US & World Daily Markets Financial Briefing 15-04-2008

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Stocks up after economic, earnings data

NEW YORK - The stock market advanced Tuesday, with investors encouraged by a surprising rebound in New York area manufacturing, and better-than-expected profits at Johnson & Johnson and financial services companies U.S. Bancorp and M&T Bank Corp.

After a spate of disappointing readings on the economy, investors were pleased the New York Federal Reserve reported that regional manufacturing expanded modestly in April, after shrinking at a record clip in March. Economists, on average, had been expecting another contraction.

In another positive sign for Wall Street, health care products maker Johnson & Johnson said its first-quarter profit jumped 40 percent on rising sales and a slight decline in costs. Results from the maker of consumer staples ranging from diapers to drugs came as a relief to investors, following a spate of mostly disappointing earnings reports last week and Monday.

And any positive news from the ailing financial sector has tended to give stocks a boost. U.S. Bancorp's quarterly report was particularly reassuring because the company said its credit problems will continue to be manageable.

The market, however, remains concerned about inflation. As crude oil prices surged to a record near $114 a barrel, the Commerce Department's Producer Price Index registered a much higher-than-anticipated 1.1 percent rise for March. The core index, which strips out food and energy prices, rose by 0.2 percent, as expected.

Core producer price increases have slowed over the past three months, so most investors are not too worried that inflation will keep the Federal Reserve from lowering interest rates again if the economy weakens further. However, food and energy prices keep rising, so consumers have been paring back their discretionary spending to afford necessities -- and that is hurting corporate profits.

In the first hour of trading, the Dow Jones industrial average rose 58.37, or 0.47 percent, to 12,360.43. Broader stock indicators also rose. The Standard & Poor's 500 index rose 6.85, or 0.52 percent, to 1,335.17, and the Nasdaq composite index rose 12.43, or 0.55 percent, to 2,288.25.

Bond prices dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55 percent from 3.51 percent late Monday.

U.S. Bancorp shares rose 27 cents to $31.94 after releasing its first-quarter results, while M&T Bank rose $3.63, or 4.5 percent, to $84.38. Both banks' profits benefited from the initial public offering of Visa Inc. in March.

Late Monday, Delta Air Lines Inc. and Northwest Airlines Corp. agreed to combine in a stock-swap deal that will create the world's biggest airline. But investor appeared uneasy -- Delta fell 88 cents, or nearly 9 percent, to $9.60, while Northwest slipped 33 cents, or nearly 3 percent, to $10.89.

Gold prices also rose, while the dollar was mixed against other major currencies.

Overseas, Japan's Nikkei stock average rose 0.77 percent. Britain's FTSE 100 rose 1.02 percent, Germany's DAX index fell 0.12 percent, and France's CAC-40 slipped 0.01 percent.

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Forex - Euro pares gains after worse-than-expected ZEW business survey

LONDON  - The euro pared gains following a surprisingly sharp drop in the German ZEW business confidence survey for April, which suggest the euro zone's largest economy is increasingly feeling the impact of the credit crunch.

The ZEW said its confidence indicator fell to -40.7 from -32.0 in March, going against analysts' forecasts for a mild improvement to -29.0.

"The survey highlights a risk that, while the German economy is holding up well for now, it might only be a matter of time before the strong euro and weakening global demand take their toll," said Jennifer McKeown, European economist at Capital Economics.

However, the euro's losses were capped by expectations that though there are downside risks to growth in the single currency zone, interest rates are still unlikely to come down in the immediate future due to high inflation.

"With inflation expectations in Germany and the euro zone as a whole still high, we might have a few months to wait before the European Central Bank responds with lower interest rates," McKeown said.

This has been more evident after European Central Bank policymaker Jurgen Stark earlier reiterated the central bank's concerns on inflation, and when the euro rose in the run-up to ZEW survey following strong inflation data from France and Italy.

The weakness of the ZEW survey pushed the euro off the all-time high hit against the pound following a slew of soft UK data.

The pound was weaker, briefly hitting a record low of 0.8063 per euro after lower-than-expected inflation numbers and disappointing figures from the housing market and high street raised speculation that there is room for the Bank of England to cut interest rates again soon to counter the credit crunch.

Official figures showed the annual rate of CPI inflation unexpectedly held steady in March at 2.5 pct, missing forecasts for a modest rise to 2.6 pct.

While the British Retail Consortium said like-for-like sales fell by 1.6 pct in March from the year before, the first drop in two years, the Royal Institution of Chartered Surveyors found more of its members than ever reporting lower house prices during the month than at any time in the 30-year history of the survey.

"The broader implications for policy from recent data are that the risk of Federal Reserve-style aggressive rate cuts is rising," said Michael Hume, an economist at Lehman Brothers. Attention will shift this afternoon to the United States where a raft of data is due out.

"Rising US producer prices and a weak Empire State Index as well as net capital inflows below the trade deficit are expected to further fuel the dollar-negative sentiment and a test of the all-time highs of $1.5915 therefore seems possible," said Antje Praefcke, currency strategist at Commerzbank.

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Euroshares off highs midday as Dow seen lower; financials weak on data woes

At 12.18 p.m., the DJ STOXX 50 was down 2.72 points, or 0.09 percent, at 3071.88 and the DJ STOXX 600 was down 0.4 points, or 0.13 percent, at 307.86.

The news weighed on financials, with Unicredit down 1.72 percent, Allianz down 1.51 percent and BNP Paribas down 1.14 percent. Banco Popular slipped 0.09 percent after Deutsceh Bank cut its rating to 'hold' from 'buy'.

Deutsche Boerse fell back 2.22 percent and LSE slipped 0.67 percent as Morgan Stanley has cut its price targets for the pair amid increasing pricing pressure in the sector,

Skanska fell 6.58 percent after announcing writedowns related to three fixed price PPP (Public Private Partnership) projects in the United Kingdom. Shares in auto stocks fell sharply after weak figures for March European car sales reinforced investor fears that consumers are feeling the impact of the global credit turmoil.

Renault fell 3.24 percent, VW fell 0.96 percent and Fiat dropped 5.35 percent with oil close to all time record highs adding to the misery in the xsector.

BG, Galp and Repsol got a further boost as the head of Brazil's National Petroleum Agency said that the Sugar Loaf structure in the Santos Basin could contain 33 billion barrels of oil equivalent. If the estimates prove correct, this would be the biggest discovery in 30 years, analysts said.

Evolution Securities upgraded the group to 'buy' from 'add' with a target of 1,500 pence, and Cheuvreux upgraded Repsol to 'selected list' from 'outperform' on the back of the announcement. Repsol shares added 9.62 percent, BG shares rose 5.56 percent and Galp shares added 4.49 percent.

SBM Offshore, Technip, Subsea7 added 5.76 percent, 6.01 percent and 5.35 percent. "If Tupi needs 6 FPSOs, then Carioca needs 30 of them for 5 million barrels per day," one analyst said. But Seadrill Ltd. fell 1.21 percent as Credit Suisse downgraded the shares to 'neutral' from 'outperform' after the stock's 40 percent rally since January.

Sacyr Vallerhermoso -- with a 20 pct stake in Repsol -- added 9.47 percent. The retail sector was another key focus in early trade, as investors cheered a flurry up upbeat reports.

Tesco rose 5.56 percent as the UK's biggest supermarket group's full year numbers met analyst forecasts. The group said current trading is strong and early performance in the U.S. is beating targets -- rebutting many concerns about prospects for the group in the current year.

Dufry climbed 3.53 percent as the Swiss food retailer reported "a very strong set of full year results" including sales growth of 34 percent and a 150 basis point increase in margins. Deutsche Bank repeated its 'buy' stance.

Burberry climbed 9.09 percent after its trading update showed sales growth is accelerating. There had been some concern the group would cut its full year targets.

H&M shares moved up one percent as analysts brushed aside the group's slightly lower than forecast March sales figures, saying March is only the first month in the quarter and the miss was only small.

M&A rumours also circulated in late morning trade. Tietoenator added 2.23 percent ahead of its first quarter update tomorrow, as traders noted talk that Telenor and private equity group Blackstone are considering an 18.5 euros per share counter bid for the Finnish technology group -- already the subject of a bid from Nordic Capital.

USG People climbed 2.45 percent as talk circulated that Adecco is casting an acquisitive eye over the Dutch staffing group but dealers said the rumour was low quality and suggested that Adecco would wait to see how the merger between Randstad and Vedior pans out before making any such move.

And shares in Atlantia were 5.29 percent higher in a flat-to-lower market after the victory of the centre-right coalition has sparked speculation merger talks with Spain's Abertis, or other motorway operators, could be revived.

In the healthcare sector, Astrazeneca shares stormed 8.58 percent higher after the group said it has signed a settlement agreement in its Nexium patent infringement litigation against Ranbaxy Laboratories Ltd. and its affiliates, with traders saying this removes one of the key overhanging issue on the stock.

Cazenove upgraded the shares to 'in-line' from 'underperform', saying the news removes a significant downside risk.

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Asian markets turn higher as resource stocks get commodity price boost

The S&P/ASX 200 closed up 1.1 percent at 5,400.4 and the All Ordinaries was up 1 percent at 5,465.9. Woodside Petroleum added 2.7 percent and Santos was up 3.7 percent as oil prices touched a fresh record above $112 a barrel.

In Tokyo, the Nikkei ended up 0.6 percent at 12,990.58 and the Topix was up 0.8 percent at 1,255.97. Non-ferrous metal smelter Sumitomo Metal Mining gained 4.6 percent to 2,025 yen, while oil refiner Nippon Oil advanced 3.5 percent to 718 yen.

The Shanghai Composite and Hang Seng reversed early losses to trade higher, boosted by news the Chinese government will offer tax rebates to oil companies on fuel imported from April to June. The benchmark Chinese index closed up 1.6 percent at 3,348.35 and the Hang Seng ended up 0.38 percent at 23,901.33.

The Kospi closed a choppy session down 0.3 percent at 1,742.17, dragged down by worry about U.S. earnings and high oil prices -- South Korea depends entirely on imports for its crude requirements.

The Philippine composite index closed down 0.5 percent at 2,904.73, while the Malaysian composite index was up 0.9 percent at 1,244.20.

The Singapore Straits Times index finished up 0.4 percent at 3,056.49. The Jakarta composite index closed up 1 percent at 2,294.26. Taiwan's weighted index also closed up 0.36 percent at 8,924.78. Earnings miss

Among individual stocks, Insurance Group Australia (IAG) ended up 8.6 percent at A$4.19 and QBE Insurance closed down 1.3 percent at A$22.90, after QBE said it had approached IAG with a A$7.4 billion share and cash offer which IAG rejected.

The offer valued IAG at A$4.02 a share, representing a 1 percent premium based on its closing price on Friday. "At the moment IAG's share price is certainly attractive as the stock has fallen from nearly A$6 since the credit crisis came to the forefront last August," said Michael Heffernan, a private client advisor at Sydney stockbroking firm Reynolds & Co.

Oil Search rose 4.6 percent to A$4.99 after announcing the sale of assets in the Middle East and North African to concentrate on commercialising its Papua New Guinea oil and gas assets.

Australian Worldwide Exploration rose 2.7 percent to A$3.44 while ARC Energy, which is in merger talks with larger AWE, fell 2.2 percent to A$1.355.

Banks were higher after the Reserve Bank of Australia board's April 1 meeting's minutes suggested that interest rates might have peaked due to signs of slowing domestic demand. RBA governor Glenn Stevens said the nation's banking sector remained in good shape despite the on-going credit crunch.

Commonwealth Bank rose 2.7 percent to A$41.58 and Westpac added 0.4 percent to A$22.55. Leading investment bank Macquarie Group jumped 5.4 percent to A$55.94 after dropping 3.1 percent on Monday.

In Hong kong, China property stocks extended yesterday's losses on talk of further curbs on the sector, with Guangzhou R&F down 5.33 percent at $HK18.46, SOHO China down 2.58 percent at $HK4.53 and China Overseas Land down 1.96 percent at $HK14.

In the oil sector, Cnooc rose 3.28 percent to $HK12.60, Petrochina was up 0.71 percent at $HK9.87 and Sinopec rose 1.33 percent at $HK6.87. In Tokyo, Nippon Steel rallied 2.8 percent to 513 yen while JFE was up 6.1 percent at 4,870 yen.

The stocks rose, even after the Nikkei newspaper said the companies are expected to post double-digit declines in consolidated pretax profit in the year to March 2009, due to high raw materials and energy prices.

The Bombay Stock Exchange's 30-share gauge, the Sensex, rose 346.02 points or 2.19 percent to close at 16,153.66 while the broader 50-share S&P CNX Nifty of the National Stock Exchange gained 2.13 percent to 4879.65 rupees.

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Oil hits new record as supply concerns, dollar weakness fuel buying

LONDON  - Oil rose to new all-time highs on both sides of the Atlantic in early trade, as supply concerns in Central America and Africa added to fresh weakness in the U.S. dollar to push prices higher. Production outages are causing particular concern in the present market amid longer-term worries over stockpile levels in major consumer countries, analysts say.

Also lending support to prices, the dollar failed to hold onto the gains it made over the weekend in the wake of the G7 summit late yesterday, allowing oil prices to rally. With the greenback losing further ground against the euro this morning, crude futures have moved higher.

"The dollar is dominating everything at the moment," said Andrey Kryuchenkov, an analyst at Sucden. Weakness in the greenback makes crude cheaper for holders of other currencies.

At 10:13 a.m., New York's West Texas Intermediate crude for May delivery was up 30 cents at $112.06 a barrel. Earlier, it hit a new record high of $112.48.

Brent crude for May delivery, which expires tomorrow, was up 37 cents at $110.21 a barrel, having earlier hit a record of $110.45. Mexico said yesterday it had closed four export terminals due to bad weather, while oil giant Shell said shipments over its 1.1 mln barrel per day Calpine pipeline in the southern U.S. had been temporarily disrupted.

Meanwhile reports also emerged of minor supply outages in Nigeria, Africa's biggest oil producer, after rebels caused a fire at the Beniboye oil plants in the Delta State of Nigeria.

Italy's Eni SpA, which operates the facility, said the sabotage resulted in a daily production loss of about 5,000 barrels. While all of these outages are in themselves relatively minor, the fact that the incidents have so closely followed one another is stoking supply fears among investors already spooked by current inventory levels.

"The physical oil market appears tight and appears highly sensitive to news of any supply interruption," said Fairfax analyst John Mayer. "Further supply issues are expected in Nigeria and other difficult areas for the industry."

With supply-side issues dominating the market, investors are largely shrugging off the gloomy outlook for demand. The U.S. economy continues to languish, with weekly demand indicators from the Dept of Energy pointing firmly to slowing consumption, analysts said.

"Egged on by the weaker dollar, it seems that oil markets are still attracting long side money despite the uninspiring macro U.S. backdrop," said MF Global analyst Ed Meir. "However, we would not count the U.S. macro variables out just yet, as they still have the potential to knock commodity markets back, especially if the slowdown intensifies and drags growth in other countries down with it."

The market still expects buying from China and the emerging Asian economies to cushion world oil demand from the impact of slowing U.S. growth. However, if, as is feared in many quarters, U.S. weakness spills over into other economies, crude prices could be pressured sharply lower.

In other news, the head of Brazil's National Petroleum Agency Haroldo Lima said that according to early information, its offshore Carioca prospect could contain as much as 33 billion barrels of oil equivalent, making it the third largest oilfield yet discovered.

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