US & World Daily Markets Financial Briefing 02-05-2008

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Stocks jump after payroll report, Fed action

NEW YORK - Wall Street extended its advance Friday after a government employment report showed the nation's employers cut far fewer jobs than expected last month, stirring optimism about the buoyancy of the economy. The Dow Jones industrial average rose more than 110 points.

A separate report showing factory orders increased in March following two months of declines helped boost investors' enthusiasm.

The better-than-expected employment report comes days after the Federal Reserve lowered interest rates by a quarter point and signaled it could stand pat at future meetings -- a move that could help shore up an anemic dollar and combat worrisome inflation.

The Labor Department's report that employers cut 20,000 jobs in April was a relief to Wall Street, which had been expecting payrolls to decrease by 70,000 jobs. This marked the fourth straight month of job losses, but the data signaled that perhaps the economy might be resisting falling into recession.

The Commerce Department said Friday that U.S. manufacturers saw orders increase 1.4 percent in March. Economists had been expecting a 0.2 percent increase after declines in January and February.

Meanwhile, the Fed said Friday it will work with European central banks to expand a series of efforts to deal with the global credit crisis. The central bank will boost the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, up from the $100 billion it supplied in April.

"This is going to put some fuel in the tanks for stocks," Chris Johnson, president of Johnson Research Group, said of the employment report and the Fed's moves. "This was a direct hit in terms of the economy fighting back."

In midmorning trading, the Dow rose 117.65, or 0.90 percent, to 13,127.65. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 12.71, or 0.90 percent, to 1,422.05, and the Nasdaq composite index rose 13.30, or 0.54 percent, to 2,494.01.

Stocks surged Thursday as investors viewed the rising dollar and falling oil prices as promising signs for the economy. The Dow soared nearly 190 points to close above 13,000 for the first time since Jan. 3.

Bond prices fell Friday as investors moved into stocks from the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.77 percent late Thursday.

Oil prices moved higher after retreating Thursday on a strengthening dollar. Light, sweet crude rose $1.39 to $113.91 per barrel on the New York Mercantile Exchange. Advancing issues outnumbered decliners by nearly 4 to 1 on the New York Stock Exchange, where volume came to 219.2 million shares.

Overseas, Japan's Nikkei stock average rose 2.05 percent. In afternoon trading, Britain's FTSE 100 rose 1.72 percent, Germany's DAX index added 1.67 percent, and France's CAC-40 rose 2.06 percent.

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Forex - Dollar range-bound ahead of key U.S. jobs data

LONDON - The dollar was trading in a range against most currencies as investors look to the upcoming payrolls data for more direction and a better sense of how hard the U.S. labour market is being hit by the credit crunch.

The market is forecasting a 75,000 loss in jobs in April after March's 80,000 fall, although ADP's forecast for a 10,000 increase will have caused expectations to improve.

"If we see a payrolls outcome in line with our forecast (of -45,000) or better, then that should ease some recession fears generated by consecutive contractions in the job market in the first quarter of the year and support the dollar," said Henrik Gullberg, senior forex strategist at Calyon.

Investors are expecting the U.S. Federal Reserve to take a pause in its rate-cut campaign -- after this week's quarter-point decrease -- as it gives more attention to inflation and assesses the impact of looser monetary and fiscal policy.

This, along with a downward correction in commodity prices, have helped the greenback recover from record lows over the past week, a trend that some analysts say will be difficult to reverse even in the event of a poor payrolls number.

In the United Kingdom, the pound rallied higher on views that the worst of the credit crisis may be over as well as technical reasons related to corporate mergers and acquisitions.

In a report on Thursday the Bank of England said banks' credit-related writedowns are likely 'overstated' and the risk premium on assets is too high. Furthermore, the BoE increased the ceiling for reserves, allowing banks to deposit more capital with the central bank, allowing banks to rely less on the expensive money markets.

Optimism on the liquidity front has trumped weak economic data, with the Halifax housing survey citing a 1.3 percent monthly drop in prices in April.

The euro, meanwhile, was somewhat softer after a string of weak economic releases. The euro zone's manufacturing PMI was revised down to 50.7 from the preliminary estimate of 50.8, confirming the views that Europe has not 'de-coupled' from growth in the United States.

This was also apparent in the weak spending data from Germany earlier in the morning. Retail sales fell 0.1 percent on the month in March, well below the 0.5 percent increase expected by the market, suggesting growth is softening.

The data suggests the European Central Bank may be forced in coming months to soften its rhetoric on inflation, so far its chief concern, on expectations that weaker growth will reduce price pressures.

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Euroshares open up in thin trade after Dow gains; U.S. data in focus

At 9:09 a.m., the STOXX 50 was up 29.72 points, or 0.92 percent, at 3,266.99 and the STOXX 600 was up 3.58 points, or 1.11 percent, at 326.67.

The financial sector is back in focus in Europe as Royal Bank of Scotland shares moved up 2.67 percent after reports Texas Pacific Group, a private equity investor, is poised to bid for the bank's 8 billion pound insurance arm, according to the Daily Telegraph.

TPG is particularly keen on RBS's Churchill and Direct Line insurance brands, but is mulling an offer for the entire business, the newspaper said, citing a source.

Also in the banking sector, investors await confirmation of a press report that Paul Idzik, chief operating officer of Barclays, up 1.94 per cent, is to step down in a sign of a rift at the top of the United Kingdom's third-largest bank.  The Financial Times report suggested that Idzik had become frustrated at the tension between chief executive John Varley and Bob Diamond, the bank's president and head of its investment banking and fund management divisions.

Elsewhere, Clement Booth, a member of the Allianz board, said the company was very keen to increase its presence in the UK commercial insurance market and in retail insurance, sparking talk of a big acquisition in the UK general insurance market.

ING Group NV added 3.39 percent after it said on Friday it has reached an agreement to acquire CitiStreet LLC from Citigroup Inc. and State Street Corp. for 578 million euros. ING said the deal will provide significant operational synergies and is expected to be earnings per share-accretive by 2010, excluding merger-related expenses and the amortisation of customer-based intangible assets.

Santander led the pack, up 2.16 percent after credit rating agency S&P raised its outlook on Brazil.

"This upgrade was unexpected, and confirms expectations for continued growth in Brazil," a saleswoman at a leading European bank said, noting that Brazilian markets rose to record levels yesterday on the back of the news, with the Ibovespa closing up 6.3 percent.

Shares in Fiat SpA opened sharply higher after the decision Wednesday by Standard & Poor's Ratings Services to upgrade the group's corporate credit ratings to the investment-grade level.

Ericsson fared less well, falling nearly 2 percent in early deals as vague talk of accounting issues dragged on the handset group, but dealers dismissed the talk.

"There are rumours it would have to restate its numbers due to historical accounting errors," said one dealer at a leading Scandinavian brokerage. "We spoke to their investor relations department, who dismissed the talk as 'absurd'."

Cadbury Plc. dipped lower on its first day of trading as a confectioner only, with brokers mixed in their view of its fortunes. Cadbury -- previously Cadbury Schweppes -- began trading in London on Friday solely as a confectionery group, following the demerger of its drinks business. Shares were trading at 631 pence.

Reacting, Deutsche Bank said it rates Cadbury a 'hold' and has a 525 pence price target on the stock. Shares in lingerie manufacturer Van de Velde NV. were 1.88 per cent lower in early trade after Wednesday evening's update failed to excite investors.

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Asian stocks gain with Wall Street as investors conclude Fed on hold

The Hang Seng closed up 1.89 percent at 26,241.02. Hang Lung Properties closed 6.47 percent higher at HK$33.75 after the Hong Kong Monetary Authority followed the Fed with a rate cut of its own.
  
Hong Kong tracks Fed policy moves because the Hong Kong dollar is pegged to the U.S. dollar. The Nikkei closed 2.1 percent higher at 14,049.26 and the Topix gained 2.3 percent to 1,377.39. A weaker yen boosted export stocks. The dollar was last quoted at 104.64 yen, up from 104.11-14 late Thursday.
   
In Australia, the S&P/ASX 200 closed 2.1 percent higher at 5,700.4 and the All Ordinaries was up 1.9 percent at 5,760.4. Westpac rose 5.3 percent to A$25.85, National Australia Bank was up 4.6 percent at A$31.53, Commonwealth Bank of Australia was up 2.1 percent at A$44.95 and ANZ was up 5.5 percent at A$22.86.
   
Elsewhere, the Singapore Straits Times Index closed 2.8 percent higher at 3,236.10 and the Kospi closed 1.3 percent higher at 1,848.27.
   
The Malaysian KLSE fell 0.7 percent at 1,271.48 as plantation stocks fell with a lower crude palm oil price. while the Taiwan's weighted index closed up 0.49 percent at 8,963.63. Manila's 30-company composite index lost 1.0 percent at 2,722.95 as investors continued to worry about inflation despite a sharp pullback in commodity prices.
  
The Chinese market was closed for a public holiday and will reopen on Monday.

Oil stocks were mixed in Asia Friday. Offshore oil producer, CNOOC Ltd. lost 2.9 percent at HK$13.36 but China Petroleum & Chemical Corp. (Sinopec) rallied 5.1 pct to HK$8.69.
  
Asia's biggest oil and gas firm PetroChina, which also has refining operations, was up 4.1 percent at HK$12.08. In Australia, Santos fell 1.6 percent to A$17.08 after said it is in the preliminary stages of considering strategic initiatives but has nothing to announce at present.
   
Australia's second-largest oil and gas group, Santos, reversed earlier losses to close 2.0 percent higher at a record A$17.71 on persistent takeover speculation, despite the company having already said it was in the preliminary stages of considering strategic initiatives but had nothing to announce atpresent.
   
The nation's largest energy retailer, AGL Energy, rose 2.6 percent to A$12.40 on market talk that it might bid for Santos. In Tokyo, Mizuho Financial Group rallied 5.1 percent to 539,000 yen, Mitsubishi UFJ Financial climbed 2.7 percent to 1,131 yen and Sumitomo Mitsui Financial Group jumped 4 percent to 911,000 yen.
   
General leasing firm Orix surged 7.3 percent to 19,900 yen. Top brokerage Nomura Holdings rose 4.2 percent to 1,835 yen. Nonlife insurance firm Millea Holdings surged 5.1 percent to 4,580 yen.
   
Property counters also gained. Sumitomo Realty and Development rallied 7.4 percent to 2,690 yen following a report that the major developer will likely post a record pretax profit in the fiscal year to March 2008 for the eighth consecutive year.
   
Mitsui Fudosan closed up 5 percent at 2,715 yen and Mitsubishi Estate ended up 4.5 percent at 2,995 yen

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Metals - Copper prices edge higher after dollar-led rout

LONDON - Copper prices edged higher in early London trade on Friday, after giving up almost four percent during yesterday's broad based commodity sell-off sparked by the U.S. dollar's rebound.
   
Commodities priced in the U.S. currency were down across the board yesterday, as the greenback's rally against the euro made prices more expensive for holders of other currencies, while reducing the appeal of hard assets as a hedge against the greenback's previous weakness.
   
While copper is taking support from strikes in key producer Chile and dwindling London Metal Exchange inventories, the metal remains under pressure as the dollar maintains its firmer tone.
   
Basemetals.com analyst William Adams said while the dollar's strength had hurt prices, some traders would view this as a chance to buy metals where the fundamentals remain supportive. "In the likes of copper where the fundamentals are tight and, if anything, tightening, this sell-off may well be snapped up as a buying opportunity," Adams said.
   
"This is especially so when you consider that the equity and dollar rally is unfolding on the back of high hopes that the interest rate cuts and other measures the U.S. Federal Reserve has taken will bolster the US economy, which in turn should be good for metal demand."
   
At 10.20 a.m., London Metal Exchange copper for three-month delivery was trading at $8,260 per tonne against $8,220 per tonne at the close on Thursday. Earlier, prices dipped to the lowest level since late March, touching $8,152 per tonne.
   
Ongoing strikes at Codelco plants in Chile have kept copper prices underpinned during the dollar-led rout. Codelco's Andina and Salvador mines, which had an annual output of 282,000 tonnes in 2007, have been closed by striking subcontractors since April 16, while a third mine, El Teniente, has also suffered sporadic closures.
   
LME-monitored copper stocks are down almost 90,000 tonnes from the start of the year, declining by a further 450 tonnes to 109,625 tonnes in today's report from the exchange.
   
Among other metals, three-month aluminium traded up to $2,868 per tonne from $2,840. Although rising stockpiles of the metal have kept a lid on gains in recent weeks, analysts believe rising energy costs are keeping aluminium underpinned in the longer term and could send the metal higher.
   
Elsewhere, tin was trading steady against Wednesday's close of $22,750 per tonne, with ongoing supply concerns due to lower exports from Indonesia and strong Chinese demand supporting prices.
   
Lead for delivery in three months was trading at $2,560 per tonne against $2,579 per tonne, while nickel was up at $28,455 per tonne against $28,350. Zinc was up slightly at $2,201 against $2,190.

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