US & World Daily Markets Financial Briefing 09-03-2009

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US stocks are down in early deals despite the multi-billion dollar merger between drugmakers Merck and Schering-Plough.

Merck has agreed to pay $41.1bn (£29.7bn) for rival Schering-Plough in a deal that will create one of the world’s largest drug companies.

The US firms are both big in the cholesterol drugs market, responsible for Zetia and Vytorin, but sales are falling and a merger will slash costs. Sales of the drugs slumped 26% in the fourth quarter after a study raised doubts that they were any better than cheaper alternatives, but annual sales are still worth about $4.5bn.

Across the markets, the Dow Jones has started down 37 points to 6589 with the Nasdaq falling 2 points and the S&P 500 is down 3.

In other company news, newspaper publisher McClatchy said it plans to eliminate 1,600 jobs, around 15% of its workforce, and lower salaries as it tries to contend with the tough advertising market.

Fast food chain McDonald's cautioned Monday that the stronger dollar and commodity costs will hit first quarter results. Sales are expected to be down by at least $600m and earnings hurt by 7 cents to 9 cents per share if foreign-currency rates stay at current levels.

Meanwhile, Capital One Financial will slash its dividend 87% to 5 cents to help preserve capital.

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The dollar was broadly weaker against major currencies on Friday as investors gave a mixed reaction to Friday’s big job numbers.

Employers slashed 651,000 jobs in February, down from a revised loss of 655,000 jobs in January. Last months figure was not as bad as some analysts had feared but the unemployment rate, up from 7.6% to 8.1%, is now the highest level for 25 years.

The dollar index, which measures the currency against six others, fell to 88.850 from 89.046 in late US trading Thursday.

Sterling was under pressure after the Bank of England halved interest rates to a historic low of 0.5% and announced a £75bn plan to boost the supply of money to get the economy moving again. Monetary Policy Committee members voted to undertake a programme of asset purchases of £75bn, broadly in line with expectations, financed by the issuance of central bank reserves.

Meanwhile, the European Central Bank cut its benchmark rate to 1.5%, the lowest level since it introduced the single euro rates in 1999. ECB president Jean-Claude Trichet said interest rates could be reduced again.

The euro rose to $1.2641 from $1.2538 late Thursday.

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European midday: Shares still down

LONDON - Banks are still leading Europe’s top stocks lower in midday trade after the UK government took control of Lloyds Banking Group.

The government has taken a 65% controlling stake in Lloyds, which could rise to 77%, for underwriting £260m of the bank's toxic assets.

Chairman Sir Victor Blank and chief executive Eric Daniels will discuss the deal with shareholders on Monday as it emerged that 83% of the bad loans to be guaranteed by the government were on the books of HBOS.

HSBC, meanwhile, has been in the sights of hedge funds in Asia overnight, with reports of a number of large short positions being taken prior to the stock going ex-rights this week.

On the Continent, Swiss Re has appointed Walter B. Kielholz, the current chairman of Credit Suisse, as the reinsurer’s new chairman. Kielholz, who was up to now vice chairman of the Swiss firm, replaces Peter Forstmoser who will step down as of 1 May.

Meanwhile, the Icelandic government has taken over Straumur Burdaras, the country’s only remaining listed bank.

The Icelandic Financial Supervisory Authority (FME) said it is has closed the bank for business due to liquidity problems.

Across the markets, the German DAX has dropped 46 points to 3,620, the French CAC is down 41 points at 2,492, while the Swiss market fell 21 points to 4,289.

On the positive side, shares in Deutsche Bank are on the rise after the sector giant told German Daily Handelsblatt that the positive business trend it has experienced in January has continued in February.

CAC 40 - Risers
Dexia € 1.17 +2.18%
Sanofi-Aventis € 40.35 +2.07%
BNP Paribas € 21.84 +0.48%
Essilor International € 26.37 +0.23%
Air France-KLM € 6.38 +0.22%
Lagardere SCA € 23.45 +0.21%
ArcelorMittal SA € 14.37 +0.10%

CAC 40 - Fallers
AXA € 5.85 -6.16%
Societe Generale € 18.78 -5.37%
Schneider Electric € 43.56 -4.19%
Unibail-Rodamco € 86.36 -3.72%
Michelin € 22.99 -3.67%
Vallourec € 54.10 -3.39%
Veolia Environnement € 15.98 -3.27%
Saint Gobain € 18.41 -3.23%
France Telecom € 16.91 -2.96%
Renault € 10.53 -2.72%

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A weaker dollar gave crude oil prices a boost on Friday while increased expectations that oil cartel OPEC will make additional output cuts later this month added to oil’s momentum.

US light crude oil for April delivery rose $1.91 to settle at $45.52 a barrel on the New York Mercantile Exchange.

Bigger gains however were capped after the release of key US jobs data, which revealed unemployment at its highest level in a quarter of a century.

Oil prices have been drive sharply lower on concern about dwindling demand as the global recession continues. The Labor Department's widely watched payrolls report kept the dollar weak, which boosts the appeal of commodities in that currency.

Among precious metals gold was back in favour at the end of the week after an eight consecutive session losing streak, as jitters about the jobs data prompted a flight to the yellow metals safe haven qualities.

The weaker dollar also gave gold’s appeal a boost. COMEX gold for April delivery settled up $14.90 to settle at $942.70 an ounce.

May silver rose 21 cents to $13.33 while May copper added 4 cents to $1.69.

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OIL UP ON POTENTIAL OPEC CUT

Oil futures are higher as traders weigh the probabilities of another OPEC production cut against the ever-present worries about the economy. April delivery is up $2.25 or 5% at $47.77/bbl. OPEC meets on Sunday in Vienna.


OPEC SAYS GROUP COMPLIANCE AT 80%-85%

OPEC's Secretary General Abdalla Salem El Badri says the group expects crude demand to drop by as much as 1 million barrels a day in 2009 as compliance to implement agreed cuts hit about 80% to 85%.


TULLOW OIL RAISES $2B DEBT

Tullow Oil says it has raised $2 billion in debt, even though credit markets have tightened for the independent oil sector, and adds new reserves to its large Ghana oil acreage.


US STOCKS BOUNCE HIGHER

U.S. stocks head higher after stuttering in early trading as the market tries to rebound from four straight weeks of losses that pushed major market indexes to 12-year lows. Bank of America leads blue-chip gainers, up 14% while GM gains 10%. GE is up 8% and American Express is ahead 7%.


BNP PARIBAS SHARES OUTPERFORM SECTOR

Shares in BNP Paribas outperform the European financial sector after the French bank reached a revised deal worth 10.4 billion to acquire parts of struggling financial services group Fortis.


POSSIBLE TO HIKE ETHANOL BLEND RATE TO 20%

U.S. Department of Agriculture Secretary Tom Vilsack believes it will be possible that the ethanol blend rate in gasoline could reach as much as 20% in "a couple of years," up from the national 10% level in place now.


PIEDMONT NET DOWN 1.7%; EPS VIEW CUT, DIV RAISED

Piedmont Natural Gas's fiscal first-quarter net income falls 1.7% to $80.9 million, or $1.10 a share, to as the utility's revenue and margins fell amid weakness to secondary markets.


SASOL CUTS INTERIM DIVIDEND

Sasol is looking to conserve cash by reducing its interim dividend, but will maintain the cover ratio for the full year, possibly supporting the payout with a stock award, Chief Executive Pat Davies says.


VENEZUELA OIL MIN TO VISIT CHINA IN MARCH

Venezuela's oil minister and a team from the country's state oil business will visit China later this month, with future crude oil and fuel oil sales high on the agenda. At present, Venezuela is supplying around 300,000 barrels a day of oil to China,


CHINA COPPER IMPORTS LIKELY HIT RECORD HIGH

China's refined copper imports for February likely hit a record high, boosted by rising downstream demand and government stockpiling, analysts and traders say.


CHINA PROMISES $5B FOR RIO TINTO EXPANSION

China is shoring up support for its investment in Rio Tinto by promising to invest up to $5 billion in the mining firm's expansion, a U.K. newspaper reports, without citing sources.


NO LIFELINE GUARANTEE FOR RUSSIAN TYCOONS

A top Kremlin official warns that Russia's debt-burdened tycoons might have to part with their assets amid the deepening global crisis, and says that the government no longer has the resources to bail them out.

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