US & World Daily Markets Financial Briefing 01-08-2008

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US July ISM manufacturing index falls to 50.0 vs 49.2 expected

WASHINGTON - US manufacturing improved in July but only just enough to put it at the breakeven expansion/contraction line, according to the Institute for Supply Management survey.

Over in the United States, in early trading on Wall Street, the Dow Jones Industrial Average was up 13.7 points at 11,391.7, while the S&P 500 was down 0.3 at 1,267.1 and the Nasdaq Composite was down 6.22 at 2,319.33.
  
The ISM Manufacturing Index fell 0.2 of a point in July to 50.0. A reading above 50 indicates growth, and a reading below 50 indicates contraction.
  
The new orders index fell to 45.0, but the production index rose to 52.9 and the employment index shot up more than 8 points to 51.9.
   
A separate index for exports, which have been keeping the U.S. economy from shrinking, fell sharply to 54.0 from 58.5. But the prices paid index fell three points ot 88.5, indicated reduced price pressures for manufacturers.

Total construction spending continued its steady decline in June as housing spending fell to its lowest level in almost seven years, although business construction rose to an all time high, the Commerce Department said on Friday.
   
Total US construction fell 0.4% in June, in line with expectations of economists polled by Thomson Reuters IFR Markets. Total construction in May was upwardly revised to be unchanged. Private residential construction fell by 1.8%, the 15th straight monthly decline. Over the year, homebuilding has fallen 26.7%.
   
Despite the worsening credit crunch, business construction rose 0.8% to an all time high. Over the year, businesses increased their construction spending by 15.0%.
  
The June non-residential construction report included continuing strength in lodging, which rose 1.2%, manufacturing, which rose 1.5% and power, which rose 4.1%. Communication construction fell 1.6% in the month.
   
Construction by state and local governments fell 0.4% after four straight months of increases. Federal construction rose 2.4% in the month to an all-time high.

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Forex - Euro still on backfoot vs dollar after weak PMI; focus on U.S. payrolls

LONDON - The euro remained on the back foot against the dollar following a weak survey on euro zone manufacturing activity, but further losses were capped as markets fixated on the upcoming release of the closely watched U.S. payrolls data.

The purchasing managers' index for the euro zone manufacturing sector fell to its worst level in more than five years in July, even as raw material costs continued to soar, pressuring manufacturers into raising prices at the fastest rate in 18 months.

The euro weakened slightly on the data, but did not push down significantly as the figures were not entirely unexpected, and as markets were reluctant to take positions ahead of U.S. payrolls data due later. "With one eye firmly on this afternoon's US labour market report, the market shrugged off the pessimistic tinge to this morning's figures," Calyon senior forex strategist Stuart Bennett said.

"Indeed, given the weak EU Commission sentiment indices, reported earlier in the week, another dose of disappointing figures perhaps came as no surprise," Bennett said.

The U.S. employment figures due later on Friday are expected to show a loss of 72,000 jobs in July, following a loss of 62,000 in June.

However, there is some uncertainty over whether there are upside or downside risks to the estimate after ADP unexpectedly announced a rise in private payroll figures on Wednesday, and weekly jobless figures on Thursday showed a sharp jump in initial claims.

"The anecdotal evidence for the payrolls element of today's report has excelled in offering a raft of conflicting pointers, with the surprise rise in the increasingly poorly correlated ADP measure and some of the regional Fed surveys pointing to a modest improvement, but other Fed surveys and the labour differential in Consumer Confidence suggesting a deterioration, while the volatility in jobless claims over the month advising against drawing any conclusions from that series," Monument Securities strategist Marc Ostwald said.

At 10.43 a.m., the euro was trading at $1.5560, from $1.5559 at 05.53 a.m. Against the yen, the euro edged up to 167.50 from 167.46 yen.

Elsewhere, the pound came under sharp pressure against the dollar in the run-up to the release of a key survey on UK manufacturing activity, before recovering slightly as markets' attention here also turned to U.S. payrolls.

The purchasing managers' index on the manufacturing sector showed a worse-than-expected fall to 44.3 in July from June's 45.9, with the reading at its weakest since December 1998. At 10.43 a.m., the pound was trading at $1.9779, down from $1.9823 at at 05.53 a.m.

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Euroshares open lower after Dow losses and ahead of US payroll data; cars fall

At 08.57 a.m., the DJ STOXX 50 was down 17.19 points, or 0.59 percent, at 2,864.28 and the DJ STOXX 600 was 1.79 points lower, or 0.63 percent, at 281.96.

In Europe, car stocks tumbled after a warning from BMW, heavy losses in GM on Thursday and on news GM, Ford, Chrysler were all downgraded to 'B-' by S&P credit ratings agency.

On this side of the Atlantic, shares in Bayerische Motoren Werke AG. fell 8.24 percent after the automaker warned on its 2008 targets as it posted second-quarter numbers which traders said were worse than expected.

Elsewhere, Lehman Brothers downgraded Volkswagen, down 3.02 percent, to 'underweight' from 'equal-weight'. Renault tumbled 2.92 percent as Nissan in which the French carmaker has a majority stake posted a much worse-than-expected 46 percent drop in quarterly operating profit. Daimler fell 2.6 percent.

Unilever fell another 2.11 percent as ING cut its recommendation to 'hold' from 'buy' and SNS cut its recommendation to 'hold' from 'accumulate'.

In earnings news, Total fell back 1.3 percent and Statoil Hydro fell 3.51 percent even though the pair both issued solid numbers as the news had been widely expected after numbers from BP and Royal Dutch Shell earlier in the week and as falling oil prices weighed.

Shares in Italy's Enel climbed 2.52 percent after it said it expects full year numbers to be higher than in 2007 as the energy group reported higher than forecast net profit and EBITDA in the first half.

And Ahold stormed 5.26 percent higher after reporting better-than-expected second quarter sales and reiterating its full year underlying retail operating margin forecast of 4.8-5.3 percent.

Sales for the period were 5.8 billion euros, down 0.8 percent compared with the same period last year, but ahead of analysts' estimates of 5.607 billion to 5.703 billion euros. Belgian healthcare group UCB SA. climbed 4.27 percent after it reported better than expected net profit and in-line sales.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average fell to its lowest levels in two weeks, closing 2.1 percent down at 13,094.59, after poor economic data from the United States and lacklustre Japanese corporate earnings worried investors.
   
The broader Topix index dipped 2.4 percent to 1,272.93. Shares in the financial sector were dampened after major financial companies posted weak earnings.

SOUTH KOREA
   
The KOSPI closed 1.31 percent lower at 1,573.77, led by exporters after disappointing U.S. economic data deepened worries about the world's largest economy, while Kumho Group shares such as Kumho Industrial tumbled on liquidity fears.

AUSTRALIA
 
Australia's S&P/ASX 200 fell 73.4 points to close at 4,904.0, as Suncorp Ltd.'s warning of a steep drop in profit hit the financial sector, while revived worries that a U.S. recession will dent demand for commodities hurt resource firms.
  
Shares in Suncorp, a general insurer and bank, tumbled nearly 14 percent, the largest one-day fall on record, after it warned profits this year will halve from a year ago a due to turbulent global markets.

CHINA
  
The benchmark Shanghai Composite Index closed up 0.94 percent at 2,801.82, erasing early losses, after President Hu Jintao reiterated the government's intention to maintain steady and fast economic growth.
   
The Shanghai A-share Index was up 0.94 percent at 2,939.04, while the Shenzhen A-share Index rose 0.98 percent to 876.46.
  
The Shanghai B-share Index rose 0.88 percent to 211.89, while the Shenzhen B-share Index gained 0.70 percent at 457.61.

TAIWAN
   
The weighted index closed down 0.31 percent at 7,002.54, as bargain-hunting erased some early losses inspired by Wall Street's retreat overnight and fears that Taiwan could restore its capital gains tax.
   
PHILIPPINES

Manila's 30 company composite index closed up 0.3 percent at 2,584.21.

HONG KONG

The Hang Seng index closed up 131.50 points or 0.58 pct at 22,862.60, off a low of 22,207.31 and high of 22,881.27. For the week, the index is up 122 points or 0.54 pct.

INDIA

The benchmark Sensitive Index of the Bombay Stock Exchange rose 300.94 points or 2.1 percent, about 624 points from the day's lows, to close at 14,656.69 while the S&P CNX Nifty of the National Stock Exchange gained 80.60 points or 1.86 percent to end at 4,413.55.

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Oil prices slide further on US demand concerns

LONDON - Crude oil prices slid again on Friday at the end of a turbulent week, as weak U.S. economic growth data reignited concerns about slowing demand in the world's biggest energy consuming nation, traders said.

New York's main contract, light sweet crude for September delivery, lost $1.48 to $122.60 a barrel in electronic trading, after dropping $2.69 on Thursday. Brent North Sea crude for September delivery shed $1.57 to $122.41 on Friday, after shedding $3.12 Thursday.

Concerns over the health of the U.S. economy -- a major buyer of global energy exports -- have pushed crude down by about $25 since reaching record peaks above $147 on July 11.

Traders will focus later Friday on the publication of a crucial jobs report that could shed fresh light on the state of the American economy. "Oil prices were still lower, extending losses from yesterday (Thursday)," said Sucden analyst Andrey Kryuchenkov on Friday. "Investors will be paying close attention to July non-farm payroll figures for more guidance on the state of the U.S. economy."

The oil market experienced another five days of very choppy trading this week. On Monday, prices had rallied after militants attacked a Royal Dutch Shell pipeline in Nigeria, leading the Anglo-Dutch energy giant to reduce output.

Shell was forced to declare a "force majeure" -- a legal clause allowing producers to miss contracted deliveries because of circumstances beyond their control -- for the remainder of July, August and September, for exports from its Bonny terminal.

The past two years have seen an upsurge in violent attacks by armed gangs in the Niger Delta, cutting Nigeria's output of 2.6 million barrels per day of crude by a quarter.

The market reversed direction on Tuesday after a report that US gasoline consumption fell last week for the 14th week in a row, according to credit card firm Mastercard. But prices rebounded by more than four dollars on Wednesday after an unexpectedly sharp decline in US motor fuel stockpiles.

The U.S. government's Department of Energy said that gasoline or petrol inventories dropped by 3.5 million barrels in the week ending July 25, overturning market forecasts for a gain of 400,000 barrels. The news came amid the so-called U.S. driving season -- when many Americans hit the roads for their summer holidays pushing up demand for motor fuel.

On Thursday, prices tumbled once more after weaker-than-expected US growth data stoked fresh worries about the outlook for global energy demand. "Sentiment is more focused on slowing demand rather than short-term supply disruptions," said Mark Pervan, a senior commodities strategist with ANZ Bank in Melbourne.

The US Commerce Department reported the American economy grew an annualised 1.9 percent in the second quarter, missing the 2.3 percent growth expected by most forecasts. It also revised 2007 fourth-quarter growth to a 0.2 percent contraction -- the first reversal for the US economy since the 2001 recession. "It confirms the slowing US demand story," Pervan added.

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