US & World Daily Markets Financial Briefing 16-04-2008

Wall Street surges higher after upbeat earnings reports

NEW YORK - Wall Street rallied in early trading Wednesday, led by robust first-quarter results from JPMorgan Chase & Co. and two other Dow Jones industrial components. The blue chip index rose more than 120 points.

Investors anxious about corporate earnings and their impact on the economy were relieved after JPMorgan, Coca-Cola Co., and Intel Corp. all topped projections. The three companies are among dozens of others that will post quarterly results Wednesday.

The battered financial sector advanced after JPMorgan reported profit fell 50 percent because of tight credit markets, but still beat analysts' expectations. The nation's third-biggest bank, which is in the process of acquiring ailing Bear Stearns Cos., reported $2.6 billion of write-downs tied to its loan portfolio.

In addition to earnings reports, Wall Street weighed sluggish economic reports on inflation and housing that were mostly within expectations. The Federal Reserve will also release its Beige Book assessment of regional economies later in the day.

In midmorning trading, The Dow rose 124.90, or 1.01 percent, to 12,487.37. The index was at its highs of the session. Broader indexes also gained. The Standard & Poor's 500 index rose 13.35, or 1.00 percent, to 1,347.78; and the Nasdaq composite index added 31.95, or 1.40 percent, to 2,317.99.

Bond prices fell as stocks looked more attractive. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.59 percent from 3.57 percent late Tuesday.

Oil prices -- which crossed $114 for the first time on Tuesday -- extended their advance ahead of a report that is expected to indicate a modest rise in crude stockpiles. Light, sweet crude added 37 cents to $113.42 a barrel on the New York Mercantile Exchange.

Gold prices rose, and the dollar was mostly lower against other major currencies. In corporate news, JPMorgan rose $1.09, or 2.6 percent, to $43.21 after issuing its quarterly report. Chief Executive Jamie Dimon said the company is well capitalized and has enough liquidity to handle difficult market conditions, but did not call an end to the credit crisis like other bank CEOs have in recent weeks.

Bank of America Corp. rose 84 cents to $36.42, while Wells Fargo Corp., which also beat earnings expectations, rose $1.77, or more than 6 percent, to $29.58.

Dow component Intel rose $1.25, or 6 percent, to $22.16 after reporting late Tuesday that quarterly profit matched analysts' expectations and sales topped projections. Intel also issued a forecast that kept profit-margin predictions for 2008 intact.

Meanwhile, Coca-Cola reported first-quarter profit rose 19 percent on a 21 percent increase in sales. Results from the Dow component easily surpassed Wall Street expectations, and shares added 43 cents to $61.37.

Government data showed that consumer inflation pushed higher last month as increases in energy, food and airline tickets overwhelmed the biggest drop in clothing prices in nearly a decade. The Labor Department reported consumer prices rose 0.3 percent in March after being unchanged in February.

Core inflation, which excludes food and energy, posted a 0.2 percent rise. Both the overall increase and the rise in core prices were in line with analysts' expectations.

Meanwhile, home construction plummeted during March to its lowest level in 17 years, the government said in a report signaling that the housing sector will continue slumping. Housing starts decreased 11.9 percent to a seasonally adjusted 947,000 annual rate, after falling 0.7 percent in February to 1.075 million, according to the Commerce Department.

The Russell 2000 index of smaller companies rose 10.33, or 1.51 percent, to 702.48. Advancers led decliners by a 3 to 1 basis on the New York Stock Exchange, where volume came to 147.6 million shares. Overseas, Japan's Nikkei stock average rose 1.20 percent. Britain's FTSE 100 rose 0.92 percent, Germany's DAX index was up 0.65 percent, and France's CAC-40 added 1.18 percent.

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Forex - Euro hits new dollar high after upside revision to euro zone inflation

LONDON - The euro hit a series of fresh highs against the U.S. dollar this morning after inflation in the euro zone for March was revised higher, to the likely alarm of policy-makers at the European Central Bank.

Eurostat, the EU statistics office, said the euro zone's harmonised index of consumer prices rose a final 3.6 percent year-on-year in March, revised up from a provisional estimate of a rise of 3.5 percent. This takes headline inflation to a record high for the period since the launch of the euro in 1999.

The upward revision was unexpected and prompted a sharp rally in the euro, which climbed to a new all-time high $1.5966. It rallied from around the $1.5845 mark to a day high of $1.5893. With the $1.60 mark beckoning, traders will be on the lookout for intervention from the world's central banks, especially after last weekend's change to the currencies statement in the G7 communique.

"This also begs the question of what will happen when the euro finally breaks above $1.6000," said Neil Mellor, currency strategist at Bank of New York Mellon.

The euro's rally was not just against the U.S. dollar. It also hit a fresh high against the pound of 0.8068 pounds. The euro's rally swept away the dollar's gains yesterday in the wake of higher-than-expected U.S. producer price data, a stronger-than-anticipated Empire State survey into manufacturing around the New York region, and healthy capital inflows news.

The main reason behind the euro's ongoing surge on the currency markets is that while the Fed is widely anticipated to lower its rates by as much as half a percentage point during its April 30 meeting, the ECB may maintain its rate for the rest of the year, making the dollar less attractive to investors.

The Fed will likely cut rates to spur an economy that is expected to plunge into a recession in the first half of 2008, and ignore the faster rise in consumer prices, analysts said. Inflation data out of the United States today will be the main focus of attention this afternoon, and if it comes in lower than expected, then the euro may break the $1.60 mark.

"A US data deluge is set to impact into the North American morning but elsewhere look for an increase in disapproving rhetoric centred at the latest FX 'volatility'," said Matthew Foster-Smith, analyst at Thomson IFR Markets.

Since it began easing its monetary policy, the Fed has lowered its rate by a cumulative 300 basis points, while the ECB has maintained the euro zone's rate since June.

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Euroshares open up on Wall St, Asian gains; L'Oreal falls on Q1 woes

At 08.56 a.m., the DJ STOXX 50 was up 25.83 points, or 0.84 percent, at 3115.32 and the DJ STOXX 600 was up 2.36 points, or 0.76 percent, at 311.94.

The contract earlier topped $114 a barrel for the first time, hitting $114.08 after floor trading closed Tuesday at the New York Mercantile Exchange. The oil sector was also knocked by reports suggesting that yesterday's bullish estimates on reserves at the Carioca oilfield off Rio de Janeiro were exaggerated.

"It could be a big disappointment after yesterday news." Repsol shares fell back 0.62 percent, Galp moved 1.51 percent lower and Technip was 0.16 percent lower.

L'Oreal slumped 6.07 percent after the hair care and beauty group reported a shock slowdown in organic sales growth as North American sales declined sharply in what it called an "exceptionally difficult" environment, prompting UBS to cut its stance to 'neutral' from 'buy'.

Unilever fell 0.94 percent as SNS Securities pointed out L'Oreal's statement also raises questions about the Anglo-Dutch group's U.S. business.

And ASML shares fell 0.99 percent after the group issued a gloomy outlook statement but yo-yoed, as the bulls pointed to the upbeat update from Intel overnight and hopes that bookings have bottomed out while the bears focused on the weak performance and uncertain outlook.

Cheuvreux analysts repeated their 'outperform' stance, cheered by the Dutch chip group's comments that it expects orders to begin to pick up from the second quarter on.

Other chip stocks stormed higher with Infineon up 5.47 percent and STMicro up 2.24 percent. LVMH led the STOXX 50 gainers, up 4.37 percent, After the luxury goods group posted stronger-than-expected sales growth for the first quarter of 2008, reassuring investors on its ability to weather the credit crisis.

According to Natixis Securities, last night's figures offered positive surprises all round, with both organic and reported sales growth ahead of expectations at 12 percent and 5 percent respectively. Shares in Belgian mobile phone operator Mobistar SA moved higher as still strong average revenue per user (ARPU) figures reassured.

Separately, JP Morgan upgraded the shares to 'neutral' from 'underweight'. Elsewhere among telecoms, Teliasonera shares stormed 5.8 percent higher after Le Figaro said France Telecom's Orange business could be interested in acquiring the Swedish group.

But shares in France Telecom fell back 3.45 percent as analysts were taken aback by the report. "This is very surprising news from France Telecom whose cautions M&A strategy was centred around emerging markets and small local European initiatives," said one Paris-based trader.

"The obvious lack of synergies raises serious implementation risk although a lack of an overlap can be viewed as a positive." The healthcare sector also attracted some early interest thanks to a slew of positive regulatory announcements and some bullish broker comment.

GlaxoSmithKline shares added 0.84 percent Roche added 1.2 percent after the Swiss group said its alliance partner company Chugai has received approval in Japan for the use of Actemra in patients suffering from rheumatoid arthritis.

Novartis moved 0.98 percent higher as it said Tuesday Phase II studies of its investigational oral therapy FTY720 has demonstrated sustained benefits in patients with multiple sclerosis (MS) after three years of treatment.

And Elan stormed 6.74 percent higher as Goldman Sachs lifted its rating to 'buy' from 'neutral' on hopes for successful roll-outs of two of its drug products. The broker raised its target on the stock to 34.2 euros from 29.3 euros.

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Asian stocks higher on Wall Street lead; chipmakers, oil stocks rally

In Tokyo the Nikkei 225 Stock Average closed 1.2 percent higher at 13,146.13and the Topix gained 1.3 percent at 1,271.88, with Toshiba Corp., Japan'slargest chipmaker, among the leaders. Seoul's KOSPI index finished 0.9 percent higher at 1,758.56, though off its high of 1,765.81 as investors quickly locked in profit on the sharp gains earlier by technology-related issues.

In Australia, the S&P/ASX 200 rose 1.3 percent to close at 5,470.3 and the All Ordinaries added 1.3 percent at 5,534.6 following gains in the energy sector after a rise in crude oil prices.
   
The Singapore Straits Times Index was last up 0.9 percent at 3,084.87. Hong Kong's Hang Seng index slipped in late trade, reversing earlier gains to close 0.1 percent lower at 23,878.35 after mainland China's March inflation figure showed a strong rise in consumer prices, reviving fears of further credit tightening.
   
China's consumer price index rose at an annual rate of 8.0 percent in the first quarter, compared with an increase of 2.7 percent a year earlier. Inflation was 8.3 percent in March, not as high as February's 8.7 percent figure, but still high.
   
The mainland economy expanded 10.6 percent in the first quarter from a year earlier, much faster than expected by the market, which is nervous about overheating. The Shanghai Composite index shed 1.7 percent to close at 3,291.60.
   
Elsewhere, the Malaysian composite index was last 1.2 percent higher at 1,259.48 and the Philippine composite finished 0.6 percent higher at 2,921.74, after losing 4.7 percent over the past eight days. Intel shares jumped about 7 percent in after-hours U.S. trading Tuesday after its earnings announcement.Intel's upbeat forecast supported select chipmakers and makers of related equipment in Asia.
   
In Tokyo Toshiba Corp. shares rose 3.4 percent to 815 yen, Elpida Memory advanced 4.2 percent at 3,710 yen and NEC Electronics gained 1.7 percent at 1,885 yen.
   
Among other high-tech issues, Sony Corp. gained 3.5 percent at 4,190 yen and Canon rose 2.6 percent to 4,710 yen. Maker of semiconductor processing equipment Tokyo Electron gained 5.2 percent at 6,300 yen, and maker of semiconductor testing equipment Advantest climbed 3.7 percent to 2,840 yen.
   
In South Korea, Hynix Semiconductor slipped 0.2 percent to 27,800 won and Samsung Electronics slid 1.1 percent to 651,000 won on profit-taking on their early gains, which were due to Intel's earnings outlook. Stronger-than-expected results from LG Electronics prompted further profit-taking. The stock fell 0.4 percent to 132,500 won, declining for a third day, after rising nearly 40 percent since March.
   
The world's fifth-largest supplier of cellphones reported record operating profit of 605.3 billion won on a global basis for the first quarter, more than the 484.3 billion won forecast in a Thomson Financial poll. Wide margins on phones, a turnaround at its loss-making display business and a weaker won boosted earnings.
   
In Australia, BHP Billiton rose 1.9 percent to A$42.80. Rio Tinto gained 1.8 percent at A$140.60 after releasing its first-quarter production report which shows strong iron ore sales despite production at its Western Australian mines being hampered by the weather.
   
In the oil sector, leader Woodside jumped 4.5 percent to A$58.30, Oil Search rose 1.2 percent to A$5.05 and Origin Energy added 2.8 percent at A$9.69, but Santos fell 0.5 percent to A$15.52.

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Metals - Copper edges up as stocks dwindle; tin equals record 

LONDON - Copper edged higher in early trade, supported by fears over a tightening supply and demand balance this year, with firmer European equity markets helping to support buying sentiment Wednesday morning.

Tin equalled yesterday's record high of $21,300 amid concerns stockpiles will continue shrinking in the face of disruptions to supply from the world's two biggest producers, China and Indonesia.

"Tin and copper are the metals showing the most bullish characteristics," said William Adams, an analyst at BaseMetals.com. "Overall the metal showing the most tightness is copper."

Investors are becoming increasingly concerned that copper supply may not be able to keep up with demand this year, after a spate of production outages in the last 12 months, analysts said.

Inventories of the red metal have dipped another 1,000 tonnes, the London Metal Exchange said in its daily stocks report this morning.

At 10:20 a.m., LME copper for three-month delivery had risen to trade at $8,536 per tonne against $8,430 at the close Tuesday.

Further supply threats from labour disputes are also lending support to the red metal. Unions at Chile's state-owned Codelco copper mine -- the world's largest -- are reported to be preparing industrial action over the proposed sale of a stake in the company's newest mine to China.

Codelco's new Gaby mine was part funded by a $550 million investment from China's state miner MinMetals, in exchange for discounted copper exports over the next 15 years and the right to acquire up to a 49 percent stake in the venture.

Prices across the base metals complex are also taking support from ongoing weakness in the U.S. dollar, which has slipped close to historical lows against the euro, briefly breaching $1.59. A weaker dollar makes commodities priced in the U.S. currency cheaper for overseas investors.

Tin for three-month delivery was quoted at $21,200 per tonne against $21,300 at Tuesday's close. Elsewhere, lead for delivery in three months was steady at $2,830 per tonne against $2,840 at the close Tuesday, while zinc edged up to $2,310 per tonne from $2,301.

Three-month aluminium was trading at $3,016 per tonne against $2,999, while nickel firmed to $29,375 per tonne from $28,895.

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