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

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US Stocks at a Glance

U.S. stocks returned in positive mood from the Independence Day holiday, with the DJIA jumping 90.30 points higher to 11,379.80, while the broader S&P 500 index gained 9.75 points at 1,272.65, and the Nasdaq composite index took on 27.82 points at 2,274.10.
  
Wall Street rallied as oil prices fell back from last week's fresh all-time highs as traders eyed the stronger dollar and easing tensions over key crude producer Iran.

New York's main oil contract, light sweet crude for August delivery was off $2.82 a barrel to $142.47.

BOSTON - Citigroup said Monday that it expects the best core trends in second-quarter results from retail brokers TD Ameritrade and Charles Schwab, as well as asset managers delivering core organic growth like
BlackRock Inc. and T. Rowe Price.
  
Analyst Prashant Bhatia said he expects organic client asset growth in the 8% to 10% range at both Ameritrade and Charles Schwab in the second quarter. Bhatia also said he expects BlackRock to bring in about $28 billion in net new money and T. Rowe Price to bring in about $5.6 billion organically, at an
annualized pace of 6%.
   
Citigroup told investors that it expects the worst core trends at E-Trade Financial, Legg Mason, Fortress Investment Group, and Merrill Lynch. For Merrill Lynch, which the firm rates at buy with a $65 price target,
Citigroup estimates a $6 billion write-down in the second quarter driven by losses on high-grade collateralized debt obligation positions and monoline exposure.
   
The firm noted Merrill has raised $600 million more in capital than it has lost in 2007 and suggested that a sale of its BlackRock stake could generate up to $2.5 billion or more in capital.
   
Analysts polled by Thomson Reuters, on average, estimate a second-quarter loss of $1.50 a share at Merrill, while Citigroup estimates a loss of $3.95 a share. Citigroup also urged its clients to buy shares of BlackRock, a New York-based investment management firm, heading into the company's second-quarter results.
   
"We view the recent decline in BlackRock shares as an excellent buying opportunity as we expect continued strong organic growth and see $10+ earnings-per-share in 2009 making the risk/reward compelling in our view,"Citigroup said. BlackRock shares fell 1% to $168.01 on volume of 240,000. 

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Forex - Pound slides after UK industrial, manufacturing output data plunge

LONDON - The pound slid sharply after UK industrial and manufacturing output data plunged unexpectedly, cementing market views that the Bank of England (BoE) is unlikely to raise interest rates on Thursday despite concerns over inflation.

Manufacturing output dropped by 0.5 percent in May from April, missing forecasts for an unchanged reading and taking the annual fall to 0.8 percent, the biggest decline since February 2006.

The wider measure of industrial production, which includes oil and utilities output, fell sharply too, by 0.8 percent from April, the biggest monthly fall since Oct. 2006. The annual reading fell by 1.6 percent, the largest drop since Dec. 2005.

"The data again underlines the weakness in the economy and adds further to out view that the BoE is unlikely to tighten monetary policy any time soon," said Peter Stoneham, an analyst at Thomson Reuters IFR Markets.

The weakness of the UK data helped the euro to regain some of the ground it has lost since European Central Bank (ECB) president Jean-Claude Trichet failed to give any signal on Thursday that there might be more interest rate rate rises in the euro zone soon.

The recovery was briefly dented by a surprise slump in German industrial and manufacturing output data, but the euro soon continued to strengthen again as market players speculated that the ECB might have room to raise interest rates again soon after all to control inflation.

Industrial output in the euro zone's largest economy fell a monthly seasonally adjusted 2.4 percent in May from April's drop of 0.2 percent, confounding Thomson Financial News' consensus forecast for a monthly rise of 0.5 percent.

Manufacturing output also showed a massive decline, falling a seasonally adjusted 2.6 percent in May from April. "The short-term market reaction to the German data was to push euro/dollar lower, but this quickly reversed with the exchange rate returning to its pre-release levels," said Stuart Bennet, senior forex strategist at Calyon.

"Although the euro has been softer since last week's ECB's rate announcement and the concession by Trichet that the ECB has no policy bias, the prospect of one more rate hike by October as the Bank attempts to 'anchor' inflation expectations should still provide support for euro/dollar," said Bennett.

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Euroshares open higher as Wall St seen gaining; oil eases

At 8:48 a.m., the DJ STOXX 50 was up 9.76 points, or 0.34 percent, at 2847.34 and the DJ STOXX 600 was up 1.74 points, or 0.62 percent, at 281.27.

Oil prices eased in Asian trading on Monday after Iran offered over the weekend to negotiate on its nuclear drive. New York's main oil futures contract, light sweet crude for August delivery, fell $1.52 to $143.77 a barrel from Thursday's close of $145.29.

Back in Europe, Iberdrola posted one of the sharpest rises after Repsol, Gas Natural's second-biggest shareholder, said it would like to see a merger between the two utilities.

In an interview with Barcelona newspaper La Vanguardia, Repsol's Antonio Brufau said a merger between the two still makes sense after he twice failed to buy Iberdrola when chairman of Gas Natural in 2000 and 2003. Iberdrola shares added 4.29 percent.

Arcelor Mittal shares added 2.56 percent as Cazenove lifted its price target for the group to 81.1 euros from 66.6 euros. Smaller German steel group Kloeckner added 2.5 percent as the broker lifted its target to 47.9 euros from 45.2.

Airbus parent EADS, up 1.66 percent gained as it said it is close to a deal with British aerospace group GKN whereby GKN, up 1.4 percent, will take control of an Airbus wings factory at Filton in Britain, sources briefed on the matter said on Friday.

Late Friday, EADS also said it has opened exclusive negotiations with French aerospace, defence, nuclear and automobile group Daher on the sale of a majority stake in EADS' Socata unit. Tomtom climbed 2.64 percent after sharp recent falls as the Dutch maker of personal navigation devices (PNDs) sought to reassure the market that second quarter sales remain healthy.

DSM, up 1.29 percent, as the group's reassuring comments on the current business environment offset news the Dutch chemicals group is to take a 25-30 million euro hit from an interruption in production at its DSM Agro plant.

But Heineken shares slumped 3.64 percent amid reports the group is set to restate profits for newly-acquired brewer Scottish & Newcastle by as much as 10 percent after finding discrepancies in the Edinburgh-based company's accounts.

Heineken's top executives have been meeting City analysts to warn them to expect a restatement of S&N UK's accounts when it reports half-year results at the end of August. "Heineken was already being conservative on the UK so this is no surprise to us," said one analyst at a leading Benelux brokerage, describing today's share price move as "an overreaction".

That said, he pointed out the UK is an important market and this is just another reason to avoid the stock short-term. Early resilience in the banking sector soon gave way to further selling as negative newsflow continues apace.

Bradford & Bingley Plc. fell 1.25 percent after it said late Friday it will issue approximately 828 million new shares in its enlarged rights issue, representing approximately 57 percent of its enlarged share capital, with 67 new shares offered for every 50 existing shares.

Meanwhile, shares in fellow UK mortgage banking group Alliance & Leicester fell 1.76 percent after reports it is planning to slash its dividend to shore up its finances in a move expected to save the mortgage bank about 80 million pounds a year.

CS Group fell 0.18 and UBS fell back 2.49 percent after reports Swiss authorities could require the pair to set aside an additional 70 billion Swiss francs ($68.29 billion) in capital. "40 billion for UBS, 30 billion francs for CS," parliamentarian Hans Kaufmann told Swiss weekly Sonntag, referring to the additional capital the banks would have to put aside under the proposal.

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Asian stocks mostly higher on bargain-hunting, financials lift Hong Kong

The Nikkei 225 Stock Average finished up 0.9 percent at 13,360.04. The broader TOPIX rose 1.2 percent to 1,312.80. The KOSPI closed up 1.78 points or 0.1 percent at 1,579.72.

In Australia, the S&P/ASX 200 slipped 1.6 percent to 5,002.5, and the All Ordinaries lost 1.5 percent to 5,091.7. Weaker metals prices weighed on resource firms, while an earnings downgrade at GPT Group hit property shares.

In Hong Kong, the Hang Seng index ended up 2.3 percent at 21,913.06 after investors picked up bargains, heartened by strong first-half earnings forecasts by some Chinese banks. China Merchants Bank and China Citic joined Industrial and Commercial Bank of China in predicting strong results for the first half.

China Merchants soared more than 9.19 percent to HK$24.95 after the bank said it expects net profit for the six months ended June to increase more than 100 percent from a year earlier. Citic said its net profit for the period may rise over 150 percent. Citic gained 4.4 percent to HK$4.47.

Last week, ICBC said its first-half net profit is estimated to rise over 50 percent on strong loan growth. ICBC gained 3.9 percent to HK$5.31. The Shanghai Composite index rallied, gaining nearly 4.59 percent to 2,792.40, led by the financial sector.

Oil stocks rallied on rising oil prices. Offshore oil producer CNOOC Ltd. gained 1.4 percent to HK$13.44. OPEC President Chakib Khelil ruled out on Sunday an eventual oil price fall in view of strong Chinese and Indian demand and warned that oil prices could rise further due to geopolitics and a weak dollar.

In Australia, GPT was down 14.6 percent at A$2.10 after cutting its earnings per share forecast for 2008 to 21.2 cents and its full-year distribution forecast to 20 cents per share, citing turmoil in financial markets. Financial stocks were down after their European counterparts fell on Friday on worries about further writedowns.

Goldman Sachs said European banks may need to raise 60 billion to 90 billion euros in total. The broker lowered 2008-09 estimates for more than 40 banks and said the sector would be hampered by the risk of additional capital raisings.

In Korea, airlines tumbled on worries of sizable losses for the second quarter on record fuel costs. Korean Air Lines fell 4.1 percent to 40,300 won and Asiana Airlines was down 3.6 percent at 4,660 won.

Elsewhere in Asia, the Malaysia KLCI was down 0.8 percent at 1,127.26, while the Philippine Composite was 1.9 percent higher at 2,414.66. The Taiwanese weighted index gained 1.56 percent to 7,341.11. The Jakarta composite index was 0.5 percent lower at 2,303.82.

while the Straits Times Index closed up 1.4 percent at 2,934.12. India's main stock index, the Sensex of the Bombay Stock Exchange, closed 71.99 points or 0.54 percent higher at 13,525.99, off the day's high of 13,793.39 points, while the 50-share S&P CNX Nifty of the National Stock Exchange ended 14 points or 0.35 percent higher at 4,030.

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Oil prices tumble below $143 on stronger dollar, easing tensions over Iran

LONDON - Oil prices fell on Monday after a long U.S. holiday weekend, as traders eyed the stronger dollar and easing tensions over key crude producer Iran.

Brent North Sea oil for August delivery slid $1.50 to $142.92 a barrel in electronic deals. However it remained close to the record high $146.69 that was struck last Thursday. New York's main oil contract, light sweet crude for August delivery, dived $2.82 to $142.47 on Monday. The contract had punched a life-time high of $145.85 on July 3.

American investors were set to play catch-up with their counterparts in London on Monday, dealers said. U.S. floor trading was shut last Friday, but electronic trade continued amid the Independence Day holiday. "Oil futures were lower, with New York catching up with Brent, as traders in America were coming back to work after a long holiday weekend," said Sucden analyst Andrey Kryuchenkov.

"The greenback was stronger (on Monday), extending gains from the end of last week and helping to put more pressure on oil prices," he added.

The strengthening U.S. currency dampens demand for dollar-priced crude, which becomes more expensive for buyers using weaker currencies.

The dollar rallied against major currencies on Monday after U.S. President George W. Bush, speaking over the weekend ahead of a Group of Eight (G8) summit in Japan, said his administration backed a "strong" dollar.

Oil blazed a record-breaking trail last week, driven by geopolitical tensions over Iran, a weaker U.S. dollar and tightening global supplies, traders said.

Sky-high oil prices -- which ramp up the cost of petrol, jet fuel, and domestic electricity and gas -- have triggered fears about higher inflation and slower economic growth. They have also sparked protests around the world.

The G8 rich nations -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- opened a summit Monday aimed at battling rocketing oil and food prices that threaten to derail the global economy.

Over the weekend meanwhile, Iran offered to negotiate on its nuclear drive but without a freeze on uranium enrichment, in its first comments since responding to an international package aimed at ending the standoff.

EU foreign policy chief Javier Solana said Monday he hoped to meet later this month with Iran's top nuclear negotiator, after Tehran gave its response to a package of incentives to halt uranium enrichment.

"Following the news that Iran may be prepared to compromise on its nuclear development programme, oil prices are a little softer," said analysts at the John Hall Associates energy consultancy in London.

"However, the region accounts for a sizeable portion of global production, so until more definite news of a compromise is forthcoming then prices will continue to attract a premium."

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