US & World Daily Markets Financial Briefing 05-06-2008

Stocks rise following jobs report, retailer data

NEW YORK - Wall Street rose sharply Thursday after the government reported a drop in the number of laid-off workers who sought unemployment benefits last week. News that many retailers had better-than-expected sales in May also gave stocks a lift, sending the Dow Jones industrials up more than 100 points.

The market got an additional boost from news that Verizon Wireless will acquire Alltel Communications LLC for $5.9 billion in cash and the assumption of $22.2 billion in debt.

The Labor Department's report that applications for unemployment benefits came in at 357,000 -- a decline of 18,000 from the previous week -- offered investors some relief about the health of the job market a day ahead of a key monthly reading.

While the weekly readings can show volatility, the latest drop left applications for benefits at their lowest level since mid-April. Still, the four-week average for those getting benefits rose to 3.086 million, the highest since March 2004.

Among retailers reporting solid May results, Wal-Mart Stores Inc. said sales at stores open at least a year rose as consumers sought bargains.

In midmorning trading, the Dow rose 112.85, or 0.91 percent, to 12,503.33. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 14.20, or 1.03 percent, to 1,391.40, and the Nasdaq composite index rose 30.91, or 1.23 percent, to 2,534.05.

Stocks finished mixed Wednesday following sizable declines in the first two sessions of the week.

Bond prices fell Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.03 percent from 3.98 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude oil rose $1.36 to $123.66 a barrel on the New York Mercantile Exchange.

The weekly jobs report comes as investors continue to grapple with concerns about tightness in the credit market, the effect of still-high energy prices and a slumping housing market. With the weekly jobs numbers in hand, some of Wall Street's attention Thursday likely will be on the Labor Department's monthly employment reading, due Friday morning. That report often draws widespread attention because a spike in unemployment could upend consumer spending, which accounts for more than two-thirds of U.S. economic activity.

In corporate news, Verizon Communications Inc. rose $1.95, or 5.3 percent, to $38.93 after the announcement of Verizon Wireless' deal. Verizon Wireless is a joint venture between Verizon Communications and Vodafone PLC. Alltel was sold to TPG Capital and a unit of Goldman Sachs Group in a $27.5 billion leveraged buyout about seven months ago. If completed, the deal would push Verizon Wireless past AT&T Inc. to become the biggest operator in the U.S.

Continental Airlines Inc. rose $1.21, or 8.3 percent, to $15.71 after announcing plans to cut 3,000 jobs and reduce its capacity in the fourth quarter by 11 percent as it grapples with surging jet fuel prices.

Wal-Mart said its May same-store sales rose 4.4 percent. Excluding the effect of fuel, same-store sales rose 3.9 percent. The stock, which like Verizon Communications is one of the 30 that comprise the Dow industrials, rose $2.18, or 3.8 percent, to $59.86.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 221.4 million shares. The Russell 2000 index of smaller companies rose 11.73, or 1.57 percent, to 755.42.

In afternoon trading, Britain's FTSE 100 fell 0.33 percent, Germany's DAX index declined 0.35 percent, and France's CAC-40 fell 0.05 percent.

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Dollar rises, pushing euro under $1.54

LONDON - The dollar got a lift as trading in the U.S. got underway, pushing the euro under the $1.54 level for the first time in just under a month. The dollar has been well-bid all week, buoyed by the hawkish comments coming from Fed chief Ben Bernanke this week.

Bernanke continued his hawkish talk for a second straight day yesterday, highlighting concerns about inflation expectations creeping higher. On Tuesday he warned about the inflation-inducing effects of a weak dollar. All of these comments have lifted the dollar.

Taken together, markets are starting to consider the possibility of U.S. interest rates rising by the end of the year as rate setters grapple with rising inflationary pressures.

"Fed Chairman Bernanke's speech to Harvard students yesterday added weight to the Fed's new emphasis on its price stability mandate. A key short-term priority is anchoring inflation expectations, and arresting the dollar's decline to calm commodity markets is critical in achieving such an aim," UBS analysts said.

Yesterday, the dollar also got a boost from stronger-than-expected U.S. data with the ADP jobs survey showing an encouraging rise, suggesting that Friday's pivotal non-farm payrolls may show a rise.

But James Hughes at CMC Markets had this warning to give: "Clearly tomorrow's non-farm payroll data will also be seen as critical by many, especially after the ADP survey came in well ahead of expectations yesterday, but if another strongly negative reading is seen here then the dollar could expect to see some selling pressure -- even if it's just from quick profit taking - ahead of the weekend break," he said.

Over in Europe, the European Central Bank kept its base rate unchanged at 4.00 percent, much as expected. Attention now shifts to the post-verdict news conference.

The pound, meanwhile, stayed on the back foot even as the Bank of England held its benchmark interest rate steady at 5.00 percent. The central bank has been constrained by rising inflationary pressures. On the other hand, evidence of a weakening economy continued to mount. Today, there was more bad news on the housing front. HBOS unit Halifax's housing market survey showed a 2.4 percent fall in May. Prices were forecast to fall 1.0 percent after a 1.3 percent decrease in April.

The annual rate in May fell 3.8 percent against predictions of a 3.5 percent drop. The latest drop was also far worse than the 0.9 percent fall in April.

The euro got a fillip from a set of decidedly hawkish comments from European Central Bank chief Jean-Claude Trichet. Trichet said the ECB is in a state of "heightened alertness" on inflation risks in the euro area and it is possible rates could be increased by a "small amount" at the next Governing Council meeting.

His comments come after the ECB left rates unchanged at Thursday's council meeting, with its key interest rate remaining at 4.00 percent. The news pulled the euro higher, having been under pressure earlier due to the dollar's gains.

The euro was at $1.5493 from below $1.54 earlier.

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Euroshares remain weak midday as telecoms, tech stocks weigh

Leading European bourses were lower in midday deals as losses by heavyweight telecoms and banking stocks weighed, although indices were off intra-morning lows as the Dow looks set to rally in opening deals.

At 12:21 a.m., the DJ STOXX 50 was down 11.17 points, or 0.36 percent, at 3134.36 and the DJ STOXX 600 was up 1.44 points, or 0.45 percent, at 318.51 as the BoE left rates unchanged and the ECB is likely to do the same.

"The Bank of England and the European Central Bank continue to be concerned by the threat of inflation, and I don't expect any interest rate cuts until the back end of this year. As for tax cuts, we spent too freely in the good times and are now paying the price. Welcome to the hangover," said Mark Priest, senior trader at TradIndex. But he, like others, said this reluctance to take action is going to cost the economy dear.

France's biggest retail bank, Credit Agricole, fell 5.94 percent as the group announced a much more heavily discounted rights issue than many had been expecting.

JP Morgan estimated the dilution at 25 percent for shareholders in 2009 due to creation of the new shares, prompting it to cut its earnings-per-share estimates by 9 percent for 2008 and by 11 percent for the subsequent year. The broker also cut its target for Credit Agricole to 18 euros from 20, while reiterating its 'neutral' stance.

Shares in France Telecom fell 4.13 continued to fall in morning deals as market players queried the French group's decision to launch a hostile bid for Teliasonera this morning, fearing France Telecom will have to lift its bid and with most querying the logic of the deal in any case.

"This is clearly unlikely to be enough," said one trader at a leading Scandinavian brokerage. He also wondered why France Telecom said it was friendly and then the Teliasonera board rejected it. "Did they not get any sort of indication first?"

Meanwhile, WestLB put its 'add' rating for France Telecom under review, saying the synergies do not appear sufficient and Nomura and JP Morgan said the deal makes little strategic sense. Teliasonera shares were up 7.44 percent on hopes of a higher or rival bid.

Telenor fell 2.23 percent and Deutsche Telekom moved 0.51 percent lower as some think one or both could make a counter-offer for TeliaSonera. Dexia, though, suggested there are too many regulatory hurdles to make a Telenor bid likely.

Nokia slumped 3.54 percent with dealers pointing to a downbeat note from Goldman Sachs, in which the broker suggested there remain near-term risks to the handset giant's earnings and said delays in the touch screen market could weigh on sentiment.

On the upside, Telecom Italia climbed 4.45 percent after announcing an efficiency plan that envisages about 5,000 job cuts in Italy by 2010 and a subsequent reduction in costs of about 300 million euros per year. Dresdner Kleinwort upgraded the shares to 'add' from 'hold'.

Elsewhere, traditionally defensive stocks like L'Oreal, Danone and Unilever added 1.55 percent, 1.09 percent and 0.49 percent, respectively, continuing to benefit from wider uncertainty.

Deutsche Postbank added 1.36 percent as Handeslblatt said its parent company Deutsche Post World Net AG. is pressing ahead with its sale, perhaps speeding up earlier timetables.

Deutsche Post is set to start due diligence to sell its banking unit in June or July at the very latest, the paper reported, citing financial sources.

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Asian stocks lower as resources stocks slip; telecoms lift Hong Kong

HONK KONG -  Asian stocks fell on Thursday as markets tracked losses on Wall Street where concerns about the financial sector dampened enthusiasm over a decline in oil prices.

Tokyo's Nikkei index closed down 0.7 percent to 14,341.12 and the broader Topix was off 0.4 percent to 1,424.45. South Korea's Kospi was down 0.1 percent at 1,832.31.

Losses were led by resources stocks following a drop in oil and gold prices as the U.S. dollar continued to rise amid expectations that the Federal Reserve's rate-cut campaign has come to an end.

Light, sweet crude fell $1.45 to $122.86 per barrel on the New York Mercantile Exchange also after the Energy Department reported that demand for gasoline fell last week and that fuel inventories jumped more than expected.

Federal Reserve Chairman Ben Bernanke's warning about rising inflation being a significant concern for the policymaking body prompted speculation that the Fed may raise interest rates, sending the dollar higher.

"The oil price bubble looks bursting -- we're expecting the oil price to come down further," said Ric Klusman, head of institutional trading at Aequs Securities in Sydney. The S&P/ASX 200 finished down 1 percent to 5,530.10 and the All Ordinaries fell 1.1 percent to 5,633.80. Klusman said the current oil price trend has all the makings of a bubble and while it is not expected to crash there are plenty of arguments to justify a price closer to $100 a barrel.

Australian oil and gas sector leader Woodside Petroleum slumped 7.8 percent to A$58.63, while second-ranked Santos lost 4.9 percent to A$20.60 and Oil Search tumbled 4.1 percent to A$6.04.

Index leader BHP Billiton was down 4.4 percent to A$42.50. The selling momentum gathered pace following comments from Chief Executive Marius Kloppers that there was no substance to market speculation that Chinese interests were eyeing a stake in the world's largest miner. The speculation last month saw BHP's share price rise to a record A$50.00. Rio Tinto shed 3.8 percent to A$134.95.

In Hong Kong, the Hang Seng index turned higher after a volatile morning session due to a rebound in the telecom sector. The Hang Seng index closed up 132.04 points or 0.55 pct at 24,255.29, off a low of 24,003.98 and high of 24,321.66.

China Mobile, the largest wireless carrier in the mainland, was up 0.62 percent at HK$114.30 and rival China Unicom was down 0.26 percent to HK$15.16. Worries over an industry revamp pushed down telecom stocks in recent sessions but investors were buying them back to cover short positions.

CNOOC, the mainland's largest offshore oil producer, and other resources stocks were lower after oil prices retreated. CNOOC lost 2.11 percent to HK$12.98.

Oil refiner China Petroleum and Chemical Corp. (Sinopec) surged 0.339 percent to HK$8.02. The stock was previously weighed down by the climb in oil prices, which threatened to dent the company's refining margins.

Elsewhere in Asia, the Philippines' 30-company composite index closed down 2 percent to 2,718.42 after government data showed annual inflation accelerated to 9.6 percent in May, the highest in nine years.

Market players expect the central bank to lift its key rates by 25 basis points during a policy meeting Thursday to rein in inflation, marking the first rate hike since October 2005.

Taiwan's key index was 1.3 percent higher at 8,738.46, reversing early losses as investors bought bargains. The Shanghai Composite lost 0.5 percent to 3,351.65 and Malaysia's KLCI lost 2.4 percent to close at 1,223.56.

Jakarta closed 1.6 percent higher at 2,399.68, and Singapore's Straits Times Index rose 0.3 percent to close at 3,143.89.

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange (BSE), rose 254.93 points or 1.64 percent to close at 15,769.72 after declining about 5.5 percent in the last four sessions. The broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) was up 91.35 points or 1.99 percent at 4,676.95.

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Gold falls sharply on dollar strength

LONDON  - Gold fell sharply on Thursday, touching below $865 per ounce after the dollar continued to rebound against the euro, reducing the precious metal's appeal as an alternative to the most common form of foreign currency reserves.

The dollar has firmed to earlier trade back below $1.54 against the euro for the first time in over a month, following the recent comments highlighting the dangers of rising inflation from Federal Reserve Chairman Ben Bernanke.

The Fed's switch in focus has heightened speculation that the rate-cutting cycle which has dragged the dollar lower in recent months could be at an end, with some suggesting rates could now rise before the end of the year.

Gold's rally above $1,000 an ounce in March was fuelled in part by the dollar's decline. "We consider these comments supportive of our view that the dollar is basing -- especially against European currencies -- and that this is supportive of our view that gold peaks this year," said UBS metals analyst, John Reade. "We continue to forecast that gold averages $750 per ounce in 2009 and $720 per ounce in 2010," he added.

While the European Central Bank held inflation rates steady today, which could have given the euro a boost, lower-than-expected initial jobless claims in the United States have overshadowed the ECB's decision, with the dollar strengthening on mounting evidence the wider American economy is weathering recent financial storms.

Gold has been dealt a double-blow from the recent performance of the U.S. economy, with the reduction in fears over the state of the economic outlook and the dollar's rebound diminishing the precious metal's safe haven appeal.

At 1:58 p.m., spot gold was trading at $870.20 per ounce against $880.50 in late New York trade on Wednesday, having earlier touched an intraday low of $864.50.

With the outlook for oil prices also shifting lower in light of slowing demand, gold has also lost some of its luster as a hedge against fuel-led inflation. Crude oil is down to around $123 a barrel, or 9 percent of its all-time highs above $135 a barrel seen two weeks ago.

However, prices remain supported by heightened inflation fears globally, and concerns the wider economy is not out of the woods yet, with pummelled banking stocks and tighter lending conditions continuing to take their toll on sentiment.

Analyst James Moore atTheBullionDesk.Com said: "Short-term improved dollar sentiment and easing oil prices are likely to weigh on gold. However, as inflation becomes an increasing issue globally and credit market issues resurface, investors are likely to increase their demand for safe-haven assets, such as gold."

Among other precious metals, platinum was trading down at $1,971 per ounce against $1,992 in late New York trades on Wednesday. Platinum's sister metal, palladium, eased to $417 per ounce from $428, while silver was down to $16.76 per ounce against $16.90.

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