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

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US STOCKS-Wall St briefly loses ground on housing data

NEW YORK - U.S. stocks slipped briefly in volatile trade on Tuesday after a report showed a bigger-than-expected drop in May's pending home sales but quickly regained ground as oil prices fell.
   
The Dow Jones industrial average added 24.91 points, or 0.22 percent, to 11,256.87. The Standard & Poor's 500 Index inched up 0.09 point, or 0.01 percent, to 1,252.40. The Nasdaq Composite Index rose 11.58 points, or 0.52 percent, to 2,254.90.

Wholesale sales rose twice as fast as expected in May, once again boosted by higher food and energy prices, while inventories rose slightly above expectations, the Commerce Department said today. Wholesale inventories rose 0.8% for the month, while sales rose 1.6%.

Economists polled by Thomson Reuters IFR Markets had expected a more modest 0.7% gain in inventories and 0.7% increase in sales.

The Commerce Department also upwardly revised April inventories and sales to a 1.4% and 1.6% gain respectively.

All of the gain in May sales were in non-durable goods, which rose 3.2%. Non-durable inventories also rose in the month, by 0.7%.

Petroleum sales rose 7.5% in the month, contributing to most of the monthly gain in non-durable sales. Inventories in petroleum fell 1.0%.

Farm product sales rose 3.1%, while inventories in that category rose 1.1%. Groceries also saw a gain in the month, as sales rose 0.1% and inventories rose 0.8%.

Meanwhile, durable sales fell 0.2% as inventories rose 0.8%. Much of the durable sales decline was carried by auto sales and professional equipment, which fell 0.1% and 0.9% respectively. That was partly offset by a 2.9% rise in metal sales. Inventories of autos and professional equipment rose 0.1% and 1.7%.

Over the year, wholesale sales rose 13.7% while sales rose 8.7%. The inventory to sales ratio fell in May to a record low 1.08. Wholesalers are middlemen operating between retailers and producers, who serve as absorbers for supply and demand shocks.

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Forex - Markets remain rangebound as stock market losses eyed

LONDON - The foreign exchange markets were rangebound, with the dollar recovering some earlier losses, as stock markets and the outlook for the global financial sector take centre stage. Equities are down across the board, depressed by views that U.S. government-sponsored mortgage lenders Freddie Mac and Fannie Mae need to raise more capital amid larger than expected losses.

The fact that even such large institutions -- traditionally considered investment safe havens -- are coming undone has increased risk aversion among traders ahead of earnings reports due in a couple of weeks.

"The reminder that financial risks continue to reinforce downside risks to economic activity and that downside risks to economic activity continue to reinforce financial risks is likely to mean that, for advanced economies at least, the panic over inflation continues to subside," said Steve Pearson, chief currency strategist at BoS Treasury.

Interest rate markets have in fact continued to reduce their expectations of rate hikes in the United States, much as they have for the euro zone over the past week. This is leaving the euro and dollar trades in a range, and with few economic indicators due for release Tuesday, investors will be looking to comments from policymakers for more direction.

Federal Reserve chairman Ben Bernanke will deliver a speech to an insurance conference on mortgage lending, and markets will be looking for confirmation the Fed is unlikely to raise interest rates with the economy shedding jobs for six consecutive months.

Meanwhile, the euro zone's meeting of finance ministers may provide further sound bites on currency movements after the G8 statements came short of any strong statements. In the UK, the pound was driven by the wider market forces as yet another bleak survey of the economy was taken in stride by investors.

In its Quarterly Economic Survey, the British Chambers of Commerce said the "UK business sector is now only a quarter away from technical recession", with orders in both the industrial and services sectors and home sales falling outright during the second quarter.

The report added to the unremittingly poor economic data showing a recession may already be under way for manufacturers, that all sectors of the economy -- including the crucial services sector -- are shrinking while house prices keep falling.

However, it failed to hurt the pound much as price pressures remain strong, meaning the Bank of England will most likely leave interest rates unchanged on Thursday, even with the economy grinding to a halt.

"Regardless of whether the UK enters a recession or not, the key point is that today's survey supports our view that the economy is in for a sustained period of very weak growth," said Paul Dales at Capital Economics, who forecasts GDP growth next year of just 0.5 percent.

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Euroshares sharply lower in early deals, hit hard by financials; NY, Asia falls

At 8:55 a.m., the DJ STOXX 50 was down 2.24 percent, or 64.29 points, at 2,804.71, while the DJ STOXX 600 lost 2.48 percent, or 7.02 points, at 276.15.

Oil prices ticked up in Tuesday's Asian deals, following a drop Monday, ahead of closely-watched talks on soaring crude prices by leaders of the world's rich industrial nations.

New York's main oil futures contract, light sweet crude for August delivery, was 67 cents higher at $142.04 a barrel after slumping $3.92 to close at $141.37 on Monday on the New York Mercantile Exchange.

In Europe, the DJ STOXX Banks were collectively down 3.4 percent, while the DJ STOXX Financial Services dropped 3.1 percent, following a fresh press report on Tuesday claiming that banks and institutional investors underwriting Bradford and Bingley's third attempt at a rights issue are facing potential losses of more than 108 million pounds if the lender's shares do not rally after a fresh tumble on Monday, the Financial Times reported.

The fundraising was arranged on Thursday night following the collapse of plans for a smaller rights issue supplemented by a 179-million-pound capital injection by TPG Capital, the U.S. private equity group.

Sentiment was also under pressure after a Lehman Brothers report said a pending accounting change could force Fannie Mae and Freddie Mac, the two largest U.S. mortgage funders, to raise a combined $75 billion in capital at a difficult time.

Bradford & Bingley shares dropped a further 17 percent on the FTSE 250 index, while Alliance & Leicester lost 6.7 percent, Deutsche Bank fell back 3.5 percent, Fortis eased 3.0 percent, ING Groep was off 3.5 percent, and Unicredit slipped 3.3 percent.

Elsewhere, the auto sector was also under pressure, with the DJ STOXX Autos down 3.4 percent. Renault continued Monday's decline, losing a further 5.3 percent Tuesday morning, following a gloomy outlook from CEO Carlos Ghosn over the weekend, while Volkswagen was 3.0 percent lower, Michelin was down 6.4 percent and Peugeot lost 4.1 percent.

A trading update this morning from the latter failed to assuage investor selling, despite the group saying first-half group sales increased 4.6 percent to 1.845 million units and reiterating its goal for full-year growth of about 5 percent.

Among broker changes, Schneider Electric was hit by UBS repeating its 'sell' advice and cutting its price target to 60 euros from 70. The stock slipped 3.5 percent in response.

Tod's eased 4.0 percent after Citigroup downgraded its recommendation to 'hold' from 'buy' and cut the price target to 38.0 euros from 42.7 on the back of reduced earnings estimates. And Legrand dropped 5.1 percent after Goldman Sachs cut its stance to 'sell' from 'neutral', adding the stock to its 'conviction sell' list, and reducing its target to 15 euros from 18.

A rare gainer, meanwhile, was Clarins, which surged 26.4 percent to almost the level of the buyout proposal from the Courtin-Clarins family, as trade resumed in the cosmetics maker's shares.

Clarins shares were traded at 55.27 euros in early morning deals, just below the 55.50 euros per share offered by family holding company Financiere FC for the 15.2 million shares, or 37.26 percent of the capital, which are not controlled by the holding company or members of the Courtin family.

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Asian stocks fall in line with Wall Street as credit woes return

The Nikkei 225 index closed lower by 2.5 percent to finish at 13,033.10 and the Topix closed down by 2.2 percent at 1,283.51. "I see more downside risks for the market as the global economy is going downhill amid fears of soaring prices and slowing growth," said Kim Hak-ju, research head at Samsung Securities.

In South Korea, the Kospi closed  2.9 percent lower at 1,533.47. In Australia, the S&P/ASX 200 was down 1.4 percent at 4,932.9 and the All Ordinaries index fell 1.4 percent to 5,022.4, with financials pressured by further credit concerns.

Major banks all recorded losses with National Australia Bank down 2.7 percent at A$26.35, Commonwealth Bank off 1.7 percent at A$40.73, ANZ down 3.1 percent to A$18.60 and Westpac down 2.4 percent to A$19.52.

Financial stocks were also battered in other Asian markets. In Tokyo, Mizuho Financial slid 3.7 percent to 493,000 yen, Mitsubishi UFJ Financial dropped 3.4 percent to 934 yen and Mitsui Sumitomo Financial Group skidded 4.1 percent to 771,000 yen.

In Hong Kong, among large-caps, China Mobile lost 2.75 percent to 102.70, HSBC was down 2.44 percent at 115.80, Hutchison Whampoa lost 3.80 hkd or 4.63 pct to 78.2 and China Life slipped 1.0 or 3.71 pct to 25.95.

Coal firms helped lift the Shanghai Composite index, which gained 0.81 percent at 2,814.95. China Shenhua Energy, the country's largest coal producer, rose 3.01 percent to 33.93 yuan, after the official Shanghai Securities News reported that the implementation of the resource tax will be delayed.

Chinese coal producers fell last week on rumours that such a tax would be announced over the weekend, focusing on a shift to taxation by price instead of volume, with the list of taxable resources also expanding. China Coal Energy added 2.02 percent to 15.12 yuan, while Yanzhou Coal Mining  rose 5.61 percent to 20.53 yuan.

Elsewhere in the region, the Philippine composite index gained 1.5 percent to 2,450.55, while the Jakarta composite index lost 1.1 percent at 2,278.98. Taiwan's weighted index closed down nearly 3.94 percent at 7,051.85.

The benchmark Straits Times Index lost 1.6 percent to close at 2,886.62,

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Metals - Copper steady after falling but credit fears may prompt selling

LONDON - Copper was steady after falling yesterday but was vulnerable as credit crisis fears resurfaced, which threaten to weaken the demand picture once again.

Credit concerns resurfaced on Monday after a Lehman Brothers report said a pending accounting change could force Fannie Mae and Freddie Max, the two largest U.S. mortgage funders, to raise a combined $75 billion in capital at a difficult time.

Worries about the possibility of more writedowns on mortgage-related assets prompted players to trim the dollar's gains.

Meanwhile, investors also focused on the three-day annual summit of the Group of Eight Industrialised nations in Japan, where G8 leaders said the world economy faces uncertainty and downside risks, including that posed by a sharp rise in oil.

Adding to credit crisis tensions Tuesday is a report from the British Chambers of Commerce saying the UK is at serious risk of recession and that the future looks grim.

"It does look as though the market is in for further choppy trading with the metals looking mixed, the equities looking weak and the dollar in limbo, but likely to be influenced by fresh data later this afternoon," said BaseMetals.Com analyst William Adams.

Looking ahead, the market will eye U.S. economic data on Tuesday including pending home sales and wholesale inventories.

At 10:16 a.m., London Metal Exchange (LME) copper for three-month delivery was $8,430 per tonne, down from $8,412 at the close on Monday. Lead for delivery in three months fell to $1,623 per tonne from $1,630 at the close on Monday.

Aluminium traded at $3,276 per tonne, basis three months, against $3,308 per tonne, while nickel eased to $20,725 per tonne, basis three months, from $20,925. Three-month zinc was lower at $1,810 per tonne from $1,835, while tin fell to $22,875 per tonne from $22,900.

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