US & World Daily Markets Financial Briefing 04-08-2008

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US June consumer spending up 0.6 pct; personal income up 0.1 pct

WASHINGTON - U.S. consumer spending rose slightly more than expected in June, driven by a record high increase in inflation, the Commerce Department said Monday.

The Dow Jones Industrial Average lost 86.2 points at 11,240.1, while the Nasdaq Composite eased 21.64 at 2,289.32 and the S&P 500 index slipped 5.98 at 1,254.33.

Personal consumption expenditures rose 0.6% in June after rising 0.8% in the prior month. Economists polled by Thomson Reuters IFR Markets expected consumption to rise 0.5%. But after adjusting for inflation, real consumer spending was actually down 0.2% following a 0.3% gain in May.

Personal income was up 0.1%, higher than the 0.2% drop economists were expecting. Disposable personal income fell 1.9% in June and real disposable income fell 2.6%. Both figures were the largest declines since August 2005. However, the declines were due in large part to a relative change in tax rebates from the Economic Stimulus Act of 2008 from May.

The government issued payments of $27.9 billion in June, down from $48.1 billion in May. Private employer payments increased $11.1 billion June, less than the $17.7 billion in May. Payrolls were up in all categories, including in the public sector, where government wage and salary disbursements rose $5.2 billion.

Inflation, measured by the core Personal Consumption Expenditure (PCE) index, excluding food and energy, rose 0.3%, more than the 0.2% expected by economists.

The headline PCE price index was up a record 0.8 pct in June. Over the last 12 months, the core PCE index rose 2.3 pct as expected. Headline PCE inflation rose 4.1%, the highest since May 1991. The personal savings rate for June was 2.5%.

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Forex - Major currencies hold trading patterns as key week unfolds

LONDON - The euro came off day lows against the dollar but with major currencies still holding to recent trading patterns as markets looked to the interest rate decisions this week quiet start.

The U.S. Federal Reserve makes its rate decision on Tuesday, followed by the European Central Bank and the Bank of England on Thursday. All three are expected to leave rates on hold, as they grapple with rising inflationary pressures at a time when economic growth is slowing.

Any clues provided in either upcoming data or in the press conferences accompanying the rate decisions in the U.S. and Europe on where rates will be going next will be closely scrutinised, however.

"Tomorrow, the Fed will be on the agenda. We expect the Fed to appear hawkish with more than one FOMC member voting for higher rates," said analysts at BNP Paribas.

In the meantime, attention was on corporate earnings data -- key among them were results from Fortis and HSBC, which though weak, came in above expectations "However, substantial asset write downs have been reported and there is the worry that asset write-downs are now shifting from sub-prime towards corporate related bonds," analysts at BNP Paribas added.

The U.S. dollar enjoyed modest gains on Friday after key non-farm payrolls data revealed smaller losses than the market had expected, though these proved short-lived. Attention this week will turn to the release of PMI data on the services sectors in the U.S., the euro zone and the UK.

At 1440 GMT, the euro was trading at $1.5619 from $1.5579 earlier. Elsewhere, the pound was also off day lows but still under pressure as investors look to a rapidly weakening economy.

The pound came under pressure after weaker-than-expected UK construction PMI data Monday, combined with a report in the Independent on Sunday that said the Halifax will report an annual fall in house prices of over 10 percent when it announces the results of its latest monthly survey this week.

The PMI index measuring construction activity in the UK slumped to 36.7 in July, marking yet another lowest reading since the series began in 1997 as the sector continues to suffer from the effects of the credit crunch and the economic slowdown. A reading below 50 marks contraction in the sector.

At 1154 GMT, the pound was trading at $1.9702 from $1.9670 against the U.S. dollar while the euro rose to 0.7926 pence from 0.7918 pence.

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Euroshares lower midday as Dow set for falls; HSBC, Fortis down after updates

At 12.14 a.m., the DJ STOXX 50 was down 14.74 points, or 0.52 percent, at 2837.82 and the DJ STOXX 600 was 1.06 points, or 0.38 percent, at 279.18.    

Financials remain in focus in Europe as Fortis shares moved 2.58 percent lower after the group said financial turbulence will continue into 2009. The Belgo-Dutch bancassurer said second-quarter net profit fell to 830 million euros, excluding exceptional items, from 1.616 billion last year, in line with the 524 million - 1.335 billion euros forecast by analysts polled by Thomson Financial News.
   
And HSBC shares were 2.27 percent lower as it agreed it's too soon to call an end to the downturn, with Hargreaves Lansdown noting that "hefty writedowns" continue "to negate the progress being made in certain parts of" the group's "global portfolio".
   
Deutsche Boerse tumbled 5.41 percent after its mixed update late Friday. Other financials were mostly lower, with BBVA down 2.08 percent after Morgan Stanley cut its rating to 'equal-weight' form 'overweight'
  
BNP Paribas fell 2.46 percent and Unicredit was down 1.73 percent. Shares in Italian luxury group Bulgari tumbled 8.01 percent after the group's chief executive Francesco Trapani said Friday he expects the group's full-year results will be at the lower-end of its guidance of a 8 percent to 12 percent rise in sales, at constant exchange rates, operating profits and net profits.
   
The comments came as the group said sales rose 4 percent to 506.4 million euros in the first half of the year. HSBC downgraded the group to 'neutral' from 'overweight' and Dresdner Klweinwort cut its stance to 'reduce' from 'hold'.
   
But Air Liquide added 1.5 percent after the French group reported a higher than expected first-half net profit of 601 million euros but a slightly lower than hoped for operating profit of 950 million euros.
   
Landsbanki Kepler analysts described the update as "a very strong set of figures which leaves room for upside." They believe 2008 guidance will be met and reiterated their 'buy' stance. And Delhaize added 1.41 percent after its in-line numbers as some had feared more gloomy news from the Belgian supermarkets group.
   
And oil shares rose as crude prices were steady near $125 per barrel amid ongoing fears a tropical storm could affect oil facilities in the Gulf of Mexico and uncertainty over a likely showdown over Iran's nuclear program.
   
By midday in Europe, light, sweet crude for September delivery fell 7 cents to $125.04 a barrel in electronic trading on the New York Mercantile Exchange. Shares in ENI added 0.66 percent and in Total added 0.33 percent.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average finished the session down 1.2 percent at 12,933.18, after losses on Wall Street due to lingering concerns about the state of the U.S. economy following the release of non-farm payrolls and manufacturing activity data for July. The broader Topix lost 1.9 percent to 1,248.25.

SOUTH KOREA
   
The Korea Composite Stock Price Index closed 1.95 percent lower at 1,543.05, led by heavy industry issues, with shipbuilders tumbling on news of cancelled orders, while worries about the U.S. economy after bleak job data on Friday further dampened market sentiment.

AUSTRALIA

The benchmark S&P/ASX 200 index fell 16.3 points to close at 4,887.7, as concerns a faltering U.S. economy would dent demand for commodities pressured the top miners, while Lend Lease Corp Ltd dropped on a profit warning. However, Asciano Ltd jumped on a takeover bid and rising oil prices lifted energy firms, keeping a lid on losses. All Ordinaries closed down 0.4 percent at 4,957.6.

CHINA

The benchmark Shanghai Composite Index closed down 2.14 percent at 2,741.74, in the absence of any market support announcements from the government over the weekend, with the launch of IPO subscriptions for China South Locomotive & Rolling Stock pressuring liquidity.
   
China South Locomotive, which plans to issue up to 3 billion A-shares, has set the price range for its IPO in Shanghai at 2.1-2.18 yuan per share. Sentiment was also affected by a bomb attack in China's far western region of Xinjiang which killed 16 paramilitary policemen.
   
The Shanghai A-share Index was down 2.15 percent at 2,875.98, while the Shenzhen A-share Index fell 2.39 percent at 855.48. The Shanghai B-share Index fell 1.90 percent to 207.87, while the Shenzhen B-share Index lost 1.62 percent to 450.18.

TAIWAN

The weighted index closed down 0.36 percent at 6,977.36, on heightened concerns over the prospects for the US economy.  Dealers said a weaker Taiwan dollar and a rise in oil prices also kept trade cautious, although bargain-hunting in financial and select other stocks helped limit the market's downside.
   
The tourism sector fell sharply following a report that mainland tourist arrivals in Taiwan have averaged 173 a day since weekend cross-strait charter flights began on July 4, far below the daily quota of 3,000.

HONG KONG

The Hang Seng Index fell 347.68 points or 1.5 percent to close at 22,514.92, off a low of 22,425.13. A total of  HK$49.07 billion worth of shares were traded, down from HK$60.69 billion on Friday.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange declined 78.82 points or 0.54 percent to close at 14,577.87 while the broader 50-share S&P CNX Nifty of the National Stock Exchange fell 18.20 points or 0.41 percent to 4,395.35.

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Oil prices mixed amid Iran nuclear concerns, storm in Gulf of Mexico approaching

LONDON - World oil prices were mixed on Monday amid fresh worries about Iran's disputed nuclear programme and a new storm brewing in the Gulf of Mexico, traders said. New York's main contract, light sweet crude for September delivery, fell 16 cents to $124.94 a barrel in electronic trading, reversing earlier gains.

Brent North Sea crude for September delivery rose 10 cents to $124.28. "Prices were a little higher (earlier on Monday) amid uneasiness over the conflict between Iran and the West, and due to fears that Tropical Storm Edouard may threaten oil facilities in the Gulf of Mexico," Sucden anlayst Nimit Khamar said.

Crude futures had jumped Friday on resurgent concerns about the Iranian nuclear energy row, as Israel's deputy Prime Minister, Shaul Mofaz, said Tehran was playing for time.

Iran is the world's fourth-biggest crude oil producer and traders fear supply disruptions from the Islamic republic if tensions with the West heighten over its controversial nuclear programme.

Iran's top nuclear negotiator Saeed Jalili and EU foreign policy chief Javier Solana on Monday spoke by phone on the standoff over Tehran's nuclear programme, officials from both sides said.

A Solana spokesman told Agence France-Presse in Brussels: "The conversation took place and Solana will report on it to the representatives of the group of six" powers involved in the talks -- Britain, China, France, Germany, Russia and the United States.

The spokesman for Solana, who is negotiating on behalf of the six world powers, gave no details on the conversation or how long the two men talked.

The United States had demanded that Iran meet a deadline of last weekend to respond to an international package of incentives aimed at persuading Tehran to freeze uranium enrichment amid warnings of new sanctions.

According to Western governments, Iran's atomic programme is a cover for making nuclear weapons, a charge vehemently denied by Tehran which says it needs nuclear power to produce electricity for a growing population.

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