US & World Daily Markets Financial Briefing 15-02-2008

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Stocks decline on manufacturing report

NEW YORK - Stocks fell in early trading Friday after a weak manufacturing report raised concerns of a further economic slowdown.

The New York Federal Reserve's Empire State Manufacturing Survey indicated that conditions deteriorated this month. The reading fell nearly 21 points to negative 11.7 -- the first negative reading since May 2005. Analysts had forecast a decline of 6.5 percent for the February number, according to Dow Jones Newswires.

Investors nervous about the state of the economy examined a handful of other economic data. The nation's central bank said Friday that industrial output showed a modest increase last month, largely on strength from utilities. The Fed said industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.

In addition, a Labor Department report found that U.S. import prices rose 1.7 percent in January, as oil prices jumped. In December, prices slipped 0.2 percent.

Investors were still awaiting readings on consumer sentiment. The preliminary Reuters/University of Michigan survey on consumer sentiment for February was due in the first hour of trading. The findings can help illuminate how consumers feel about the economy.

Consumers uneasy about the future can make them more reluctant to open their wallets -- an alarming prospect for Wall Street as consumer spending accounts for more than two-thirds of economic activity.

A slowing economy remains foremost in investors' minds. In testimony before the Senate Banking Committee on Thursday, Federal Reserve Chairman Ben Bernanke issued a sobering but not entirely unexpected prediction that economic growth in much of 2008 is likely to be "sluggish" before gathering strength later in the year. He also warned further losses were likely at banks from soured mortgages.

Stocks lost more than 1 percent Thursday, a day after putting up a gain of similar magnitude. The back-and-forth days, which have become almost commonplace in recent months, illustrate the uncertainty that has gripped Wall Street since last year.

In the first hour of trading, the Dow Jones industrial average fell 37.39, or 0.30 percent, to 12,339.59.

Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 4.42, or 0.33 percent, to 1,344.44, and the Nasdaq composite index fell 9.38, or 0.40 percent, to 2,323.16.

Government bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.82 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average finished off 0.03 percent. In afternoon trading, Britain's FTSE 100 fell 1.43 percent, Germany's DAX index fell 1.76 percent, and France's CAC-40 fell 1.75 percent.

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Forex - Dollar plunges further following weak consumer confidence data

LONDON - The dollar fell further following the release of much-worse than expected US consumer confidence figures.

Consumer sentiment, measured by the Reuters/University of Michigan index, fell to 69.6 in early February from a reading of 78.4 in January, making it the weakest reading since 1992. This was much worse than analyst expectations for a modest drop to 77.0, indicating confidence for the US economy's prospects is waning sharply.

"With house prices plummeting, employment falling, stock markets in turmoil and gasoline prices still above 3 usd a gallon it is little wonder that consumers are unhappy," said Paul Ashworth, US economist at Capital Economics.

"But the extent of the decline this month suggests that degree of panic has now set in; this is bad, very bad," he added.

The euro briefly climbed above 1.47 usd on the news, the first time since it been at this level since Feb 5. At 1518 GMT, the euro was at 1.4692 usd having been at 1.4680 shortly before the figures were released.

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Euroshares down midday as US set for unsteady start; banks fall as Natixis warns

At 12.04 pm, the DJ STOXX 50 was 32.98 points, or 1.02 pct lower at 3,202.35, while the STOXX 600 was down 3.23 points or 1.05 pct at 320.35.

In Europe, the banking sector remains in the limelight, underperforming the wider market and led lower by Natixis which fell 13.52 pct after issuing a profit warning last night after the close. 

Other French banks fell in sympathy, with BNP Paribas down 2.7 pct and Credit Agricole shedding 4.04 pct.

UBS was 4.97 pct lower this morning as yesterday's disappointing full-year earnings resulted in lower estimates at Lehman Brothers, Morgan Stanley and Societe Generale.

Muniche Re added 0.42 pct. Aegon was up 0.32 pct. In the same strategy note, Goldman Sachs downgraded the technology sector to 'underweight' from 'neutral' saying the sector's exposure to the emerging markets put its earning at risk.

Sanford Bernstein also downgraded the sector to 'market weight' from 'overweight' and downgraded ASML -- down 2.62 pct -- and Epcos -- down 1.24 pct -- to 'market perform' and STMicroelectronics -- down 1.43 pct -- to 'underperform'

Staying in the sector, French IT services company Atos Origin reported a full-year net profit of 48 mln eur against a year earlier loss of 264 mln as it pursued its restructuring plan.

Operating profit was 137 mln, against a loss of 160 mln. Shares fell 3.78 pct. Although Deutsche said today's numbers were full of promise, the broker pointed out shares had already rallied after strong numbers from Cap Gemini yesterday.

And Thomson SA shares added to yesterday's post-results selling as Cheuvreux and Natixis downgraded the shares to 'underperform' and to 'add'.

Earnings news released this morning were a mixed bag. Air Liquide climbed 1.65 pct after the industrial and medical gas services group released solid full-year earnings and an optimistic outlook.

The French group also benefited from an upgrade to 'overweight' at Lehman Brothers. As part of the review, Lehman also upgraded Lanxess and Linde to 'equal-weight' from 'underweight' and shares rose 1.13 pct and 0.98 pct respectively.

Bayer, on the other hand, fell 1.54 pct after Lehman lowered its recommendation to 'equal-weight' from 'overweight'.

Belgian chemicals and pharmaceuticals group Solvay also reported its full year results this morning and gained 0.91 pct as the group beat consensus.

Net profit for the full year came in at 828 mln eur for the group, compared with 817 mln in 2006, ahead of analysts' forecasts of 805-808 mln. Shares added 0.64 pct.

In the car sector, tyre maker Michelin fell 1.7 pct to the bottom of its sector as its full-year earnings report missed consensus despite a 34.7 pct surge in net profit. Peer Continental AG, which is due to release numbers next week, fell 0.87 pct.

On the economic front, the release of the Empire State Manufacturing Survey later today is expected be in focus and is expected to show a decline to 5.75 in January following a 9.03 level in December.

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Asian stocks end mixed; Hong Kong, Singapore reverse losses 

The blue-chip Nikkei 225 Stock Index ended 3.89 points lower at 13,622.56, while the broader Topix rose 2.45 points to 1,334.89. The Japanese market had led a broad regional advance on Thursday after a stronger-than-expected reading on fourth-quarter GDP.

The S&P/ASX 200 closed down 1.4 percent at 5,606.6 and the All Ordinaries finished 1.2 percent lower at 5,679.8 with funding concerns surrounding Centro Properties Group and transport leasing and funds management group Allco Finance Group further weighing on sentiment. Both stocks have been voluntarily suspended from trading. 

South Korean shares trimmed losses in late trade on bargain hunting. The KOSPI index closed down 0.2 percent at 1,694.77. Singapore's Straits Times Index gained 1.4 percent to close at 3,088.68, reversing early losses.

The Shanghai Composite lost 1.2 percent to 4,497.13. The Hang Seng index closed up 0.53 percent at 24,148.43, after trading in negative territory in the morning.

Late Wednesday, MBIA Inc raised 1.1 billion dollars from the sale of a nearly 40 percent stake in the company, helping push its shares up 8.4 percent on Thursday. 

In Tokyo, Mizuho Financial Group was down 0.7 percent at 440,000 yen, Sumitomo Mitsui Financial Group fell 0.8 percent to 779,000 yen and Mitsubishi UFJ Financial Group lost 1.7 percent to 944 yen.

In Seoul, Kookmin Bank lost 2 percent to 58,500 won and Shinhan Financial slid 3.5 percent to 48,750 won.

In Australia, Commonwealth Bank was down 1.4 percent at 46.38 dollars, National Australia Bank was off 2.5 percent at 30.64 dollars, ANZ shed 2.2 percent to 23.91 dollars while Westpac fell 3.3 percent to 23.36 dollars.

Rio Tinto, the subject of a 147 billion US dollar bid from BHP, was up 2.5 percent at 137.10 dollars while BHP was up 0.7 percent at 39.29 dollars.

Elsewhere in the region, the Philippines' composite index lost 0.9 percent to close at 3,182.85 and the Jakarta composite closed up 0.5 percent at 2,688.19. Taipei's weighted index closed up 0.14 percent at 7,876.37

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Oil hits fresh one-month high on ongoing supply woes linked to Venezuela-US spat

LONDON  - Oil hit a new one-month high on ongoing concerns that the market has not seen the last of a spat between the US and Venezuela that has led to the South American country cutting oil supplies to ExxonMobil.

The supply cut, which came after the US oil giant won a court order freezing some 12 bln usd worth of Venezuelan state assets, has put at risk some 90,000 bpd of supplies to the US.

However, major oil producers in the Middle East have assured the US they can easily make up for this amount, while Energy Secretary Sam Bodman said he will make supplies available from the strategic petroleum reserve.

All the same, Bank of Ireland analyst Paul Harris said the Venezuela issue could easily escalate, and that traders will look to this weekend's Sunday broadcast by President Hugo Chavez.

Last Sunday, Chavez threatened to cut all Venezuelan oil supplies to the US, while he yesterday renewed his call on fellow OPEC members to consider pricing their oil in currencies other than the dollar.

At 2.25 am, New York's WTI crude for March delivery was up 0.92 usd at 96.39 usd a barrel, having earlier hit a one-month high of 96.65 usd a barrel.

In London, Brent crude for April delivery, the new front-month contract, was up 0.40 usd at 95.56 usd per barrel.

US oil prices have risen some 6 usd this week although some analysts say the gains have been largely overdone, especially considering the ongoing risks to US economic growth.

US Federal Reserve chairman Ben Bernanke yesterday cast a gloomy picture of the US economy, saying inflation risks continue even as the growth slowdown gathers pace.

Meanwhile, OPEC earlier trimmed its 2008 oil demand growth forecast earlier, and said it can not rule out the potential for further downward revisions to demand.

Barclays Capital analysts said simmering economic fears and rising inventories will likely lead oil prices back near the high 80 usd a barrel level in the short-term.

Longer term, however, they remain upbeat on prices, citing disappointing non-OPEC output growth, frequent supply disruptions such as those in the North Sea and Nigeria, and ongoing geopolitical tensions such as with Venezuela.

In addition, there is rising speculation that should oil prices attempt a serious downward correction, OPEC will move to defend prices by trimming its output quotas.

A report released yesterday by tanker tracking agency Oil Movements showed OPEC exports are expected to fall by some 140,000 bpd in the four weeks to March 1.

Meanwhile, the cartel itself said it believes current OPEC output near 32 mln bpd should be enough to further ease market fundamentals, reinforcing speculation that it will at best keep output levels steady in March.

At worst, the cartel could of course opt to cut output, especially if global inventories continue rising while the global economic outlook turns even weaker.

The dollar yesterday fell considerably after Bernanke's downbeat economic outlook was accompanied by comments indicating further interest rate cuts are on the horizon.

Bank of Ireland analyst Paul Harris said a weak dollar could provide upside to oil over the next few weeks, even though the dollar has not been a key factor in oil since mid-January.

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