US & World Daily Markets Financial Briefing 15-05-2008

Stocks turn higher after jobless claims report

NEW YORK - Wall Street turned modestly higher Thursday as investors struggled to discern a direction for the economy after reports showing a modest increase in jobless claims and weakness in the manufacturing sector.

The data pointed to an economy that is hurting, but not experiencing as rough a time as many investors expected after the near-collapse of the mortgage market.

The Labor Department said the number of laid off-workers applying for jobless benefits rose last week by 6,000 to 371,000 -- near the average analyst forecast, and suggesting that the labor market remains weak but in check.

Another better-than-expected report came from the Philadelphia Federal Reserve, which said regional manufacturing activity is contracting in May more slowly than in April, and more slowly than analysts expected.

However, the Federal Reserve dealt the market a blow when it said industrial output sank for the second straight month in April. The decline of 0.7 percent, driven by big cutbacks in the automotive and other manufacturing industries, was more than double the drop analysts predicted.

The Dow Jones industrial average rose 18.23, or 0.14 percent, to 12,916.61. Broader stock indicators were mixed. The Standard & Poor's 500 index rose 3.06, or 0.22 percent, to 1,411.72, and the Nasdaq composite index rose 9.20, or 0.37 percent, to 2,905.90.

Investors also listened to a speech by Federal Reserve Chairman Ben Bernanke in Chicago. Bernanke said he is "encouraged" by recent efforts by banks to raise cash -- a trend that is helping to relieve the credit crisis.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.89 percent from 3.92 percent late Wednesday.

In recent weeks, investors have been growing more optimistic recently that the economy may not be as weak as many feared, and that inflation, despite the soaring price of oil, is not out of control. But a major concern for the market is whether higher food and energy costs are hampering Americans' ability to spend.

In morning trading on the New York Mercantile Exchange, crude prices surpassed $125 a barrel, climbing back toward record levels.

And meanwhile, J.C. Penney said a pullback in consumer spending cut its first-quarter profit in half, and predicted "difficult" conditions for the entire year. But Penney rose 65 cents cents to $44.90.

In addition to economic data, investors waded through some deal-making news Thursday.

CBS Corp. agreed to buy online technology news and entertainment company CNet Networks Inc. for about $1.75 billion. The owner of the CBS television network and TV stations said the deal will boost its online presence and allow it to tap the growing market for online advertising. CBS fell 97 cents, or 4.2 percent, to $23.85, while CNet rose $3.47, or 44 percent, to $11.42.

General Electric Co. plans to auction off its Louisville, Ky.-based appliances business, according to The Wall Street Journal. GE has hired Goldman Sachs Group Inc. to run an auction for the appliance division, according to the newspaper, which quoted unidentified sources. The sale is seen yielding between $5 billion and $8 billion. GE slid 13 cents to $32.38.

IAC/InterActiveCorp's Ask.com has bought a stable of Internet reference sites that includes Dictionary.com in its latest effort to distinguish itself from online search leader Google Inc. and other much larger rivals. IAC/InterActiveCorp fell 22 cents to $23.51.

The Russell 2000 index of smaller companies rose 0.70, or 0.10 percent, to 736.77. Advancing issues had a modest lead over decliners on the New York Stock Exchange, where volume came to 193 million shares.

In afternoon trading, Britain's FTSE 100 rose 0.38 percent, Germany's DAX index fell 0.33 percent, and France's CAC-40 fell 0.26 percent.

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Euro steady after euro zone data

LONDON - The euro remained steady, but just off earlier highs, against the U.S. dollar after inflation in the 15-nation single currency zone came in as expected and growth was in line with the more optimistic forecasts garnered by strong German economic news.

Early in the morning, the euro surged nearly a cent against the U.S. dollar after official figures showed that Germany, the single currency zone's largest economy, grew by a staggering 1.5 percent in the first three months of the year, more than double the 0.7 percent expected, primarily because the warm weather helped boost construction output.

The German news ratcheted up market expectations about euro zone growth figures expected later from the 0.5 percent mark to around 0.7 percent.

When euro zone growth came in at 0.7 percent and CPI inflation for the year to April was confirmed at 3.3 percent, traders took the opportunity to book some profits, even though the data cemented market expectations that the European Central Bank will be in no hurry to cut its key refi rate from the current 4.00 percent soon.

"The latest activity data will provide ammunition for the hawks on the ECB's governing council," said Jennifer McKeown, European economist at Capital Economics. "And with inflation at a high rate, interest rate cuts are probably some months away," she added.

The main focus Thursday will be on testimony from ECB president Jean-Claude Trichet followed by fellow rate-setter Yves Mersch.

The state of the U.S. economy will swing into focus later in the session, with the Empire State and Philly Fed manufacturing surveys due, alongside industrial production data.

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Euroshares turn slightly higher midday, US futures up, Vivendi, BT rally

Europe's leading exchanges turned slightly higher in midday trading as U.S. futures point to a flat open on Wall Street and with investors mulling over a mixed set of earnings results.

At 11:37 a.m., the DJ STOXX 50 was up 3.48 points or 0.11 percent to 3,261.38, while the STOXX 600 added 0.38 points, or 0.12 percent, to 327.58.

In Europe, markets moved just above the flat line in midday trading with earnings news remaining in the spotlight.

"The euro zone GDP figures were better-than-expected and there were one or two good earnings results, for example from BT and Vivendi," strategist Bernard McAlinden at NCB Stockbrokers said.

Vivendi has been one of the day's strongest performers, up 5.5 percent, after the French media and telecoms group unveiled a better-than-expected first-quarter earnings report Wednesday evening.

In a note to clients, Deutsche Bank said all divisions were either in line or outperformed. The broker reiterated its 'buy' stance and 34 euros target on the stock, which leaves some 36 percent upside to current share price levels.

Telecoms peer BT Group rose 3.4 percent after it too exceeded expectations with its fourth-quarter and full-year numbers, with both Nomura and Collins Stewart reiterating their 'buy' cases.

Turning to the financial sector, Natixis shares stormed 14.12 percent higher as investors cheered the group's much smaller hit from the credit crisis and a better-than-hoped-for performance in its Asset Management business, which offset a weaker-than-forecast performance in its Corporate and Investment Banking (CIB) unit.

In Switzerland, insurer Zurich Financial Services gained 3.7 percent  after it released a consensus-beating set of first-quarter numbers and confirmed its annual savings targets.

Among the sector's casualties, KBC fell 5.7 percent as the Belgian banking group reported weaker-than-expected numbers and cancelled its share buyback programme.

And Barclays shed 2.9 percent after the group failed to rule out a rights issue and as leading broker Cazenove said it will likely cut its forecast by three percent.

Other notable movers include TF1, which lost 7.7 percent after it cut its sales guidance, and Heijmans, which fell 16.24 percent following a profit warning.

In other news, Infineon was up 0.7 percent on the back of a report in Handelsblatt, which said Russian holding company Sistema is interested in acquiring a stake in the German chipmaker.

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Asian stocks gain on Wall Street rally as inflation worries ease

HONG KONG -  Asian stocks ended mostly higher Thursday, tracking gains on Wall Street overnight after U.S. consumer prices rose less than forecast and oil prices eased, soothing worries about inflation. Shanghai and Hong Kong faltered as investors continued to assess the damage from the earthquake that struck Sichuan in western China earlier this week.

The Nikkei finished up 0.9 percent to 14,251.74 while the broader Topix rose 1.4 percent to 1,392.87.

In Seoul, the Kospi closed up 2.3 percent at 1,885.71, a five-month high as a weaker won boosted exporters.

Samsung Electronics closed up 3.5 percent at an all-time high of 764,000 won, as investors cheered the company's new management lineup following the resignation of its scandal-tainted chairman Lee Kun-Hee.

The electronics giant, flagship of South Korea's biggest conglomerate Samsung, appointed Lee Yoon-woo to replace Yun Jong-yong as vice chairman and chief executive officer on Wednesday. Lee previously headed the company's external relations team.

LG Electronics finished up 5.8 percent at 164,000 won after setting a record of 164,500 won earlier.

The Australian benchmarks managed more modest gains, checked by BHP Billiton's pullback from record levels. The S&P/ASX 200 ended up 0.3 percent at 5,890.7 while the All Ordinaries index gained 0.4 percent to 5,964.9.

BHP ended down 1.2 percent at A$47.98, a day after it struck a record A$48.90 on talk that China's state-owned aluminium group Chinalco was planning a raid on the stock. There was no sign of a Chinalco move Thursday, leading to speculation that hedge funds were behind the previous day's move.

Meanwhile, Rio Tinto ended up 0.9 percent at a record A$152.48 on expectations that BHP Billiton will at some point sweeten its hostile all-paper offer for the world's third-largest miner by adding a cash component.

"The market has performed quite well over the last week or so on merger and acquisition activity but at this stage there's probably limited upside heading into the weekend," said Dominic Vaughan, a senior dealer at CMC Markets.

The Kuala Lumpur Composite closed up 0.4 percent at 1,294.15 and the Singapore Straits Times gained 0.3 percent to 3,207.43.

The Philippines Composite closed up 0.6 percent at 2,878.26. The Taiwanese Taiex ended up 1.5 percent to 9,157.18.

But Hang Seng index closed down 0.1 percent at 25,513.71 as investors locked in gains. The Shanghai Composite dipped 0.6 percent to close at 3,637.32.

Indian shares edged higher, a sustained rally on the back of positive broad global market cues, a depreciating rupee and weakening oil prices.
   
The Bombay Stock Exchange's 30-share benchmark Sensex closed 375.19 points or 2.21 percent higher at 17,353.54 and the National Stock Exchange's 50-share S&P CNX Nifty closed up 103.50 points or 2.07 pct at 5,115.25.

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Base metals rise as dollar weakens but demand concerns persist

LONDON - Base metals were higher midday, in line with other commodities such as gold and oil, as the market took support from a weaker dollar. Zinc was the only exception, easing a touch as traders took profits after the metal's rise earlier this week.

The greenback softened this morning against the euro as the single currency benefited from stronger-than-expected GDP growth in Europe's largest economy, Germany. Weakness in the U.S currency makes dollar-priced commodities such as the metals cheaper for holders of other currencies.

However, buying from China, the world's biggest market for most of the industrial metals, remains subdued, with users waiting for further price falls, analysts said.

"We are swinging back towards the upside, but trading lacks conviction, with prices hemmed in within narrow trading bands in most of the metals," said MF Global analyst Ed Meir. "A weaker dollar is supporting the complex, but a distinct lack of buying out of China, especially on the copper side, is keeping the upside potential in check," he added.

At 12:50 p.m., London Metal Exchange copper for three-month delivery was trading at $8,219 per tonne against $8,130 per tonne at the close on Wednesday.

Meanwhile zinc prices eased on profit-taking after the metal's rise earlier this week after Monday's devastating earthquake in southwest China.

The grey metal climbed 7 percent in the first two days of this week amid fears supply of refined zinc could be disrupted by the quake. With little fresh news out of the region to fuel earlier worries over output, prices have eased. Zinc slipped to $2,280 per tonne against $2,285.

Among other metals traded on the LME, lead rose to $2,270 per tonne, against $2,265 per tonne at the close Wednesday, while tin rose to $25,450, against $25,155.

Aluminium was higher at $2,992 per tonne, against $2,941, and nickel climbed to $26,600 from $26,550.

But while the majority of metals have managed to edge higher this morning as they consolidate after recent losses, the market could still be set for a fresh move lower, analysts said.

"We are loathe to be long base metals in general at the moment as prices are elevated by speculative length and the prospects of ongoing production disruption," said UBS analyst John Reade. "Consumer demand is soft, based on our conversations with the trade."

Gold rose midafternoon, buoyed by a sharp rise in oil prices that fuelled buying of the precious metal as a hedge against inflation.

The precious metal had already moved higher in earlier trade after the U.S. dollar weakened overnight against the euro. The currency bounced back early afternoon but was knocked lower once again by softer-than-expected U.S. data.

Weakness in the greenback boosts gold's appeal as an alternative investment. At 2:35 p.m., spot gold was trading at $880.85 per oz against $866.50 in late New York trade on Wednesday.

Among other precious metals, platinum hit choppy waters, falling to below $2,000 per oz on profit taking before rallying in later trade in line with gold. The white metal rose to $2,069 per oz from $2,031, having earlier touched a low of $1,988, while sister metal palladium was trading at $431 per oz against $432.

Silver was higher, in line with gold, at $16.85 per ounce against $16.57.

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