US & World Daily Markets Financial Briefing 07-02-2008

Welcome to the Investors Hub World Daily Markets Bulletin; your daily e-mail guide to important Domestic, European and Global market events. Market Briefing is here to keep you informed and up-to-date on key financial developments.

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Stocks wobble after retail sales reports

The Dow fell 24.47, or 0.20 percent, to 12,175.63 after fluctuating between gains and losses. Broader stock indicators also wavered. The Standard & Poor's 500 index fell 1.59, or 0.12 percent, to 1,324.86. The technology-heavy Nasdaq composite index fell 8.19, or 0.36 percent, to 2,270.56.

One argument for bargain hunters looking to buy back into the stock market is that the recent spate of negative economic data raises the likelihood of the Federal Reserve lowering interest rates further to spur growth.

Atlanta Fed President Dennis Lockhart said Thursday the Fed's "focus, religiously, is on the general economy, the real economy," and that the financial sector's performance "can affect the strength of overall economic output."

Government bonds slipped. The 10-year Treasury note's yield, which moves opposite its price, was at 3.63 percent, up from 3.60 percent late Wednesday.

The dollar was mostly higher against other major currencies, while gold prices rose. As expected Thursday, the Bank of England lowered its key interest rate by a quarter percentage point to 5.25 percent, its second cut in three months, while the European Central Bank left its key rate unchanged at 4 percent.

Light, sweet crude oil fell 50 cents at $86.64 a barrel on the New York Mercantile Exchange.

Oil prices appear to be on a gradual decline, so it's possible a slower economy is keeping inflation from accelerating; still, many market participants are anxious about how much longer the Federal Reserve can continue to lower interest rates given relatively high food and energy costs.

Overseas, many Asian markets were closed for a holiday, but Japan's stock market was open and its Nikkei average rose 0.82 percent. In Europe, Britain's FTSE 100 fel 2.08 percent, Germany's DAX index fell 1.93 percent, and France's CAC-40 fell 1.87 percent.

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Forex - Pound falls after BoE cuts rates; Focus turns to ECB press conference

LONDON - The pound fell to a 16-day low against the dollar after the Bank of England announced a quarter point cut in interest rates, while market players turned their attention to ECB president Jean-Claude Trichet's news conference this afternoon.

The BoE decision, which took the UK's key Bank rate down to 5.25 pct, had been fully expected. However, there had been some talk of a possible more aggressive half point cut in the market, which meant the pound enjoyed some brief gains in the wake of the announcement, only to quickly move back down again.

"Discussion in the markets in recent days had centred on whether the Monetary Policy Committee would move by 25 or 50 basis points ... As a result, today's move by the BoE was largely factored into the thinking of investors," said Simon Derrick at the Bank of New York Mellon.

Overall, however, today's move "seems to have done little to alter the interest rate outlook or bearish prospects for sterling", he said.

In its accompanying statement, the Bank of England said prospects for economic growth in the UK and overseas are declining, although it stressed that this needs to be balanced against rising inflation pressures.

"The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target," it said.

Market players will now be looking ahead to next week's quarterly inflation report from the BoE for further clues on the timing and extent of any further rate cuts.

Meanwhile, the euro dropped slightly against the dollar after the BoE decision. The fully expected decision by the European Central Bank to leave rates unchanged at 4.00 pct had little impact on the market, however.

All eyes are on Trichet's press conference at 1.30 pm. Market players will be looking for any alterations to his recent consistently hawkish stance -- stressing the upside risks to inflation -- for any hints on whether and when the ECB might be looking to cut rates.

"The key focus for markets today will be the degree of any change of tone from ECB president Trichet," said Geoffrey Yu at UBS.

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Euroshares open down after late Wall St losses, ahead of ECB, BOE 

At 8.44 am, the Dow Jones STOXX 50 was down 17.01 points, or 0.53 pct, at 3199.02 and the Dow Jones STOXX 600 was down 1.72 points, or 0.54 pct, at 318.63.

Back in Europe, a flood of earnings figures is keeping investors occupied this morning. German chip maker Infineon shed 9.55 pct after it said it swung to a 396 mln eur loss in the first quarter as its ailing subsidiary Qimonda AG weighed on results with a 598 mln eur net loss in the quarter.

Investors were also disappointed by earnings from the UK's BT Group, which fell 5.05 pct after it missed expectations of 5.25 bln stg in sales for the three months to Dec 31 by reporting a 1 pct rise to 5.154 bln stg.

Analysts noted however that improvements in margins at its Global services division should offer some solace once the initial disappointment is overcome.

In Norway, Aker Yards plummeted 8.35 pct after Europe's biggest ship builder issued its second profit warning in six weeks.

In the banking sector, a small write-off of only 50 mln eur at Deutsche Bank in the fourth quarter was welcomed by investors who sent the stock 2.12 pct higher. In addition, traders highlighted the overall, better-than-expected results as well as a 0.50 eur increase in the group's dividend as encouraging signs.

In the UK, BG Group climbed 4.55 pct after the natural gas producer beat expectations for the fourth quarter with a clean net profit of 558 mln stg - well above the 519 mln seen by analysts.

Other companies reporting this morning include GlaxoSmithKline, Legrand, EDF Energies Nouvelles, GFI Informatique, Maurel et Prom, Hermes International, Recordati, Indesit, BG Group and Neste Oil, Norske Skog and M-Real, Skanska, Skandinaviska Enskilda Banken, Uponor, Banco Santander, Syngenta, Micronas, British Land and Rollys Royce.

Elsewhere, France Telecom shone this morning -- up 3.58 pct -- with traders pointing to a report in Le Figaro which suggests the French state may be inclined to sell an 8 pct stake in the group, as well as news that its Orange unit and Vivendi's pay-tv unit Canal Plus have been awarded all rights to broadcast football matches from the top Ligue 1 for 2008-2012.

At today's rate setting meetings, the Bank of England is expected to set aside concerns about rising inflation, to deliver a quarter point reduction to 5.25 pct at midday.

The European Central Bank is expected to keep interest rates unchanged at today's governing council meeting, with inflation worries preventing it for the moment from easing monetary policy in response to slower economic growth, economists said.

But markets will be looking for any signs of a softening in ECB president Jean-Claude Trichet's previously hawkish stance as evidence of economic slowdown mounts.

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Asian stocks end lower in Lunar New Year holiday-thinned trading

Australia's S&P/ASX 200 index ended down 0.2 pct at 5,596.7, with BHP Billiton and Rio Tinto weighing on the market, as investors took the view that BHP's attempt to take over its smaller rival will be a protracted affair.

"The whole thing looks like it's going into limbo - the Japanese have come out saying they're against it and expressed their opposition to the Australian government," said Ric Klusman, head of institutional trading at Aequs Securities.

BHP closed up 0.7 pct at 36.92 aud and Rio ended down 0.1 pct at 127.0 aud. Japan's benchmark Nikkei closed up 0.8 pct at 13,207.15, as investors sought out bargains after steep 646-point fall in the previous session.

The Japanese steel industry is lobbying corporate regulators in Australia and the European Union to closely monitor BHP Billiton's 147 bln usd scrip offer for rival Rio Tinto, Australian Broadcasting Corp Radio reported earlier Thursday.

Rio Tinto on Wednesday rejected BHP Billiton's improved offer for the company, saying the proposed 3.4 BHP shares for each Rio share still significantly under-values the group.

The Manila's composite index closed down 0.2 pct at 3,223.20, following another choppy session on Wall Street on persistent worries about the health of the US economy.

The oil and gas index on the BSE was hit the most today with Reliance Industries Ltd, which accounts for over half the weightage on the index, dropping the most, down around 5 pct to 2,426.00 rupees.

In Japan, the blue-chip Nikkei fell below 13,000 for the first time in two weeks in early trading, following losses on Wall Street overnight. Investors later took advantage of the drop below the key support level and snapped up battered stocks like Sony.

Among the day's gainers include Sony, which rose 2.6 pct to 4,690 yen, and Toyota Motor which ended up 1.7 pct at 5,900 yen, extending Wednesday's rise after reporting a record operating profit for the fiscal third quarter and announcing a plan to buy back shares.

Other advancers were shipping companies, with industry leader Nippon Yusen up 4.8 pct at 938 yen and the second-largest, Mitsui OSK Lines, up 1.6 pct at 1,318 yen.

The Bombay Stock Exchange's 30-share Sensex fell 612.56 points or 3.38 pctto 17,526.93 while the National Stock Exchange's 50-share S&P CNX Nifty fell3.56 pct to 5,133.25 points.

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Metals - Copper turns lower as wilting equity markets curb buying

LONDON  - Copper slipped back into the red in afternoon trade as the market switched its focus from declining inventories to the wilting equity markets ahead of an expected lower opening among Wall Street stocks.

As the European stock markets faltered this morning, copper, which earlier touched a three-month high after a fresh decline in LME-monitored stockpiles, was unable to build on its earlier gains and eased back to trade just above yesterday's closing levels.

Both the equity markets and economic data presently are being closely watched by commodities traders, amid fears a slowdown in economic activity could impact demand.

"If you look at the equity markets today, (the situation) looks very dire," said Michael Widmer, an analyst at Lehman Brothers.

"Investor sentiment generally does have an impact on base metals, and that has put some downward pressure (on prices)."

At 2.13 pm, copper for delivery in three months was trading at 7,310 usd per tonne against 7,330 usd per tonne at the close yesterday. Earlier it touched a high of 7,465 usd, its strongest level since Nov 7.

Declining inventories and rising cancelled warrants -- which denote metal earmarked for removal from warehouses -- conspired to push the red metal higher this morning.

According to a report released this morning, LME-monitored copper inventories fell 2,500 tonnes to 169,475 tonnes, the lowest since November, while cancelled warrants rose by 3.9 pct to 39,375 tonnes.

LME copper stockpiles are now some 15 pct below their level at the beginning of the year of just under 200,000 tonnes.

BNP Paribas analyst David Thurtell said earlier that the double impact of declining stocks and cancelled warrants was likely to continue supporting copper prices.

Inventories of the red metal are tight, "and we have only got to get a problem at a major miner or smelter" to set prices rising again, Thurtell added.

Expectations of firm buying interest from China after this week's Lunar New Year holiday and fears production will be crimped by last week's bad weather, which hit output at Chinese smelters and refiners, are also supporting prices.

Elsewhere zinc eased to 2,345 usd against 2,386 usd per tonne at yesterday's close.

"Zinc never took off yesterday in line with a firmer copper complex and seems to be equally subdued again today," said MF Global analyst Ed Meir, adding it will head "still lower from here, we think".

Among the other metals, tin eased to 16,750 usd per tonne against 16,800 usd, aluminium edged down to 2,632 usd per tonne from 2,644 usd yesterday, and lead slipped to 2,780 usd from 2,820 usd.

Meanwhile, three-month nickel was down at 26,880 usd against 26,900 usd.

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