US & World Daily Markets Financial Briefing 04-01-2008

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Stocks open lower after jobs reading

Stocks fell in early trading Friday after the government's much-anticipated employment report showed weaker-than-expected job growth and a rise in the unemployment rate. The major indexes each fell more than 1 percent, including the Dow Jones industrial average, which lost more than 100 points.

The Labor Department's report that the nation's unemployment rate rose to its highest level since November 2005 and that employers raised payrolls by only 18,000 unnerved investors worried that a weakening job market will hurt consumer spending.

Investors had been awaiting the report for weeks as they tried to determine whether the economy would continue to benefit from robust consumer spending even as sectors like home construction, mortgage writing and manufacturing slow. Wall Street is concerned that areas of weakness could puncture growth and even tip the economy into recession if consumers can't depend on a solid job market.

Manufacturers, construction companies and financial services companies all cut jobs during the month amid an anemic housing market. Retailers also cut jobs.

The December report showed employers added the fewest jobs to their payrolls since August 2003. Economists had predicted a jobs growth figure of about 70,000 and an unemployment rate of 4.8 percent. Instead, unemployment climbed to 5 percent in December from 4.7 percent in November. While 5 percent unemployment is still considered good, the increase from November clearly made some investors nervous.

In the first hour of trading, the Dow fell 134.12, or 1.03 percent, to 12,922.60. Broader stock indicators also fell. The Standard & Poor's 500 index declined 17.72, or 1.22 percent, to 1,429.44, and the Nasdaq composite index fell 45.25, or 1.74 percent, to 2,557.43.

Bond prices rose as investors sought the safety of government-backed debt after the report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.85 percent from 3.89 percent late Thursday. The dollar was mixed against other major currencies. Gold prices, which have risen to nearly 30-year highs in recent days, declined.

Light, sweet crude fell 69 cents to $98.49 in premarket electronic trading on the New York Mercantile Exchange. Oil touched $100 per barrel this week for the first time, stirring concerns about inflation.

Further clarity on the health of the economy could come Friday when the Institute for Supply Management releases its December index of non-manufacturing activity. Economists predict slightly weaker expansion than in November.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 78 million shares. The Russell 2000 index of smaller companies fell 9.35, or 1.26 percent, to 735.66.

Overseas, Japan's Nikkei stock average fell sharply, finishing down 4.03 percent to its lowest level since July 2006 after being closed since the previous Friday for New Year's holidays. The pullback followed uncertainty on Wall Street about the U.S. economy and rising oil prices. Britain's FTSE 100 fell 1.02 percent, Germany's DAX index fell 0.90 percent, and France's CAC-40 fell 1.34 percent.

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Forex - Dollar modestly higher ahead of US payrolls

The impact of the data on the the dollar is unlikely to be clear cut. On the one hand, a weak number will add to rate cut expectations and weigh on the dollar but, at the same time, rising expectations of monetary easing may well help the currency as the move will be seen as a step in the right direction to shore up the US economy.

"Were the headline number to come in negative, as it did in August, talk of the dreaded R-word [recession] would gather pace," according to analysts at ING. If this does happen the dollar is likely to stay under pressure through the first few months of this year.

Elsewhere, the pound managed a small comeback after some decent UK economic data that went against the grain of the recent trend. In data this morning, the monthly purchasing managers index from the Chartered Institute of Purchasing and Supply for the services sector rose to 52.4 in December from 51.9 in November.

The rise was unexpected, with analysts polled by Thomson Financial News forecasting a decline to 51.0, and comes as markets are weighing the chances of a back-to-back UK rate cut next week.

James Hughes at CMC Markets believes that although the PMI services reading this morning may be able to provide some support, there is mounting belief that the Bank of England will look to push through a quarter-point rate cut as soon as next week.

Also out today, UK net mortgage lending rose by a higher-than-anticipated 7.8 bln stg in November, up on October's upwardly revised 7.7 bln.

Despite today's rays of light, anecdotal evidence of slow retail sales over the crucial Christmas sales season coupled with a dismal showing in the manufacturing sector continue to drive expectations of further monetary easing from the BoE.

Additionally, yesterday saw a large drop in the BoE's credit conditions survey, with supply of credit slumping for both corporates and households. The BoE lowered the base rate by a quarter point to 5.25 pct in December.

Steve Pearson at HBOS pointed out that the forex market is being driven by interest rate differentials rather than by anything else. "The currencies of the central banks which are cutting interest rates are likely to remain under pressure for now," Pearson said.

For now at least some of the angst about the year end effect of tight credit conditions appear to have been pushed to the background. Pearson at HBOS said that with money-market liquidity issues subsiding due to a combination of the turn of the year, attention has shifted to the extent of the economic damage already done.

"This is important as shifts in short-term interest rate differentials seem to be the main forex driver at present," he said. Against this backdrop, the pound and the dollar were under the most pressure. In Europe, the euro weathered a modest slowing in the area's service sector purchasing managers' index.

The euro zone's services sector growth slowed in December, weighed by uncertainty in financial markets, sources said of a closely-watched survey. They said the purchasing managers' index for the sector was revised down marginally to 53.1 in December, from 53.2 in the flash estimate and compared with 54.1 in November.

Analysts polled by Thomson Financial News were expecting the flash estimate to remain unchanged. Still, euro-zone data has not been weak enough to push the European Central Bank into lowering interest rates given concerns about rising inflation.

Inflation picked up in September in Europe as both areas show fragile economic growth. Just as in the U.S., rising energy prices are to blame. Read free, daily market reports available only at CMS Forex and open your free demo trading account today. Click here

Euroshares higher midday, Wall Street set for higher open, autos underperform

At 12.10 pm, the Dow Jones STOXX 50 Index was up 17.56 points, or 0.48 pct at 3,658.68 while the DJ STOXX 600 Index rose 0.60 points, or 0.17 pct to 359.55.

Wall Street is looking at a higher open ahead of a monthly employment report that may confirm the need for further interest rate cuts, to boost the economy, which is forecast to have created 70,000 jobs in December after a 94,000 gain in the prior month.

According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open up 47 points at 13,104. Separately, S&P 500 futures were up 3.50 points at 1,462.20 while Nasdaq 100 futures gained 2.25 points to 2,078.50.

Back in Europe, the auto sector was in the spotlight losing an aggregate 3.25 pct according to DJ STOXX, as investors digested US car sales figures overnight and after General Motors' chief executive Rick Wagoner said he does not expect the US car market to grow this year.

Daimler AG fell 3.12 pct, Continental lost 5.13 pct, with Volkswagen shedding 1.80 pct after its Audi unit saw US sales in December tumble 28.5 pct. In France, Renault was down 6.01 pct and Peugeot lost 4.23 pct. Automotive suppliers also suffered, with Michelin declining 4.87 pct and Valeo trading 4.13 pct lower.

In other news, shares in Carphone Warehouse surged 8.13 pct as dealers noted talk of strong iPhone sales and vague takeover speculation. "There are many stories around. There was a story yesterday that iPhone sales have been much better than expected and Vodafone bid rumours," said one London-based trader, adding he doesn't believe Vodafone Group PLC would ever make such a move.

Shares in Xstrata also moved on M&A speculation, up 3.11 pct, with talk of a potential bid from Brazil's Vale making the rounds. Among chemical companies, Linde rose 3.97 pct over rumours that Dow Chemical is mulling over a bid for the German group.

In broker action, Societe Generale was up 1.8 pct after UBS upgraded the French bank to 'buy' from 'hold' and raised the target for the French banking group to 130 eur from 114 eur.

UBS cited the company's attractive valuation, with Soc Gen trading some 40 pct below its all-time high following the sub-prime crisis. And Yara International hit a record high earlier after broker Merrill Lynch upgraded the group to 'buy' following stellar first-quarter results released by competitor Monsanto. At last check, the stock added 7.20 pct.

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Most Asian markets rebound on late bargain-hunting, Tokyo sharply lower

The Hong Kong market led the rebound in the region, with the Hang Seng Index ending up 2.4 pct to 27,519.69 after touching a high of 27,596.89 earlier in the day.

"The market was clearly oversold in the previous two trading sessions so it is time to buy now. Today it is being supported by oil stocks which are pushing the index higher on record high oil prices," said Ben Kwong, research head with KGI Securities. The Hang Seng index corrected 3.3 pct in the previous two trading sessions on lingering concerns over the state of the US economy.

The South Korean KOSPI index closed up 0.6 pct at 1,863.90, while the Singapore Straits Times closed up 1.2 pct at 3,437.79. The Shanghai Composite held up as resource stocks rose with higher metals prices. The index closed up 0.78 pct at 5,361.57, the highest level since Nov 15.

The S&P/ASX 200 closed 0.3 pct higher at 6,306.8, while the All Ordinaries finished up 0.2 pct at 6,385.4, supported largely by mining heavyweights BHP Billiton and Rio Tinto.

The Malaysian market was also in the black as index heavyweight Telekom Malaysia jumped on speculation about a potential foreign strategic partner for its international mobile unit. The Kuala Lumpur Composite Index (KLCI) closed up 2.2 pct at a new closing record of 1,466.67, off a new all-time high of 1,467.78.

The Taiwanese weighted index gained 0.45 pct to close at 8,221.10, after falling to as low as 8,097.85, while the Philippine Composite shed 0.6 pct to 3,479.37. Jakarta's composite index was up 1.9 pct at 2,765.19. The Nikkei closed a truncated session down 4 pct at 14,691.41 points after falling to as low as 14,542.58 during the morning session. The broader Topix lost 4.3 pct to 1,411.91 as investors sold big export and high-tech stocks.
 
Australia's leading gold miner, Newcrest Mining, reversed some of the gains made in the past two days as investors locked in profits. Newcrest fell 0.6 pct to 37.01 dollars. "Now that we have got two days of very strong increases in commodities prices I think people are saying 'we might have missed the boat yesterday we better get in today' and I think that could be what's driving it today," said Michael Heffernan, a private client advisor at Austock Securities.

In Hong Kong, Cnooc rose 5.6 pct to 13.86 dollars and Sinopec added 5.05 pct at 11.66. China Eastern Airlines (CEA) closed down 3.35 pct at 6.92 in erratic trade ahead of a shareholder vote next week on the carrier's proposed stake sale to Singapore Airlines (SIA) and Temasek Holdings.

Air China's parent China National Aviation Corp (CNAC), which holds 12 pct stake in CEA, said it will reject the proposed investment of SIA and Temasek unless the offer is improved. CEA shareholders will vote on the SIA/Temasek proposal on Tuesday. In Tokyo, Canon skidded 5 pct to 4,940 yen.

Indian shares close at record high on strong liquidity 

Today the Bombay Stock Exchange's 30-share Sensex swelled 341.69 points or 1.68 pct to 20,686.89, while the National Stock Exchange's 50-share S&P CNX Nifty surged 95.75 points or 1.55 pct to 6,274.30, both registering all-time high closes.

ICICI Bank Ltd, the country's biggest bank by market capitalization, was the top gainer among the BSE-30 blue-chips, rising 4.67 pct to 1,285.35 rupees while state-run National Thermal Power Corp Ltd lost the most, dropping 1.79 pct to 271.75 rupees.

Among the Nifty companies, Reliance Petroleum Ltd was up 5.20 pct to 244.75 rupees to be the top gainer and Sun Pharma Industries Ltd lost the most, down 2.14 pct to 1,111.50 rupees.

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Oil eases on profit taking midday but falling inventories, weak dollar support

Oil prices eased a touch in midday trade as investors cashed in some profits, but stayed within touching distance of yesterday's all-time highs, supported by falling US crude stocks and a weaker dollar.

A larger-than-expected 4 mln barrel drop in crude inventories reported by the US Dept of Energy yesterday propelled New York-traded WTI prices to a new record high of 100.09 usd a barrel last night.

US crude stocks are now some 65 mln barrels lower than they were in June, analysts said. Fears over supply tightness following 2007's third-quarter counter-seasonal draw on oil stocks in the OECD has been a key factor in pushing prices to record levels.

At 12.20 pm, New York's WTI crude for February delivery was down 34 cents at 98.84 usd per barrel. London's Brent crude for February delivery was down 6 cents at 97.54 usd per barrel, having yesterday reached a new record high of 98.50 usd.

"A favourable combination of declining inventories, the weak greenback, soaring demand from Asia and geopolitical risks helped to propel crude prices to 100 usd per barrel, gaining over 70 pct from a year ago," said Sucden analyst Michael Davies.

"It seems that these factors will continue to dominate oil headlines in the foreseeable future. And even if we see a deeper correction in oil prices, in the longer term, the bullish trend is likely to prevail, as spare capacity on the supply side is very limited and demand is still growing."

Analysts say OPEC is unlikely to increase its output substantially at next month's meeting in Vienna, where the cartel -- responsible for around a third of the world's oil output -- is set to discuss its current production levels.

OPEC has come under pressure in recent months to increase its output to dampen soaring oil prices. Members pledged to hike production by 500,000 barrels per day in September last year, but the organisation has resisted further calls to increase supply, saying rising prices are not the result of supply tightness.

In the shorter term, the market is now eyeing key US economic data due out later today. "Trading could be quiet ahead of the US non-farm payrolls numbers out later," said MF Global analyst Ed Meir. "Another key indicator due out later today will be the ISM services index."

Signs of a slowdown in the US economy could raise concerns that demand from the world's largest oil consumer will suffer, and is the chief price-negative factor currently facing the market.

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