US & World Daily Markets Financial Briefing 10-07-2008

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Stocks head for flat open amid financials woes

NEW YORK - Stocks headed for a flat open Thursday as investors weighed better-than-expected sales reports from discounters and a $15 billion buyout for Rohm and Haas Co. against continued worries about the financial sector.

Stock futures shot higher early Thursday after Wal-Mart Stores Inc. said it got a boost from the government's stimulus package, and it raised its forecast for the current quarter. Meanwhile, Dow Chemical Co. said it would acquire rival specialty chemicals maker Rohm and Haas in a deal worth more than $15 billion.

But further declines in shares of mortgage finance companies Fannie Mae and Freddie Mac because of capital concerns unnerved investors. The two government-chartered companies have fallen sharply of late on concerns that they will be forced to sell more new shares than anticipated to compensate for losses from the housing slump. The stocks extended their declines in premarket trading Thursday.

Stocks tumbled Wednesday amid concerns about the financial sector, leaving the major indexes in bear market territory -- down more than 20 percent from their October highs.

A day after the Dow Jones industrial average fell more than 230 points, Dow futures slipped 4 points, or 0.04 percent, to 11,145. Standard & Poor's 500 index futures fell 1.90, or 0.15 percent, to 1,246.10, while Nasdaq 100 index futures declined 2.50, or 0.14 percent, to 1,829.00.

Meanwhile, light, sweet crude rose nearly $2 a barrel on the New York Mercantile Exchange, approaching the $138 level. The market has been highly sensitive in recent months to sharp moves in the price of oil.

Investors also digested a Labor Department report that new applications for unemployment insurance fell by a seasonally adjusted 58,000 to 346,000 last week. But continuing claims rose, illustrating the weakness that remains in the labor market.

Economists had expected claims to fall to 395,000 last week, from a spike of 404,000 in the prior week. But the number of people continuing to receive unemployment benefits jumped by 91,000 to 3.2 million for the week ending June 28, the most recent period for which that information is available. The gain leaves the filings at the highest level since late December 2003.

Overseas, Japan's Nikkei stock average rose 0.12 percent. In afternoon trading, Britain's FTSE 100 fell 1.23 percent, Germany's DAX index declined 0.60 percent, and France's CAC-40 fell 1.93 percent.

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Forex - Dollar slips as Paulson comments send stocks lower

LONDON - The dollar fell back against the euro and yen, despite firmer-than expected U.S. data, after Treasury Secretary Henry Paulson said financial firms must be allowed to fail, weighing on share prices.

Paulson told Congress that financial institutions needed to adopt tough market discipline and should not expect the Federal Reserve or U.S. government to instantly come to their aid should they get into difficulty. "Stocks have reversed morning gains with traders attributing the pullback to the comments from Treasury's Paulson that financial firms must be allowed to fail," said Rhonda Staskow at Thomson IFR Markets, adding that this has in turn weighed on the U.S. currency.

This left the dollar under pressure despite earlier figures showing the number of first-time claims for unemployment insurance fell sharply last week.

The number of first-time claims filed in the week ending July 5 fell by 58,000 to 346,000, well below the 399,000 claims economists polled by Thomson Reuters IFR Markets were expecting. That was the largest weekly decline since Sept. 2005.

Elsewhere, the pound was lower after the Bank of England's decision to leave interest rates on hold at 5.00 percent. The decision was widely expected, but a run of recent UK data has now sparked speculation the next move in borrowing costs will be lower despite the current period of elevated inflation. "We suspect that commodity price appreciation will slow in response to a global downturn and the weak domestic growth environment will constrain corporate pricing power," said James Knightley, UK economist at ING.

"Consequently, lower inflation will allow the BoE to respond to the recession threat in early 2009 with rates set to be cut aggressively towards 3.5 percent by mid-year," he added.

As usual, no accompanying statement was issued and details of the MPC's voting pattern and the discussion leading up to the decision will not be made public until the minutes are released in two weeks' time. Earlier Thursday, the pound had dipped after yet another report of falling house prices, with HBOS Plc. unit HBOS announcing in its latest survey that prices fell by 2.0 percent during June.

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Euroshares track Wall St. lower; Carrefour falls on Q2 sales statement

At 8:27 a.m., The DJ STOXX was down 40.72, or 1.41 percent, at 2846.12 and the DJ STOXX 600 was down 4.28 points, or 1.51 percent, at 279.62.

In Europe, French supermarket Carrefour unveiled a lower than expected 6.7 percent rise in second-quarter like for like sales overnight and a sharp downturn in June. Cazenove cut its rating to 'underperform' from 'outperform', saying the group appears to have been caught by surprise by the downturn and the strategy to cope seems to be being developed on the hoof.

Deutsche Bank said it is difficult not to be sceptical about Carrefour given numerous false starts and directional changes of group strategy. Shares fell 8.27 percent. The news of slowing demand weighed on food manufacturer Danone, down 6.72 percent and L'Oreal, down 3.65 percent.

Adding to the gloom in the retail sector, Belgian lingerie manufacturer Van de Velde NV said overnight its first-half sales missed expectations due to a bad retail environment, adding it sees flat sales over the full year. Shares were downgraded to "hold" from "accumulate" at Bank Degroof. Shares fell 1.68 percent.

And Benetton fell 3.7 percent after its update, with a downbeat sector note from Goldman Sachs taking its toll. The broker cut Burberry Group Plc., Safilo Group, Signet Group Plc., PPR, Debenhams Plc. to 'sell' from 'neutral' and Benetton Group SPA. and Next Plc. to 'neutral' from 'buy' and added Kingfisher Plc. to its 'conviction sell' list.

Deutsche Bank has downgraded its view on McBride Plc. to 'hold' from 'buy' and reduced its price target to 115 pence from 130 pence, along with a number of other target cuts, in a Household & Personal Goods sector review on Thursday morning, traders said.

Shares in both Luxottica Group SpA, down 3.08 percent, and Swatch Group AG, down 4.6 percent, have been downgraded to 'hold' from 'buy' at Deutsche Bank as part of a European Luxury Goods review, in which the broker takes a more pessimistic view on 2009, traders said.

The broker also reduced price targets across the sector, cutting Bulgari SpA's to 6.4 euros from 7.9, Burberry Group Plc.'s to 490 pence from 500, LVMH SA's to 70 euros from 75, PPR SA's to 90 euros from 100, Richemont AG's to 66 Swiss francs from 70, Swatch's to 298 Swiss francs from 367, Tod's SpA's to 42 euros from 47, and Luxottica's to 17.2 euros from 22.0 -- all of which are rated 'hold'.

AB Foods fell 4.49 percent after its update which -- while in-line with analyst expectations -- failed to shore the group up against wider caution. Schneider Electric fell 4.07 percent and Alstom fell 5.32 percent as Morgan Stanley issued a downbeat sector note, reinitiating both stocks as 'underweight'.

Shares in Belgo-Dutch bancassurer Fortis NV. were 1.09 percent lower in early trade after reports that chief executive officer Jean-Paul Votron will announce his resignation today, and that Filip Dierckx will replace him on an interim basis.

Shares in F&C Asset Management Plc. dropped 20.26 percent in early deals amid market talk of a share placing. Initial talk had suggested Friends Provident could be placing its stake, but this rumour was rubbished by industry sources.

"This is clearly someone barking up the wrong tree. Friends Provident has a 52 percent stake in F&C, why on earth would it be placing its stake today?," the source said. He added that Friends Provident has already announced it is disposing of three assets -- Pantheon, Lombard and F&C assets, but said it is unlikely these will be sold before the third quarter.

Shares in EADS fell 0.99 percent after U.S. Defense Secretary Robert Gates scrapped the award of a $35 billion Air Force tanker contract to the European aerospace group and partner Northrop Grumman Corp.

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Asian stock markets mixed as credit fears resurface

In Sydney, the S&P/ASX 200 was down 1.5 percent at 4,937.4 and the All Ordinaries was down 1.4 percent at 5,020.5. Among the big banks, National Australia Bank bucked a selloff in the banking sector, closing up 0.04 percent at A$27.61 but Commonwealth Bank lost 2.3 percent to A$40.55, ANZ Banking Group fell 2.3 percent to A$18.37 and Westpac dropped 3.2 percent to A$19.07. Westpac's takeover target St. George fell 1.5 percent to A$25.49.

The Shanghai composite index was down 1.5 percent at 2,875.45 as investors locked in gains after the key index advanced about 9 percent over the previous three days. The Nikkei 225 index rose 0.12 percent to 13,067.21, reversing early losses as bargain hunters stepped in. The Topix index was up 0.4 percent at 1,290.76.

The Kospi was up 1.2 percent at 1,537.43, also rebounding from early losses driven by warnings from the Bank of Korea of higher inflation risks. Among individual stocks, Kookmin Bank gained 3.0 percent to 57,800 won after South Korea's top retail lender said it was studying various measures to defend its stock price, including a share buyback. But no specific decisions have been made yet.

Industrial Bank of Korea gained 2.1 percent to 14,400 won. Heavy industry stocks rebounded after being pummelled in recent sessions. Hyundai Heavy rose 1.7 percent to 307,000 won and STX Shipbuilding jumped 5.1 percent to 27,850 won.

Hyundai Motor dipped 1.6 percent to 67,800 won and Kia Motors slid 3.6 percent to 10,700 won. Samsung Electronics was off 2.6 percent at 560,000 won while LG Electronics tumbled 5.7 percent to 108,000 won. LG Display skidded 4.2 percent to 32,900 won on worries that a supply glut could hit the industry earlier than previously expected.

In Tokyo, shares of Japanese real estate companies turned higher as investors covered short positions. Mitsui Fudosan gained 4.2 percent to 2,495 yen and Mitsubishi Estate advanced 3.5 percent to 2,505 yen while Sumitomo Realty & Development rose 4.5 percent to 2,205 yen. Condominium developer Urban Corp rallied 19.8 percent to 248 yen.

Investors bought bargains in the financial sector. Mizuho Financial Group rose 2.7 percent to 526,000 yen, Sumitomo Mitsui Financial Group gained 4.4 percent to 831,000 yen and Mitsubishi UFJ Financial Group advanced 3.5 percent to 988 yen.

Mitsubishi Corp eased 0.6 percent to 3,180 yen after the announcement that Japan's largest trading house and Canadian uranium producer Cameco Corp will jointly acquire the interests in an Australian uranium mine from resources giant Rio Tinto for about 53 billion yen ($496.2 million).

Canada's Cameco Corp said on Wednesday it will acquire a 70 percent interest in the Kintyre uranium exploration project in Western Australia from Rio Tinto Ltd for $346.5 million. It said the remaining 30 percent will be bought by Sydney-based Mitsubishi Development Pty Ltd. Together they paid $495 million for the property.

Elsewhere in Asia, the Philippine composite index fell 0.9 percent to 1,550.09. The Jakarta composite index was down 0.4 percent at 2,276.23, while the Taiwan weighted index gained 0.4 percent to 7,075.65. The Straits Times Index closed down 0.6 percent at 2,901.58, while the Kuala Lumpur Composite Index lost 0.4 percent to 1,135.49.

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Oil prices steady amid newsflow on Nigeria, Iran

LONDON - Oil prices held steady on Thursday as Anglo-Dutch energy giant Shell said it would resume full deliveries from a facility in Nigeria, and amid lingering worries over Iran, traders said. The International Energy Agency (IEA) meanwhile forecast that tension on oil markets was set to ease early next year amid an economic slowdown in the United States.

Brent North Sea oil for August delivery rose 12 cents to $136.70 a barrel in electronic deals. New York's main oil contract, light sweet crude for August delivery, dipped two cents to $136.03. "Crude prices were almost flat (on Thursday), still consolidating around yesterday's level with the market lacking clear direction," said Sucden analyst Andrey Kryuchenkov.

"Investors were not ready to liquidate their crude positions just yet, with persistent geopolitical fears and worries over long-term crude supplies tightness. "Prices have soared since breaking through $100 at the start of the year, but are down about $10 from record peaks near $147 last week. Shell said on Thursday that it would resume meeting its contract obligations from its offshore Bonga oilfield in Nigeria, shut down last month because of a militant attack.

Shell declared a force majeure -- a legal clause allowing producers to miss contracted deliveries because of circumstances beyond their control -- on the oilfield on June 20 after an attack by the Movement for the Emancipation of the Niger Delta (MEND).

Traders were also monitoring happenings in Iran, which like Nigeria is a major exporter of crude oil. U.S. Secretary of State Condoleezza Rice warned Iran on Thursday that Washington had beefed up its security presence in the Gulf and would not hesitate to defend Israel and other allies in the region. "We will defend American interests and the interests of our allies," Rice said, answering a question on an Iranian threat to "set fire" to Israel. "We take very strongly our obligation to defend our allies and we intend to do that," she said at a news conference in Tbilisi.

Iran had on Wednesday test-fired a missile it said is capable of reaching Israel, angering the United States amid growing fears that a standoff over Iran's nuclear drive could lead to war. Iran insists its nuclear drive is aimed solely at generating energy but the West fears it could be aimed at making an atomic bomb and has called for a freeze of uranium enrichment.

The International Energy Agency forecast on Thursday that demand in advanced countries seemed to be on a weaker trend although it forecast a global increase in demand of 1.0 percent next year. But the Paris-based agency cautioned that demand for oil would remain robust in Asia, the Middle East and Latin America, fuelled by vibrant economic momentum and continued low fuel prices.

The IEA said that global oil demand was expected to come to 87.7 million barrels a day next year, an increase of 1.0 percent from the level of 86.9 million barrels a day forecast for 2008. Demand this year was seen rising by a slight 80,000 barrels a day, according to the IEA, which is the energy monitoring arm of the Organisation for Economic Cooperation and Development.

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