US & World Daily Markets Financial Briefing 09-05-2008

Welcome to the Investors Hub World Daily Markets Bulletin; your daily e-mail guide to important Domestic, European and Global market events. Market Briefing is here to keep you informed and up-to-date on key financial developments.

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Stocks decline as AIG reveals need for cash, oil surges

NEW YORK - Wall Street fell sharply early Friday as investors contended with wider-than-expected losses at insurer American International Group Inc. and another worrisome spike in oil prices. The Dow Jones industrial average at times lost more than 100 points.

AIG's loss for the first quarter rekindled investors' anxiety about the strained state of the global financial system. AIG posted a first-quarter loss of $7.81 billion -- its second straight quarterly loss -- and revealed plans to raise $12.5 billion in the coming months. The world's largest insurer, like many of its peers in the financial services sector, has seen its investments in the credit markets plunge in value.

Meanwhile, crude oil prices extended their trek into uncharted territory, keeping Wall Street's inflationary concerns alive. Oil futures rose above $126 a barrel for the first time before giving back some of its advance. Light, sweet crude recently rose $1.16 to $124.85 on the New York Mercantile Exchange.

The Commerce Department said the U.S. trade deficit narrowed in March as demand for imports registered the biggest decline since the last recession was ending.

In midmorning trading, the Dow fell 103.40, or 0.80 percent, to 12,763.38. A day after the stock market notched a modest advance, broader stock indicators were also lower. The Standard & Poor's 500 index fell 10.73, or 0.77 percent, to 1,386.95, and the Nasdaq composite index fell 14.01, or 0.57 percent, to 2,437.23.

Bond prices rose as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.74 percent from 3.78 percent late Thursday.

The economic figures arriving Friday illustrated the slowdown in the U.S. economy. The Commerce Department's report on the trade deficit showed a bigger-than-expected decline. The deficit stood at $58.2 billion, a decline of 5.6 percent from February. The 2.9 percent drop in demand for imports was the steepest monthly decline since December 2001 -- a month after the last recession ended.

In corporate news, AIG fell $2.68, or 6.1 percent, to $41.47 after reporting its loss. The stock was by far the steepest decliner among the 30 that comprise the Dow industrials.

Citigroup Inc. said it hopes to shed about $500 billion in assets and increase revenue by 9 percent over the next few years as it tries to recover from big losses tied to deterioration in the mortgage and credit markets. The financial services company logged $13.22 billion in revenue during the first quarter. Citi, one of the Dow 30 stocks, slipped 1 cent to $24.29.

General Motors Corp., also a Dow component, said in a regulatory filing it would provide financial support to help settle the 10-week strike at auto parts supplier American Axle and Manufacturing Holdings Inc. GM fell 27 cents to $20.89. Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 151.4 million shares.

The Russell 2000 index of smaller companies fell 4.91, or 0.67 percent, to 714.75. Overseas, Japan's stock market fell 2.06 percent. In afternoon trading, Britain's FTSE index fell 1.33 percent, Germany's DAX index fell 1.18 percent, and France's CAC-40 fell 2.01 percent.

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Forex - Euro firms as markets mull interest rate outlook, pound slips further

LONDON - The euro remained firm against the dollar despite the release of a downbeat lending survey from the European Central Bank, as investors scaled back their expectations for when interest rates in the 15-nation currency zone will be cut.

The ECB Lending Survey indicated that the previously strong levels of lending to the household and corporate sectors are starting to fall. This is likely to add to fears that euro zone economic growth is set to slow noticeably in the coming years and could go someway to easing the ECB's inflation concerns.

"The ECB's lending survey published today shows a further progression of the credit crunch," said UBS currency strategist Benedikt Germanier, adding that with the U.S. economy starting to recover the euro looks set to weaken against the dollar in the medium term.

For now, however, the euro has maintained most of the strong gains it posted made yesterday and overnight as investors questioned just how soon the ECB will cut interest rates. The ECB's decision to leave rates unchanged at 4.00 percent yesterday was widely expected, but many markets watchers were anticipating the central bank would acknowledge the risks of an economic slowdown had accelerated.

However ECB president Jean-Claude Trichet stuck to his guns, emphasising that preventing a prolonged period of high inflation remained the bank's primary concern. "There was the slightest of chances Trichet would acknowledge the softening of economic data - in the event he offered few crumbs here and in discussing inflation he even removed references to it being temporary," said Gavin Friend, currency strategist at Commerzbank.

The euro has weakened against the dollar in recent weeks as investors betted that while the U.S. Federal Reserve is on the verge of ending a rate-cutting series the ECB is about to start one.

However Trichet's hawkish tone yesterday dashed any hopes that this was set to come anytime soon and unsettled markets' interest rate outlooks. "Trichet's apparent intransigence has ruffled a market that had become short euro in a relatively brief period of time, and the shake-out could see the euro move higher against the dollar," said Daragh Maher, currency strategist at Calyon.

The only major data out this afternoon is U.S. trade figures for March, but analysts said markets are unlikely to react, waiting instead for next Tuesday's retails sales reports.

Elsewhere the pound continued to weaken following a dismal set of home repossession figures and as high yielding currencies fell victim to a renewed bout of risk aversion.

The Ministry of Justice said court orders for repossession were up an annual 17 percent in the first three months of the year, and up 9 percent on the fourth quarter of 2007. While the figures effect just a small proportion of United Kingdom homeowners, analysts said the figures are only going to get worse, spelling trouble for the rest of the economy.

"The financial pressure on many home owners is increasing, and it seems certain that repossessions will trend up appreciably over the coming months, particularly if the economy suffers an extended marked slowdown and unemployment starts rising, which seems likely," said Howard Archer at Global Insight.

Meanwhile risk aversion crept back in to financial markets following another record high for oil prices and poor set of results from U.S. insurance giant AIG. Steve Pearson, currency strategist at HBOS, said equity markets are showing signs that they could be entering another period of pro-longed weakness, which will provide ongoing support for the safe-haven Japanese yen.

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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.

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.

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Asian stocks mixed as Toyota weighs on Japan, Australia enjoys oil boost

The Nikkei closed down 2.1 percent at 13,655.45 and the broader Topix lost 2.3 percent to 1,341.76. Toyota finished down 3.3 percent to 5,300 yen after it warned it expects earnings to fall in the current fiscal year, due to a strong yen, higher procurement costs and a slowdown in demand from the United States.

The S&P/ASX 200 closed up 0.9 percent to 5,771.8 and the All Ordinaries rose 0.8 percent to 5,844.4. NAB ended up 4 percent to A$32.24 after the nation's largest bank reported an 8 percent rise in cash net profit to A$2.2 billion and announced a higher-than-expected interim dividend of A$0.97 a share.

BHP Billiton advanced 3.5 percent to A$46.50 and Rio Tinto rose 0.8 percent to A$146.52. The Hang Seng index closed down 1.52 percent at 25,063.17 as investors hunkered down ahead of a holiday weekend. The Hong Kong market will be closed Monday for a public holiday.

The benchmark Shanghai Composite Index closed down 1.19 percent at 3,613.49. The Kospi closed down 1.3 percent at 1,823.70 and posted its first weekly decline in three weeks, as the steady rise in oil prices stoked inflation fears. The Singapore Straits Times fell 0.3 percent at 3,162.81. The Malaysian KLSE was up 0.2 percent at 1,283.24 and the Philippines Composite was up 0.7 percent at 2,779.42.

The Taiwanese weighted index closed down 74.23 points or 0.84 pct at 8,792.39 Inflation remains a key focus for Asian investors ahead of the release of Chinese consumer inflation data on Monday. Analysts are expecting April CPI growth to remain above 8 pct, even after a series of tightening measures.

China's producer price index rose 8.1 pct in April from a year earlier, the National Bureau of Statistics said Friday. "Inflation remains the most pressing issue in China but it seems that the authorities are coming to terms with it and focusing on supporting growth," said Tim Condon, chief economist for Asia at ING Bank. "Slowdown in yuans appreciation, absence of PBOC interest rate hikes so far this year and last months measures to revive stock market are evidences of pro-growth financial policies."

Among individual stocks, HSBC closed down 1.48 percent at 132.9 and HKEx fell 4.7 hkd or 3.03 pct to 150.2. Ping An Insurance rose 0.58 percent at HK$69.9 on news that it has put a fund-raising plan on hold after it said it will postpone an equity and bond offer because of the recent volatility in the Chinese market.

In Singapore, commodities supplier Noble Group Ltd. climbed 7.5 percent to S$2.73 after it said first-quarter net profit nearly quadrupled to a record $167.09 million on the back of strong global demand.

Elsewhere, airlines remained under pressure from concerns about high jet fuel costs. Cathay Pacific Airways slumped 4.19 percent to HK$15.56 after Morgan Stanley cut its target on the Hong Kong carrier to 13.25 hkd from 14.25 due to record oil prices.

Among other airlines, China Southern Airlines was down 1.61 percent at HK$4.89, Air China lost 0.52 percent at HK$5.69 and China Eastern Airlines fell 0.29 percent to HK$3.38.

Mitsui Chemical lost 4.5 percent to 610 yen after the chemical manufacturer revised down its net profit for the fiscal year ended March to 24.8 billion yen on higher purchasing costs of raw materials, compared with a previous projection of 43 billion yen. Rival Mitsubishi Chemical Holdings shed 5.2 percent to 698 yen, while fellow peer Sumitomo Chemical slipped 3.4 percent to 648 yen.

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Metals - Gold high on record oil, softer dollar

LONDON - Gold rose as record oil prices stoked inflation jitters and as the dollar weakened against the euro. Gold moves in line with high oil prices as investors hedge against inflation and counter to the dollar as it is seen as an alternative asset.

"Some weakening in the U.S. dollar and increased investment interest have been pushing up prices," said John Meyer, Fairfax analyst.

Oil rose to a series of records highs, hitting almost $125 at one point, as peak prices attracted a rush of fund investment. The dollar meanwhile, weakened against the euro which was up as markets continued to digest yesterday's European Central Bank interest rate decision and the lack of any signal that borrowing costs in the 15-nation currency zone will fall anytime soon.

At 10:37 a.m., spot gold was trading at $888.45 per ounce against $881.10 in late New York trade on Thursday.

While prices were higher today, some analysts reckon gold might be in for some falls going ahead. Gold is already some 15 percent lower than the record $1,032.50 it hit mid March, largely as expectations for the U.S. economy and the dollar appear to have bottomed out.

Recent dollar strength and rising expectations that the U.S. may hold off cutting interest rates further, prompted heavy selling in recent weeks.

"Gold prices are nearing the bottom of our forecast range for 2008. The healthy $130/oz price correction in the past seven weeks looked justified compared to a less-strong Euro performance since the start of the year," said ANZ analyst Mark Pervan. "Prices will ease back to $840/oz by September 2008, with further downward pressure on the Euro and a seasonal slowdown in oil prices dulling gold's appeal as a financial hedge."

Among other metals, silver rose to $17.02 an ounce from $16.81. Elsewhere, platinum rose to $2,079 an ounce against $2,019, while palladium was trading at $436 against $433.

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