US & World Daily Markets Financial Briefing 03-02-2009

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US Stocks Little Changed, DJI Slightly Higher

Stocks remained very close to where they started the session after a mixed finish on Monday that left blue chips within sight of their bear-market lows.

The Dow Jones Industrial Average was higher by about 21 points at 7988 in recent trade. It was bolstered by gains for drug maker Merck, which climbed 3.8% after posting a profit for the fourth quarter. General Motors was down 5.5% ahead of what are expected to be grim auto-sales figures to be released later in the day.

The S&P 500 Index was little-changed, with its basic-materials sector up 0.6% while most other sectors slid. The Nasdaq Composite Index was up less than a point.

Stocks are flirting with their lows for the cycle, and traders are anxious to see whether those levels hold. After its worst January on record, the Dow finished Monday down 64.03 points at 7936.83, after falling as low as 7867.37 during the day. It was the first close below 8000 since Jan. 20 and left the Dow fewer than 400 points above its bear-market low on Nov. 20.

Earnings reports were a continued focus in the markets. United Parcel Service, whose results are often carefully scrutinized for insights into broader economic trends, said its revenue and volume slumped even as the shipping company said it swung to a quarterly profit. Its shares rose 6.4%.

Motorola shares fell 13% after the company said it swung to a fourth-quarter net loss of $3.58 billion. Motorola also projected first-quarter earnings below analysts' expectations and said it would suspend its quarterly dividend in order to strengthen its balance sheet.

Oil and gas shares weighed on European indexes lower after BP posted a $3.3 billion fourth-quarter loss, but London's FTSE recently turned higher, gaining 1.1%. In Asia, Tokyo's Nikkei gave up early gains to fall 0.6%.

US Pending Home Sales Index +6.3% In December -- NAR

A forecasting gauge of home sales unexpectedly increased during December, a realtors' group said. The National Association of Realtors' index for pending sales of previously owned homes increased 6.3% to 87.7 from 82.5 in November, the industry group said Tuesday.

Private analysts projected pending sales would fall 0.5% during December. Last week, the NAR reported existing-home sales shot higher in December, spurred by buying of discounted property in distressed markets. Home resales rose 6.5% to a 4.74 million annual rate from 4.45 million in November; 45% of the 4.74 million were distress sales at discounted prices. The median home price dived 15.3% to $175,400 from $207,000 in December 2007 -- the largest drop on record.

Lower prices elevated the index for pending sales, the NAR said. "The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month," said Lawrence Yun, chief economist for NAR. "The biggest gains were in areas with the biggest improvements in affordability."

The gauge had gone down 3.7% during November; that's a revision down from a previously estimated 4.0% decline.

The NAR pending sales index, based on signed contracts for previously owned homes, was 2.1% above the level of 85.9 in December 2007.

Despite improved affordability, the housing market needs stimulus, the NAR said. "We need to take additional steps to meaningfully draw down inventory and stabilize home prices," NAR President Charles McMillan said.

In its monthly forecast on the industry, the NAR projected existing-home sales at 5.12 million this year and 5.44 million in 2009. That compares with 4.91 million in 2008.

The median price for an existing home is seen at $192,800 in 2009 and $201,700 in 2010. It was $198,600 in 2008.

A month ago, the NAR forecast 2009 sales at 5.22 million and 2010 sales at 5.58 million. The 2009 median price was projected at $198,100 and the 2010 price at $207,700.

The NAR's pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

By region, the Northeast decreased 1.7% in December from November; it had gone down 14.5% since December 2007. The Midwest increased 12.8% in December from November; it had gone down 1.2% since December 2007. The South increased 13.0% in December from November; it had gone up 1.6% since December 2007. The West decreased 3.7% in December from November; it had gone up 17.5% since December 2007.

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Euro And Pound Hit As Risk Aversion Rebounds
 
A brief recovery in risk appetite leaves the dollar narrowly mixed in Europe Tuesday as investors once again return to safe havens.

The euro and the pound were the main losers with the dollar and the yen posting small gains.

Risk appetite had improved for a while after the U.S. reported a better-than-expected Institute for Supply Management survey for last month and the Bank of Japan said it would buy Y1 trillion of shares from banks to help ease their plight.

However, continuing concerns about the world economy in general and fears that credit conditions in the U.S. still aren't easing left investors loathe to rush back into risky asset markets.

This was evident in the performance of stocks. Although the Dow Jones Industrial Average rebounded from heavy losses Monday, it still ended the day down 0.8%.

Likewise in Tokyo, the Bank of Japan announcement helped financials but failed to help the broader market and the Nikkei Index was still down 0.6% on the day.

Although the high-yielding Australian dollar was able to get some support from a larger-than-expected 100 basis point cut in interest rates by the Reserve Bank of Australia and a hefty AUD46 billion stimulus package from the government, any gains are expected to be fleeting as risk aversion once again takes its toll.

There is also little on the horizon to shift the current negative mood in the market. Later Tuesday, pending house sales in the U.S. are forecast to show a 0.5% rise last month, compared with a 4% fall the previous month but this is unlikely to inject any real optimism over a U.S. economic recovery.

If anything, an unexpected 0.2% fall in January German retail sales earlier in the day added to the market's fears about the world economy. Sales had been expected to rise 0.5%, recovering from a 0.4% fall in December.

"Looking ahead, the picture for private consumption is increasingly getting worse," said Carsten Brzeski, a senior euro zone economist with ING Financial Markets in Brussels.

The euro slumped on the news, falling to $1.2820 by 1000 GMT from $1.2847 late in New York Monday, according to EBS. The euro was also down at Y114.82 from Y115.13.

The dollar fell to Y89.56 from Y89.60, but rose to CHF1.1637 from CHF1.1625, while the pound declined to $1.4211 from $1.4275.

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London Shares Lower As BP Declines

BP shares fell in London on Tuesday, pressuring Britain's top share index, after the oil giant reported a hefty quarterly loss on the back of falling oil prices.

BP shares (BP) fell 3.4% to drag the FTSE 100 index lower. Joining many of its international peers, BP said it racked up a multi-billion dollar fourth-quarter loss as the oil-price dive eroded the value of inventories it has yet to sell.

The oil major swung to a $3.3 billion fourth-quarter loss amid significantly lower oil prices. "BP's fourth-quarter results were fairly uninspiring and fell short of consensus," noted analysts at Evolution Securities.

Arch-rival Royal Dutch Shell (RDSA) last week reported a $2.8 billion loss and other big oil companies have seen their profits drop.

Royal Dutch Shell shares fell another 2% on Tuesday, while Tullow Oil shares declined 2.3% and Cairn Energy shares lost 2.5%.

The losses for the sector pressured the U.K. FTSE 100 index which declined 0.3% to 4,064.94. Other European shares were also lower, as were U.S. stock futures.

However, a 6.5% advance for Vodafone Group (VOD) shares helped cushion downside for the FTSE 100 index.

The wireless telecom giant posted a 14% increase in third-quarter sales to 10.47 billion pounds ($14.9 billion), helped by growth in India and positive currency trends, and raised its guidance for the year to reflect the pound's decline.

Meanwhile, Imperial Tobacco Group said that if current foreign exchange rates persist, they will have an overall positive impact on 2009 results

The tobacco firm said that its overall performance and financial position so far in the fiscal year ending Sept. 30 remains in line with management expectations.

Shares dipped 0.4%. Nomura analysts downgraded the firm to neutral after the results, citing valuation. "Although we still see Imperial outperforming European cigarette peers in 2009, with a current valuation of 10 times 2009 estimated EV/EBITDA, we believe the majority of the good news is in the price," the analysts said.

Also higher were shares of Royal Bank of Scotland , which rose 2.9%.

The lender said Chairman Tom McKillop has retired. McKillop had been due to retire in April. He will be succeeded by Philip Hampton, who had previously been named chairman-designate of the group.

HSBC upgraded the lender to overweight from neutral and lifted its price target to 35 pence from 15 pence saying that the threat of immediate full nationalization has lifted.

Shares of mineral extractor Ferrexpo jumped 11.3%. The firm said 2008 was a record year and its fiscal-year operating financial performance exceeded management expectations after costs fell sharply in December, in part due to lower oil prices.

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Asian Shares End Mixed; Nikkei Drops After Volatile Session

Asian markets ended mixed Tuesday as export-related shares and financials broadly advanced but property developers lost ground on a weak outlook for prices.

Australian shares ended higher for the fifth time in six sessions after the government announced a fiscal stimulus plan and the central bank cut a key interest rate by a full percentage point.

Japanese stocks took a roller-coaster ride before being grounded by declines in lenders such as Shinsei Bank and Mitsubishi UFJ Financial Group.

Chinese shares in Shanghai extended gains on hopes the government may unveil more policies to support a weakening economy. But in Hong Kong, property stocks declined a day after the Hong Kong Monetary Authority said the number of residential mortgage loans in negative equity nearly quadrupled in the last quarter of 2008 as property prices dropped. Sun Hung Kai lost 4.9% and Cheung Kong (Holdings) shrank 6.1%.

"Maybe on the mainland people are still expecting the government to introduce more policies, but I don't think that's helping Hong Kong markets much," said Linus Yip, strategist at First Shanghai Securities.

China's Shanghai Composite, where trading resumed Monday after a long Chinese New Year holiday, extended gains to finish up 2.4% at 2,060.81.

The performance lifted the Hang Seng China Enterprises Index, also known as the H-shares index, 0.7% in Hong Kong. But the benchmark Hang Seng Index closed 0.7% lower at 12,776.89.

In Tokyo, the Nikkei 225 Average closed 0.6% down at 7,825.51. The benchmark flirted with gains a few times and rose as much as 2.7% after the Bank of Japan announced it planned to buy stocks worth up to 1 trillion yen ($11.1 billion) through April 2010 from Japanese banks to help improve the lenders' balance sheets.

Mitsubishi UFJ shares fell 0.8% and Shinsei stock lost 7.4% after Japanese media reported they would slash earnings forecasts. Shinsei, after the market closed, said it predicts a group net loss for the fiscal year ending in March.

Shipping stocks rose sharply, however, after another rise for the Baltic Dry Index, with Nippon Yusen rising 5.2% and Mitsui O.S.K. Lines finishing 4.9% higher.

In Sydney, the S&P/ASX 200 rose 0.3% to 3,508.70, although it gave up some of its early gains after the Reserve Bank of Australia cut its official cash rate target by 100 basis points to 3.25%, as expected. But the market remained supported by the government's plan for an additional A$41.5 billion (US$26 billion) in fiscal stimulus.

"What the government is doing is providing some fairly good support, but it may not be enough to completely offset the damage that's going to be done to businesses and exports from the very sharp downturn in the global economy," said ANZ Bank senior economist Katie Dean.

Shares of Commonwealth Bank of Australia jumped 9.8% after the lender forecast its half-yearly profit was likely to be 16% lower than in the same period last year, but 20% more than consensus analyst estimates. The prediction lifted other financials, with National Australia Bank gaining 4.5% and Westpac Banking Corp. jumping 7.1%.

Banks also advanced in Hong Kong, Mumbai and Seoul, recovering some of their losses from the previous session. Bank of China gained 1% in Hong Kong, ICICI Bank climbed 3.6% in Mumbai afternoon trading and Industrial Bank of Korea rose 3.6%.

In afternoon trading, India's Sensitive Index rose 0.6% to 9,117.90, with DLF extending losses to tumble 12.5% by mid-afternoon after reporting a sharp decline in earnings last week.

Vinod Sharma, director and head of research at Anagram Securities in Ahmedabad, said investor confidence was low in the wake of poor corporate earnings growth and as foreign investors continued to sell down their holdings.

"Currently, people are looking for opportunities, where if the market goes up, they would like to lighten their commitments," he said. "Long term players are staying away and I don't see serious people entering the market."

In Seoul, Samsung Electronics was up 3.5% and Hynix Semiconductor Inc. rose 2.4% on hopes of a recovery in chip prices. In Taipei, Hon Hai Precision gained 2.2% and AU Optronics Corp. jumped 5.4%.

South Korea's Kospi ended up 1.4% at 1,163.20 and Taiwan's Taiex gained 2.7% to 4,372.81. Malaysian shares fell 0.7% and Indonesian stocks declined 0.5%, while Thailand's main index added 0.5% by late afternoon. Singapore's Straits Times Index added 0.6% to 1,715.70.

March Nymex crude-oil futures were last up 22 cents at $40.30 a barrel after falling in New York trade following the resolution of a refinery labor dispute.

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Demand Fears Restrain Crude's Attempts Higher

Crude oil futures inched higher in Europe Tuesday, but failed to gather momentum as the market retained its focus on shrinking demand amid widespread economic slowdown.

Crude prices traded near the bottom of their recent trading ranges as the prospect of shriveling demand continued to damp buying interest. But Nymex crude futures managed to hold above the psychologically important $40 a barrel level, with a backdrop of Organization of Petroleum Exporting Countries output cuts sufficient to deter protracted selling, and keep prices rangebound.

"The story's not changed -- we get to $40 it's a bit too cheap, speculators are going to buy it. If it gets to $50, people stop buying it, there's not enough demand for $50 oil," a London-based crude broker said. "The fundamental issue remains the economy, that's stopping the price going up."

At 1148 GMT, the front-month March Brent contract on London's ICE futures exchange was up 31 cents at $44.13 a barrel.

The front-month March light, sweet, crude contract on the New York Mercantile Exchange was trading 2 cents higher at $40.10 a barrel.

The ICE's gasoil contract for February delivery was down $4.75 at $424.25 a metric ton, while Nymex gasoline for March delivery was unchanged at 114.92 cents a gallon.

Crude's resistance to moves higher comes despite OPEC's combined 4.2 million barrels a day of output cuts unveiled since last September. However, the group's attempt to help prices higher has been largely thwarted by brimming oil stockpiles, particularly in the U.S.

Iran's OPEC governor said late Monday that a continued rise in global oil inventories amid declining crude demand could warrant further production cuts by producers.

"When you see the (oil) stocks building rapidly it means there is a surplus in the market that needs to be balanced," Mohammad Ali Khatibi told Dow Jones Newswires by telephone.

Latest U.S. oil inventory data is due first from the American Petroleum Institute at 2130 GMT Tuesday, followed by weekly data from the U.S. Department of Energy Wednesday. Initial analysts' estimates suggest crude oil stocks rose again last week, a development that could pile more pressure on Nymex crude prices in particular.

Aside from inventory data, economic news is likely to help set the agenda for oil prices with U.S. non-farm payrolls and unemployment data due Friday expected to be particularly closely watched.

"If we see another big increase (in unemployment), it won't be possible for oil prices to increase. The focus is still on oil demand and especially fears that oil demand will decrease further," said Sintje Diek, analyst at HSH Nordbank in Hamburg.

Revealing earnings Tuesday, BP PLC Chief Executive Tony Hayward said oil demand will continue to fall in 2009 as the global economy continues to slow. The company Tuesday posted a 42.5% fall in adjusted net profit for the fourth quarter after shrinking demand in the slowing global economy caused oil prices to slump. It said full-year profit was $21.2 billion compared to $20.8 billion a year earlier.

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