US & World Daily Markets Financial Briefing 01-05-2008

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Stocks up slightly after ExxonMobil report, spending data

NEW YORK - Wall Street rose modestly Thursday as investors looked past a disappointing profit report from Exxon Mobil Corp. and focused on economic data that was slightly more upbeat than expected.

The stock market's advance was limited because Exxon Mobil's $11 billion profit was not as high as analysts expected despite record high oil prices. Lower production volumes caused the company's profit margins to shrink.

Wall Street was relieved, however, that the Commerce Department said consumer spending rose 0.4 percent in March, a faster pace than analysts expected, and that the Institute for Supply Management said U.S. manufacturing contracted at a slightly slower pace than anticipated.

The data was not completely positive -- consumer spending rose mainly due to rising prices for energy and food. Stripping out inflation, spending edged up only 0.1 percent during the month. And meanwhile, the ISM's report also indicated that costs are continuing to rise.

But Wall Street appeared to be trading optimistically a day after an interest rate cut from the Federal Reserve, and ahead of the Labor Department's Friday report on April employment. On Thursday, the government said the number of newly laid off workers filing claims for unemployment benefits soared by a greater-than-expected 35,000 last week -- not a positive sign ahead of the Friday report.

The Dow Jones industrial average rose 25.97, or 0.20 percent, to 12,846.10. Exxon Mobil, one of the 30 Dow components, saw its shares decline $3.38, or 3.6 percent, to $89.68. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 3.90, or 0.28 percent, to 1,389.49, and the Nasdaq composite index rose 24.12, or 1.00 percent, to 2,436.92.

Stocks had closed mixed Wednesday after the Federal Reserve cut interest rates by a quarter point, as expected, but failed to give a firm indication about its future moves.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.69 percent from 3.73 percent late Wednesday.

Light, sweet crude fell 71 cents to $112.75 a barrel on the New York Mercantile Exchange. The dollar moved higher against most other currencies, and gold prices dropped. The Russell 2000 index of smaller companies rose 2.10, or 0.29 percent, to 718.28.

Advancing issues outnumbered decliners by about 9 to 5 on the New York Stock Exchange, where volume came to 183.9 million shares. Overseas, Japan's Nikkei stock average fell 0.60 percent. European markets were closed.

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Forex - U.S. dollar firms on optimism that the worst may be over

LONDON - The U.S. dollar continued to gain on increasing optimism that the worst of the credit crisis is now over. Last night, the Federal Reserve cut interest rates by 25 basis points, marking a departure from the aggressive monetary easing of recent months.

Initially, the dollar fell on disappointment that the accompanying statement did not signal that the easing cycle has necessarily ended. The currency rebounded higher in European trade, however, as market players concluded the U.S. economy has now turned a corner. "A lot of people believe the worst is over and the perception is that this will be the end of the rate cuts," said Mic Mills, a trader at TradIndex.com.

He added that the dollar's gains against the euro have been helped by the public holiday across Europe. The euro earlier hit a 5-week low against the dollar of $1.5495.

Meanwhile, the pound was also stronger, also hitting a 5-week high against the euro as the UK currency benefited from the same pick-up in risk appetite that has boosted the dollar. "The perception is that the risk outlook has changed," Mills said.

The pound's gains were also helped by the release overnight of the Bank of England's latest Financial Stability Report, which stated that banks have probably overstated the losses suffered from the credit crunch. Focus now will turn to key upcoming U.S. data, however, including the ISM manufacturing index on Thursday afternoon and the closely-watched U.S. non-farm payrolls figures on Friday.

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Metals - Gold steady after dollar's rebound stalls in the wake of Fed cut

LONDON - Gold steadied on Thursday after the U.S. dollar's rebound against the euro stalled following Wednesday's interest rate cut from the U.S. Federal Reserve.

While the Fed's lowering of rates by 25 basis points to 2.0 percent had been widely anticipated by markets, the statement accompanying the decision surprised many investors by leaving the door open for further cuts in the near future.

Gold found good support as a result, with investors looking to hedge against further dollar weakness and the risks of higher inflation.

"The action of the Federal Open Markets Committee was as expected, but the statement spoiled sentiment," said analysts at Dresdner Kleinwort. "The market expected a much clearer statement that the Fed is done cutting interest rates and a more hawkish tone on inflation. Now, the Fed Funds futures price in a small probability for another 25 basis point rate cut in June," they added.

At 10.33 a.m., spot gold was trading at $863.65 per ounce against $863.30 in late New York trade on Wednesday. Gold jumped as high as $881.65 overnight following the Fed's decision, but gains have been as the dollar remains rangebound in  thin trading conditions across Europe due to public holidays.

Gold has been under pressure over the past week after the dollar clawed back as much as five cents since breaching the $1.60 mark against the euro.

Gains seen overnight have been thwarted today by uncertainty over the future direction for the metal. Gold has failed to regain momentum since it's meteoric rise above $1,000 in mid-March was met with a severe bout of profit-taking, knocking the price sharply lower.

Rising risk appetite has seen funds redirecting money ploughed into commodities at the start of the year back into equities, but many analysts are questioning whether the worst of the credit crisis is really over.

"Precious metals should remain range-bound in the near term as markets digest economic indications," said Standard Bank analyst Walter de Wet.

Gold tends to rise during times of economic turmoil, due to its role as a safe store of wealth. Traders will be closely watching the March Institute for Supply Management Index, out at 1.30 p.m. Thursday, and key U.S. non-farm payrolls figures tomorrow to try and gauge how the world's largest economy is holding up.

In other precious metals, platinum was slipped to $1,904 an ounce against $1,915, while palladium was trading at $413 an ounce against $418.25. Silver tracked gold higher to trade at $16.72 an ounce from $16.52.

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Tokyo shares close lower amid uncertainty on Fed's next move

TOKYO - Japanese shares closed lower on Thursday as investors locked in profits after the Federal Reserve cut its key interest rate by a quarter percentage point and left investors guessing about its next move.

"Investors had wanted to hear the Fed declare the end of the rate-cutting cycle because a declaration would mean that it can manage to ward off a recession at current interest rate levels," said Mitsushige Akino, chief fund manager at Ichiyoshi Management.

Japanese stocks tracked the modest losses on Wall Street. The Dow industrials hit 13,000 for the first time since January shortly after the Fed's decision on Wednesday but finished slightly lower with investors unsure whether more rate cuts are on the way.

Trading was thin with most markets in Asia closed for a public holiday and as investors waited for the release of U.S. manufacturing data tonight and the non-farm payrolls report on Friday.

The Nikkei 225 Stock Average ended down 83.13 points or 0.6 percent at 13,766.86, off a low of 13,727.07. The broader Topix dropped 12.55 points or 0.9 percent to 1,346.10. Decliners outpaced gainers 1,167 to 437 with 117 issues unchanged.

Volume fell to 1.7 billion shares from 2.15 billion shares on Wednesday.

Big banks retreated as investors cashed in recent gains. Mizuho Financial Group lost 5 percent to 513,000 yen, Mitsubishi UFJ Financial shed 3.8 percent to 1,101 yen and Sumitomo Mitsui Financial Group was down 2.7 percent at 871,000 yen.

Property counters were also weaker with Mitsubishi Estate declining 5.1 percent to 2,865 yen and Sumitomo Realty and Development shedding 3.7 percent to 2,505 yen.

Among exporters, Toyota Motor gained 0.2 percent to 5,280 yen and consumer electronics giant Matsushita Electric Industrial rose 2.3 percent to 2,500 yen.

Construction machinery maker Komatsu advanced 2.2 percent to 3,220 yen and tyre maker Bridgestone rose 1.8 percent to 1,934 yen. The Nikkei ended down 0.6 percent at 13,766.86, while the broader Topix dropped 0.9 percent to 1,346.10.

Australian shares closed lower, led by the financial sector amid earnings concerns, but gains in resource stocks helped limit the market's decline. The S&P/ASX 200 closed down 0.2 percent at 5,585.8, and the All Ordinaries index lost 0.1 percent to 5,652.7.

China, South Korea, Taiwan and Philippines markets were closed Thursday for a public holiday.

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Oil ticks up on Nigerian supply fears but gains limited

LONDON - Oil rose early Thursday on bargain hunting after sharp falls yesterday and on output fears from Nigeria as workers pledged to extend a seven-day strike.

Gains were limited, however, on a clouded demand outlook after a Fed rate cut Wednesday and as other supply jitters, which recently drove a record rally, faded.

Oil workers on strike at Africa's largest producer Exxon Mobil's facilities in Nigeria have pledged to prolong their protest after failing to reach a deal with the U.S. oil major at talks on Wednesday. About 800,000 barrels per day are shut in.

However, supply fears from Scotland eased as operations at the Grangemouth refinery returned to normal on Tuesday following a two-day strike, which had played a major part in driving oil to a record $119.93 on Monday.

"Recent supply disruptions due to strikes have cost the market something on the order of 3.0 million barrels of North Sea oil production and maybe 6.0 million barrels of Exxon Mobil's Nigeria output, and still counting, might translate into more supportive crude oil inventory data in the weeks ahead," said Citigroup analyst Tim Evans.

Meanwhile, markets were digesting Wednesday's U.S. interest rate cut. Players have said the statement accompanying the Federal Open Market Committee's decision to cut the Federal Funds target rate to 2.0 percent did not decisively signal an end to the central bank's easing campaign which some had expected. This has raised some fears economic woes are far from over. Such fears cloud the demand outlook for commodities.

MF Global senior energy broker Rob Laughlin said he was unimpressed with the communique that accompanied the rate cut as it failed to "bull up" the economy. "When so many eyes were on (Fed chairman) Ben Bernanke he failed to impress financial markets," he said.

At 9:58 a.m., New York-traded West Texas Intermediate crude for June delivery was up 10 cents to $113.56 a barrel.

Meanwhile in London, Brent crude for June delivery was up 4 cents at $111.40.

While U.S. oil is some 5 percent lower than its recent record near $120, most expect prices to stay above the $100 milestone for some time yet. U.S. gasoline demand is about to pick up ahead of the driving season, which kicks off late May, Asian demand continues to make up for some ailing demand from western economies and investors are still interested in commodities as alternative assets while the economic backdrop remains a concern.

Meanwhile, the Organization of the Petroleum Exporting Countries, which pumps more than a third of global output, has insisted it is not responsible for higher prices, that supply is ample and that it is unlikely to make a production increase or at least discuss such a move before its September meeting. Such reluctance to open the taps while prices are close to record highs is likely to underpin the market for some time.

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