US & World Daily Markets Financial Briefing 15-03-2007

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Stocks turn higher on inflation report

NEW YORK - Stocks rose tentatively Thursday after the government's gauge of wholesale inflation came in higher than expected, but the job market, corporate takeover activity and overseas stocks showed signs of strength.
   
The Labor Department's Producer Price Index for February jumped by 1.3 percent, above the market estimate of 0.5 percent, amid a big increase in energy prices and the largest rise in food costs in more than three years. Even excluding food and energy prices, the core PPI rose 0.4 percent, double what analysts predicted -- quelling investors' hopes for a interest rate cut by the summer.
   
The Federal Reserve meets next week to decide whether to adjust short-term interest rates. The central bank is widely expected to keep rates on hold, but any statement that indicates that they might raise or lower rates later in the year could move the markets.
   
But not all economic data was negative Thursday; giving stocks a boost, the Labor Department said the number of Americans seeking unemployment benefits fell by 12,000 to 318,000 last week. It was the second straight week of declines, and although the weekly data can swing drastically from week to week, it was still a sign that the job market may be holding steady despite a cooling economy.
   
Also lifting the markets was an unsolicited $9.9 bln all-stock bid by the IntercontinentalExchange Inc. for commodities exchange CBOT Holdings Inc. Despite the cooling economy, merger-and-acquisition activity has been surging, suggesting to some investors that problems in some sectors -- notably the sluggish housing market, struggling auto makers, and hemorrhaging subprime lenders -- haven't seeped into the stronger areas of the economy.
   
In midmorning trading, the Dow Jones industrial average rose 20.67, or 0.17 percent, to 12,154.07. Broader stock indicators were mixed. The Standard & Poor's 500 index gained 4.02, or 0.29 percent, to 1,391.19, and the Nasdaq composite index rose 5.99, or 0.25 percent, to 2,377.73.
   
Bonds rose as investors bought safe-haven Treasurys when the producer price index came in high. The yield on the benchmark 10-year Treasury note edged lower to 4.53 percent from 4.54 percent late Wednesday.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 275.1 mln shares.
   
On Wednesday, stocks recovered some of their losses from Tuesday's more than 200 point drop in the Dow, which briefly brought the index below the psychological 12,000 mark.
   
In afternoon trading, Britain's FTSE 100 was up 1.54 percent, Germany's DAX index was up 1.57 percent, and France's CAC-40 was up 1.19 percent. The Russell 2000 index of smaller companies was up 6.70, or 0.86 percent, at 782.38.
   
Stocks in focus

Investors drew some relief from advancing stock indexes in Europe and Asia, most of which were up more than 1 percent when the U.S. market opened, as well as robust takeover activity and strong profits from financial services firms.
   
IntercontinentalExchange's bid for CBOT came amid an already agreed-upon $8 billion takeover by Chicago Mercantile Exchange Holdings Inc.
   
CBOT rose $23.58, or 14 percent, to $189.67, and ICE rose 95 cents to $132.88. CME fell $18.84, or 3.3 percent, to $545.13.
   
In other takeover news, Cisco Systems Inc. agreed to acquire Web conferencing company WebEx for about $3.2 bln in cash. Cisco fell 6 cents to $25.79, and WebEx rose $10.63, or 23 percent, to $56.83.
   
And in the latest earnings report from a financial firm, Bear Stearns Cos. said Thursday its fiscal first-quarter profit rose 8 percent, as volatile debt markets and heavier trading volume drove the company's bond and credit businesses. Profits came in above expectations though revenue fell just short of analysts' forecasts.
   
Bear Stearns rose $1.69 to $146.98. Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. also reported robust profits earlier in the week.    

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Euro firms against dollar as slump in US Empire index offsets strong PPI

LONDON - The euro firmed against the dollar following some choppy trade after a mixed set of data out of the US.
   
US producer prices data came in way above expectations, pointing to a sharp build in inflationary pressures, but this was offset by news that a key survey on manufacturing activity in the New York region unexpectedly slumped in March.
   
"Their (dealers') first instinct was to sell (euro/dollar) on the firm PPI data but the very weak NY Fed manufacturing index seems to have captured the market's imagination," said Jamie Coleman at Thomson IFR Markets.
   
Figures released today showed the Empire New York index tumbled to just 1.85 in March from 24.35 in February.
   
Market focus will now turn to the Philly Fed data due for release later this afternoon, Coleman said.
   
For the time being, however, the combination of sharply higher PPI and the weak Empire number are likely to give rise to fears of stagflation, a combination of slow growth and high inflation, he said.
   
US PPI jumped a massive 1.3 pct in February from January, almost triple what analysts had expected, figures showed.
   
Other data out this afternoon showed US weekly jobless claims dropped 12,000 to 318,000, the lowest level in five weeks during the latest week. US portfolio flows data also showed net portfolio flows into the country totaled 74.6 bln usd in January, up from an outflow of 14.7 bln usd in December.
   
The dollar has been broadly under pressure recently as fears increase that the troubles in the sub-prime mortgage lending sector will worsen the US housing market slowdown and spill over into other areas of the economy.
   
Subprime loans are made to borrowers who do not qualify for conventional loans. As the economy slows, these will tend to default at a much higher rate than ordinary loans.
   
"With concerns about the wider impact of the sub-prime mortgage debacle set to run on, market confidence is likely to remain at a low ebb," said Mitul Kotecha at Calyon.
   
Elsewhere, the Swiss franc edged up against the dollar but was steady against the euro after the Swiss National Bank raised interest rates as expected. It also raised its inflation forecast to 0.5 pct from 0.4 pct, which will increase the chances of a further rate hike later in the year.

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Top Stories in Europe at 11.05 GMT

Frankfurt - Bayer AG said its EBIT before special items for the fourth quarter rose 12.5 pct from a year earlier to 622 mln eur, due largely to strong gains in the company's HealthCare division. A consensus of analysts polled by AFX News forecast the company's headline figure to rise to 611.3 mln.

Areva said it has raised its offer for REpower Systems AG to 140 eur per share from 105 eur per share. Areva also said that it now owns slightly more than 30 pct of REpower.

London - Cadbury Schweppes PLC has confirmed it intends to separate its confectionery and Americas Beverages businesses. "The board is evaluating the options for separation to maximise shareowner value," it said.

UK life insurer Prudential PLC beat expectations by reporting a 15 pct increase in full-year profit, and nominated a former senior solicitor to represent policyholders as it considers unlocking 9 bln stg in surplus assets that have built up in its life funds.
 
Prudential, the UK's second-biggest insurer, said operating profit for the year to Dec 31 2006 came in at 1.976 bln stg under European Embedded Value accounting rules, up from 1.712 bln stg the previous year. Analysts had expected a profit of 1.823 bln stg, according to a consensus forecast supplied by the company.

Vodafone said it has reached agreement with Essar over how their Indian mobile phone joint venture will be managed.
 
Vodafone bought a 67 pct stake in Hutchison Essar for 11.1 bln stg from Hutchison Telecommunications International last month, and has been locked in discussions with the Indian industrial conglomerate ever since.

UK media company Aegis Group pledged to outperform its competitors in 2007 after announcing the departure of its chief financial officer. The group said growth at its Carat media buying agency and Synovate market research arm would outstrip anticipated rises of 5.8 pct and 4.5 pct in the advertising and research markets this year.

Zurich - Kuoni Reisen Holding AG reported a consensus-beating full year net profit of 116.7 mln sfr, up from 42.0 mln, citing the economic recovery and its ability to cope with a number of crisis facing the tourism industry last year. Analysts had forecast net profit to reach 105.5-121.2 mln sfr or 109.9 mln on average.

Brussels - The euro zone's harmonised index of consumer prices rose a final 1.8 pct year-on-year in February, unchanged from the provisional estimate, EU statistics office Eurostat said. The HICP rose 1.8 pct year-on-year in January.

Oslo  - Aker Kvaerner ASA said it has formed an alliance with International Business Machines Corp (IBM), which will focus on reducing the downtime of Norway's oil and gas plants.
 
According to the Norwegian firm, the alliance will specialise in "condition-based maintenance", which aims to reduce the amount of time required to perform maintenance on a variety of oil and gas installations by using a heightened monitoring system.

Inflation picked up in September in Europe as both areas show fragile economic growth. Just as in the U.S., rising energy prices are to blame. Read free, daily market reports available only at CMS Forex and open your free demo trading account today. Click here

Asian shares close higher on global rebound

HONG KONG - Shares across the Asia-Pacific region closed higher on a global rebound after yesterday's plunges.
   
Tokyo shares finished higher, investors having been heartened by the rebound on Wall Street overnight, while a softer yen boosted the stocks of exporters. But investors remained cautious about what is happening in US stock markets and about the prospects for the US economy.
   
The blue-chip Nikkei 225 Stock Average closed 183.50 points or 1.1 pct higher at 16,860.39, off a high of 16,942.31. The TOPIX index of all first-section issues gained 19.24 points or 1.15 pct to close at 1,694.18, off a high of 1,703.10.
   
Fumiyuki Nakanishi, chief strategist at SMBC Friend Securities, said: "The rebound in the Tokyo market mirrored the rallies on US stocks markets, and [was helped by] the yen -- which was back to the 117 yen level against the US dollar."
   
"The negative effect on the market caused by wariness about US subprime mortgage lending has subsided for the moment, but it needs to be watched further," he added.
   
Nakanishi said he expected the market to continue to be affected by external factors such as yen movements , new economic data in the US and next week's meeting of the US Federal Reserve. "But on the domestic front, the market considers the progress of Japanese corporations' earnings to be steady," he added.
   
Australian shares ended sharply higher with investors viewing yesterday's large sell-off as overdone, providing buying opportunities across the market. Overnight rise on Wall Street also supported sentiment, with local banking stocks benefiting most from the rebound and miners bouncing back after base metal prices rose in overnight trading.
   
The S&P/ASX 200 closed up 111.1 points or 1.93 pct at 5,853.0. The key index closed off the day's high of 5,857.1 and followed yesterday's 2.10 pct slump.
   
Hong Kong shares were stronger in afternoon trade with local blue chips and mainland China-related stocks attracting bargain-hunters. At 3.20 pm the Hang Seng Index was up 123.08 points or 0.65 pct at 18,960.01.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on renewed capital inflows and the rebound on Wall Street, with property developers, power generators and auto makers in favor.
   
The Shanghai A-share Index was up 47.66 points or 1.56 pct to 3,101.24 and the Shenzhen A-share Index was up 14.48 points or 1.80 pct at 820.66, a new all time high.
   
Seoul shares closed higher, recouping much of their losses from the previous session, with strong futures-linked program buying lessening any impact from continued foreign sell offs.
   
The market got off to a firm start, mirroring an overnight bounce on Wall Street, and intensified its gains toward the close, along with stronger markets elsewhere in Asia, they noted.
   
Yesterday, the main index lost 2 pct due to heavy foreign selling on mounting concerns over US subprime mortgage lending. Gains were broad, with steel makers and car makers among the best performers.
   
The KOSPI index closed up 19.56 points or 1.39 pct at 1,426.93, after moving between 1,414.98 and 1,429.38.

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Gold up amid recovering equity markets, strong oil prices

LONDON - Gold rose amid recovering equity markets and strong oil prices and as the metal's recent falls sparked some bargain buying.
   
"Gold's advance was built on overnight gains in Asian equities and followed the cycle that has, by now, become familiar -- that of rebounding along with confidence levels in other assets," said Kitco analyst, Jon Nadler.
   
At 12.43 pm gold rose to 644.25 usd against 641.60 usd seen in late New York trades yesterday. Earlier in the session, the precious metal had hit 647.20 usd.
   
Gold's fortunes have become inextricably linked with that of the equity market since Feb 27 -- when stock markets worldwide suddenly slumped.
   
Investors have been pulling away from riskier assets amid the equity sell-off, while others have sold gold in an attempt to raise some cash to cope with the mini-crisis.
   
"The key driver for gold's comeback has once again been the upward surge in stocks," noted Nadler.
   
Leading shares in London remained sharply higher at midday, while New York is expected to open higher.
   
Analysts are still looking for gold to strike the 700 usd level by the end of this year, despite recent dips which have impeded its journey to that milestone. Some are a little more sceptical, however. 

Investment bank AMB Amro raised its 2007 average gold price forecast by 2 pct to 695 usd per ounce in a report today, just short of the 700 level.  Nick Moore, ABN commodity strategist said it is "highly likely that gold will again vault the 700 usd marker before the year is through."
   
Further supporting gold, investors' faith in the notion of gold as a hedge against oil-led inflation came back to the fore. Oil was up as the market remained cautious about the outcome of today's OPEC production meeting, even though the cartel is widely expected to keep output levels unchanged.
   
In other precious metals, platinum was down at 1,212 usd against 1,246, palladium was flat at 346 usd while silver was up at 12.87 usd against 12.75 usd.

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