US & World Daily Markets Financial Briefing 09-04-2008

Stocks decline following UPS warning

NEW YORK  - Stocks pulled back Wednesday after UPS lowered its first-quarter profit forecast, adding to concerns about the health of corporate earnings.

United Parcel Service Inc., the world's largest shipping carrier, cited a weaker economy and higher fuel costs. Investors this week received reports from aluminum producer Alcoa Inc. and chip maker Advanced Micro Devices Inc. that have created some uneasiness in the market about overall first-quarter results.

Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pa., said some investors are nervous that profit warnings like that from UPS could derail hopes for an economic recovery in the second half of the year.

"We know the first quarter is not going to be good. UPS is sort of indicating that maybe things are continuing to be not so positive out there," he said. "People are looking for clues more, I think, for the second half this year."

In late morning trading, the Dow Jones industrial average fell 33.62, or 0.27 percent, to 12,542.82. Broader stock indicators declined. The Standard & Poor's 500 index fell 4.23, or 0.31 percent, to 1,361.31, and the Nasdaq composite index declined 12.39, or 0.53 percent, to 2,336.37.

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 278.7 million shares.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.52 percent from 3.56 percent late Wednesday.

Light, sweet crude jumped $2.71 to $111.21 per barrel on the New York Mercantile Exchange after the government reported that inventories of oil and gasoline were lower than expected last week. 

In economic news, The Mortgage Bankers Association said mortgage application volume rose 5.4 percent during the week ending April 4. Applications were up 10.9 percent from the same week a year ago.

Investors seemed little moved by Commerce Department figures showing a rise in inventories among wholesalers. In February, inventories rose 1.1 percent. Analysts had expected an increase of 0.5 percent, according to Dow Jones Newswires.

In corporate news, UPS' earnings forecast weighed on the company's stock. UPS warned at an investor conference last month that it might miss its earnings target if weakness seen in February didn't ease. UPS fell $2.79, or 3.8 percent, to $70.52.

AMR Corp.'s American Airlines is expected to cancel more flights Wednesday as it attempts to comply with federal rules about wiring on about 300 of its planes. Airline officials said they canceled about 500 flights Tuesday but didn't know how many would be scrubbed Wednesday. AMR fell 87 cents, or 8.4 percent, to $9.45.

The Russell 2000 index of smaller companies fell 2.40, or 0.34 percent, to 709.52.

Overseas, Japan's Nikkei stock average fell 1.05 percent. Britain's FTSE 100 rose 0.21 percent, Germany's DAX index declined 0.21 percent, and France's CAC-40 fell 0.14 percent.

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Dollar slides after downbeat IMF forecasts

LONDON - The dollar continued to slide after the International Monetary Fund (IMF) said the US economy would fall into a "mild recession" this year, and that the outlook for growth remains downbeat.

The IMF said the U.S. Federal Reserve is correct to cut interest rates despite high inflation and the dollar was still "on the strong side" despite its recent depreciation.

The report, parts of which were published or leaked earlier today, caused renewed pressure on the dollar, which had already been struggling since the publication of the Fed minutes overnight.

"The March minutes were suitably dovish given the decision at the meeting to cut rates by 75 basis points," said Stuart Bennett at Calyon, and show voting members are still worried about growth, even though inflation may slow the pace of future rate cuts.

Economic data has not been supportive of the greenback today, either. US wholesale sales fell 0.8 percent in February, far worse than the 0.2 percent increase expected by economists, pushing inventories higher.

"This means the change in private inventories will create a growth drag, taking more than half a percentage point off first quarter GDP," said Jeoff Hall at IFR Markets.

Factoring in the headwinds from residential investment and anaemic consumer spending, Hall said GDP could drop by 1.0 percent.

The euro was somewhat stronger across the board on expectations that the European Central Bank will leave rates unchanged on Thursday.

"ECB President Jean-Claude Trichet is likely to keep the door well shut on rate cuts for the foreseeable future," said Antje Praefcke at Commerzbank.

However, the euro's rally is unlikely to extend much further as investors are aware that the G7 meeting this weekend may make a statement on the strength of the euro, Praefcke said.

Meanwhile, the pound was mostly weaker, also suffering from a growth forecast downgrade from the IMF.
It recovered some of the losses after economic data showed the industrial sector was holding up well due to a weaker currency.

Manufacturing output grew for a second month running in February, by 0.4 percent on the month, beating analyst expectations for a more tame 0.1 percent gain.

However, experts believe a recovery in the industrial sector will not be sufficient to make up for the fall in consumer spending and house prices.

"The better news on the UK's industrial sector does little to offset the dire news on the housing market seen in recent days -- the (Bank of England) is still odds on to cut interest rates tomorrow," said Paul Dales at Capital Economics.

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Euroshares turn higher midday as Wall St futures turn higher

Europe's leading exchanges turned higher in midday trade, taking their lead from U.S. futures, with a flurry of rumours helping to bring investors back into the market, while some traders were attributing the sudden gains to U.S. mortgage data.

At 12:25 p.m., the DJ STOXX 50 was up 3.07 points or 0.11 percent at 3,189.67 euros and the DJ STOXX 600 was up 0.09 points or 0.3 percent at 319.04.

Back in Europe, a flurry of market chatter helped to push volumes higher, with a glum outlook statement from Carrefour adding to volumes.

The French supermarkets group fell to the bottom of the DJ STOXX fallers board after reports the group's CEO Jose Luis Duran said costs were growing faster than prices. A spokesperson for Carrefour was unable to confirm the chief executive's comments.

Deutsche Postbank AG was 2.73 percent lower as legal complications emerged in the possible sale of the unit by parent Deutsche Post AG and as vague rumours of a profit warning circulated in the market.

Telecom Italia was up 3.77 percent as dealers noted talk that funds could be building positions ahead of the dividend payment at the end of the month.

Danone -- down 0.04 percent -- had a short midmorning rally as traders tried to breathe new life into ongoing hopes the French group may be bought, noting speculation that either Nestle could buy the group's Wimm Bill Dann stake or could be interested in the group as a whole. The shares soon turned lower again as few thought there was any substance to the talk.

In other M&A news, AAlberts added 1.46 percent as the market welcomed its acquisition of multi-layer tube suppliers Henco Floor NV and Henco Industries NV.

"From both a geographical and product portfolio point of view, we believe that the acquisition is the right step", broker ING said. "In particular, the acquisition strengthens Aalberts plastic segment portfolio, offering room for cross-selling."

Sacyr Vallehermoso added 0.8 percent after it said last night that it has agreed to sell its entire 33.32 percent stake in Eiffage to French institutional investors vetted by the French construction and concession group at 63 euros per share.

Ciments Francais added 5.5 percent, as Exane BNP Paribas upped its target for the group, saying there is a 50 percent chance that Italcementi will buy out the group's minorities.

Meanwhile, the banking sector lost 0.95 percent, according to the DJ STOXX 600 for the industry, and insurers fell back an aggregate 1.32 percent amid ongoing global market jitters.

Axa retreated 2.85 percent, Allianz fell 2.07 percent and ING shed 1.86 percent. The latter was downgraded to 'underperform' from 'market perform' at brokerage Keefe, Bruyette & Woods. HBOS tumbled 3.64 percent after Credit Suisse downgraded the group to 'underperform' from 'neutral'.

Staying with financials, Banesto shares were down 1.31 percent, with a sharp slowdown in first quarter loan growth taking some of the shine out of a forecasting-beating bottom line.

Also in earnings news this morning, Swiss building materials supplier Sika shed 2.31 percent after reporting below-forecast first-quarter sales, with the group's solid organic growth offset by a negative currency impact.

Elsewhere, a profit warning from U.S. logistics giant UPS weighed on European sector peers this morning, with TNT shedding 2.13 percent, while Deutsche Post lost 1.85 percent.

UPS said it is cutting its forecast for the first quarter to reflect higher fuel costs, a weakening U.S. economy and a reduced domestic package volume.

Meanwhile, among tech stocks, chip makers were outperforming following reports that Japanese peer Elpida has indeed raised its DRAM prices. Shares in Infineon were 1.69 percent higher, while ASML gained 0.64 percent.

Ericsson, meanwhile, moved 1.56 percent higher in late afternoon trade after the group quashed talk that it is set to issue a profit warning.

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Asian stocks tumble as Fed minutes revive economy fears; Shanghai slumps

HONG KONG -  Stock markets across Asia accelerated their losses Wednesday, with the Shanghai Composite leading the selloff with a more than 5 percent decline, after the Federal Reserve revealed more pessimism about the outlook for the U.S. economy.

Recent economic indicators suggest that the United States, the biggest market for Asian exports, has already slipped into recession.

"The worst of the crisis is not yet over. It may last until the end of the year. Investors will go for cover and sell their holdings," said Francis Lun, general manager at Fulbright Securities.

The Shanghai Composite closed down 5.5 percent at 3,413.91, with banks leading the rout amid worries over a possible new round of monetary tightening. Subscriptions for Jinduicheng Molybdenum's initial public offering also took away funds from the secondary market.

The Hang Seng closed down 1.4 percent at 23,984.57 as investors, discouraged by the wild swings in the Shanghai market, opted to lock in gains.

"Investors will be waiting for the corporate results in the U.S. The market expects major banks and financial institutions to report lower earnings because they have been affected by the slowdown in the U.S. economy," said Conita Hung, research head at Delta Asia Securities.

Australia's S&P/ASX 200 was 0.9 percent lower at 5,520.2 and the All Ordinaries 0.9 percent lower at 5,583.5. The banking sector led the decline on concerns that more bad debt provisions will be made because of exposure to highly-leveraged companies.

"Volumes have been fairly low, with banks again weighing on the market," said Michael Heffernan, a private client advisor at Reynolds & Co. "There's worries about credit provisioning and possible softer profits," he said.

Index heavyweight BHP Billiton was higher on speculation China wants to buy a stake in the world's largest diversified resources group.

In Tokyo, the blue chip Nikkei 225 closed 1.1 percent lower at 13,111.89 and the broader Topix index declined 1.5 percent to 1,262.90, in line with other Asian markets.

The Manila composite index lost 0.7 percent at 2,961.78, and the Jakarta index ended 3.1 percent lower at 2,180.09.

Taiwan's weighted index closed down 4.92 points at 8,667.93 and the Malaysian composite gained 0.2 percent at 1,227.74.

Singapore's Straits Times index fell 1.3 percent to close at 3,089.72, while India's Sensex provisionally ended 1.50 percent higher at 15,821.94.

The Korean market was closed for general elections.

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Copper turns back higher above $8,600 on weak dollar, supply fears

Copper pared early losses to climb back above $8,600, as further weakness in the dollar propelled prices to within touching distance of record highs.

Prices were down in early trading due to concerns buyers in number one consumer China were being deterred by the recent run-up in prices. But prices staged a recovery as the dollar continuing to weaken and supply concerns continued in key producer Chile.

At 2:00 p.m., London Metal Exchange (LME) copper for three-month delivery was quoted at $8,635 a tonne against $8,540 at the close yesterday, having earlier touched an intraday low of $8,460. Copper has flirted with an all-time record high this week of $8,820, set in early March.

Alex Heath at RBC Capital Markets said that while copper consumers have been hoping prices would come down sharply before re-stocking inventories, prices had remained firm, and buyers were now forced to re-enter the market at a higher level.

"That price correction has not come and it appears copper consumers are now dangerously short (of) inventory," Heath said.

While copper stockpiles monitored by the LME increased by 525 tonnes today, they remain at low levels sitting at just 115,575 tonnes heading into the peak demand period leading up to the summer.

Supply fears have been heightened by power shortages and industrial unrest in chief producer Chile. Reduced natural gas imports from Argentina and a drought affecting hydropower output may force the world's largest copper producer to cut electricity to energy-intensive mines, while strike threats continue to linger with workers wanting a larger slice of higher metals prices.

Weakness in the dollar is also boosting prices, as commodities priced in the U.S. currency become cheaper for overseas investors.

Mark Pervan, senior commodities analysts at ANZ said that while poor U.S. economic conditions could continue to weigh on sentiment, "currency markets are likely to provide good support for metals, as it is too early to call a floor in the U.S. dollar."

In other metals, lead for delivery in three months was up at $2,935 a tonne against $2,895. Aluminium rose to $3,035 per tonne from $2,986, and zinc was up to $2,359 per tonne from $2,350 at the close yesterday.

Three-month tin dropped to $20,675 per tonne from $20,425, while nickel jumped to $29,500 a tonne against $28,875.

At 1.04 p.m., spot gold was trading at $905.10 an ounce against $915 in late New York trades yesterday. Earlier the metal touched an intraday low of $902.80.

In other precious metals, silver fell to $17.47 an ounce against $17.70 in late New York trade yesterday. Platinum was down at $1,980 an ounce against $2,013, while palladium was at $445 an ounce against $451.25.

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