US & World Daily Markets Financial Briefing 07-01-2008

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Wall Street heads to higher open

Wall Street headed for a rebound Monday amid speculation that the Federal Reserve will cut interest rates to ward off a recession. There is little in the way of corporate or economic news expected during the session. Instead, investors are looking toward Thursday's speech from Fed Chairman Ben Bernanke for clues about the central bank's intentions.

Further moves by the Fed at its Jan. 29-30 meeting can't come soon enough for some traders. Wall Street dropped sharply on Friday after a government report showed a jump in the unemployment rate and sluggish payroll growth.

In just the first three trading days of 2008, the Dow Jones industrial average lost 3.50 percent, the Standard & Poor's 500 index fell 3.86 percent, and the Nasdaq composite index dropped 5.57 percent.

On Monday, Dow futures rose 37 points, or 0.24 percent, to 12,924.00. Broader indexes also indicated a higher open, with S&P 500 futures up 5.00, or 0.35 percent, at 1,427.90; and Nasdaq futures up 2.00, or 0.10 percent, at 1,987.00.

Bond prices were little changed in overnight trading Monday after a rally during the past week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.89 percent from 3.87 percent late Friday.

Investors may get some relief Monday with crude prices falling. Oil dropped as energy traders reacted to the possibility of a U.S. recession, based on last week's disappointing employment report. A barrel of light, sweet crude fell 45 cents to $97.46 in pre-opening trading on the New York Mercantile Exchange.

More clues about the economy are expected from fourth-quarter earnings season. Aluminum producer Alcoa Inc. on Tuesday will be the first of the 30 Dow Jones industrials to report results.

In corporate news, Time Warner Inc. could be in focus after the entertainment company announced it plans to release high-definition movies on Blu-ray rather than Toshiba Corp.'s HD DVD formal. Blu-ray is owned by Sony Corp.

The announcement comes as the Consumer Electronics Show kicks off in Las Vegas this week. Napster Inc. is expected to jump after the online music service unveiled plans to offer downloads as unprotected MP3 files. Previous, users were not able to play Napster downloads on popular music players like Apple Inc.'s iPod and Microsoft Corp.'s Zune.

CNET Networks Inc. is expected to surge with investors led by Jana Partners planning to remove the technology publisher's directors and seize control of the board, according to a report in The New York Times.

Overseas, Japan's Nikkei stock average closed down 1.30 percent. Britain's FTSE 100 rose 0.34 percent, Germany's DAX index added 0.49 percent, and France's CAC-40 was up 0.45 percent.

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Forex - Dollar steady after recovering overnight

The dollar was steady against major currencies after recovering from Friday's sharp losses, though worries over the outlook for the US economy continue to cloud the outlook for the currency.

The dollar tumbled last last week, hitting a five-week low against the euro on news that US economy only created 18,000 jobs in December -- a four-year low. The dismal figure has raised expectations that the US Federal Reserve will lower rates again when it meets at the end of the month.

"The dollar managed to stabilise overnight," said Geoffrey Yu at UBS. "Equity markets across the globe have stopped their recent slide but concerns over US growth and its broader impact on the global economy continues to undermine sentiment," he said.

Friday's payrolls report has "all but confirmed" that the Federal Reserve will need to focus on recession prevention ahead of inflation risks and markets are now "heavily favouring steeper (interest rate) cuts over the next two quarters".

For the euro meanwhile, there was some relief that the euro zone economic sentiment indicator dipped only slightly to 104.7 in December from 104.8 in November, well above forecasts for a more substantial decline to 104.0.

"December's very small fall in the European Commission's euro-zone economic sentiment indicator provides some hope that activity in the region is slowing only moderately," said Jennifer McKeown at Capital Economics. Along with slightly above-consensus PPI figures, this will keep intact expectations that the European Central Bank is unlikely any time soon to follow other central banks and cut interest rates.

"Today's data provide further reason for the ECB to remain in hawkish mode at this week's meeting (on Thursday), and probably for some months after that," McKeown said. Elsewhere, the pound remained weak after earlier hitting a four-and-a-half-month low against the dollar of 1.9652 usd as investors turn their attention to Thursday's interest rate decision by the Bank of England.

The verdict is expected to be a close call, with a small but growing number of analysts predicting a back-to-back quarter point rate cut to 5.25 pct to follow on directly from December's cut.

"There's certainly no clear consensus emerging as to whether we'll see another quarter point come off UK rates with many saying the decision will go down to the wire, so expect to see some volatility either way on Thursday," said James Hughes, market analyst at CMC Markets.

Ahead of that, tomorrow's snapshot of the retail sector from the British Retail Consortium will come into focus as it will show spending patterns in the crucial year end sales season. A weak figure will shorten the odds of a UK rate cut Thursday and weigh on the pound.

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Euroshares seesaw in opening trade on US recession jitters; EADS slides

At 9.37 am, the Dow Jones STOXX 50 Index was up 13.12 points, or 0.4 pct at 3.592.17 while the DJ STOXX 600 Index gained 0.16 point, or 0.05 pct to 352.16. "We have a shortage of good news," said Howard Wheeldon, strategist at BGC Partners, explaining today's rather lacklustre start on European markets.

Wheeldon said investors are worried about upcoming trading updates from UK retailers as well as trading cautiously ahead of a raft of data, notably trade deficit reports out of the US and the UK. EADS grabbed the early spotlight as the European aerospace and defence group's shares fell as much as 4.5 pct to their lowest level in nearly five months.

Germany's Wirtschaftswoche said EADS may once again have to reschedule the maiden flight of its troubled Airbus A400M military transport plane. The deliveries are being delayed by "slower than expected" development of the TP400 turboprop engines by EPI, a consortium of European engine makers Snecma, MTU, Rolls Royce and ITP, industrial sources said last October.

Deutsche Bank also cut its rating on the stock to 'sell' from 'hold' as part of a review of the defence sector. Credit Suisse shares were down 2.6 pct, underperforming an already weak banking sector, following a newspaper report over the weekend claiming the Swiss banking giant may face a fresh asset write-off of 2.5 bln sfr in connection with the continuing credit market crisis.

Technology stocks were sharply lower, led by a 3.7 pct decline for German software group SAP, after the tech-rich Nasdaq Composite Index on Friday fell for the sixth session in a row and showed its steepest percentage decline since a market pullback on Feb. 27 last year.

Broker UBS also trimmed its target on the SAP to reflect caution about the Business Objects acquisition.
Among other technology decliners, TomTom slumped 8.8 pct amid ongoing worries over market developments and toughening competition in the personal navigation device market.

Elsewhere in the sector, Logitech fell 5.7 pct, Soitec was down 5.1 pct while ASML Holding dropped 4.2 pct. With investors worried about a recession in the US and a slowdown in global growth, sectors that are relatively immune to economic cycles, such as health and utilities performed well.

Among drug companies posting morning gains, Sanofi-Aventis was up 1.6 pct, GlaxoSmithKline gained 2.5 pct and Astrazeneca gained 1.2 pct. In the utilities sector, EON was up 1.2 pct, EDF rose 1 pct, RWE added 1.7 pct while Enagas climbed 1.8 pct.

Over in the UK, J Sainsbury tumbled 5.7 pct and Marks & Spencer was off 3.3 pct on newspaper reports that they are set to issue disappointing Christmas trading updates. Shares in Iberia Lineas Aereas de Espana SA rose 2.2 pct as fresh reports regarding Gala Capital's bid interest put the airline back in the spotlight.

On Dec 20, Iberia's board refused to open its books to Gala which had already approached the airline with a 3.60-3.90 eur per share indicative offer in November.

Total was up 1.6 pct after ING lifted its rating on Total to 'buy' from 'hold' and increased its target for several European oil companies. ING said it sees support for Total ahead of 2007 results given positive European downstream drivers and an appealing portfolio among other factors.

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Asian stocks slump as US jobs report raises recession fear

The Taiwanese Taiex was the worst performer, shedding 4.11 pct to 7,883.37 as the two major chipmakers, Taiwan Semiconductor co and United Microelectronics, were dragged down by JP Morgan's downgrade of Intel Corp on Friday.

The Hang Seng lost 1.24 pct to 27,179.49 with retailer Li & Fung, which derives a large part of its revenue from the US, down more than 6 pct. The S&P/ASX 200 finished down 2.3 pct at 6,161.6 and the All Ordinaries lost 2.3 pct to 6,240.4 as banks and resource stocks tumbled.

The Singapore Straits Times closed 2.5 pct down at 3,353.06 and South Korea's KOSPI lost 1.8 pct to 1,831. The Nikkei closed down 1.3 pct at 14,500.55 and the Topix closed down 1.4 pct at 1,392.71.

Manila's composite index finished down 2.6 pct at 3,388.81, while the Indonesian composite index closed up 0.4 pct at 2,776.41. "Pension funds seemed to have given buy orders when the Nikkei fell to around the 14,500 support line," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities.

The Shanghai Composite held up, ending up 0.59 pct at 5,393.34 , as property developers found support in a fresh record for the Chinese currency, the yuan. The yuan's daily reference rate was set at a new record of 7.2695 to the US dollar.

The Malaysian KLCI closed up 0.3 pct at 1,47.77 as plantation stocks benefited from continued high crude palm oil prices. Jobless rate jumps

Intel tumbled 8 pct on the downgrade, dragging chip stocks across Asia lower with it Monday. Samsung Electronics closed down 3.3 pct at 519,000 won and Hynix lost 3.3 pct to 23,600 won. Taiwan Semi fell 7 pct to 55.80 dollars, while United Microelectronics lost 4.7 pct to 18.25 dollars.

In Tokyo, Casio Computer ended down 3.5 pct to 1,177 yen and KDDI lost 5.3 pct to 781,420 yen. The airline sector was a focus in Hong Kong, with Air China down 2.5 pct at 10.52 dollars.

Air China's parent company said it will pay about 32 pct more than what rival Singapore Airlines and its parent, Temasek Holdings, have offered to acquire a stake in China Eastern Airlines. China Eastern closed unchanged at 20.63 dollars.

In Australia, the property trust sector was sharply lower after Macquarie Equities warned the sector is at risk of missing consensus earnings forecasts for 2008 because of higher-than-expected borrowing costs and the potential for a slowdown in economic growth in the US, UK and Europe.

Troubled shopping centre owner Centro Properties Group led the falls after admitting on Friday it has been unable to extend maturing interest rate hedges, which has increased its exposure to interest rate movements and could have a significant impact on its earnings. The announcement came days after Centro put itself up for sale in an attempt to resolve a 3.9 bln aud financing shortfall by a February 15 deadline.

Centro closed down 6.6 pct to 1.20 aud. Westfield Group, considered the world's largest shopping centre owner, fell 2.6 pct to 19.29 dollars after announcing plans to invest 625 mln usd in the development of a retail project at the World Trade Centre site in New York, scene of the September 11, 2001 terrorist attacks. GPT Group eased 6 cents or 1.5 pct to 3.85 dollars.

Indian shares in record close but software stocks lose on US recession fears

The Bombay Stock Exchange's 30-share Sensex rose 125.76 points or 0.61 pct to 20,812.65, while the National Stock Exchange's 50-share S&P CNX Nifty gained 4.80 points or 0.08 pct to 6,279.10. The indices touched all-time intra-day highs, with the Sensex zooming to 20,861.83 points and the Nifty reaching 6,289.80 points.

On Friday, the Sensex had gained 1.68 pct to 20,686.89 points and the Nifty had risen 1.55 pct to 6,274.30 points -- both record closes at that time.

On the domestic front, 18 of the 30 components in the Sensex declined, led by IT bellwether Infosys Technologies Ltd which dipped 3.35 pct to 1,638.10 rupees. The country's largest private-sector lender ICICI Bank Ltd led the gainers, rising 6.11 pct to 1,363.90 rupees -- just off the 52-week high of 1,380.00 rupees it reached during the day. 

The FMCG index on the BSE gained the most, mainly due to tobacco products and cigarette manufacturer ITC Ltd, which gained 5.26 pct to 231.10 rupees.

Among Nifty companies, software firm HCL Technologies Ltd shed 5.00 pct to 299.30 rupees to be the top loser and the country's largest wind-turbine maker Suzlon Energy Ltd rose 6.76 pct to 2,171.40 rupees to be the top gainer.

The 18-constituent-IT index declined the most on the BSE on recession concerns in the US, the biggest market for Indian IT companies. Fifteen of the 18 constituents in the index declined with HCL losing the most.

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Oil eases further below 100 usd on economic slowdown fears 

At 10.34 am, New York's WTI crude for February delivery was down 50 cents at 97.41 usd per barrel, retreating from Thursday's historic high of 100.09 usd per barrel.

London's Brent crude for February delivery was down 5 cents at 96.74 usd per barrel. Prices topped the 100 usd mark on a combination of falling oil inventories, soaring demand in developing economies and geopolitical tensions that could pose a threat to supplies.

While poor US job figures on Friday have seen prices pull back from the highs, with fears a slowing economy could spell lower oil demand growth, prices remain at elevated levels.

"Although Friday's jobs data was soft, thus raising the odds of a US recession, we think commodity markets will need to see a lot more numbers indicative of a slow-down before a more protracted sell-off ensues," said MF Global analyst Edward Meir.

US unemployment has risen to 5 pct, while job creation has slowed to its lowest rate in three and a half years as the financial turmoil created by the credit crunch begins to impact the real economy.

With the US responsible for around a quarter of global crude consumption, many market watchers see oil prices retreating this year should the American economy slip into a recession. A slowdown in the US could also curb global oil demand growth, as the economic development of countries such as India and China has been spurred by exports to the west.

OPEC ministers have continued to indicate that they view the recent surge in crude oil prices as a result of speculation in the market rather than of short supply.

Chakib Khelil, president of the oil-producers' cartel, said 100 usd prices were "not necessarily very high" given rising demand and higher production costs, adding that prices were still below the 1980 peak when adjusted for inflation.

"OPEC continues to tell reporters how everything is moving on the back on speculation  and the ministers have been singing this same song for nearly six years, since prices were 30 usd," said Cameron Hanover analyst Peter Beutel.

OPEC held production rates steady at its last official meeting in December, citing adequate supplies in the market. The cartel has arranged a special meeting in February to review its position in light of continuing high prices and the current global economic uncertainty.

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