US & World Daily Markets Financial Briefing 08-04-2008

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Stocks fall after disappointing earnings

NEW YORK  - Wall Street retreated moderately Tuesday after disappointing reports from aluminum producer Alcoa Inc. and chip maker Advanced Micro Devices Inc. raised concerns about weaker-than-expected first-quarter earnings overall.

Alcoa said late Monday its first-quarter profit dropped by more than half due to rising costs and a weakening U.S. dollar. Investors were underwhelmed as well by the chip making sector: Advanced Micro Devices said sales for the three months ended March 29 fell 15 percent from the same period a year ago, due to product delays and tough competition from Intel Corp., while Novellus Systems Inc. lowered its estimate for first-quarter earnings.

In addition to the dreary earnings data, mixed news from Washington Mutual Inc. and a bleak outlook for the global financial system from the International Monetary Fund led to some caution among investors -- who sent stocks soaring last week on the growing belief that the worst of the credit crisis has passed.

Although Washington Mutual said it will receive a larger-than-anticipated $7 billion by selling a stake to an investment group, the Seattle-based thrift also said it will lose $1.1 billion during the first quarter, take a provision for loan losses of $3.5 billion, and lower its quarterly dividend to shareholders to a penny from 15 cents. WaMu shares fell 68 cents, or 5 percent, to $12.47.

Meanwhile, the IMF said that despite "unprecedented intervention" the Federal Reserve and other central banks, "financial markets remain under considerable strain." Many experts have said it will be hard for the credit markets to loosen up with the housing market still on the decline: the National Association of Realtors said Tuesday that February's pending home sales fell by 1.9 percent compared to January, worse than many analysts had predicted.

In midmorning trading, the Dow Jones industrial average fell 69.29, or 0.55 percent, to 12,543.14. Broader stock indicators also dropped. The Standard & Poor's 500 index fell 7.92, or 0.58 percent, to 1,364.62, and the Nasdaq composite index fell 19.00, or 0.80 percent, to 2,345.83. 9 & Alcoa shares were little changed Tuesday, having fallen 4 percent Monday ahead of its earnings release.

AMD shares fell 33 cents, or 5.2 percent, to $6.02, and Novellus fell $2, or 8.4 percent, to $21.81. Tuesday's dreary reports arrive ahead of the release of minutes from the Federal Reserve's meeting March 18, when it lowered interest rates by three-quarters of a point to 2.25 percent.

Bond prices rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dipped to 3.52 percent from 3.53 percent late Wednesday.

Light, sweet crude rose 16 cents to $109.25 a barrel on the New York Mercantile Exchange. Gold prices fell, while the dollar traded mixed against other major currencies.

The Russell 2000 index of smaller companies fell 3.93, or 0.55 percent, to 708.75. Overseas, Japan's Nikkei stock average fell 1.49 percent. In afternoon trading, Britain's FTSE 100 slid 0.97 percent, Germany's DAX index lost 1.16 percent, and France's CAC-40 dropped 1.11 percent.

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Forex - Pound hits all-time low vs euro after weak Halifax survey

LONDON - The pound stayed weak, hitting all-time lows against the euro, after reports of further weakness in the UK housing market. The Halifax, the UK's biggest lender, said house prices fell by a massive 2.5 percent in March from February, the worst reading since September 1992 and way below analysts' forecasts for a much smaller 0.4 percent fall.

"Weak Halifax UK house price data continues to hurt the pound," said Robert Howard, analyst at Thomson's IFR Markets. The survey adds to a stream of negative surveys on UK house prices, and underpinned expectations that the Bank of England will act to cut interest rates at its meeting this week.

"The increasing danger of a sharp housing market correction heightens pressure on the Bank of England to cut interest rates by a further 25 basis points from 5.25 percent to 5.00 percent on Thursday," said Howard Archer, chief UK economist at Global Insight.

The pound fell sharply against the euro and the dollar on the news, hitting an all-time low of 0.7988 to the single currency. The pound also hit a six-week low of 1.9703 against the dollar. Later today there is a batch of figures from the U.S. to determine market direction, with April consumer confidence and February pending homes sales data due at 14.00 GMT.

"US housing data - expected to be weak -- are likely to dampen sentiment once again," said Gavin Friend, currency analyst at Commerzbank. But markets are likely to put more emphasis on the minutes to the Federal Open Markets Committee's March 18 meeting.

At the meeting, eight of the ten FOMC members voted to cut interest rates by 75 basis points to 2.25 percent, with the two dissenters calling for less aggressive action. Today's minutes should cast more light on the Fed's thinking and inform market expectations for the next rate decision on April 30.

"Should the impression that the Fed could slow down the pace of the rate cut cycle be further underpinned today, the dollar is unlikely to find any strong, sustainable support in the current environment," said Friend at Commerzbank.

There will be more central bank action dominating market sentiment later in the week. The Bank of Japan is widely expected to keep its overnight call rate target unchanged at 0.5 percent tomorrow, and the European Central Bank is similarly expected to keep its key Refi rate on hold at 4.00 percent. The BoE decision is also due on Thursday.

Moving into the weekend, finance ministers from the Group of Seven rich nations will meet from Friday in Washington. Many analysts are speculating that the subject of dollar weakness could come up, with the possibility that authorities could call for concerted action to prop up the U.S. currency.

Overnight, Japanese Finance Minister Fukushiro Nukaga said he wanted to discuss ways to stabilize the global economy and financial markets with his colleagues at the G7, but did not mention the possibility of collective action on currency markets. "I hope to exchange views frankly about the financial instability stemming from the sub-prime loan problem and its impact on the U.S. real economy, as well as on the situation in Europe," the minister told reporters.

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Euroshares lower midday as Dow seen opening lower; on TomTom, Novellus warnings 

At 11.53 a.m., the DJ STOXX 50 was 42.22 points or 1.32 percent lower at 3,166.87, while the DJ STOXX 600 was 4.81 points or 1.49 percent lower at 317.23.

In Europe, technology stocks and in particular chip makers were under pressure following a profit warning from U.S. peer Novellus and AMD's subdued outlook as well as a downbeat sector note from Credit Suisse.

AMD had warned investors overnight that first-quarter sales were lower than expected across all business lines and Novellus said it now sees earnings per share for the first quarter at $0.15-$0.17, compared to the previous forecast of $0.21-$0.24.

Credit Suisse downgraded Infineon to 'neutral' from 'outperform' and cut its targets on STMicroelectronics and ASML. In response, Infineon was down 6.89 percent and STMicro was down 3.38 percent. ASML shed 5.97 percent as Morgan Stanley cut its target on the Dutch chip group to 23 euros from 25 euros.

Soitec plunged 12.74 percent as Cheuvreux analysts, among others, said the gloomy outlook from AMD will have a negative impact on the French group, which depends on the U.S. group for 50 percent of its revenues.

Elsewhere in the technology sector, Dutch personal satellite navigation device manufacturer TomTom cut its full-year sales and EBIT margin forecasts early on Tuesday and shares dropped 10.12 percent. Tele Atlas fell more than 1 percent in morning deals as the warning sparked fears TomTom would not go ahead with its bid for its Dutch peer.

"Tele Atlas fell on fear TomTom is dropping the acquisition, but this is not justified," said one Dutch trader. "TomTom is still committed to takeover Tele Atlas and are awaiting EU outcome."  The Shares recovered and by midday were down only 1.06 percent.

Among financials, BNP Paribas was 2.08 percent lower after cautious outlook comments about 2008 revenues at the group's corporate and investment banking business. UK banking stocks were lower, as were U.K. housebuilders, after a flurry of disappointing housing market data.

Barclays fell 2.73 percent, HBOS declined 3.3 percent and Barratt Development shed 4.44 per cent. Shares in Spain's leading banks were lower as a number of cautious broker notes pointed to concerns over the weakening domestic economy and possible sector over-valuation.

BBVA dipped 0.87 percent, Bankinter declined 2.25 percent and Banesto was off 1.38 percent. Deutsche Postbank shed 4.28 percent and parent company Deutsche Post lost 1.36 percent after the latter said it may wait until the end of the financial crisis before deciding whether to sell the banking unit.

However, UBS outperformed, up another 0.85 percent, after gains yesterday still buoyed by hopes shareholder action could push the group to restructure its business and also supported by news Morgan Stanley has upped its stance to 'equal-weight' from 'underweight'.

Back in earnings news, shares in Cintra Concesiones de Infraestructuras de Transporte SA were 0.96 percent after reporting a continuing negative trend on its Chicago Skyway concession in March, where traffic fell 10.57 percent from a year earlier.

Inbev added 1.51 percent as traders said the group put in an impressive performance at yesterday's Dresdner Kleinwort Consumer Conference, saying the the group's upbeat comments on cost controls and volume growth were all reasons to be bullish on the stock.

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Asian stocks stumble as earnings jitters weigh; Malaysia bucks trend

The Nikkei finished down 1.5 percent at 13,250.43, while the broader Topix was down 1.8 percent at 1,282.69. Financials led the decline with Mitsubishi UFJ Financial Group down 2.3 percent at 968 yen, Mizuho Financial 4.1 percent lower at 403,000 yen, while Sumitomo Mitsui Financial shed 3.8 percent to 745,000 yen.

Shares of stock brokers were also lower, with Nomura Holdings falling 5.3 percent to 1,612 yen, and Daiwa Securities Group shedding 3.5 percent to 882 yen.

Financials were key decliners in Australia too, a day after Australia & New Zealand Banking Group (ANZ) spooked the market with news its total provisions for credit impairment for the first half to March is likely to be about A$975 million compared with A$567 million for all of 2007. "We will continue to see pressure on the financials in the next week or so until we get some sort of clarity," said Dominic Vaughan, a senior dealer at CMC Markets.

ANZ was down 1.5 percent at A $21.67, Commonwealth Bank of Australia was down 2.0 percent at A $43.17 and Westpac was down 2.4 percent at A $23.55. Credit Suisse downgraded its rating for Australian commercial banks to "marketweight" from "overweight".

The S&P/ASX 200 closed down 1.0 percent at 5,571.5 while the All Ordinaries index lost 0.9 percent at 5,634.4. The Hang Seng lost 1.09 percent at 24,311.69. The Singapore Straits Times Index was down 1.6 percent at 3,130.42. The Philippines Composite was down 0.1 percent at 2,981.12.

The South Korean KOSPI index finished 1.1 percent lower at 1,754.71 ahead of Wednesday's parliamentary elections. Opinion surveys suggest a big win for the ruling Grand National Party (GNP) of President Lee Myung-Bak over its liberal rival the United Democratic Party.

A majority win of parliament for GNP will make it easier for Lee to proceed with his ambitious reforms aimed at boosting the economy. The Malaysian market managed a modest gain as palm oil stocks advanced on higher crude palm oil (CPO) futures.

Palm oil stocks have the biggest weighting on the Kuala Lumpur Composite Index (KLCI), making up about 20 percent of the benchmark index. The KLCI closed up 0.4 percent at 1,225.71. Sime Darby, the largest stock in Malaysia by market value, was unchanged at 8.65 ringgit on profit-taking after rising earlier.

Malaysia's second-largest palm oil producer, IOI Corp. rose 3.0 percent to 6.85 ringgit and Kuala Lumpur Kepong, which owns plantation estates in the country, as well as Indonesia, topped gainers, advancing 2.6 percent to 15.80 ringgit. The Shanghai Composite closed up 0.36 percent at 3,612.54.   Taiwan's weighted index closed down 0.65 percent at the day's low of 8,672.85. The Jakarta composite index was down 1.6 percent at 2,249.77 and 

Alcoa blamed higher energy costs and the weak dollar for its earnings miss. The company also received a lower price for its aluminium at $2,801 per metric ton versus $2,902 a year ago. In other corporate news, chipmaker Advanced Micro Devices Inc. said it will cut 10 percent of its work force and warned that first-quarter sales were lower than expected across all business lines.

Sales were close to $1.5 bln, down 15 percent from the first quarter of 2007 and below the Thomson Financial forecast of $1.6 bln.

Meanwhile, shares of Washington Mutual Inc. rose nearly 23 percent on news the troubled thrift is in talks to receive a $5 bln cash infusion from private-equity firm TPG and a consortium of other investors. Investors are now looking ahead to the release later today of the minutes from the Federal Reserve's last meeting on March 18, when it cut rates by 75 basis points.

"The FOMC minutes should shed some light on whether the Fed has become more cautious about rate cuts," said Michael Gregory, economist at BMO Capital Markets. Among individual stocks, Australian coal miners succumbed to profit-taking after hefty gains on Monday when reports of a rise in coking coal prices to about $300 a tonne hit the market.

Macarthur Coal fell 0.4 percent to A $13.88, Felix Resources dropped 10.4 percent to A $11.65 while Rio Tinto-controlled Coal & Allied was down 5.4 percent at A$86.00. Miners mostly gave up early gains, with index leader BHP Billiton down 0.4 percent to A $40.90, while Rio Tinto was up 0.4 percent at A $137.40.

In Hong Kong, Sinopec fell 4.33 percent to HK $7.29. Earnings at Asia's biggest oil refiner will remain under pressure this year due to soaring crude oil prices, chairman Su Shulin told reporters on Monday. Sinopec plans to raise prices on oil products that are not government-regulated to boost its earnings.

Cosco Pacific Ltd. slipped 6.25 percent to HK $15.90 after the company said it is setting aside $1.1 blnn this year to fund the expansion of its container and bulk terminal businesses and other capital expenditures. The container terminal operator posted a 47 percent increase in its net profit in 2007 to $428 mln.

The Bombay Stock Exchange's (BSE) 30-share benchmark, the Sensex, and the National Stock Exchange's (NSE) 50-share S&P CNX Nifty fell 1.08 percent. The Sensex lost 169.46 points to close at 15,587.62 and the Nifty fell 51.55 points to close at 4,709.65.

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Metals - Gold steady after rising yesterday as dollar remains weak

LONDON - Gold held steady near $920 having risen 2 percent yesterday, well supported by persistent dollar weakness, high oil prices, fears over the economy and expectations for a U.S. interest rate cut.

The ailing U.S. currency, which in recent days has fallen against the euro, coupled with rising expectations for another U.S. rate cut, which would weaken the dollar further, have boosted the appeal of dollar-priced commodities.

Meanwhile, high oil prices close to $110 sparked inflation jitters, to which gold is often bought as a hedge. "The gold price is at a level that largely reflects investor demand," said analysts at the Commonwealth Bank of Australia. "Provided that worries about the dollar outlook and U.S. inflation persist and the Fed further lowers the Fed Funds rate, it is likely that the gold price will remain at a high level," they added.

Prices are likely to track the dollar's movements in the short-term and any U.S. data will be closely watched. The dollar was today weaker amid volatile trade, with market attention coming to bear on the release later today of the minutes to the Federal Open Markets Committee's March 18 meeting.

At the meeting, eight of the ten FOMC members voted to cut interest rates by 75 basis points to 2.25 percent, with the two dissenters calling for less aggressive action. Today's minutes should cast more light on the Fed's thinking and inform market expectations for the next rate decision on April 30.

"Should the impression that the Fed could slow down the pace of the rate cut cycle be further underpinned today, the dollar is unlikely to find any strong, sustainable support in the current environment," said Gavin Friend, analyst at Commerzbank. Such nervousness would likely support gold, as it is seen as a safe haven.

At 10:14 a.m., spot gold was trading at $921.03 an ounce against $922.80 in late New York trades on Friday. Earlier this morning gold hit a day high of $925.63.

In other precious metals, silver fell to $17.95 an ounce against $18.09 in late New York trade on Friday. Platinum was down at $2,011 an ounce against $2,030, while palladium was at $451.00 an ounce against $450.00.

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