US & World Daily Markets Financial Briefing 10-01-2007

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US Airways Dow, Nasdaq slide in early trading

NEW YORK - Stocks fell in early trading Wednesday as oil prices extended their decline, stoking concern that prospects for diminished profits would hurt oil producers as well as scare off money from sources like hedge funds that have helped push stocks higher in recent months.
   
Adding to Wall Street's unease, Chevron Corp. warned that its fourth-quarter profit would be hit by falling commodity prices. Wall Street's concern about sliding prices is a marked departure from that of last summer and subsequent months, when rising oil raised the specter of a jump in inflation.
   
The market is likely to pay close attention to weekly U.S. crude inventory data due later Wednesday.
   
Concerns about oil appeared to largely overshadow news about an unexpected drop in the U.S. trade deficit as well as word that US Airways Group Inc. raised its bid for Delta Air Lines Inc. by 20 percent to $10.2 bln. Investors were pleased by Apple Computer Inc., which unveiled long-awaited plans for a mobile phone, as well as by a solid profit report from Alcoa Inc.
   
In the first hour of trading, the Dow Jones industrial average fell 50.47, or 0.41 percent, to 12,366.13.
   
Broader stock indicators were also lower. The Standard & Poor's 500 index was down 5.90, or 0.42 percent, at 1,406.21, and the Nasdaq composite index was down 8.42, or 0.34, at 2,435.41. The Russell 2000 index of smaller companies was down 5.44, or 0.70 percent, at 772.89.
   
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.69 percent from 4.66 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
   
Light, sweet crude was down 64 cents at $55 a barrel on the New York Mercantile Exchange. Prices have been hurt as unseasonably high temperatures have weakened demand in large parts of the U.S and Europe.
   
In corporate news, the concerns about falling oil prices and Chevron's profit warning sent the company's stock down $1.17 to $69.46.
   
US Airways raised its offer for Delta, hoping to pressure the bankrupt airline's creditors to sign off on a deal that Delta has come out against. Investors applauded US Airway's move; the stock was up 90 cents at $58.80. Delta was up 9 cents, or 6.2 percent at $1.38.
   
Apple, which plans to change its name to Apple Inc. as it continues its move beyond computers, rose $2.09, or 2.3 percent, to $94.66 after unveiling its iPhone. Alcoa, the aluminum producer, rose $1.28 or 4.5 to $29.80, after reporting its fourth-quarter profit jumped 60 percent.

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Dollar in further rally after surprise narrowing in US trade deficit

LONDON - The dollar enjoyed a further rally on unexpected news that the US trade deficit narrowed in November for the third month running. The US trade deficit narrowed 1 pct to 58.2 bln usd in November, against the 59.5 bln usd deficit economists had expected.
   
The deficit, which has not declined three times in a row since the three months leading up to June 2003, is now at its lowest level since July, 2005.
   
And the deficiency with China fell for the first time in four months, shrinking 5.9 pct from October's record level to 22.9 bln usd in November.    

The better than expected US trade news pushed the euro down to a low 1.2951 usd, its lowest level since November 24, and the dollar back up towards the 120 yen mark for the first time since December, 2005.
   
"The dollar has made some ground on the back of this data as the market was fearing another widening of the deficit," said Ian Stannard, currency strategist at BNP Paribas.
   
These global financial flows have helped the dollar enjoy a solid start to the year. In addition, it has garnered support from a change in the market's expectation of the likely path of US borrowing costs.
   
The market now thinks US rates will stay on hold for some time to come, in contrast to the situation at the end of 2006 when a host of bad economic news stoked fears the world's largest economy was slowing down dramatically and needed rate cuts from the Fed to prevent any recession.
   
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 market's attention will shift towards tomorrow's central bank decisions in London and Frankfurt.
   
While Bank of England and European Central Bank are expected to keep their main borrowing costs unchanged at 5.00 pct and 3.50 pct respectively, the ensuing statement from ECB president Jean-Claude Trichet is expected to sound a fairly hawkish tone and pave the way for another rate hike soon, even though
French industrial output data for November disappointed to the downside.
   
Elsewhere, the yen is on the back foot again as the market has pared down its expectations that Bank of Japan will raise interest rates at its next rate-setting meeting on Jan 18.

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The European markets at 13.00 GMT

London - UK blue chips remained weak midday ahead of an expected lower start to trading on Wall Street as a sluggish financial and commodity sector weighed on the market, helping to offset a solid performance from Morrison Supermarkets, dealers said.
   
At 11.50 am, the FTSE 100 index was 33.5 points lower at 6,162.5, while the broader indices also saw declines, with the FTSE 250 index losing 46.5 points at 11,102.6. Volume was relatively light, with 1.136 bln shares changing hands in 190,418 deals.

Frankfurt - German shares disappointed today, pulled by the low close of the Nikkei, concerns over a possible change in interest rates by the European Central Bank tomorrow, and profit taking by investors.
   
Dealers also spoke of a correction move by the market after the strength of the last three trading days. At 12.43 pm, the DAX 30 index was down 59.88 points, or 0.91 pct at 6,554.49 after moving between 6,531.25 and 6,582.47.

Paris - Share prices were broadly lower in midday trading as investors consolidated yesterday's gains ahead of an expected downturn on Wall Street this afternoon, with EADS leading the declines after a brokerage downgrade. At 1.46 pm the CAC-40 index was off 34.05 points or 0.6 pct at 5,498.98, on volume of 2.8 bln eur.

Milan - Share prices were lower at mid-session, tracking other international markets, with Tenaris sharply higher on a further round of speculation of stake-buying or a bid, brokers said. At 12.35 pm, the Mibtel index was down 0.49 pct at 31,783 points, and the S&P/Mib down 0.62 pct to 41,307.
   
Madrid - Share prices were lower in midday trade, tracking European markets into the red with Banesto's in-line full-year results failing to lift sentiment. At 12.10 pm, the IBEX-35 index fell 209.8 points to 14,101.9, after trading in a range of 14,065-14,239, on turnover of 2.08 bln eur.

Stockholm - Shares were lower in midday trade as investors locked in profits amid concerns the recent fall in oil and commodity prices may point to a slowdown in the global economy. At 12.15 pm, the OMX Stockholm index was down 0.98 pct at 369.03 with the OMX Stockholm 30 down 1.03 pct at 1,131.30. Turnover was 10.390 bln skr.

Amsterdam - Shares in Amsterdam were broadly lower at midday as Dow futures pointed to a lower opening of Wall Street in the absence of local corporate news. At 1.09 pm, the AEX was down 3.59 points or 0.74 pct at 492.18, after opening at 493.90.

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Asian shares close mostly lower on commodity prices, Wall St

HONG KONG - Shares across the Asia-Pacific region ended mostly down on nervousness over oil and metal prices and a lackluster session on Wall Street overnight, with some strong falls in regional markets.
   
Tokyo shares closed sharply lower after the notion gripped the market that some foreign players were unwinding long trades to hedge against the risks of falls in the price of crude oil futures, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed 295.37 points or 1.71 pct lower at 16,942.40, off a low of 16,847.57. The broader TOPIX index of all first-section issues ended down 29.12 points or 1.72 pct at 1,663.00, off a low of 1,657.44.
       
Investors were also discouraged by the poor performance of US stock futures on the 24-hour Globex trading system.
     
Australian shares closed lower as investors remained cautious over metal prices, which led to a significant reversal of yesterday's rally in the resources sector. Negative sentiment spread to defensive stocks such as the banks, while energy stocks fell on lower oil prices overnight.
   
The S&P/ASX 200 dropped 68.8 points or 1.23 pct to close at 5,520.9. The broader All Ordinaries index retreated 62.0 points or 1.11 pct to close at 5,502.1.
   
Hong Kong shares were lower in afternoon trade on continued profit-taking in China stocks and property counters. Investors were cautious due to a lack of strong leads and following lacklustre trading on Wall Street overnight. At 3.25 pm the Hang Seng Index was down 275.97 points or 1.39 pct at 19,622.11.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on sustained fund inflows and a rising yuan with financial, property and metal stocks gaining ground.
   
The Shanghai A-share Index added 18.39 points or 0.62 pct to 2,972.32 and the Shenzhen A-share Index was up 17.56 points or 2.85 pct at 632.61.
   
Seoul shares closed sharply lower, with the index retreating below 1,360 points, pressured by heavy program selling and foreign investor sell offs. The mixed close on Wall Street also discouraged investors, who played it safe ahead of the expiry of options contracts and the Bank of Korea's rate decision tomorrow.
   
Declines were broad, with telecoms, insurers, steel makers and builders hit hardest. The KOSPI index closed down 18.55 points or 1.35 pct at 1,355.79, a level not seen since Oct 31. The low for the day was 1,345.08 and the high was
1,372.52.

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Copper prices continue higher as mkt stabilises after 10 pct slide

LONDON - Copper prices continued higher, extending yesterday's gains, as the market stabilised after losing some 10 pct of its value since the start of the year.
   
Other metals were also higher. At 12.17 pm, LME copper for three-month delivery, which earlier hit a highof 5,780 usd, climbed to 5,725 usd, against 5,625 usd at the close yesterday.
   
"The worst for copper seems to have passed and prices have become more stable; indications of increased consumer demand (and) Chinese buying," said UBS Investment Bank analyst Robin Bhar.
   
Copper prices rose yesterday supported by consumer buying, notably from China. The market was also boosted by an LME daily inventory report showing a 2,300 tonne decline in stockpiles of the metal.
   
Despite the large decline, however, overall stocks remain near their highest levels since March 2004. Also, the LME report today showed a 350 tonne increase in stocks.
   
Overall, Bhar said market participants should wait until next week before placing bets on price gains in metals, saying the market remain at risk this week in light of the reweighting of the DJ-AIG commodity index.
   
"There is evidence of support emerging for the base metals... although... we would recommend waiting until next week before going long or adding to existing longs," he said.
   
Turning to Chinese copper demand, Bhar said the outlook remains uncertain with some reports suggesting the lower prices will spur Chinese buying, and others suggesting demand will remain subdued in the first quarter.
   
Separately, copper was finding support from the risk of supply disruptions at Codelco. Yesterday, the company evacuated part of its Chuquicamata copper mine in Chile because of the risk of rockslides. Codelco is the world's largest copper producer.
   
Elsewhere, aluminium was flat at 2,665 usd a tonne, after having been the only metal to close up yesterday, aside from copper.
  
In other metals, nickel increased to 31,150 usd a tonne against 30,250 usd at the close yesterday, lead edged up to 1,560 usd against 1,550 usd, zinc rose to 3,572 usd against 3,520, while tin rose to 10,350 usd against 10,100 usd.

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