US & World Daily Markets Financial Briefing 06-03-2008

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Stocks retreat on consumer spending woes

NEW YORK - Wall Street pulled back in early trading Thursday as reports from retailers painted a mostly bleak picture of the economy and as investors found little reason for optimism about the economy.

While Wal-Mart Stores Inc. reported stronger-than-expected sales, some investors are worried that success at the world's largest retailer reflects increased bargain-hunting among consumers. Reports from retailers such as J.C. Penney Co. and Limited Brands Inc. indicated consumers are paring some spending that they don't deem essential.

A retrenchment among consumers is an alarming prospect for Wall Street as consumer spending accounts for more than two-thirds of U.S. economic activity.

The reports conspired to further dent investor sentiment. With the dollar sinking to new lows against the euro and the greenback's weakness helping drive oil prices further into record territory, investors appear uneasy over prospects for the U.S. economy.

The Dow Jones industrial average fell 53.00, or 0.43 percent, to 12,201.99. Broader indexes also retreated. The Standard & Poor's 500 index fell 8.14, or 0.61 percent, to 1,325.56; and the Nasdaq composite shed 3.22, or 0.14 percent, to 2,269.59.

The number of first-time claims filed in the week ending March 1 fell 24,000 to 351,000, below the 360,000 claims economists polled by Thomson's IFR Markets had expected on average.

The four-week moving average for initial claims decreased by 1,500 to 359,500 claims. Economists prefer the four-week moving average because it smoothes out fluctuations in the weekly data. Economists say that claims are not quite at recessionary levels, generally pinned at levels in excess of 370,000.  In the same week in 2001, just prior to the recession during that year, initial claims totaled 384,000.  The four-week moving average for initial claims during that week totaled 373,000 according to the Labor Department.
  
"We expect [initial claims] to climb further over the next few months." towards recessionary levels, said Ian Shepherdson of High Frequency Economics.      According to Robert Brusca of FAO Economics, "claims remain in the big gray area and economists are in the Opinion Zone about the economy and where it is going."

The Labor Department also reported that continuing claims in the week ending Feb 23 rose 29,000 to 2.831 mln, climbing for the third consecutive week and reaching the highest level since Sept 2005, just after Hurricane Katrina. The four-week moving average for continuing claims rose 12,750 to 2.789 mln
claims, the highest level since Oct 2005.
   
"Much sharper increases in continuing claims are typical just before recessions so the gradual upward drift supports the belief that this slowdown to date has been atypical," according to economists from Nomura Securities
International. 

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Forex - Pound hits 2 dollar mark again; focus turns to Trichet press conference

LONDON  - The pound hit the 2 dollar mark again for the first time this year after the Bank of England announced it was leaving interest rates unchanged, while the euro remained above the 1.53 usd mark ahead of this afternoon's press conference by European Central Bank president Jean-Claude Trichet.

The BoE's decision came as no surprise. Although a further cut is expected, most do not see any change until May, given ongoing evidence of rising inflationary pressure. "Current elevated inflation risks meant that it was too soon for the Bank of England to be comfortable about cutting interest rates again despite serious concerns about the growth outlook," said Howard Archer at Global Insight.

The pound gained after the decision, benefiting from broad dollar weakness and from the fact that there had been some fears of a surprise rate cut. The UK currency hit a high of 2.0031 usd, its highest level so far this year.

Meanwhile, the euro hit a string of all-time highs against the dollar this morning on the back of a combination of weak US data yesterday, earlier reports of an explosion in Times Square, New York, and ahead of this afternoon's press conference by European Central Bank president Jean-Claude Trichet.

The ECB left interest rates on hold at 4.00 pct as expected, with all eyes now turning to Trichet's press conference at 1.30 pm GMT, where he is likely to maintain his hawkish stance. In contrast to the US, ongoing worries about rising inflationary pressures are likely to continue to outweigh growth concerns, preventing the central bank from cutting interest rates and keeping the euro well supported.

The euro earlier hit a new all-time high against the dollar of 1.5347, as well as a new record high against the pound of 0.7692 stg. The currency's surge has sparked jaw-boning from a number of euro zone politicians but most in the market feel that the chances of the ECB intervening to weaken the euro are slim. The dollar meanwhile continues to take a battering, particularly against perceived safe haven currencies such as the Swiss franc as well as the euro and the yen, amid high levels of risk aversion.

Yesterday's ADP data showing that private sector US firms cut 23,000 jobs during February only exacerbated concerns over the outlook for the US economy, suggesting the Federal Reserve will continue to cut interest rates. Tomorrow's key US non-farm payrolls data will be closely watched and a similarly weak report could spark further losses for the dollar. A further indication of the state of the US jobs market will be seen in today's weekly jobless claims data.

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Euroshares remain lower midday, insurers weigh, ECB & BoE in focus

LONDON - Europe's leading exchanges remained lower midday with insurers and financials under pressure, as investors await the interest rate setting decisions by the European Central Bank and the Bank of England. Record oil and gold prices were also weighing on sentiment as the euro rallied to new highs.

At 11.42 am, the DJ STOXX 50 was 14.45 points or 0.46 pct lower at 3,126.32, as the DJ STOXX 60 fell 0.92 points or 0.29 pct to 314.69.

Looking ahead, Wall Street is looking at a lower open as retailers prepare to release sales figures for February that are likely to exacerbate investors' concerns about a slowdown in consumer spending. Reports of an explosion at a military recruiting station in Times Square, New York, further weighed on sentiment.

According to spread bettors IG Index, the Dow Jones Industrial Average is expected to open down 49 points at 12,206. Separately, S&P 500 futures were down 8.30 points at 1,327.40 while Nasdaq 100 futures dropped 6.50 points to 1,753.

Back in Europe, interest rate-setting decisions by the European Central Bank and the Bank of England are due within the hour and although economists expect no changes today, the focus will likely be on the ECB's new forecasts for euro zone inflation. "There are no positive catalysts this morning. The euro, gold and oil are at high and I think after yesterday there is also a little bit of profit taking going on," a Frankfurt-based trader said.

"The ECB is on the agenda later and then we'll see whether that has any impact," he added. Turning to company news, insurance stocks led the fallers after troubled US monoliner Ambac shed some 18 pct overnight and as down some 3.5 pct in after-hours trading as investors voiced their disappointment with the details of the group's bailout plan.

Aegon, down 4.06 pct, led the pack lower after its full-year update. Both Collins Stewart and Merrill Lynch described the numbers as "uninspiring", with Merrill saying today's update poses more questions than it does answers about the health of the insurer's US business.

Rabobank analyst Cor Kluis also noted that new sales and the value of new business were somewhat below the broker's expectations and added that some investors might have been disappointed that no new share-buyback programme was announced.

Shares in Natixis shed 3.6 pct amid evidence of a weak underlying performance in the investment bank's full-year earnings, over and above the subprime hit which it had already announced. Meanwhile, retailers Ahold, Carrefour and Delhaize were outperforming this morning. France's Carrefour rallied 4 pct higher on the back of M&A speculation, following news last night that the Halley family, which holds more than 20 pct in voting rights is dissolving its shareholder pact.

Earlier this morning, the group released a set of largely in-line earnings results, but traders noted that a potential sale of the group's property assets is also lifting the stock this morning. In the Netherlands, an excellent set of fourth-quarter results lifted shares in peer Ahold, up 2.6 pct. "The results are very strong, especially Albert Heijn in the Netherlands had an outstanding fourth quarter," analyst Richard Withagen at SNS Securities said.

And Delhaize SA rallied 3 pct higher as Deutsche Bank and Merrill Lynch cheered the group's much more bullish than expected guidance for 2008. Turning to utilities, Iberdrola and Union Fenosa gained 4.2 pct and 3.1 pct respectively, ahead of the outcome of Sunday's general elections.

Analysts flagged that the utilities industry is one of the most exposed to the political environment, particularly considering some key issues for the industry still in the air in Spain, including the approval of the National Energy Plan to 2016. In the German market, peer EON AG advanced 3 pct after the group beat consensus with its full-year figures, which came in higher than expectations, and announced a share split, which traders said was a positive development.

Italian peer Enel was trading 1.7 pct higher, also on reports that the group could spin-off its renewable energy asset activities. Elsewhere, Akzo Nobel NV surged 8 pct after the company reported strong fourth-quarter results, with results at the company's Coatings division and the earlier-than-expected start of its share buyback programme taking analysts by surprise.

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Asian markets rebound on Wall Street gains, commodity stocks rally

The benchmark Nikkei 225 Stock Average finished up 1.9 percent at 13,215.42 and the broader Topix index also rose 1.9 percent to 1,287.55.

Thomson IFR Markets is expecting to see 25,000 new jobs added to non-farm payrolls last month. In Australia, the S&P/ASX 200 index gained 1.1 percent to close at 5,435.5, while the All Ordinaries index added 1.1 percent at 5,531.9.

Gold prices briefly surged to a new record just below 1,000 dollars after the dollar tumbled and crude oil prices surged. The gains in oil and gold prices triggered a rally in resources stocks across the region.

Australia's BHP Billiton, the world's largest mining company, was up 2 percent at 39.80. Australian dollars and its rival, Rio Tinto, rose 1.7 percent to 136 dollars. Woodside Petroleum was up 3.4 percent at 56.83 dollars and Santos was 3.2 percent higher at 12.43 dollars.

In Hong Kong, PetroChina, Asia's biggest oil and gas sector, was 2.4 percent higher at 11.04 Hong Kong dollars. CNOOC Ltd gained 3.2 percent to 12.24 dollars. China Petroleum and Chemical Corp (Sinopec) rose 1.74 percent at 8.19 dollars.

The Hang Seng Index was closed up 0.99 percent at 23,342.73, shaking off four straight days of losses, while the Shanghai Composite index closed up 1.6 percent at 4,360.99. South Korea's KOSPI index closed 1.2 percent higher at 1,697.44.

Sime Darby, the world's largest oil palm grower, 1.8 percent to 11.10 ringgit and IOI Corp, the second largest palm oil stock on the bourse by market value, traded up 2.7 percent at 7.55 ringgit.

In Jakarta, Astra Agro gained 0.3 percent to 32,250 rupiah. The benchmark Singapore Straits Times index ended up 0.3 percent at 2,917.92, while Malaysia's KLCI was up 1.5 percent at 1,299.69. The Jakarta composite index was 0.6 percent higher at 2,656.46, while the Philippine composite index finished 0.8 percent higher at 3,116.84.

Taiwan's weighted index closed up 2.06 percent at 8,658.64, a level not seen since Dec 11. Indian markets remained closed today on account of a public holiday.

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Metals - Copper hits record as interest in commodity surges, weak dollar

LONDON - Copper hit a record 8,882 usd per tonne as investor demand strengthened and as the dollar sank to fresh lows against the euro.

Commodities across the board have rallied in the last few days, with gold looking set to reach the much hyped 1,000 usd per ounce level, oil near 105 usd per barrel and most base metals at multi year highs. Players reckon raw materials are a useful hedge against ailing equity markets which look set for further declines.

A weaker dollar has also helped the rally in commodities priced in the greenback, as they have become relatively cheaper for those trading in stronger currencies. "An investment fund fuelled rally finally took the market above its previous high-point set on May 11, 2006," said Basemetals.Com analyst William Adams.

Meanwhile, copper is also supported by low inventories. Stocks of the red metal, as tracked by the LME, currently stand at their lowest level since October last year.

"Much of the metal is on the LME, now at 138,150 tonnes. While copper inventories have been lower than 100,000 tonnes on the LME in recent years in reality there is not much spare metal around," said Fairfax analyst John Meyer. "Copper prices are being pushed by investment demand but this is supported by ongoing demand growth for infrastructure development," he added.

At 10.32 am, LME copper for 3 month delivery was up at 8,756 usd a tonne against 8,680 usd yesterday.
Elsewhere, aluminium edged up to 3,230 usd against 3,205 usd a tonne. Yesterday aluminium hit its highest value since May 2006 of 3,230 usd.

Tin was slightly lower at 19,250 usd a tonne against 19,350 usd. In other metals, nickel was up at 34,200 usd a tonne against 33,500 usd.

"Nickel prices continue to climb as investment into commodities takes place...Strike action at BHP's Cerro Matoso nickel mine in Colombia (which produces some 50,000 tonnes per year) has also supported prices. There is currently no news on whether the strike has been resolved," said Meyer at Fairfax.

Colombia's nickel production has been paralysed by a strike by around 3,500 workers at Anglo-Australian miner BHP Billiton PLC's Cerro Matoso mine. Workers began striking last month to obtain a guarantee of work for subcontractors. Zinc, meanwhile, rose to 2,880 usd against 2,815 usd while lead was up at 3,408 usd against 3,355 usd.

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