US & World Daily Markets Financial Briefing 18-12-2006

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Wall Street Outlook Higher on M&A deals, Citigroup upgrade to 'buy'

NEW YORK - On Friday, stocks ended higher as a tame inflation report and a pick-up in industrial production lifted the Dow Jones Industrial Average to a record close and helped the markets to solid gains for the week.

In a heavy week for economic data, the Commerce Department reported that the US current account deficit widened to a record 225.6 bln usd in the third  quarter, up 3.9 pct from the previous three month period.

The deficit amounted to 6.8 pct of the nation's gross domestic product and was essentially in line with expectations. Expressed as a percentage of GDP,  that's the second highest current account deficit on record.

Meanwhile, the National Association of Home Builders is expected to report that confidence among the industry's key players has improved for a third  month in a row. Its home builders' index is expected to tick up to 34 in December, up from 33 in the prior month, according to Thomson's IFR markets.

November producer-price data, a final reading on gross domestic product growth in the third quarter, personal income and spending figures, housing  starts and durable goods orders are among the other economic reports slated for release later in the week.

It was a busy morning on the merger and acquisition front. US-listed shares of Norsk Hydro shot up 25 pct to 31.11 usd in pre-market trading after it agreed to merge its oil and gas activities with Statoil  in a share-swap deal that will create the world's largest offshore operator.

The Norwegian state, however, will continue to hold a controlling 62.5 pct stake in the combined entity. Statoil shares were up 2.6 pct at 28.36 usd  in pre-market dealings.

Elsewhere, a takeover battle loomed for control of Caremark Rx Inc after Express Scripts Inc made a 26 bln usd cash-and-share bid for the pharmacy  benefits manager, trumping a 21.2 bln usd offer from drugstore chain CVS Corp.

Ahead of the bell, Express Scripts shares fell 2.4 pct to 67 usd while Caremark shares rallied 9 pct to 54.99 usd. CVS shares were up 1.6 pct at 31 usd.

And in another deal, Biomet Inc., a maker of hip and knee replacement products, said that it agreed to be acquired by a private equity consortium for  about 10.9 bln usd.

Shares in Eli Lilly & Co fell 1 pct to 54 usd in pre-market dealings on a report in the New York Times that it has engaged in a decade-long effort to  play down the health risks of Zyprexa, its best-selling medication for schizophrenia. On Friday, the stock rose 1 pct to 55.52 usd.

Harrahs Entertainment rose 3 pct to 81.88 usd in pre-market dealings on a Wall Street Journal report that the casino operator, which is examining several  buyout offers for the company, may be close to accepting a bid from private equity groups Apollo and Texas Pacific.

In broker actions, Citigroup shares rose 1.2 pct to 54.70 usd in pre-market dealings after Merrill Lynch upgraded the bank to buy from neutral, citing  valuation and optimism over its 2007 earnings outlook.

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Dollar steady ahead of US current account data

LONDON - The dollar remained relatively solid after Friday's dramatic price action ahead of today's third quarter US current account data.
   
Analysts expect the deficit to widen by about 7 bln usd to about 226 bln usd in the third quarter.
   
"While the current account deficit is an important element of the long-term case for a weaker dollar, and the underlying data contains analytically important information, the headline itself is not usually market moving," said UBS currency strategist Daniel Katzive.
   
As the week moves on, the market will be looking for the next batch of US economic news, in particular tomorrow's producer price and housing starts data, before establishing where the dollar will end this year.
     
The major event of the week will be tomorrow's Bank of Japan interest rate decision. Though last week's Tankan survey was strong, the BoJ is not expected to opt for a rate hike this week.
      
The major piece of news on today's calendar is the release of the US's third quarter current account.
   
Meanwhile, the market brushed aside news that Iran has ordered the central  bank to use euros for foreign transactions and transform the state's dollar-denominated assets held abroad into the single European currency.
  
Government spokesman Gholam Hossein Elham, addressing reporters, implied that the move would apply to oil revenues from the world's number four crude
producer, although it remains to be seen how this would be received by the market.
  
The move comes amid mounting pressure from the United States for the UN Security Council to agree sanctions against Iran over its controversial nuclear programme.

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The European Markets at 12.15 GMT

London - Leading shares edged modestly lower in midday trade, with Tate & Lyle the main casualty after a downbeat update while pension worries hit BT Group; offsetting gains in Smith & Nephew and Centrica on the back of positive broker comment, while Wall Street is seen climbing higher on the run up to the Christmas holiday.
    
At 12.12 pm, the FTSE 100 index was down 3.1 points at 6,256.7, while the broader indices were also in the red. Volume was thin ahead of the Christmas holiday, with 766 mln shares changing hands in 137,360 deals.

Frankfurt - German shares were higher in midday trade as investors, for the most part, steered clear of anticipated profit-taking after the DAX has closed higher for ten consecutive trading days. At 12.45 pm, the DAX 30 index was up 14.14 points or 0.21 pct at 6,602.97, after moving between a low of 6,585.79 and a high of 6,605.51 this session.

Paris - Share prices were lower late morning after closing at a five-and-a-half year high Friday, but the index was off earlier lows as US futures pointed to a positive open on Wall Street later. At 11.15 am the CAC-40 index was down 12.35 at 5,529.27. Volume was 950 mln eur.

Amsterdam - Shares were flat at midday with investors waiting to take direction from Wall Street as takeover speculation fever hit the AEX, for the better for Getronics, for the worse for Ahold. At 12.29 pm, the AEX rose 0.34 pct or 1.68 points to 495.64, after opening at 494.76 and reaching a high of 496.06.

Milan - Share prices were little changed midday, with AEM leading the gainers on upbeat broker comments and as its board will meet today to disucss plans for a merger with ASM Brescia. At 12.32 pm, the Mibtel index was off 0.02 pct at 31,800 points and the S&P/Mib was down 0.13 pct at 41,367, while volumes were 1.79 bln eur.

Madrid - Share prices were lower in moderate midday trade amid profit-taking ahead of the Christmas holidays, with Corp Mapfre higher, while media issues were mixed. At 12.44 pm, the IBEX-35 index lost 39.40 points to 14,349.5, after trading in a range of 14,322-14,376, on volume of 2.1 bln eur.

Stockholm - Shares were slightly higher in mid-morning trade as gains for engineering stocks on the back of the firmer US dollar and optimism over the outlook for US rates helped offset profit-taking among telecoms.  At 10.55 am the OMX Stockholm index was up 0.38 pct at 370.18, and the OMX Stockholm 30 up 0.36 pct at 1,143.13. Turnover was 7.415 bln skr.

Helsinki - Shares were slightly higher in midday trade, led by M-real following bullish broker comment about the company's prospects.  At 11.55 am, the OMX Helsinki 25 was up 0.24 pct to 2,905.94 and the OMX Helsinki index up 0.19 pct to 9,619.53. Volume was about 340 mln eur.

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Asian shares close higher on positive economic news, Wall St rise

HONG KONG - Shares across the Asia Pacific region closed higher on positive economic news in the markets and a firmer Wall Street on Friday.
   
Tokyo shares ended higher, with investors inspired by firm global markets and as a softer yen gave Japanese exporters a lift, sending the Nikkei index to a seven-month high.
   
But the upside was capped by profit-taking near 17,000 points due to caution ahead of tomorrow's speech by Bank of Japan governor Toshihiko Fukui at the end of the BoJ's two-day policy meeting.
   
The Nikkei 225 Stock Average finished up 47.80 points or 0.28 pct at 16,962.11, off a high of 16,993.88. It was the Nikkei's strongest closing level since May 9, when it settled at 17,190.91.
   
The broader TOPIX index of all first-section issues rallied 7.92 points or 0.48 pct to 1,665.32, off a high of 1,668.40.
   
"The market failed to break through the 17,000-point level as it lacked further incentives as trading was largely cautious ahead of comments from Mr Fukui," said Ryuta Otsuka, a strategist at Toyo Securities.
   
Australian shares closed at a new record high for a third consecutive session as investors bought banking stocks, after switching from the resource sector following a fall in metals prices Friday. Strong gains in US shares Friday helped support the buying momentum.
   
The S&P/ASX 200 closed up 16.1 points or 0.29 pct at a new record finish of 5,591.5, beating Friday's record of 5,575.4. During the session the index also touched a fresh intra-day record high of 5,597.2. The low for the day was 5,572.1.
   
Hong Kong shares were stronger in afternoon trade as investors picked up China financial stocks following a steady appreciation of the yuan. At 3.31 pm the Hang Seng Index was up 83.92 points or 0.44 pct at 19,194.57.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on sustained follow-through interest, with real estate developers and banks remaining in demand. The Shanghai A-share Index added 61.69 points or 2.58 pct to 2,452.11 and the Shenzhen A-share Index was up 11.99 points or 2.20 pct at 556.86.
   
Seoul shares closed sharply higher with sentiment boosted by Wall Street's stronger close on positive economic data and solid corporate earnings. The resumption of the six-party talks over the denuclearization of North Korea after a 13-month hiatus also added to the positive tone of the market, although whether or when the negotiations will produce a tangible agreement is unclear.
   
The KOSPI index closed up 11.36 points or 0.8 pct at 1,433.23, off a low of 1,427.14 and a high of 1,437.64.

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Oil dips but remains above 63 usd; Gold edges up

LONDON - Oil edged lower but remained above 63 usd after climbing more than 2 pct last week on declining US energy inventories, plans by OPEC to cut output again next year and news of a disruption to crude shipments in the US Gulf of Mexico.
   
At 10.38 am in London, the new front-month Brent North Sea crude contracts for February delivery were down 33 cents at 63.16 usd a barrel, after advancing 60 cents to settle at 63.49 usd on Friday.
   
Prices climbed higher on Friday after dense fog halted crude shipments in the Houston and the Calcasieu shipping channels. Traffic in the Houston channel was halted again yesterday, limiting the downside in crude prices today.
   
Bank of America analyst Anatol Feygin said with fewer imports last week, this week's inventory data might show a substantial draw in stocks. Prices climbed higher last week after stocks declined by more than expected.
   
The market also found support from OPEC's decision to cut production by a further 500,000 barrels in February. The decision came on top of a 1.2 mln bpd output cut that came into effect on Nov 1.
  
The upside in crude oil prices is limited, given that the market still has to contend with a slowdown in US economic growth and warmer than usual temperatures in the US Northeast.
   
In its latest forecast, the US National Weather Service said it sees temperatures in the Northeast, which is the world's largest heating oil market, remaining at above average levels through to Dec 27.
  
Also limiting the upside is the question of whether OPEC will comply fully with its output cuts.
  
Gold edged up after losing nearly 2 pct of its value on Friday, but analysts said the near term outlook for the metal remains shaky amid improved dollar sentiment and thin trading conditions.
   
The benchmark February contract was last up 1.40 usd at 620.50 usd an ounce, up from the 614.85 usd levels seen at the time of the COMEX market close in New York on Friday.    

Gold plunged Friday as the dollar rose against the major currencies after a week of stronger than expected economic data dispelled expectations the Federal Reserve would cut interest rates in the near term.
   
Gold often trades counter to the US dollar because it is seen as an alternative investment to the US currency. Also, a weaker dollar makes gold, which is traded in dollars, cheaper for holders of other currencies.

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