US & World Daily Markets Financial Briefing 14-04-2008

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Stocks fluctuate amid earnings worries

NEW YORK - Stocks fluctuated Monday as investors grappled with concerns about companies' earnings power after U.S. bank Wachovia Corp. and Dutch conglomerate Royal Philips Electronics NV posted disappointing quarterly results.

Wachovia surprised investors with a first-quarter loss of $393 million and cut its quarterly dividend by 41 percent to 37.5 cents a share. The bank, which analysts had expected to post a profit, also said it plans to raise $7 billion through a stock offering.

And in a sign that the slumping U.S. economy is hurting companies overseas, Royal Philips Electronics reported a sharp drop in first-quarter profits as a decrease in television sales in North America offset growth in its health care and lighting industries.

The reports preceded the Commerce Department's reading on March retail sales, which showed a modest 0.2 percent rise following February's 0.6 percent decline. The March figure bested the flat reading analysts had predicted. Excluding a 1.1 percent rise at gasoline service stations, retail sales would have been flat last month -- and possibly negative when adjusted for inflation.

In midmorning trading, the Dow Jones industrial average fell 6.92, or 0.06 percent, to 12,318.50. Broader stock indicators declined. The Standard & Poor's 500 index fell 2.97, or 0.22 percent, to 1,329.86, and the technology-heavy Nasdaq composite index fell 7.86, or 0.34 percent, to 2,282.38.

Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume came to 214.1 million shares.

Bond prices edged lower. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.49 percent from 3.48 percent late Friday.

In dealmaking news, Blockbuster Inc. said it is taking an unsolicited $1 billion-plus bid for Circuit City Stores Inc. directly to shareholders. Blockbuster said the consumer electronics chain has dragged out a deal that has been under negotiations for months. Circuit City jumped $1.21, or 31 percent, to $5.11, while 32 cents, or 10.3 percent, to $2.81.

Meanwhile, Northwest Airlines Corp. pilots have threatened to oppose a combination with Delta Air Lines Inc., but officials were nonetheless mobilizing to announce a deal to create the world's biggest airline as early as Tuesday -- provided the boards of the two companies give final approval to the deal, people familiar with the talks said Sunday. Northwest rose 18 cents to $11.14, while Delta advanced 31 cents, or 3.1 percent, to $10.32.

Gold prices turned higher, and the dollar was mixed against other major currencies. The Russell 2000 index of smaller companies fell 1.53, or 0.22 percent, to 686.63.

Overseas, Japan's Nikkei stock average fell 3.05 percent. In afternoon trading, Britain's FTSE 100 fell 0.87 percent, Germany's DAX index fell 0.86 percent, and France's CAC-40 fell 0.65 percent.

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Forex - Dollar continues to weaken ahead of U.S. data

LONDON  - The dollar continued to come under pressure ahead of U.S. data due on Monday, as market players remained sceptical that major central banks will act to stem volatility on currency markets.

Although G7 finance ministers surprised markets this weekend by acknowledging there have been sharp fluctuations in major currencies since its last meeting and they are concerned about their possible implications for economic and financial stability, markets were disappointed there were no firm comments on the possibility of intervention to stem volatility.

"Europe had a one-word response to the dollar rebound (in Asia following the G7 summit); and that word was 'sell'," said Matthew Foster-Smith at Thomson IFR Markets. "G7 may have talked up potential intervention risks but many are of the opinion that concerted action is still a way off."

Consequently, the gains the dollar initially saw following the comments from the Washington meeting of the Group of Seven industrialised countries were quickly erased on Monday.

Thomson IFR Markets' Robert Howard said sentiment towards the dollar has also been "negatively impacted by Wachovia's disclosure of a surprise first-quarter loss".

The U.S. bank said it swung into a loss in the first quarter and also revealed it will reduce its dividend and raise $7 billion through a share sale.

Attention will now turn to the release of retail sales data in the United States, which are expected to show a small improvement of flat growth in March from February's decline of 0.6 pct.

An analyst at BNP Paribas said the retail sales data "could keep the Japanese yen in demand" against the dollar. Later in the session, business inventories are expected to reveal an increase of 0.6 pct in February following a 0.8 pct increase in January.

Elsewhere, the euro found further support against the dollar following hawkish comments from European Central Bank Governing Council member Christian Noyer, which suggest there is still no room for interest rate cuts in the single currency zone due to high inflation.

Noyer told France Culture radio in an interview prices have risen to very excessive levels, "clearly outside our price stability objective".

"We must ensure that actions do not maintain inflation at the abnormally high level that it has reached for what should be a short period," said Noyer, who is also governor of the Bank of France. But he also added he believes the current high inflation levels should be short-lived.

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Euroshares lower midday as Wall St set for more losses; Philips falls on Q1 woes

At 12.16 p.m., the DJ STOXX 50 was 30.41 points, or 0.98 percent, lower at 3071.88 and the DJ STOXX 600 was down 2.81 points, or 0.9 percent, at 307.93.

The gloomy mood in financials spread across the Atlantic, with Deutsche Bank down 2.29 percent after reports in WirtschaftsWoche it will miss its target to raise its pretax profit at its private and business client division to 1.3 bln euros due to slowing revenues from securities.

Credit Suisse fell 3.6 percent after weekend reports the Swiss banking group write-downs of around 4 bln sfr alongside its first quarter results.

Societe Generale down 1.77 percent and SCH down 1.55 percent. Deutsche Bank cut its rating on DNB Nor, down 1.3 percent, to 'hold' from 'buy' and cut its earnings forecast by an average of 7 percent for Nordic banks.

The insurance sector was also dragged down by some downbeat broker comment. UBS cut its ratings on Swiss Re shares, down 3.07 percent, and Generali, down 1.35 percent, to 'sell' from 'neutral'.

Mining stocks also posted heavy losses as metals prices retreated with Anglo American down 2.2 per cent and Xstrata down 2.75 percent. And Philips kicked off Europe's reporting season with yet more disappointment.

Cheuvreux cut its stance on the Dutch group to 'underperform' from 'selected list' saying it will cut its forecasts for the group based on first quarter weakness in its consumer lifestyle business and in the U.S. Shares fell 3.49 percent.

Telecom Italia shares fell 2.67 percent after the group's chairman quashed hopes the group could merge with Spain's Telefonica. Last week, shares gained after reports Marco Fossati, the group's second-largest shareholder, favours a merger between the group and Telefonica by 2011.

Elsewhere among telecoms, Belgacom shares were 1.24 percent lower after it warned Friday it will review its full year growth forecasts following a court decision which overturns the BIPT, the Belgian regulator's last statement on mobile termination rates.

Merrill Lynch said the decision could reduce Belgacom's 2008 EBITDA by 2 percent. The broker repeated its 'sell' stance. KBC cut its stance to 'reduce from 'accumulate'.

Electrolux shares slipped back 1.09 percent after the surprise resignation of the group's CFO, sparking fears the group may be set to reduce its full year guidance.

British Airways fell 1.9 percent and Air Berlin fell 6.84 percent after Morgan Stanley downgraded the pair to 'underweight ' from 'neutral'.

And Alitalia shares remain untraded ahead of tonight's auction as the Italian regulator warned it will have its operating licence suspended in two or three weeks if its tie-up with Air France-KLM is not agreed quickly.

Carrefour shares were up 1.64 percent after Blue Capital raised its stake in the group and said it is seeking further board representation.

Natixis Securities said this is good news as it suggests the company will be pressed into strategic moves to address shareholder concerns. Danone shares turned higher mid-afternoon as the group's conference call cheered investors, with the group's reassuring comments on margins and full year target helping.

The shares had opened lower mid concerns about weakness at the group's dairy unit, but the company told analysts this would be offset by strength in the PET business.

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Asian stocks tumble with Wall Street as GE warns; financials lead rout

The Hang Seng closed 3.5 percent lower at 23,811.20. The Nikkei closed down 3.1 percent at 12,917.51 and the Topix lost 2.5 percent to 1,246.24. The S&P/ASX 200 lost 1.8 percent to 5,342.4 and the All Ordinaries ended down 1.7 percent at 5,410.9 and

The Straits Times Index closed down 2.7 percent at 3,042.96. The Kospi ended down 1.9 percent to 1,746.71. Choi Sung-rak, analyst at SK Securities in Seoul, said the Korean market was due for a correction, after gaining more than 200 points since mid-March.

Taiwan's weighted index closed down 0.19 percent at 8,892.68. Manila's composite index was down 0.8 percent at 2,918.27. The Kuala Lumpur Composite Index closed down 1.1 percent at 1,233.43, while the Jakarta composite index closed down 1.4 percent at 2,272.45.

Indian markets were closed today for public holiday. Earnings scare

"March retail sales data should cement the idea that Q1 real GDP growth was negative (we now estimate -0.8%). PPI and CPI will drive home the inflation threat and Wednesday's Beige Book is likely to be the most downcast collection of business anecdotes in more than a decade," said Hall. Banks slump Against this background, financials were key decliners.

Australia and New Zealand Banking Group finished down 2.3 percent to A$20.45 after announcing a review of its securities lending practices following its involvement in the collapse of margin lending stock broker Opes Prime Group last month.

Commonwealth Bank dropped 2.3 percent to A$40.49, National Australia Bank lost 1.8 percent to A$28.50 while Westpac was down 0.4 percent at A$22.46. Investment bank Macquarie ended down 3.1 percent to A$53.10 and Babcock & Brown fell 6.0 percent to A$12.49.

In Tokyo, Sumitomo Mitsui Financial closed down 4.2 percent at 701,000 yen and Mitsubishi UFJ Financial declined 3.7 percent to 927 yen. General leasing company Orix declined 3.9 percent to 15,410 yen. Consumer loan company Aiful slipped 2.3 percent to 1,607 yen.

In Korea, steelmaker Posco shed 6 percent, as investors shrugged off better-than-expected earnings from last week. Posco signalled it has no plans to hike prices unless it's hit by a "significant" rise in raw material costs, worrying analysts who think the decision may hurt profit margins.

Airlines fell across the region on concerns about rising jet fuel costs. Australian low-cost airline Virgin Blue slumped 21.6 percent to 87 cents, falling below A$1.00 for the first time, after it warned that its net profit will fall to A$140 million this year from A$216 million last year because of fuel costs. Deutsche Bank cut the stock to "hold" vs. "buy" on the news.

Virgin Blue's largest shareholder, Toll Holdings, has scrapped plans to sell its 62.8 percent stake in the airline. Toll closed down 15.1 percent lower at A$8.05. Qantas fell 4.7 percent to A$3.62. The company said its budget airline Jetstar is planning to expand in Vietnam.

In Hong Kong, Cathay Pacific fell 3 percent to HK$15.50. In Shanghai, Poly Real Estate and China Merchants Property Development both lost 10 percent to 24.30 yuan and 38.69 yuan, respectively.

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Oil prices fall below $110

Oil prices fell Monday, weighed down by economic worries and expectations that the U.S. dollar may strengthen after global financial leaders said they were concerned about volatility in major currencies.

Light, sweet crude for May delivery fell 36 cents to US$109.78 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract rose 3 cents to settle at US$110.14 a barrel Friday.

In London, Brent crude futures fell 58 cents to US$108.17 a barrel on the ICE Futures exchange. Crude oil's recent run above US$100 a barrel has been largely attributed to a steadily depreciating U.S. currency, because a weakening dollar attracts investors to commodities as a hedge against inflation. When the dollar rises, though, the effect tends to reverse as oil also becomes more expensive to investors overseas.

The Group of Seven industrialized nations said in a statement Friday that "there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability."

The group pledged to closely monitor the situation and "cooperate as appropriate." "The G-7's warning against excessive currency fluctuations was interpreted by the market as saying the dollar's fallen way too much and too fast," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"This comment may underpin the U.S. dollar in the near term and thereby reduce the interest of financial investors to pile money into oil and other commodities," he said.

Crude prices have also come under pressure after the International Energy Agency last Friday lowered its global oil demand forecast for the year by 310,000 barrels a day to 87.2 million barrels a day, citing lower economic output expectations in the U.S. and elsewhere.

JBC Energy in Vienna, Austria, called the IEA report the "strongest downward monthly revision in years," and also noted that gasoline consumption in the United States was expected to fall lower "for the first time in years."

More negative U.S. economic data also appeared to have taken steam out of oil's precipitous price rise this week. The Commerce Department reported last week the first decline in oil imports in a year -- a possible sign that high prices and an economic downturn were hurting crude sales.

"The weight of the gloomy economic picture in the U.S. and to a certain extent other countries ... is getting heavier, and it's putting a heavy lid on oil pricing," Shum said. However, he said, oil's movements continue to be largely influenced by fluctuations in the dollar.

Nymex crude "continues to be tightly correlated" to the movements of the dollar, said a report by Olivier Jakob of Petromatrix in Switzwerland.

"The main reason why the correlation is so strong is that it has become a self-fulfilling trade with very few volunteers to trade against it until it is proven broken."

In other Nymex trading, heating oil futures fell 1.71 cents to US$3.1804 a gallon (3.8 liters) while gasoline prices dropped 2.65 cents to US$2.7808 a gallon. Natural gas futures declined 1.2 cents to US$9.913 per 1,000 cubic feet.

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