US & World Daily Markets Financial Briefing 07-08-2008

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US weekly jobless claims rise 7,000 to 455,000, an over six year high

WASHINGTON - The number of individuals filing new claims for unemployment insurance in the latest week rose unexpectedly to a level not seen in more than six years, while the number of individuals continuing to file claims for unemployment rose to an over four-year high, the Labor Department said today.
   
The number of first-time claims filed in the week ending Aug. 2 rose by 7,000 to 455,000, the highest level since March 2002. Economists polled by Thomson Reuters IFR Markets were expecting claims to fall in the week to 430,000.
   
The Labor Department said today that claims are still being influenced by an indirect response to the Emergency Unemployment Compensation (EUC) program. Many individuals who were contacted about the program in recent weeks discovered that they were actually qualified for regular unemployment insurance instead.
   
Labor did not indicate how many claimants were added as a result of this program, nor did they say how long the distortion would last. "The labor market is weak, no doubt about that, but just how weak it is
right now is anyone's guess," said Ian Shepherdson of High Frequency Economics.
   
Economists are instead paying close attention to the four-week moving average, which they prefer because it tends to smooth out flucations in weekly data. For initial claims, the moving average rose by 26,750 to 419,500, the highest level seen since July 2003.
  
While initial jobless claims "augers for a bit of volatility towards the downside, the increase to 419,500 in the far less volatile four week moving average we believe confirms our conjecture that a new range has formed in the headline above the 400,000 threshold that traditionally implies a recession in the labor sector," said Joseph Brusuelas of Merk Investments.
   
"We think that the labor sector will continue to shed jobs on a month basis between 75,000 and 100,000 over the next several months," he added. Abiel Riehnhart of JPMorgan Chase said the large distortion in initial claims should not yet affect continuing claims, which lag by a week.

Even without this distortion, Reinhart noted that the continuing claims figures "suggest the labor markets was continuing to soften through the week ending July 26."
   
Continuing claims in that week rose by 31,000 to 3.311 mln, the highest level since December 2003. Economists were expecting continuing claims to fall to 3.225 mln. The four-week moving average for continuing unemployment claims increased by 27,000 to 3.201 mln, the highest level since January 2004.

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Forex - Euro slips as attention falls on weakening euro zone growth

LONDON - The euro fell under $1.54 for the first time since mid June as focus fell squarely on the dire outlook for the euro zone economy, especially in the face of the European Central Bank's reluctance to lower borrowing costs.

Today's post decision news conference from ECB chief Jean Claude Trichet highlighted growing inflationary risks. There was also few signs that the rate setters may be looking at the possibility of shoring up the economy by reducing interest rates.

The ECB's reluctance to lower interest rates is expected to make a bad situation much worse. "It is clear that the euro's selloff was prompted by Trichet's prepared remarks, which obviously disappointed the market," said Michael Woolfolk at Bank of New York Mellon.

"The ensuing sell off in the euro indicates that the market reacted negatively to the ECB's reluctance to consider lowering rates on weaker growth as long as inflation remains high," he added. Additionally, he noted that the counter-intuitive reaction to Trichet's unambiguously hawkish remarks not only underscores the current bullish sentiment over the dollar, but also reflects the deteriorating outlook for the euro zone.

Earlier today, the ECB kept interest rates unchanged at 4.25 percent, having raised it by a quarter point in July. The decision was widely expected. At 1452 GMT, the euro was trading at $1.5374 compared to $1.5473 earlier. Against the pound, the euro fell to 0.7905 pence from 0.7929 pence.

Meanwhile, the pound was slightly stronger following the the Bank of England's decision to leave interest rates on hold at 5.00 percent. The decision was widely expected as the Monetary Policy Committee is having to balance the risk of rising inflation against the threat of exacerbating the economic slowdown by raising borrowing costs.

"Although data released this week have disappointed to the downside, CPI remains at elevated levels and deliberations over next week's inflation report likely dominated today's proceedings," said Benedikt Germanier, currency strategist at UBS. Earlier this morning, there was more bad news on the housing market after HBOS reported that house prices fell 1.7 percent in July compared to June.

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Euroshares up midday as oils track crude higher; no change seen at ECB, BOE

LONDON - Europe's leading exchanges were mostly higher midday as rising prices in the energy sector offset mixed updates in the financial sector, signs of a lower open on the Dow and investor caution ahead of today's rate setting meetings at the Bank of England and the ECB.

At 11.40 a.m., the DJ STOXX 50 was up 11.15 points, or 0.38 percent, at 2929.51 and the DJ STOXX 600 was up 0.77 points, or 0.27 percent, at 288.43 although both indices were trading well below earlier highs.

European oil shares rallied as escalating tension between Iran and the West, an explosion late on Tuesday at the Baku-Tbilisi-Ceyhan (BTC) oil pipeline in eastern Turkey and supply disruption in Nigeria re-ignited concerns about supply.

Repsol added 1.46 percent, Total rose 1.21 percent and ENI was up 1.98 percent. Galp Energia climbed 10.64 percent as analysts said second quarter numbers from the Portuguese group are 15 percent ahead of consensus forecasts and agreed the market is still undervaluing the group's prospects in Brazil.

Utilities were mostly higher with Veolia Environnement leading the gains. Shares surged 8.63 percent after the French water and waste treatment group raised its full year sales growth target to 12 percent from 10.

Shares in EDF rose 7.38 percent after the government approved bigger-than-expected increases in tariffs for the regulated sector of the power market. "The tariff increases are higher than what the market was generally assuming," Dexia analysts said in a note to clients, maintaining a 'buy' recommendation and 75 euros target.

The banking sector was also higher as Danske Bank shares moved 2.19 percent higher after the group reported a smaller-than-expected fall in first-half net profit on Thursday and reiterated its full year outlook.

Barclays pulled back opening losses to turn 3.39 percent higher after it reported a higher than forecast first half net profit of 1.7 billion pounds, ahead of the 1.51 billion the market had been targeting.

French banks BNP Paribas, Credit Agricole and Societe Generale continued to gain ground after much better than hoped for numbers from the largest French banks earlier this weak. The trio added 2.1, 1.08 and 3.36 percent respectively.

Elsewhere among financials, Axa climbed 6.04 percent after its interims which showed a better than hoped for performance from the French insurance group. But shares in Allianz SE. were 1.48 percent lower after the German insurance group said it is abandoning its 2009 profit target because of difficult markets as it delivered slightly better-than-expected quarterly results.

The group said its target for a 10 percent increase in 2009 full year operating profit is no longer realistic, with visibility limited in its banking unit. Aegon fell 5.76 percent as the Dutch insurer unveiled a 58 percent plunge in second quarter net profit from a year earlier, hit by write-downs on its U.S. investments.

And Franco-Belgian financial services group Dexia SA tumbled 8.78 percent after it announced the results of its strategic review last night. The group said its US monoliner subsidiary FSA Inc. would exit the asset-backed securities business and receive a 300 million euros cash injection.

The group also said second quarter net profit was 539 million euros, down 32 percent year-on-year, and underlying profit of 440 million euros, down 37 percent year-on-year in a statement alongside the announcement.

After a sharp rise in the shares ahead of the update, many analysts said last night's update was disappointing as the group has increased its exposure to FSA and losses there are increasing. JP Morgan reiterated its 'underweight' stance and Citigroup stays 'hold'.

Peer KBC shares fell 3.68 percent as analysts said the Belgian bancassurer's numbers clearly show the credit cycle has started to deteriorate. Bank Degroof cut its rating to 'hold' from 'accumulate'.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average finished the session down 129.90 points or 1 percent at 13,124.99, off a low of 13,034.15 and off a high of 13,257.99.
   
The broader Topix was down 18.46 points or 1.5 percent at 1,258.81.  Decliners outnumbered gainers 1,356 to 289, with 69 issues unchanged. Volume rose to 2.03 billion shares from 2.17 billion shares on Wednesday.
   
Banks fell on profit taking. Mizuho Financial Group lost 3.5 percent to 476,000 yen, Sumitomo Mitsui Financial Group declined 3.2 percent to 716,000 yen and Mitsubishi UFJ Financial dropped 3.9 percent to 869 yen.

AUSTRALIA

The benchmark S&P/ASX 200 rose just 0.3 percent or 14.2 points to 4,983.3, based on the latest available data, adding to a 3.1 percent gain on Wednesday.
   
A total 1.33 billion shares changed hands worth A$5.29 billion ($4.82 billion). Risers outnumbered gainers 526 to 503 while 317 stocks were unchanged. Share price futures  were up four points at 4,975.
   
New Zealand's benchmark NZ-50 index rose 0.8 percent or 26.55 points to 3,378.89. The most heavily weighted stock, Telecom Corp of New Zealand , closed flat at NZ$3.68.

CHINA

The benchmark Shanghai Composite Index closed up 8.21 points or 0.30 pct at 2,727.58, off a low of 2,691.35. Turnover fell to 38.72 bln yuan from 41.13 bln yuan yesterday.

The Shanghai A-share Index rose 8.74 points or 0.31 pct to 2,861.69, while the Shenzhen A-share Index was up 1.48 points  or 0.18 pct at 830.78.

THAILAND

BANGKOK - Thai share prices closed higher on Thursday, led by gains in major energy and banking stocks. Foreign investors were returning to the Thai market to pick up shares after months of selling had driven valuations to bargain levels.
   
The Stock Exchange of Thailand (SET) composite index soared 29.00 points or 4.29 percent to close at 705.35 points, while the blue-chip SET-50 index rose 24.91 points to 499.95.

HONG KONG

The Hang Seng Index rose 154.45 points or 0.7 percent to settle at 22,104.20, off a high of 22,424.54.  A total of HK$75.90 billion worth of shares were traded, up from HK$63.99 billion on Tuesday.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange,closed 43.71 points or 0.29 percent up at 15,117.25 while the broader 50-share S&P CNX Nifty of the National Stock Exchange ended 6.30 points or 0.14 percent up at 4,523.85.

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Oil prices rebound above 119 dollars

LONDON  - World oil prices rebounded on Thursday, as it was announced that a key pipeline carrying crude from Asia to the West would remain shut for about 15 days following a recent explosion.
  
Prices had dropped on Wednesday owing to news of a surprise jump in U.S. crude reserves, traders said.
New York's main contract, light sweet crude for September delivery gained 98 cents to 119.56 dollars a barrel in electronic deals on Thursday.
  
Brent North Sea crude for September rallied 1.03 dollars to 118.03 dollars a barrel. It was announced on Thursday that the Baku-Tbilisi-Ceyhan oil pipeline would remain shut for about 15 days after a blast had occurred in a pump at a section in eastern Turkey.
  
The fire that had started on Tuesday was likely to continue burning for another two days until the oil remaining in the pipe ran out, an official from Turkey's state-run oil firm BOTAS told Anatolia news agency.
  
Local authorities ruled out the possibility of sabotage, saying a fault in the system had been detected before the blast. Separatist Kurdish rebels, who are active in eastern and southeastern Turkey,
have sabotaged gas and oil pipelines as part of their 24-year armed campaign for self-rule in the region.
  
The BTC pipeline was inaugurated in 2006, carrying oil from the Caspian Sea fields to Turkey's Mediterranean port of Ceyhan, from where tankers transport the crude to Western markets.
  
Oil prices had meanwhile fallen on Wednesday after an unexpected jump in U.S. crude reserves, but a bigger-than-expected drop in gasoline stockpiles was the other surprise element for the market.
  
The U.S. Department of Energy announced in its weekly report that American crude reserves had increased by 1.7 million barrels in the week ended August 1. The reading caught the market off guard because expectations had been for a 200,000-barrel decline.
  
The weekly report on reserves in the nation with the biggest energy consumption often impacts oil prices. Motor fuel stockpiles plunged 4.4 million barrels, well beyond consensus forecasts for a drop of 1.5 million. Traders are closely tracking the level of U.S. gasoline stockpiles amid the ongoing peak-demand summer driving season, when many Americans take to the roads for their summer holidays.

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