US & World Daily Markets Financial Briefing 03-07-2008

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US Jobless Claims Hit 3-Mo High, Back Above 400K in June 28 Wk

Wall Street was mixed in early trade after Wednesday's heavy falls. In early trade, the Dow Jones Industrial Average was up 23.6 points at 11,239.1. The S&P 500 was 3.85 lower at 1,257.65. The Nasdaq Composite was down 10.96 at 2,240.5.

Initial claims for U.S. state unemployment  benefits jumped 16,000 to 404,000 in the June 28 week to rise back over  the 400,000 level for the first time in three months, the Labor  Department reported Thursday morning.

The week's increase was well above forecast expectations, which had come in with a mean of 390,000 in a Market News International survey.

A Labor Department analyst told MNI that there was "not anything"  unusual and there were no special factors for the week and cited  occasional bouts of "volatility" in the claims data. There was "nothing
underlying from the states," the analyst added.

Initial claims were last reported higher at 406,000 in the March 29 week. Seasonal adjustments had expected a decline in the June 28 week's  unadjusted claims of 1.1%, but instead got an increase of 2.9% or 10,503.

The four-week moving average surged 11,250 to 390,500, the highest level since 399,000 was reported in the Oct. 1, 2005 week. Continuing claims for the June 21 week were down 19,000 to 3.116 million, but have stayed above the 3 million since the April 19 week.

The four-week average for continuing claims increased 8,750 to 3,110,750, the highest level since 3.120 million was reported in the Feb. 28, 2004 week.

The seasonally adjusted insured unemployment rate edged down to 2.3% for the June 21 week, a decrease of 0.1 point from the prior week's rate of 2.4%. A year ago the rate was 1.9%.

The unemployment rate among the insured labor force is roughly half  that reported monthly by the Labor Department because claims are approved for the most part only for job losers, not the job leavers and
labor force reentrants included in the monthly report.

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Forex - Dollar off day lows as markets shrug off weak U.S. data

LONDON - The dollar came through on top in a day marked by mixed fortunes as players shrugged off a European Central Bank rate hike and yet another drop in U.S. job creation.

The day's U.S. data was decidedly weak, with the snapshot of the services sector of the world's biggest economy and the much awaited jobs report painting a gloomy picture. However, not so gloomy that it was unexpected and already reflected in the dollar's exchange rate.

The dollar had suffered a brief dip after the European Central Bank raised interest rates by a quarter point, as expected, but its falls proved fleeting. The euro rose above $1.59 but quick profit-taking ensued, especially after ECB chief, Jean-Claude Trichet, failed to signal that more hikes are on the way.

"The dollar recovery was a classic example of 'buy the rumour sell the fact' with both the ECB rate hike of 25 basis points and non-farm payrolls of -62,000 widely anticipated by markets and already priced into exchange rates," said Michael Woolfolk at Bank of New York Mellon.

"The failure of Trichet to signal any further ECB rate hikes and the failure of non-farm payrolls to live up to its negative whisper, prompted a sizable relief rally ahead of the long holiday weekend," he added.

U.S. markets will be closed Friday for a public holiday. "Given that Trichet had no knowledge of non-farm payrolls ahead of its release, it was obvious in retrospect that he would not pre-commit to further rate cuts and risk triggering a surge in the euro above the $1.60 level," said Woolfolk.

Also on Thursday, the Institute for Supply Management (ISM) said the non-manufacturing index for June fell to 48.2, lower than the 51.0 median expectation of economists polled by Thomson Reuters IFR Markets, and down from the 51.7 reading in May. A reading above 50 indicates growth, below 50 contraction. But by the time the data came out, the dollar's trend was already intact.

Elsewhere, the pound remained on the back foot, but more against the dollar than the euro. The euro came close to making a sustained break above the 0.80 level against the UK currency after a survey showed UK services sector activity at its weakest for five years but the momentum faded as the day wore on.

UK services sector PMI slumped to 47.1 in June from 49.8 in May, keeping the reading below the 50 level that marks contraction in the sector and way below forecasts for a much more moderate fall to 49.5. The news came as a Bank of England survey also reported tighter credit supply and wider spreads to both firms and households, raising fears of a recession in the UK.

"The UK economic outlook continues to darken amid the triple whammy of a credit crunch, oil price surge, and housing market correction ... The risks of mild recession in the UK are clearly rising," said Matthew Sharratt at Bank of America.

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Euroshares down as Dow enters bear market territory; oil above $144 

At 8:20 a.m., the DJ STOXX 50 was down 29.92 points or 1.05 percent at 2810.49 and the DJ STOXX 600 was down 4.01 points or 1.43 percent at 276.68.

In Europe, car stocks posted some of the sharpest falls as concern about GM and record high oil prices spread to Europe, with Daimler down 2.86 percent.

Renault, which posted sharp gains on Wednesday after Citigroup upgraded the French group to 'buy', was down 1.58 percent. The airline sector was also suffering with Air France-KLM down 5.23 percent after Deutsche Bank cut its rating to 'sell' from 'hold', having slashed its price target to 12.5 euros from 22.4 euros.

The broker said there are clear signs the growth in premium air travel has stalled and said it looks like it will be difficult for the Franco-Dutch airline group to cut costs, especially at its Paris hub.

And Goldman Sachs has downgraded Austrian Airlines to 'sell' from 'neutral' saying high operational leverage and low fuel hedging results in its book value eroding disproportionately as oil climbs higher and losses increase. Shares fell 8.04 percent. Lufthansa shares were 2.81 percent lower.

Steel groups tracked their Asian peers lower amid concern that demand from the embattled car and buildings sectors is likely to fall as the global economic downturn persists, with UBS arguing that steel prices are likely to stabilize in the second half.

Arcelor-Mittal fell 4.63 percent and Thyssenkrupp slumped 4.53 percent. And miners were also weak as falling prices took their toll. Anglo American fell 1.81 percent, BHP Billiton fell 3.01 percent and  Rio Tinto fell 2.59 percent.

In earnings news, OCE dropped 19.56 percent as its second quarter results missed analyst expectations and Trigano fell 23.09 percent after it warned  the slowdown in the leisure vehicles sector will weigh on 2008 sales and results.

And broker changes added to the gloom with Telecom Italia down 1.07 percent after Cheuvreux cut its recommendation to 'sell' from 'underperform'. Banco Popular shares have been downgraded to 'underperform' from 'market perform' at Keefe, Bruyette & Woods. Shares fell 1.19 percent.

But Tesco added 0.96 percent as Merrill Lynch upgraded the shares to 'buy' from 'neutral'. Saint-Gobain which had traded lower in opening deals climbed 1.61 percent. Traders said the group has been heavily sold and may be benefiting from bottom-fishing.

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Asian stocks fall further on U.S. economic worries

The Kospi index closed down 1.1 percent at 1,606.54. Japan's Nikkei 225 Stock Average closed down 0.2 percent at 13,265.40 and the broader Topix shed 0.2 percent to 1,298.02.

In Australia, the S&P/ASX 200 fell 1.9 percent to finish at 4,998.3, a near two-year low, and the All ordinaries closed down 2.3 percent at 5,094.

The Hang Seng index dipped 0.6 percent to 21,579.20, recouping early losses after the Shanghai market's rebound inspired investors to seek bargains. The benchmark Shanghai Composite Index closed up 1.95 percent at 2,703.53, following recent falls.

Crude oil hit a record $144.32 a barrel in after-hours trading after reaching a record settlement of $143.57, an advance of $2.60 on the New York Mercantile Exchange. The Energy Department reported that U.S. crude oil supplies fell more than expected last week.

General Motors Corp. shares hit a multi-decade low, falling 15 percent to end below the $10 mark for the first time since September 1954 after a Citi Investment Research analyst slashed his price target on GM stock to $14 from $21, citing liquidity concerns.

Although the analyst said the company is not likely to face an immediate cash shortage, concerns from 2008-09 have grown in recent months. Automakers fell on the news. In Korea, Hyundai Motor tumbled 4.5 percent to 70,200 won and Kia Motors fell 2.6 percent to 11,400 won. In Japan, Honda Motor shed 0.3 percent to 3,590 yen.

Airlines continued to tumble on record fuel costs. In Hong Kong, Cathay Pacific was down 1 percent to HK$13.84 after losing nearly 6 percent on Wednesday, after it said its results this year will be disappointing due to high jet fuel prices.

Manila's composite index lost 2.3 percent to end at 2,339.84, Singapore's Straits Times Index finished down 0.9 percent at 2,880.45 and the Kuala Lumpur Composite Index (KLCI) finished down 1.8 percent at 1,153.70, off a low of 1,149.09.

The Jakarta composite index closed down 3.9 percent at 2,286.61. Meanwhile, Taiwan's weighted index closed up 0.55 percent at 7,394.10.

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Metals - Gold drops as dollar firms

LONDON - Gold dropped to around $930 per ounce on Thursday after the dollar firmed against the euro, reducing the appeal of the precious metal as an alternative to the U.S. currency.

At 3:09 p.m. BST, spot gold was trading at $931.70 per ounce against $945.00 per ounce in late New York trade on Tuesday. Gold had risen by almost $90 per ounce since slipping to a low of $858.30 per ounce on June 24

Gold has been pushed higher by rising oil prices, heightened risk aversion and dollar weakness recently as investors have looked for a safe store of wealth during the current economic turmoil.

However, profit-taking ahead of the July 4 weekend in the U.S. was encouraged by a stronger tone in the dollar on Thursday. The dollar firmed off a two-month low against the euro on a combination of better than expected employment figures in the U.S. and some neutral comments from the European Central Bank.

ECB President Jean-Claude Trichet was noncommittal about the future direction for interest rates in the eurozone, in the wake of the central bank's widely predicted 25 basis point rate hike on Thursday.

The near 30 cent decline in the dollar's value against the euro since the start of 2007 has been one of the major drivers of gold's move higher. The precious metal has added over $300 per ounce in the last 18 months, with gold bought as an alternative to the most common form of global currency reserves.

The precious metal remains well supported by rising inflation concerns, with oil prices smashing records above $145 a barrel in New York and London. "The price of oil is fuelling inflation fears and pushing up gold," said analysts at Commerzbank.

Among other precious metals, platinum was down at $2,028 per ounce from $2,076 per ounce, while sister metal palladium slipped to $458 per ounce from $466.25 per ounce. Silver dipped to $18.12 per ounce from $18.31 per ounce.

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