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

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Stocks decline moderately on jobs report

NEW YORK - Stocks pulled back and Treasurys rallied Friday following news that the economy gave up 80,000 jobs last month, the biggest loss in five years.

Although the job losses are a significant sign of economic weakness, some investors were relieved that the total was not 100,000 or more.

In addition, the weak report was widely expected. Thomson/IFR had projected 15,000 jobs were lost in March, but some economists expected 150,000 job cuts.

Payrolls for January and February were revised lower by a total of 67,000 and the unemployment rate shot up to 5.1 percent, the highest since September 2005.

The economy has given up jobs every month since the start of the year and the latest report adds fuel to the belief of many economists that the U.S. is already in recession.

In the first hour trading, the Dow Jones industrial average fell 66.20, or 0.52 percent, to 12,559.83. Broader stock indicators fell. The Standard & Poor's 500 index slipped 2.91, or 0.21 percent, 1,336.40, and the Nasdaq composite index declined 3.02, or 0.13 percent, to 2,360.28.

Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume came to 180 million shares.

Treasurys were up after the jobs report, as investors tend to opt for the safety of government-backed bonds when the economy is in danger. The yield on the benchmark 10-year note fell to 3.50 percent from 3.59 percent late Thursday. Prices and yields move in opposite directions.

On Thursday, stocks rose modestly after Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee the Fed expects to recover most, if not all, the $29 billion worth of loans it made to keep struggling Bear Stearns Cos. from collapse. Bernanke's remarks, in which he defended the central bank's decision to aid JPMorgan Chase & Co.'s takeover of Bear Stearns, were calming to investors hoping that demand is returning to the tight credit markets.  

The Russell 2000 index of smaller companies fell 2.88, or 0.40 percent, to 710.69. In Tokyo, the Nikkei index closed down 0.72 percent. However, there were gains in European trade, as London's FTSE 100 rose 0.50 percent, Frankfurt's DAX strengthened 0.22 percent and Paris' CAC 40 fell 0.35 percent.

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Forex - U.S. dollar stays weak as market awaits U.S. jobs data

LONDON  - The U.S. dollar remained weak against major currencies, but with trade very volatile as market players awaited Friday afternoon's key U.S. non-farm payrolls data.

The consensus forecast is for the report to show the number of jobs created in the U.S. economy during March fell by about 50,000. However, there is a great deal of uncertainty ahead of the release given yesterday's surge in weekly jobless claims to their highest level since September 2005.

This has prompted talk of a weak number that could prompt the Federal Reserve to cut interest rates further. "Today's focus will be on non-farm payrolls, and after yesterday's jobless claims, easing expectations were on the rise again," said Manuel Oliveri at UBS. "This likely also led to major pre-payrolls positioning, putting dollar upside at risk," he said.

Speculation of a disappointing number took the euro to a high of $1.5739 and the pound up to $2.0033 after it rose back above the $2.00 mark for the first time in a week. Adding to the uncertainty, however, the more volatile U.S. ADP jobs report earlier in the week had suggested that payrolls would be positive, leaving a chance that Friday's numbers will be strong.

"If we see an outturn well in the positives, say 10,000 or above, then that should ease some recession fears generated by consecutive contractions in the job market in January and February," said Henrik Gullberg at Calyon.

It would also allow the Fed to take a back seat for a while before deciding whether to cut rates further, he noted. "A more encouraging development may allow the Bank more time to discover if and to what extent past rate moves are impacting on the economy.

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Euroshares modestly higher midday; caution dominates ahead of US jobs data

At 9:00 a.m., the DJ STOXX 50 was up 9.7 points or 0.31 percent at 3174.79 and the DJ STOXX 600 was up 0.55 eur or 0.17 percent at 318.52.

Back in Europe, SAP gained 2.66 percent after the software giant reiterated its 2008 and mid-term guidance and as CEOs Leo Apotheker and Henning Kagermann outlined a change in R&D strategy, which they said should benefit the company and its stockholders.

Telecoms were mostly higher with Deutsche Telekom, up 1.18 percent, boosted by rumours it is considering selling its T-Mobile business, although dealers were sceptical about the timing. Bouygues, owner of mobile telecom operator Bouygues Telecom, rose 4.17 percent as rumours circulated that the government is shelving plans to auction a fourth mobile telecoms licence.

The move would eliminate a significant competitive threat to the existing trio of operators, Vivendi's SFR, France Telecom's Orange and Bouygues Telecom. Vivendi shares rose 0.58 percent while France Telecom added 1.65 percent.

According to a Paris-based dealer, Bouygues is benefiting in particular from the talk, as investors believe it will find it easier to sell off its Bouygues Telecom unit in preparation for a tie-up with Alstom and Areva. Freenet jumped 16.85 percent after Drillisch and United Internet announced they had resumed talks aimed at acquiring the company.

And United Internet rose 4.26 percent after the TecDAX-listed internet service provider announced bullish 2008 guidance. "The guidance looks very strong at first glance," said a local trader, who said he would be able to give more information after an analyst at his brokerage reports from the company conference today.

Among financials, UBS outperformed, up 3.33 percent as market watchers speculate on a potential break-up of the group after Luqman Arnold, the institution's former chief executive wrote to the bank calling for the separation of its wealth management and investment bank businesses, according to a report in the Financial Times.

But BCP shed 4.65 percent, after the bank set a deeply discounted price for its 1.3 billion euro rights issue. The Portuguese bank said the new shares will be offered to existing shareholders at 1.20 euros each, a discount of about 45 percent to Thursday's closing price of 2.185 euros per share.

Turning to M&A talk, Air Berlin rallied 5.59 percent, after it said that investor Vatas sold its 18.56 percent stake in Germany's second biggest airline. The potential buyer may be an "institutional investor" and traders said the uncertainty was creating room for speculation.

Meanwhile, British Energy added 5.96 percent on the back of a report in La Tribune which suggested a bid approach by France's EDF may be imminent after the latter reportedly received the approval of its board to make an offer for 100 percent of the UK nuclear power producer.

But Nokian Tyres fell 4.52 percent, as it trades ex dividend today. Analysts said the cautious comments at yesterday's AGM were to be expected and cheered the strong current order book. Nonetheless, SEB Enskilda said it will cut its earnings forecasts by around 3 percent to reflect the shift in earnings to the second quarter from the first quarter and falls in the value of the rouble.

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Asian stocks mostly down ahead of U.S. jobs report; Australia outperforms

The Nikkei closed down 0.7 percent at 13,293.22, while the broader Topix was down 0.8 percent at 1,288.94. "Japan's economic growth is pausing against a background of the U.S. economic slowdown, the firmer yen and the fall in stocks, as well as higher oil prices," Hiroko Ota, Japanese Minister for Economic and Fiscal Policy, told reporters.
   
Bridgestone closed down 5.7 percent at 1,788 yen and shed 2.1 percent to 5,050 yen and Honda Motor declined 5.2 percent to 2,960 yen.     The Kospi closed very slightly higher at 1,766.49 and the Singapore Straits Times was down 0.5 percent at 3,155.5.

But Australia held up with the S&P/ASX 200 finishing up 0.2 percent at 5,619.6 and the All Ordinaries up 0.3 percent at 5,663.7.  BHP Billiton closed up 1.3 percent at A$38.60 while Rio Tinto was up 0.5 percent at A$130.85.

The Kuala Lumpur Composite Index (KLCI) closed down 0.3 percent at 1,221.98. The Philippine 30-company composite index fell 1.7 percent to 2,983.04.  The Jakarta composite index closed up 1.7 percent at 2,277.09. 

Among individual stocks, Australia gold miner Newcrest gained 0.5 percent to A$33.60 after it sold its 70 percent stake in the Cracow gold mine joint venture in Queensland to Beadell Resources Ltd. for A$200 million in cash.

Emerging iron ore producer Mount Gibson fell 7.9 percent to A$2.70 after Russian Gazmetall sold its entire 19.5 percent stake in the company to institutional investors for A$2.65 a share.

Conglomerate Wesfarmers gained 0.3 percent at A$39.44 after it raised A$650 million from a bond issue in the U.S. to help refinance debt it incurred for the acquisition of Australia's second largest retailer Coles Group last year.

Leading insurer QBE Insurance Group finished up 2.4 percent to A$25.19 after the company said it was on target to reach its insurance margin guidance for 2008. In Tokyo, leasing company Orix advanced 3.1 percent to 16,937 yen, and Mizuho Financial climbed 1.9 percent to 419,888 yen.

The Bombay Stock Exchange's (BSE) 30-share benchmark Sensex fell 489.43 points or 3.09 percent to 15,343.12, declining more than 6 percent this week. The broader 50-share S&P CNX Nifty of National Stock Exchange (NSE) dipped 124.60 points or 2.61 percent to 4,647.00.

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Metals - Copper eases as stocks rise; trade nervous ahead of U.S. data

LONDON - Copper eased as global inventories started to rise, albeit from low levels, and on nervousness ahead of key U.S. nonfarm payrolls data.

Some worries over the credit crisis have eased lately but today's data could wipe out that optimism, should it fall below expectations.

This morning, the LME reported global stocks rose a hefty 2,575 tonnes. This follows several weeks of falls but stocks remain at their lowest level since August last year.

Key U.S. non-farm payrolls data is expected to show the number of jobs created in the U.S. economy during March fell by about 50,000. However, there is a great deal of uncertainty ahead of the release given yesterday's surge in weekly jobless claims to their highest level since September 2005.

"If as expected the data shows job losses it will be the third on the trot, which in many people's view is a sign of recession. The question is therefore whether the ongoing tightness in some of the metals will be more influential than the fear of a deeper slowdown," said BaseMetals.Com analyst William Adams.

At 10.31 am, LME copper for three-month delivery was quoted at $8,490 per tonne against $8,550.50 at the close yesterday. Base metals prices are closely linked to wider economic indicators as players reckon persistent credit market weakness could mean less investment into the sector and demand would slump.

However, copper managed to reach a record $8,820 last month in line with soaring commodity prices as investors bought raw materials as a hedge against ailing equity markets. Some analysts reckon even if market weakness continues, seasonal second quarter busy demand should underpin the metals.

"Although base metals prices remain at risk from negative sentiment we believe that a pick up in the physical markets in Q2 will help to calm fears over demand. This should create a positive environment for prices of most metals," said Barclays Capital analysts.

In other metals traded on the LME, lead for delivery in three months was down at $2,915 per tonne against $2,960. Aluminium fell to $2,895 per tonne from $2,910 and zinc was down to $2,290 per tonne from $2,320 at the close yesterday. Three-month tin edged slightly lower to $20,000 per tonne from $20,195, while nickel fell to $28,650 a tonne against $29,000.

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