.84 pct to 109.60. Traders said the share price was being depressed by media reports that the Spanish government may try to delay its sale of the 3 pct stake it owns in EON takeover target Endesa SA.
   
BMW fell 0.83 eur or 1.83 pct to 44.60, extending yesterday's losses. It was followed by peer Daimlerchrysler which fell 0.86 eur or 1.78 pct to 47.44.

Among today's winners, MAN continued to advance the fastest, adding 2.34 eur or 2.77 pct to 86.71.
  
The heavy truck and equipment manufacturer received positive broker notes from Commerzbank, JP Morgan and Goldman Sachs; the two latter highlighted MAN's strong fourth-quarter results and positive 2006 outlook.

Infineon added 0.10 eur or 0.84 pct to 12.06, extending yesterday's strong gains.
   
Lufthansa rose 0.13 or 0.59 pct to 22.03.
    
MTU Engines eased 1.06 eur or 2.53 pct to 40.90 as the MDAX's sharpest decliner. The index temporarily charted into new record-high territory today.
   
Premiere jumped up 2.73 eur or 18.06 pct to 17.85.  Premiere signed an agreement with peer Arena for the distribution of Bundesliga Football league coverage throughout Germany, raising its 2008 forecast because of the deal.

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Asian shares close mixed;  Tokyo flat on yen fears

HONG KONG - Shares across the Asia-Pacific region closed mixed with Tokyo falling on yen fears but mainland China stocks continuing to rise on yuan appreciation.
   
Tokyo shares closed flat to lower after fears of a rising yen made investors cautious.
   
The blue-chip Nikkei index was relatively well supported by speculative trading linked to the fixing tomorrow of the special quotations for February options contracts, dealers said.
   
The Nikkei 225 Stock Average closed 0.16 points higher -- almost flat in percentage terms -- at 17,292.48, off a high of 17,400.35 and a low of 17,212.78. The TOPIX index of all first-section issues ended down 8.18 points or 0.47 pct at 1,720.18, off a low of 1,712.28.
   
Market players think there is a chance that the G7 finance ministers and central bankers may call for a firmer yen during their meeting at the weekend, and a firmer yen would hurt Japanese exporters.
   
Australian shares closed mixed with the All Ordinaries index hitting a fresh record high but profit taking emerging in miners and banks after recent strong gains.
 
A wider sell-off was avoided as sentiment got a boost from January jobs data showing the unemployment rate fell to a new 30-year low of 4.5 pct from 4.6 pct in December.
   
The S&P/ASX 200 ended down just 0.3 points or 0.09 pct at 5,899.5, slipping from yesterday's record of 5,899.8. The key index hit a low of 5,884.6 and a high of 5,909.4.
   
The broader All Ordinaries index added 2.0 points to a fresh record close of 5,872.9, surpassing the previous record yesterday of 5,870.9. The index also set a new intra-day record of 5,880.5.
   
Hong Kong shares were slightly higher in afternoon trade despite selling in index heavyweight HSBC after the bank warned that its loan impairment charges and provisions for 2006 will be higher than expected. At 3.45 pm the Hang Seng Index was up 28.98 points or 0.14 pct at 20,708.67.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on follow-through interest and a rising yuan, with power generators and machinery firms gaining ground. The Shanghai A-share Index was up 22.43 points or 0.79 pct to 2,874.41 and the Shenzhen A-share Index was up 12.56 points or 1.82 pct at 704.17.
   
Seoul shares closed slightly lower as foreign investors turned net sellers for the first time since Jan 30. Amid a muted impact from the expiry of options contracts and the Bank of Korea's decision to freeze rates, the market's direction was swayed by foreign sell offs, which were focused on large cap IT stocks, they noted.
   
The Bank of Korea today said it is keeping its call rate target for February unchanged at 4.5 pct, as expected, in a bid to boost the economy and with inflation well under control. Insurers, utilities, steel makers and large cap IT firms were among the major losers.
   
The KOSPI index closed down 2.71 points or 0.19 pct at 1,423.58, after moving between 1,416.05 and 1,431.01.

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Gold dips below 650 usd as stronger dollar, weaker oil prices weigh

LONDON - Gold extended yesterday's falls to trade below 650 usd as a stronger dollar pressured the metal lower while weaker oil prices lessened bullion's appeal as a hedge against oil-led inflation.
   
At 1.06 pm, spot gold, which earlier hit an intra-day low of 647.30 usd an ounce, was quoted at 648.90 usd, down from the 651.90 usd level seen in late New York trades yesterday.
   
"Early European trading saw gold dip down below 650 usd as the euro/usd fell back through 1.30," said UBS Investment Bank analyst John Reade.
   
Oil steadied above 57 usd today after sliding 2 pct yesterday as a decline in weekly US inventories was not quite supportive enough for the prices to break through the 60 usd mark.
  
In the background Indian and Japanese interest in Exchange-Traded-Funds (ETF) is also propping up prices, analysts said.
   
India's first gold ETF will open on Feb 15, said Indiainfoonline.com. Meanwhile speculation is mounting over reports the Tokyo Stock Exchange, Japan's leading exchange, is studying the possibility of listing a precious metal based ETF.
   
Exchange-traded funds buy shares in companies that make up an index. In commodity-backed ETFs, investors gain exposure to commodities without having to trade futures and commit themselves to physical delivery.
   
However, because ETFs match every ounce of metal bought on paper with physical metal stocks, they could squeeze precious metals markets like gold.
   
Virtual Metals CEO Jessica Cross said the market is being pulled i different directions currently.
   
There are mixed reports of strong investor interest which is lending support to gold, she said, but speculation the IMF may sell 8.5 bln usd of gold to help plug operating deficits is depressing sentiment.
   
"The funds are not sure which way to go now," said Cross.    

In other precious metals, silver edged down to 13.48 usd an ounce against 13.64 usd yesterday, platinum fell to 1,180 usd against 1,191 usd and palladium edged up to 343 usd against 340 usd.

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