US & World Daily Markets Financial Briefing 13-11-2008

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US STOCKS-Energy, Wal-Mart lift market at open

NEW YORK - U.S. stocks opened higher on Thursday as rebounding oil prices lifted energy shares and Wal-Mart Stores Inc offered some reassuring news about consumer spending.

The Dow Jones industrial average was up 101.87 points, or 1.23 percent, at 8,384.53. The Standard & Poor's 500 Index was up 11.37 points, or 1.33 percent, at 863.67. The Nasdaq Composite Index was up 12.92 points, or 0.86 percent, at 1,512.13.

REFILE-UPDATE 3-Wal-Mart net up 10 percent, but outlook lowered

NEW YORK - Wal-Mart Stores Inc reported a slightly better-than-expected 10 percent rise in quarterly profit on Thursday as shoppers seeking relief from deteriorating global economic conditions scoured its aisles for discounts on groceries and medicine.
      
But the world's largest retailer forecast fiscal fourth-quarter earnings that could miss current Wall Street targets, and it lowered its full-year profit outlook, citing pressure from the stronger U.S. dollar.
      
"I think investors by and large will look through that to some extent to say, 'This is beyond their control,' and look at their underlying fundamentals," said Jefferies & Co analyst Dan Binder.
     
Wal-Mart's stronger results come as other retailers have seen their sales and profits fall as a global financial meltdown and rising unemployment prompt shoppers to severely curb spending. "The gap between their performance and everybody else is widening as things get worse in retail," Binder said.
     
Wal-Mart said its low prices and plans to cut prices every week until Christmas were attracting shoppers, giving it momentum headed into the crucial year-end holiday season. "It is our time," Chief Executive Lee Scott said on a recorded call.
      
Wal-Mart reported net income of $3.14 billion, or 80 cents per share, for the third quarter ended Oct. 31, up from $2.86 billion, or 70 cents per share, a year earlier.
      
The company said earnings from continuing operations were 77 cents per share. It had previously forecast 73 cents to 76 cents, and analysts on average had been expecting 76 cents, according to Reuters Estimates.
      
The company's shares rose to $52.73 in premarket trading from Wednesday's close of $52.62 on the New York Stock Exchange.
          
Wal-Mart's sales have outpaced competitors this year as cautious consumers adopt a thrifty attitude and try to stretch their dollars by shopping in its stores. Net sales rose more than 7 percent to $97.6 billion.
      
Sales at U.S. stores open at least a year rose 3 percent overall, with increases of 2.7 percent at the company's namesake stores and 4.5 percent at the Sam's Club warehouse club division.
   
Eduardo Castro-Wright, head of Wal-Mart's U.S. operations, said consumers were being more cautious when it comes to discretionary purchases of electronics.
      
That caution roiled U.S. consumer electronics retailers, with Circuit City Stores Inc filing for liquidation protection this week and Best Buy Co Inc slashing its profit forecast, citing "seismic changes in consumer behavior."
      
Wal-Mart forecast fourth-quarter earnings per share of $1.03 to $1.07 from continuing operations -- below analysts' expectations of $1.11 -- on U.S. same-store sales growth of 1 percent to 3 percent. "The rapid changes in currency exchange rates during the last few weeks are projected to negatively affect this year's fourth-quarter results by approximately 6 cents per share," Chief Financial Officer Tom Schoewe said in a statement.
      
A weaker dollar boosts profits of U.S. multinational companies when their foreign revenues are converted into greenbacks. But the dollar has risen against an index of major currencies, eliminating some of that benefit.
      
For the full year, Wal-Mart now expects earnings per share of $3.42 to $3.46 from continuing operations, compared with a previous view of $3.43 to $3.50.

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FOREX-Dollar cedes gains, sterling battered

LONDON - The dollar ceded gains on Thursday as U.S. stock futures moved into positive territory, but persistent wariness over the global economic outlook was expected to support the U.S. currency and the low-yielding yen.

Recession fears became a reality in Germany, where gross domestic product contracted by 0.5 percent in the third quarter, tipping Europe's biggest economy into recession for the first time in five years.

Shortly after the data's release, the Organisation for Economic Cooperation (OECD) cut its economic forecasts for the United States, Japan and euro zone, and said the 30-nation OECD area appeared to have entered recession.

The projections were released before an emergency meeting in Washington this weekend of leaders from the Group of 20 developed and developing countries.

"I would think there is still upside for both the dollar and the yen after come consolidation...given the likelihood of further bad news to come," said SG currency strategist Phyllis Papadavid.

The euro rose 0.8 percent against the dollar to $1.2583, clawing back from the two-week low of $1.2389 it had set earlier in the global session. The single currency's gains were partly driven by its rise to a record high against sterling. Sterling was down 0.5 percent at $1.4846, having earlier fallen to a 6-1/2 year low at $1.4807.

Risk aversion was heightened after the U.S. Treasury backed away on Wednesday from using its $700 billion financial bailout to buy bad mortgages, raising fears that banks would have trouble shoring up their financial health.

"Investor sentiment has been hit by fears banks will not be able to weather the financial storm without being able to offload their troubled assets from their books," RBC Capital analysts said in a research note. "Policy u-turns in this environment do not exactly breed confidence.

The single currency also rose 2 percent to 120.75 yen. Earlier in the global session it briefly fell as low as 117.65 yen, the lowest since Oct. 28.

The dollar recovered from the day's low of 94.53 yen to 96.00 yen, up 1 percent on the day. Asia-based traders said short-term speculators who bought the yen from around 97 yen sold the Japanese currency back to book profits.

Wariness of risk also battered the Australian dollar, which fell to a two-week low of $0.6348 in late New York trade the previous day, forcing the Australian central bank to intervene to support the currency early on Thursday.

The pound's slide against the dollar on Wednesday pushed one-month volatility as high as 28.9 percent  from around 27 percent late on Wednesday. That took it back towards record peaks of around 29.5 percent hit late last month, analysts said.

Three-month volatility also jumped to a record 23.25 pct. The pound was battered after the Bank of England said on Wednesday the British economy would shrink sharply next year, bolstering expectations that further sharp cuts in interest rates were in the pipeline.

That added to expectations the European Central Bank would also cut rates further. Later in the day, markets will look for hints on whether the European Central Bank might step up its monetary policy easing as several ECB policymakers including President Jean-Claude Trichet are expected to speak at a banking conference in Frankfurt.

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European shares fall as oil stocks, miners weigh

FRANKFURT - European shares fell in morning trade on Thursday, putting them on track for a third straight day of losses as commodity stocks and banks declined, more than offsetting gains in BT and autos.
      
At 1046 GMT, the FTSEurofirst 300 index of top European shares was 1.5 percent lower at 840.89 points, after slipping more than 3.4 percent in the previous session.
      
The index has lost about 41 percent this year, hit by the credit crisis and resulting economic slowdown. Oils weighed heaviest on the benchmark, as crude fell below $56 a barrel. Royal Dutch Shell fell 2.4 percent and BP slid 4.1 percent.
      
Mining stocks followed metals prices lower. BHP Billiton, Anglo American, Vedanta Resources, Xstrata, Antofagasta and Rio Tinto fell between 0.8-3.0 percent.
      
"Most of the company (earnings) numbers continue to be depressing. Asia and the U.S. closed lower and it appears that bargain-hunting is one of the few things helping support the market," said Andreas Huerkamp, equity strategist at Commerzbank.
      
Huerkamp said European shares were at a critical stage, nearing the lows of October. "Should we push through these support levels, a bigger fall could be on the horizon," he said.
 
The leading gainer was BT Group, which added 7.8 percent after second-quarter revenues rose and the group said it would cut its workforce by 10,000 by the end of its financial year.
      
Vodafone, Deutsche Telekom and France Telekom were up 2.2-2.9 percent.  The auto sector was also strong, with Daimler up 2.4 percent, BMW 2.6 percent stronger and Peugeot  gaining 4.4 percent.
      
Traders attributed the gains to an overnight rise in U.S. car stocks as the U.S. government weighs an emergency bailout for domestic automakers. General Motors, Ford and Chrysler LLC are seeking $25 billion as their cash burn rates rise.
      
Banks were also stronger, with Unicredit up 4.54, and Banco Santander gaining 3.47 percent.  Technology shares fell after chip giant Intel Corp cut its fourth-quarter revenue forecast by about 14 percent citing weak global demand across all its products, indicating the economic crisis is set to hurt computer sales over the holiday season and beyond.
      
Infineon was down 2.2 percent. Across Europe, the FTSE 100 index was down 1.7 percent, the French CAC 40 was down 0.8 percent, and the German DAX lost 0.55 percent.

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Asian Market Summary

HONG KONG - Hong Kong shares fell 5.2 percent to a two-week low on Thursday, as HSBC dropped on concerns about the U.S. bank bailout plan and HKEx tumbled on lower quarterly earnings.

Asia's biggest listed bourse operator, Hong Kong Exchanges & Clearing, tumbled almost 8 percent after it reported that profit fell 43 percent in July-September, its second quarterly decline, due to sluggish trading volumes.

BNP Paribas cut its target on HKEx by 28 percent to HK$49.32 and its earnings forecast by 9 percent for this year and 3-12 percent in 2009 and 2010.

Properties extended their losses on a bleak outlook for the Hong Kong economy, which is expected to have slipped into a recession in the third quarter. Top local developer Sun Hung Kai Properties lost 7.1 percent, while Henderson Land fell 6.4 percent.

"Even if Hong Kong banks have lowered prime rates, it will not help the property sector. The problem is banks now are more cautious about lending and they need idle cash for emergency," said Daniel Chan, senior investment strategist at DBS Bank.

HSBC tumbled 6 percent amid concern over whether the United States will succeed in its banking rescue plan after the U.S. Treasury backed away from using a $700 billion bailout fund to buy bad mortgage debt from lenders.

A rally in shares of CITIC Pacific fizzled, as relief over a bailout by its parent gave way to worries over corporate governance and the outlook for the company's earnings.

The steel-to-property conglomerate rose as much as 17 percent before closing up 9.2 percent after its parent said it would buy $1.5 billion worth of convertible bonds from the firm and assume some of its liabilities which arose from unauthorised foreign exchange contracts. "Investors will still avoid this company because of issues on corporate governance," said DBS's Chan.

The benchmark Hang Seng Index .HSI closed down 717.74 points at 13,221.35, bringing its three day losses to 10.3 percent. Mainboard turnover rose to HK$51.8 billion ($6.6 billion) from HK$47.2 billion on Wednesday.

In light trade, the benchmark Nikkei shed 456.87 points to end at 8,238.64, falling for a third straight day and its lowest close since Oct. 29. The broader Topix declined 4.3 percent to 837.53.

The China Enterprise Index .HSCE of top locally listed Chinese companies fell 4.8 percent to 6,795.58, led by a 4.7 percent drop in China Construction Bank.

Bank of Communications lost 5.4 percent, while bigger rival Bank of China gave up 4.6 percent. "Falling interest rates in China will have a negative impact on bank margins because that would mean lower interest income," said Peter Lai, director at DBS Vickers.

Asia's biggest oil and gas sector PetroChina fell 6.4 percent after oil prices slid to a 22-month low.

Shares of Industrial and Commercial Bank of China (Asia) fell 10.5 percent. The bank earlier fell to a five-year low after it said it would make a full provision of HK$600 million for the decline in the value of U.S. dollar and euro denominated bonds issued by three major banks in Iceland amid the global financial turmoil. The bank said the impairment loss will not have a significant impact on its business.

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Stronger dollar expected to cap gold's gains

LONDON - Gold rose on Thursday as bargain hunters entered the fray, but analysts said gains will be capped by the stronger dollar and receding inflation fears.

Spot gold was at $713.80/715.30 an ounce at 1117 GMT from $711.35 an ounce in New York late on Wednesday, when it slipped to $707.80, its weakest since October 27. Earlier, it touched $718.30 on physical buying interest, traders said.

The dollar rose against the euro and hit a 6-1/2 year high against sterling. "Gold will struggle in an environment where the dollar is strengthening," said Calyon analyst Robin Bhar. "Safe-haven buying will continue to underpin the gold price, but it looks as if people are more inclined to move into U.S. Treasury bonds and bills."

Any move by investors into U.S. government bonds will boost the U.S. currency, which, when it is rising, makes metals priced in dollars more expensive for holders of other currencies.

The dollar has been rising since August when markets realised the financial crisis and economic slowdown would not be confined to the United States.

"We are revising our gold forecasts lower on Goldman Sachs currency revisions as USD shifts are the dominant driver of gold prices," Goldman Sachs said in a note.

Traders say currency and gold markets are waiting for U.S. weekly jobless claims and international trade data for September due at 1330 GMT on Thursday.

Gold is also used by investors as a hedge against financial market turmoil and inflation, which erodes the value of money.

Worries about global recession, consumer belt-tightening and falling oil and industrial metals prices have all contributed to easing inflationary pressures and in fact markets are now talking about the likelihood of deflation.

"Inflation is no longer in the equation for the global economy. People don't need to be protected from it," a London-based trader said.

Gold gained earlier this year as the credit market crunch stoked volatility across financial markets. But coordinated central bank action to pump money into the banking system and cut interest rates is helping to ease the crisis.

"Credit market developments continue to weigh on gold prices, we believe, although the evidence is not clear cut," HSBC said in a note.

"An important argument for higher gold prices is strong underlying physical demand for gold globally, most notably in India, the Middle East, and China."

Chinese gold investment hit 38.4 tonnes in the first nine months of this year against 24 tonnes for 2007.

Platinum fell nearly 4 percent to $780 an ounce, the lowest since Oct. 31 and was last at $809/829 an ounce from $810 late on Wednesday. Prices of the metal used to make autocatalysts have plunged about 65 percent since a record high of $2,290 hit in March.

The sell-off was trigged by falling auto sales and the deteriorating outlook for the car industry. "There could be fresh falls in platinum prices next year, it would not be unexpected," Bhar said. Palladium was at $207/213 from $210 on Wednesday and silver at $9.25/9.33 from $9.30.

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