US & World Daily Markets Financial Briefing 08-05-2008

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Stocks fluctuate as April retail sales reports arrive

NEW YORK - Wall Street wavered Thursday as investors sifted through sales figures from retailers that were generally not as gloomy as anticipated, but that still suggested that rising costs are causing consumers to alter their spending.

Wal-Mart Stores Inc., for one, said sales of groceries, flat-screen TVs and medications helped boost sales last month at stores open for at least a year by 3.2 percent. But some apparel stores, whose merchandise falls into the category of discretionary items, continue to see depressed sales, with consumers budgeting more for gasoline and food.

The retail sales readings come a day after soaring oil prices knocked the Dow Jones industrial average down more than 200 points. On the New York Mercantile Exchange, crude dipped 18 cents to $123.35 a barrel, after reaching a record of nearly $124 late Wednesday in electronic trading.

Another factor weighing on consumers has been the job market -- the United States has seen four straight months of net jobs losses. However, in a positive sign, the Labor Department said Thursday the number of newly laid off workers seeking unemployment benefits dropped by 18,000 last week to 365,000, a larger decline than expected.

The Dow rose 11.81, or 0.09 percent, to 12,826.16. Broader stock indicators were lower. The Standard & Poor's 500 index fell 0.10, or 0.01 percent, to 1,392.47, and the Nasdaq composite index fell 0.26, or 0.01 percent, to 2,438.23.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.83 percent from 3.85 percent late Wednesday.

Retailers' figures come in following worrisome results from Toyota Motor Corp., which said late Wednesday that profit in the January-to-March period tumbled 28 percent due to the rising yen and weak North American sales. The Japanese automaker also predicted sales will drop for the fiscal year through March 2009 for the first time in several years, and profit will fall 27 percent.

Toyota's U.S.-traded shares fell $4.72, or 4.5 percent, to $100.04.

In other earnings news, American International Group is scheduled to release its first-quarter results after the close of trading. Analysts expect the insurer to post a loss. AIG shares fell 48 cents to $44.60 ahead of the report.

Gold prices rose, while the dollar climbed against most other major global currencies.

The European Central Bank left its interest rates unchanged Thursday, and ECB President Jean-Claude Trichet pointed to clear upside risks to price stability, indicating that the central bank is unlikely to lower its rates in the near future.

The Russell 2000 index fell 1.77, or 0.25 percent, to 714.44. Advancing issues narrowly outnumbered decliners by about 7 to 6 on the New York Stock Exchange, where volume came to 220.9 million shares.

In overseas trading, Japan's stock market fell 1.13 percent. By afternoon in Europe, Britain's FTSE index fell 0.21 percent, Germany's DAX index fell 0.61 percent, and France's CAC-40 fell 0.54 percent.

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Forex - Euro in focus before Trichet testimony

LONDON - The euro was firmly in focus as markets await the imminent testimony from Jean-Claude Trichet, president of the European Central Bank (ECB).

The ECB left interest rates on hold at 4.00 percent on Thursday, a decision fully expected by markets because of the bank's inflation concerns. The euro was little changed, continuing a gradual drift higher against the dollar and the pound.

The key focus, however, is on Trichet's press conference, which investors will comb though for any signs the ECB is softening its tone on inflation.

Ashraf Laidi, chief FX analyst at CMC Markets, said: "We certainly do not expect Trichet to temper the bank's persistent hawkish stance as oil prices surge to new highs. "Instead, he may shed a little more attention on the emerging signs of weakness, such as euro zone retail sales," he said.

Laidi predicted the euro would weaken even without a softer tone from Trichet, because markets are revising their expectations for euro zone interest rates going forward.

Euro zone CPI inflation remained way above target at 3.3 percent in April, albeit down from 3.6 percent in March, and continued inflation pressures are expected to keep ECB rates on hold for some months to come. However, many analysts are penciling in cuts later this year as economic indicators turn lower.

Indeed, data are beginning to reveal cracks, with German industrial production figures earlier on Thursday showing a 0.5 percent drop in March from February. Euro zone retail sales earlier in the week were also soft.

Elsewhere, on currency markets, the pound was steady, benefiting little from the Bank of England's (BoE) widely expected decision to keep interest rates on hold at 5.00 percent. After gaining a brief fillip from the decision, because markets had priced in some chance of a cut, the pound quickly settled back to previous levels, with many analysts expecting the bank to deliver a quarter-point in June.

"It seems odds-on that the Bank of England will trim interest rates from 5.00 percent to 4.75 percent in June, thereby maintaining the trend of cutting by 25 basis points every two months," said Howard Archer, chief UK economist at Global Insight.

Later on, markets will also look at data out of the United States. Initial jobless claims are expected at 370,000 for the week ending May 3, from 380,000 last time, while continuing claims are also seen edging down. Meanwhile, wholesale inventories are expected to increase just 0.5 percent from the previous month's 1.1 percent gain.

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Euroshares open lower after Wall St decline, ECB and BoE in focus

At 08:45 a.m., the DJ STOXX 50 was down 17.41 points or 0.53 percent to 3,269.09, while the DJ STOXX 600 lost 1.79 points or 0.54 percent to 327.56

In Europe, the interest-rate setting decisions by the European Central Bank and the Bank of England will be in focus today. "We are expecting it to be a slow morning as all eyes will be on the BoE and then later the EU central bank rate cut announcements. While no cut is expected, traders will be watching the language of the announcement for clues of what the bank is thinking of doing next," David Evans, market analyst at BetOnMarkets.com said.

Meanwhile, the earnings season continues. Shares in Vallourec shed 4.8 percent in early deals after its first-quarter earnings report, released last night, missed expectations.

In response, Merrill Lynch cut its stance on the stock to 'neutral' from 'buy' noting that the French steel tubes maker indicated that re-pricing of contracts outside the U.S. will only happen in 2009, later than the broker was expecting.

The news also weighed on sector peers such as Salzgitter, which fell 1.46 percent. Also a major faller following results was Inbev, down 5.3 percent after it posted an unexpected drop in first-quarter profit, blaming tough comparatives, poor weather, commodity costs and inflation.

Gerard Rijk, analyst at ING, noted the results were overall weak. "It is just an awful combination of high costs of goods sold, issues with Brazilian volume and pipeline problems in Russia," the analyst said. And in Milan, shares in UniCredit SpA lost 2.6 percent after the bank cut its earnings per share target for this year and announced first-quarter results that disappointed market expectations in terms of revenues.

The bank said it expects EPS to come in between 0.52 and 0.56 euros per share against an earlier expectations of an EPS at the end of this year of 0.66 euros per share. Over in Germany, Munich Re shed 2.13 percent after it presented an unimpressive set of first-quarter results, which included a drop in net profit and a worse-than-anticipated combined ratio.

Telecoms giant Deutsche Telekom lost 0.5 percent after its first-quarter results came in largely in line. Merrill Lynch reiterated its 'sell' stance on the stock and noted that currency headwinds will persist. Turning to the leader board, Unilever added 4.5 percent in London after the Anglo-Dutch consumer goods group reported first-quarter sales growth which was ahead of market expectations.

Underlying sales increased by 7.2 percent during the quarter. Market forecasts had ranged between 5.2 and 6.3 percent with the consensus at 5.7. Citigroup reiterated its 'hold' rating and said the results were  "undoubtedly strong".

Among financials, Deutsche Postbank advanced 2.46 percent after beating market expectations. The group released a quarterly pretax profit of 166 million euros, down from 222 million, but ahead of the 137 million seen by analysts.

Looking ahead, investors are expected to cast an eye over to the U.S. later in the day, where data on initial jobless claims and wholesale inventories are due for release. Economists expect initial jobless claims to ease to 370,000 in the week ending May 3. In the previous week, claims increased 35,000 to 380,000.

Meanwhile, wholesalers are expected to have increased their inventories in March by just 0.5 percent, well below the 1.1 percent accumulation rate in the previous month. "We believe that some unnecessary inventory building has occurred in the wholesale sector, forcing firms to cut production and liquidate stocks," said economists from Lehman Brothers.

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Asian stocks mostly lower as record oil price revives inflation fears

The Nikkei closed 1.1 percent lower at 13,943.26 and the broader Topix shed 1.5 percent to 1,372.95. "Investors feel that unless the U.S. stock market makes clear headway, it will be difficult to send the Nikkei 225 index sharply above the 14,000 point level," said Shinko Securities strategist Tsuyoshi Segawa.

Mizuho Financial Group slid 5.2 percent to 525,000 yen, Mitsubishi UFJ Financial fell 3.7 percent to 1,117 yen and Sumitomo Mitsui Financial Group dropped 3.2 percent to 873,000 yen. General leasing firm Orix tumbled 6 percent to 18,340 yen. Top brokerage Nomura Holdings retreated 3 percent to 1,825 yen.

The South Korean Kospi closed down by 0.3 percent at 1,848.00, after the Bank of Korea left interest rates unchanged at the conclusion of a policy meeting, disappointing expectations for a 25 basis-point cut to boost a slowing economy.

The Singapore Straits Times index closed down 1.8 percent at 3,171.88 and Malaysia's Kuala Lumpur Composite Index closed down 0.5 percent at 1,280.35. But the Shanghai and Australian benchmarks bucked the trend as investors sought bargain in sectors that have been battered in recent sessions.

The benchmark Shanghai Composite Index closed up 2.2 percent at 3,656.84. The Hang Seng ended down 0.6 percent at 25,449.79. The S&P/ASX 200 closed up 1.0 percent at 5,723.2, and the all Ordinaries index gained 0.8 percent at 5,800.9.

National Australia Bank rose 1.6 percent to A$31.00, Westpac gained 3.6 percent to A$25.69 and St George added 0.8 percent to A$26.25. ANZ closed down 0.6 percent at A$22.17, reflecting an adjustment as the stock traded ex-dividend.

The Jakarta composite index closed down 0.2 percent at 2,376.93. Taiwan's weighted index closed down 0.7 percent at 8,866.62, and the Manila composite index finished up 0.8 percent at 2,760.62. 

China financials were lower, with China Construction Bank losing 0.3 percent at HK$6.96, ICBC down 1.5 percent at HK$6.01, Bank of China down 0.3 percent at HK$3.94 and Bank of Communications down 1.5 percent to HK$10.68.

Ping An lost 3.5 percent at HK$69.5 weighed down by talk that it will pursue its aggressive 160 billion yuan share and bond sale plan when market sentiment improves. The stock tumbled 4.5 percent on Wednesday.

Surging oil prices continued to hit airlines, with China Eastern Airlines down 2.6 percent at HK$3.39, Air China falling 2.2 percent to HK$5.72 and China Southern Airlines losing 1.9 percent at HK$4.97.

Santos gained 4.2 percent to A$18.56 and Oil Search added 3.6 percent to A$5.70.

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Metals - Copper eases as dollar strengthens but supply fears underpin

LONDON - Copper eased in early trade on Thursday, pressured by gains in the U.S. dollar, although expectations that supply will remain tight this year are underpinning prices.

A stronger greenback makes dollar-priced commodities such as base metals more expensive for holders of other currencies.

"The internal fundamentals for copper and a number of the metals remain bullish, but not bullish enough at present to counter the selling as commodity trades are closed as hedges against dollar weakness are unwound," said William Adams, an analyst at BaseMetals.com.

Higher prices are pressuring Chinese buying, analysts said, while the resolution of a strike at Chilean state copper miner Codelco, which buoyed prices last week, is also weighing on the market.

However, production outages are still foremost in investors' minds, with some of Codelco's facilities still not up and running, and a new strike possible in Peru, the world's second-largest producer of the red metal.

At 10:50 a.m., London Metal Exchange copper for three-month delivery was trading at $8,420 per tonne against $8,430 per tonne at the close on Wednesday.

Later today, traders will be looking at the release of U.S. government figures for initial jobless benefit claims (1:30 p.m. BST) and wholesale inventories (3:00 p.m BST) to try to gauge the strength of the world's biggest economy, and the dollar's next possible move.

In other metals on the LME, lead was steady after yesterday dipping to its lowest level in 3 1/2 months, trading at $2,435 per tonne against $2,420 per tonne at the close on Wednesday.

Zinc for delivery in three months was down at $2,254 per tonne against $2,253, while aluminium was down at $2,908 per tonne against $2,920.

Nickel eased to $28,300 per tonne against $28,545, while tin traded higher at $24,400 per tonne against $24,000.

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