US & World Daily Markets Financial Briefing 15-01-2008

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US November business inventories up 0.4 pct, business sales up 1.6 pct

WASHINGTON - US business inventories increased almost in line with expectations in November, while business sales surged to their largest gain in eight months, the Commerce Department reported today.

Commerce said business inventories increased by 0.4 pct in the month, the largest gain since September and slightly below the 0.5 pct rise expected by economists surveyed by Thomson's IFR Markets.

Retail inventories were down 0.1 pct in November after growing 0.3 pct in October. Struggling automakers saw inventories rise by 0.4 pct in the month, and accordingly, retail inventories excluding autos fell 0.4 pct.

Furniture and appliance stores, which have suffered under the housing crunch, saw their supply of unsold goods drop by 0.5 pct.

General merchandise and department stores also had decreases in inventories in November. At general merchandisers -- the Wal-Mart and Target category -- inventories fell 1.8 pct, and inventories at department stores fell 3.4 pct.

Business sales in November increased 1.6 pct overall, the largest gain since last March. Total retail sales rose 1.2 pct and were up 2.0 pct without autos included. Sales at auto and auto parts dealers fell 1.4 pct for the month.

U.S. Dollar Index falls 7-wk low amid tame PPI, weak retail sales data

NEW YORK - The U.S. Dollar Index fell to a 7-week low Tuesday, as tame inflation and weaker-than-anticipated retail sales data pushed benchmark bond yields to multi-year lows.

The index, which tracks the buck against a the currencies of a number of the U.S.'s major trading partners, was down 0.5% at 75.25. It hit a low of 75.20 earlier in the session, the lowest level seen since Nov. 29.

The producer price index fell 0.1% in December, compared with the median estimate of economists surveyed by IFR Markets of a 0.2% increase. Core PPI, which excludes food and energy, rose 0.2%, in line with expectations.

December retail sales fell 0.4%, vs. expectations of no change. Separately, the January Empire State Index fell to 9.03 vs. economist forecasts of 9.75.

The yield on the 10-year Treasury note was down 7 basis points at 3.723%. It hit an intraday low of 3.707%, the lowest yield seen since March 2004. Tomi Kilgore    

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Forex - Dollar edges lower ahead of US PPI, retail sales data; pound firms

The dollar edged lower as markets awaited the release of key US PPI and retail sales data this afternoon, though solid UK inflation data boosted the pound. The figures are likely to highlight the Federal Reserve's dilemma, with PPI expected to show pipeline inflationary pressures continuing to rise, while retail sales point to weak US consumer spending.

The data will be key as expectations gather pace that the Fed could deliver a full 50 basis point rate cut at the end of the month rather than the usual 25. There was some relief, however, that Citigroup's fourth-quarter results revealed sub-prime writedowns that were slightly less than the market had feared.

This dented the yen, which had firmed as nervousness ahead of the report prompted flows into safe haven assets, though the focus remains on the data this afternoon. "The (Citigroup) news helped the dollar to rise against the yen, however against the other currencies market reaction was rather muted," said Alina Anishchanka at UBS.

Meanwhile, the euro held up after a weak ZEW economic expectations report out of Germany. The ZEW research institute's economic expectations index disappointed already low expectations, falling to -41.6 from -37.2 in December, against the consensus forecast of -39.0. This still leaves the index at its lowest since January 1993 and far below its long-run average of +31.4.

"January's further fall in the German ZEW index confirms that investors remain very concerned about the potential impact of financial market turmoil on the wider economy," said Jennifer McKeown at Capital Economics.

Elsewhere, the pound was firmer as UK inflation data showed the key annual CPI rate staying stubbornly at 2.1 pct in December -- above the Bank of England's 2.0 pct target -- for the third month in a row. In addition to that, inflation is expected to accelerate in the coming months as retail gas and electricity hikes, as well as higher petrol prices, feed through.

The news comes after very strong UK PPI figures yesterday. Although it will do little to alter forecasts that interest rates will fall again next month, it may mean they will not fall as aggressively as some in the market expect. "Overall, this week's PPI and CPI inflation data have been higher and stickier than expected, casting doubt on the extensive easing being priced in by interest rate futures markets (around 100 basis points)," said Ross Walker at RBS.

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Euroshares off lows midday after Citigroup Q4, Merrill cash news

At 12.15 pm, the STOXX 50 was down 14.52 points, or 0.41 pct, at 3,524.59, off earlier lows of 3537.54. The STOXX 600 was 1.97 points or 0.57 pct lower at 342.81.

Citigroup Inc. reported a fourth-quarter loss of 9.83 bln usd, or 1.99 usd per share, saying the results include a smaller than feared 18.1 bln usd in subprime-related writedowns and credit costs, and a 4.1 bln usd increase in consumer-related credit costs.

The mean estimate of analysts surveyed by Thomson Financial were for a loss of 1.03 usd per share. Revenue fell to 7.22 bln usd, compared with analyst forecasts of 10.64 bln usd. The banking group cut its quarterly dividend to 32 cents.  

Back in Europe this morning, weaker than expected German ZEW data had weighed even though economists said the research institute's economic expectations index may paint an excessively bleak picture of the growth outlook.

The ZEW index fell to -41.6 in January from -37.2 in December, declining for the seventh time in the past eight months and once again setting a new 15-year low. Markets were looking for a more modest decline to -39.0 in January.

And retailers were weaker following trading updates from Tesco, Debenhams and Burberry. Tesco fell 2.32 pct after its Christmas and New Year trading update came in below market forecasts, reflecting intensifying competition in the sector and the declining consumer environment.

Luxury goods maker Burberry shed 11.92 pct after its top end third quarter sales update as its retail operations were weaker than hoped for and as analystssuggest there was a pressure on margins as the group's january sales were drawn out.

Debenhams slumped 5.88 pct as its trading update failed to offset concerns about the outlook for the UK retail sector in 2008 and with concerns about margin performance also weighing.

But Beiersdorf abucked the recent trend in the consumer sector as the company reported full-year earnings that showed its strategy of expanding in emerging markets is paying off. Shares added 0.45 pct. And Sainsbury rose

Staying with earnings news, Safran, the French aerospace, defence and telecommunications contractor, gained 2.94 pct after it beat market expectations with a rise in full year like-for-like sales of 13.2 pct - well above its 5 pct target.

Meanwhile, the technology sector outperformed this morning, buoyed by an upbeat fourth quarter report from South Korean peer Samsung, as well as broker upgrades in the sector.

Atos Origin added 0.71 pct after UBS raised the stock to 'buy'. Spanish peer Indra rose 2.08 pct after its upbeat 2008 outlook statement and as Cheuvreux upgarded the shares to 'outperform' from 'underperform'. Nokia -- up 1.86 pct -- and ASML -- up up 1.48 pct -- were both boosted by threread across from an upbeat statement from Samsung.

And ASM International gained 1.85 pct with traders pointing to news activist shareholders are calling for a break up of the Dutch semiconductor group. Elsewhere, the pharmaceuticals sector took a hit, led lower by Novo Nordisk which shed 3.81 pct after it announced that it would discontinue the further development of its inhaled insulin AERx and as a consequence book a 1.3 bln dkr one-off cost.

Morgan Stanley has cut its stance on shares in Novartis -- down 1.66 pct -- to 'underweight' from 'equal-weight' and lowered its recommendation for Sanofi-Aventis -- down 1.29 pct -- to 'equal-weight' from 'overweight' in a review of the pharmaceutical sector, which the broker took down to 'in-line' from 'attractive'.

And Roche lost 1.57 pct after a mixed reaction last night to fourth quarter numbers from Genentech -- in which it owns a majority stake. The healthcare group reported adjusted quarterly earnings of 737 mln usd, or 69 cents per share, exceeding the mean estimate of analysts polled by Thomson Financial of 67 cents a share. But some traders said the group's outlook statement and sales for key drugs were a tad shy of broker forecasts.

And Danish headset and hearing aid manufacturer GN Store Nord AS -- down 22.9 pct -- cut its full year EBITA guidance for hearing aid unit Resound by 100-150 mln dkr to 300 mln, and for headset unit GN Netcom by 30-40 mln dkr to 60-70 mln as it now expects lower growth in both units.

The update weighed on peers Amplifon, Sonova and William Demant which were down 3.63 pct, 1.57 pct and 4.04 pct respectively. But utilities gained with Enel shares 0.57 pct higher thanks to a benign regulatory review for its Italian distribution business and the company's defensive qualities as a utility company.

Citigroup added EDF -- up 0.73 pct --  EOn and Hera to its list of 'Top Picks' in utilitites, saying high earnings visibility and rising power prices could deliver a sixth straight year of market outperformance for the sector, in a list which also includes RWE and Acciona.

Citigroup said it was raising its target on EOn -- up 0.66 pct -- by 15 pct to 169 eur. It lifted its price target on Hera -- up 1.26 pct -- by 2.9 pct to 3.5 eur. On RWE -- up 0.07 pct -- the broker raised its price target by around 3.5 pct to 115 eur.

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Asian stocks end lower as Wall St rebound fails to inspire

The sharp rise in the yen against the US dollar and weakness in other Asian equities sent the blue-chip Nikkei 225 Stock Average below 14,000 points for the first time since November 2005.

The Tokyo market's main index closed 1 pct lower at 13,972.63, while the broader Topix dropped 2 pct to 1,350.20. The Australian S&P/ASX 200 slipped 0.3 pct to close at 5,960 points, while the All Ordinaries index was down 0.4 pct at 6,019.8.

Hong Kong's Hang Seng Index closed down 2.4 pct at 25,837.78, while the South Korean KOSPI finished 1.1 pct lower at 1,746.95. 

Centro closed 30.2 pct lower at a record low of 60 Australian cents. Elsewhere in the sector, Westfield Group dropped 0.5 pct to 18.28 aud, GPT Group fell 1.6 pct to 3.60 aud, CFS Retail Property slipped 2.3 pct to 2.11 aud and Stockland gave up 1.1 pct at 7.31 aud.

Resource heavyweights BHP Billiton and Rio Tinto were higher after base metals and commodity prices strengthened overnight. BHP increased 1.2 pct to 38.71 aud and Rio was up 1.4 pct at 126.70 aud. On the defensive

In Tokyo, defensive stocks were firmer as investors turned to sectors in which earnings are expected to be stable even in a difficult business environment. Takeda Pharmaceutical was up 0.8 pct at 6,500 and brewer Sapporo Holdings was up 0.6 pct at 873 yen.

But Sumitomo Heavy Industries was down 2.1 pct at 831 yen after the heavy machinery maker said it is negotiating to buy Demag Plastics Group, a major German manufacturer of machinery for producing plastic parts, from a US investment fund.

Softbank Corp was 2.9 pct lower at 2,010 yen on a report that the telecommunications group has decided to stop charging for calls made between users of its cell phone service and its fixed-line Internet protocol phones, starting in April.

Goldman Sach's reduction of its price target for HSBC to 114 hkd from 119 hkd weighed on sentiment, dragging down the stock. HSBC, a Hang Seng Index heavyweight, closed down 2.1 pct at 120.8 hkd.

Bank of China and BOC Hong Kong also fell sharply as they, too, have significant exposure to US subprime mortgage-backed securities. Bank of China was down 2.2 pct at 3.5 hkd, while BOC Hong Kong fell or 4.5 pct to 22.5 hkd.

China CITIC Bank was down 2.2 pct at 6.13 hkd, reversing early gains driven by a positive earnings guidance for 2007. The seventh-biggest bank in the mainland said its net profit more than doubled in 2007 from 3.86 bln yuan in 2006. The bank did not give a precise 2007 net profit figure or other details.

China Mobile fell 4.2 pct to 124.8 hkd after its parent ended talks with Apple Inc over bringing the iPhone to China, while exchange operator Hong Kong Exchanges & Clearing also pressured the key index as it extended yesterday's 6 pct slide, falling 3.6 pct to 184.9 hkd.

Elsewhere in the region, the Shanghai Composite closed down 1 pct at 5,443.79. Singapore's Straits Times Index fell 2 pct to 3,154.58, the Jakarta composite was down 2.9 pct at 2,730.03, and Malaysia's Kuala Lumpur Composite Index slipped 0.1 pct to 1,505.71.

Manila's composite index closed 1 pct lower at 3,447.29. Taiwan's weighted index bucked the trend, closing up 3.1 pct at 8,428.84.

The Bombay Stock Exchange's 30-share Sensex shed 476.96 points or 2.30 pct to close at 20,251.09 while the National Stock Exchange's 50-share S&P CNX Nifty fell 132.55 points or 2.14 pct to 6,074.25.

Among the 30 blue-chips, three gained, led by country's largest private steel-maker Tata Steel Ltd, which rose 1.54 pct to 851.85 rupees and as telecom company Bharti Airtel Ltd, which shed 5.51 pct to 857.30 rupees to decline the most among 27 losers.

Anil Ambani-controlled Reliance Energy Ltd, which owns 50 pct of Reliance Power, dipped 4.42 pct to 2,364.55 rupees. The share was among the top-losers on the 14-component BSE power index, where only two shares advanced in the day.

Reliance Industries Ltd, India's biggest company by assets, dipped 1.69 pct to 3,162.00 rupees after the 52-week high of 3,252.10 it touched during the intra-day trade.

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Metals - Gold continues to consolidate after yesterday's rally to record highs

At 1.36 pm, spot gold was trading at 907.40 usd per ounce against 905.70 usd in late New York trade last night, having hit its all time record high of 914.10 usd yesterday morning.

"Gold rose on Tuesday and held near an historic high hit the previous day, reflecting investors' interest in the metal as the dollar dropped on expectations of a half-percentage-point cut in US rates," said RBC Capital Markets analyst Alex Heath.

Gold has risen by by almost 300 usd since the onset of the credit crunch in mid-August, as a combination of economic fears, softness in the dollar and rising inflation have seen investors pour into the precious metal. Investors have been using gold as a store of wealth and as an alternative form of currency reserves given the dollar's recent slide.

Earlier, Citigroup reported huge fourth quarter losses of 9.83 bln usd, including sub-prime related write-downs of 18.1 bln usd, underpinning fears about other major US investment banks due to post fourth quarter results this week.

While gold's rally has impressed many market watchers, with many now touting the 1,000 usd mark, analysts have cautioned that downside risks still remain. Imports into India, the world's largest gold jewellery market, have fallen by as much as 20 pct over the past year in response to higher prices, though rising interest from China has supported demand so far.

"Gold could undergo a correction after the Lunar New Year if jewellery sales fall back significantly in China and other Asian countries, although we feel that 1,000 usd per ounce is achievable in the first half of the year," said Fairfax analyst Marc Elliott.

Elsewhere, platinum slipped to 1,574.50 usd an ounce from 1,575.75 usd, having hit a record of 1,590 usd yesterday. "The outlook for the white metal is still extremely bullish, with the tight fundamental picture limiting price dips and the white metal should now look to challenge 1,600 usd per ounce," said James Moore at TheBullionDesk.com.

A series of supply cuts due to industrial action in major producer South Africa have been fuelling fears demand for platinum could outstrip supply in 2008. Platinum is widely used in the manufacture of catalytic converters for the automotive industry, as well as in jewellery.

Its sister metal palladium was lower at 374 usd from 380 usd per ounce, while silver was down slightly at 16.35 against 16.38 usd, having yesterday risen as high as 16.57 usd per ounce.

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