US & World Daily Markets Financial Briefing 09-01-2007

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Dow, Nasdaq advance in morning trading

NEW YORK -  Stocks rose modestly in early trading Tuesday as another dive in crude oil prices helped investors overlook Sprint Nextel Corp.'s warning that its fourth-quarter results will come in below expectations.
   
Wall Street has lost some of its recent ebullience in recent weeks as earnings season approaches; the reporting season has its unofficial start Tuesday after the closing bell when Alcoa Inc. will post results. Investors have been monitoring profit warnings to gauge how hundreds of companies might fare as they report through the course of the month.
   
Sprint Nextel said it expect 2007 profit and revenue to come in below analysts' projections, and that it would cut staff to help save costs. The telecommunications company joined about a half-dozen others that warned about quarterly and annual results on Monday.
   
In the first hour of trading, the Dow Jones industrial average rose 15.14, or 0.12 percent, to 12,438.63.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 0.33, or 0.02 percent, at 1,413.17, and the Nasdaq composite index added 1.77, or 0.07 percent, to 2,439.97. The Russell 2000 index of smaller companies was down 2.49, or 0.32 percent, at 774.50.
   
Bonds fell in the absence of developments that would influence trading. The yield on the benchmark 10-year Treasury note edged higher to 4.66 percent from 4.65 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.
   
The slide in oil prices have added support to some stocks, especially sectors like transports and retailers who stand to benefit from lower gasoline prices. However, Wall Street's gains were limited in part by a decline in oil sector stocks on concerns lower prices will slice into profit.
       
This decline helped add a dose of calm to Wall Street as investors prepared for an onslaught of earnings reports. Alcoa, the world's biggest aluminum producer, was seen as a litmus test for the health of U.S. manufacturing since its products are used by broad spectrum of companies.
   
The Pittsburgh-based company is expected to report earnings of 65 cents per share on sales of $7.63 billion, according to Thomson Financial. Shares fell 10 cents to $28.38.
   
Wall Street is watching to see if companies like Alcoa can continue an 18-quarter advance of double-digit profit gains for S&P 500 companies. For the broader market, Thomson Financial said double-digit gains have spanned 14 quarters.
   
Investors got a reminder Tuesday that earnings may be fragile. Sprint Nextel dropped $1.94, or 9.9 percent, to $17.71 after it warned 2007 will miss expectations. The wireless company was also the target of several analyst downgrades.

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Dollar garners further carry trade support

LONDON - The dollar garnered some support as investors reined in their expectations of an imminent rate cut from the US Federal Reserve following a speech overnight from a leading official at the central bank.
   
The US has started 2007 on a fairly strong footing, Friday's US jobs data reinforcing expectations US borrowing costs will not be falling any time soon.  A speech overnight from Donald Kohn, vice chairman of the Fed, hinted as much.
   
Though Kohn said recent inflation data are "encouragingly consistent" with the Fed's forecast for a gradual decline, he stressed it is still "too early to relax our concerns about whether the run-up in price pressures in the spring and summer of last year is truly unwinding and whether it is unwinding rapidly enough to forestall a pick up in inflation expectations".
      
The dollar was ravaged towards the end of last year after a wave of bad US economic news stoked fears the world's largest economy may slow down dramatically and prompt the Fed into loosening its policy.
   
That triggered a sharp slide in the dollar to a 21-month low against the euro and to its lowest level against the pound since sterling's ignominious exit from the European exchange rate mechanism in September, 1992.
   
The Fed has kept its benchmark rate unchanged at 5.25 pct for four consecutive meetings after raising it 17 times in a row.
   
Sustained strength in the euro zone economy, further evidenced in today's German industrial output for November, has reinforced expectations the European Central Bank's president Jean-Claude Trichet will sound a relatively hawkish tone at his press conference after Thursday's rate-setting meeting.
   
Though the central bank is expected to keep its key refi rate unchanged at 3.50 pct, most market participants expect another quarter point rate hike in the first quarter followed by another in the second.
      
Meanwhile, the pound has been buoyed by a solid retail sales survey from the British Retail Consortium. It reported like-for-like sales, which exclude new stores and office space, were up 2.5 pct in December compared with the year before, when sales had picked up by 2.6 pct.

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The European markets at 12.30 GMT

London - UK blue chips held firm near session highs at midday, supported by hopes for further gains today on Wall Street, with strength in mining issues helping to offset weakness in oil majors after a disappointing update from BP. At 12.10 pm, the FTSE 100 index was 22.0 points firmer at 6,216.2, just below the late morning peak of 6,218.5.

Frankfurt - German shares were higher in early afternoon trade, driven by positive developments on Wall Street and gains on other European markets. At 1.05 pm, the DAX 30 index was up 43.15 points or 0.65 pct at 6,650.74.

Paris - Shares were higher across the board at midday as easing oil prices raised investor optimism for the economic outlook this year, with positive broker comment helping a number of blue chips, including Saint-Gobain and Bouygues. At 12.38 pm, the CAC-40 index was up 42.66 points or 0.8 pct at 5,561.25, on active turnover of 2.36 bln euro.

Milan - Share prices were higher midday, with Buzzi Unicem leading the advance after upbeat comments on guidance by its German peer HeidelbergCement, while Parmalat fell amid a reported stall of talks to settle US damage claims. At 12.30 pm, the Mibtel index rose 0.48 pct to 32,041 points and the S&P/Mib added 0.46 pct to 41,719.
   
Madrid - Share prices were higher in midday trade, buoyed by positive US futures, with retail banks and Cintra topping demand and Repsol YPF extending losses. At 12.27 pm, the IBEX-35 index rose 74.2 points to 14,395.0, after trading in a range of 14,357-14,417, on turnover of 2.5 bln eur.

Stockholm - Shares were slightly higher in early afternoon trade led by sharp gains for SAS amid speculation Germany's Lufthansa may be interested in making a bid for the airline group, with engineering stocks also gaining on easing US rate fears. At 1 pm, the OMX Stockholm index was up 0.60 pct at 374.66 and the OMX Stockholm 30 up 0.61 pct at 1,151.48. Turnover was 8.695 bln skr.

Amsterdam - Shares were broadly higher in Amsterdam at midday, as investors looked to futures indicating a higher opening of Wall Street, while Aegon rose following a brokerage's upgrade. At 12.07 pm, the AEX was up 4.15 points or 0.84 pct at 496.96, after opening at 495.04.

Zurich - Share prices continued to rise in quiet midday trade led by gains in Nobel Biocare and Clariant, with sentiment underpinned by falling oil prices and expectations of a positive Wall Street start. At 12.35 am, the Swiss Market Index was 63.19 points higher at 8,916.57, and the Swiss Performance Index up 49.90 points at 7,033.62.

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Asian shares close higher on bargain hunting, Wall St rise

HONG KONG - Shares across the Asia-Pacific region closed higher after investors went bargain hunting following yesterday's sharp falls and in response to an advance on Wall St overnight.
   
Tokyo shares closed higher on bargain-hunting in stocks perceived to have been oversold last week, reversing early weakness caused by the uncertain outlook for the US economy and fresh concerns over a possible rate hike in Japan.
   
They said bond prices appear to be relatively well-supported, helping ease the market's concerns about a near-term rate hike in Japan.
   
The blue-chip Nikkei 225 Stock Average closed up 146.18 points or 0.86 pct at 17,237.77, off a high of 17,261.03. The TOPIX index of all issues listed on the Tokyo Stock Exchange's first section ended the session up 16.79 points or 1.00 pct at 1,692.12, off a high of 1,696.02.
   
Japanese financial markets were closed yesterday for a national holiday.
   
Australian shares rebounded as investor sentiment was buoyed by the overnight rise in US shares, leading to bargain hunting in the local market after yesterday's large sell-off. Banking stocks were in favor, as well as major resource stocks, which had suffered strong falls yesterday.
   
The S&P/ASX 200 rose 87.7 points or 1.59 pct to close at 5,589.7, advancing towards the record close of 5,670.2 set on Jan 2. The broader All Ordinaries index climbed 79.6 points or 1.45 pct to close at 5,564.1, also narrowing the ground to the record close of 5,645.9 reached on Jan 2.
  
Hong Kong shares were lower in afternoon trade as investors locked in profits in property stocks and China counters after their recent gains.
   
China Life Insurance also succumbed to profit-taking after early gains driven by a stronger-than-expected debut of its A-shares on the mainland.  At 3.30 pm the Hang Seng Index was down 151.02 points or 0.75 pct at 19,878.64.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on fresh fund inflows and the strong A-share debut by China Life, with financial, property and steel issues snapped up.
   
The Shanghai A-share Index added 106.32 points or 3.73 pct to 2,953.92 and the Shenzhen A-share Index was up 15.56 points or 2.59 pct at 615.05.
   
Seoul shares reversed their retreat of the last four sessions, closing higher on bargain-hunting, with Wall Street's overnight rally boosting overall sentiment.
   
The KOSPI index closed up 3.53 points or 0.26 pct at 1,374.34, after moving between 1,367.74 and 1,381.99. The market lost 63.65 points or 4.4 pct in the first trading days of the new year to hit a more than two-month low yesterday.
   
Dealers noted that upside momentum was limited due to heavy program selling and continued profit-taking by foreign investors. Investors also played it safe ahead of the expiry of options contracts, the Bank of Korea's rate-setting meeting and the start of corporate earnings season later in the week, they said.

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Oil prices plunge below 54 usd a barrel to lowest points since mid-2005
      
LONDON - Oil prices dived to their lowest points since mid 2005 amid continued worries over mild winter temperatures in the US and expectations tomorrow's US inventory data will show further gains in US fuel stocks.
   
Oil prices, which have now lost some 11 pct since the start of the year, are also under pressure from speculation energy-based funds are losing interest in oil.
   
At 2.11 pm in London, front-month Brent North Sea crude contracts for February delivery plunged 1.73 usd to 53.87 usd a barrel, after earlier hitting an intra-day low of 53.64 usd - the lowest point since June 2005.
   
A barrel of light sweet crude fell $1.47 to $54.62 in early trading on the New York Mercantile Exchange. The contract earlier hit an intraday low of 53.88 usd - its lowest since June 2005.
   
"Sentiment remains bearish and investors continue to worry about milder weather in the US in addition to concerns that some funds are losing interest in oil," said Sucden analyst Michael Davies.
   
He added the unusually warm winter temperatures in the US are overshadowing concerns over the security of European oil supplies as Russia's oil transit dispute with Belarus continues to interrupt oil exports to Europe.
   
Russian president Vladimir Putin ordered his cabinet today to consider a possible reduction in oil output in an attempt to manage the dispute, an indication the battle could drag on. 
   
At the start of last year, a similar gas transit dispute between Russia and the Ukraine sent oil prices rocketing and analysts said the fact prices are plunging this time round shows how weak sentiment has become.
   
Meanwhile, oil prices are also under pressure from speculation energy based hedge funds that have bet on oil price rises are losing lots of money and could soon take their money out of the energy complex.
   
Both the Dow Jones-AIG and the Goldman Sachs commodity indexes have announced reduced allocations to energy markets for 2007.
   
Oil prices closed out last year with little to no gains. NYMEX crude futures closed only 1 cent above the year earlier closing levels while Brent futures closed only 3 pct above 2005's closing levels.

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