US & World Daily Markets Financial Briefing 19-01-2007

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WALL STREET OUTLOOK Lower after IBM results fuel earnings concerns UPDATE
 
NEW YORK  - US stock futures are indicating a lower open amid concern earnings in the technology sector are not living up to expectations after solid but unspectacular results from IBM yesterday, with quarterly reports from General Electric, Citigroup and Motorola also coming under scrutiny.
  
Dow futures were down 18 points at 12,585, Nasdaq 100 futures were off 3.25 points at 1,802.75 while S&P 500 futures dipped 0.80 point to 1,432.40.
   
"We've had a few earnings disappointments from tech land which was supposed to be the great leader this year," said Michael Metz, chief investment strategist at Oppenheimer & Co. "It's a bit of a wake-up call on whether earnings expectations have been realistic given the fact we're in a slowing economy."

Yesterday, stocks ended lower amid vanishing hopes for an interest rate cut and an unimpressive forecast from Apple Inc that muted investors' enthusiasm for technology stocks.

With no economic data of note due out today, the earnings reports from Dow components IBM, General Electric and Citigroup will take centre stage.

Outside of equities, crude-oil futures edged higher in early trading, with the return to cold winter temperatures in the US Northeast providing the market with a floor.

New York light sweet crude for February delivery was last up 18 cents at 50.66 usd a barrel.

The US dollar traded little changed against its major counterparts.

Gold futures rose but remained well off a two-week high struck yesterday, with analysts warning the outlook for the metal has turned shaky amid the plunge in oil prices.

The benchmark February contract was last up 1.40 usd at 629.50 usd an ounce.

In company news, IBM shares fell 4.9 pct to 94.55 usd in pre-market dealings. The computer hardware and services giant posted earnings and revenue above Wall Street expectations, but some analysts had hoped for even better results.

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Merrill Lynch said IBM delivered a "good but not great quarter" amid great expectations among Wall Street analysts. Excluding a 6 cent tax benefit, earnings per share of 2.20 usd beat the consensus by a penny, but was shy of its forecast by 6 cents, the broker said.

Goldman Sachs was broadly positive on the company's results but noted that unexpected investments in sales and incremental acquisition expense yielded gross margins that were lower than last year's December quarter in all three of its divisions.

The broker does not see any meaningful improvement in margins until the second half of 2007.

The lackluster response to IBM's results comes in the wake of a string of disappointing quarterly reports from the likes of Apple and Intel Corp and a profit warning from Advanced Micro Devices.

Elsewhere on the Dow, GE dipped 1.6 pct to 37.40 usd in pre-market trading. The diversified industrial group saw its fourth-quarter profit more than double, driven by strong revenue growth in its infrastructure, healthcare and financial services businesses.

It also said it would be restating its financial results for the years 2001 through 2005 and the first three quarters of 2006 to adjust accounting for interest rate swaps in part of its financial services commercial paper program.

The banking sector continued to impress with strong results. Citigroup posted forecast-beating results just a day after Merrill Lynch's earnings also handily topped analyst estimates.

In other earnings of note, Motorola shares were off a penny at 18.70 usd after the world's second-largest maker of mobile handsets posted a 48 pct decline in fourth-quarter profits. The earnings drop came two weeks after the Schaumburg, Ill.-based company warned that both sales and profits would come in well below expectations.

Motorola said earnings from continuing operations were 21 cents a share, or better than the 13 cents to 16 cents it forecast two weeks ago, but analysts surveyed by Thomson First Call had been expecting earnings of 25 cents a share.

In other news, CNL Hotels & Resorts Inc, the nation's second-largest hotel real estate investment trust, said it has agreed to a takeover offer from Morgan Stanley Real Estate valued at about 3.13 bln usd, or 20.50 usd per share in cash.

Including assumed debt, the total transaction is valued at 6.6 bln usd, the company said.

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The European markets at 13.00 GMT

LONDON  - Leading shares remained weak midday, but off lows as US technology concerns were seen hitting US stocks at the open but with several M&A reports nearer to home seen offering support, dealers said.

At 12.10 pm, the FTSE 100 index was down 14.1 points at 6,196.2, having hit an earlier low of 6,178.0, while the broader indices were also on negative terrain. Volume was moderate with 1.103 bln shares trading in 171,429 deals.

FRANKFURT  - German shares were lower in late morning trade, as US futures pointed to a lower Wall Street open, with Infineon leading the bluechips lower, traders said.

At 12.56 pm, the DAX was down 22.18 points or 0.33 pct to 6,667.44, with the MDAX adding 25.63 points or 0.27 pct to 9,575.74.

The TecDAX lost 7.18 points or 0.91 pct to 786.09, while the DAX futures contract lost 2.50 points or 0.01 pct to 6,704.00.

PARIS  - Share prices were down at midday as yesterday's losses on Wall Street, coupled with fading hopes of interest rates cuts in the US, weighed on investor sentiment, dealers said.

At 12.55 pm the CAC-40 index was down 7.01 points or 0.13 pct at 5,548.08 on volume of 2.9 bln eur.

AMSTERDAM  - Share prices were lower in midday trade as US futures pointed to a lower Wall Street open, dealers said.

At 11.51 am, the AEX was down 1.08 point or 0.21 pct at 504.45, after opening at 504.50 and reaching a low of 502.75.

MILAN  - Share prices edged higher at midday after switching between positive and negative territory all morning, and with Fiat SpA holding centre stage both in terms of trading volume and share price gain, dealers said.

At 12.41 pm, the Mibtel index rose 0.19 pct to 32,176 points and the S&P/Mib was up 0.13 pct at 41,765, while volumes were 2.6 bln eur.

MADRID  - Share prices were lower midday in line with Europe, while Endesa was in focus after the government declined to lift conditions on E. ON AG's bid, dealers said.

At 1.00 pm, the IBEX-35 index was down 22.9 points to 14,243.9, on turnover of about 5.3 bln eur.

STOCKHOLM  -  Shares were little changed in midday trade, with Swedish bank SEB, however, sharply outperforming on merger speculation, dealers said.

At 12.05 pm, the OMX Stockholm index was up 0.04 pct at 383.48, and the OMX Stockholm 30 was up 0.10 pct at 1,174.82. Turnover was 11.45 bln skr.
   
ZURICH  - Share prices traded lower in thin midday trade reflecting a dearth of market-moving news in Switzerland as US futures point to further losses in early Wall Street trade, dealers said.

At 12.10 pm, the Swiss Market Index was 28.61 points lower at 9,070.74, and the Swiss Performance Index was down 25.03 points at 7,172.

Top Stories

LONDON  - Ranbaxy Laboratories Ltd aims to start due diligence procedures next month on Merck KGaA's generic drugs unit, which it is considering bidding for in conjunction with private equity firms, said CEO Malvinder Mohan Singh.

"The (diligence) process will start in February," Singh told  News' partner agency dpa-.

PARIS  - Artemis, the holding company of financier Francois Pinault, said it has secured the "necessary financial commitments" to launch a takeover offer for Suez, and said it will continue to consider the possibility of a bid.

But it also said that in light of recent speculation of an alternative offer to the Suez plan to merge with state-controlled Gaz de France, it has no plans to launch a counterbid now.

DUESSELDORF, Germany  - ThyssenKrupp AG said it is 'optimistic' it will exceed its earlier 2007 pretax profit guidance of 2.5 bln eur after earning about 1.0 bln before taxes in the first quarter.

PARIS  - Schneider Electric said fourth quarter sales were 3.664 bln eur, up 12.3 pct from a year earlier and exceeding analysts' forecasts, as acquisitions combined with strong growth in its previously owned activities. Full year sales were 13.730 bln, up 17.6 pct and also exceeding forecasts.

MILAN  - The Italian government's sale of a 30 pct stake in Alitalia SpA has attracted interest from Italy's Altantis fund, supported by the Camuzzi family, said Il Mondo weekly. In an unsourced report on possible bidders, Il Mondo said Air France-KLM is expected to bid alone for the Alitalia stake, rather than with Italian allies, as some reports have suggested.

BRUSSELS - Belgian healthcare group Omega Pharma NV has posted a trading update which shows full-year sales in line with the company's own estimates of 1 bln eur, driven by growth in the Belgian over-the-counter market.

BUDAPEST  - European Central Bank board member Juergen Stark said the ECB retains the freedom to move interest rates whenever it considers it necessary to control inflation pressures, irrespective of guidance on possible rate moves at ECB news conferences.

LONDON  - The UK mortgage market faltered in December in a clear sign that higher borrowing costs are starting to bite, a leading industry group said today. The Building Societies' Association revealed today that the value of new mortgages, on a seasonally-adjusted basis, rose by 932 mln stg in December, from 1.26 bln stg in November. The latest figure is the lowest since February 2005.

LONDON  - A surge in the sale of laptops and flatscreen televisions helped the UK's retailers enjoy their best December for three years, official figures showed today. The Office for National Statistics revealed that retail sales on a seasonally adjusted basis rose by 1.1 pct in December from the previous month, against expectations of a 0.5 pct rise.

It also reported that the UK owes more than half a trillion pounds for the first time ever. Net debt during the month rose to 504.1 bln stg from 467.1 bln in December 2005. That means that the UK's net debt situation has increased by more than 150 bln since Labour came to power in May 1997.

LONDON  - The Bank of England said M4 money, a broad measure of money supply, rose by 0.9 pct in December from November on a seasonally adjusted basis, for a 12.8 pct year-on-year rise. The annual rate has slowed steadily after reaching a 16 year high of 14.4 pct in September.

Elsewhere, the BoE said M4 lending rose by 11.0 bln stg during the month, well down on the 23.9 bln stg in November.

MILAN  - The offices of JP Morgan and of Banca Caboto, a unit of Intesa Sanpaolo SpA, have been searched by the financial police in the probe regarding the initial public offering of oil refiner Saras SpA, of which they were coordinators, daily Il Sole 24 Ore reported, citing a writ of the Milan prosecutors office.

PARIS  - AMF, the French stock market regulator, said it has approved the prospectus for the 14 bln eur merger between Euronext NV and NYSE Group Inc. The timetable for the official offer by NYSE will be published later once AMF has received all the necessary prior approvals, it said.

FRANKFURT  - Deutsche Boerse AG is considering splitting the management of the company into three divisions after abandoning efforts to buy Euronext NV last year, people familiar with the matter told the Wall Street Journal.

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Forex - Dollar steady; investors eye US consumer confidence ahead of weekend
 
LONDON  - The dollar remained steady, with investors eyeing a US consumer confidence number as the last potential driver before the weekend.

The University of Michigan consumer sentiment index is seen rising to 92.0 in January from 91.7 previously, which would confirm recent data showing resilient labour and housing markets.

The dollar strengthened earlier this month on views that the economic slowdown in the US is less severe than feared, meaning the Federal Reserve will likely not cut interest rates but rather stay on hold for some time.

However, that upturn in US data and subsequent support for the dollar may not last much longer, according to some economists.

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Oil prices steady after touching 20 month lows; traders await US inventory data

LONDON  - Oil prices steadied after touching 20 month lows yesterday, as traders awaited the weekly US inventory report, expected to show gains in both crude and fuel stockpiles.
   
At 1.47 pm in London, front-month Brent North Sea crude contracts for March delivery, were up 12 cents at 52.90 usd a barrel. The contracts sank to 50.75 usd yesterday, a level last seen on May 31, 2005, before closing higher.
   
Meanwhile, front-month New York light sweet crude contracts for February delivery rose 1 cent to 52.25 usd a barrel. Yesterday, the contract closed strongly higher after first falling to 50.28 usd, the lowest point since May 25, 2005.
   
Prices plummeted yesterday after key OPEC member Saudi Arabia said there was no reason to fret over the 18 pct dive in oil prices this year and ruled out calling an emergency meeting ahead of the scheduled mid-March meeting.
   
However, oil recovered by the close as cold weather moved into the US Northeast, the world's largest heating oil market, and as forecasts pointed to below normal temperatures in the area for the next two weeks.
   
Man Financial analyst Ed Meir said forecasts for continued cold weather should provide some "staying power" to yesterday's move higher, but added a lot depends on the inventory data later today.
   
Analysts expect the data will show crude stocks rose by a slight 100,000 barrels last week - reversing recent falls - while distillates, which include heating oil, grew by around 1.9 mln barrels.
   
The report will be published at 3.30 pm, a day later than usual on account of the US public holiday on Monday.
   
"We don't expect anything out of today's numbers capable of reversing the sharp price plunge that is now into its third week," said Jim Ritterbusch, president of Ritterbusch & Associates.
   
US heating fuel inventories have been rising steadily this winter as temperatures have been extremely mild up until very recently. As a result, demand for heating fuel has been falling.
   
As today's data is expected to show a continuation of this trend, it will likely serve to pressure prices further. Meanwhile, the market is having to contend with other news that is set to dampen sentiment.
   
The International Energy Agency cuts its forecast for 2007 world oil demand growth earlier, citing large revisions to US data, mild weather and adjustments to US GDP assumptions.
    
Meanwhile, Saudi Arabia said earlier it plans to increase its crude oil production capacity nearly 40 pct by 2009 and double its refining size over the next five years.

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