US & World Daily Markets Financial Briefing 17-04-2008

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Stocks fluctuate following mixed corporate quarterly reports

NEW YORK - Wall Street fluctuated Thursday after a batch of mixed earnings reports made investors more cautious about buying stocks in an uncertain economy. The back-and-forth trading followed a huge rally in the previous session.

The market was jittery after the Philadelphia Federal Reserve said regional manufacturing activity has weakened further in April. The index of manufacturing activity fell to a negative 24.9 from a negative 17.4 in March. The survey found most manufacturing executives were "cautiously optimistic" about future activity.

Merrill Lynch & Co. reported a first-quarter loss of $2.14 billion, a shortfall that was wider than the average analyst estimate. The loss came after the world's largest brokerage wrote down the value of assets tied to mortgages and leveraged loans by several billion dollars. The company also said it would eliminate a total of 4,000 jobs. However, Merrill Chief Executive John Thain said during a conference call that business conditions in April appear better than in the first quarter.

Merrill's report followed a larger-than-anticipated rise in IBM Corp.'s quarterly earnings, but there were also disappointing results from Nokia Corp., the world's biggest mobile phone company, as well as drug maker Pfizer Inc. Wall Street's fluctuations came a day after stocks shot higher in response to stronger-than-expected earnings from JPMorgan Chase & Co., Coca-Cola Co. and Intel Corp.

In the first hour of trading, the Dow Jones industrial average rose 1.22, or 0.01 percent, to 12,620.49. Broader stock indicators declined. The Standard & Poor's 500 index slipped 0.07, or 0.01 percent, to 1,364.64, and the Nasdaq composite index fell 7.79, or 0.33 percent, to 2,342.32.

The quarterly reports that investors parsed on Thursday were not as auspicious. Nokia, the Helsinki-based cell phone maker, said its profit rose by a weaker-than-expected 25 percent. It also said that its global market share is down slightly. Its U.S. shares fell $4.30, or 12.7 percent, to $29.39.

Pfizer fell 74 cents, or 3.5 percent, to $20.36 following the company's report that its first-quarter profit fell 18 percent due to competition from generics and falling sales of drugs including Lipitor, Norvasc and Zyrtec. Meanwhile, Harley Davidson Inc. fell 86 cents, or 2.3 percent, to $35.93 after the motorcycle maker said its profit declined, that it was cutting hundreds of jobs and that it would ship up to 27,000 fewer motorcycles this year.

Merrill rose 83 cents to $45.72 IBM was a bright spot, boasting a higher-than-expected 26 percent jump in profits. IBM rose $2.52, or 2.1 percent, to $122.99. Government bonds rose slightly in early trading. The 10-year Treasury note's yield, which moves opposite its price, dipped to 3.70 percent from 3.71 percent late Wednesday.

In economic news, the Labor Department reported that initial weekly claims rose by 17,000 to 372,000. Gold prices rose, while the dollar was mixed against other major currencies.

Overseas, Japan's Nikkei stock average rose 1.92 percent. Britain's FTSE 100 fell 0.76 percent, Germany's DAX index fell 0.18 percent, and France's CAC-40 added 0.17 percent.

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Forex - Euro suffers minor setback after Juncker comments

LONDON - The euro suffered a minor setback after eurogroup chairman Jean-Claude Juncker warned markets against underestimating the G7's statement on currencies over the weekend. Juncker, also Luxembourg's prime minister, said markets did not correctly understand the G7 message on currencies and added the euro's rise against the dollar is undesirable. 

Despite the latest movements, the dollar has yet to be able to stage any meaningful rebound and there is an increasing air of inevitability about its continued falls. The main reason harks back to interest rates -- in the United States, rates have dropped by a total of 300 basis points since September and are expected to fall further while euro zone borrowing costs have stayed put.

The European Central Bank has to contend with rising prices, as evidenced by Wednesday's upward revision of euro zone inflation for March. BNP Paribas analysts reckon the euro's break above $1.5915 signals a push for $1.60 and then $1.6325 beyond it.

The euro set a record high of $1.5978 on Wednesday but its attempt to breach $1.60 failed. Daragh Maher at Calyon said the dollar was helped to some extent yesterday by improved corporate news but it may only take another hawkish speech from ECB council member Axel Weber to push the euro above $1.60.

Today's data calendar is light but some believe may yet provide what is needed for the euro to break the $1.60 threshold. "The notion of an ECB being on hold for longer after the latest rise in inflation which contrasts with generally weak U.S. fundamental data pushes the euro back towards $1.60 -- in line with our expectations," said Antje Praefcke at Commerzbank. She believes the $1.60 level could go if U.S. numbers disappoint.

Weekly initial claims and the Philadelphia Fed sentiment indicator are due on Thursday. The number of individuals filing first-time claims for unemployment insurance is expected to increase to 375,000 in the week to April 12, following a surprise drop to 357,000 claims in the previous week. Meanwhile, the Philadelphia Federal Reserve Bank survey of manufacturing conditions is expected to improve slightly to -15.0 in April from -17.4 in the previous month.

But even if expectations are proven correct, there is no denying that the general outlook for the United States economy remains gloomy. "Any improved releases aren't able to shift the overriding negative view of an economy either in or skirting recession," said Praefcke.

The pound, meanwhile, stayed on the back foot as market players ignored news on Wednesday the UK labour market remains tight.

"The lagged labour market data have had little impact on sterling -- for now it is leading indicators that are key," said Steve Pearson at HBOS. The euro set an all-time high of 0.8097 pounds overnight and remains close to those levels on Thursday.

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Euroshares open up on Dow, Asian advance; Roche falls on weak Q1 sales

At 8:57 a.m., the DJ STOXX 50 was up 8.68 points, to 0.28 percent, at 3151.46 and the DJ STOXX 600 was 0.97 points, or 0.31 percent, higher at 315.93.

Shares in Swiss healthcare giant Roche fell 2. 52 percent after it reported lower than forecast first-quarter sales, down 4 percent to 10.9 billion Swiss francs, with a decline in Tamiflu sales and negative currency impacts seen weighing on results.

"Roche only reiterated its guidance for 2008, saying it expects sales to grow by less than 10 percent, excluding Tamiflu," said one Zurich based trader. "A lot of people were looking for sales growth above 10 percent."

France Telecom fell another 2.54 percent after it confirmed it is considering a takeover bid for Nordic operator TeliaSonera. But the group is in "no hurry", Gervais Pellisier, France Telecom's finance director, told the Financial Times on Wednesday.

Elsewhere in the sector, Telefonica fell 1.16 percent as Lehman Brothers downgraded the Spanish group to 'underweight' and Swisscom was 0.8 percent lower after it was downgraded to 'equal-weight'.

The former French monopoly is also looking at other possible targets, including Norway's Telenor, in an attempt to expand into emerging markets and increase its mobile internet services, the report said. But Financials were mostly higher after better than expected numbers from JP Morgan and on the recovery in global markets.

Societe Generale led the DJ STOXX 50 leader board, up 3.23 percent, after Goldman Sachs upgraded the French banking group to 'buy' from 'neutral'. Banco Monte dei Paschi di Siena and Allied Irish Banks were also upgraded to 'buy'.

Danske Bank, up 2.19 percent, was added to the broker's 'Conviction Buy List.' Banks it cut were UBI, down 0.18 percent, Banco de Sabadell and Banco Popular Espanol, down 0.71 percent, to 'sell' from 'neutral', and it lowered Banco Popolare di Milano, down 1.23 percent, to 'sell' from 'buy'.

And Lehman Brothers has started KBC, up 0.73 percent, as 'overweight' with a target of 115 euros. Nokia added another 1.62 percent ahead of its first quarter numbers later.

The Finnish group's exposure to buoyant emerging markets is seen helping it shrug off a consumer spending slowdown in Europe, industry analysts said ahead of first-quarter results from the world's top mobile device maker.

Analysts polled by Thomson First Call on Friday expect Nokia on April 17 to report a 42 percent year-on-year jump in pre-exceptional January-March earnings per share to 0.37 euro. On the second line, Zodiac slumped 3.86 percent as the French aerospace equipment supplier reported a disappointing set of interim results. But Remy Cointreau climbed 7.27 percent after the group reported better than expected numbers.

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Asian stocks rise on Wall Street rally, higher commodity prices

Tokyo's Nikkei index closed 1.9 percent higher at 13,398.30, while the broader Topix was up 1.7 percent at 1,293.32.

Hong Kong's Hang Seng closed up 1.6 percent at 24,258.96 with gains capped by concerns that China's monetary policy will remain tight as the country's inflation hovered near 12-year highs, while the economy continued to expand at a double-digit pace despite the government's efforts to curb growth.

The Shanghai Composite fell 2.09 percent to 3,222.74. The Australian market gained, with the resources sector leading the advance following gains in prices of commodities. In Seoul, the KOSPI rose 0.6 percent to 1,768.67, with last-minute profit-taking trimming gains. Taiwan's weighted index closed up 0.27 percent at 9,090.43,

The People's Bank of China, the nation's central bank, on Wednesday ordered lenders to raise the amount they set aside as deposit reserves to a record 16 percent from 15.5 percent. The higher reserve ratio will take effect on April 25. Analysts said the government is likely to impose more lending controls in the coming months to combat inflation. It was the third time this year that China has raised the reserve requirement. Last year, the reserves were increased 10 times.

"Raising the reserve requirement has become an important tool to absorb liquidity to sterilise the foreign exchange market intervention," said Tomo Kinoshita, an economist for Nomura International, in a note. "As we expect to see a continuous build-up of foreign exchange reserves, we expect the PBOC to raise the required level of reserves a few more times throughout the rest of 2008."

"Given the strength of domestic demand, we think the monetary tightening policy will be maintained for the next few months," Kinoshita said.

Annual consumer inflation in China was 8.3 percent in March, compared with 8.7 percent in February -- the highest since May 1996. While inflation slowed a bit, it was still more than what economists had forecast and it "increases the likelihood Beijing would continue to raise interest rates and tighten lending," said Citigroup analyst Tony Tsang.

The world's fourth-largest economy grew at a faster-than-expected 10.6 percent in the first quarter, compared to 11.2 percent in the fourth quarter of 2007, government data showed on Wednesday. "The problem in China is not growth, it's inflation, and the measures that the authorities may implement to bring it down," said Andrew Clarke of SG Securities. Resources rally

In Sydney, the S&P/ASX 200 closed up 0.9 percent at 5,519.0 while the broader All Ordinaries index rose 1.0 percent to 5,587.3. Gains were led by takeover target Rio Tinto on rumours that the world's largest diversified resources group, BHP Billiton, will raise its bid for the world's third-largest miner.

Rio Tinto, which still has copper as its leading income producer, was up 3.8 percent at A$146.00, while BHP Billiton was up 1.4 percent at A$43.39. Gold play Newcrest Mining gained 3.2 percent to A$34.44 and Lihir Gold added 1.8 percent to A$3.41.

Singapore's Straits Times Index ended 1.3 percent higher at 3,126.30, with the record oil price lifting rig builders. The Jakarta Composite closed up 0.7 percent at 2,353.62. The Kuala Lumpur Composite Index ended up 0.2 percent at 1,256.54, extending gains into a third session. The Philippine Composite added 0.6 percent at 2,940.48. 

The benchmark 30-share Sensex of the Bombay Stock Exchange (BSE) rose 237.01 points or 1.46 percent to end the day at 16,481.20, up 4.26 percent this week and off 22.28 percent from its record high of 21,206.77 points touched on Jan 10.

The National Stock Exchange's (NSE) 50-share S&P CNX Nifty gained 71.10 points or 1.45 percent to 4,958.40. The markets will be closed on Friday on account of a public holiday.

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Oil strikes record $115.54 on dollar slump, tight US crude stocks, fund money

LONDON - Oil hit a record $115.45 per barrel as the dollar eyed an all-time low against the euro and as US crude stocks fell unexpectedly last week.

Meanwhile, fund money rushed back into commodities today, seen by higher precious metals and industrial metals prices, with copper at a record too, spurred by dollar weakness. The ailing US currency is boosting the appeal of dollar-priced commodities across the board.

"It is quite clear that investors are not prepared to liquidate oil futures at the moment, with strong fund and speculator interest as they seek better returns in commodities."

New York's main WTI benchmark surpassed a record on Wednesday, with buying picking up further as traders fear supply shortages after the United States -- the world's top energy consumer -- said its crude stocks fell last week, surprising analysts who had expected a rise.

"Energy prices are strong as another tumble in the dollar and an unexpected draw in crude oil stocks for last week was the catalyst for yesterday's moon-shot in the WTI pit," said Stephen Schork, president of The Schork Report.

At 11.37 a.m., New York's West Texas Intermediate crude for May delivery was up 15 cents at $115.08 per barrel. Brent crude for June delivery was up 23 cents at $112.89 per barrel, having hit a record $113.38 earlier this morning.

On Wednesday, the U.S. Energy Information said U.S. crude oil inventories fell by 2.3 million barrels in the week to April 11, confounding expectations for a 1.8 million barrel rise. U.S. crude stocks, now at 313.7 million barrels, are in the lower half of the average range for this time of year.

"A second week of severe import compression has kept crude inventories under control despite the current low-level of refinery runs, resulting in significant reductions in the overhang of oil products, most particularly gasoline (which is) down by 5.5 million barrels over the past week," said Barclays Capital analysts.

Oil prices have more than doubled since the beginning of this year on a combination of dollar weakness, supply fears, OPEC's reluctance to boost output and as the credit crunch has seen investment money into commodities as a safe haven in times of turmoil.

Looking ahead, most commodity markets are expected to track the dollar in the short-term and equity markets which are being used as a sign for where demand is headed.

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