US & World Daily Markets Financial Briefing 22-03-2007

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Stocks flat after big rally

NEW YORK - Stocks slipped in early trading Thursday as investors awaited more economic data to see if they should extend this week's big rally or cash in some of their gains.
   
Falling unemployment claims and rising markets overseas encouraged investors to stay put and not take profits after Wednesday's 159-point gain in the Dow Jones industrial average that gave the blue chip index its best three-day performance since November 2004.
   
Wall Street's perception that the Federal Reserve has opened the way to a possible reduction in short-term interest rates unleashed a wave of buying that continued in Asia and Europe Thursday. The Fed, which left interest rates
unchanged Wednesday, also issued an economic assessment that appeared to open the way for a rate cut in the future.
   
Investors will be closely watching other economic data and speeches from Fed officials Thursday. The Conference Board plans to report its index of leading indicators, a widely followed economic forecast gauge, for February. Wall Street expects a decline of 0.5 percent, compared with the increase of 0.1 percent seen for the previous month.
   
The Labor Department reported that the number of laid-off workers seeking unemployment benefits fell to 316,000 last week, the third consecutive decline. Though the numbers can change dramatically week to week, it was a good sign to investors that consumers are finding work -- and are therefore able to keep spending.
   
In the first hour of trading, the Dow Jones industrial average was down 12.33, or 0.10 percent, at 12,435.19, while the Nasdaq composite index fell 6.54, or 0.27 percent, to 2,449.38. The Standard & Poor's 500 index fell 0.57, or 0.04 percent, to 1,434.47.
   
Bonds fell after the jobs data, with the yield on the benchmark 10-year Treasury note rising to 4.56 percent from 4.54 percent late Thursday. The 10-year yield was higher than that of the 2-year, which many market participants took as a positive sign given that prior to Wednesday, short-term yields had exceeded long-term yields since August 2006 -- a pattern that some say portends a recession.
       
The Russell 2000 index of smaller companies was down 0.48, or 0.06 percent, at 806.99.
   
Overseas, Britain's FTSE 100 was up 0.85 percent, Germany's DAX index was up 2.00 percent, and France's CAC-40 was up 1.58 percent.

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Dollar remains vulnerable after Fed drops explicit rate hike bias

LONDON - The dollar remained vulnerable after last night's soft statement by the Federal Reserve, particularly against the pound, which was boosted by robust data this morning.
   
The Fed last night kept rates unchanged, as widely expected, but softened its rhetoric, removing a tightening bias and acknowledging that the housing market was undergoing an "adjustment". This sparked a sell-off in the dollar, which has stabilised but remains vulnerable.
   
"The Fed dropped its explicit tightening bias, gave a gloomier description of the economy, but warned its 'predominant policy concern remains the risk that inflation will fail to moderate as expected'," said Gavin Friend at Commerzbank. "Though a rate cut may be some way off, we continue to see the dollar edging lower," he added.
   
The euro remained steady after some second-tier data this morning showing a smaller-than-expected decrease in industrial orders as well as numbers showing external trade swung to deficit in January from a small surplus in December.
   
Analysts called the data mixed, leaving investors to look to the US weekly jobless claims figures this afternoon for more market direction.
   
Meanwhile, the pound was higher after robust data for retail sales and manufacturing orders this morning.
   
The Confederation of British Industry said that orders rose at a 12-year high, with output expectations also remaining high. Retail sales rose 1.4 pct from January to February, well above the 0.8 pct gain expected by analysts. On a year-on-year basis, they grew by 4.9 pct, above forecasts for a more modest 4.0 pct rate.
   
"Again the UK consumer is proving determined to shop," said Karen Ward at HSBC. The Bank of England is "determined to see the consumer rein in spending before they will relax about the inflation outlook," said Ward, "so this does increase the chance we'll see another insurance hike from the BoE."
   
Elsewhere, the Canadian dollar eased lower today after surging over the past couple of days. The rally started as much stronger-than-expected inflation data fuelled talk that the Bank of Canada could be set to raise interest rates soon, possibly as early as next month.

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Top Stories in Europe at 11.05 GMT

Madrid - German chancellor Angela Merkel and Italian Prime Minister Romano Prodi agreed last Tuesday in Rome that the best solution for Endesa SA would be for Enel SpA and EON AG to reach an agreement over the Spanish utility's future, El Pais reported, citing unnamed sources close to the Italian government.
 
Endesa is currently the target of a 38.75 eur per share offer from EON, the acceptance deadline for which is March 29. Enel, which made a surprise arrival in the bidding ring, has 24.9 pct of Endesa and is targeting 30 pct.

Frankfurt - Repower Systems AG is willing to be bought by either Areva or Suzlon Energy Ltd and would prefer it if the two rival bidders formed an alliance, Fritz Vahrenholt, chairman of the German wind turbine maker, said at a news conference on its full year results.
 
"Both candidates are appropriate from our point of view. Both could help us in our growth. The best for the company would be if the two could put their forces together," Vahrenholt said.

Deutsche Telekom AG expects full-year EBITDA at its fixed-line T-Com unit to decline by 9.6 pct this year to 8 bln eur from 8.75 bln, the Financial Times Deutschland reported, citing an internal company document it obtained. "In comparison to our competitors, T-Com still has significant disadvantages in terms of efficiency and productivity," T-Com head Timotheus Hoettges said in the document.

HeidelbergCement AG said its operating profit rose to 1.5 bln eur in full-year 2006 from 1 bln and reiterated its optimistic outlook for 2007. Chief executive Bernd Scheifele said HeidelbergCement will focus on "internal growth, strategic acquisitions (and) cost leadership" to improve sales and operating income further in 2007.

Hochtief AG said it sees net profit above 100 mln eur for full-year 2007, with year-on-year sales holding steady and incoming orders declining. It attributed the latter to the "exceptionally large projects" it acquired in 2006.

Milan - Pirelli & C SpA may propose Francesco Caio as a compromise candidate to run Telecom Italia SpA, after clashing with the current board and failing to sell its stake in the telecomms operator, the daily Finanza & Mercati said without giving a source. Pirelli has an 80 pct stake in Olimpia SpA, a holding company that controls 18 pct of Telecom Italia.

Unicredito Italiano SpA said its net profit rose 61.3 pct to 5.448 bln eur, beating market expectations thanks to lower charges and capital gains. In the full year, the bank increased total sales by 12.5 pct to 23.464 bln eur, while gross operating profits rose 27.8 pct to 10.206 bln and pretax profits rose 47.5 pct to 8.21 bln.

Amsterdam - Royal Ahold NV reported earnings came in below analysts expectations, although net profit was higher than consensus. Ahold also said it will expand its previously announced share buyback programme to 3 bln eur from 2 bln -- depending on the sale of US Foodservice.

London - DaimlerChrysler AG, in talks with potential buyers of its Chrysler Group, has outlined detailed areas of cooperation that it would be willing to continue between its Mercedes division and any new owners of Chrysler, the Wall Street Journal reported, citing people familiar with the matter.
 
The discussion of continued cooperation with Mercedes in purchasing, component sharing and engineering indicates the talks with the buyers are moving to a more advanced stage, and that Chrysler and Mercedes are likely to remain allied in the automotive industry even if they become separate companies, the Journal said.

Barclays PLC and ABN Amro are trying to rush through their 80 bln stg merger to prevent other bidders spoiling the party, reported the Daily Mail, without citing sources. Concessions made by Barclays, including moving the headquarters to Amsterdam, are smoothing the way towards a deal, it said.

Vienna - Bank Austria Creditanstalt (BA-CA) said it has increased its full-year profit before tax by 151.4 pct to 3.27 bln eur from 1.30 bln in 2005. The major portion of the increase, 1.8 bln eur, came from one-off items such as the sale of Polish bank BPH and Croatia's Splitska banka, BA-CA said.

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Asian shares close higher on US Fed meeting, hopes of US rate cut

HONG KONG - Shares across the Asia-Pacific region closed higher after the US Federal Reserve raised hopes of a rate cut when delivering its outlook statement on the economy last night.
   
The Tokyo market resumed trading after a one-day holiday with the benchmark Nikkei 225 Stock Average closing at its highest level in three weeks, and investors encouraged by the rally on Wall Street following the Federal Reserve's comments.
   
The blue-chip Nikkei 225 closed 256.00 points or 1.49 pct higher at 17,419.20, off a high of 17,489.19. The TOPIX index of all first-section issues advanced 23.51 points or 1.38 pct to 1,731.80, off a high of 1,739.59.
   
Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities, said: "The Tokyo market mirrored sharp gains on the US stock markets on the back of the change in the Fed's stance on interest rates. "But the market had difficulty in rising further because there was selling near the 17,500-point level," he added.
   
Fujito said the possibility of lower interest rates in the US implies a decline in the economy, "So the US markets will be closely watched tonight to see how they reassess the Fed statement."
   
Australian shares ended sharply higher with investors buoyed by the overnight decision from the Federal Reserve to keep US interest rates steady at 5.25 pct. More important was the US central bank toning down its hawkish outlook statement from previous meetings, which points to possible interest rate cuts by the end of the year.
   
Leading bank and resource stocks led the wider Australian market higher, as well as boosting companies with major operations in the US. The S&P/ASX 200 ended up 93.8 points or 1.60 pct at the day's high of 5,955.7. The key index closed well above the day's low at 5,879.0.
   
Hong Kong shares were stronger in afternoon trade on positive results from leading local companies and the news from the US. At 3.15 pm the Hang Seng Index had risen 145.30 points or 0.74 pct to 19,661.74.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on Wall Street's overnight surge and on strong fund inflows with steelmakers and energy issues gaining ground.
   
The Shanghai A-share Index was up 14.61 points or 0.45 pct at 3,227.02 and the Shenzhen A-share Index set another new closing high, rising 3.08 points or 0.37 pct to 844.05.
   
Seoul shares closed higher, with sentiment buoyed by the solid rally on Wall Street and rate cut expectations. The market appeared to have settled firmly at 1,450 points at one stage before losing most of its early gains in late trade on heavy profit-taking by retail investors, they noted.
   
Steel makers, large cap IT stocks and brokerages were among the key gainers. The KOSPI index closed up 5.68 points or 0.39 pct at 1,448.53, after moving between 1,447.79 and 1,456.18.

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Copper rises as Chinese imports surge, LME stocks fall

LONDON - Copper rose, underpinned by higher Chinese imports and a fall in stocks stored in LME warehouses.
   
China's refined copper imports rose nearly 120 pct to 148,679 tonnes in February -- the highest level in two years -- compared with the same month a year ago. At 12.29 pm, LME copper for 3 month delivery was up at 6,760 usd a tonne against 6,609 usd at the close yesterday.
   
"Copper has a base of fundamental reasoning to its strength with buying continuing in China where imports are increasing rapidly over last year's levels," said Alex Heath, head of the base metals desk at RBC Capital Markets.
   
Stocks of the metal fell 1,525 tonnes to 187,775 tonnes today, reported the LME in a daily report.
   
Strong Chinese imports, which boasts the world's fastest growing economy, combined with the fast-approaching seasonally busier second quarter paint a strong underlying picture for copper, said Standard Bank analyst, Tariq Salaria.
   
He explained demand in the second quarter is traditionally stronger as Western European countries tend to process higher volumes of metal before they embark on long summer vacations.
   
In the longer term, Salaria added: "In the first half of the year, the market will be much closer to balance and the low level of stocks mean that it remains vulnerable to supply disruptions."
   
Further, copper and indeed all base metals were supported by stronger equity markets worldwide after yesterday's US Federal Reserve meeting continued to boost sentiment.
   
The US Federal Reserve softened its tone, turning away slightly from its stance towards tightening monetary policy and in turn fuelling hopes that key US interest rates might be heading lower.
   
Commodity markets have become linked to equities after a global equity sell-off at the end of February, amid fears that demand might be dented.
   
However, RBC's Heath argued that "perhaps more pertinent (in lifting prices) is the gradual realisation by many that the base metals fundamentals remain just too finely balanced".
   
He added tight fundamentals suggest the impact of any disruption supplies would be exaggerated.
   
In other metals, nickel was up at 44,500 usd from 43,855 usd yesterday, but still off of its recent all-time high of 48,500 usd set last Friday.
   
Prices are widely anticipated to hit the 50,000 usd mark as stocks remain critically low and amid strong demand from the stainless steel industry -- which accounts for 70 pct of nickel consumption. Current stocks available to the market are worth less than a day's worth of global consumption.
   
Aluminium was down at 2,225 usd from 2,750 usd per tonne at yesterday's close. Lead was up at 1,924 usd against 1,917 usd, tin was up at 14,000 usd against 13,875 while zinc was also up at 3,200 usd against 3,120 usd per tonne at yesterday's close.

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